WEBVTT - Surveillance: Correction is Healthy, Marangi Says 0:00:06.360 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily 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 --> 0:00:27.760 Bloomberg dot Com, and of course on the Bloomberg Chris 0:00:27.840 --> 0:00:32.080 MORANGI with us with Gabelly Funds or co Chief investment Officer. Chris, 0:00:32.120 --> 0:00:36.120 I want to start with sort of equity hysteria that's 0:00:36.159 --> 0:00:39.960 out there, but the media angst that's going on right now. 0:00:40.400 --> 0:00:43.800 How do you define a correction in two thousand twenty. 0:00:44.360 --> 0:00:47.440 Is it down ten percent? Or is there a new calculus? 0:00:47.440 --> 0:00:51.159 For Gabelly Funds? This is nothing, Listen, this is this 0:00:51.280 --> 0:00:55.600 is healthy. Obviously the correction is concentrated in a few stocks. 0:00:55.640 --> 0:00:58.279 Those few stocks happen to have accounted for more than 0:00:59.000 --> 0:01:00.600 of the gains of the S and P so far 0:01:00.720 --> 0:01:04.080 this year. Um, so you know this is a different 0:01:04.080 --> 0:01:06.280 correction than certainly we've seen in the past. Here's the 0:01:06.360 --> 0:01:08.119 money question for the day, Chris. And when I saw 0:01:08.160 --> 0:01:10.440 our line up earlier this morning, when I walked in 0:01:10.920 --> 0:01:14.120 hours before John Faroe and Lisa Bramo, it's I would 0:01:14.240 --> 0:01:16.160 want to point out Chris and I really went to 0:01:16.240 --> 0:01:18.840 the heart of the matter, which is, how should our 0:01:18.880 --> 0:01:23.240 listeners and viewers who are not sophisticates and derivatives, how 0:01:23.280 --> 0:01:26.679 should they adapt to the nasdack Well, the gamma, Well 0:01:26.760 --> 0:01:31.479 did they just ignore it? I am certainly not an 0:01:31.520 --> 0:01:35.000 expert on market internals and why the market is short gamma, 0:01:35.480 --> 0:01:38.399 but it certainly has introduced folatility. It's powered to move 0:01:38.480 --> 0:01:40.840 up in part along with a lot of other factors, 0:01:40.840 --> 0:01:44.160 and it appears to be driving the reduction that we're 0:01:44.160 --> 0:01:47.520 seeing a future. So um something to understand be aware of. 0:01:47.960 --> 0:01:49.960 But at the end of the day, we're looking at 0:01:49.960 --> 0:01:51.840 the fundamentals of each of these stocks, and as Jonathan 0:01:51.840 --> 0:01:54.800 pointed out earlier, the fundamentals of those Big five stocks 0:01:54.800 --> 0:01:57.480 have been terrific so far this year. The christ is 0:01:57.600 --> 0:01:59.720 just trying to work out the appropriate multiple to pay 0:01:59.720 --> 0:02:01.280 on some of these companies. Can you just give us 0:02:01.280 --> 0:02:05.360 some insign to those conversations right now of ricka Belly. Yeah, 0:02:05.400 --> 0:02:08.200 that's right. So you know, in general, obviously where rates 0:02:08.200 --> 0:02:10.480 are pinned and appear to be pinned for a very 0:02:10.520 --> 0:02:12.520 long time, you should be willing to pay a higher 0:02:12.600 --> 0:02:15.280 multiple for any stream of cash flows. Um. And the 0:02:15.360 --> 0:02:19.400 question is, you know, how durable are the cash flows 0:02:19.440 --> 0:02:21.799 of say, those Big five, if that's what we're talking about, 0:02:22.200 --> 0:02:24.880 and what you'd be willing to pay for them. Um. 0:02:24.919 --> 0:02:29.680 You know, it seems that a year ago, obviously they 0:02:29.720 --> 0:02:32.359 would have been at bargain prices. But at this point 0:02:33.280 --> 0:02:35.960 the market is making a bet that those the durability, 0:02:36.040 --> 0:02:38.280 that cash will ASTs a very long time and that 0:02:38.400 --> 0:02:41.400 they grow, you know it probably double global GDP growth 0:02:41.440 --> 0:02:44.880 for the next ten years. That's a little bit of 0:02:44.919 --> 0:02:48.119 a harder bet to make. So are you holding, are 0:02:48.160 --> 0:02:51.000 you buying or are you selling into this great dip 0:02:51.080 --> 0:02:54.760 of a tom might not it? Yeah, well we're we've 0:02:54.760 --> 0:02:57.079 been buying. We've been buying a different kind of stocks. 0:02:57.080 --> 0:03:01.160 We've been buying the smaller and unloved will be considered 0:03:01.200 --> 0:03:03.480 value stacks. Um. Some of those stocks are still off 0:03:03.520 --> 0:03:05.960 over thirty percent this year. In fact, a quarter of 0:03:05.960 --> 0:03:11.520 the Russell three thousand is still off by and that's 0:03:11.560 --> 0:03:13.799 where we're seeing bargains. You know, amongst the Big five, 0:03:14.160 --> 0:03:17.600 we've owned Google. It's a media essentially a media name 0:03:17.680 --> 0:03:20.120 that we can understand. Um, we've owned a little bit 0:03:20.160 --> 0:03:24.200 of Facebook over time, having on Amazon, unlike our patriarch, 0:03:24.480 --> 0:03:27.120 Warm Buffett, haven't been big in Apple, at least on 0:03:27.160 --> 0:03:30.079 the value side. I think there's some idiosyncratic issues there 0:03:30.120 --> 0:03:33.240 that we're very careful of, particularly around China. UM. So, 0:03:33.919 --> 0:03:36.080 you know, this hasn't really changed our view on valuation 0:03:36.480 --> 0:03:39.320 just yet, although at a certain point it does become 0:03:39.360 --> 0:03:42.680 concerning from a faith perspective, the idea of what does 0:03:42.720 --> 0:03:45.560 this due to the marginal investor who has an allocation 0:03:45.680 --> 0:03:48.680 still in safer assets, who was going to go into stocks. 0:03:48.880 --> 0:03:52.800 It suddenly sees these high flyers, these staples of certainty, 0:03:53.120 --> 0:03:56.120 being absolutely pummeled, even if it is short term, and 0:03:56.160 --> 0:03:59.280 even if you're to date the gains are tremendous. At 0:03:59.320 --> 0:04:02.640 what point do these become systemic issues? Do they become 0:04:02.720 --> 0:04:06.040 systemic selloffs that really in fact the other parts of 0:04:06.040 --> 0:04:08.800 the stock market. Well, you know it's a great question. UM. 0:04:08.840 --> 0:04:11.600 You know, coming into last week, those Big five are 0:04:11.600 --> 0:04:15.080 almost a quarter of the SPS. Been written about that. 0:04:15.120 --> 0:04:17.920 It's sort of an unprecedented level of concentration. So if 0:04:17.920 --> 0:04:20.120 you thought by buying an SMP index fund you were 0:04:20.120 --> 0:04:23.880 getting a nice diversified set of equities, you may need 0:04:23.920 --> 0:04:27.599 to rethink that. UM, you know those five companies, uh, 0:04:27.680 --> 0:04:29.240 not only are a large part of SMP, but they're 0:04:29.279 --> 0:04:31.680 all essentially driven by the same kind of dynamics. They're all, 0:04:31.800 --> 0:04:35.400 even though they're different industry classifications, all essentially Internet platform 0:04:35.440 --> 0:04:38.160 companies subject to a lot of the same risks. UH. 0:04:38.320 --> 0:04:41.040 And that's that's really unprecedented, and I think leaves the 0:04:41.040 --> 0:04:43.680 average investor exposed and maybe more risks than they were 0:04:44.200 --> 0:04:46.600 thinking they were taking going on right down to Nastac 0:04:46.680 --> 0:04:51.360 testing new loads on MOVI here, John Faroe, I give 0:04:51.400 --> 0:04:53.480 you great credit for this because I keep talking tech 0:04:53.520 --> 0:04:58.200 tech tech and through the year JP Morgan down from 0:04:58.200 --> 0:05:00.920 the February highs. That shows a damn job there. Just 0:05:00.960 --> 0:05:04.200 in the banking area alone, the banks have struggled three 0:05:04.240 --> 0:05:07.200 twenty Jamie Diamonds said months ago, and I got everybody's 0:05:07.200 --> 0:05:09.039 attention that this is an a normal recession and we 0:05:09.040 --> 0:05:11.839 haven't seen the impact of this recession just yet. It 0:05:11.920 --> 0:05:13.919 might come later this year. Chris, as you look at 0:05:13.960 --> 0:05:17.440 the financials, how do you think about that? Again? You know, 0:05:17.520 --> 0:05:19.799 these are these are obviously names that are very sensitive 0:05:19.839 --> 0:05:23.960 to the shape and absolute level of interest rates, and 0:05:24.000 --> 0:05:25.880 that's not been a good story for them. Um that 0:05:26.000 --> 0:05:28.159 interest margins. We're starting to perk up at the end 0:05:28.200 --> 0:05:31.760 of last year, and now I've compressed again and we 0:05:31.800 --> 0:05:35.159 don't see them expanding anytime soon. That being said, you 0:05:35.200 --> 0:05:38.080 know their price for that kind of outlook. Um. The 0:05:38.120 --> 0:05:40.719 other dynamice, obviously, is a lot of fear that especially 0:05:40.839 --> 0:05:44.479 came in in March about credit. Credit seems like it's 0:05:45.200 --> 0:05:47.600 probably gonna end up a little bit better than was feared, 0:05:48.000 --> 0:05:49.640 but still, you know it's going to be an ongoing 0:05:49.640 --> 0:05:52.279 issue for some time as we worked through this recovery. 0:05:52.360 --> 0:05:56.160 Chris barging new loads here this morning, negative three three 0:05:56.160 --> 0:05:58.880 point one percent, down three d and fifty NASDAC points 0:05:58.880 --> 0:06:01.520 we break down a new lows right now. When for 0:06:01.680 --> 0:06:06.960 you guys, just tech become cheap. I don't know if 0:06:07.000 --> 0:06:08.840 I can answer that at a macro level, but um, 0:06:08.880 --> 0:06:11.320 you know we're we're obviously looking at at all sectors. 0:06:11.440 --> 0:06:12.960 I think there's a lot to like in tech, A 0:06:13.000 --> 0:06:15.200 lot of those business models, particularly amongst the big five, 0:06:15.200 --> 0:06:19.120 occurring revenue models, subscription, low capital intensity, these are all 0:06:19.160 --> 0:06:22.520 things that fundamental investors should love. Again, as you as 0:06:22.720 --> 0:06:25.359 to your point, what do you pay for that? Um? 0:06:25.400 --> 0:06:27.400 And you know, we generally are looking, we're looking at tech. 0:06:27.440 --> 0:06:33.080 We're looking at technology embedded within other sectors because obviously, 0:06:33.279 --> 0:06:38.520 you know, things like everything from AI to automation UM, 0:06:38.560 --> 0:06:41.479 you know, impacting the productivity of those other sectors, and 0:06:41.480 --> 0:06:44.000 that's generally where we're looking to play tech. We're also 0:06:44.040 --> 0:06:48.559 playing tech in some derivative matters. You know, the value 0:06:48.560 --> 0:06:51.720 of broadband has been highlighted through this crisis. You can't 0:06:51.760 --> 0:06:54.920 get any of those tech services without a fast broadband connection. 0:06:54.920 --> 0:06:57.040 I couldn't be here doing this without a fast broadband connection. 0:06:57.080 --> 0:06:59.039 What am I willing to pay for that? I'm willing 0:06:59.040 --> 0:07:00.560 to pay a lot for it, So that gives those 0:07:00.600 --> 0:07:02.320 companies a lot of pricing power. That's why we like 0:07:02.400 --> 0:07:06.279 the first while cable companies now known as broadband infrastructure companies. 0:07:07.560 --> 0:07:09.640 Hi Chris writes to catch up as a wise, prest 0:07:11.040 --> 0:07:19.320 funds suband JAPA joins USEN. And of course, what's wonderful 0:07:19.360 --> 0:07:22.239 here about her skill in us race is the heritage 0:07:22.280 --> 0:07:25.840 of sock gen and the derivative space as well. Over 0:07:25.880 --> 0:07:28.640 the weekends SBANDA, you had to combine in the derivative 0:07:28.640 --> 0:07:32.800 analysis of a SoftBank gamma trade with what the fixed 0:07:32.840 --> 0:07:35.920 income market will do is there any correlation. There is 0:07:35.960 --> 0:07:39.360 there a linkage between year world and the equity derivative 0:07:39.400 --> 0:07:44.000 gamma world that we're seeing right now. It actually seems 0:07:44.040 --> 0:07:47.120 to be a very little correlation between the two markets, 0:07:47.160 --> 0:07:49.960 at least the last couple of months, because bonds had 0:07:50.200 --> 0:07:52.680 very much range bound and I think that that supported 0:07:52.720 --> 0:07:56.760 the equity reality really if anything, so uh, there seems 0:07:56.800 --> 0:07:58.880 to be a huge divergence between the signal and you're 0:07:58.880 --> 0:08:01.720 getting from these two more markets is a signaling of 0:08:01.800 --> 0:08:04.600 bonds arrogant demands diminishing. I mean, can you link it 0:08:04.680 --> 0:08:07.080 up with lower oil prices and link it up with 0:08:07.120 --> 0:08:12.200 global slowdown? Expected? Absolutely? I think that the modern markets 0:08:12.200 --> 0:08:15.080 extraordinarily cautious, which is what you would expect, and I 0:08:15.120 --> 0:08:19.800 think lower yields are are fueling the rally in equities. 0:08:19.840 --> 0:08:24.520 Broadly speaking, I think the data you know, in July 0:08:24.800 --> 0:08:27.480 and August has been sort of plateauing. You've got this 0:08:27.560 --> 0:08:30.480 sort of sharp move higher in the data in May 0:08:30.600 --> 0:08:34.199 and in June, so you know, the markets extraordinary cautious 0:08:34.240 --> 0:08:37.120 given the rise in the infection rates. Huh. And the 0:08:37.120 --> 0:08:39.480 fact that we haven't gotten in for fiscal assumers is 0:08:39.520 --> 0:08:42.880 also keeping the market somewhat reach abound. It's about it. 0:08:42.960 --> 0:08:45.199 For a while now, people have talked about the potential 0:08:45.240 --> 0:08:47.440 for the treasury market to turn into a zombie market 0:08:47.800 --> 0:08:50.440 because of the federal reserves huge moves over the last 0:08:50.520 --> 0:08:52.720 year or so, and not just the treasury market, the 0:08:52.720 --> 0:08:54.960 credit market as well. So about it from your perspective, 0:08:55.440 --> 0:08:59.440 Is the long end aligned with fundamentals and the trajectory 0:08:59.440 --> 0:09:03.320 of this recount? Three? No, because of the fact that 0:09:03.360 --> 0:09:06.560 the markets pressing in a lower for longer paradigm, given 0:09:06.600 --> 0:09:08.680 the fact that the Fed is going to keep interstrates low, 0:09:09.080 --> 0:09:12.520 and there's still a lot of uncertainty about the trajectory 0:09:12.640 --> 0:09:15.800 or future Montrey policy initiatives. Will they purchase more, will 0:09:15.840 --> 0:09:18.839 they purchase more? Waded towards the long end, So the 0:09:19.120 --> 0:09:22.680 long end of the curve reflecting the tugue of war, 0:09:22.760 --> 0:09:26.199 I would say between this a lot of supply we're 0:09:26.200 --> 0:09:29.400 going to see in the second half versus the potential 0:09:29.480 --> 0:09:32.280 for the Fed to start purchasing more in the long end. 0:09:32.320 --> 0:09:34.920 So you're seeing a very range born market across the curve. 0:09:35.200 --> 0:09:38.160 But I think ultimately the supply picture is gonna is 0:09:38.200 --> 0:09:41.080 going to outweigh any sort of demand you're gonna see 0:09:41.200 --> 0:09:44.840 or or or I should say, marginal buying you're going 0:09:44.920 --> 0:09:47.640 to see from the Fed. Well, let's talk about the 0:09:47.640 --> 0:09:50.800 supply pictures of andre your basic assumptions right now going forward, 0:09:51.040 --> 0:09:52.720 and how they would need to adjust if at all 0:09:52.880 --> 0:09:55.080 if we don't get a fiscal deal another deal down 0:09:55.080 --> 0:10:00.680 in d c UM. I think that the in the 0:10:00.720 --> 0:10:05.120 August refunding the treasury um already accommodated for I would 0:10:05.120 --> 0:10:10.120 say about a trillion dollars in spending coming after after 0:10:10.160 --> 0:10:14.160 the August refunding meeting, So the supply has gone up 0:10:14.240 --> 0:10:18.480 quite meaningfully in anticipation of another deal getting passed through, 0:10:18.480 --> 0:10:22.199 and that hasn't really happened. So uh, you know. Regardless, 0:10:22.200 --> 0:10:25.120 I think that the supply is and deficits are going 0:10:25.160 --> 0:10:28.400 to be higher for the foreseeable future. So I think 0:10:28.400 --> 0:10:30.120 that that's going to be something that weighs on the 0:10:30.160 --> 0:10:34.240 long end over time, especially if the fundamentals improved and 0:10:34.360 --> 0:10:38.120 yields start to rise rise reflecting better fundamentals, and you 0:10:38.120 --> 0:10:41.400 should see steeper curves when you talk about the marginal 0:10:41.480 --> 0:10:44.360 buying by the Federal Reserve. So far it has been that, 0:10:44.440 --> 0:10:46.800 and for the past two months, the Fed's balance sheet 0:10:46.800 --> 0:10:50.480 has stayed pretty much consistent constant. At what point, if 0:10:50.520 --> 0:10:52.880 yields do rise, do you expect the Fed to step 0:10:52.880 --> 0:10:57.040 in more meaningfully? I think if they move in really 0:10:57.080 --> 0:11:00.320 in yields is somewhat erratic. You see some sharp rise 0:11:00.360 --> 0:11:03.240 in in yields like we saw, you know, after the 0:11:03.280 --> 0:11:05.760 taper tantrum, or if there's some sort of a fundamental 0:11:05.800 --> 0:11:09.080 reason for lack of liquidity, I think that's when the 0:11:09.080 --> 0:11:12.280 FED steps in. If it's a very gradual rising hills 0:11:13.040 --> 0:11:16.640 warranted from improving fundamentals, I think the Fed will be okay. 0:11:16.679 --> 0:11:19.280 So any sort of sharp move higher and yeels is 0:11:19.280 --> 0:11:21.839 when I think I see the Fed coming in uh 0:11:21.880 --> 0:11:24.440 and sort of you know, putting a lid on how 0:11:24.520 --> 0:11:27.120 high yields can go. So one of the big raging 0:11:27.120 --> 0:11:29.720 debates right now people get really hated about this is 0:11:29.720 --> 0:11:32.800 whether the sixty forty portfolio is dead, whether treasury is 0:11:32.800 --> 0:11:37.160 basically it yields this low, or an insufficient hedge against volatility. 0:11:37.200 --> 0:11:41.520 Do you agree with that thesis? I think so because 0:11:41.640 --> 0:11:43.880 you know, if you know, looking back even the last 0:11:43.920 --> 0:11:46.480 couple of decades, I mean, the suxted forty portfolio has 0:11:46.520 --> 0:11:49.720 been bounds rallying and stocks rallying right. So the the 0:11:49.840 --> 0:11:54.040 equality the fixed income portfolio has never been a strong 0:11:54.360 --> 0:11:58.680 hedge for for equities, maybe over short periods of time, 0:11:58.720 --> 0:12:02.520 but not not over the a longer rising. Now you're 0:12:02.559 --> 0:12:05.199 seeing even less of that given the fact that the 0:12:05.200 --> 0:12:09.000 FED is going to uh, you know, we have an 0:12:09.080 --> 0:12:13.840 environment where negative industrates are are are not in the cards, 0:12:13.920 --> 0:12:17.240 which means that interestrates the floor and zero. So there's 0:12:17.240 --> 0:12:20.480 only one way tragedy heelds can go either sideways from 0:12:20.480 --> 0:12:23.720 here on or higher, and that's that. I think that 0:12:23.840 --> 0:12:31.040 dynamic doesn't play into the sixty um you know portfolio paradigm. 0:12:31.080 --> 0:12:32.959 You know, I look subd at this and folks, you've 0:12:32.960 --> 0:12:36.120 got NASDAC breaking down now two point seven three und 0:12:36.160 --> 0:12:39.760 neque points where the new weakness today as well the 0:12:39.920 --> 0:12:43.000 vow that we see in the equity markets, are we 0:12:43.120 --> 0:12:48.040 going to see that in the bond markets? Probably not. 0:12:48.240 --> 0:12:51.000 I think if if you know, tennantorghields for instance, have 0:12:51.080 --> 0:12:55.080 been between you know, fifty to eighty basis points, that's 0:12:55.080 --> 0:12:57.600 probably where they're going to spend the remainder of the 0:12:57.640 --> 0:13:00.559 of this year. So I think that there's really this 0:13:00.760 --> 0:13:04.760 low for longer paradigm. Generally the Japanification, I would say 0:13:04.760 --> 0:13:08.559 of US bond yields is going to keep volatilely somewhat low. 0:13:08.640 --> 0:13:12.240 What you're seeing now is market positioning, uh, you know, 0:13:12.320 --> 0:13:16.080 for potential rising yields and origening of perhaps some of 0:13:16.080 --> 0:13:19.400 those those metrics like pair excuse but but broadly speaking, 0:13:19.400 --> 0:13:21.160 I think I think volts are going to remain low 0:13:21.200 --> 0:13:23.480 for the foresee of the future. Why is that? Why? 0:13:23.600 --> 0:13:26.160 How does it dampen down? Is it just Fed intrusion 0:13:26.240 --> 0:13:28.800 into the market where it's not a real market. I mean, 0:13:28.840 --> 0:13:33.520 I just don't buy the idea that because should go quiet, Yeah, exactly. 0:13:33.559 --> 0:13:36.400 I think that, you know, the participation of the FED 0:13:36.559 --> 0:13:39.440 is not something that's near term. This is an open ended, 0:13:39.760 --> 0:13:42.720 you know, purchase program where they're purchasing eight billion per 0:13:42.760 --> 0:13:46.359 month and that size could potentially increase if there's volatility 0:13:46.360 --> 0:13:49.280 in the market's not decreased. So given that sort of paradigm, 0:13:49.360 --> 0:13:54.280 it's really hard to envision especially yields from two years 0:13:54.360 --> 0:13:57.520 to ten years, you know, being very volatile, given the 0:13:57.559 --> 0:14:01.080 fact that their historical lows and they're going to be low, 0:14:01.120 --> 0:14:03.480 given the fact that the FED is committed to a 0:14:03.480 --> 0:14:08.080 lower for longer strategy. SAA of Cecieta in general. It 0:14:08.160 --> 0:14:10.880 is the day after Labor Day in the United States. Normally, 0:14:10.880 --> 0:14:12.480 this is a time when people would be getting back 0:14:12.520 --> 0:14:14.800 to work, back to the office. People are just getting 0:14:14.800 --> 0:14:16.679 back to their computers where they've been at their kitchen 0:14:16.679 --> 0:14:19.600 tables all this time. Can you talk about the change, 0:14:19.600 --> 0:14:22.280 whether you're going to see any shift in positioning, any 0:14:22.320 --> 0:14:25.600 shift in strategy at this point, is people reassess in 0:14:25.640 --> 0:14:27.880 their post summer meetings or do you think that this 0:14:28.000 --> 0:14:29.800 year is just going to be different because you're just 0:14:29.800 --> 0:14:34.800 gonna get that consistent feeling of in limbo. I think 0:14:34.840 --> 0:14:38.200 it's going to, unfortunately be a consistent feeling of needing 0:14:38.280 --> 0:14:42.240 more data before you can have a clear direction on 0:14:42.320 --> 0:14:46.320 treasury yields um. You know, broadly speaking, this week we 0:14:46.360 --> 0:14:48.000 get a lot of supplies to We could see some 0:14:48.040 --> 0:14:52.720 concession into the into into the auctions, but other than that, 0:14:53.440 --> 0:14:56.000 the dynamics are going to be led by the infection 0:14:56.120 --> 0:15:00.120 rates and and not having uh, you know, clarity on 0:15:00.240 --> 0:15:02.280 the data. There's a lot of volatility. You're going to 0:15:02.360 --> 0:15:05.640 see upward divisions to data as well as downward divisions 0:15:05.640 --> 0:15:08.200 to data. Pat I'm just gonna jump in and wrap 0:15:08.280 --> 0:15:14.360 up the conversation. Thanks for j woting guess so on 0:15:14.560 --> 0:15:17.480 radio and television. Right now, we're gonna frame all of 0:15:17.480 --> 0:15:19.960 this with Barry rid Holts. We can do that not 0:15:20.160 --> 0:15:23.120 only with his wonderful book of years ago, what he's 0:15:23.160 --> 0:15:26.760 writing for Bloomer Opinion on his podcast, but rid Holes 0:15:26.800 --> 0:15:31.040 with a great sense a sense of history as well. Barry, 0:15:31.080 --> 0:15:33.120 I want to go to nassing to lab in the 0:15:33.200 --> 0:15:37.400 wonderful character Nero Tulip in his book Fooled by Randomness, 0:15:37.800 --> 0:15:40.440 who's completely taken in the opening of the book by 0:15:40.480 --> 0:15:43.800 the red Porsche the guy is driving. We have had 0:15:43.840 --> 0:15:47.960 a red Porsche market. Everybody's been able to afford red Porsche's. 0:15:48.000 --> 0:15:50.720 With the market up, up and away, and we nudge 0:15:50.760 --> 0:15:53.080 down five or six percent in the world's coming to 0:15:53.200 --> 0:15:57.840 an end, what's a real correction look like? How soon 0:15:57.880 --> 0:16:01.680 they forget right? Let's let's put some numbers on that. Uh. 0:16:01.720 --> 0:16:04.280 Since since all of this energy or most of this 0:16:04.440 --> 0:16:07.240 energy has been taking place in the big tech stocks, 0:16:07.320 --> 0:16:10.400 let's use the NAS dec one as an example. In 0:16:10.440 --> 0:16:14.160 the March lows it was barely over seven thousand, and 0:16:14.240 --> 0:16:18.680 it peaked in August at twelve four and change. That's 0:16:18.720 --> 0:16:24.120 about a seventy seven percent rally in less than six months, 0:16:24.160 --> 0:16:28.560 So straight up for sent I think a ten or 0:16:28.600 --> 0:16:33.280 of fifteen or even a tent pull back is certainly overdue. 0:16:33.800 --> 0:16:37.560 And profit taking is probably the most abuse phrase in 0:16:37.600 --> 0:16:41.440 all of finance, But in this case, it could legitimately 0:16:41.520 --> 0:16:44.600 be people who bought in March April May saying all right, 0:16:44.640 --> 0:16:46.640 I got a huge profit, Maybe I should ring the 0:16:46.640 --> 0:16:52.400 bell and take a little something off the table. Mary, 0:16:52.440 --> 0:16:54.800 do you buy that soft bank is causing this hell 0:16:54.840 --> 0:16:58.640 off about as much as I buy the fact that 0:16:58.800 --> 0:17:01.000 Robin Hood was d I having the market in the 0:17:01.040 --> 0:17:04.480 first place. Look, look, they're a hundred billion dollar funds. 0:17:05.080 --> 0:17:08.360 Most of that money is tied up in pretty liquid 0:17:08.440 --> 0:17:13.200 long term investments. So if they want to fool around, 0:17:13.600 --> 0:17:15.840 for lack of a better phrase, with a couple of 0:17:15.880 --> 0:17:20.720 billion dollars in options and derivatives, they could move a 0:17:20.800 --> 0:17:24.679 handful of stocks for a little bit. But that ignores 0:17:24.720 --> 0:17:28.560 the fact that you've just had a massive, massive move 0:17:28.800 --> 0:17:33.040 across a lot of big companies that are actually doing 0:17:33.200 --> 0:17:36.959 well during lockdown. They're doing well because they have global exposure, 0:17:37.160 --> 0:17:39.639 and they're doing well because they were built for work 0:17:39.680 --> 0:17:44.919 from home. Pandemic circumstances. So I'm not buying the soft 0:17:44.920 --> 0:17:48.159 bank whale story at all. Okay, so here's the question 0:17:48.240 --> 0:17:50.719 I was asking John. I said, you know, I'm not 0:17:50.760 --> 0:17:53.120 seeing a narrative here. What's the narrative? And he said, 0:17:53.160 --> 0:17:55.800 don't look for one. There hasn't been one. August was 0:17:55.840 --> 0:17:57.840 the problem when people were trying to find one. That's 0:17:57.920 --> 0:18:00.240 we've learned and here we don't really have a phase 0:18:00.280 --> 0:18:03.760 of narrative to explain it. It's more randomness, to your point, 0:18:03.840 --> 0:18:08.719 the fallacy of a narrative. And yet what undermines this 0:18:08.840 --> 0:18:12.320 idea that you buy the behemoths, you buy these cash 0:18:12.359 --> 0:18:15.240 fortresses that will continue to do well in a tech 0:18:15.359 --> 0:18:19.360 driven economy. Why not just buy now given the fact 0:18:19.400 --> 0:18:22.320 that they've come off. I mean, have we really up 0:18:22.600 --> 0:18:26.840 ended our questions about how to fundamentally value these companies? 0:18:27.960 --> 0:18:33.040 You know, that's really challenging question about valuation um for 0:18:33.080 --> 0:18:37.680 a couple of reasons. Clearly, valuations have gotten extended. And 0:18:37.800 --> 0:18:42.840 the prior narrative, the prior prior narrative before the whale narrative, 0:18:43.040 --> 0:18:47.399 was stocks and investors are looking over the valley of 0:18:48.400 --> 0:18:54.240 to the recovery in or perhaps uh one of the narratives. 0:18:54.359 --> 0:18:56.800 One of the few narratives that make sense is Tesla 0:18:57.359 --> 0:19:00.240 was running up in anticipation of being added to S 0:19:00.280 --> 0:19:03.119 and P five hundred and when that didn't happen because 0:19:03.160 --> 0:19:08.200 of supposed profit and revenue reasons, uh, that sell off. Okay, 0:19:08.240 --> 0:19:10.399 I can accept that, I could. I could buy into 0:19:10.640 --> 0:19:15.240 that argument because there was no indexing coming into to 0:19:15.359 --> 0:19:18.919 make up for the lack of lack of purchases. But 0:19:19.480 --> 0:19:24.359 the problem with narratives, especially after the fact hindsized, hindsight 0:19:24.440 --> 0:19:29.480 biased driven narratives, is they ignore how random so much 0:19:29.520 --> 0:19:32.520 of the market action is. And if it was easy 0:19:32.600 --> 0:19:35.880 and predictable and foreseeable, well hey, we'd all be wealthy. 0:19:35.920 --> 0:19:39.040 But the randomness is what makes it so challenging, and 0:19:39.160 --> 0:19:43.400 people who are uncomfortable with randomness spend a lot of 0:19:43.600 --> 0:19:48.199 mental and emotional energy looking for a description and a 0:19:48.280 --> 0:19:52.320 storyline that makes them comfortable. Humans are terribly uncomfortable with 0:19:52.440 --> 0:19:54.680 random outcomes, so very one of the great things here 0:19:54.680 --> 0:19:57.080 in the derivative markets, and again with soft bank, because 0:19:57.080 --> 0:19:59.640 if you issue the call, there's the put etcetera, etcetera. 0:19:59.720 --> 0:20:02.800 You know, right against the call. Fine, do you just 0:20:02.920 --> 0:20:06.159 assume there will be losses. If soft Bank takes a 0:20:06.240 --> 0:20:09.920 gain of X billion dollars, do you just assume there's 0:20:09.920 --> 0:20:14.720 a prescribed some loss against it? By Global Wall Street 0:20:15.560 --> 0:20:20.680 trading is essentially a zero sum gain so for game. 0:20:20.800 --> 0:20:23.880 So for every winner in a trade, there's a loser, 0:20:24.480 --> 0:20:29.240 the exception being not the traders but the investors who 0:20:29.240 --> 0:20:33.760 are allowing compounding and the passage of time to work 0:20:33.760 --> 0:20:37.399 in their favor. If someone sold something at ten twenty 0:20:37.480 --> 0:20:41.280 years ago and today it's being um, the person who 0:20:41.280 --> 0:20:44.320 bought it is selling it at two hundred, that's not 0:20:44.440 --> 0:20:46.960 exactly a zero sum. But if I'm a buyer and 0:20:46.960 --> 0:20:49.399 you're a seller, and then tomorrow I'm a seller and 0:20:49.400 --> 0:20:52.520 you're a buyer net net, that's gonna flatten out to 0:20:52.640 --> 0:20:56.120 zero minus whatever the trading coast suckers in. Very Rid 0:20:56.119 --> 0:20:57.800 Holtz can't wait to see you right on this, Very 0:20:57.840 --> 0:21:00.080 Rid Holts writing for Bloomberg Opinion, this course and with 0:21:00.160 --> 0:21:08.960 results wealth Management. Right now, the conversation of the day 0:21:09.080 --> 0:21:12.840 for those of you worried about fiscal dynamics. John Ferrell 0:21:12.880 --> 0:21:15.280 is going to dive into the German view. I'm gonna 0:21:15.280 --> 0:21:17.159 look more at the global view, and we can do 0:21:17.240 --> 0:21:21.080 that with Peter west Away of Vanguard, their chief economists 0:21:21.080 --> 0:21:24.359 with prodigious math abilities out of York and Cambridge and 0:21:24.400 --> 0:21:29.600 operational research Peter. The dynamics of this debate is wrapped 0:21:29.640 --> 0:21:34.520 around culture, which is austerity is good. Have we slipped 0:21:34.520 --> 0:21:37.680 away from the belief of the last number of years 0:21:37.680 --> 0:21:41.359 that austerity is a good and beautiful thing in a slowdown? 0:21:43.520 --> 0:21:46.000 I think we have definitely slipped away from that. I mean, 0:21:46.840 --> 0:21:49.120 I'm not very I'm not really convinced that was ever 0:21:49.560 --> 0:21:53.800 the economics mainstream, but it was certainly the policy mainstream. 0:21:53.840 --> 0:21:56.560 In Germany, that was very much the view, and that's 0:21:56.560 --> 0:22:00.520 why we've seen relatively tight criscal policy there. But I 0:22:00.520 --> 0:22:05.520 think here in the United Kingdom, the appetite for austerity 0:22:05.640 --> 0:22:08.840 to get the debt levels down is something that we're 0:22:08.880 --> 0:22:10.760 not going to see for a while yet. I think 0:22:11.720 --> 0:22:13.720 I think the mood of the new government in the 0:22:13.840 --> 0:22:17.040 UK and perhaps more broadly in Europe is for much 0:22:17.440 --> 0:22:22.240 much looser policy, perhaps just living with higher levels of debt. 0:22:22.680 --> 0:22:25.159 Let's not forget that the interest rates at which and 0:22:25.280 --> 0:22:28.200 much of this debt is being punted during this pandemic 0:22:28.280 --> 0:22:31.280 is incredibly low, and so the burden that is going 0:22:31.320 --> 0:22:33.680 to put on countries isn't going to be great as 0:22:33.680 --> 0:22:36.160 great as it might have been in the past. At 0:22:36.200 --> 0:22:40.080 some point, it's going to have to be paid off. Well, 0:22:40.119 --> 0:22:41.840 I don't mean it, Rubbert John. I think this is 0:22:41.880 --> 0:22:43.640