1 00:00:06,360 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Daily we bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,760 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Chris 5 00:00:27,840 --> 00:00:32,080 Speaker 1: MORANGI with us with Gabelly Funds or co Chief investment Officer. Chris, 6 00:00:32,120 --> 00:00:36,120 Speaker 1: I want to start with sort of equity hysteria that's 7 00:00:36,159 --> 00:00:39,960 Speaker 1: out there, but the media angst that's going on right now. 8 00:00:40,400 --> 00:00:43,800 Speaker 1: How do you define a correction in two thousand twenty. 9 00:00:44,360 --> 00:00:47,440 Speaker 1: Is it down ten percent? Or is there a new calculus? 10 00:00:47,440 --> 00:00:51,159 Speaker 1: For Gabelly Funds? This is nothing, Listen, this is this 11 00:00:51,280 --> 00:00:55,600 Speaker 1: is healthy. Obviously the correction is concentrated in a few stocks. 12 00:00:55,640 --> 00:00:58,279 Speaker 1: Those few stocks happen to have accounted for more than 13 00:00:59,000 --> 00:01:00,600 Speaker 1: of the gains of the S and P so far 14 00:01:00,720 --> 00:01:04,080 Speaker 1: this year. Um, so you know this is a different 15 00:01:04,080 --> 00:01:06,280 Speaker 1: correction than certainly we've seen in the past. Here's the 16 00:01:06,360 --> 00:01:08,119 Speaker 1: money question for the day, Chris. And when I saw 17 00:01:08,160 --> 00:01:10,440 Speaker 1: our line up earlier this morning, when I walked in 18 00:01:10,920 --> 00:01:14,120 Speaker 1: hours before John Faroe and Lisa Bramo, it's I would 19 00:01:14,240 --> 00:01:16,160 Speaker 1: want to point out Chris and I really went to 20 00:01:16,240 --> 00:01:18,840 Speaker 1: the heart of the matter, which is, how should our 21 00:01:18,880 --> 00:01:23,240 Speaker 1: listeners and viewers who are not sophisticates and derivatives, how 22 00:01:23,280 --> 00:01:26,679 Speaker 1: should they adapt to the nasdack Well, the gamma, Well 23 00:01:26,760 --> 00:01:31,479 Speaker 1: did they just ignore it? I am certainly not an 24 00:01:31,520 --> 00:01:35,000 Speaker 1: expert on market internals and why the market is short gamma, 25 00:01:35,480 --> 00:01:38,399 Speaker 1: but it certainly has introduced folatility. It's powered to move 26 00:01:38,480 --> 00:01:40,840 Speaker 1: up in part along with a lot of other factors, 27 00:01:40,840 --> 00:01:44,160 Speaker 1: and it appears to be driving the reduction that we're 28 00:01:44,160 --> 00:01:47,520 Speaker 1: seeing a future. So um something to understand be aware of. 29 00:01:47,960 --> 00:01:49,960 Speaker 1: But at the end of the day, we're looking at 30 00:01:49,960 --> 00:01:51,840 Speaker 1: the fundamentals of each of these stocks, and as Jonathan 31 00:01:51,840 --> 00:01:54,800 Speaker 1: pointed out earlier, the fundamentals of those Big five stocks 32 00:01:54,800 --> 00:01:57,480 Speaker 1: have been terrific so far this year. The christ is 33 00:01:57,600 --> 00:01:59,720 Speaker 1: just trying to work out the appropriate multiple to pay 34 00:01:59,720 --> 00:02:01,280 Speaker 1: on some of these companies. Can you just give us 35 00:02:01,280 --> 00:02:05,360 Speaker 1: some insign to those conversations right now of ricka Belly. Yeah, 36 00:02:05,400 --> 00:02:08,200 Speaker 1: that's right. So you know, in general, obviously where rates 37 00:02:08,200 --> 00:02:10,480 Speaker 1: are pinned and appear to be pinned for a very 38 00:02:10,520 --> 00:02:12,520 Speaker 1: long time, you should be willing to pay a higher 39 00:02:12,600 --> 00:02:15,280 Speaker 1: multiple for any stream of cash flows. Um. And the 40 00:02:15,360 --> 00:02:19,400 Speaker 1: question is, you know, how durable are the cash flows 41 00:02:19,440 --> 00:02:21,799 Speaker 1: of say, those Big five, if that's what we're talking about, 42 00:02:22,200 --> 00:02:24,880 Speaker 1: and what you'd be willing to pay for them. Um. 43 00:02:24,919 --> 00:02:29,680 Speaker 1: You know, it seems that a year ago, obviously they 44 00:02:29,720 --> 00:02:32,359 Speaker 1: would have been at bargain prices. But at this point 45 00:02:33,280 --> 00:02:35,960 Speaker 1: the market is making a bet that those the durability, 46 00:02:36,040 --> 00:02:38,280 Speaker 1: that cash will ASTs a very long time and that 47 00:02:38,400 --> 00:02:41,400 Speaker 1: they grow, you know it probably double global GDP growth 48 00:02:41,440 --> 00:02:44,880 Speaker 1: for the next ten years. That's a little bit of 49 00:02:44,919 --> 00:02:48,119 Speaker 1: a harder bet to make. So are you holding, are 50 00:02:48,160 --> 00:02:51,000 Speaker 1: you buying or are you selling into this great dip 51 00:02:51,080 --> 00:02:54,760 Speaker 1: of a tom might not it? Yeah, well we're we've 52 00:02:54,760 --> 00:02:57,079 Speaker 1: been buying. We've been buying a different kind of stocks. 53 00:02:57,080 --> 00:03:01,160 Speaker 1: We've been buying the smaller and unloved will be considered 54 00:03:01,200 --> 00:03:03,480 Speaker 1: value stacks. Um. Some of those stocks are still off 55 00:03:03,520 --> 00:03:05,960 Speaker 1: over thirty percent this year. In fact, a quarter of 56 00:03:05,960 --> 00:03:11,520 Speaker 1: the Russell three thousand is still off by and that's 57 00:03:11,560 --> 00:03:13,799 Speaker 1: where we're seeing bargains. You know, amongst the Big five, 58 00:03:14,160 --> 00:03:17,600 Speaker 1: we've owned Google. It's a media essentially a media name 59 00:03:17,680 --> 00:03:20,120 Speaker 1: that we can understand. Um, we've owned a little bit 60 00:03:20,160 --> 00:03:24,200 Speaker 1: of Facebook over time, having on Amazon, unlike our patriarch, 61 00:03:24,480 --> 00:03:27,120 Speaker 1: Warm Buffett, haven't been big in Apple, at least on 62 00:03:27,160 --> 00:03:30,079 Speaker 1: the value side. I think there's some idiosyncratic issues there 63 00:03:30,120 --> 00:03:33,240 Speaker 1: that we're very careful of, particularly around China. UM. So, 64 00:03:33,919 --> 00:03:36,080 Speaker 1: you know, this hasn't really changed our view on valuation 65 00:03:36,480 --> 00:03:39,320 Speaker 1: just yet, although at a certain point it does become 66 00:03:39,360 --> 00:03:42,680 Speaker 1: concerning from a faith perspective, the idea of what does 67 00:03:42,720 --> 00:03:45,560 Speaker 1: this due to the marginal investor who has an allocation 68 00:03:45,680 --> 00:03:48,680 Speaker 1: still in safer assets, who was going to go into stocks. 69 00:03:48,880 --> 00:03:52,800 Speaker 1: It suddenly sees these high flyers, these staples of certainty, 70 00:03:53,120 --> 00:03:56,120 Speaker 1: being absolutely pummeled, even if it is short term, and 71 00:03:56,160 --> 00:03:59,280 Speaker 1: even if you're to date the gains are tremendous. At 72 00:03:59,320 --> 00:04:02,640 Speaker 1: what point do these become systemic issues? Do they become 73 00:04:02,720 --> 00:04:06,040 Speaker 1: systemic selloffs that really in fact the other parts of 74 00:04:06,040 --> 00:04:08,800 Speaker 1: the stock market. Well, you know it's a great question. UM. 75 00:04:08,840 --> 00:04:11,600 Speaker 1: You know, coming into last week, those Big five are 76 00:04:11,600 --> 00:04:15,080 Speaker 1: almost a quarter of the SPS. Been written about that. 77 00:04:15,120 --> 00:04:17,920 Speaker 1: It's sort of an unprecedented level of concentration. So if 78 00:04:17,920 --> 00:04:20,120 Speaker 1: you thought by buying an SMP index fund you were 79 00:04:20,120 --> 00:04:23,880 Speaker 1: getting a nice diversified set of equities, you may need 80 00:04:23,920 --> 00:04:27,599 Speaker 1: to rethink that. UM, you know those five companies, uh, 81 00:04:27,680 --> 00:04:29,240 Speaker 1: not only are a large part of SMP, but they're 82 00:04:29,279 --> 00:04:31,680 Speaker 1: all essentially driven by the same kind of dynamics. They're all, 83 00:04:31,800 --> 00:04:35,400 Speaker 1: even though they're different industry classifications, all essentially Internet platform 84 00:04:35,440 --> 00:04:38,160 Speaker 1: companies subject to a lot of the same risks. UH. 85 00:04:38,320 --> 00:04:41,040 Speaker 1: And that's that's really unprecedented, and I think leaves the 86 00:04:41,040 --> 00:04:43,680 Speaker 1: average investor exposed and maybe more risks than they were 87 00:04:44,200 --> 00:04:46,600 Speaker 1: thinking they were taking going on right down to Nastac 88 00:04:46,680 --> 00:04:51,360 Speaker 1: testing new loads on MOVI here, John Faroe, I give 89 00:04:51,400 --> 00:04:53,480 Speaker 1: you great credit for this because I keep talking tech 90 00:04:53,520 --> 00:04:58,200 Speaker 1: tech tech and through the year JP Morgan down from 91 00:04:58,200 --> 00:05:00,920 Speaker 1: the February highs. That shows a damn job there. Just 92 00:05:00,960 --> 00:05:04,200 Speaker 1: in the banking area alone, the banks have struggled three 93 00:05:04,240 --> 00:05:07,200 Speaker 1: twenty Jamie Diamonds said months ago, and I got everybody's 94 00:05:07,200 --> 00:05:09,039 Speaker 1: attention that this is an a normal recession and we 95 00:05:09,040 --> 00:05:11,839 Speaker 1: haven't seen the impact of this recession just yet. It 96 00:05:11,920 --> 00:05:13,919 Speaker 1: might come later this year. Chris, as you look at 97 00:05:13,960 --> 00:05:17,440 Speaker 1: the financials, how do you think about that? Again? You know, 98 00:05:17,520 --> 00:05:19,799 Speaker 1: these are these are obviously names that are very sensitive 99 00:05:19,839 --> 00:05:23,960 Speaker 1: to the shape and absolute level of interest rates, and 100 00:05:24,000 --> 00:05:25,880 Speaker 1: that's not been a good story for them. Um that 101 00:05:26,000 --> 00:05:28,159 Speaker 1: interest margins. We're starting to perk up at the end 102 00:05:28,200 --> 00:05:31,760 Speaker 1: of last year, and now I've compressed again and we 103 00:05:31,800 --> 00:05:35,159 Speaker 1: don't see them expanding anytime soon. That being said, you 104 00:05:35,200 --> 00:05:38,080 Speaker 1: know their price for that kind of outlook. Um. The 105 00:05:38,120 --> 00:05:40,719 Speaker 1: other dynamice, obviously, is a lot of fear that especially 106 00:05:40,839 --> 00:05:44,479 Speaker 1: came in in March about credit. Credit seems like it's 107 00:05:45,200 --> 00:05:47,600 Speaker 1: probably gonna end up a little bit better than was feared, 108 00:05:48,000 --> 00:05:49,640 Speaker 1: but still, you know it's going to be an ongoing 109 00:05:49,640 --> 00:05:52,279 Speaker 1: issue for some time as we worked through this recovery. 110 00:05:52,360 --> 00:05:56,160 Speaker 1: Chris barging new loads here this morning, negative three three 111 00:05:56,160 --> 00:05:58,880 Speaker 1: point one percent, down three d and fifty NASDAC points 112 00:05:58,880 --> 00:06:01,520 Speaker 1: we break down a new lows right now. When for 113 00:06:01,680 --> 00:06:06,960 Speaker 1: you guys, just tech become cheap. I don't know if 114 00:06:07,000 --> 00:06:08,840 Speaker 1: I can answer that at a macro level, but um, 115 00:06:08,880 --> 00:06:11,320 Speaker 1: you know we're we're obviously looking at at all sectors. 116 00:06:11,440 --> 00:06:12,960 Speaker 1: I think there's a lot to like in tech, A 117 00:06:13,000 --> 00:06:15,200 Speaker 1: lot of those business models, particularly amongst the big five, 118 00:06:15,200 --> 00:06:19,120 Speaker 1: occurring revenue models, subscription, low capital intensity, these are all 119 00:06:19,160 --> 00:06:22,520 Speaker 1: things that fundamental investors should love. Again, as you as 120 00:06:22,720 --> 00:06:25,359 Speaker 1: to your point, what do you pay for that? Um? 121 00:06:25,400 --> 00:06:27,400 Speaker 1: And you know, we generally are looking, we're looking at tech. 122 00:06:27,440 --> 00:06:33,080 Speaker 1: We're looking at technology embedded within other sectors because obviously, 123 00:06:33,279 --> 00:06:38,520 Speaker 1: you know, things like everything from AI to automation UM, 124 00:06:38,560 --> 00:06:41,479 Speaker 1: you know, impacting the productivity of those other sectors, and 125 00:06:41,480 --> 00:06:44,000 Speaker 1: that's generally where we're looking to play tech. We're also 126 00:06:44,040 --> 00:06:48,559 Speaker 1: playing tech in some derivative matters. You know, the value 127 00:06:48,560 --> 00:06:51,720 Speaker 1: of broadband has been highlighted through this crisis. You can't 128 00:06:51,760 --> 00:06:54,920 Speaker 1: get any of those tech services without a fast broadband connection. 129 00:06:54,920 --> 00:06:57,040 Speaker 1: I couldn't be here doing this without a fast broadband connection. 130 00:06:57,080 --> 00:06:59,039 Speaker 1: What am I willing to pay for that? I'm willing 131 00:06:59,040 --> 00:07:00,560 Speaker 1: to pay a lot for it, So that gives those 132 00:07:00,600 --> 00:07:02,320 Speaker 1: companies a lot of pricing power. That's why we like 133 00:07:02,400 --> 00:07:06,279 Speaker 1: the first while cable companies now known as broadband infrastructure companies. 134 00:07:07,560 --> 00:07:09,640 Speaker 1: Hi Chris writes to catch up as a wise, prest 135 00:07:11,040 --> 00:07:19,320 Speaker 1: funds suband JAPA joins USEN. And of course, what's wonderful 136 00:07:19,360 --> 00:07:22,239 Speaker 1: here about her skill in us race is the heritage 137 00:07:22,280 --> 00:07:25,840 Speaker 1: of sock gen and the derivative space as well. Over 138 00:07:25,880 --> 00:07:28,640 Speaker 1: the weekends SBANDA, you had to combine in the derivative 139 00:07:28,640 --> 00:07:32,800 Speaker 1: analysis of a SoftBank gamma trade with what the fixed 140 00:07:32,840 --> 00:07:35,920 Speaker 1: income market will do is there any correlation. There is 141 00:07:35,960 --> 00:07:39,360 Speaker 1: there a linkage between year world and the equity derivative 142 00:07:39,400 --> 00:07:44,000 Speaker 1: gamma world that we're seeing right now. It actually seems 143 00:07:44,040 --> 00:07:47,120 Speaker 1: to be a very little correlation between the two markets, 144 00:07:47,160 --> 00:07:49,960 Speaker 1: at least the last couple of months, because bonds had 145 00:07:50,200 --> 00:07:52,680 Speaker 1: very much range bound and I think that that supported 146 00:07:52,720 --> 00:07:56,760 Speaker 1: the equity reality really if anything, so uh, there seems 147 00:07:56,800 --> 00:07:58,880 Speaker 1: to be a huge divergence between the signal and you're 148 00:07:58,880 --> 00:08:01,720 Speaker 1: getting from these two more markets is a signaling of 149 00:08:01,800 --> 00:08:04,600 Speaker 1: bonds arrogant demands diminishing. I mean, can you link it 150 00:08:04,680 --> 00:08:07,080 Speaker 1: up with lower oil prices and link it up with 151 00:08:07,120 --> 00:08:12,200 Speaker 1: global slowdown? Expected? Absolutely? I think that the modern markets 152 00:08:12,200 --> 00:08:15,080 Speaker 1: extraordinarily cautious, which is what you would expect, and I 153 00:08:15,120 --> 00:08:19,800 Speaker 1: think lower yields are are fueling the rally in equities. 154 00:08:19,840 --> 00:08:24,520 Speaker 1: Broadly speaking, I think the data you know, in July 155 00:08:24,800 --> 00:08:27,480 Speaker 1: and August has been sort of plateauing. You've got this 156 00:08:27,560 --> 00:08:30,480 Speaker 1: sort of sharp move higher in the data in May 157 00:08:30,600 --> 00:08:34,199 Speaker 1: and in June, so you know, the markets extraordinary cautious 158 00:08:34,240 --> 00:08:37,120 Speaker 1: given the rise in the infection rates. Huh. And the 159 00:08:37,120 --> 00:08:39,480 Speaker 1: fact that we haven't gotten in for fiscal assumers is 160 00:08:39,520 --> 00:08:42,880 Speaker 1: also keeping the market somewhat reach abound. It's about it. 161 00:08:42,960 --> 00:08:45,199 Speaker 1: For a while now, people have talked about the potential 162 00:08:45,240 --> 00:08:47,440 Speaker 1: for the treasury market to turn into a zombie market 163 00:08:47,800 --> 00:08:50,440 Speaker 1: because of the federal reserves huge moves over the last 164 00:08:50,520 --> 00:08:52,720 Speaker 1: year or so, and not just the treasury market, the 165 00:08:52,720 --> 00:08:54,960 Speaker 1: credit market as well. So about it from your perspective, 166 00:08:55,440 --> 00:08:59,440 Speaker 1: Is the long end aligned with fundamentals and the trajectory 167 00:08:59,440 --> 00:09:03,320 Speaker 1: of this recount? Three? No, because of the fact that 168 00:09:03,360 --> 00:09:06,560 Speaker 1: the markets pressing in a lower for longer paradigm, given 169 00:09:06,600 --> 00:09:08,680 Speaker 1: the fact that the Fed is going to keep interstrates low, 170 00:09:09,080 --> 00:09:12,520 Speaker 1: and there's still a lot of uncertainty about the trajectory 171 00:09:12,640 --> 00:09:15,800 Speaker 1: or future Montrey policy initiatives. Will they purchase more, will 172 00:09:15,840 --> 00:09:18,839 Speaker 1: they purchase more? Waded towards the long end, So the 173 00:09:19,120 --> 00:09:22,680 Speaker 1: long end of the curve reflecting the tugue of war, 174 00:09:22,760 --> 00:09:26,199 Speaker 1: I would say between this a lot of supply we're 175 00:09:26,200 --> 00:09:29,400 Speaker 1: going to see in the second half versus the potential 176 00:09:29,480 --> 00:09:32,280 Speaker 1: for the Fed to start purchasing more in the long end. 177 00:09:32,320 --> 00:09:34,920 Speaker 1: So you're seeing a very range born market across the curve. 178 00:09:35,200 --> 00:09:38,160 Speaker 1: But I think ultimately the supply picture is gonna is 179 00:09:38,200 --> 00:09:41,080 Speaker 1: going to outweigh any sort of demand you're gonna see 180 00:09:41,200 --> 00:09:44,840 Speaker 1: or or or I should say, marginal buying you're going 181 00:09:44,920 --> 00:09:47,640 Speaker 1: to see from the Fed. Well, let's talk about the 182 00:09:47,640 --> 00:09:50,800 Speaker 1: supply pictures of andre your basic assumptions right now going forward, 183 00:09:51,040 --> 00:09:52,720 Speaker 1: and how they would need to adjust if at all 184 00:09:52,880 --> 00:09:55,080 Speaker 1: if we don't get a fiscal deal another deal down 185 00:09:55,080 --> 00:10:00,680 Speaker 1: in d c UM. I think that the in the 186 00:10:00,720 --> 00:10:05,120 Speaker 1: August refunding the treasury um already accommodated for I would 187 00:10:05,120 --> 00:10:10,120 Speaker 1: say about a trillion dollars in spending coming after after 188 00:10:10,160 --> 00:10:14,160 Speaker 1: the August refunding meeting, So the supply has gone up 189 00:10:14,240 --> 00:10:18,480 Speaker 1: quite meaningfully in anticipation of another deal getting passed through, 190 00:10:18,480 --> 00:10:22,199 Speaker 1: and that hasn't really happened. So uh, you know. Regardless, 191 00:10:22,200 --> 00:10:25,120 Speaker 1: I think that the supply is and deficits are going 192 00:10:25,160 --> 00:10:28,400 Speaker 1: to be higher for the foreseeable future. So I think 193 00:10:28,400 --> 00:10:30,120 Speaker 1: that that's going to be something that weighs on the 194 00:10:30,160 --> 00:10:34,240 Speaker 1: long end over time, especially if the fundamentals improved and 195 00:10:34,360 --> 00:10:38,120 Speaker 1: yields start to rise rise reflecting better fundamentals, and you 196 00:10:38,120 --> 00:10:41,400 Speaker 1: should see steeper curves when you talk about the marginal 197 00:10:41,480 --> 00:10:44,360 Speaker 1: buying by the Federal Reserve. So far it has been that, 198 00:10:44,440 --> 00:10:46,800 Speaker 1: and for the past two months, the Fed's balance sheet 199 00:10:46,800 --> 00:10:50,480 Speaker 1: has stayed pretty much consistent constant. At what point, if 200 00:10:50,520 --> 00:10:52,880 Speaker 1: yields do rise, do you expect the Fed to step 201 00:10:52,880 --> 00:10:57,040 Speaker 1: in more meaningfully? I think if they move in really 202 00:10:57,080 --> 00:11:00,320 Speaker 1: in yields is somewhat erratic. You see some sharp rise 203 00:11:00,360 --> 00:11:03,240 Speaker 1: in in yields like we saw, you know, after the 204 00:11:03,280 --> 00:11:05,760 Speaker 1: taper tantrum, or if there's some sort of a fundamental 205 00:11:05,800 --> 00:11:09,080 Speaker 1: reason for lack of liquidity, I think that's when the 206 00:11:09,080 --> 00:11:12,280 Speaker 1: FED steps in. If it's a very gradual rising hills 207 00:11:13,040 --> 00:11:16,640 Speaker 1: warranted from improving fundamentals, I think the Fed will be okay. 208 00:11:16,679 --> 00:11:19,280 Speaker 1: So any sort of sharp move higher and yeels is 209 00:11:19,280 --> 00:11:21,839 Speaker 1: when I think I see the Fed coming in uh 210 00:11:21,880 --> 00:11:24,440 Speaker 1: and sort of you know, putting a lid on how 211 00:11:24,520 --> 00:11:27,120 Speaker 1: high yields can go. So one of the big raging 212 00:11:27,120 --> 00:11:29,720 Speaker 1: debates right now people get really hated about this is 213 00:11:29,720 --> 00:11:32,800 Speaker 1: whether the sixty forty portfolio is dead, whether treasury is 214 00:11:32,800 --> 00:11:37,160 Speaker 1: basically it yields this low, or an insufficient hedge against volatility. 215 00:11:37,200 --> 00:11:41,520 Speaker 1: Do you agree with that thesis? I think so because 216 00:11:41,640 --> 00:11:43,880 Speaker 1: you know, if you know, looking back even the last 217 00:11:43,920 --> 00:11:46,480 Speaker 1: couple of decades, I mean, the suxted forty portfolio has 218 00:11:46,520 --> 00:11:49,720 Speaker 1: been bounds rallying and stocks rallying right. So the the 219 00:11:49,840 --> 00:11:54,040 Speaker 1: equality the fixed income portfolio has never been a strong 220 00:11:54,360 --> 00:11:58,680 Speaker 1: hedge for for equities, maybe over short periods of time, 221 00:11:58,720 --> 00:12:02,520 Speaker 1: but not not over the a longer rising. Now you're 222 00:12:02,559 --> 00:12:05,199 Speaker 1: seeing even less of that given the fact that the 223 00:12:05,200 --> 00:12:09,000 Speaker 1: FED is going to uh, you know, we have an 224 00:12:09,080 --> 00:12:13,840 Speaker 1: environment where negative industrates are are are not in the cards, 225 00:12:13,920 --> 00:12:17,240 Speaker 1: which means that interestrates the floor and zero. So there's 226 00:12:17,240 --> 00:12:20,480 Speaker 1: only one way tragedy heelds can go either sideways from 227 00:12:20,480 --> 00:12:23,720 Speaker 1: here on or higher, and that's that. I think that 228 00:12:23,840 --> 00:12:31,040 Speaker 1: dynamic doesn't play into the sixty um you know portfolio paradigm. 229 00:12:31,080 --> 00:12:32,959 Speaker 1: You know, I look subd at this and folks, you've 230 00:12:32,960 --> 00:12:36,120 Speaker 1: got NASDAC breaking down now two point seven three und 231 00:12:36,160 --> 00:12:39,760 Speaker 1: neque points where the new weakness today as well the 232 00:12:39,920 --> 00:12:43,000 Speaker 1: vow that we see in the equity markets, are we 233 00:12:43,120 --> 00:12:48,040 Speaker 1: going to see that in the bond markets? Probably not. 234 00:12:48,240 --> 00:12:51,000 Speaker 1: I think if if you know, tennantorghields for instance, have 235 00:12:51,080 --> 00:12:55,080 Speaker 1: been between you know, fifty to eighty basis points, that's 236 00:12:55,080 --> 00:12:57,600 Speaker 1: probably where they're going to spend the remainder of the 237 00:12:57,640 --> 00:13:00,559 Speaker 1: of this year. So I think that there's really this 238 00:13:00,760 --> 00:13:04,760 Speaker 1: low for longer paradigm. Generally the Japanification, I would say 239 00:13:04,760 --> 00:13:08,559 Speaker 1: of US bond yields is going to keep volatilely somewhat low. 240 00:13:08,640 --> 00:13:12,240 Speaker 1: What you're seeing now is market positioning, uh, you know, 241 00:13:12,320 --> 00:13:16,080 Speaker 1: for potential rising yields and origening of perhaps some of 242 00:13:16,080 --> 00:13:19,400 Speaker 1: those those metrics like pair excuse but but broadly speaking, 243 00:13:19,400 --> 00:13:21,160 Speaker 1: I think I think volts are going to remain low 244 00:13:21,200 --> 00:13:23,480 Speaker 1: for the foresee of the future. Why is that? Why? 245 00:13:23,600 --> 00:13:26,160 Speaker 1: How does it dampen down? Is it just Fed intrusion 246 00:13:26,240 --> 00:13:28,800 Speaker 1: into the market where it's not a real market. I mean, 247 00:13:28,840 --> 00:13:33,520 Speaker 1: I just don't buy the idea that because should go quiet, Yeah, exactly. 248 00:13:33,559 --> 00:13:36,400 Speaker 1: I think that, you know, the participation of the FED 249 00:13:36,559 --> 00:13:39,440 Speaker 1: is not something that's near term. This is an open ended, 250 00:13:39,760 --> 00:13:42,720 Speaker 1: you know, purchase program where they're purchasing eight billion per 251 00:13:42,760 --> 00:13:46,359 Speaker 1: month and that size could potentially increase if there's volatility 252 00:13:46,360 --> 00:13:49,280 Speaker 1: in the market's not decreased. So given that sort of paradigm, 253 00:13:49,360 --> 00:13:54,280 Speaker 1: it's really hard to envision especially yields from two years 254 00:13:54,360 --> 00:13:57,520 Speaker 1: to ten years, you know, being very volatile, given the 255 00:13:57,559 --> 00:14:01,080 Speaker 1: fact that their historical lows and they're going to be low, 256 00:14:01,120 --> 00:14:03,480 Speaker 1: given the fact that the FED is committed to a 257 00:14:03,480 --> 00:14:08,080 Speaker 1: lower for longer strategy. SAA of Cecieta in general. It 258 00:14:08,160 --> 00:14:10,880 Speaker 1: is the day after Labor Day in the United States. Normally, 259 00:14:10,880 --> 00:14:12,480 Speaker 1: this is a time when people would be getting back 260 00:14:12,520 --> 00:14:14,800 Speaker 1: to work, back to the office. People are just getting 261 00:14:14,800 --> 00:14:16,679 Speaker 1: back to their computers where they've been at their kitchen 262 00:14:16,679 --> 00:14:19,600 Speaker 1: tables all this time. Can you talk about the change, 263 00:14:19,600 --> 00:14:22,280 Speaker 1: whether you're going to see any shift in positioning, any 264 00:14:22,320 --> 00:14:25,600 Speaker 1: shift in strategy at this point, is people reassess in 265 00:14:25,640 --> 00:14:27,880 Speaker 1: their post summer meetings or do you think that this 266 00:14:28,000 --> 00:14:29,800 Speaker 1: year is just going to be different because you're just 267 00:14:29,800 --> 00:14:34,800 Speaker 1: gonna get that consistent feeling of in limbo. I think 268 00:14:34,840 --> 00:14:38,200 Speaker 1: it's going to, unfortunately be a consistent feeling of needing 269 00:14:38,280 --> 00:14:42,240 Speaker 1: more data before you can have a clear direction on 270 00:14:42,320 --> 00:14:46,320 Speaker 1: treasury yields um. You know, broadly speaking, this week we 271 00:14:46,360 --> 00:14:48,000 Speaker 1: get a lot of supplies to We could see some 272 00:14:48,040 --> 00:14:52,720 Speaker 1: concession into the into into the auctions, but other than that, 273 00:14:53,440 --> 00:14:56,000 Speaker 1: the dynamics are going to be led by the infection 274 00:14:56,120 --> 00:15:00,120 Speaker 1: rates and and not having uh, you know, clarity on 275 00:15:00,240 --> 00:15:02,280 Speaker 1: the data. There's a lot of volatility. You're going to 276 00:15:02,360 --> 00:15:05,640 Speaker 1: see upward divisions to data as well as downward divisions 277 00:15:05,640 --> 00:15:08,200 Speaker 1: to data. Pat I'm just gonna jump in and wrap 278 00:15:08,280 --> 00:15:14,360 Speaker 1: up the conversation. Thanks for j woting guess so on 279 00:15:14,560 --> 00:15:17,480 Speaker 1: radio and television. Right now, we're gonna frame all of 280 00:15:17,480 --> 00:15:19,960 Speaker 1: this with Barry rid Holts. We can do that not 281 00:15:20,160 --> 00:15:23,120 Speaker 1: only with his wonderful book of years ago, what he's 282 00:15:23,160 --> 00:15:26,760 Speaker 1: writing for Bloomer Opinion on his podcast, but rid Holes 283 00:15:26,800 --> 00:15:31,040 Speaker 1: with a great sense a sense of history as well. Barry, 284 00:15:31,080 --> 00:15:33,120 Speaker 1: I want to go to nassing to lab in the 285 00:15:33,200 --> 00:15:37,400 Speaker 1: wonderful character Nero Tulip in his book Fooled by Randomness, 286 00:15:37,800 --> 00:15:40,440 Speaker 1: who's completely taken in the opening of the book by 287 00:15:40,480 --> 00:15:43,800 Speaker 1: the red Porsche the guy is driving. We have had 288 00:15:43,840 --> 00:15:47,960 Speaker 1: a red Porsche market. Everybody's been able to afford red Porsche's. 289 00:15:48,000 --> 00:15:50,720 Speaker 1: With the market up, up and away, and we nudge 290 00:15:50,760 --> 00:15:53,080 Speaker 1: down five or six percent in the world's coming to 291 00:15:53,200 --> 00:15:57,840 Speaker 1: an end, what's a real correction look like? How soon 292 00:15:57,880 --> 00:16:01,680 Speaker 1: they forget right? Let's let's put some numbers on that. Uh. 293 00:16:01,720 --> 00:16:04,280 Speaker 1: Since since all of this energy or most of this 294 00:16:04,440 --> 00:16:07,240 Speaker 1: energy has been taking place in the big tech stocks, 295 00:16:07,320 --> 00:16:10,400 Speaker 1: let's use the NAS dec one as an example. In 296 00:16:10,440 --> 00:16:14,160 Speaker 1: the March lows it was barely over seven thousand, and 297 00:16:14,240 --> 00:16:18,680 Speaker 1: it peaked in August at twelve four and change. That's 298 00:16:18,720 --> 00:16:24,120 Speaker 1: about a seventy seven percent rally in less than six months, 299 00:16:24,160 --> 00:16:28,560 Speaker 1: So straight up for sent I think a ten or 300 00:16:28,600 --> 00:16:33,280 Speaker 1: of fifteen or even a tent pull back is certainly overdue. 301 00:16:33,800 --> 00:16:37,560 Speaker 1: And profit taking is probably the most abuse phrase in 302 00:16:37,600 --> 00:16:41,440 Speaker 1: all of finance, But in this case, it could legitimately 303 00:16:41,520 --> 00:16:44,600 Speaker 1: be people who bought in March April May saying all right, 304 00:16:44,640 --> 00:16:46,640 Speaker 1: I got a huge profit, Maybe I should ring the 305 00:16:46,640 --> 00:16:52,400 Speaker 1: bell and take a little something off the table. Mary, 306 00:16:52,440 --> 00:16:54,800 Speaker 1: do you buy that soft bank is causing this hell 307 00:16:54,840 --> 00:16:58,640 Speaker 1: off about as much as I buy the fact that 308 00:16:58,800 --> 00:17:01,000 Speaker 1: Robin Hood was d I having the market in the 309 00:17:01,040 --> 00:17:04,480 Speaker 1: first place. Look, look, they're a hundred billion dollar funds. 310 00:17:05,080 --> 00:17:08,360 Speaker 1: Most of that money is tied up in pretty liquid 311 00:17:08,440 --> 00:17:13,200 Speaker 1: long term investments. So if they want to fool around, 312 00:17:13,600 --> 00:17:15,840 Speaker 1: for lack of a better phrase, with a couple of 313 00:17:15,880 --> 00:17:20,720 Speaker 1: billion dollars in options and derivatives, they could move a 314 00:17:20,800 --> 00:17:24,679 Speaker 1: handful of stocks for a little bit. But that ignores 315 00:17:24,720 --> 00:17:28,560 Speaker 1: the fact that you've just had a massive, massive move 316 00:17:28,800 --> 00:17:33,040 Speaker 1: across a lot of big companies that are actually doing 317 00:17:33,200 --> 00:17:36,959 Speaker 1: well during lockdown. They're doing well because they have global exposure, 318 00:17:37,160 --> 00:17:39,639 Speaker 1: and they're doing well because they were built for work 319 00:17:39,680 --> 00:17:44,919 Speaker 1: from home. Pandemic circumstances. So I'm not buying the soft 320 00:17:44,920 --> 00:17:48,159 Speaker 1: bank whale story at all. Okay, so here's the question 321 00:17:48,240 --> 00:17:50,719 Speaker 1: I was asking John. I said, you know, I'm not 322 00:17:50,760 --> 00:17:53,120 Speaker 1: seeing a narrative here. What's the narrative? And he said, 323 00:17:53,160 --> 00:17:55,800 Speaker 1: don't look for one. There hasn't been one. August was 324 00:17:55,840 --> 00:17:57,840 Speaker 1: the problem when people were trying to find one. That's 325 00:17:57,920 --> 00:18:00,240 Speaker 1: we've learned and here we don't really have a phase 326 00:18:00,280 --> 00:18:03,760 Speaker 1: of narrative to explain it. It's more randomness, to your point, 327 00:18:03,840 --> 00:18:08,719 Speaker 1: the fallacy of a narrative. And yet what undermines this 328 00:18:08,840 --> 00:18:12,320 Speaker 1: idea that you buy the behemoths, you buy these cash 329 00:18:12,359 --> 00:18:15,240 Speaker 1: fortresses that will continue to do well in a tech 330 00:18:15,359 --> 00:18:19,360 Speaker 1: driven economy. Why not just buy now given the fact 331 00:18:19,400 --> 00:18:22,320 Speaker 1: that they've come off. I mean, have we really up 332 00:18:22,600 --> 00:18:26,840 Speaker 1: ended our questions about how to fundamentally value these companies? 333 00:18:27,960 --> 00:18:33,040 Speaker 1: You know, that's really challenging question about valuation um for 334 00:18:33,080 --> 00:18:37,680 Speaker 1: a couple of reasons. Clearly, valuations have gotten extended. And 335 00:18:37,800 --> 00:18:42,840 Speaker 1: the prior narrative, the prior prior narrative before the whale narrative, 336 00:18:43,040 --> 00:18:47,399 Speaker 1: was stocks and investors are looking over the valley of 337 00:18:48,400 --> 00:18:54,240 Speaker 1: to the recovery in or perhaps uh one of the narratives. 338 00:18:54,359 --> 00:18:56,800 Speaker 1: One of the few narratives that make sense is Tesla 339 00:18:57,359 --> 00:19:00,240 Speaker 1: was running up in anticipation of being added to S 340 00:19:00,280 --> 00:19:03,119 Speaker 1: and P five hundred and when that didn't happen because 341 00:19:03,160 --> 00:19:08,200 Speaker 1: of supposed profit and revenue reasons, uh, that sell off. Okay, 342 00:19:08,240 --> 00:19:10,399 Speaker 1: I can accept that, I could. I could buy into 343 00:19:10,640 --> 00:19:15,240 Speaker 1: that argument because there was no indexing coming into to 344 00:19:15,359 --> 00:19:18,919 Speaker 1: make up for the lack of lack of purchases. But 345 00:19:19,480 --> 00:19:24,359 Speaker 1: the problem with narratives, especially after the fact hindsized, hindsight 346 00:19:24,440 --> 00:19:29,480 Speaker 1: biased driven narratives, is they ignore how random so much 347 00:19:29,520 --> 00:19:32,520 Speaker 1: of the market action is. And if it was easy 348 00:19:32,600 --> 00:19:35,880 Speaker 1: and predictable and foreseeable, well hey, we'd all be wealthy. 349 00:19:35,920 --> 00:19:39,040 Speaker 1: But the randomness is what makes it so challenging, and 350 00:19:39,160 --> 00:19:43,400 Speaker 1: people who are uncomfortable with randomness spend a lot of 351 00:19:43,600 --> 00:19:48,199 Speaker 1: mental and emotional energy looking for a description and a 352 00:19:48,280 --> 00:19:52,320 Speaker 1: storyline that makes them comfortable. Humans are terribly uncomfortable with 353 00:19:52,440 --> 00:19:54,680 Speaker 1: random outcomes, so very one of the great things here 354 00:19:54,680 --> 00:19:57,080 Speaker 1: in the derivative markets, and again with soft bank, because 355 00:19:57,080 --> 00:19:59,640 Speaker 1: if you issue the call, there's the put etcetera, etcetera. 356 00:19:59,720 --> 00:20:02,800 Speaker 1: You know, right against the call. Fine, do you just 357 00:20:02,920 --> 00:20:06,159 Speaker 1: assume there will be losses. If soft Bank takes a 358 00:20:06,240 --> 00:20:09,920 Speaker 1: gain of X billion dollars, do you just assume there's 359 00:20:09,920 --> 00:20:14,720 Speaker 1: a prescribed some loss against it? By Global Wall Street 360 00:20:15,560 --> 00:20:20,680 Speaker 1: trading is essentially a zero sum gain so for game. 361 00:20:20,800 --> 00:20:23,880 Speaker 1: So for every winner in a trade, there's a loser, 362 00:20:24,480 --> 00:20:29,240 Speaker 1: the exception being not the traders but the investors who 363 00:20:29,240 --> 00:20:33,760 Speaker 1: are allowing compounding and the passage of time to work 364 00:20:33,760 --> 00:20:37,399 Speaker 1: in their favor. If someone sold something at ten twenty 365 00:20:37,480 --> 00:20:41,280 Speaker 1: years ago and today it's being um, the person who 366 00:20:41,280 --> 00:20:44,320 Speaker 1: bought it is selling it at two hundred, that's not 367 00:20:44,440 --> 00:20:46,960 Speaker 1: exactly a zero sum. But if I'm a buyer and 368 00:20:46,960 --> 00:20:49,399 Speaker 1: you're a seller, and then tomorrow I'm a seller and 369 00:20:49,400 --> 00:20:52,520 Speaker 1: you're a buyer net net, that's gonna flatten out to 370 00:20:52,640 --> 00:20:56,120 Speaker 1: zero minus whatever the trading coast suckers in. Very Rid 371 00:20:56,119 --> 00:20:57,800 Speaker 1: Holtz can't wait to see you right on this, Very 372 00:20:57,840 --> 00:21:00,080 Speaker 1: Rid Holts writing for Bloomberg Opinion, this course and with 373 00:21:00,160 --> 00:21:08,960 Speaker 1: results wealth Management. Right now, the conversation of the day 374 00:21:09,080 --> 00:21:12,840 Speaker 1: for those of you worried about fiscal dynamics. John Ferrell 375 00:21:12,880 --> 00:21:15,280 Speaker 1: is going to dive into the German view. I'm gonna 376 00:21:15,280 --> 00:21:17,159 Speaker 1: look more at the global view, and we can do 377 00:21:17,240 --> 00:21:21,080 Speaker 1: that with Peter west Away of Vanguard, their chief economists 378 00:21:21,080 --> 00:21:24,359 Speaker 1: with prodigious math abilities out of York and Cambridge and 379 00:21:24,400 --> 00:21:29,600 Speaker 1: operational research Peter. The dynamics of this debate is wrapped 380 00:21:29,640 --> 00:21:34,520 Speaker 1: around culture, which is austerity is good. Have we slipped 381 00:21:34,520 --> 00:21:37,680 Speaker 1: away from the belief of the last number of years 382 00:21:37,680 --> 00:21:41,359 Speaker 1: that austerity is a good and beautiful thing in a slowdown? 383 00:21:43,520 --> 00:21:46,000 Speaker 1: I think we have definitely slipped away from that. I mean, 384 00:21:46,840 --> 00:21:49,120 Speaker 1: I'm not very I'm not really convinced that was ever 385 00:21:49,560 --> 00:21:53,800 Speaker 1: the economics mainstream, but it was certainly the policy mainstream. 386 00:21:53,840 --> 00:21:56,560 Speaker 1: In Germany, that was very much the view, and that's 387 00:21:56,560 --> 00:22:00,520 Speaker 1: why we've seen relatively tight criscal policy there. But I 388 00:22:00,520 --> 00:22:05,520 Speaker 1: think here in the United Kingdom, the appetite for austerity 389 00:22:05,640 --> 00:22:08,840 Speaker 1: to get the debt levels down is something that we're 390 00:22:08,880 --> 00:22:10,760 Speaker 1: not going to see for a while yet. I think 391 00:22:11,720 --> 00:22:13,720 Speaker 1: I think the mood of the new government in the 392 00:22:13,840 --> 00:22:17,040 Speaker 1: UK and perhaps more broadly in Europe is for much 393 00:22:17,440 --> 00:22:22,240 Speaker 1: much looser policy, perhaps just living with higher levels of debt. 394 00:22:22,680 --> 00:22:25,159 Speaker 1: Let's not forget that the interest rates at which and 395 00:22:25,280 --> 00:22:28,200 Speaker 1: much of this debt is being punted during this pandemic 396 00:22:28,280 --> 00:22:31,280 Speaker 1: is incredibly low, and so the burden that is going 397 00:22:31,320 --> 00:22:33,680 Speaker 1: to put on countries isn't going to be great as 398 00:22:33,680 --> 00:22:36,160 Speaker 1: great as it might have been in the past. At 399 00:22:36,200 --> 00:22:40,080 Speaker 1: some point, it's going to have to be paid off. Well, 400 00:22:40,119 --> 00:22:41,840 Speaker 1: I don't mean it, Rubbert John. I think this is 401 00:22:41,880 --> 00:22:43,640 Speaker 1: really the heart of the matter, as a low yield 402 00:22:43,760 --> 00:22:48,240 Speaker 1: environments of free pass so far, so far at least 403 00:22:48,240 --> 00:22:50,080 Speaker 1: and when you use that language, Peter, that at some 404 00:22:50,160 --> 00:22:52,560 Speaker 1: point this will have to be paid off. What does 405 00:22:52,600 --> 00:22:57,639 Speaker 1: that some point look like. Well, I think at the 406 00:22:57,720 --> 00:23:01,080 Speaker 1: moment it's it's the last on the minds of government 407 00:23:01,160 --> 00:23:03,800 Speaker 1: because there's still up to the areas in coping with 408 00:23:03,840 --> 00:23:07,000 Speaker 1: the pandemic. I think when and if we do get 409 00:23:07,000 --> 00:23:11,080 Speaker 1: to this point when economies start to recover much more quickly, 410 00:23:11,520 --> 00:23:15,439 Speaker 1: when the tightening cycle begins again and again we're a 411 00:23:15,480 --> 00:23:18,320 Speaker 1: long way from that yet, at that point, I think 412 00:23:18,320 --> 00:23:21,879 Speaker 1: the conversations will start to be about, well, what are 413 00:23:21,880 --> 00:23:23,639 Speaker 1: we going to do about fiscal policy? Are we going 414 00:23:23,680 --> 00:23:26,960 Speaker 1: to tighten policy? I mean it, maybe though, as I 415 00:23:27,000 --> 00:23:29,000 Speaker 1: say that, that we'll just learn to live with this, 416 00:23:29,160 --> 00:23:31,720 Speaker 1: and perhaps you know this idea that some of the 417 00:23:31,800 --> 00:23:35,280 Speaker 1: debt will just effectively be monetized. Let's not forget many 418 00:23:35,280 --> 00:23:39,159 Speaker 1: of the central banks of sitting on this debt. At 419 00:23:39,119 --> 00:23:41,800 Speaker 1: the moment, it's not putting a burden. It's not putting 420 00:23:41,800 --> 00:23:44,359 Speaker 1: a burden on the government because the debt interest is 421 00:23:44,400 --> 00:23:46,560 Speaker 1: being petted by by the Bank of England E actually, 422 00:23:46,560 --> 00:23:49,280 Speaker 1: so at some point he has to get on what 423 00:23:49,480 --> 00:23:52,640 Speaker 1: that's what makes it que Qui means that the debt 424 00:23:52,680 --> 00:23:55,439 Speaker 1: eventually gets sold back into the into the private sector. 425 00:23:55,480 --> 00:23:58,639 Speaker 1: When it's not sold back, that's when it's called marchi financing. 426 00:23:58,680 --> 00:24:02,720 Speaker 1: And would you think of the history of qui Japan, Europe, 427 00:24:03,359 --> 00:24:05,240 Speaker 1: in the US to an extent, a lot of this 428 00:24:05,359 --> 00:24:07,760 Speaker 1: TV is still sitting on banks balance sheets, so we 429 00:24:07,760 --> 00:24:10,919 Speaker 1: haven't really seen the cycle of que play out yet 430 00:24:11,440 --> 00:24:14,480 Speaker 1: until we don't really know how it's going to play. Well, 431 00:24:14,520 --> 00:24:17,400 Speaker 1: that's qui forever, isn't it, Peter. You just keep reinvesting, 432 00:24:17,520 --> 00:24:20,159 Speaker 1: maturing assets, you keep doing you never forgive it. So 433 00:24:20,240 --> 00:24:23,960 Speaker 1: technically it's not financing. There is another issue here, and 434 00:24:24,000 --> 00:24:26,639 Speaker 1: it's not just the crisis response, Peter. It is the 435 00:24:26,720 --> 00:24:28,879 Speaker 1: permanent change. That's what I'm interested in. I think we 436 00:24:28,920 --> 00:24:31,120 Speaker 1: can all get our hands around what the crisis response 437 00:24:31,200 --> 00:24:33,640 Speaker 1: looks like. We can see it in the last couple 438 00:24:33,680 --> 00:24:36,680 Speaker 1: of months permanent shifts in the framework at the FED, 439 00:24:36,920 --> 00:24:40,200 Speaker 1: permanent fiscal changes in places like Germany. Can you speak 440 00:24:40,200 --> 00:24:44,600 Speaker 1: to that for us, Peter sure. I mean, let me 441 00:24:44,680 --> 00:24:48,240 Speaker 1: start with as a former central banker, let's talk about 442 00:24:48,240 --> 00:24:52,359 Speaker 1: what the Fed of have talk introduced, this idea of 443 00:24:52,680 --> 00:24:56,479 Speaker 1: average inflation targeting or price leble targeting. I mean, at 444 00:24:56,480 --> 00:24:58,679 Speaker 1: the moment, it's still not completely clear what we're going 445 00:24:58,720 --> 00:25:02,280 Speaker 1: to do. Think the key message is that that is 446 00:25:02,320 --> 00:25:06,520 Speaker 1: going to facilitate easier monetary policy for longer. Personally, I'm 447 00:25:06,560 --> 00:25:10,000 Speaker 1: a bit of a price level targeting skeptic. I think 448 00:25:10,040 --> 00:25:12,399 Speaker 1: it's a it's a difficult thing to carry off, to 449 00:25:12,600 --> 00:25:17,960 Speaker 1: start worrying about inflation bygons. But that's really where where 450 00:25:18,000 --> 00:25:22,280 Speaker 1: we're going with that. Sorry. So yeah, as far as 451 00:25:22,320 --> 00:25:25,719 Speaker 1: fiscal policys concerned, I think we are in a new 452 00:25:25,920 --> 00:25:30,560 Speaker 1: regime because I think the idea of getting down quickly 453 00:25:30,880 --> 00:25:34,359 Speaker 1: the way we did after the financial crisis just isn't 454 00:25:34,359 --> 00:25:36,760 Speaker 1: palatable and don't think it work very well for countries 455 00:25:36,840 --> 00:25:40,440 Speaker 1: like Europe, and I just don't think the political aptite 456 00:25:40,480 --> 00:25:43,880 Speaker 1: of that is there anymore. There's just too many other 457 00:25:44,520 --> 00:25:48,440 Speaker 1: political problems around the you know, the distribution of income 458 00:25:48,480 --> 00:25:52,480 Speaker 1: and so on. That makes fiscal policy and fiscal austerity 459 00:25:52,600 --> 00:25:55,960 Speaker 1: just not a palatable policy option. Meanwhile, they've got a 460 00:25:56,000 --> 00:25:58,000 Speaker 1: partner in the Central Bank, so we do have an 461 00:25:58,040 --> 00:26:01,520 Speaker 1: ECB meeting on Thursday. The Bank of England, which you 462 00:26:01,520 --> 00:26:04,400 Speaker 1: were a member of it has considered or talked openly 463 00:26:04,560 --> 00:26:08,239 Speaker 1: about negative interest rates. Do you expect that to be 464 00:26:08,280 --> 00:26:11,280 Speaker 1: a tool used by them in the not so distant future, 465 00:26:11,440 --> 00:26:14,440 Speaker 1: especially given the fact that there really isn't an easy 466 00:26:14,480 --> 00:26:19,000 Speaker 1: pathway to paying back some of the debt. Yeah, they've 467 00:26:19,040 --> 00:26:21,360 Speaker 1: left it or open to negative interustrates, but I mean 468 00:26:21,359 --> 00:26:23,840 Speaker 1: even back at my time at the Bank ten years 469 00:26:23,840 --> 00:26:27,800 Speaker 1: ago now, the the idea of negative interustrates wasn't looked 470 00:26:27,800 --> 00:26:30,679 Speaker 1: on very kindly. So I think they've probably got more 471 00:26:30,680 --> 00:26:34,119 Speaker 1: work to do on QUI before they go down that path. 472 00:26:34,520 --> 00:26:37,880 Speaker 1: But I think they could. They could do it um 473 00:26:37,960 --> 00:26:39,800 Speaker 1: But I think we're getting close to the end of 474 00:26:39,800 --> 00:26:42,240 Speaker 1: the road to negative rates to the e c B. 475 00:26:42,440 --> 00:26:45,399 Speaker 1: I don't think rates can go that much much. For 476 00:26:45,600 --> 00:26:47,840 Speaker 1: one second, that's Peter, hold on one second, and I'm 477 00:26:47,880 --> 00:26:50,000 Speaker 1: sorry to interrupt, but that's a huge issue. If you're 478 00:26:50,040 --> 00:26:51,399 Speaker 1: saying that they're getting close to the end of the 479 00:26:51,440 --> 00:26:53,560 Speaker 1: road with negative interest rates. Do you think that they 480 00:26:53,560 --> 00:26:56,359 Speaker 1: are going to at some point in our lifetimes moved 481 00:26:56,359 --> 00:27:00,119 Speaker 1: to a positive indust rate regime. No, I don't mean 482 00:27:00,160 --> 00:27:02,080 Speaker 1: they're going to reverse it, but they're going to keep 483 00:27:02,480 --> 00:27:05,560 Speaker 1: the rates at the very low negative levels that they're at, 484 00:27:05,800 --> 00:27:08,840 Speaker 1: and I think they will carry on putting que into 485 00:27:08,840 --> 00:27:12,639 Speaker 1: the system to to push down yields to ease monety conditions, 486 00:27:12,880 --> 00:27:15,479 Speaker 1: I think. So. I think the big policy constraint questions 487 00:27:15,520 --> 00:27:17,920 Speaker 1: to the UB is at what point do they run 488 00:27:17,920 --> 00:27:20,719 Speaker 1: out of government bonds to by and we'll about how 489 00:27:20,760 --> 00:27:25,160 Speaker 1: to start breaking rules around which bonds they're able to buy. 490 00:27:26,119 --> 00:27:27,960 Speaker 1: That that, for me, it is a big question rather 491 00:27:28,040 --> 00:27:30,560 Speaker 1: than whether they're going to go a lot more deeply 492 00:27:30,560 --> 00:27:32,520 Speaker 1: into negative territory. So I think at the end of 493 00:27:32,520 --> 00:27:36,239 Speaker 1: the day, especially for an economy like Europe that's so 494 00:27:36,359 --> 00:27:39,480 Speaker 1: dependent on the banking system, you do start bumping up 495 00:27:39,520 --> 00:27:43,200 Speaker 1: against the so called reversal rate, where actually negative rates 496 00:27:43,240 --> 00:27:46,040 Speaker 1: start to do more harm for the good if you 497 00:27:46,119 --> 00:27:49,040 Speaker 1: to rush away. Whether us on Bloomberg Radio and Bloomberg Television, 498 00:27:49,040 --> 00:27:51,200 Speaker 1: we welcome all of you to our same okays this morning. 499 00:27:51,240 --> 00:27:54,080 Speaker 1: Lisa Brand was Jonathan Ferrell in the time, King, we're 500 00:27:54,080 --> 00:27:55,919 Speaker 1: looking at the market's tike by tike. We'll get to 501 00:27:55,960 --> 00:27:58,760 Speaker 1: that when we're done with dr west Away. Right now 502 00:27:58,920 --> 00:28:01,879 Speaker 1: I need in our future is negative forty six is 503 00:28:01,920 --> 00:28:05,560 Speaker 1: pretty tough out there this morning. Dr west Away to 504 00:28:05,720 --> 00:28:07,520 Speaker 1: some all this up. And when you look at the 505 00:28:07,560 --> 00:28:12,720 Speaker 1: fiscal policy right now, it comes back to aggregate demand. 506 00:28:12,920 --> 00:28:16,399 Speaker 1: We're seeing an oil this morning, a real global issue 507 00:28:16,440 --> 00:28:20,280 Speaker 1: of demand. Would you suggest the demand is threatened into 508 00:28:20,359 --> 00:28:27,960 Speaker 1: que four? Well, I think the big question into four 509 00:28:28,560 --> 00:28:30,720 Speaker 1: is really at the same question we've had for the 510 00:28:30,800 --> 00:28:32,679 Speaker 1: last six months, which is what's going to happen to 511 00:28:32,720 --> 00:28:37,240 Speaker 1: the virus, what's going to happen to the policially the 512 00:28:37,320 --> 00:28:41,800 Speaker 1: consumer response to that, And at the moment, consumers firms 513 00:28:41,920 --> 00:28:45,800 Speaker 1: are still very tentative about going out and spending money, 514 00:28:45,840 --> 00:28:49,840 Speaker 1: and so we do have this aggregate demand shortfall, which 515 00:28:50,080 --> 00:28:53,120 Speaker 1: is where the fiscal policy is piling in to try 516 00:28:53,120 --> 00:28:55,760 Speaker 1: and replace that spending. And then it's it's a bit 517 00:28:55,800 --> 00:28:59,800 Speaker 1: different this fiscal policy support because it's giving its inviting 518 00:29:00,040 --> 00:29:02,480 Speaker 1: income to people who are who are out of work. 519 00:29:02,560 --> 00:29:05,320 Speaker 1: So it's not so much about getting people out spending 520 00:29:05,360 --> 00:29:08,000 Speaker 1: money that they are them that spent. It's actually just 521 00:29:08,200 --> 00:29:11,000 Speaker 1: propping up their income. And as long as people are 522 00:29:11,000 --> 00:29:13,520 Speaker 1: out of work on furlough, there's going to be a 523 00:29:13,560 --> 00:29:16,000 Speaker 1: need for this. So I think the difficult question is 524 00:29:16,040 --> 00:29:19,240 Speaker 1: going to be, you know, if if the virus drags 525 00:29:19,320 --> 00:29:21,280 Speaker 1: on into the first quarter of next year, is it 526 00:29:21,280 --> 00:29:24,560 Speaker 1: easily could Is it really feasible that the governments will 527 00:29:24,680 --> 00:29:28,960 Speaker 1: carry on giving this exceedingly generous income support to to 528 00:29:29,080 --> 00:29:31,880 Speaker 1: workers who having yet got back into into work. I 529 00:29:31,920 --> 00:29:33,560 Speaker 1: think they're going to have to do, but it's gonna 530 00:29:34,040 --> 00:29:38,080 Speaker 1: really put a strain on on the dead paid a 531 00:29:38,120 --> 00:29:39,760 Speaker 1: greater catch up. We've got to leave it there. Peter 532 00:29:39,840 --> 00:29:43,720 Speaker 1: west Away there of Vancouard. Thanks for listening to the 533 00:29:43,720 --> 00:29:50,240 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 534 00:29:50,600 --> 00:29:54,800 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 535 00:29:54,880 --> 00:29:59,160 Speaker 1: Tom Keen before the podcast. You can always catch us worldwide. 536 00:29:59,560 --> 00:30:00,640 Speaker 1: I'm Berg Radio