Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Looking
Speaker 1: ahead to several key events including that events on Wednesday,
Speaker 1: pay Rolls Friday just around the corner as well. Fantastic
Speaker 1: lineup of guests for you through the week and this
Speaker 1: morning as well. And we begin this morning's program with
Speaker 1: Matt Hornback of Morecan Stanley. We're lucky to have access
Speaker 1: to several great rate strategists on the street. Matt, I'm
Speaker 1: pleased to say it's one of them. Matt. Fantastic to
Speaker 1: have you with us on the program. Let's just start
Speaker 1: with the price action right in front of our faces
Speaker 1: right now, equitris law again and a bond market that's
Speaker 1: really not doing a whole lot. Why so, Matt, Hey, John,
Speaker 1: thanks for having me on. So you know, look, this
Speaker 1: goes back to an issue that we actually talked about
Speaker 1: a couple of weeks back, which is the idea that
Speaker 1: bond markets are caught between a fiscal rock and a
Speaker 1: quee hard place right where's basically talking about. Uh, this
Speaker 1: this interplay between all of the issuance coming to market
Speaker 1: and all of the issuance that's ultimately going to be
Speaker 1: bought in the secondary by the Federal Reserve UM. You know, now,
Speaker 1: what we're seeing recently is the FED peeling back on
Speaker 1: the pace at which it is buying treasuries. UM. That's
Speaker 1: probably one of the reasons why on a daylight today
Speaker 1: where the SMP is down about a percentage point, uh,
Speaker 1: you're only getting a basis point rally in the treasury market.
Speaker 1: Investors are very worried about the supply matt If you
Speaker 1: look at the two year yield in the US, it's
Speaker 1: linear and certainly log linear, and it's just grinding ever
Speaker 1: lower yield. Do you extrapolate that out to an ever
Speaker 1: lower and lower and lower yield or can the FED
Speaker 1: actually can control that guide glide path at the end
Speaker 1: of the day, That that the FED um has a
Speaker 1: monoicum of control over the markets during certain periods of time,
Speaker 1: and then there are other periods of time. Remember the
Speaker 1: Taper tantrum in two thousand thirteen, where it completely loses
Speaker 1: control of the market based on you know, a handful
Speaker 1: of words coming out of somebody's mouth, and so it's
Speaker 1: a it's a very delicate balance. Um. I'd say at
Speaker 1: this point, what the FED is trying to figure out
Speaker 1: is what kind of forward guidance can can get them
Speaker 1: to allow yields to remain low and yet when the
Speaker 1: time is right, allow those yields to start to gradually rise.
Speaker 1: It's a very tough balance. This is not an easy
Speaker 1: thing to accomplish. Matt. What would yield to be if
Speaker 1: the US for not selling record amounts of debt right now?
Speaker 1: I think yeah, I like I think they would They
Speaker 1: would probably be much lower. Um. You you could easily
Speaker 1: see the tenure treasury yield revisit the all time low
Speaker 1: of thirty basis points. Again, the amount of securities that
Speaker 1: the FED is removing from the market is unprecedented. And
Speaker 1: when we talk about the supply demand balance between what
Speaker 1: the Treasury will issue and what the FED is buying,
Speaker 1: we also have to put that into the context of
Speaker 1: coupon bonds. Right now, we we know that there has
Speaker 1: been a tremendous amount of Treasury bills that have been
Speaker 1: issued this year. We also know that towards the end
Speaker 1: of last year, the FED was buying a lot of
Speaker 1: treasury bills. Now the FEED is buying a lot of
Speaker 1: treasury coupon bearing bonds. UH. And if they weren't, if
Speaker 1: if the US government wasn't going to issue any of
Speaker 1: those coupon bonds, almost certainly the tenure yield would be
Speaker 1: closer to zero than one. Man. You've got a macro
Speaker 1: mandate for Morgan Stanley right now, let's macro over to
Speaker 1: Ellen Zanner. Combine her inflation view with your view of
Speaker 1: fixed income as indicator a choice for our listeners. Are
Speaker 1: they ever going to garner a constructive real yield? I
Speaker 1: don't mean a positive real yield, I mean one that
Speaker 1: they can actually bank well. I mean this has been
Speaker 1: a phenomenon in the world over And the answer, probably
Speaker 1: for the next five years is no. Um, you know it.
Speaker 1: It's you know, real yield is a scarce sset these days,
Speaker 1: especially when the FED is removing so many of those
Speaker 1: securities that would otherwise offer you a positive real yield.
Speaker 1: I think you would need to see in order in
Speaker 1: order for me to be wrong on that, you would
Speaker 1: need to see the government expand the deficit UH in
Speaker 1: a continuous way, I'm not talking about one year of
Speaker 1: higher deficits or two years of higher deficits. I'm talking
Speaker 1: about year after year after year of continuously expanding deficits.
Speaker 1: This is about a rate of change, not just a
Speaker 1: nominal number every year. We need to see that happen
Speaker 1: in order for real yells to really start going considerably higher.
Speaker 1: Let's talk about the recovery as well, Matt. A little
Speaker 1: bit later this morning, I'll be catching up with your
Speaker 1: colleague chat and I Ah the chief economist at more
Speaker 1: Con Stanley. There is a focus on consumption, and as
Speaker 1: I look at the sequencing of the reopening across Europe
Speaker 1: in a place like Italy, it's manufacturing last first rather
Speaker 1: and then at the back end it will be the
Speaker 1: consumer facing sectors of the economy that opened last. And
Speaker 1: you guys are pointing out the consumption will be the
Speaker 1: LaGG art here, the slowest to recover. Now with that
Speaker 1: in mind, how hopeful can you be about a short,
Speaker 1: sharp recovery if consumer facing sectors the economy a last
Speaker 1: to open and consumption will be the laggett here. Well,
Speaker 1: I mean particularly in the US. John. If if that's
Speaker 1: the case, it's it's going to be a long slog
Speaker 1: because at the end of the day of the US
Speaker 1: economy is mostly a consumer based economy, and so if
Speaker 1: we experience the same type of dynamic that we're seeing
Speaker 1: play out in China, for example, Uh, then it is
Speaker 1: going to be a slow recovery. And that is what
Speaker 1: our economists are suggesting in their forecast. We're not really
Speaker 1: getting back to any any kind of consistent level of
Speaker 1: potential growth until two uh, you know, and and that
Speaker 1: is something that, um, we're all going to have to
Speaker 1: deal with, right It's the U s economy is is
Speaker 1: driven by consumption. I'm struck by Warren Buffett and what
Speaker 1: he said this weekend. He was saying that he didn't
Speaker 1: get calls because, frankly, or the fact that he was
Speaker 1: getting calls were not actually in terms that were attractive
Speaker 1: to him based on what the FED had done, based
Speaker 1: on the intervention that basically they had artificially propped up
Speaker 1: some of these companies and lowered borrowing costs. Do you
Speaker 1: think that investors who are investing alongside the FED ultimately
Speaker 1: will be struck with insolvencies and losses or do you
Speaker 1: think that they just won't get very big returns. Well,
Speaker 1: I just I don't think they're going to get very
Speaker 1: big return please. Uh. At the end of the day
Speaker 1: that the government, um has the government and the Fed
Speaker 1: in the sense have a have a special ability uh
Speaker 1: that it is not sort of commonplace in the sense
Speaker 1: that they can go in uh and they can increase
Speaker 1: their debtload. Right, the government can increase its debtload, um.
Speaker 1: And and the cost of that over time ultimately would
Speaker 1: be borne out through the currency. Right. And and what
Speaker 1: we're seeing um over the over recent months is that
Speaker 1: the currency hasn't had a problem with it. Now, that's
Speaker 1: not to say that it will never have a problem
Speaker 1: with it. And in fact, we do believe that the
Speaker 1: dollar is evolving through a topping process. And at the
Speaker 1: end of the end of the this year, the end
Speaker 1: of of of the next year, the dollar is going
Speaker 1: to be weaker, perhaps substantially weaker than it is today.
Speaker 1: But that's ultimately where you would see uh see the
Speaker 1: pain if you will, hitting the government and the government's
Speaker 1: balance sheet uh is through the current see and we
Speaker 1: have not yet really seen that to any degree worth
Speaker 1: worth writing home about. Matt. We've gotta leave it that
Speaker 1: sam My bestaid of saying, well you mouhm back that
Speaker 1: of Morgan Stanley on the latest and the Treasury market
Speaker 1: beyond right now is a really important interview, folks. I'm
Speaker 1: looking down at the Plaza Hotel here on Central Park.
Speaker 1: Jane Foley knows the history of the Plaza Hotel, but
Speaker 1: what she really knows is eighteen months, seventeen months after
Speaker 1: the Plaza Chord, three or five years ago, there was
Speaker 1: the Louver Accord. The coffee was better there, and and Jane,
Speaker 1: what's so important here is you can have dollar dynamics
Speaker 1: and all this international economics and China in the US
Speaker 1: now and all that, and then it leads to instabilities
Speaker 1: where you've got to have a brand new meeting. How
Speaker 1: close are we to instabilities in the Jane Foley world? Well,
Speaker 1: I mean that is quite interesting. I think if the
Speaker 1: dollar continued to be at these sorts of levels, maybe
Speaker 1: for the next year or so, then I certainly think
Speaker 1: that politics would certainly be coming into that equation. But
Speaker 1: I think for now it's perhaps too early to be
Speaker 1: wondering whether or not politics are going to come in,
Speaker 1: what politics are going to potentially do. But I think
Speaker 1: there's one thing that we can say is that we
Speaker 1: are still, I think very much in the early phases
Speaker 1: of this crisis. What you've just been outlining with respect
Speaker 1: to unemployment is really just still the beginnings of the
Speaker 1: demand site aspect of this crisis. If we get to
Speaker 1: the end of the year, and as most economists untokipating,
Speaker 1: we've still got very elevated unemployment used very suppressed wage inflation,
Speaker 1: then we are still looking at very poor demand dynamic,
Speaker 1: and that is going to feed back into stock market valuations.
Speaker 1: It's going to feed through into all the economic data
Speaker 1: that we're going to see, and it's not going to
Speaker 1: be a pretty site, and gay not the way that
Speaker 1: people are trying to Our governments are trying to plug
Speaker 1: this gap, this demand gap is by printing money and
Speaker 1: by issuing record amounts of debt. And we've talked about
Speaker 1: the U s set to announce its quarterly funding on
Speaker 1: Wednesday with record badge of debt sales. But it's not
Speaker 1: just the US. It's also China, which is set to
Speaker 1: issue a record amount of local government debt. It's also
Speaker 1: in Europe or the e c B is expanding its
Speaker 1: balance sheet. What is the long term consequence of this
Speaker 1: massive sale of debt in nations worldwide. Well, I think
Speaker 1: it depends which nation that you're in, because if you're
Speaker 1: issuing debt in the currency that people really want to have,
Speaker 1: which would be really most Western economies of the US
Speaker 1: obviously and then European economies, they can issue debt and
Speaker 1: they'll they'll they'll probably do okay. But if you want
Speaker 1: to issue debt and you happen to be an emerging
Speaker 1: market nation and you do not have at the patients
Speaker 1: of international investors just wanting or lining up to buy
Speaker 1: your debt, then you have an issue. And that is
Speaker 1: I think again a real aspect of this crisis. I
Speaker 1: think that the crisis that the emerging markets suffer it
Speaker 1: could be really quite marked. And whereas Western governments can
Speaker 1: find a way through this, and it's going to be
Speaker 1: pretty tough. I think it's going to be really, really
Speaker 1: tough if you happened to be in a very poor country.
Speaker 1: Jen Let's touch on the US dollar as well. Many
Speaker 1: people were talking about this for a long long time
Speaker 1: that in the next downturn, any crisis, whatever shape it
Speaker 1: might take, we might question the riskman againing characteristics of
Speaker 1: the U. S dollar. Have we just cemented the status
Speaker 1: as the haven currency. Do your in fact for a
Speaker 1: whole lot longer the U S Dollar. I think we
Speaker 1: have to be honest, and I think this is a
Speaker 1: function of, you know, the last ten years. Maybe that's
Speaker 1: the last twenty years, but certainly the last ten infer instance,
Speaker 1: if you look at the data from the Bank of
Speaker 1: International Secuments over the last ten years, really after the
Speaker 1: global financial crisis, a huge amount of debt started to
Speaker 1: be issued in US dollars. A huge amount of cash
Speaker 1: of U. S. Dollars is held outside of the U S.
Speaker 1: A lot of this is used for transactional purposes, again
Speaker 1: in emerging market countries, and because a lot of these
Speaker 1: have grown really very significantly in the last ten years,
Speaker 1: there's just the need for dollars just to carry out businesses.
Speaker 1: So from that point of view, the dollar is a
Speaker 1: sort of a practical safe haven for many types of
Speaker 1: smaller businesses and people around the world, particularly in e M.
Speaker 1: And that's why I think when the dollar does eventually
Speaker 1: turn lower, it could be a while, yeah, and it
Speaker 1: could be linked to when confidence really does come back
Speaker 1: in emerging markets. Jane, this is fascinating to me because
Speaker 1: the implication here is that the Fed essentially monetizing the
Speaker 1: debt of the United States and the United States selling
Speaker 1: an unprecedented amount of treasuries will have no effective consequence
Speaker 1: on the nation. I mean that is sort of the
Speaker 1: the implication here if the dollar remains the funding source
Speaker 1: to your and and and the the prime way that
Speaker 1: that that people look for the currency. Is that correct?
Speaker 1: Is that your is that your take? It certainly does
Speaker 1: seem to be like that. And to put that into perspective,
Speaker 1: I remember righting essays on this when I was at university,
Speaker 1: and that was a long time ago. And yet you know,
Speaker 1: we we can project ourselves forwards till today and we're
Speaker 1: still at this situation. You know, when does the market crack? Now,
Speaker 1: if you like, you can liken this to Japan. Now,
Speaker 1: in Japan, of course, they've got a huge amount of that,
Speaker 1: much larger than the US, and they have been issuing
Speaker 1: huge amounts of Jgbsdvangage, Bannabeen hoovering up huge amounts of
Speaker 1: of jgbs as well, and for years the market I said, well,
Speaker 1: you know, our investor is going to give up on
Speaker 1: this is as wrong as a yel is going to
Speaker 1: go up, and yet they haven't. And it seems as
Speaker 1: long as credit rating agencies remain calm, then the market
Speaker 1: carries on buying this step. And it seems as long
Speaker 1: as the government's do just enough to give this era
Speaker 1: of fiscal control, then the market seems to poke with
Speaker 1: this quite well. Jane, thank you so much, Jane, fully
Speaker 1: with rabble banking. Julian, Emanuel, I read every word of
Speaker 1: us note. He's got a note for so then they've
Speaker 1: got seven pages of Excel spreadsheet in a fund that
Speaker 1: I think I couldn't read when I was seventeen. I
Speaker 1: certainly can't read it now. So Emmanuel of bt I,
Speaker 1: you can claiming about the guest before they even get
Speaker 1: to speak, But come on, he's one of these guys.
Speaker 1: It's it's like at the end of the conversation, it's
Speaker 1: like something off of a hieroglyphic, a fault museum of art.
Speaker 1: So when it was Julian translate forest right now and
Speaker 1: this and this continuum, Julian, Emmanuel, where do you fit
Speaker 1: in on sell in May and go away? Well, Tom,
Speaker 1: I hope you're going to disinfect the package with the
Speaker 1: magnifying glass. That's gonna be on your doorstep tomorrow. So
Speaker 1: that's the first thing I'd say, Look, if you if
Speaker 1: you think about it, it's very clear that the rally
Speaker 1: Austin the March is very much about the fat injections
Speaker 1: of liquidity. Obviously the fiscal policy as well. And now
Speaker 1: we're at this point where we've we've come all this
Speaker 1: way and and frankly, what we're looking at is seven
Speaker 1: are weeks of uncertainty. How does the economy reopen? What
Speaker 1: does that look like? And you know, crucially, do we
Speaker 1: have a spike in the coronavirus? Julian Gray is risk okay? Beautifully,
Speaker 1: frank Julian Robert Kirby, the giant of capital Guardian Trust
Speaker 1: of a million years ago, would say, opportunity, uncertainty go together.
Speaker 1: Is this with this uncertainty, lousy March grade April is
Speaker 1: now the mother of all times to reaffirm optimism. We
Speaker 1: don't think it's right now. We think May could be rocky. Ultimately,
Speaker 1: we do think that in the bigger picture it is
Speaker 1: a time to reaffirm optimism. But I think we have
Speaker 1: to be very honest and upfront about this. There is
Speaker 1: an element of medicine that needs to progress over the
Speaker 1: next five or six months. We're not exactly sure what
Speaker 1: it is. Obviously a vaccine would be the best case scenario,
Speaker 1: but we do need some sort of medical events or
Speaker 1: some signs that the virus is going to be less
Speaker 1: of an issue as we reopened the economy. But tell
Speaker 1: you a great judy and science is going to be
Speaker 1: a huge factor in the reopening of all of this.
Speaker 1: I think there are some basic economic assumptions that you
Speaker 1: can make and start to think about the kinds of equities,
Speaker 1: the kinds of businesses you want to own in those scenarios.
Speaker 1: So let's talk about it, Julian. This could be a
Speaker 1: high debt, low growth world. Goldman is saying, for that reason,
Speaker 1: you want to pay up for growth by the big players,
Speaker 1: by the big five, by the big tech companies. That
Speaker 1: seems to be the call for a lot of people
Speaker 1: on Wall Street at the moment, increasingly a call on
Speaker 1: the margin of the conversation. Is something we discussed at
Speaker 1: the top of this program. Start to get exposure to
Speaker 1: small caps, the most cyclical aspects of this equity market.
Speaker 1: How do you manage your equity exposure right now, Julian,
Speaker 1: So we are on the small cap cyclical side. We
Speaker 1: looked at every bear market over the last thirty years
Speaker 1: and and absolutely with consistency, and think about it, it
Speaker 1: did very two thousand and eight, the financials led the
Speaker 1: way down, two thousand technology led the way down, etcetera.
Speaker 1: But invariably what we saw is all the sectors and
Speaker 1: the styles and the market caps that were the worst
Speaker 1: performers during the bear market phase ultimately lead the market
Speaker 1: higher once you made the transition to a newable market.
Speaker 1: And for us, that means financials, that means small caps,
Speaker 1: that means energy and industrials. It does not mean fang
Speaker 1: and it doesn't mean sort of the shelter and place
Speaker 1: ministers who's which we think are going to be sources
Speaker 1: of fun as we make this transition to a newable market,
Speaker 1: which is Lisa. Sources of fun is Julian Emmanuel talk
Speaker 1: is they're going to sell the puppies. Sell the puppies. Actually,
Speaker 1: you could get a lot of buyers right now. I
Speaker 1: hear the pounds are actually out of puppies because everyone's
Speaker 1: adopting puppies. Julian. I do want to get a sense though,
Speaker 1: of the numbers versus the hope, and I'm looking right now,
Speaker 1: there's about halfway. We're about halfway through the first quarter
Speaker 1: earnings reporting season, and the Russell two thousand Small Cap
Speaker 1: Index report companies are down sixteen point four percent year
Speaker 1: over year, that is with respect to earnings, and that
Speaker 1: as much more than you're seeing in the SMP five
Speaker 1: in terms of the of the companies that have reported there.
Speaker 1: How do you square that with the optimism that you're
Speaker 1: expressing and recommending that investors go and buy these companies. Well,
Speaker 1: you square with this whole idea that if you think
Speaker 1: about the relative return of the SMP for the versus
Speaker 1: the Russell that is very largely discounted. You also look
Speaker 1: at it and we think about it in terms of
Speaker 1: the risk. Several weeks ago, the Russell two thousand vics
Speaker 1: got to an all time wide versus the S and
Speaker 1: P five vics, and that told you that, you know,
Speaker 1: it was absolute abject panic in the small cap universe,
Speaker 1: even after the market had turned. And then the last
Speaker 1: thing we say about is, you know, think about the
Speaker 1: targeting of the stimulus. We're not you know, we're buying
Speaker 1: large targeting industries, but overall the emphasis is on a
Speaker 1: small town, you know, small main Street us A companies,
Speaker 1: which by the way, make up a large part of
Speaker 1: the electorate this November. So we think it's it's in
Speaker 1: the price, So Julie, and this conversation has gone the
Speaker 1: way if many of these conversations go, which is why
Speaker 1: do you want to buy X? And then I get
Speaker 1: told because in history it shows X, Y and C.
Speaker 1: And I think we can all agree that this shutdown
Speaker 1: this economic downtown. It's totally unprecedented. So with that in mind,
Speaker 1: isn't the comflict branket of history totally redundant as we
Speaker 1: exit this? Uh? No, I don't think so, because this
Speaker 1: has been so extraordinary that there really are only a
Speaker 1: couple of periods that you can measure against um and
Speaker 1: if you look at it, sort of the the incredible
Speaker 1: craft off of an all time high coming in a
Speaker 1: month or two really only harkins. And from our view,
Speaker 1: the reason this isn't nine where you wouldn't say, you know,
Speaker 1: cyck locality is is on the verge of bankruptcy and
Speaker 1: so on and so forth, is because of the response
Speaker 1: that you know, we are now over of us g
Speaker 1: d P in enacted and proposed stimulus, right, and and
Speaker 1: the question is can that last? Yeah, it's it's an
Speaker 1: incredible number. Can that last long enough? There's an optionality
Speaker 1: to it that putting our derivatives at on, there's an
Speaker 1: optionality to can it last long enough to get to
Speaker 1: a medical solution um that helps reopen the economy. And
Speaker 1: we think the answer is likely going to be yea,
Speaker 1: Julia Manuel, thank you so much, great briefing. Bill Smede
Speaker 1: joins us right now. Smede Capital. Of course, value investors
Speaker 1: they sort of like sequoil like stocks, some real concentration.
Speaker 1: They're less diversified, uh, and they're in the value space.
Speaker 1: Will speed your track record over long term is nothing
Speaker 1: short of an act of God. It is a miracle
Speaker 1: unlike the last year, you know, anyway you want to
Speaker 1: look at it, it's been a tough, tough slog for
Speaker 1: large cap vailue away from the seven or eight stocks
Speaker 1: doing well. How do you manage that forward? Well? You
Speaker 1: you get more excited about it. Tom. We took a
Speaker 1: lot look about a week ago at the year to date,
Speaker 1: one year, three year, five year, and tenure on the
Speaker 1: Russell one thousand value versus the Russell one thousand growth,
Speaker 1: and the spreads were and a hundred. Uh So, so
Speaker 1: what it tells you that in virtually every single time
Speaker 1: period for the last ten years, growth has beaten value.
Speaker 1: And and that's we find that really a key in
Speaker 1: the for example, the Birrthire Hathaway meeting. Because from a
Speaker 1: value standpoint, today is a great day to be a
Speaker 1: Ben Graham person, right, this is a great point in
Speaker 1: time to be somebody that looks at asset values and
Speaker 1: cash flows and all those kind of important things for today.
Speaker 1: And and we we uh we definitely like this market
Speaker 1: for that reason. All right, so we give us your
Speaker 1: sense of your takeaways from Warren Buffett over the weekend.
Speaker 1: Uh you know, he's always been enthusiastic about America long
Speaker 1: term American exceptionalism, but it didn't necessarily come across in
Speaker 1: some of his actions. What were your takeaways? Well, first
Speaker 1: of all, you have to understand the capital structure of
Speaker 1: what he's running, Right, He's running a five hundred billion
Speaker 1: dollar market cap company with a hundred and thirty some
Speaker 1: billion dollars in cash, And for him to be able
Speaker 1: to buy something, it's got to be a very large
Speaker 1: company that is very deeply out of favor and the
Speaker 1: very largest companies. As Tom mentioned in the intro, they've
Speaker 1: had favor uh uh. Mason Hawkins calls it quality at
Speaker 1: any price. See when when you're buying a dip and
Speaker 1: you're paying thirty times for Costco or thirty five times
Speaker 1: for Visa, or or uh eighty times or a hundred
Speaker 1: times for Netflix and Amazon because they seem to be
Speaker 1: benefiting from the misery, you're exacerbating the growth trend. And
Speaker 1: then you're there's massive selling on the value side and
Speaker 1: there's no capital in the hands of the value people
Speaker 1: to sit there and buy with bids below the market. Yeah,
Speaker 1: but what Bill, Bill, I I get that. But the
Speaker 1: fact of the matter is their revenue profile forward. It's
Speaker 1: like Mars and Venus. I. I mean, the revenue profile
Speaker 1: of some of those high flying texts is extraordinary compared
Speaker 1: to most single digit If revenue profiles were important, and
Speaker 1: that was the most important thing, uh. Targets revenues are
Speaker 1: up eight mostly on the back of their their e
Speaker 1: commerce business exploding and groceries which are low. In other words,
Speaker 1: the thing that's doing the best for Target at the
Speaker 1: moment is the thing that Amazon does, and Amazon is
Speaker 1: finding our our targets, finding out the same thing that
Speaker 1: Amazon's finding out is that even when the business is
Speaker 1: as good as it could possibly be, there's no margins
Speaker 1: in it. And where where targets gonna make a lot
Speaker 1: of money is We're gonna have a zillion four year
Speaker 1: old kids in four years and the Oshkosh bagsh overall
Speaker 1: of overalls is gonna fly off the shelves and there's
Speaker 1: huge margins in that. And by the way, a week ago,
Speaker 1: there was a survey in the states that were about
Speaker 1: to reopen and they asked people what are the three
Speaker 1: things they'd most like to do that they haven't been
Speaker 1: able to do. It was travel, close, and entertainment exactly.
Speaker 1: So Bill, are you concerned? Paul, Yeah, I'm gonna go.
Speaker 1: I'm gonna tap into kind of your experience here, uh,
Speaker 1: your vast experience in the markets. One of the things
Speaker 1: people are concerned about, or not concerned about, it just
Speaker 1: wondering about, is will consumer behaviors be altered, you know,
Speaker 1: maybe permanently by what's happening here in the pandemic? Is
Speaker 1: this something akin to the Great Depression of the thirties
Speaker 1: were kind of impacted a generation and consumer behavior? Are
Speaker 1: you thinking about some of those bigger issues and how
Speaker 1: people's uh consumer behavior might be impacted. I personally believe
Speaker 1: and we as a company believe that people are drastically
Speaker 1: overestimating this. They're overestimating. And let me give you an example.
Speaker 1: Uh when when I was fifteen years old, sixteen years old,
Speaker 1: I kind of got bored with a lot of subject
Speaker 1: in high school, but I was always excited to go
Speaker 1: there every day because the state had a mode howdn
Speaker 1: eighty days a year, the cuterst girls in my hometown
Speaker 1: had to go there. Year old girls? Okay, appropriate, you know, okay,
Speaker 1: what what's gonna happen? What's just gonna happen? As soon
Speaker 1: as we open up the fifteen to five year old
Speaker 1: kids are all going to gather somewhere where where they
Speaker 1: think that the opposite sex is going to be there.
Speaker 1: How that'll try the economy? I don't remember this in
Speaker 1: the cf A Curriculum bill. Are you under diversified? Now?
Speaker 1: When you have this shock? When you have a economic backdrop,
Speaker 1: we've got should I be smeet diversified or should I
Speaker 1: try to be more over diversified? No, just the opposite
Speaker 1: to see, that's the deal with Explain that to our
Speaker 1: audience please. Yeah. So, so here's Buffett recommending the S
Speaker 1: and T index. He started his talk explaining that from
Speaker 1: ninety nine to nineteen fifty four, the index of the
Speaker 1: day in ninety nine was the DOO and it went
Speaker 1: nowhere for twenty five years. Now, think of the time
Speaker 1: period since then. Uh, From fifty fifty four to sixty six,
Speaker 1: the index was good. From sixty six to eighty two,
Speaker 1: the index was terrible. From eighty two to ninety nine,
Speaker 1: the index was good. From two th eleven, the index
Speaker 1: was terrible, and then up until two months ago, the
Speaker 1: index was really good for nine years. Okay, So what
Speaker 1: does that tell you? It tells you that half the
Speaker 1: time the index is terrible and the index the index
Speaker 1: is usually terrible, beginning with a point in time where
Speaker 1: it's extremely popular and it gets heavily overweighted in the
Speaker 1: most popular stocks. And that's one of the reasons why
Speaker 1: we're starting again. Well, one final question, what do you
Speaker 1: think of the financials? Our audience wants to know if
Speaker 1: you find value in the financials, do you have to
Speaker 1: go to Europe to look at their bank valuations. No,
Speaker 1: we're we're excited about the financials. Uh, the fact that
Speaker 1: Buffett couldn't say more nice things about him, even though
Speaker 1: he thinks very highly of him, to me was a
Speaker 1: bi signal. Did he give a bicycle on the airlines? Uh?
Speaker 1: You know, it's funny you mentioned that because I looked.
Speaker 1: I thought, gosh, if those things go down, see they're
Speaker 1: a lot lower than where Buffetts told them, and then
Speaker 1: they're probably down another ten percent. Today said, well, yeah,
Speaker 1: I remember to two instances. We stopped flying for eighteen
Speaker 1: days after nine eleven, and it took a while to recover.
Speaker 1: And then uh, in oh nine, o eight oh nine,
Speaker 1: obviously things backed way off in the in the airlines,
Speaker 1: and I can remember we were out starting to promote
Speaker 1: our company. We started in oh seven, and the funds
Speaker 1: started at the beginning of away. So in oh nine,
Speaker 1: oh ten, o eleven we went on what we called
Speaker 1: the No Tour. We flew all over the country and
Speaker 1: pitched what we were doing, and everyone said no. But
Speaker 1: the fares were cheap. But by the end of it,
Speaker 1: the fairs weren't keep right. In other words, by two
Speaker 1: or three years into it, everybody was back to fly
Speaker 1: it Like I'm gonna steal that from Bill Speed. The
Speaker 1: surveillance and no tour bill Speed always, thank you so much.
Speaker 1: It best to value invest with speed capital. With the pandemic,
Speaker 1: with all the different news flows that we've had from it,
Speaker 1: and the statistics occur flattenings that we've seen in such,
Speaker 1: it's been important to get the perspective of the Johns
Speaker 1: Hopkins University. Joshua Sharfstein is with the Bloomberg School of
Speaker 1: Public Health. They should point out that Mr Bloomberger is
Speaker 1: of course the founder of Bloomberg LP, this radio and
Speaker 1: television property as well, and he's been a philanthropist to
Speaker 1: his engineering school at Johns Hopkins and of course the
Speaker 1: greater university. Here is Joshua Sharfstein. An update on the
Speaker 1: pandemic overall, at the plateau in the United States, that's
Speaker 1: not really going down particularly quickly, and her, you know,
Speaker 1: there are certainly places like New York where it is declining,
Speaker 1: but there are also quite a few places, even some
Speaker 1: smaller cities, where it is increasing, well, it's recreasing increasing
Speaker 1: as well. Can they use the same methods from New York?
Speaker 1: I mean, what is the difference in medical treatment in
Speaker 1: Baltimore or New York versus the remoteness of some of
Speaker 1: these new places in America. You mean, you're putting your
Speaker 1: finger on an important issue, which is that the hospital
Speaker 1: that some is not nearly as robots. In many places,
Speaker 1: many of the hospitals have been have closed in rural areas.
Speaker 1: Those that are open are very small and financially unstable,
Speaker 1: and so, UM, this has created an enormous challenge if
Speaker 1: people are gonna and so it creates this dynamic where UM,
Speaker 1: people may feel like, oh, you know, we're never gonna
Speaker 1: have a problem like New York. But it doesn't take
Speaker 1: a problem like New York to tip that entire local
Speaker 1: healthcare system over There is all sorts of issues here
Speaker 1: about getting out of lockdown. Every you know, all the
Speaker 1: images over the weekend and all that. What do you
Speaker 1: learn earned in the last twenty four hours about getting
Speaker 1: out of lockdown? Well, I think that people, um have
Speaker 1: to look past just the overall government decision. I think
Speaker 1: what's really going to matter is whether all of us,
Speaker 1: all the businesses are following good public health guidance to
Speaker 1: stay away from each other, to continue to physically distance
Speaker 1: from each other. You know that that is as important,
Speaker 1: I think as some of the specific policies that are
Speaker 1: put into place. UM. If people just go out and
Speaker 1: defy what's being done, it's going to be very hard
Speaker 1: to keep this disease under control. And if we open
Speaker 1: a little which may be appropriate in some areas, could
Speaker 1: people take that as a green light to do whatever
Speaker 1: they want to do. It's really going to be a problem.
Speaker 1: There's nothing holding this disease back except our ability to
Speaker 1: stay away from each other. Right now, Josh, what are
Speaker 1: we going to be able to understand this disease better?
Speaker 1: So there are a number of studies also trying to
Speaker 1: understand genetics to try and understand why in certain countries,
Speaker 1: you know, the mortality rate isn't much higher than others,
Speaker 1: although the lockdowns were very similar. What are some of
Speaker 1: the questions that you want answered to to understand it
Speaker 1: better and how soon can those answers come? I think
Speaker 1: there are some very important questions, you know, including some
Speaker 1: continued questions about how the disease is transmitted UM and
Speaker 1: the role particularly the children play in transmitting the disease.
Speaker 1: I think that's going to be very important as we
Speaker 1: think about whether and how to open up schools UM.
Speaker 1: There's also some basic issues about the illness, why people
Speaker 1: with certain conditions are so much higher risk of dying UM,
Speaker 1: and is there any way to predict early in the
Speaker 1: courts of disease who is going to have a more
Speaker 1: severe illness. I'm also very intrigued by the report that
Speaker 1: perhaps earlier medical treatment of certain kinds really helps. I mean,
Speaker 1: if that can be established, that could be very very important.
Speaker 1: If it's in doubt that earlier oxygen therapy or some
Speaker 1: other type of UM intervention matters, that might change the
Speaker 1: way that medical services are organized and keep a number
Speaker 1: of people out of the hospital. So I do think
Speaker 1: that we've gotten a lot of scientific information, and we're
Speaker 1: going to see every week more and more insights. I
Speaker 1: think the frustration is that science doesn't necessarily operate by,
Speaker 1: you know, one big headline and everyone agrees it's going
Speaker 1: to be like these little, you know, incremental steps, a
Speaker 1: couple of steps back, a couple of steps forward. But
Speaker 1: it's the kind of thing when you look backwards you'll
Speaker 1: see how far I think we've come in our understanding.
Speaker 1: What can you tell us about the gilly add therapy?
Speaker 1: So there was a setback and now it seems to
Speaker 1: be on better track again. Can we find out by
Speaker 1: the summer. If this is one of the biggest hopes
Speaker 1: for the world, this particular therapy, I think it's going
Speaker 1: to be as potentially some benefit, but most likely not
Speaker 1: as like a major, you know, tremendous benefit I think.
Speaker 1: But I mentioned last time, I still think, which is
Speaker 1: we're gonna have to see the ongoing studies which are
Speaker 1: are using that drug at different stages of the illness,
Speaker 1: because the medicine might work so so at one stage
Speaker 1: the illness, but work much better or not at all
Speaker 1: at a different stage. And so it's going to be
Speaker 1: like a bunch of little studies that will add up
Speaker 1: to a much greater understanding. And then when as we
Speaker 1: learn more about a particular medication, we'll learn more about
Speaker 1: the disease. If it turns out that, you know, trying
Speaker 1: to block viral replication really makes a lot of the
Speaker 1: difference if it's given early, the drugs given early, that
Speaker 1: might help us target other kinds of therapies. So I'm
Speaker 1: hopeful that we'll learn more um from these other studies
Speaker 1: that will will round out the picture from the vier gesture.
Speaker 1: Sure see the Johns Hopkins University, Bloomberg School of Public Health.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform him you prefer. I'm on Twitter at Tom Keane
Speaker 1: before the podcast. You can always catch us worldwide. I'm
Speaker 1: Bloomberg Radio