Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
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. Joining
Speaker 1: us now, someone who had to sit there with student
Speaker 1: yelling and straighten her out, Joseph Stiglers joins us the
Speaker 1: Nobel Laureate from Columbia University. Joe Stiglers, What was Cherry
Speaker 1: Yelling like as a student? She was great. She was
Speaker 1: one of the best students I had. She was one
Speaker 1: of my students in the very beginning of my teaching.
Speaker 1: She looked up to her promise and I'll say the
Speaker 1: least probably she taught you some things while she was
Speaker 1: your student as well. She was that acclaimed without questions
Speaker 1: through all of her work. Joe Stiglets, I wanted dovetail
Speaker 1: in your the political season or the economics at hand.
Speaker 1: Joe Biden is a certain kind of Democrat. If he
Speaker 1: takes the trophy, can the Democratic Party find a middle ground,
Speaker 1: a common voice with the rest of America to actually
Speaker 1: pass legislation and make policy? Oh? Absolutely, I believe actually
Speaker 1: there's a broadnsensus in America on a whole wide range
Speaker 1: of issues, and I think Biden is is in a
Speaker 1: position to create that middle ground, to get that common
Speaker 1: agenda adopted. For instincts. Uh, we're concerned. Everybody is concerned
Speaker 1: about healthcare, at the cost of healthcare, access to healthcare.
Speaker 1: The proposal of public option is a good way of
Speaker 1: getting it to everybody. So you're looking at this with
Speaker 1: your new book, People Power and Profits, Progressive Capitalism for
Speaker 1: an Age of Discontent, Joe, you brought that where you
Speaker 1: brought our Steinbeck over to the American economic mind with discontent.
Speaker 1: This discontent now is absolutely extraordinary. What can a legitimate
Speaker 1: Biden policy accomplish? What's the first order condition? You see,
Speaker 1: the first order is getting the economy going again. And
Speaker 1: Janet was absolutely right. There is right now a need
Speaker 1: for fiscal support, especially at the bottom. You know, people
Speaker 1: talk about a K shaped recovery. It's absolutely true those
Speaker 1: of the bottom are having a very hard time. Uh.
Speaker 1: The unemployment rate among uh certain groups of the population
Speaker 1: are very elevated. Uh So, Uh, that's one thing, But
Speaker 1: there are certain sectors of the economy that are badly
Speaker 1: afflicted and they need assistance brings things. I'm in one
Speaker 1: of those, the education sector, research sector, and those are
Speaker 1: sectors that are going to be vital to the country's future.
Speaker 1: If we let those uh weekend, we're not going to
Speaker 1: have uh We're gonna have a weak economy now, but
Speaker 1: we're gonna have an even weaker economy in the future.
Speaker 1: One thing we've been talking a lot about Professor Siglat's
Speaker 1: in the past few months has been g d P
Speaker 1: and how it's going to go down dramatically on the
Speaker 1: heels of the pandemic. And you were recently quoted in
Speaker 1: a Bloomberg article about how this is not a great
Speaker 1: measure of people's well being. You also said high prices
Speaker 1: in the stock market are an even worse indicator of
Speaker 1: societal well being. Focusing on the wrong things can lead
Speaker 1: to taking the wrong actions. What wrong actions have we
Speaker 1: been taking up till now. Well, the focus on the
Speaker 1: stock market really is perverse because we know underlying the
Speaker 1: growth in the stock market are a few companies Silicon Valley,
Speaker 1: the digital giants doing very well, UH as a result
Speaker 1: of their monopoly power. UH. People going the stock market
Speaker 1: because interest rates are so low returns, the bonds are
Speaker 1: so low that they're piling into the stock market, and
Speaker 1: wages are not doing very well, and that helps the
Speaker 1: stock market. But all those are things that are weakening
Speaker 1: our economy, so it's almost perverse. The strong stock market
Speaker 1: is almost assigned that things are not going well in
Speaker 1: other parts of the economy. So precisely, we need to
Speaker 1: focus on the role of market power in our economy.
Speaker 1: The low wages, the fact that at the bottom wages
Speaker 1: are the same as they work sixty five years ago,
Speaker 1: adjusted for inflation. Uh, And most importantly, we need the
Speaker 1: aggregate demand going up so that the economy so that
Speaker 1: their jobs are there for uh, for all Americans, and
Speaker 1: that won't happen been uh if we don't have that
Speaker 1: fiscal stock stimulus that Janet was talking about yesterday. This
Speaker 1: is an incredibly important point, the idea that the prices
Speaker 1: on stocks could actually be evidence of something counter to
Speaker 1: what may be the healthiest for the underlying economy. Do
Speaker 1: you think that the response from the Federal Reserve, the
Speaker 1: US Treasure Department in Congress has actually increased the disparity
Speaker 1: and access to funding for small and larger companies at
Speaker 1: a time when we see unprecedented bankruptcies among smaller businesses. Well, actually, actually, uh,
Speaker 1: very many aspects of what you just raised. Um. There
Speaker 1: was a program created at the very beginning called p
Speaker 1: PP that was intended to get money to small businesses,
Speaker 1: but it was very badly administered. Uh, and it did work.
Speaker 1: It got money to the richest of the small businesses,
Speaker 1: many of whom were owned by very very rich people. Uh.
Speaker 1: So the intent was perhaps good, but the way it
Speaker 1: was executed by the Trump administration and by the banks,
Speaker 1: quite frankly, uh, was a disaster. Joe. Broadly, the monetary
Speaker 1: policies that we've conducted since the Great Financial Crisis two
Speaker 1: thousand and eight of keeping interest rates very low has
Speaker 1: stimulated the growth and the value of equities. And the
Speaker 1: equities are overwhelmingly owned by the people in the top
Speaker 1: ten percent to one percent, top one tenth of one percent.
Speaker 1: And it's absolutely unambiguous that that monetary policy has increased
Speaker 1: wealth inequalities. Joe Stick, let's us talking with our Sally
Speaker 1: bag Will, who's really really looking at the great divide
Speaker 1: that we see on the streets of New York or frankly,
Speaker 1: I think across any of this nation of small business
Speaker 1: flat on their back. We have financialized the world, there's
Speaker 1: no question we've done that for the benefits it of
Speaker 1: the upper x per cent or others. How do we
Speaker 1: get back to it? How do we escape and definancialize
Speaker 1: in a constructive way? Well, I think first of all,
Speaker 1: we have to uh do two things, uh three things.
Speaker 1: We have to rewrite the rules of the market economy.
Speaker 1: There's too much market power at the top. We talked
Speaker 1: about it in terms of the silk on valley giants,
Speaker 1: but there's a lot more throughout the economy. We've weakened
Speaker 1: the market power bargaining power workers, and that has contributed
Speaker 1: to inequality. We have rules that have led to the
Speaker 1: excessive financialization that you talked about before. Secondly, we have
Speaker 1: a tax system where those are the very top actually
Speaker 1: pay a smaller percentage of their income than those down below.
Speaker 1: You know, Warren Buffett actually complained about it, saying, you know,
Speaker 1: it was wrong that he was paying a lower tax
Speaker 1: rate than his secretary. You're a lot of wealthy people
Speaker 1: who recognize that this is actually back for our economy
Speaker 1: and more. Yeah, Joe, I mean, if you sum up
Speaker 1: the taxes that the rich guys are paying. It's a
Speaker 1: pretty high marginal bracket. It may not be you know,
Speaker 1: Rockefeller s and all that. But if we some if
Speaker 1: we sell every tax up, it's there. How do we
Speaker 1: defense the financialize and deploy capital. Two people starving for capital?
Speaker 1: Apple computer is not starving for capital. They can get
Speaker 1: any billions they want. What about the small businessperson on
Speaker 1: a corner in Tulsa, Oklahoma. Well, that's where we we
Speaker 1: have to refocus our banking system. You know, banks were
Speaker 1: always at the center of providing capital small medium sized businesses.
Speaker 1: You know, if you're a small business, you go raise
Speaker 1: money on the capital market. Uh, you go to your bank.
Speaker 1: And the problem is that the banks over the last
Speaker 1: thirty years have focused their attention on things like issuing
Speaker 1: derivatives CDSS UH, trading UH, commodities UH. They found a
Speaker 1: lot more lucrative ways of making money. Some of it
Speaker 1: actually market manipulation. So if we stop some of their
Speaker 1: bad activities market manipulate manipulation, predatory lending, and encourage them
Speaker 1: to do what their mandate is, which is lending to
Speaker 1: small businesses, I think it would actually create much more opportunities.
Speaker 1: I mean, Lisa, this is the heart of the matter.
Speaker 1: I'm just old enough, unlike the ancient Stiglets who really
Speaker 1: really remembers us out of Gary, Indiana. But Lisa, there
Speaker 1: actually was a time where you did business with your
Speaker 1: local bank or maybe the regional bank. And it's a
Speaker 1: paraded and actually the regional banks anecdotally have been pulling
Speaker 1: back on credit. Professor Siglets, I'm not going to refer
Speaker 1: to your tenure or you know, in terms of teaching
Speaker 1: or anything that Tom was talking about in terms of
Speaker 1: ancient history. I will say, though, going forward, how does
Speaker 1: the economic profession, how do you, as a Nobel laureate,
Speaker 1: get your voice heard to the degree that it needs
Speaker 1: to be heard by policymakers who say economists have gotten
Speaker 1: it wrong numerous times? Why should we follow a theory
Speaker 1: when free market economics has led to the power of
Speaker 1: the United States over the long term, What actually hasn't
Speaker 1: been free market economics has led to the success If
Speaker 1: you look at all the innovations that have been the
Speaker 1: basis of us success, all those innovations have been supported
Speaker 1: by the government. Uh, you know the Internet, Uh, the
Speaker 1: advances in medicine that we're all looking for. Who did
Speaker 1: the research that led to d NA who did the
Speaker 1: research that led to all the major advances in biology.
Speaker 1: Thanks the government. So one of the things I called
Speaker 1: for in my book People Power and Profits is recognized
Speaker 1: recognizing the success of the United States has in the
Speaker 1: past been based on a balance between the market, the government,
Speaker 1: and civil society. We lost that balance beginning with Reagan.
Speaker 1: Uh that said the government was the problem. We now
Speaker 1: in this pandemic have seen that an ill prepared government
Speaker 1: is not there when we need it. And I think
Speaker 1: the strongest argument for UH, what I called for in
Speaker 1: my book People Power and Profits, for a new social
Speaker 1: contract with a new balance, has been precisely the failures
Speaker 1: that we've just seen in this pandemic. Just because you've
Speaker 1: got to leave it there, Thank you so much, and
Speaker 1: particularly thank you for your comments on chariol and early
Speaker 1: in this good discussion, the lawyer from Columbia out with
Speaker 1: a new book on people Power and Profits. Julius Now
Speaker 1: Amy were Silverman obviously capital markets equity derivative strategist. Amy,
Speaker 1: fantastic to get you with us on the program two
Speaker 1: weeks away from an election. It's your world. Volatility was
Speaker 1: so elevated a number of weeks ago. Then people faded it.
Speaker 1: Then we came back a little bit more. What's the
Speaker 1: approach now, I met, Yeah, it's It's been fascinating to
Speaker 1: watch because, as you said, I think the last time
Speaker 1: we spoke, uh, the options market was clearly pricing a
Speaker 1: contested and protracted election with uncertainty very high in December.
Speaker 1: That's completely gone away now. And and to be quite honest,
Speaker 1: the options market is pricing a fairly boring term structure,
Speaker 1: which always makes me a little bit nervous with you know,
Speaker 1: two weeks ago until a pretty major event happening. Uh.
Speaker 1: If I do say, I think at this point we're
Speaker 1: probably under pricing the likelihood that you get that protracted,
Speaker 1: contested election, and we're also pricing a tail of it,
Speaker 1: which is that Trump actually wins the election. Obviously the
Speaker 1: poles say that those are less likely. Um, but remember
Speaker 1: those tales have become fatter in than I would say
Speaker 1: in other years. Any some of the measurements here. Christopher
Speaker 1: own was on the Great Technician the other day was
Speaker 1: trtigous and he was really talking about the breadth of
Speaker 1: this market improving. Do you see that on a fundamental basis?
Speaker 1: I do, And you know, I think There's two things
Speaker 1: that sort of happened. In August. We had unbelievably narrow
Speaker 1: breadth that was really just all tech. Um. You know,
Speaker 1: two things changed coming. The first is people started putting
Speaker 1: on more macro hedges, just simply because we have a U.
Speaker 1: S election, but also just because we're coming into your end.
Speaker 1: So most people who are doing well in their portfolios
Speaker 1: are putting on overall market hedges. And the second is,
Speaker 1: you know, as we head into earning season, people are
Speaker 1: playing names other than obviously they're still paying of playing Facebook, Amazon,
Speaker 1: what have you, but they're also playing other names. So
Speaker 1: we do have improvement in breadth, which obviously helps with
Speaker 1: some of the correlations we're seeing on the index levels.
Speaker 1: I want to build on something that you said to Amy.
Speaker 1: You said that we are currently probably under pricing the
Speaker 1: risk of a contested election. Just how contested does that
Speaker 1: election have to be before it royals the market? And
Speaker 1: how significant could the hell off be? Yeah, two great questions.
Speaker 1: So the time frame that the options market was obsessed
Speaker 1: with was call it November twenty through December eighteenth. So
Speaker 1: that's the period of time between the two options experts.
Speaker 1: We saw that you know, three to four volatibility points,
Speaker 1: fully elevated relative to everything else, and now that's completely
Speaker 1: come down to the point where it's actually under November UM.
Speaker 1: So you know, that tells us that people are not
Speaker 1: focused on that December fourteenth state where the state electors
Speaker 1: are supposed to submit their ballots. That's the time frame originally, Lisa,
Speaker 1: that people were very, very worried about. So call it,
Speaker 1: you know, after election by you know, four weeks UM.
Speaker 1: And then look in terms of the downside that the
Speaker 1: bets we are seeing place has the market down you know,
Speaker 1: at least five percent, but more down to ten percent.
Speaker 1: So those are the hedges. Those are the strikes of
Speaker 1: the hedges that we're seeing places in the market right now.
Speaker 1: So let's talk about how you invest around the Samy.
Speaker 1: I think for a lot of people outside of Wall Street,
Speaker 1: whenever the Amy wi Silverman's, the Julian Emmanuel is the
Speaker 1: Mandy Zoo's come on, people get confused by the language
Speaker 1: the jargon you guys use about this market volatility, you
Speaker 1: know the story. Can you advise people outside of that
Speaker 1: world what on earth they're meant to do going into
Speaker 1: the back end of this year? Sure, you know, I
Speaker 1: think it's just to think of this way. The first
Speaker 1: is I would just think if it is there is
Speaker 1: there is downside concern that that is building, and we
Speaker 1: see that in hedges being placed, but not nearly to
Speaker 1: the extent that we would expect given this environment and
Speaker 1: given this event. So basically the market is not as
Speaker 1: well prepared as it normally is for these kind of
Speaker 1: downside events. And the second is, obviously, if you're looking
Speaker 1: to place a bet to the downside yourself buying put
Speaker 1: options something straightforward where you're protecting against that downside. It's
Speaker 1: still relatively inexpensive because the option market prices for that
Speaker 1: type of protection has declined in the last few weeks
Speaker 1: and has made it cheaper to do that. If I
Speaker 1: look at soap, Proctor and Gamble is a proxy for
Speaker 1: boring within blue chip multinationals. It's a wonderful log linear
Speaker 1: trend for ten years and then like a moonshot P
Speaker 1: and G goes straight up. They've got a three to
Speaker 1: at best four percent dividend growth, yet they're trading at
Speaker 1: a twenty seven multiple. Is that in the textbooks you studied? Yeah,
Speaker 1: you know, look the look a lot of things that
Speaker 1: have happened in this market I have learned are not
Speaker 1: in the textbooks I studies. One of my professors was
Speaker 1: Burton Malkiel, who wrote A random walk. There's pretty good
Speaker 1: and you know he's really good, but you know, he
Speaker 1: taught us about the efficient market hypothesis at for incident
Speaker 1: and then I got into Wall Street and I said,
Speaker 1: works aren't that efficient unfortunately, So yeah, I mean, John,
Speaker 1: this is a really important observation by miss Silverman. You're
Speaker 1: the idea, the idea. We forget John about where these
Speaker 1: valuations are. And yes, some have maximum revenue growth or
Speaker 1: maybe apple profitability, but you know, boring stuff, John, whether
Speaker 1: in London or in America, is just priced the perfection.
Speaker 1: Now that we've never seen this, well, there's a reason
Speaker 1: for that with some of these brands. And later or
Speaker 1: now you can speak to this. It was always about
Speaker 1: the brands that you recognize and everyone just rants towards them.
Speaker 1: In the pandemic. I caught it with PepsiCo and the
Speaker 1: CFO about this a number of months ago, and that
Speaker 1: was really the story brand recognition and a gravitation of
Speaker 1: the consumers towards the brands they recognize at a time
Speaker 1: of stress. How sticky that demand is I think we're
Speaker 1: about to find out. Lisa, Yeah, And I really find
Speaker 1: it fascinating a social study in terms of how people
Speaker 1: respond to a pandemic. Lisole sales absolutely on fire, and
Speaker 1: the company that makes them Banks Bank is sir. It's
Speaker 1: sort of a similar story to what we saw with
Speaker 1: Procter and gamble up. More people want clean homes, and
Speaker 1: they're going to be obsessive about it. I mean with
Speaker 1: Silverman of obviously grand to catch up. I mean, thanks
Speaker 1: for being with us a couple of weeks away from
Speaker 1: an election. There's any number of ways to go with
Speaker 1: Isaac Boltanski's a compass point, rights acute, cute notes on
Speaker 1: what's going on. I do want to focus Isaac on
Speaker 1: something that's in every interview, which is the outcome of
Speaker 1: a blue president but a continued red Senate. What will
Speaker 1: Gridlock look like under a Biden presidency? So I think
Speaker 1: there are two main points to make it. That Number
Speaker 1: one is you would be far more difficult for President
Speaker 1: Biden in that scenario to actually get his nominees through
Speaker 1: a republic the concentate, and so a lot of the
Speaker 1: regulatory agenda that my clients have focused on, whether that's energy,
Speaker 1: the environment, healthcare, financial services. A lot of their fears
Speaker 1: around that would not materialize simply because it would be
Speaker 1: difficult to get those personnel in the second point is
Speaker 1: really about what we've all been focused on this morning,
Speaker 1: which is taxes and stimulus, And in that scenario with
Speaker 1: a Biden White House and a Republican Senate, investors should
Speaker 1: expect any stimulus to be smaller than the base case
Speaker 1: right now, and for the tax increases that the former
Speaker 1: Vice president has proposed to not come to pass. So
Speaker 1: aside from the taxes, there's also this regulatory overhang that
Speaker 1: was sort of highlighted this morning with this headline that
Speaker 1: the antitrust suit against Google will go forward, a long
Speaker 1: anticipated one. Isaac, how much political will is there among
Speaker 1: Democrats if there is a blue wave to engage in
Speaker 1: true regulatory scrutiny of big tech that could affect their earnings.
Speaker 1: I gotta tell you, the big tech narrative reminds me
Speaker 1: of infrastructure and that everyone in d C agrees that
Speaker 1: something should be done, but once you start to drill down,
Speaker 1: there's very little agreement in what should actually be done.
Speaker 1: So in big tech, just look at the different issue sets.
Speaker 1: Are we focusing on content, competition, data, privacy, the numerous
Speaker 1: different avenues to follow, and then you've got to add
Speaker 1: on top there are just too many cooks in the kitchen,
Speaker 1: is at the d J, the FTC, the state, A
Speaker 1: g S, Congress in a blue wave scenario. So look,
Speaker 1: there will be continued headline pressure, but when you actually
Speaker 1: drill down and you use the benefit of history, whether
Speaker 1: it's Microsoft, the Bells, or IBM, you see that there
Speaker 1: really aren't that many tools at the moment to quote
Speaker 1: unquote break up these companies. So the headlines will persist,
Speaker 1: but in terms of practical impact, I think very limited,
Speaker 1: and in the end, the market addresses the issue. We
Speaker 1: saw that with Microsoft, Democrats talking about anti trust, Republicans
Speaker 1: talking about censorship. Let me just talk about the Senate
Speaker 1: and the composition of ISAAC if it does turn democrats,
Speaker 1: just how moderate will that Senate be and how much
Speaker 1: of a radical progressive agenda if it was to go
Speaker 1: through the House, could actually pass in a democratic lets Senate.
Speaker 1: So this is something that I've been highlighting the clients.
Speaker 1: About fifty or so of Biden supporters say they support
Speaker 1: Biden because he's not Trump and to me, that suggests
Speaker 1: that the Democratic Coalition could have some fractures if they
Speaker 1: end up winning, and we will have a far more
Speaker 1: progressive House in terms of policy then we will have
Speaker 1: in the Senate. And this is important because there are
Speaker 1: going to be at least three, possibly even five centrist
Speaker 1: red state Democrats in the Senate from states like Montana,
Speaker 1: West Virginia, Arizona, and I think that contingent will push
Speaker 1: back on the most aggressive and progressive policies that come
Speaker 1: out of the House. And so that's what informs some
Speaker 1: of my views when it comes to a blue wave
Speaker 1: in Texas. You mean is I think I happen to
Speaker 1: think you're you're absolutely dead on here about the power
Speaker 1: of the centrist Democrats greatly underrated. And it goes back
Speaker 1: to Hubert Humphrey and Scoop Jackson from another time and place.
Speaker 1: How does that set up for two thousand twenty two?
Speaker 1: Because the race for two thousand twenty two begins that
Speaker 1: Wednesday in November, doesn't it. In some ways, we're we're
Speaker 1: gearing up for it right now. And so look to
Speaker 1: your point, it's not just going to be the ones
Speaker 1: that are there, it's also going to be in the
Speaker 1: fact that their ranks will be bolstered by some of
Speaker 1: these more purple states, whether that's North Carolina or South
Speaker 1: Carolina or made so their ranks will grow furthermore when
Speaker 1: we look out too, they're going to be some open
Speaker 1: seat races in again purple states like Pennsylvania and like
Speaker 1: North Carolina, and I think that will inform Schumer's thinking
Speaker 1: in terms of policy making and trying to attack more
Speaker 1: towards the center. It just quickly in the time we
Speaker 1: have left. Does the debate happen on Thursday? Given the
Speaker 1: noise around it, still you assume it still happens. Well,
Speaker 1: I think we're going to have a debate. I think
Speaker 1: that the two minute muting function will be interesting, But
Speaker 1: the remainder of those fifteen minute segments, beyond those two
Speaker 1: two minute mute periods, it's still going to be the messy, convoluted,
Speaker 1: just deeply concerning mess that we saw the first time.
Speaker 1: So yes, I think it happens. Yes, I think it'll
Speaker 1: be messy, And no, I don't think it's really going
Speaker 1: to impact the election because most voters have already made
Speaker 1: up their minds. And isn't that the point? Isaac Boltanski
Speaker 1: Compass Point Research, Managing director for Policy Research, Isaac right
Speaker 1: to catch up, sir, right owver this John Gull and
Speaker 1: what's wonderful about and galub Is if you were to
Speaker 1: see his notes in Credit suitees, there's great, great sector specificity.
Speaker 1: We haven't done that in a while with all the
Speaker 1: distractions that we have. Let's go there right now, Jonathan
Speaker 1: Credit Swee, chief US equity strategists. What is the sector
Speaker 1: distinction right now? John? What is the research topic of
Speaker 1: those fancy xcel spreadsheets? You do? Well? If I if
Speaker 1: I kind of summarize it into four what I like
Speaker 1: to call super sexuality radio companies. The company is the
Speaker 1: big the broadly defined tech universe, which would include you know,
Speaker 1: Google and Facebook, which are really officially part of the
Speaker 1: communications sector. But if you include all that together, the
Speaker 1: real key is that they are delivering better earnings in
Speaker 1: than they did in seventy five or more of the time.
Speaker 1: And that is the number one driver of socks. So
Speaker 1: when everybody is looking at the FED the election as
Speaker 1: a driver, look at which company is are totally untouched
Speaker 1: by this down turn and those are the winners. And
Speaker 1: that's what you're saying, John, I looked at Procter and
Speaker 1: Gamble today, three five year dividend growth. That's terrible, folks,
Speaker 1: And they got a multiple. How is that? Gosh? I mean?
Speaker 1: And and I can't speak to practicing company. But the
Speaker 1: real but the real story here, Thomas, is that the
Speaker 1: discount rate is really low. Or putting it put it alternatively,
Speaker 1: the look at whether it's Procter and Gamble or any
Speaker 1: other companies in the consumer staples space, the yield you're
Speaker 1: getting on those is so much higher than a treasury yield,
Speaker 1: which is as a yield under eight basis points, that
Speaker 1: they're just begging to be bought. And I think that
Speaker 1: what's going to happen here is that the two categories
Speaker 1: took about different sectors. The the non cyclical part of
Speaker 1: the market, which is like healthcare and staples, or the
Speaker 1: tech related part of the market are going to trade
Speaker 1: at really really high multiples because of the interest rate
Speaker 1: in addition to their own business process. That's right where
Speaker 1: I wanted to go, Jonathan. How much does this entire
Speaker 1: call hinge on benchmark rates, tenure treasury yields staying where
Speaker 1: they are going lower? Um? I don't. First of all,
Speaker 1: the tenure treasure yeld. I don't think it's going to
Speaker 1: go lower, and in the near term, if it picks up,
Speaker 1: it'll be a sign of some economic health. But but
Speaker 1: I think with interest rates this low, you're talking about
Speaker 1: pe multiples on the market that are going to probably
Speaker 1: average in the mid twenties for the next decade, not
Speaker 1: for the next six months. And um, and I think
Speaker 1: that people aren't really haven't really adjusted. Thinking historically a
Speaker 1: fifteen multiple first for for a stock is normal, and
Speaker 1: now we're gonna be trading at much much higher levels
Speaker 1: for a persistent throughout the time. Okay, right now, tenure
Speaker 1: treasure yields under eight tents of a percentage point. I'm
Speaker 1: wondering at what point does the yield rise to high
Speaker 1: enough level that it's stymies this call. Um, you know,
Speaker 1: I you would have to get interest rates back into
Speaker 1: the mid ones or or you know, if you have
Speaker 1: an interest rate even below two never mind you that
Speaker 1: sounds like an incredible number. But we started the year
Speaker 1: at one point nine and um, we're so much for
Speaker 1: you know, so far below that. But if you even
Speaker 1: got back towards where we were at the beginning of
Speaker 1: the year, it's still supports super high multiples in UM
Speaker 1: in areas like staples and healthcare and tech related companies.
Speaker 1: And so I don't see a near term pick up
Speaker 1: and interest rates as a threat to valuations or the
Speaker 1: you know, the sustainability of the returns you've had in
Speaker 1: these kind of stocks. What do you say to the
Speaker 1: idea that the consensus trade right now is the election
Speaker 1: will be just fine, and you'll get a blue wave
Speaker 1: and there'll be a great fiscal support bill and everybody
Speaker 1: will be happy and hold hands and say kumbaya in
Speaker 1: the economy will get back on track, and stocks will soar.
Speaker 1: That's the consensus right now. Do you buy it? I don't.
Speaker 1: I don't not buy I do think that there's a
Speaker 1: near term risk that that people are are missing here UM.
Speaker 1: If we're not, it doesn't look like the chances are
Speaker 1: we're not going to get a simulus bill which is
Speaker 1: going to support UM small businesses and people who are
Speaker 1: unemployed until after the new president is sworn in. And
Speaker 1: that means that people who are unemployed or have small
Speaker 1: businesses depend on these government checks are not going to
Speaker 1: see that until February, maybe even March. If that happens,
Speaker 1: I just think that you're going to have a pick
Speaker 1: up in the number of individuals and small businesses that
Speaker 1: are are gonna be declaring bankruptcy or not making loan payments.
Speaker 1: And I think that there's some near term risk in
Speaker 1: the market. And I'll tell you that that Trump is
Speaker 1: going to borrow money like crazy and stimulate. Biden is
Speaker 1: going to borrow money like crazy and stimulate. UM. So
Speaker 1: I don't think that the candidates are as big a
Speaker 1: difference UM as we think, what are the two things
Speaker 1: that matter making sure that we have currently in the
Speaker 1: near that we get through this next were months. And
Speaker 1: the second thing is this pickup in COVID really could
Speaker 1: um could derail things. But COVID and the stimulus check
Speaker 1: is the stimulus program in the next four months. It's
Speaker 1: far more important than the election. I've got the chart
Speaker 1: up of sp X center and force and the bottom
Speaker 1: line is since two thousand sixteen, before the Trump election,
Speaker 1: but certainly ascribed to the Trump years, is a linear
Speaker 1: function of a great bull market. There was a pause
Speaker 1: in the fourth quarter of eighteen. There was a pause
Speaker 1: in the shock of this natural disaster. But we're in trend.
Speaker 1: Are we still in a bull market? I think that
Speaker 1: we probably are. But but if you look Tom at
Speaker 1: what's in the market you're talking about, you know, the
Speaker 1: focus we have on on sectors. The SMP is a living,
Speaker 1: breathing thing. It's not the same thing over time. Um
Speaker 1: of the SMP right now is tech related. If you
Speaker 1: add healthcare as kind of intellectual pretty as well, more
Speaker 1: than half of the SMP is intellectual property companies. Well
Speaker 1: should that be a surprise there? Am I right? That
Speaker 1: they are displaying the most persistent revenue growth and persistent
Speaker 1: cash flow and and the highest margins and the lowest
Speaker 1: levels of debt and the highest return on equity. Now,
Speaker 1: if you compare that, though, Tom and you talk about
Speaker 1: the market, but there's not one market. If you compare
Speaker 1: this to European stocks, or global stocks outside of North America,
Speaker 1: or small cap stocks or value stocks, you're not seeing
Speaker 1: something that looks at all like this. The the SMP,
Speaker 1: or really more more importantly, the growth stocks within the
Speaker 1: SMP don't look like the benchmark, but they are what's
Speaker 1: driving the stock market. And so you really have to
Speaker 1: find where in the market those opportunities, uh, those opportunities lie,
Speaker 1: and folks to take it down on this day of
Speaker 1: the Google lawsuit. I'm gonna sum up Apple, Microsoft, Amazon, Facebook,
Speaker 1: and the double alphabets through five sixty two three is
Speaker 1: those tech stocks above Berkshire Hathaway. And that's extraordinary concentration. John,
Speaker 1: How do you play that you don't sell out of those?
Speaker 1: What do you do? You you take fresh cash and
Speaker 1: position away from those. Well, Tommy, first you have to
Speaker 1: ask why are they doing well? They're delivering much better Um,
Speaker 1: they're delivering better profits and so. And while they're a
Speaker 1: little bit less than twenty of the markets earnings, Um,
Speaker 1: they're really disproportionately um, you know, strong in terms of
Speaker 1: earnings and profits and profit and like. Um. I mean,
Speaker 1: we looked at we did an interesting analyst of time.
Speaker 1: We looked at which characteristics are winning in the market.
Speaker 1: So is there something about these individual stocks or is
Speaker 1: it like, are they just in the right place? Okay?
Speaker 1: Sales growth number one. Number two is high profit margins.
Speaker 1: Number three is low debt. And if you look at
Speaker 1: each of those five companies, they took all three boxes.
Speaker 1: If you took the whole SMP five hundred and say,
Speaker 1: show me companies that are in the top ten percent
Speaker 1: on sales growth, high profit margins and low debt would
Speaker 1: all be doing it. So can you position Russell two
Speaker 1: thousand for those attributes and sift Russell two thousand forty
Speaker 1: two John Gallup stocks? You surely can. As a matter
Speaker 1: of fact, yesterday we took in a universe that doesn't
Speaker 1: look at what we did this for non US socks.
Speaker 1: Yesterday we published a list of thirty companies and we said,
Speaker 1: I want to go and find global companies with the
Speaker 1: exact same characteristics that I can give you one name.
Speaker 1: I know you can't. I'll tell I'll tell you what people.
Speaker 1: If people email me, I will I will go if
Speaker 1: they if they send me an email on Bloomberg never again,
Speaker 1: I'll send up a copy of the report. But you
Speaker 1: know the problem also, by the way, with the small
Speaker 1: kept universe, there's a huge number of companies that are
Speaker 1: not profitable or have really really weak margins. So can
Speaker 1: you find those names? Yes, but there's just there's just
Speaker 1: far fewer of Lisa jump in here, please, Well, there's
Speaker 1: a theory I like that. Mike Wilson of Morgan Stanley,
Speaker 1: he's been bull bo bo bo bull and now he's bearished.
Speaker 1: He actually sees the big potential for a ten percent
Speaker 1: pullback in the near term. Long term, he remains the
Speaker 1: bull that he has been. You buy him at Yeah,
Speaker 1: I don't know if I would. I mean, first of all,
Speaker 1: we have at call between now and the end of
Speaker 1: the year, um because of some of the these near
Speaker 1: term risks that I was talking about UM around stimulus
Speaker 1: and COVID like. But if you said to me, am
Speaker 1: I really bullish looking between you know, through the election
Speaker 1: towards the end of next year. Absolutely so, I don't
Speaker 1: know exactly the nuance of his call, but the way
Speaker 1: you've described it, I'm on the same page. John Gollubs,
Speaker 1: thank you so much, greatly appreciate love the sector, work,
Speaker 1: the acuity. They're really really especial joining us right now.
Speaker 1: I'm with JOHNS. Hopkins Center for Health Security and really
Speaker 1: quite expert at the world dynamics of global dynamics of
Speaker 1: this pandemic. Yesterday I witnessed I got so upset with
Speaker 1: my you know, faulty biological background, microbiology background, that I
Speaker 1: put out photos of Saban and Salk and of people
Speaker 1: in those polio cans from the nineteen fifties in the forties.
Speaker 1: Is a president on the campaign Trail once again belittled
Speaker 1: your world. How do we push back and say that
Speaker 1: science matters. I think we just have to keep telling
Speaker 1: people about how human life has improved because of science
Speaker 1: and scientists, because of work buying Jonas Salt and Albert Saban,
Speaker 1: because of work of people like Anthony Fauci. And I
Speaker 1: think it's obvious to anybody that looks at the reason
Speaker 1: why we have lifespans of seventies and eighties and then
Speaker 1: looks back at the work that's science and medicine is done,
Speaker 1: with vaccination, with public health. I don't think that this
Speaker 1: is a disputable type of thing. And to hear the
Speaker 1: President called Dr Faucier allude to him as being quote
Speaker 1: unquote an idiot, really just shows that he has complete
Speaker 1: envy for somebody like Dr Fauci, who has real credentials
Speaker 1: and has a real track record and has expertise that
Speaker 1: he will never gain. And I think that's that's that's
Speaker 1: what we have to think about. This is very neholistic
Speaker 1: to keep going after science and experts because it is
Speaker 1: science that will get us through this pandemic. And it
Speaker 1: has been the ignoring of science that has led to
Speaker 1: over two deaths in the United States, So this is
Speaker 1: really deplorable from the President. When we distribute a vaccine
Speaker 1: and we know that the first one will not be
Speaker 1: as efficacious as the second, the third, the fourth tranch,
Speaker 1: we may need boosters like when we were kids, etcetera.
Speaker 1: What should be the approach to give confidence on a
Speaker 1: successful first vaccine. The approach is to make sure that
Speaker 1: this whole process has been insulated from political considerations, that
Speaker 1: this hasn't become hydroxy floricu or this doesn't become convalescent plasma.
Speaker 1: That we know that the FDA is going through the
Speaker 1: exact measures that they would for any other vaccine. And
Speaker 1: it's going to be important also for professional societies like
Speaker 1: the American Academy of Pediatrics, the Infectious Disease Society of America,
Speaker 1: as well as people like Dr Fauci to really be
Speaker 1: behind this vaccine and tell the American people very transparently
Speaker 1: what the risks are, what the benefits are, so that
Speaker 1: they have confidence, because if we don't get enough people vaccinated,
Speaker 1: we are still going to be dealing with hospitals getting
Speaker 1: patients that they can't handle and continue to have this
Speaker 1: kind of limbo of this pan of pandemic control. So
Speaker 1: we have to be very clear and do a lot
Speaker 1: of public health detailing to the American public, because if
Speaker 1: you go back to two thousand nine in H one
Speaker 1: n one, during that pandemic, only about of Americans got
Speaker 1: that vaccine. We can't have a failure like that. We
Speaker 1: need to get a confidence in the public. In order
Speaker 1: to do that, we've got to make sure that these
Speaker 1: steps have actually been fallen followed, and I do think
Speaker 1: the pharmaceutical company CEOs as well as months have slowly
Speaker 1: from operation worst speed, have increase my confidence that this
Speaker 1: will be something that doesn't get meddled with the way
Speaker 1: hydroxy chloroquin did Dr ADULTA. In the meantime, as we
Speaker 1: wait for a vaccine, any parent out there is juggling
Speaker 1: whether we're going back to remote school, whether their kids
Speaker 1: are going to see their friends. What is the appropriate
Speaker 1: level of SoC social interaction and this matters frankly, especially
Speaker 1: as an increasing number of kids feel isolated and depressed
Speaker 1: and this affects their social development. What is the appropriate
Speaker 1: level of contact at this point taking into consideration these
Speaker 1: mental health issues at a time when a lot of
Speaker 1: science experts are saying, hey, all of these small gatherings,
Speaker 1: these these groups of plateates, they're not acceptable. Is this
Speaker 1: is something that's a very hard question to answer, and
Speaker 1: a lot of it has to do with your risk
Speaker 1: tolerance and who in the household has risk factors for
Speaker 1: severe disease. I do think that there is a real
Speaker 1: psychosocial toll that this pandemic has been playing on children
Speaker 1: who are unable to socialize, who are unable to have
Speaker 1: in personal learning, and we have to prioritize that. Thankfully,
Speaker 1: children still tend to be spared from the worst consequence
Speaker 1: of this disease. They're not likely to be hospitalized, not
Speaker 1: likely to die, and even the younger ones less than
Speaker 1: sixth grade and below are probably less likely to spread it.
Speaker 1: So I do think that children can socialize in small
Speaker 1: groups with with the caveat that you're making sure that
Speaker 1: no one there is at least overtly sick, and that
Speaker 1: you take notice of the fact that you're going to
Speaker 1: be at a little bit of a higher risk. But
Speaker 1: I do think in some situations you have to look
Speaker 1: at what the value is being pursued, and might in
Speaker 1: social interaction is a real value and look at the
Speaker 1: risk and it's gonna be a little bit different for
Speaker 1: each person in each family, But I think that there
Speaker 1: are ways to do this safely, and I do think
Speaker 1: we have to prioritize getting this outbreak under control and
Speaker 1: having schools open in person, because if we can have
Speaker 1: fans and stadiums, we need to be able to have
Speaker 1: children in schools talk to what we talk about the
Speaker 1: economy and trying to address one issue often what happens
Speaker 1: as we cause problems outswhere, And I appreciate before I
Speaker 1: ask this question how challenging it is to explore with me,
Speaker 1: But what are we learning about the medical issues we're
Speaker 1: causing elsewhere as we try and tackle this specific one.
Speaker 1: We definitely know that when hospitals were asked to stop
Speaker 1: with their quote unquote elective procedures, and elective procedures is
Speaker 1: kind of a bad word because people think cosmetic, but
Speaker 1: elective means things like scheduled aortic valve surgery. And we
Speaker 1: know that there's an ink that that all of those
Speaker 1: other medical conditions did have increased morbidity and mortality. We
Speaker 1: know vaccinations dropped during the height of the economic shutdowns.
Speaker 1: We know that cancer chemotherapies were delayed. We know that
Speaker 1: psychiatric care also kind of went through the cracks. Felt
Speaker 1: everything fell through the cracks during that shutdown. So we
Speaker 1: have to balance not not just balance it, but realize
Speaker 1: that we have to think long term. It's just so
Speaker 1: hard for policy makers in the middle of a crisis
Speaker 1: to think long term, even though that's what they should
Speaker 1: have been doing, knowing that we can't trade short term
Speaker 1: benefits for COVID against long term uh, long term problems
Speaker 1: with cancer and other diseases. So I do think that
Speaker 1: this is something that people recognized, and that's why it's
Speaker 1: so important that we have hospital capacity and that we
Speaker 1: expand hospital capacity to make sure hospitals have an of resources,
Speaker 1: because if they can't do their ordinary care for heart disease,
Speaker 1: for cancer, for surgeries, for for pediatric and psychiatric care,
Speaker 1: we're going to suffer long term consequences. And I think
Speaker 1: that no one wants to make those same mistakes again.
Speaker 1: Praise that you're exploring such a difficult issue. Olka, thank
Speaker 1: you and me sit down to that of Jon's help Kins.
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 you prefer. I'm on Twitter at Tom Keane Before
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio