WEBVTT - Surveillance: Market Optimism with Shalett 0:00:05.120 --> 0:00:12.960 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. 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 --> 0:00:27.680 Bloomberg dot Com, and of course on the Bloomberg. Really 0:00:27.720 --> 0:00:30.160 happy to say we can stop the week with Lisa's Shadow, 0:00:30.240 --> 0:00:33.920 the More than Standing Wealth Management, the chief investment Officer. Lisa. 0:00:34.000 --> 0:00:35.519 You and I have gone back and forth over the 0:00:35.560 --> 0:00:38.120 last couple of weeks. Help us understand the cyclical trade 0:00:38.440 --> 0:00:40.400 and how you think that's going to evolve in the 0:00:40.440 --> 0:00:45.320 coming months. Yeah, great, Good morning, Jonathan. Um. Look, our 0:00:45.400 --> 0:00:48.640 perspective is that, uh, you know, folks have really looked 0:00:48.640 --> 0:00:52.080 at the cyclical trade and are waiting to see the 0:00:52.120 --> 0:00:59.000 inflation expectations data signal that reflation in the economy has begun, 0:00:59.320 --> 0:01:03.120 and we've really seen you know, the cyclicals defensive ratio 0:01:03.360 --> 0:01:08.399 track inflation expectations. Uh. To your point, I think this news, um, 0:01:08.480 --> 0:01:10.800 you know, coming out of the Fed, and you know 0:01:10.840 --> 0:01:15.640 the market's reaction to it, meaning they are believing uh 0:01:15.760 --> 0:01:19.920 Chairman Powell for for what he's saying, UH is ultimately 0:01:19.959 --> 0:01:23.160 going to be a positive catalyst in that regard and 0:01:23.280 --> 0:01:27.640 start firming up those inflation expectations. UM. I think when 0:01:27.640 --> 0:01:31.040 you go to full on debt monetization, which is really 0:01:31.080 --> 0:01:34.880 I think where we are. Uh, that's the point at which, 0:01:35.360 --> 0:01:38.200 uh it becomes very clear, you know what the Fed 0:01:38.319 --> 0:01:43.000 is doing. They're debasing the US dollar, They're pushing down uh, 0:01:43.040 --> 0:01:47.960 you know, real rates UM, and ultimately the US dollar 0:01:48.120 --> 0:01:50.720 has to roll over. And the rollover of that U 0:01:50.800 --> 0:01:53.440 S dollar from what has been uh, you know, just 0:01:53.520 --> 0:01:57.480 extraordinary heights on a on a trade weighted basis, UH 0:01:57.640 --> 0:01:59.040 is going to be the one of the things that 0:01:59.080 --> 0:02:03.040 trigger is um, a return of a little bit of inflation. 0:02:03.080 --> 0:02:07.600 And that's all you need here to get those pilicles going, Lisa, 0:02:07.880 --> 0:02:10.440 what's the dollar going to be debased against? What currency 0:02:10.520 --> 0:02:15.720 is actually going to gain press prominence versus the green back? Uh? 0:02:15.880 --> 0:02:19.240 So our perspective is that uh most uh And what 0:02:19.280 --> 0:02:23.320 I mean by that is, remember that at the end 0:02:23.360 --> 0:02:27.680 of the day, uh, you know, currencies move uh in 0:02:27.680 --> 0:02:33.919 in relation to relative yield advantages and relative growth. UH. 0:02:33.919 --> 0:02:36.200 And while for a good portion of the last three 0:02:36.280 --> 0:02:40.080 or four years, the US really had a real yield 0:02:40.160 --> 0:02:44.359 advantage and a real growth advantage. Um. What coronavirus has 0:02:44.400 --> 0:02:47.720 done is kind of levels of playing field quite a bit. 0:02:48.080 --> 0:02:50.720 And what we've seen in the near term is simply 0:02:50.760 --> 0:02:54.200 a an extension of the fear trade. UH. That's really 0:02:54.200 --> 0:02:57.680 holding the dollar up in our humble opinion, because when 0:02:57.720 --> 0:03:00.480 you look underneath the surface, the relative of growth of 0:03:00.560 --> 0:03:03.880 the US economy UH is really not that much better 0:03:04.440 --> 0:03:06.160 than what's going on in the rest of the world, 0:03:06.840 --> 0:03:09.640 and real rates are really starting to come down A Lisa, 0:03:09.639 --> 0:03:11.240 I want you to give me the real scroop. You're 0:03:11.240 --> 0:03:13.919 in wealth management, your legendary in the street. You've seen 0:03:13.960 --> 0:03:16.760 the up down, You've seen how many how many once 0:03:16.800 --> 0:03:24.360 in a lifetime crisis, Lisa have you and I had combined? GETU? 0:03:24.760 --> 0:03:29.560 There's no left over, folks, Lisa, that the textbook says. 0:03:29.600 --> 0:03:31.280 You know, you've walked into a more E. Stanley office 0:03:31.320 --> 0:03:36.640 supposed to go there's a sixty split, six stocks, bonds 0:03:36.640 --> 0:03:40.400 and ten percent cash, because that's what you're supposed to do, Bologny, 0:03:40.520 --> 0:03:45.760 what's the actual split right now? Oh? Goodness? So, uh, 0:03:45.800 --> 0:03:48.880 you know, look, the vast majority of our clients are 0:03:48.920 --> 0:03:53.680 extraordinarily conservative and have been you know, quote unquote hoarding 0:03:53.760 --> 0:03:56.520 cash and you know, as is often the case, and 0:03:56.960 --> 0:03:59.960 we know this from behavioral finance, is a playbook you know, 0:04:00.080 --> 0:04:02.600 played out to a t uh. You know, a lot 0:04:02.640 --> 0:04:07.400 of clients unfortunately, you know, sold badly. They gave into 0:04:07.480 --> 0:04:11.000 fear and throughout the February March time frame built their 0:04:11.000 --> 0:04:14.640 cash balances, you know, up to to two times normal. 0:04:14.680 --> 0:04:18.120 So you you talk about the ten percent being an average, 0:04:18.120 --> 0:04:22.560 you know, we're running closer to two times that about cash. John, 0:04:22.640 --> 0:04:24.919 I just want to say it's it's earlier in the 0:04:24.960 --> 0:04:27.560 week and that's already the phrase of the week that 0:04:27.720 --> 0:04:31.760 defines my investment past. John. So many people have shared 0:04:31.839 --> 0:04:37.040 your cash allocations so badly. Lisa, let's talk about how 0:04:37.040 --> 0:04:38.880 this evolves. Because you've said that we could see some 0:04:38.960 --> 0:04:41.799 inflation and maybe that will move things along. We're about 0:04:41.800 --> 0:04:44.560 to see some real sequential month or month improvement in 0:04:44.560 --> 0:04:46.040 the next couple of months. We'll get the p M 0:04:46.080 --> 0:04:48.760 I slid of this week. May should be better than April. 0:04:48.839 --> 0:04:51.600 June should be better than May. Does that help get 0:04:51.600 --> 0:04:55.720 it done or is that just already widely expected. Well, 0:04:55.760 --> 0:04:59.760 I think the piece that isn't expected is that what 0:04:59.800 --> 0:05:04.000 we're going to see is a lot of lumpiness between 0:05:04.120 --> 0:05:07.000 supply and demand because don't forget what we did, is 0:05:07.040 --> 0:05:11.240 we you know, sudden stop uh turned off the economy, 0:05:11.400 --> 0:05:15.960 and so the supply chains are imbalanced. Uh. And so 0:05:16.120 --> 0:05:21.240 while the market is universally discounting uh, the you know, 0:05:21.480 --> 0:05:24.760 the demand side of things, they're not really thinking about 0:05:24.839 --> 0:05:27.479 the supply side of things. And the supply side of 0:05:27.520 --> 0:05:30.479 things in many cases is going to be delayed. And 0:05:30.640 --> 0:05:33.760 it's that delay and mismatch and the supply chains that 0:05:33.839 --> 0:05:37.120 could cause um, you know, some price inflation to creep 0:05:37.160 --> 0:05:39.440 in as people are willing to quote unquote pay up 0:05:40.000 --> 0:05:43.760 uh to fill refill their shelves. And uh, you know, 0:05:43.920 --> 0:05:45.760 I do think we are going to begin to see 0:05:45.760 --> 0:05:50.040 a pickup in some of those metrics around prices paid, 0:05:50.200 --> 0:05:56.440 wages paid, uh, you know, particularly amongst small businesses. So 0:05:56.520 --> 0:05:58.640 just real quick care, Lisa, what do you think it 0:05:58.640 --> 0:06:02.600 will take to shift the current mood that policy Trump's 0:06:02.640 --> 0:06:06.120 the fundamental economic data? Is there anything that could come out, 0:06:06.120 --> 0:06:09.239 whether it's rising trade tensions or anything else to reverse 0:06:09.279 --> 0:06:15.880 the shift? Uh you mean reverse or relationary trade? Yes? Um, 0:06:16.080 --> 0:06:20.400 so look there there are obviously a host of things, um, 0:06:20.440 --> 0:06:23.000 and not the least of which is the virus itself. 0:06:23.200 --> 0:06:27.240 Look right now, UM, we are seeing um, you know, 0:06:27.520 --> 0:06:32.960 clearly nationwide curve flattening. UH. And that has been definitely 0:06:33.040 --> 0:06:37.200 something that's the market understands and is embracing. UH. And 0:06:37.279 --> 0:06:39.599 I think if we were to have any major setbacks 0:06:39.640 --> 0:06:43.640 on that, the you know, the narrative is still extraordinarily 0:06:43.720 --> 0:06:48.400 vulnerable to that. Obviously, now is not the time for 0:06:48.480 --> 0:06:51.680 us to see uh, a pickup in trade tensions, nor 0:06:51.800 --> 0:06:53.800 is it, quite frankly a time for us to see 0:06:53.800 --> 0:06:57.719 a pick it a pick up in political partisanship. UM. 0:06:57.760 --> 0:06:59.640 You know, one of the things that we need to 0:06:59.640 --> 0:07:03.599 to members that the major provisions of the Cares Act 0:07:04.279 --> 0:07:06.560 that we've been talking about is quote unquote you know, 0:07:06.720 --> 0:07:10.960 monstrous stimulus. It begin to expire in the you know, 0:07:11.040 --> 0:07:15.280 June July, uh September time frame. We're gonna need some extensions, 0:07:15.320 --> 0:07:19.120 and we're gonna need some cooperation between here and probably 0:07:19.240 --> 0:07:22.000 July August before we get into the peak of the 0:07:22.000 --> 0:07:27.120 political presidential campaigning. UH. And if we have stumbles and 0:07:27.160 --> 0:07:31.040 it looks like Washington's becoming dysfunctional, UH, the markets really 0:07:31.080 --> 0:07:33.120 not gonna like that either. So those would be the 0:07:33.200 --> 0:07:35.960 three that that We're looking at Lisa brilliant to catch 0:07:36.000 --> 0:07:37.880 out with you. As always, Lisa shout at that Morgan 0:07:37.920 --> 0:07:45.600 Standing Wealth Management Chief Investment Officer. I want to go 0:07:45.640 --> 0:07:48.120 there with the and Shepherdson, but you bring up something John, 0:07:48.160 --> 0:07:53.920 we can't. Let's slip by. Mr Haldan is respected and 0:07:54.000 --> 0:07:58.840 he moved. Sterling explain this to our American audience. Who 0:07:58.880 --> 0:08:02.640 Andy Haldane is and why when he talks about negative 0:08:02.720 --> 0:08:05.040 rates that matters. The chief colomists of the Bank of 0:08:05.080 --> 0:08:08.640 England k figure over the BOE tomb largely considered to 0:08:08.640 --> 0:08:10.880 be the guy that has the blue sky thinking about 0:08:10.880 --> 0:08:13.120 what to do with monetary policy. So it's not unusual 0:08:13.120 --> 0:08:14.840 for me that it was Andy Haldane that was the 0:08:14.880 --> 0:08:17.440 guy that came out as said, I'm thinking about negative 0:08:17.480 --> 0:08:20.000 interest rights. We're thinking about it. Still to me, I 0:08:20.040 --> 0:08:22.560 don't see the core of the MPC coming along with 0:08:22.600 --> 0:08:25.280 this just yet. Well, there it is. It won't continue 0:08:25.320 --> 0:08:28.920 to follow that as well as John mentions on oil 0:08:29.120 --> 0:08:32.920 up and other things up all this weekend there was 0:08:33.200 --> 0:08:36.800 a glide pass and cute little charts beginning to show 0:08:36.880 --> 0:08:41.400 recovery or attempting to guest estimate their recovery and Shepherdson 0:08:41.559 --> 0:08:45.120 is expert at discerning this. He's with Pantheon, as I've 0:08:45.120 --> 0:08:48.439 said many times, they are leading on LinkedIn with the 0:08:48.520 --> 0:08:51.080 best in charts that you can see out on LinkedIn, 0:08:51.520 --> 0:08:55.400 and of course their services as well. Ian Shepherdson. There, 0:08:55.480 --> 0:08:58.000 I guess is going to be a recovery, and it's 0:08:58.000 --> 0:09:01.079 going to be modeled in the most high frequency of 0:09:01.160 --> 0:09:06.160 high frequency recovery data will be claims this Thursday. Are 0:09:06.160 --> 0:09:12.000 we actually see a trend of lower weekly jobless claims? Yeah, 0:09:12.120 --> 0:09:15.080 we're already there. I mean the numbers are still horrendous, obviously, 0:09:15.200 --> 0:09:18.959 but but the trend is decaying by well ten twelve 0:09:19.000 --> 0:09:21.920 percent a week. So I'm hoping this week we might 0:09:22.000 --> 0:09:25.199 print something like two point five millions, so down from 0:09:25.400 --> 0:09:28.400 almost three million last week. Obviously the peak was nearly 0:09:28.440 --> 0:09:31.000 seven a million, so definitely having in the right direction. 0:09:31.200 --> 0:09:34.440 We've seen a week after week of of incremental declines, 0:09:34.720 --> 0:09:37.439 but obviously still far too high. The very worst week 0:09:37.559 --> 0:09:39.319 after the crash in two thousand and eight was six 0:09:39.400 --> 0:09:42.360 hundred sixty five, and here we are today saying well 0:09:42.400 --> 0:09:44.920 two and a half million. That's an improvement, So you know, 0:09:45.280 --> 0:09:49.000 all things in context here, it's still terrible, and a 0:09:49.000 --> 0:09:52.240 lot of people have been talking about an unprecedented policy response, 0:09:52.280 --> 0:09:53.680 and a lot of the people who have gotten laid 0:09:53.720 --> 0:09:58.280 off haven't been receiving unemployment benefits. There's a question of 0:09:58.360 --> 0:10:02.880 how big of an aditional stimulus package or rescue financing 0:10:02.920 --> 0:10:07.160 package the market is currently pricing in what is expected, 0:10:07.440 --> 0:10:10.360 what is likely given that three trillion dollar plan that 0:10:10.440 --> 0:10:13.080 Nancy Pelosi got past in the House, but it's likely 0:10:13.120 --> 0:10:16.440 dead on arrival in Senate. Yes, I mean, every everyone 0:10:16.440 --> 0:10:18.760 knows there's no chance of a three trillion dollar package. 0:10:19.120 --> 0:10:21.080 It will be somewhere between zero and three. So let's 0:10:21.120 --> 0:10:24.840 do some conversated math and one and a half. So 0:10:25.559 --> 0:10:28.480 timing is, of course everything. I think markets expect that 0:10:28.640 --> 0:10:30.680 some that a deal will be done over the next 0:10:30.720 --> 0:10:32.960 few weeks. I think most people are kind of looking 0:10:33.000 --> 0:10:35.800 through the posturing on the Republican side in the center 0:10:35.880 --> 0:10:37.640 that you know that they're they're talking to their base 0:10:37.679 --> 0:10:39.319 at the moment when they're saying they want to pause 0:10:39.360 --> 0:10:41.400 and wait and see and be cautious all this stuff. 0:10:41.640 --> 0:10:44.000 But the fact is there's an election coming up, and 0:10:44.040 --> 0:10:45.800 I don't think these guys can go back to their 0:10:45.800 --> 0:10:48.400 constituents and say, hey, we voted against that rescue package 0:10:48.400 --> 0:10:51.320 and yeah, unemployment still but vote for me. I mean 0:10:51.360 --> 0:10:53.679 that just seems implausible to me, and I think markets 0:10:53.679 --> 0:10:57.239 believe that's implausible as well. So yes, a lot of posturing, 0:10:57.360 --> 0:11:00.280 a lot of grandstanding. There's no chance that that that 0:11:00.320 --> 0:11:02.840 whole Democrat wish list will get past the Senate. But 0:11:02.920 --> 0:11:05.800 I think support to state and local government will substantial. 0:11:06.240 --> 0:11:08.360 The revenues have collapsed and they're spending a shot up. 0:11:08.400 --> 0:11:10.880 They have to be supported and probably will see an 0:11:10.920 --> 0:11:14.240 extension of the enhanced on employment benefits beyond July as well, 0:11:14.520 --> 0:11:16.760 plus extra money for healthcare and some other things. But 0:11:17.240 --> 0:11:19.240 some got a substantial package and it will bring the 0:11:19.280 --> 0:11:23.080 total amount of support, probably in excess as four trillion dollars, 0:11:23.080 --> 0:11:24.800 so which is kind of the order of magnitude that 0:11:24.800 --> 0:11:27.600 I think is is needed. So getting getting to the 0:11:27.679 --> 0:11:31.000 right place eventually, absolutely incredible numbers A little bit later 0:11:31.000 --> 0:11:32.480 this are, in fact, in a round about ten minutes, 0:11:32.520 --> 0:11:34.600 will catch up with Peter Hayes of black Rock on 0:11:34.679 --> 0:11:37.200 state finances, and I think there's a real worry that 0:11:37.240 --> 0:11:40.400 we could get some state level austerity over the next 0:11:40.400 --> 0:11:43.599 couple of years. Is there something you've considered, well, it 0:11:43.640 --> 0:11:45.920 will happen if they're not supported. I mean that that's 0:11:45.920 --> 0:11:49.120 the point that it is insane to be using the 0:11:49.160 --> 0:11:52.120 power of the federal government while at the same time 0:11:53.240 --> 0:11:55.920 putting states into position where their lack of support means 0:11:55.920 --> 0:11:57.679 that they have to cut back on services and raise 0:11:57.720 --> 0:11:59.559 taxes im And that's completely the wrong thing to do 0:12:00.320 --> 0:12:02.360 at this point. And again it's political posturing from the 0:12:02.400 --> 0:12:04.839 Republican side here, you know, arguing that Democrats say it 0:12:04.880 --> 0:12:07.240 shouldn't be bailed out because they've got big pension deficits. 0:12:07.280 --> 0:12:11.920 But that's conflating two entirely separate issues. The fundamental factors 0:12:11.920 --> 0:12:14.880 that everywhere revenues have collapsed and everywhere spending has gone up. 0:12:15.080 --> 0:12:17.400 And I know the fact is that the large Democrats 0:12:17.440 --> 0:12:19.960 states are the biggest net give us to the federal 0:12:20.000 --> 0:12:22.240 government and the normal circumstances, So it just makes no 0:12:22.280 --> 0:12:25.160 sense to argue that they shouldn't receive federal large s 0:12:25.280 --> 0:12:27.760 now and they will. It's it's it's in no one's 0:12:27.800 --> 0:12:29.719 interest to put states into position where they have to 0:12:29.920 --> 0:12:32.280 tighten fiscal pots. I can't think of anything more. Mad 0:12:32.800 --> 0:12:35.360 Ian Sheffer's an open question, what are you most focused on? 0:12:35.480 --> 0:12:38.280 Within the equation. I mean, what's the you're writing for Pantheon. 0:12:38.679 --> 0:12:40.320 You go down the left column, you get down the 0:12:40.400 --> 0:12:43.480 right column. What's the part of the GDP equation that 0:12:43.640 --> 0:12:46.920 matters to you right now? The big one is the 0:12:46.960 --> 0:12:49.800 return of consumption or the speed of the return of consumption. 0:12:49.920 --> 0:12:54.280 Speed of GDP, it's a it's a momentum in consumption, 0:12:54.520 --> 0:12:57.360 which I think varies depending where you look. So we're 0:12:57.360 --> 0:12:59.440 clearly seeing an uptick in the states that have opened up. 0:12:59.440 --> 0:13:02.080 We get daily data on restaurants and air travel, and 0:13:02.080 --> 0:13:04.520 that's moving in the right direction. But the really big ones, 0:13:04.720 --> 0:13:07.440 it's a discretionary consumer spending. It's what's going to happen 0:13:07.480 --> 0:13:10.320 to the auto market and the housing market, and the 0:13:10.679 --> 0:13:13.480 consumer spending on on durable goods. You know, as people 0:13:13.480 --> 0:13:15.880 are allowed to go back into retail stores they haven't 0:13:15.920 --> 0:13:17.520 spent for the last couple of months, are they going 0:13:17.559 --> 0:13:19.560 to go crazy or are they going to remain cautious? 0:13:19.559 --> 0:13:21.760 And we just don't know. We've got no history that 0:13:21.760 --> 0:13:24.200 looks anything like this, so we're all in the dark. 0:13:24.280 --> 0:13:26.520 But I'm quite encouraged by the pickup in in in 0:13:26.600 --> 0:13:29.160 restaurants spending, in the pickup in air travel it's down. 0:13:29.360 --> 0:13:33.240 Restaurant air travels down compared to a year ago, but 0:13:33.240 --> 0:13:36.640 but it was down, So there's been an incremental movement 0:13:36.640 --> 0:13:39.360 in the right direction. And to me, that suggests people, 0:13:39.480 --> 0:13:42.480 given the opportunity, are keen to get back out and 0:13:42.679 --> 0:13:45.000 resume something like normal lives. And that's what has to 0:13:45.000 --> 0:13:47.560 happen if the economy is to recover. Well initially, what 0:13:47.559 --> 0:13:49.439 we'll say is the sequential improvement. Then we have to 0:13:49.480 --> 0:13:51.679 talk about the limits of the recovery, and that's when 0:13:51.720 --> 0:13:54.040 the science really comes into it. Some good news just 0:13:54.040 --> 0:13:58.680 crossing the bloomberg from Maderna experimental vaccines from the company 0:13:58.800 --> 0:14:01.280 showing promising ear least signs that it could create an 0:14:01.320 --> 0:14:04.400 immune system response in the body that could help fend 0:14:04.400 --> 0:14:07.720 off the coronavirus. This according to sampling of data from 0:14:07.760 --> 0:14:11.679 a small first human trial of the inoculation. So this 0:14:11.760 --> 0:14:14.839 is early days, very early days, but promising nevertheless, And 0:14:15.080 --> 0:14:17.560 I just wander from your perspective, how you would have 0:14:17.679 --> 0:14:21.360 to remodel the trajectory of the recovery if SIGNS can 0:14:21.400 --> 0:14:25.000 do its part, and do its part a whole lot quicker. Yeah, Well, 0:14:25.040 --> 0:14:26.920 my base case has always been that there would be 0:14:26.960 --> 0:14:29.320 a vaccine available by the end of the year and 0:14:29.360 --> 0:14:32.640 in limited quantities, you know, for healthcare workers and vulnerable people, 0:14:33.000 --> 0:14:35.479 and that it would be available in in in substantial 0:14:35.560 --> 0:14:38.840 quantities next spring. Now, if we could bring those numbers 0:14:38.840 --> 0:14:40.360 four just by a couple of months, that would make 0:14:40.360 --> 0:14:43.120 an enormous difference to the trajectory for growth from I'm 0:14:43.160 --> 0:14:45.160 very encouraged by that Maderna headline. But they're not the 0:14:45.160 --> 0:14:46.640 only one, of course, you know, and there's still that 0:14:46.720 --> 0:14:49.160 the Oxford group in the UK that reckons they will 0:14:49.160 --> 0:14:51.840 have a vaccine available in in commercial quantities as soon 0:14:51.840 --> 0:14:54.160 as September. Well, you know, I believe that when I 0:14:54.160 --> 0:14:57.040 see it. But the factors that were throwing globally more 0:14:57.040 --> 0:15:00.840 resources at this vaccine in different places and differ methodologies 0:15:00.880 --> 0:15:03.000 and we've ever seen before and anything like it. So 0:15:03.320 --> 0:15:04.920 with a bit of luck, one of them will will 0:15:04.920 --> 0:15:07.080 come up with the goods. And I think markets are 0:15:07.120 --> 0:15:09.040 pricing that in as well. I mean, it's for sure 0:15:09.120 --> 0:15:12.360 markets are. The SMP wouldn't be where it is now 0:15:13.280 --> 0:15:15.120 if if markets didn't believe that there was going to 0:15:15.160 --> 0:15:17.920 be a vacium in a relatively short time frame, even 0:15:18.000 --> 0:15:19.920 just two or three months difference would would be it 0:15:19.960 --> 0:15:23.040 would be a massive deal. Absolutely, It's that's exactly where 0:15:23.040 --> 0:15:25.640 I wanted to go. Because we're seeing that equity features 0:15:25.640 --> 0:15:27.480 are not up that much on this news, which I 0:15:27.480 --> 0:15:29.760 thought was surprising, except for of course Maderna stock, which 0:15:29.800 --> 0:15:32.960 is at sixteen percent. But how much is priced in? 0:15:33.160 --> 0:15:36.040 How much are we priced to perfection given the expectation 0:15:36.080 --> 0:15:39.520 of a vaccine in the near term and policy going 0:15:39.720 --> 0:15:43.680 the right way of the markets, well, policy a third 0:15:43.720 --> 0:15:45.880 policy to me is bang on. I'm happy with that. 0:15:46.360 --> 0:15:48.240 The Congress is getting to the right place a venture. 0:15:48.720 --> 0:15:51.600 You know, it's usual diversions. Um. The progress on on 0:15:51.720 --> 0:15:53.960 reducing the rate of spread of the virus is pretty good, 0:15:54.400 --> 0:15:56.400 you know, it's it's mixed, but there's not many states 0:15:56.480 --> 0:15:59.360 now with with rampant outbreaks anymore, so those things are 0:15:59.360 --> 0:16:02.400 all kind of falling into place. I do think the 0:16:02.520 --> 0:16:05.320 markets are pricing in fully pricing in a vaccine now. 0:16:05.400 --> 0:16:07.440 And let's say we were to see some headlines over 0:16:07.480 --> 0:16:09.440 the next few weeks that a bunch of these these 0:16:09.520 --> 0:16:12.480 trials had failed. I mean, that would generate a very 0:16:12.600 --> 0:16:14.840 rock a few days for markets, no question about that. 0:16:14.880 --> 0:16:17.280 And I think that tells you that what they're pricing 0:16:17.320 --> 0:16:20.680 in is a substantial success on the on the vacant 0:16:20.760 --> 0:16:22.920 before too long. So there is a vulnerability definitely if 0:16:22.960 --> 0:16:25.840 it doesn't happen that, John, this is too much good news. 0:16:25.920 --> 0:16:28.200 I mean sooner than that, we're going to see Newcastle 0:16:28.280 --> 0:16:30.160 beat the Tarts. I mean it's going to be amazing. 0:16:30.200 --> 0:16:33.480 They've got money. If this deal goes through, well we'll see, 0:16:33.800 --> 0:16:37.560 we'll see. Thank you. So probably explain to our listeners 0:16:37.600 --> 0:16:42.920 one Earth we're talking about, but everyone knows Sandi Arabia 0:16:43.000 --> 0:16:47.160 taking over Newcastle United, which is Shepherdson's team, you know. 0:16:47.640 --> 0:16:55.080 I mean they're going to beat Liverpool here within six months, Joel, 0:16:55.160 --> 0:16:57.880 I've really wanted to do this for ages. Peter Hayes 0:16:58.000 --> 0:17:01.400 is expert and municipal bonds. He runs the municipal bonds 0:17:01.440 --> 0:17:04.399 shop from Mr frank Over at Black Rock with decades 0:17:04.520 --> 0:17:08.000 and decades of experience. Let me start with the general question, Peter, 0:17:08.280 --> 0:17:11.520 our municipal bonds avail you right now? The price creator 0:17:11.600 --> 0:17:14.159 has come back, but is it's still availue where you 0:17:14.240 --> 0:17:18.200 can pick up total return you have? Good morning, Tom, 0:17:18.240 --> 0:17:20.119 thanks for having me. I would say yeah, when you 0:17:20.200 --> 0:17:24.240 look at it, particularly versus other fixed income asthet classes. 0:17:24.680 --> 0:17:26.800 The total return question is a good one. I think 0:17:26.840 --> 0:17:29.080 that's how you have to think about municipals now. I 0:17:29.200 --> 0:17:32.439 think they have their position because of the sell off 0:17:32.600 --> 0:17:35.720 that we saw in March and because of the lack 0:17:35.840 --> 0:17:38.840 of I would call it maybe said intervention and something 0:17:38.960 --> 0:17:40.480 you don't want to be careful that they did create 0:17:40.520 --> 0:17:44.000 the municipal liquidity facility, but they haven't done direct purchases 0:17:44.080 --> 0:17:46.960 like they have for other asset classes. And because of 0:17:47.040 --> 0:17:50.479 the credit impact of the economic downturn, munis are lagging 0:17:50.600 --> 0:17:53.080 on the rebound. So they've done well in recent sessions. 0:17:53.160 --> 0:17:55.200 Months to date they're up one point nine per cent. 0:17:55.720 --> 0:17:59.040 But if you're looking at it from a holistic portfolio standpoint, 0:17:59.400 --> 0:18:01.919 there is some total return value. And the other thing 0:18:02.000 --> 0:18:04.119 we think of just long term, it's just income, I 0:18:04.200 --> 0:18:06.840 mean taxes. Hard to see taxes going down here given 0:18:06.840 --> 0:18:11.680 all the fiscal stimulus. Peter just looking at the landscape here, 0:18:11.800 --> 0:18:14.440 there's a lot of discussion about in need for rescue 0:18:14.480 --> 0:18:16.719 financing from Washington, d C. To bail out a lot 0:18:16.720 --> 0:18:19.800 of these municipalities. The reason why bonds have sold off 0:18:19.880 --> 0:18:23.000 so much in deals are where they are currently. What 0:18:23.320 --> 0:18:26.960 is required in terms of the total number coming out 0:18:27.040 --> 0:18:31.520 of Washington to support states budgets and prevent a vast 0:18:32.000 --> 0:18:36.119 rash of failures on on the local side. Yeah, that's uh, 0:18:36.400 --> 0:18:39.359 that's a really tough question, just because even though we 0:18:39.480 --> 0:18:43.240 see all these attempts at reopening, will they be successful, 0:18:43.520 --> 0:18:46.639 will they be reopening at a dent well, revenues bounce 0:18:46.680 --> 0:18:50.000 back to where they were pre COVID. There's all these questions. 0:18:50.080 --> 0:18:51.959 So the fights to say the number is a big one. 0:18:52.000 --> 0:18:55.119 We've seen states already talk about some of the holes 0:18:55.280 --> 0:18:58.600 and their gaps and their uh, you know, in totality 0:18:58.800 --> 0:19:01.800 hundreds of billions of of dollars, So it is a 0:19:01.880 --> 0:19:04.440 big number. They've done a lot in a lot of 0:19:04.520 --> 0:19:06.760 different formats, and then we saw the bill and produce 0:19:06.880 --> 0:19:09.320 lest week for the three trillion dollar number, which a 0:19:09.359 --> 0:19:14.000 lot of that is geared to towards states and cities. UM. 0:19:14.240 --> 0:19:15.600 I think one of the things you said at the 0:19:15.720 --> 0:19:19.520 end though, is interesting about you know, preventing failure, and 0:19:19.840 --> 0:19:23.600 this is an issue really of liquidity versus solvency. States 0:19:23.680 --> 0:19:27.200 and cities can't go bankrupt cities technically ken in twenty 0:19:27.280 --> 0:19:29.640 six to the fifty states, I think it is there's 0:19:29.680 --> 0:19:33.000 some mechanism. It's difficult states cannot So there's been some 0:19:33.119 --> 0:19:36.920 rhetoric about potentially some of the weaker pension states defaulty 0:19:36.960 --> 0:19:39.800 you're going bankrupt. There is no mechanism for for that. 0:19:40.040 --> 0:19:42.240 So I think it really becomes liquidity. How do you 0:19:42.400 --> 0:19:45.920 solve this liquidity issue, this big shortfull and revenues over 0:19:46.000 --> 0:19:48.800 a period of time. The Municipal Liquidity Facility that the 0:19:48.880 --> 0:19:52.400 FED created is a backstop for that should the issuers 0:19:52.520 --> 0:19:55.280 need it. Remember, they have to provide basic services, that's 0:19:55.400 --> 0:19:58.119 there their sole purpose, and so the intent of the 0:19:58.280 --> 0:20:01.639 backstop is to help states and cities to do that. 0:20:02.240 --> 0:20:04.840 Um But you know, longer term, what will the numbers 0:20:04.880 --> 0:20:07.040 look like in November? Will the economy kind of come 0:20:07.119 --> 0:20:09.480 rolling back? Or is it going to be a slow 0:20:09.600 --> 0:20:13.080 grind forward? And the slower it is, the longer it is, 0:20:13.200 --> 0:20:15.320 the bigger that gap is going to be, the more 0:20:15.400 --> 0:20:17.880 help that will be needed from Watchington. But suffice to say, 0:20:18.240 --> 0:20:21.080 it's hundreds of billions of dollars at this point in time, Peter, 0:20:21.160 --> 0:20:22.680 I'll safe for give me up front because this is 0:20:22.760 --> 0:20:25.320 not a direct apples to apples comparison, of course, but 0:20:25.560 --> 0:20:29.560 in Europe, in the financial debt crisis, there was a 0:20:29.560 --> 0:20:32.600 clear divide between core Europe and peripheral Europe. Do you 0:20:32.640 --> 0:20:35.119 see anything similar emerging just in terms of red states 0:20:35.160 --> 0:20:39.800 blue states in the coming years. So I would say yes, 0:20:39.920 --> 0:20:42.280 this is the short answer, and to some degree, I 0:20:42.359 --> 0:20:44.919 think we already see that. So if you look at 0:20:45.000 --> 0:20:49.560 what the said is done by buying corporates, mortgage fact securities, treasuries, 0:20:50.320 --> 0:20:53.520 it makes me wonder to some degree whether one of 0:20:53.560 --> 0:20:56.760 the reasons they haven't bought immunis more directly is it's 0:20:56.760 --> 0:20:59.720 a big market, bigger than people think, very complex, with 0:20:59.880 --> 0:21:01.760 the twinning on how you look at it, seventy five 0:21:01.840 --> 0:21:05.240 thousand different issuers, etcetera. So how you go about that 0:21:05.480 --> 0:21:06.920 is difficult. But I think a big part of the 0:21:06.960 --> 0:21:09.000 problem is the red versus the blue. When you look 0:21:09.000 --> 0:21:11.800 at kind of issuance, you look at the coast versus 0:21:11.920 --> 0:21:15.200 Middle America, and I think this is part of the difficulty. 0:21:15.280 --> 0:21:17.879 You even see the rhetoric around the three trillion dollars 0:21:17.920 --> 0:21:21.359 stimulus package introduced on Friday, it does become a bit 0:21:21.440 --> 0:21:23.359 of a red state blue state, and I think that 0:21:24.040 --> 0:21:26.560 ultimately can be a bit of an impediment. There's a 0:21:26.600 --> 0:21:28.320 lot of things that have to take place here. There's 0:21:28.359 --> 0:21:31.800