Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
Speaker 1: with my co host of Bonnie Quinn. Every business day
Speaker 1: we bring you interviews from CEO, market pros and Bloomberg experts,
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
Speaker 1: and on Bloomberg dot com. Well, it is election day
Speaker 1: and investors have their various scenarios for how this could
Speaker 1: play out and how different outcomes could impact the markets.
Speaker 1: We're going to speak with Christina Hooper, chief Global market
Speaker 1: strategists for Investco. They have over one trillion dollars in
Speaker 1: assets under management, so they're in all of the markets. Christina,
Speaker 1: thanks so much for joining us. Again, we always appreciate
Speaker 1: having you on here. What kind of what's your base
Speaker 1: case scenario for when we wake up tomorrow morning? How
Speaker 1: are you thinking that this might play out? Well, I
Speaker 1: have to say, and Paul, it's great to be with you.
Speaker 1: Thank you for having me. I have to say that
Speaker 1: market strategists learn along early in their careers never to
Speaker 1: prognosticate about elections, So I have no base case scenario
Speaker 1: in terms of the election outcome. All I have is
Speaker 1: is if this happens, then we expect this to happen.
Speaker 1: And so if we were to see a Biden sweep,
Speaker 1: we would expect to see UH some probably the largest
Speaker 1: fiscal stimulus package of any potential scenario. Um. But we
Speaker 1: would also expect to see more controls on the spread
Speaker 1: of the virus UH. So we would expect more of
Speaker 1: the cyclical parts of the market to perform well. If
Speaker 1: we were to see a Trump UH win, we would
Speaker 1: assume he would keep the Senate as well, um, and
Speaker 1: we would expect some kind of a relief rally for
Speaker 1: the negative assets associated with Joe Biden. So, for example,
Speaker 1: traditional energy would be one that would probably come under
Speaker 1: pressure if Biden were to win. And then, of course,
Speaker 1: if there is a contested result of some kind, we
Speaker 1: would expect gold and treasuries to perform well, and perhaps
Speaker 1: the Japanese Yet so UM, not prognosticating on the election,
Speaker 1: just have our scenarios laid out for what happens in
Speaker 1: the case of a particular election outcome. I just want
Speaker 1: to point out a headline that costed the Bloomberg. In
Speaker 1: the last few minutes, the US early voting topped one
Speaker 1: hundred million ballots according to the latest data from the
Speaker 1: Elections Project, So that's pretty phenomenal, the first time ever
Speaker 1: that a hundred million ballots have happened early Christina. Is
Speaker 1: there consensus? So there may not be consensus on what
Speaker 1: percentage you know, chances this outcome happens, or what presented
Speaker 1: chance this outcome happens, but is there a consensus on
Speaker 1: how the markets will react in any given scenario. Well,
Speaker 1: I think there's a content consensus that in a contested election,
Speaker 1: that would be a worst case scenario for markets. As
Speaker 1: we know, markets don't like any form of uncertainty, and
Speaker 1: that of course includes and is especially the case in
Speaker 1: presidential elections. So that would be an environment where we'd
Speaker 1: likely see a stock market sell off. In fact, we
Speaker 1: could go back to two thousand sixteen and get a
Speaker 1: little taste of what we might see in with a
Speaker 1: contest election, because recall that night, the conventional wisdom was
Speaker 1: that markets were surprised and disappointed with a Trump win
Speaker 1: um and that's why stock sold off. I would argue
Speaker 1: that in fact what happened was that markets were nervous
Speaker 1: because Hillary Clinton didn't concede on the night of the election.
Speaker 1: She didn't actually give her concessions speech until the next morning,
Speaker 1: so we got a taste of that fear of a
Speaker 1: contested election, and we saw stocks sell off. So that's
Speaker 1: I think what is most likely if we see a
Speaker 1: contested election this time around. You know, there's still so
Speaker 1: much uncertainty I guess around this election at this stage.
Speaker 1: Are you surprised that we're seeing the stock market behave
Speaker 1: the way it is today? Up two and I am surprised,
Speaker 1: And that sets to me that the stock market stock
Speaker 1: market is expecting a decisive victory. Um, it might be disappointed,
Speaker 1: but that's certainly the way it's behaving right now, and
Speaker 1: I'm shocked that there doesn't seem to be a lot
Speaker 1: of hesitation with that. But sometimes the stock market knows better. Christina,
Speaker 1: how long do you wait before you put on a
Speaker 1: trade in the event the outcome is clear? So in
Speaker 1: the event that we know what's going to happen in January,
Speaker 1: do you put one on immediately? Do you do wait
Speaker 1: until January? Well, I had to give the caveat that.
Speaker 1: We always encourage long term investing mindset because most investors
Speaker 1: had a long time horizon, But the reality is that
Speaker 1: if we go back in history, what we often see
Speaker 1: is moved made in advance of an administration coming into office. UM.
Speaker 1: It's really funny, but a lot of the things you
Speaker 1: would expect to see when a president is in office
Speaker 1: doesn't happen. It's anticipated, and there are moves made before
Speaker 1: they come in UM. But in fact the result is
Speaker 1: quite different. And I'll give you a perfect example. There
Speaker 1: was so much nervousness and apprehension around healthcare stocks before
Speaker 1: UH the Obama administration came into office, and in fact
Speaker 1: what we saw was that healthcare was one of the
Speaker 1: top three performing sectors for several years during UH President
Speaker 1: Obama's time in office. Similarly, there was a lot of
Speaker 1: excitement about energy in advance of President Trump coming into office.
Speaker 1: There were a lot of policies that he was promoting
Speaker 1: that would be supportive of of traditional energy, of fossil fuels,
Speaker 1: and in fact, energy over the last several years has
Speaker 1: been the worst performing sector in the SMP five. So
Speaker 1: quite often those moves we see are made in advance.
Speaker 1: It's akin to um, buy on the rumor sell on
Speaker 1: the news. Remind us why healthcare didn't perform so well
Speaker 1: was that the market didn't anticipate that the President would
Speaker 1: be able to get the Affordable Care Act through, or
Speaker 1: that the Affordable Care Act would be bad somehow for
Speaker 1: healthcare stocks. It was concerned that the Affordable Care Act
Speaker 1: would be bad for a lot of healthcare stocks, and
Speaker 1: that's why we saw a lot of even as it
Speaker 1: expanded the base of customers it did. Um, there were
Speaker 1: particular concerns about specific industries, and we could very well
Speaker 1: see that again. And there are concerns today about what
Speaker 1: might happen to pharmaceuticals uh in a in a Biden administration,
Speaker 1: so we might very well see something akin to that
Speaker 1: now as well. Um. But again I have to say
Speaker 1: that quite often these traits are relatively short lived, and
Speaker 1: when a president actually does take office, we can see
Speaker 1: a very different sector performance than we would have expected
Speaker 1: in what would seem intuitive. Such a great reminder, because
Speaker 1: it can be hard sometimes remember exactly what happened four
Speaker 1: years ago, and and and before that and after that.
Speaker 1: Christina Hooper is investcos Chief Global Market Strategists, reminding us
Speaker 1: there that all sorts of sectors have potential moves ahead
Speaker 1: of them. Time now to welcome somebody who knows a
Speaker 1: lot about elections, politics, and this landscape in particular. Wendy
Speaker 1: Schiller joins us. She of Brown University, of course, and
Speaker 1: a friend to the program and to the station, really
Speaker 1: chair of political science again at Brown University. Wendy, what
Speaker 1: is your base case now, Hi, you just get right
Speaker 1: to it. I think here's what I mean. I I
Speaker 1: think we'll we'll know from some congressional races. I think,
Speaker 1: signaling earlier than even the presidential races. We know that
Speaker 1: there's a lot of people who are elected in what
Speaker 1: we call competitive swing districts, like Virginia, for example. We
Speaker 1: have Illinois. We have a couple of races in Texas
Speaker 1: that look really tight and are surprisingly competitive. We have
Speaker 1: a couple of Minnesota. You know, if things start to
Speaker 1: swing in congressional districts sooner for the Democrats, then you
Speaker 1: start to think, okay, maybe Biden will have a very
Speaker 1: good night. But you know, we'll know about Florida, We'll
Speaker 1: know about North Carolina, we'll know about Arizona, and we'll
Speaker 1: know about Georgia probably but before midnight tonight and all
Speaker 1: of those swing for Trump. If Trump looks really healthy
Speaker 1: in those states and looks like he could win, then
Speaker 1: I think things get very very dicey for Biden. So
Speaker 1: that's a big sort of romina. And Biden only has
Speaker 1: to win one of those states, you know, one of
Speaker 1: those four states, or look like he's in the lead,
Speaker 1: in a considerable lead in one of those states for
Speaker 1: him to sort of have a more relaxed night. But
Speaker 1: if he if Trump wins all of them or looks
Speaker 1: like he's going to win all of them, I think
Speaker 1: that that tells us that this sort of blue wave
Speaker 1: we thought might emerge isn't going to emerge the same way. So, Professor,
Speaker 1: how do you think the Senate will shake out? Is
Speaker 1: there in fact, you know, the markets are kind of
Speaker 1: suggesting here today that a blue wave may in fact,
Speaker 1: uh be in the cards. How do you think that
Speaker 1: might go in the Senate? That that that's a great question, Paul,
Speaker 1: because you think about the Senate and you think, you know,
Speaker 1: Mitch McConnell is totally immune this time. You would have
Speaker 1: thought if there's a big blue wave, you know, the
Speaker 1: guy has really been the poster boy for the campaign
Speaker 1: against the Republicans controlling the Senate in Mitch McConnell, and
Speaker 1: he's gonna probably breathe to re election. So I'm a
Speaker 1: little suspicious of that big blue way for the Senate.
Speaker 1: Iowa looks neck and neck. You know, we had a
Speaker 1: recent poll that's very credible that looks like Johnny Earnest
Speaker 1: can pull it out and stay. You know, if cal
Speaker 1: Cunningham can win in North Carolina, that suggests probably that
Speaker 1: the Democrats might get to fifty one if they can
Speaker 1: win Maine as well. They're probably gonna win Arizona, probably
Speaker 1: gonna win Colorado and lose Alabama. So they're looking at
Speaker 1: probably minimally of fifty forty nine Republican or a fifty
Speaker 1: fifty fifty nine Democrat. So I think that's where this's
Speaker 1: you know, we don't know, and I think that's where
Speaker 1: North Carolina becomes so important, even even if we don't
Speaker 1: know Biden Trump. You know, if cal Cunningham looks like
Speaker 1: he's really gonna win that race, that suggests better things
Speaker 1: for the Democrats across the board for the Senate. Say
Speaker 1: some of that again, When do you say Arizona is
Speaker 1: definitely going to go Democrats? In Texas? What do you
Speaker 1: say about Texas? Oh? No, no, So I think Arizona
Speaker 1: from Mark Kelly, I think he's been polling very consistently
Speaker 1: ahead of Martha mc sally. But you can imagine let's
Speaker 1: say people voting for Mark Kelly, a former AST or
Speaker 1: not UM, you know, and not voting for Joe Biden,
Speaker 1: you know, voting for Kelly because they want him over
Speaker 1: Martha McSally, and then voting for Trump in Arizona. So
Speaker 1: you can see the Democrats winning the Senate in Arizona
Speaker 1: but not winning the presidential race. UM. And Texas is
Speaker 1: you know, shocking, right, The turnout in Texas has been
Speaker 1: absolutely shocking, and but it looks like John Cornyn's comfortably
Speaker 1: ahead of Edguard that the challenger there. But I think
Speaker 1: that the issue is that Trump is only basically one
Speaker 1: point ahead in Texas, which is just you know, if
Speaker 1: you think about politics, just stunning. Same with Georgia, and
Speaker 1: Georgia will be interesting because the dude does not get
Speaker 1: or more against as off. Then you've got to runoff
Speaker 1: elections in Georgia in January, and I think that's really
Speaker 1: going to be some interesting voting dynamics. So it's possible
Speaker 1: the Senate Democrats could ultimately end up with a fifty
Speaker 1: one or fifty two majority. But I still think it's
Speaker 1: a bit of a lung shop. So, Professor, if the
Speaker 1: presidential election becomes contested, what is you're kind of base
Speaker 1: case for how it may play out. I think we
Speaker 1: could be faced with an unprecedented historic situation. I think,
Speaker 1: you know, if we have a tie, For example, if
Speaker 1: in the electoral College in December it's actually a tie,
Speaker 1: it goes to the newly elected House, which is expected
Speaker 1: to be more democratic. However, the Republicans still control more
Speaker 1: votes in state delegations than the Democrats, and that probably
Speaker 1: isn't going to change. So you could conceivably have literally
Speaker 1: the House electing or re electing President Trump. But in
Speaker 1: the Senate, if it's nine with the new Senate and
Speaker 1: it's new Democrats, then they may elect Kalma Harris as
Speaker 1: vice president. I mean, it's really quite I mean it's stunning.
Speaker 1: It's a really stunning thing. So I think so many
Speaker 1: things have changed already in whether Trump gets re elected
Speaker 1: or not, as obviously monumental, but even if he gets
Speaker 1: re elected, I think the Democrats have shown they know
Speaker 1: how to mobilize voters, and I think they've shown that
Speaker 1: some of these states have changed a lot in terms
Speaker 1: of demographics, and they are going to be more competitive
Speaker 1: moving forward, which changes the nature of politics going too,
Speaker 1: because we know that politicians look at the next election
Speaker 1: the minute the selection is over, and so when we
Speaker 1: start to think about what the balance of power might
Speaker 1: be in the Senate in the House in two these
Speaker 1: games the Democrats appear to be making among voters in
Speaker 1: these states changes a lot of the dynamics, which will
Speaker 1: probably change some of the policies coming out of Congress. Yeah.
Speaker 1: I mean it's really the African American vote, right, Wendy.
Speaker 1: And how much more of that we'll see. We're already seeing,
Speaker 1: you know, a lot more engagement. Yeah, So, I think
Speaker 1: African American voter has always been key. You know, North
Speaker 1: Carolina and Georgia had about sixty African American turnout in
Speaker 1: it wasn't enough because those numbers were not hit in
Speaker 1: in Wisconsin, Michigan, and Pennsylvania among African American voters, and
Speaker 1: they and you know, they may or may not get there.
Speaker 1: If they get there, I think Biden wins relatively easily.
Speaker 1: But what's interesting is suburban white women of all educational
Speaker 1: levels seem to be really vehemently at the moment against
Speaker 1: Trump and the polls, and it could be that instead
Speaker 1: of the back vote really being key in the Midwest,
Speaker 1: it ends up being white women, which would be really
Speaker 1: an interesting shift. You know, a mirror eighteen when white
Speaker 1: the majority of white women voted for Democratic candidates. But
Speaker 1: it would change the nature of the Democratic coalition if
Speaker 1: that were the deciding factor. So that's what I'm looking for.
Speaker 1: I'm looking for a turnout, particularly in particular counties in
Speaker 1: Michigan where we still have a lot of people are
Speaker 1: going to vote in person, and certainly in Pennsylvania. Wendy
Speaker 1: were really out of time. But I am desperate to
Speaker 1: ask you, given the amount of of of judges at
Speaker 1: the state level made us be level and and and
Speaker 1: obviously federal level that the president has overseen get on
Speaker 1: the court, does that give him an advantage in any
Speaker 1: court cases? It may, although you saw in Texas the
Speaker 1: Texas State Supreme Court refused to throw out a hundred
Speaker 1: seven thousands in ballots and Harris County Democratic County and
Speaker 1: George W. Bush judge just yesterday a federal judge, a
Speaker 1: court judge also refused to throw those ballots out. So
Speaker 1: I don't know that you're going to see the kind
Speaker 1: of rulings that Trump expects to sort of throw out
Speaker 1: hundreds of thousands of ballots that were cast, presumably for Democrats. Wendy,
Speaker 1: thank you so much for joining us. We appreciate we
Speaker 1: know you're busy today on this election day. Wendy Schiller,
Speaker 1: chair of the Political Science department at Brown University, located
Speaker 1: in Providence, Rhode Island, really appreciate you coming on. And Vanni,
Speaker 1: It's gonna be a fascinating day of fascinating evening and
Speaker 1: I wonder what we're gonna be talking about tomorrow, but
Speaker 1: we will see. Well, it is a decidedly risk on
Speaker 1: day today. As Greg Jarrod was just reporting equity markets
Speaker 1: up over two bonds selling off here, let's get a
Speaker 1: sense of, you know what this means in the bigger picture.
Speaker 1: We could do that with our good friend Nick Holas,
Speaker 1: co founder Data Trek Research. Nick, thanks so much for
Speaker 1: joining us here. We had a big sell off in
Speaker 1: the equity markets last week. This week kind of a
Speaker 1: turnaround here in a big move today. What are you
Speaker 1: reading into it? If anything? You know? I think the
Speaker 1: thing we can take away from today and yesterday as well,
Speaker 1: is that the market is looking forward to having the
Speaker 1: election behind us and to focus on fundamentals, which during
Speaker 1: this earning season have been remarkably good, where it really
Speaker 1: record or near record levels for earnings beats and earnings amounts,
Speaker 1: and the profits are coming through. But everybody's a little
Speaker 1: bit cautious about what comes next, and so estimates aren't rising.
Speaker 1: But the baseline that we're having right now in terms
Speaker 1: of earnings is excellent. That said, if the pandemic continues
Speaker 1: to ravage the nation as it is now and we
Speaker 1: don't get widespread vaccine, you know, delivery, let's say until
Speaker 1: sometime next year, can results continue to impress. Yeah, it's
Speaker 1: it's an excellent question. And unfortunately we have to go
Speaker 1: back to the political sphere to answer some of that
Speaker 1: because the missing link in terms of earnings for the
Speaker 1: next couple of quarters is going to be fiscal stimulus.
Speaker 1: Monetary stimulus is less an important factor because it's already
Speaker 1: so accommodated. We really have to focus on whether or
Speaker 1: now we get a another CARES Act, and that is
Speaker 1: in the per view of the belt Away, and I
Speaker 1: think we have to really worry a bit about repeating
Speaker 1: say two thousands and eights, where we had an election outcome,
Speaker 1: but the election outcome created a change of power, which
Speaker 1: delayed the Recovery Act until February of two thousand nine,
Speaker 1: and that's why the market didn't really bought them until
Speaker 1: March of two thousand nine. So I am cautious about
Speaker 1: that particular scenario that we just don't get stimulus until
Speaker 1: DC sees a change of power. Yeah, Nick, the you
Speaker 1: know the other Obviously, the issue out there, arguably the
Speaker 1: biggest issue is the pandemic and the and the numbers
Speaker 1: are just going in the absolute wrong direction, and we're
Speaker 1: seeing European economies shutting down to varying degrees, and so
Speaker 1: people are concerned that, uh, you know, the US is
Speaker 1: just a matter of weeks behind Europe. Here. If that,
Speaker 1: if these numbers were coming across the tape in March
Speaker 1: and April, this market would presumably be down significantly. What
Speaker 1: do you think the market? How do you think the
Speaker 1: market's viewing this second slash third wave globally? You know,
Speaker 1: I think you're absolutely right. The the European situation is bad,
Speaker 1: and it's bad for a bunch of different reasons. The
Speaker 1: US has a little bit of a different situation. You're
Speaker 1: right to cle a. The virus is definitely taking a toll,
Speaker 1: but I think there's hopefully enough awareness to understand that,
Speaker 1: particularly in places like New York. We're all based, you know,
Speaker 1: there is a lot of mitigation efforts still under waste,
Speaker 1: still a lot more work from home. Europe did not
Speaker 1: really embrace work from home the way the US did,
Speaker 1: and so I am hopeful that the US economy can
Speaker 1: continue to move along in conjunction with some stimulus that
Speaker 1: avoids the worst economic outcomes of what's going to happen
Speaker 1: in Europe, which I agree with you are are pretty profound.
Speaker 1: So what's the base case make and what industries would
Speaker 1: you be recommending keeping a close eye on if your
Speaker 1: base case scenario does come to pass. So the base
Speaker 1: case scenario is actually bullish, you know, it does require
Speaker 1: more stimulus, but it is positive. And against that backdrop,
Speaker 1: we like industrials very much. They've had a very good quarter,
Speaker 1: and then we think there's a lot of earnings leverage
Speaker 1: and industrials large camp industrials going into We also like
Speaker 1: small caps over large caps. The one area where cautious
Speaker 1: on its technology Tech has had such a strong year
Speaker 1: that it's coming up against what we call very tough cumps.
Speaker 1: It's very hard to get earnings leverage when you have
Speaker 1: a blowout year and the next year goes back to normal.
Speaker 1: So we don't like technology right now, but do like cixicles,
Speaker 1: like industrials and small caps. We'd also stay away from
Speaker 1: financials because of the very low rate environment. A ten
Speaker 1: year yield that goes back to one percent just isn't
Speaker 1: good enough to generate a lot of marginal earnings for
Speaker 1: the financial sector. So it's interesting, Nick, You know, I
Speaker 1: think a lot of people are kind of trying to
Speaker 1: figure out when they do that rotation, and you know,
Speaker 1: out of those big tech growth names that have worked
Speaker 1: so well for so long, arguably since the financial crisis,
Speaker 1: but appears that the market is in fact already beginning
Speaker 1: that rotation. Is that what you're saying, yes, absolutely right,
Speaker 1: That is that that's exactly what we're seeing, and it's
Speaker 1: for all the right reasons. It might be a little
Speaker 1: bit counterintuitive to see companies report blow at earnings and
Speaker 1: the market turned their back on them, but at the
Speaker 1: same time you have to look forward, how does tech
Speaker 1: generate the same kind of earnings comps and earnings leverage?
Speaker 1: Next year that it did this year. If things, as
Speaker 1: we all hope, begin to go back to normal, you know,
Speaker 1: you had absolutely tremendous demand for MacBooks and iPads. iPhones
Speaker 1: might take some of the slack up in Q four
Speaker 1: for Apple, But what are you looking for next year?
Speaker 1: How are you gonna replicate through the upgrade cycle that
Speaker 1: we got in I don't think you can and make
Speaker 1: just you know, very quick answer. Does any of this
Speaker 1: depend on who's the next president or of what color
Speaker 1: the next Congress is? You know it does to some degree.
Speaker 1: I would tell you that obly enough, markets don't like
Speaker 1: gridlock as much as the cliche seems to say. Market
Speaker 1: does better since World War Two, when either them of
Speaker 1: Crats or Republicans hold the White House and converse, a
Speaker 1: split decision isn't necessarily a great outcome. Yeah, that's so
Speaker 1: interesting because we hear that quite a lot. That the
Speaker 1: opposite that is Nicholas, thank you. Nicholas is co founder
Speaker 1: of Data check Research, our Data Track Research. As I
Speaker 1: should say, we all know that Data Track Research. Nicolas
Speaker 1: co founder of that, and of course Paul, you know
Speaker 1: that's we hear that quite a bit. You know, good,
Speaker 1: good markets like good luck. Markets like good luck, but
Speaker 1: you know you have to wonder why that is or
Speaker 1: what the origin for that sort of Yeah. I love
Speaker 1: having Nick on. He really puts things, I think very
Speaker 1: clearly here and he is clearly in that rotation camp
Speaker 1: in the cyclicals. Well, it is time to have a
Speaker 1: look at the bond market because there again we are
Speaker 1: seeing a few basis points in moves. It would appear
Speaker 1: to be a risk on move. What will ask the expert?
Speaker 1: Iro Jersey is chief interest rate strategist for Bloomberg Intelligence,
Speaker 1: and he joins us now I wrote, what is the
Speaker 1: bond market saying to you today? Yeah, it is a
Speaker 1: risk on of like you mentioned, Vonnie, I think importantly, Um,
Speaker 1: I think the bond markets giving us to two important signals. Firstly,
Speaker 1: is if we close where we are right now at
Speaker 1: around eighty eight basis points on the tenure yield, we
Speaker 1: are now targeting the um the June yield high, so
Speaker 1: somewhere near nineties basis points. So so we're looking at
Speaker 1: maybe another little bit of a sell off. And I
Speaker 1: think that that could happen pretty quickly if there's kind
Speaker 1: of an uncontested election, and if you know, Joe Biden
Speaker 1: wins the presidency. I think regardless of who who controls
Speaker 1: the Senate, I think if the White House changes hands
Speaker 1: and it's not a contested election, I think that's a
Speaker 1: little bit more of a risk on and for bond deals.
Speaker 1: That means slightly higher bond deals. So where do you
Speaker 1: think the tenure could go arrive? You know, we've spoken
Speaker 1: to some folks over the last day or so that says,
Speaker 1: you know, you know, one in a quarter UH is
Speaker 1: not out of the discussion, at least within your term.
Speaker 1: Do you do you have that kind of sense? Yeah,
Speaker 1: I think one in a quarter at one point to
Speaker 1: seven percent is uh. It was the high back in
Speaker 1: UH to yield tie back in March. I think that
Speaker 1: that's uh, that's possible to get there. I don't think
Speaker 1: near term. I don't think that's a end of two
Speaker 1: thousand twenty type of thing, because I think in order
Speaker 1: to get to those type of levels, we have to
Speaker 1: increase optimism on what's the future of growth. You have
Speaker 1: to have more optimism on whether or not we'll have
Speaker 1: a vaccine in the first half of next year, like like, like,
Speaker 1: there was a time when I thought that in the
Speaker 1: first half of twenty twenty one, we could get to
Speaker 1: those type of levels, but that was predicated on an
Speaker 1: early vaccine release and the fact that we don't have UM.
Speaker 1: It doesn't look like we're gonna necessarily get an early
Speaker 1: vaccine UM and a quicker return to normalcy. I don't
Speaker 1: know how how we get there now. It's not out
Speaker 1: of the question, though, Paul, because one of the pieces
Speaker 1: of news that we're gonna get tomorrow morning is treasury supply.
Speaker 1: So how much in terms of bonds is the Treasury
Speaker 1: Department going to have to issue now? Now they've decreased
Speaker 1: their bond issuance forecast for this quarter because there wasn't
Speaker 1: a fiscal stimulus prior to the election, UM, but they
Speaker 1: increase They basically moved that back to the first quarter
Speaker 1: of next year. So if we do get another trillion dollars,
Speaker 1: you know, to where I should say, another two trillion
Speaker 1: dollar stimulus plan in the first quarter of next year,
Speaker 1: they would have to increase additional bond issuance to fund it,
Speaker 1: and that could be an impetus to push yields above
Speaker 1: one percent once again on the ten year yield. Well,
Speaker 1: funny you should mention because we also have an f
Speaker 1: O m C meeting this speet era. And while typically
Speaker 1: the Fed wouldn't try and do anything at all to
Speaker 1: influence markets that we can an election, you have to
Speaker 1: wonder if at some point in the future the FED
Speaker 1: chair won't have to roll back a little bit what
Speaker 1: he said about not raising rates for years. Well, I
Speaker 1: do think that that's uh, that's still in a card.
Speaker 1: I don't see the Federal Reserve hiking interest rates probably
Speaker 1: until at least three even in an optimistic scenario. Um.
Speaker 1: And and you know that's not completely dissimilar to what
Speaker 1: happened after the the Great Financial Crisis. The fact is
Speaker 1: is that we'll probably have, you know, growth that's not
Speaker 1: going to be particularly high. You're not gonna have inflation
Speaker 1: that's going to spike up that you're going to need
Speaker 1: to arrest that by increasing front end interest rates. And
Speaker 1: and I think that the Federal Reserve would would not
Speaker 1: mind the yield curve to steepen a little. But I
Speaker 1: also think that they're worried that if, because of all
Speaker 1: this supply and you have better growth expectations, if the
Speaker 1: yield curve were to move significantly so that those numbers
Speaker 1: that Paul mentioned, if you get above one and a
Speaker 1: quarter percent very quickly on the tenure yield. The Federal
Speaker 1: Reserve could take some action like buying more long term
Speaker 1: bonds instead of short term bonds in order to slow
Speaker 1: down the pace of increase in in long term bond yields. Um.
Speaker 1: You know, there's not something that traditionally they've done, but
Speaker 1: as part of their monetary policy framework, they want to
Speaker 1: ensure that interest rates are low and borrowing clusters are
Speaker 1: low for at least a little while until we get
Speaker 1: over the hump of um of growth and we start
Speaker 1: to see job gains that are consistent and wage gains
Speaker 1: that are consistent with their um with their dual mandate
Speaker 1: of full employment, as well as stable inflation. So are
Speaker 1: you mentioned, you know, buying the Fed buying bonds give
Speaker 1: us a sense of kind of what their activity has
Speaker 1: been to date. Have they been in the market, have
Speaker 1: they been active is or is it just more a
Speaker 1: little bit of a show. Well, well, they've been buying
Speaker 1: every day because they've they've been buying eighty billion dollars
Speaker 1: a month of treasury securities. But most of those treasuries
Speaker 1: that they're buying are are five years and and shorter
Speaker 1: and maturity, so so there's not a lot of market
Speaker 1: risk in in that um in that part of the market.
Speaker 1: So so while they're buying a lot of bonds on
Speaker 1: a dollar basis, they're not buying a lot of market risks.
Speaker 1: So one of the things that we think is possible
Speaker 1: and and and we'll be talking about this in one
Speaker 1: of our our research reports later this week, is they
Speaker 1: can reduce the amount of those short term bonds that
Speaker 1: they're buying to buy longer term securities again in order
Speaker 1: to buy more market risk and make sure that the
Speaker 1: market doesn't sell off in an uncontrolled fashion, which is
Speaker 1: a risk. I mean, when you think about what happened
Speaker 1: during the Taper tantrum, and and even in two thousand nine,
Speaker 1: um after after he hit the yield loads, you wound
Speaker 1: up having very significant increases in ten year yields, and
Speaker 1: that did have an effective of slowing down the economy
Speaker 1: a little bit and people were a little bit less
Speaker 1: likely to borrow money when ten year bond yields, you know,
Speaker 1: rose by a hundred basis points and in just a
Speaker 1: couple of months. Our Jersey, thanks so much for joining us.
Speaker 1: We always appreciate getting your thoughts here on all things
Speaker 1: in the bond market. Ira Jersey, chief US interest rate
Speaker 1: strategist for Bloomberg Intelligence, joining us here. A little bit
Speaker 1: of a lift to a rates, a little bit of
Speaker 1: a stepending Vanni to the yield curve here just over
Speaker 1: the last several days, yes, for sure, and we did
Speaker 1: get that big move last week, don't forget polls. Yep. Yeah,
Speaker 1: very interesting. So I have to see how the bond
Speaker 1: market reacts here throughout the day, uh, and then of
Speaker 1: course tomorrow and over the next several days, we'll see,
Speaker 1: you know, to get a sense of how uh the
Speaker 1: election is going in into what extent it's contesting. Thanks
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
Speaker 1: and listen to interviews at Apple Podcasts or whatever a
Speaker 1: podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter
Speaker 1: at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter
Speaker 1: at pt Sweeney. Before the podcast, you can always catch
Speaker 1: us worldwide at Bloomberg Radio.