WEBVTT - Markets Tanking On Leadership Deficit In Washington: Schenker 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:20.959 at Bloomberg dot com. Well, that's a coronavirus, and the 0:00:21.000 --> 0:00:24.400 spread of the coronavirus continues to extend. To Paul over 0:00:24.440 --> 0:00:28.560 the economic outlook globally, investors are really looking towards central 0:00:28.600 --> 0:00:31.400 governments for some type of fiscal stimness. It can't just 0:00:31.560 --> 0:00:34.479 be lower rates. And in fact, today the UK announced 0:00:34.479 --> 0:00:38.120 the thirty nine billion dollar stimulus package. That's hours after 0:00:38.159 --> 0:00:40.200 the Bank of England cut interest rates. So the UK 0:00:40.640 --> 0:00:42.760 doing their part. The question now for markets is what 0:00:42.840 --> 0:00:45.320 will be the US response. To get a sense of that, 0:00:45.360 --> 0:00:47.479 we welcome our good friend Marty Shanker. He's a chief 0:00:47.560 --> 0:00:50.080 content officer for Bloomberg News. He joins us here in 0:00:50.080 --> 0:00:53.880 our Bloomberg Interact or Broker studio. So, Marty, it seems 0:00:53.880 --> 0:00:59.200 like today, maybe even yesterday, the market's been sitting there saying, Okay, 0:00:59.400 --> 0:01:03.279 United State, its government, where is our fiscal response here? 0:01:03.320 --> 0:01:05.400 We've seen the FED through the emergency rate cut. We're 0:01:05.400 --> 0:01:08.640 probably gonna get more rate cuts coming up, But what's 0:01:08.760 --> 0:01:10.680 the fiscal response? What do you think is going on 0:01:10.680 --> 0:01:14.080 down in Washington. Well, Paula, I have to say, it's 0:01:14.360 --> 0:01:18.920 not necessarily as a stimulus deficit. It's more of a 0:01:19.000 --> 0:01:22.280 leadership deficit. Uh. We were talking before we went on 0:01:22.319 --> 0:01:27.240 the air about the TARP experience that in two thousand 0:01:27.319 --> 0:01:30.600 and eight, when basically the markets were telling the government 0:01:30.640 --> 0:01:33.360 to get its act together, and in fact it did 0:01:34.040 --> 0:01:37.640 um and by all accounts, that helped rescue the financial 0:01:37.680 --> 0:01:41.240 system from ruin. Uh. You are not getting a sense 0:01:41.280 --> 0:01:43.960 of that kind of leadership out of Washington. And it's 0:01:44.000 --> 0:01:47.400 both the White House and Congress. It's not just a 0:01:47.480 --> 0:01:50.960 Donald Trump issue. So we saw over in Europe. We 0:01:51.000 --> 0:01:55.000 saw in England there was a coordinated effort between the 0:01:55.040 --> 0:01:57.960 central Bank there that cut cut rates by fifty basis 0:01:57.960 --> 0:02:00.840 points in emergency ray cup. But that also opened up 0:02:01.080 --> 0:02:04.600 a way to to give bridge loans to businesses suffering 0:02:04.600 --> 0:02:08.440 in the wake of the coronavirus induced slow down. What 0:02:08.480 --> 0:02:12.320 are people hoping for from President Trump and from Congress. Well, 0:02:12.360 --> 0:02:15.480 I think that they want a uh you know, there's 0:02:15.520 --> 0:02:20.040 this notion of micro targeted responses, but it's more a 0:02:20.160 --> 0:02:24.000 series of micro targeted responses for small businesses that have 0:02:24.160 --> 0:02:27.399 to close down to be able to get credit. It's 0:02:27.440 --> 0:02:30.959 also uh, the ability to make sure that people get 0:02:31.000 --> 0:02:34.040 paid if they're forced to be at home for caregiving 0:02:34.160 --> 0:02:38.920 or because their self quarantining themselves. So I mean it's 0:02:38.960 --> 0:02:45.440 what what they really need is a bipartisan agreement on 0:02:45.600 --> 0:02:50.080 which kind of measures the government should take and for 0:02:50.320 --> 0:02:53.960 people to put aside their partisan difference differences and come 0:02:54.040 --> 0:02:58.080 up with a rational plan. The problem is that Washington 0:02:58.160 --> 0:03:02.480 has become so dysfunctional. There were reports that Donald Trump 0:03:02.680 --> 0:03:06.440 will refuse to sit down with Nancy Pelosi because of 0:03:06.720 --> 0:03:13.400 the impeachment vitriol, that that created such bad feelings between 0:03:13.400 --> 0:03:16.520 the two of them, which is ridiculous in a situation 0:03:16.600 --> 0:03:19.519 like that. But I think you're seeing that in the markets. 0:03:19.560 --> 0:03:22.480 So we have heard, I guess of a payroll tax cut, 0:03:22.639 --> 0:03:26.160 and have you heard anything out of Washington that gives 0:03:26.160 --> 0:03:29.959 you confidence that we may have a tarp like product 0:03:30.280 --> 0:03:32.720 or you know, kind of piece of legislation that would 0:03:32.720 --> 0:03:34.880 really be on accompassing and really address the issues that 0:03:34.920 --> 0:03:37.760 you just outline. Well, I don't get a sense, and 0:03:38.200 --> 0:03:40.800 I mean, we're all sitting in New York at the 0:03:40.840 --> 0:03:44.120 same feeling that there is not that sense of urgency 0:03:45.240 --> 0:03:47.920 because of the uncertainty over the effects of the virus. 0:03:48.040 --> 0:03:51.880 We've never seen anything like this before, but there is 0:03:51.960 --> 0:03:56.800 definitely no indication right now. Congress is UH scheduled to 0:03:57.080 --> 0:04:02.680 adjourn um this Friday, and the optics of the Congress 0:04:02.880 --> 0:04:09.000 leaving town um without having done anything UH to promote 0:04:09.080 --> 0:04:12.880 some sense of stability is just breathtaking to me. Meanwhile, 0:04:13.080 --> 0:04:16.040 this is an election year and we are getting the 0:04:16.240 --> 0:04:20.240 campaign ramping up on both the part of former Vice 0:04:20.240 --> 0:04:23.920 President Joe Biden as well as Bernie Sanders, and Biden 0:04:24.040 --> 0:04:27.080 is becoming the very clear front runner. Is getting very 0:04:27.120 --> 0:04:29.560 difficult to see how we are going to see a 0:04:29.600 --> 0:04:34.440 Bernie Sanders Democratic candidates. I would say it's virtually impossible. Okay, 0:04:34.440 --> 0:04:37.480 it's virtually impossible. So what's the playbook going forward? How 0:04:37.520 --> 0:04:40.680 likely is it? Have we heard anything about Bernie Sanders 0:04:40.720 --> 0:04:45.520 perhaps conceding and having his supporters go behind Biden. I 0:04:45.600 --> 0:04:47.800 don't have any reporting of my own. I just have 0:04:48.160 --> 0:04:51.400 you know. My guess is that Bernie Sanders is definitely 0:04:51.400 --> 0:04:54.880 going to stay in this race through next Tuesday. He 0:04:55.000 --> 0:04:58.800 will absolutely be vigorous in the debate Sunday night. I 0:04:58.839 --> 0:05:02.760 think it's an important that you do that. Yeah, a 0:05:02.839 --> 0:05:05.000 number of the surrogates of Bernie Sanders are making the 0:05:05.040 --> 0:05:08.840 point that Joe Biden has not been vetted. Um in 0:05:08.920 --> 0:05:11.360 that kind of situation. When you have one on one 0:05:11.440 --> 0:05:15.720 Bernie Sanders against Joe Biden without a studio audience, which 0:05:15.760 --> 0:05:18.360 is what's going to happen this Sunday, you will get 0:05:18.400 --> 0:05:23.440 a very granular examination of policy differences, and I think 0:05:23.920 --> 0:05:27.479 Joe Biden's ability to explain those differences is going to 0:05:27.520 --> 0:05:30.279 be a major issue. People are not that focused on 0:05:30.320 --> 0:05:33.479 the election per se, and some of the issues that 0:05:33.640 --> 0:05:35.800 they have been harping on him in gun control a 0:05:35.880 --> 0:05:38.280 very big issue, and yet hard to sort of make 0:05:38.320 --> 0:05:41.480 that an issue, and people are holding up and quarantining themselves. 0:05:41.520 --> 0:05:44.400 How important is it for the Democrats to come up 0:05:44.480 --> 0:05:47.840 with some sort of cohesive either strategy with respect of 0:05:47.839 --> 0:05:51.760 the coronavirus or message or or something on that front. Well, 0:05:51.800 --> 0:05:55.080 I would say it's actually one step above that. It's 0:05:55.200 --> 0:05:58.840 a question as we discussed leadership, and I think that 0:05:58.880 --> 0:06:03.919 the Democrats their strategy is they need to obviously defeat 0:06:04.000 --> 0:06:06.880 Donald Trump, but they need to do it by contrasting 0:06:06.920 --> 0:06:10.960 their approach as leaders of a government entity. And I 0:06:11.000 --> 0:06:15.040 think Joe Biden, his ability to stand above the fray 0:06:15.200 --> 0:06:20.200 and show real presidential quote unquote leadership is what's going 0:06:20.200 --> 0:06:23.480 to carry the day for him. The election is still 0:06:23.600 --> 0:06:26.520 seven eight months away, and a lot could happen in 0:06:26.560 --> 0:06:31.520 those seven or eight months. So, uh, this this, it 0:06:31.520 --> 0:06:34.000 seems to me it will be a Biden Trump race 0:06:34.520 --> 0:06:38.200 and it's going to be the ability of people to 0:06:38.320 --> 0:06:41.960 perceive leadership that's going to determine who is our next president. 0:06:42.040 --> 0:06:44.720 So how much of a risk is this the President Trump? 0:06:44.720 --> 0:06:47.600 This coronavirus because one could argue to date we haven't 0:06:47.640 --> 0:06:50.800 necessarily seen the leadership from the White House that perhaps 0:06:50.839 --> 0:06:53.720 is needed. Well, this is the you know a number 0:06:53.760 --> 0:06:56.360 of people, I'm not invented this. This could be the 0:06:56.480 --> 0:06:59.839 Katrina moment for Donald Trump. If he is not able 0:07:00.040 --> 0:07:04.000 to get control of this situation, it could do him 0:07:04.000 --> 0:07:07.800 as presidency. All those people who want to change may 0:07:08.160 --> 0:07:13.120 actually opt for the change being back ending the chaos. 0:07:13.480 --> 0:07:16.040 And that is what I think this race is going 0:07:16.040 --> 0:07:19.880 to boil down to. Marty. You've you're a chief content officer, 0:07:20.040 --> 0:07:22.320 You're the person at the top. How many times have 0:07:22.320 --> 0:07:25.280 you washed your hands today? Uh? Well, I've been using 0:07:25.320 --> 0:07:30.480 the purel. I've been I've I think I've washed my 0:07:30.520 --> 0:07:32.680 hands every hour. And I was just talking to the 0:07:32.840 --> 0:07:35.440 attendant in the men's room here and he says, they 0:07:35.480 --> 0:07:39.000 are going through the soap faster than you can ever remember. 0:07:39.000 --> 0:07:41.640 Everybody's hands, Well, I mean, I think that's a very 0:07:41.640 --> 0:07:44.880 good thing. They're they're they're kind of raw. Everyone's hands 0:07:44.920 --> 0:07:47.120 are kind of a little cracked because people are just scrubbing. 0:07:47.160 --> 0:07:49.520 Is that they're about to go into surgery. Marty party Shanker, 0:07:50.200 --> 0:07:53.120 thank you so much for being with us. Marty Marty Shakers, 0:07:53.160 --> 0:08:06.680 chief content officer for Bloomberg. Well, it seems to be 0:08:06.760 --> 0:08:09.920 a race as to how quickly Wall Street strategists can 0:08:10.000 --> 0:08:14.080 downgrade their expectations for earnings. The latest Goldman Sachs chief 0:08:14.120 --> 0:08:17.640 strategist for US Equities, David Coston said the eleven year 0:08:17.680 --> 0:08:20.600 old bullmarket u S Stacks is about to become history, 0:08:20.920 --> 0:08:23.920 and he now predicts that earnings will drop at least 0:08:23.920 --> 0:08:26.560 twelve percent in each of the next two quarters due 0:08:26.560 --> 0:08:29.240 to plunging oil prices, as well as the spread of 0:08:29.280 --> 0:08:32.720 the coronavirus and people staying at home and not traveling. 0:08:32.760 --> 0:08:35.240 The question is how do you invest right? I mean, 0:08:35.240 --> 0:08:39.000 this does expect sort of a decline in equities going forward. 0:08:39.520 --> 0:08:42.400 How long do people expect it to go on for? 0:08:42.840 --> 0:08:44.960 Is this a time to be buying or just to 0:08:44.960 --> 0:08:47.800 get out of the market. And Bill Smead has tons 0:08:47.800 --> 0:08:49.599 of experience with all of this, is the CEO and 0:08:49.640 --> 0:08:52.840 chief investment officer at SMED Capital Management, which has more 0:08:52.880 --> 0:08:54.920 than two billion dollars of assets that are management. Joining 0:08:55.000 --> 0:08:58.360 us from Seattle, Bill, I'd love to get your thoughts 0:08:58.440 --> 0:09:02.199 around that. How do you sort of reframe your investing 0:09:02.320 --> 0:09:06.240 assumptions based on the events over the past month or so. Well, 0:09:06.280 --> 0:09:09.880 thanks for having us, and this is a great time 0:09:10.040 --> 0:09:13.280 to think about those kinds of long term things that 0:09:13.320 --> 0:09:17.880 are the most important. So what what we feel this 0:09:18.040 --> 0:09:23.800 is from an investment standpoint is the exacerbation of a 0:09:23.840 --> 0:09:26.720 trend that's been in place for a good five to 0:09:26.760 --> 0:09:34.599 ten years, which is that the anemic economy UH scenario 0:09:34.720 --> 0:09:38.480 where people don't want to own uh, companies that are 0:09:38.520 --> 0:09:42.040 tied closely to the main street on the ground economy 0:09:42.120 --> 0:09:47.479 and instead want to own the successful technology companies that 0:09:47.480 --> 0:09:51.880 that have uh don't seem to have any be impacted 0:09:51.880 --> 0:09:54.040 by where people are. Right, if you're stuck at home, 0:09:54.360 --> 0:09:58.320 you might still be sitting on your Facebook, UH, maybe 0:09:58.320 --> 0:10:03.439 more than even even normal. So so we from a 0:10:03.800 --> 0:10:07.959 from a historical standpoint, this looks to us like Paul 0:10:08.040 --> 0:10:14.559 Volker tightening credit in when bonds were already so oversold 0:10:14.679 --> 0:10:17.440 and so miserable. The bond market had been terrible for 0:10:17.480 --> 0:10:20.520 thirty years, and incomes Paul Volcan and he titans credit 0:10:20.559 --> 0:10:23.960 and bonds get slaughtered. Stocks were already cheap, they got 0:10:23.960 --> 0:10:29.760 slaughtered again. Uh. And and Y two K. The Y 0:10:29.800 --> 0:10:31.480 two K thing caused people to buy a whole bunch 0:10:31.520 --> 0:10:35.200 of technology stuff in and get really excited about technology 0:10:35.360 --> 0:10:38.840 right before the end. And in this particular case, you know, 0:10:39.280 --> 0:10:43.120 growth investments have been doing dramatically better. Value holds most 0:10:43.120 --> 0:10:46.480 of the stocks that are economically sensitive. Therefore, what's getting 0:10:46.480 --> 0:10:49.360 punished the most at the end of a major trend 0:10:49.840 --> 0:10:52.360 is the thing that was already cheap. So Bill, is 0:10:52.400 --> 0:10:55.480 there a valuation point here for the market that you 0:10:55.480 --> 0:10:58.160 think investors should be kind of keeping their eye on 0:10:58.320 --> 0:11:00.480 to try to get a sense of where the bottom 0:11:00.559 --> 0:11:07.120 might be. Well, that's a great question if historical situations 0:11:07.160 --> 0:11:10.880 like this have any merit in analyzing. And remember you're 0:11:10.920 --> 0:11:14.440 talking about an exogenous event that no one could see coming. 0:11:14.920 --> 0:11:19.000 And then uh, Saudi Arabia took out the Amazon playbook 0:11:19.160 --> 0:11:23.720 and decided to UH use their their UH position to 0:11:23.840 --> 0:11:28.360 undercut everyone else's price and put them out of business. Uh. 0:11:28.400 --> 0:11:31.280 Those two things happened. In other words, of Saudi Arabians 0:11:31.520 --> 0:11:33.520 would have never been able to do this if the 0:11:33.520 --> 0:11:37.800 coronavirus had not greatly affected demand around the world for 0:11:38.120 --> 0:11:44.400 oil and gas right now. So so so these two 0:11:45.040 --> 0:11:52.679 just completely wild, historically unusual things are hitting simultaneously. So 0:11:53.040 --> 0:11:57.000 what you should expect is that that investments you make 0:11:57.080 --> 0:12:00.959 now in in the areas that people are the most 0:12:01.000 --> 0:12:04.559 afraid of right now are likely to produce the highest 0:12:04.600 --> 0:12:07.560 returns over the course of the next ten years. And 0:12:07.640 --> 0:12:10.720 the investments that they run back to immediately and have 0:12:10.920 --> 0:12:14.680 sold way less that that they they've they've got the 0:12:14.720 --> 0:12:18.800 most confidence in are highly unlikely to be the best 0:12:18.840 --> 0:12:21.880 investments of the next ten years. Are you basically saying 0:12:21.920 --> 0:12:26.840 by stock cell bonds. Well, first of all, uh, you know, 0:12:27.559 --> 0:12:31.680 mathematically a tenure treasury has zero chance of investment success 0:12:31.679 --> 0:12:35.199 in the next ten years unless you consider point seven 0:12:35.240 --> 0:12:39.800 percent return UH and investment success if if someone's retirement 0:12:39.880 --> 0:12:43.600 goals get matched with point seven percent return, or a 0:12:43.600 --> 0:12:47.400 pension planner and endowment works at point seven that so 0:12:47.480 --> 0:12:50.800 that's d o A. Right, this is the antithesis of 0:12:53.160 --> 0:12:56.040 the treasuries were percent to start the year and went 0:12:56.080 --> 0:12:59.880 to fifteen percent. Bond investors got slaughtered. But those third 0:13:00.200 --> 0:13:02.240 percent bonds for thirty years were one of the best 0:13:02.240 --> 0:13:05.080 investments you could possibly make, even though you had to 0:13:05.080 --> 0:13:07.720 get abused for a while, uh, in the first year 0:13:07.720 --> 0:13:09.920 that you owned them. All Right, that's the nature. That's 0:13:09.960 --> 0:13:13.960 the nature of this, uh, the courage to own things 0:13:14.040 --> 0:13:16.880 that will do well over ten years but make you 0:13:17.000 --> 0:13:20.720 feel like a fool in the short run. And talking 0:13:20.760 --> 0:13:24.600 about just the pain. Uh. The market has rolled over, 0:13:24.720 --> 0:13:27.439 taken a leg lower even still with the SMP now 0:13:27.480 --> 0:13:30.280 down more than four percent and the down Paul down 0:13:30.320 --> 0:13:33.120 four and a half percent as we sit here, Yeah, 0:13:33.120 --> 0:13:35.920 looking at the vix here out six points to fifty three. 0:13:36.000 --> 0:13:38.000 You talk about fear in the marketplace of Bill, that's 0:13:38.040 --> 0:13:41.160 kind of a good example here. So just real quick, Bill, 0:13:41.200 --> 0:13:43.280 what are some of the things. What's your bottom line 0:13:43.280 --> 0:13:46.559 advice to your clients and your investors right here? Well, 0:13:46.600 --> 0:13:49.640 first of all, for people that are going to be 0:13:49.720 --> 0:13:53.920 investors for the next thirty years, especially people that have been, 0:13:54.120 --> 0:13:57.520 uh you know, have been sitting on the sidelines, to 0:13:57.600 --> 0:14:01.319 begin some kind of dollar cost averaging here looks like, uh, 0:14:01.720 --> 0:14:05.720 it would be a fantastic idea because the virus itself 0:14:07.040 --> 0:14:10.760 is no matter what the ultimate totals are, and we 0:14:11.040 --> 0:14:13.080 all we all feel terrible because we you know, we 0:14:13.080 --> 0:14:15.840 we hate that anyone would would die from this, but 0:14:16.320 --> 0:14:19.200 we will kind of have a really strong feel within 0:14:19.320 --> 0:14:22.000 thirties sixty days what the total of this is going 0:14:22.040 --> 0:14:24.760 to be. And at the point that starts to decline, 0:14:25.160 --> 0:14:28.400 that's when investors will get their legs back underneath them. 0:14:28.440 --> 0:14:32.000 So so yeah, so that our our view. So we're 0:14:32.000 --> 0:14:33.400 gonna have to leave it at that, Thank you so much. 0:14:33.440 --> 0:14:47.240 Phil Smead Smead Capital Management. One of the narratives that 0:14:47.280 --> 0:14:49.560 I've been hearing about and people are looking for some 0:14:49.600 --> 0:14:52.520 sense of capitulation in the market is just wait for 0:14:52.560 --> 0:14:55.160 the retail investors when they start dumping stock, that's when 0:14:55.200 --> 0:14:57.680 you know it's over. Our next guest maybe says, maybe 0:14:57.680 --> 0:15:00.520 not so sure. Eric Falchun a senior et analysts for 0:15:00.520 --> 0:15:03.280 Bloomberg Intelligence. He joined us here in a Bloomberg interactor 0:15:03.320 --> 0:15:06.440 Brooker Studio. So, Eric, what's the et F world telling 0:15:06.440 --> 0:15:09.880 me about how the individual retail investor has been looking 0:15:09.920 --> 0:15:12.000 at this market altility? Look? I mean it was just 0:15:12.040 --> 0:15:15.480 like was a great snapshot because et s were big 0:15:15.520 --> 0:15:18.560 at that point and they took in money every month. 0:15:18.640 --> 0:15:21.920 And these are e t f s like Vanguard, SWAB 0:15:21.960 --> 0:15:24.440 and the Ice shares Core series. What we do is 0:15:24.600 --> 0:15:27.640 in our flow data, we separate out spy I w 0:15:27.840 --> 0:15:30.720 M because those are used like pseudo futures. They get 0:15:30.760 --> 0:15:33.000 the traders committed out of those things like a hotel. 0:15:33.480 --> 0:15:36.680 So those flows can contaminate or overshadow the rest of 0:15:36.720 --> 0:15:38.280 the e t F so we separate them out. So 0:15:38.320 --> 0:15:39.960 we look at those e t f s used by 0:15:40.080 --> 0:15:44.080 advisors and allocators. They continued to take in money. Um 0:15:44.240 --> 0:15:47.920 could that's the chart I'm looking at for. If that 0:15:47.960 --> 0:15:50.560 goes negative, I think it's time to worry. But over 0:15:50.600 --> 0:15:52.920 the years, whenever that as long as that's positive, I've 0:15:52.960 --> 0:15:55.320 tended to just take a deep breath. Although this sell 0:15:55.320 --> 0:15:58.440 off does feel just a little more severe than remember 0:15:59.000 --> 0:16:01.720 Q four was pretty rough. Um. So I'm looking at 0:16:01.760 --> 0:16:03.680 those numbers and I'm seeing that for the most part, 0:16:04.240 --> 0:16:07.720 um investors are continuing. And there's really two main reasons 0:16:07.720 --> 0:16:11.320 for this. One is this the Internet has spread information. 0:16:11.640 --> 0:16:13.800 People are sharing information with each other. They've read a 0:16:13.800 --> 0:16:16.760 lot of education on how timing the market's almost impossible 0:16:16.800 --> 0:16:20.440 to win, So there's education on not biting, not taking 0:16:20.440 --> 0:16:23.080 the bait of a of a red on the screen. 0:16:23.440 --> 0:16:25.840 The second thing is advisors have moved from a broker 0:16:25.920 --> 0:16:29.640 model where a mutual fund pays them, to a fiduciary 0:16:29.680 --> 0:16:31.640 model where they get a percentage of the client assets. 0:16:32.080 --> 0:16:34.400 Once you move to the fiduciary model, you're with your 0:16:34.720 --> 0:16:37.760 investor shoulder to shoulder. And now one of their biggest 0:16:37.840 --> 0:16:41.800 value propositions is called behavioral coaching. So what they're saying 0:16:41.880 --> 0:16:43.880 is one of the reasons you need me is because 0:16:43.880 --> 0:16:46.240 I'm going to talk you off the ledge. So with 0:16:46.320 --> 0:16:49.640 these advisors acting like as a major buffer, and in 0:16:49.640 --> 0:16:51.640 the past the broker might want to turn the account 0:16:51.640 --> 0:16:53.760 because they get kicked back from the mutual funds. So 0:16:54.120 --> 0:16:56.520 I think the retail investor is a much stronger, more 0:16:56.560 --> 0:17:01.920 disciplined retail investor than in Bygone is Eric. I'm glad 0:17:01.960 --> 0:17:06.080 you're here. I really am. I've always too good. I mean, 0:17:06.600 --> 0:17:09.320 when you know, I can always expect this kind of 0:17:09.520 --> 0:17:12.439 take from you, which I think is totally important and 0:17:12.480 --> 0:17:14.679 sort of like a gut check or reality check. You know, 0:17:14.760 --> 0:17:18.280 here's the narrative, and this is why everything is just fine, 0:17:18.480 --> 0:17:21.760 and ETFs are functioning well and people aren't freaking out 0:17:21.840 --> 0:17:25.159 and they're not running for the exits that said, are 0:17:25.240 --> 0:17:30.960 we I'll present the other side. That's my nickname. Like 0:17:31.400 --> 0:17:34.000 for him, it's everything is fine guy. I will say though, 0:17:34.080 --> 0:17:36.280 that there is a question, first of all, of whether 0:17:36.400 --> 0:17:38.639 the real shifts and allocations are going to be the 0:17:38.680 --> 0:17:41.240 real issue here. Basically, are we going to see people 0:17:41.359 --> 0:17:43.879 move there for one case, or change your allocations or 0:17:43.920 --> 0:17:46.320 sort of become more risk off and risk averse, And 0:17:46.440 --> 0:17:51.440 that that's really the type of tweaking and changing that's 0:17:51.480 --> 0:17:53.200 really going to have an effect on markets. It's not 0:17:53.240 --> 0:17:56.119 going to be this. Possibly. What I would look for 0:17:56.280 --> 0:17:58.400 is this look for active mutual funds. Those are owned 0:17:58.440 --> 0:18:02.280 by older investors rumors, and they largely were probably put 0:18:02.359 --> 0:18:03.880 in there by a broker, so they might have less 0:18:03.920 --> 0:18:07.720 loyalty shorter time horizon. I'm watching those flows. You could 0:18:07.800 --> 0:18:10.400 see some selling pressure if we saw if we see 0:18:10.440 --> 0:18:14.879 major flows in two thousand eighteen, Uh, same thing. Um, 0:18:15.040 --> 0:18:17.480 we saw five billion come out of active mutual funds. 0:18:17.840 --> 0:18:20.359 That's a lot. We don't have data showing quite the 0:18:20.440 --> 0:18:22.680 same in this recent self, but it could get bad. 0:18:22.960 --> 0:18:25.120 That would be one and a lot of those people 0:18:25.200 --> 0:18:27.520 have the four one case you're talking about. In terms 0:18:27.560 --> 0:18:31.240 of the younger I think they're rebalancing into equities because 0:18:31.600 --> 0:18:35.000 remember how you like this chart that shows equity net 0:18:35.080 --> 0:18:38.000 fund flows have been negative over the past couple of years, 0:18:38.320 --> 0:18:40.480 and you're like, what's going on? What's going on there? 0:18:40.640 --> 0:18:44.960 Isn't bearish. It's that people are taking off the equities 0:18:44.960 --> 0:18:47.359 a little because they're rebalancing back, and a fixed then 0:18:47.400 --> 0:18:50.760 comes to trying to keep a percentage allocation to equities. Now, 0:18:50.800 --> 0:18:53.439 if equities sell off, that percentage goes down. You may 0:18:53.520 --> 0:18:56.840 even see them rebalanced into equities. But yes, there's gonna 0:18:56.880 --> 0:19:00.040 be some panicking. Of course, not everybody's like this. I 0:19:00.119 --> 0:19:02.960 just think the core of the retail investor is much 0:19:02.960 --> 0:19:06.440 stronger than than people give them credit for, really valuable. 0:19:06.560 --> 0:19:08.360 And I could go for another ten minutes. We didn't 0:19:08.359 --> 0:19:09.800 even get to h BYG. We didn't even get to 0:19:09.800 --> 0:19:12.000 the high bond e t f s, which have seen 0:19:12.080 --> 0:19:16.119 really big outflows and really big discount to navs. Actually, 0:19:16.320 --> 0:19:19.560 and and and THEUNI one, the MUNI one h y 0:19:19.640 --> 0:19:21.960 D had a seven percent discount. Our MUNI analyst Eric 0:19:22.040 --> 0:19:25.200 Kazawski says, that's a leading indicator. Look for the bonds 0:19:25.280 --> 0:19:27.479 to catch up. So if you see a discount, that's 0:19:27.520 --> 0:19:32.200 probably bad. Seconds. Eric, we could talk for ten minutes. 0:19:32.240 --> 0:19:34.679 I wish we could, Eric valtun As we will senior 0:19:34.720 --> 0:19:37.680 et F analyst Bloomberg get intelligence joining us here in 0:19:37.760 --> 0:19:50.920 our interactive broker studios. It's sort of like a game 0:19:51.000 --> 0:19:53.080 of Whackable Where do you look first? Do you look 0:19:53.119 --> 0:19:56.840 at the coronavirus, the progression of the disease where it's spread, 0:19:56.920 --> 0:19:59.280 at the fiscal response to it, or do you look 0:19:59.320 --> 0:20:01.320 at the price of oil which is down yet again 0:20:01.359 --> 0:20:03.480 today now thirty three dollars and thirty seven cents of 0:20:03.520 --> 0:20:06.720 barrel traded on the n imax as the price war 0:20:06.880 --> 0:20:11.320 wages and and engrages on I should say between Saudi 0:20:11.320 --> 0:20:14.280 Arabia and Russia. Let's focus on that right now. And 0:20:14.320 --> 0:20:17.000 we're lucky to have Dr Ariel coh and senior fellow 0:20:17.000 --> 0:20:20.679 at the Atlantic Council Founding Principle of International Market Analysis. 0:20:21.160 --> 0:20:24.440 Uh And also he of course is a frequent contributor 0:20:24.520 --> 0:20:27.560 to this show, joining us from Washington, d C. Can 0:20:27.600 --> 0:20:30.440 you give us a sense, Ariel, of just how long 0:20:30.640 --> 0:20:33.920 this price war can go on before we see a 0:20:34.000 --> 0:20:38.159 complete rearranging of the oil producing nations in terms of 0:20:38.200 --> 0:20:40.520 both their economies as well as their power relative to 0:20:40.600 --> 0:20:45.440 each other. Well, let's start with the last part of 0:20:45.920 --> 0:20:49.840 what you said. I think the rearrangement is underway. The 0:20:50.040 --> 0:20:56.680 week part. The weak players such as Venezuela, Iran, Libya, 0:20:56.920 --> 0:20:59.200 which is in the middle of a civil war, are 0:20:59.320 --> 0:21:05.359 all too hurt, whereas UM the United States shale patch, 0:21:06.160 --> 0:21:10.800 which has high production costs, really needs to re examine 0:21:11.359 --> 0:21:17.120 uh it's capex. Its capex is high because shale wells 0:21:17.320 --> 0:21:21.040 last only eighteen months to twenty four months as opposed 0:21:21.080 --> 0:21:24.560 to conventional wealth. So our production in the shale patch 0:21:24.920 --> 0:21:29.560 is somewhere between thirty and sixty dollars, whereas in Saudi 0:21:29.600 --> 0:21:32.760 Arabia it's around ten dollars or less or and in 0:21:32.880 --> 0:21:37.760 Rush it varies greatly depends on a structure and a location, 0:21:38.640 --> 0:21:43.040 from ten of fifteen dollars for established fields too as 0:21:43.119 --> 0:21:50.040 high as sixty and more dollars a barrel cost UH 0:21:50.520 --> 0:21:56.280 in Arctic offshore continental shelf. But so the ones with 0:21:56.400 --> 0:22:02.600 the longest um um breathing space for this war, the 0:22:02.720 --> 0:22:07.160 Saudis on the Adham. The Saudis have also higher balancing 0:22:07.280 --> 0:22:10.719 point for their budget. They need something like seventy dollars 0:22:11.400 --> 0:22:15.320 a barrel price UH to balance their budget. So it's 0:22:15.320 --> 0:22:19.080 a very very complicated competition, and I think at least 0:22:19.280 --> 0:22:23.040 a quarter the Saudis are trying to force the Russians 0:22:23.680 --> 0:22:26.920 to the negotiating table as well as to force some 0:22:27.160 --> 0:22:32.600 of our shale production to shut down because they're losing 0:22:32.680 --> 0:22:36.280 money when the oil price is so low UH. In 0:22:36.400 --> 0:22:40.000 the worst case scenario, if the coronavirus causes a global 0:22:40.760 --> 0:22:45.080 recession UM, it can go two or three quarters. So 0:22:45.640 --> 0:22:48.479 hopefully god willing, by the end of the year at 0:22:48.520 --> 0:22:53.200 worst case scenario or Q one one, we will see 0:22:53.240 --> 0:22:56.200 an improvement. So Dr Colin when this news broke that 0:22:56.320 --> 0:23:00.000 Saudi was essentially starting this price were ramping up product, 0:23:00.000 --> 0:23:02.399 and I was really shocked because I just when I 0:23:02.560 --> 0:23:04.800 kind of did the math and thought about the near 0:23:05.000 --> 0:23:08.960 term costs for the potential longer term gains, i e. 0:23:09.160 --> 0:23:12.040 Weakening some of the weaker players the most, notably maybe 0:23:12.080 --> 0:23:14.800 the U S shail business, the math just didn't seem 0:23:14.880 --> 0:23:17.320 to work. Were you how surprised, if if at all, 0:23:17.359 --> 0:23:22.520 were you about what's going on with Saudi Arabia now Russia? Yes, 0:23:22.720 --> 0:23:27.240 but I would um say differently. I would say the 0:23:27.400 --> 0:23:32.240 Russians were the ones who started this war. The Saudis 0:23:32.960 --> 0:23:38.800 UH proposed a cut UM one point five million barrels 0:23:38.800 --> 0:23:42.720 and the Russians didn't agree to that UM and UH Rosa, 0:23:42.920 --> 0:23:49.080 the Russian state oil company H the Beheamoth was upset 0:23:49.200 --> 0:23:55.240 because the US is sanctioning UH them for UH selling 0:23:55.359 --> 0:24:00.720 Venezuela oil. UH. There's also friction between Rosneft, the Russian 0:24:00.800 --> 0:24:04.720