WEBVTT - Surveillance: Market FOMO With Levkovich 0:00:09.880 --> 0:00:13.840 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leye. 0:00:13.960 --> 0:00:17.560 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 --> 0:00:27.280 Bloomberg dot Com, and of course, on the bloomber I 0:00:27.320 --> 0:00:29.680 thought today City Group had a day off. I thought 0:00:29.720 --> 0:00:32.559 my carback everyone the day the day off, but apparently not, 0:00:32.840 --> 0:00:35.320 because Tobias Lefkovich is with US of City, the chief 0:00:35.400 --> 0:00:37.640 US equity strategist, to bu us, what happened? Did you 0:00:37.640 --> 0:00:40.839 not get Friday off? I'm taking a different Friday off, 0:00:40.880 --> 0:00:44.400 so we're taking a different Friday off. Unfortunately, scheduled a 0:00:44.440 --> 0:00:48.000 bunch of things to work today, even though Mr Corbette 0:00:48.080 --> 0:00:51.600 was kind enough to think so, including getting up early 0:00:51.640 --> 0:00:53.680 for you guys. Well, it's advice. We appreciate it. Thank 0:00:53.680 --> 0:00:55.200 you very much. Would it be fair to say that 0:00:55.240 --> 0:00:57.240 you've been a little bit more skeptical of what underpins 0:00:57.240 --> 0:00:59.880 this rally in the last month or so, Well, right, 0:01:00.200 --> 0:01:02.800 I'm more skeptical about the continuation of the rally. I 0:01:02.960 --> 0:01:05.360 know what kind of us underpinned this rally. It's been 0:01:06.120 --> 0:01:09.679 you know, the exiting of the great lockdown. It is 0:01:10.319 --> 0:01:13.680 the better news on the healthcare front, and certainly stimulus, 0:01:13.680 --> 0:01:15.680 both monetary and fiscal, that started kind of in the 0:01:15.720 --> 0:01:18.920 latter part of March into April. So all those things 0:01:18.920 --> 0:01:22.080 are combined. And then there's been what I call this overlay, 0:01:22.200 --> 0:01:25.080 uh not FOMO, not fear of missing out, the behavioral 0:01:25.080 --> 0:01:28.920 overlay of what I call FOMU, fear of meaningfully underperforming. 0:01:28.959 --> 0:01:32.440 So as the market has turned, investors have felt compelled 0:01:32.760 --> 0:01:35.440 to deploy cash and be part of this because if 0:01:35.680 --> 0:01:37.280 you know, to quote New York Claudo, if you're not 0:01:37.319 --> 0:01:40.039 in it, you can't win it. Um. So I think 0:01:40.040 --> 0:01:42.120 a lot of investors have been kind of chasing the 0:01:42.120 --> 0:01:46.920 tape fear of being left behind, and potentially that's career risk. Yeah, 0:01:46.920 --> 0:01:49.360 it's career risk. I love how you put that to bias, 0:01:49.360 --> 0:01:52.360 and it's just so so important. It's May, and I 0:01:52.400 --> 0:01:54.960 guess we've got to get to December. How far out 0:01:55.000 --> 0:01:58.240 are people expecting that, you know, the academic rules six months. 0:01:58.280 --> 0:02:00.640 I don't buy for a minute. How far out is 0:02:00.640 --> 0:02:03.200 he expecting right now? So a lot of people are 0:02:03.200 --> 0:02:06.840 talking about earnings and even two earnings. How long does 0:02:06.880 --> 0:02:08.320 it take for us to get back to where we 0:02:08.320 --> 0:02:11.639 were in twenty UM, and I would argue that we're 0:02:11.720 --> 0:02:15.800 probably pricing May of one at this point. We do 0:02:15.880 --> 0:02:19.040 think the marketing go up to about one sixty on 0:02:19.080 --> 0:02:22.880 the SMP by middle of next year. So we're almost 0:02:22.919 --> 0:02:24.079 there if you want to think of it in those 0:02:24.120 --> 0:02:27.280 during five six percent away um. But we've done it really, 0:02:27.320 --> 0:02:30.200 really early. And again I do think there's risk here. 0:02:30.240 --> 0:02:33.919 It's a bumpier road to get to that target. Well, 0:02:33.960 --> 0:02:36.799 I get that, you know, you had at whatever bounce 0:02:36.880 --> 0:02:39.399 off the March low, So yeah, from here it's it's 0:02:39.400 --> 0:02:43.639 more challenging. But the great challenge to me is you've 0:02:43.680 --> 0:02:47.600 got to move forward looking out there but being buffeted 0:02:47.600 --> 0:02:50.640 by the news. How do you withstand the volatility in 0:02:50.720 --> 0:02:53.600 day to day shocks is you look out to May 0:02:53.639 --> 0:02:56.480 of two thousand twenty one looks I think from a 0:02:56.560 --> 0:03:01.000 portfolio perspective, people are will think about bar belling it um. 0:03:01.120 --> 0:03:02.839 They'll take a little bit more risk on one side, 0:03:02.840 --> 0:03:05.160 a little bit more defensiveness on the other side to 0:03:05.639 --> 0:03:10.640 make sure that they've got that almost inherent portfolio protection um. 0:03:10.639 --> 0:03:14.000 But net net um, we are at the mercy of 0:03:14.120 --> 0:03:16.720 news developments. Are we going to have, uh, you know, 0:03:16.760 --> 0:03:21.840 significant outbreaks by exiting the lockdown, are we going to have, um, 0:03:21.840 --> 0:03:25.320 potentially good or not so good news on on treatments 0:03:25.320 --> 0:03:27.760 and vaccines down the road. And these are very very 0:03:27.760 --> 0:03:31.520 difficult for investors to kind of get their arms around. Um. 0:03:31.560 --> 0:03:34.840 You know, the biggest issue for us probably is going 0:03:34.880 --> 0:03:37.119 to be how do we get everybody back to work? 0:03:37.240 --> 0:03:39.440 And do we see an increase in what I would 0:03:39.440 --> 0:03:43.520 call populism and protectionism in order for local citizenry to 0:03:43.520 --> 0:03:47.960 get jobs. Because remember, politicians are not elected by global citizenry. 0:03:48.000 --> 0:03:52.480 They're elected by their domestic populations, and they're going to 0:03:52.560 --> 0:03:54.280 have to respond to that. We've got a big election 0:03:54.320 --> 0:03:57.200 coming up in November, and you know, it's not that 0:03:57.280 --> 0:04:00.600 easy to just say, hey, well, you know, or for 0:04:00.840 --> 0:04:06.040 free trade today, even though maybe that's a better capitalist perspective. Um, 0:04:06.080 --> 0:04:08.600 it might mean that we're importing things as opposed to 0:04:08.640 --> 0:04:10.839 building them in here. And I think that's not going 0:04:10.880 --> 0:04:14.440 to be the rhetoric on either side of the political aisle. 0:04:14.680 --> 0:04:16.400 I think both sides are going to be looking towards 0:04:16.440 --> 0:04:20.160 that job creation element. Uncertainty is definitely the hallmark of 0:04:20.880 --> 0:04:23.080 and I'm just wondering how hard it is for you 0:04:23.120 --> 0:04:26.159 to come up with a recommendation for investors given the 0:04:26.200 --> 0:04:28.840 fact that most companies have withdrawn guidance, and even China 0:04:28.920 --> 0:04:30.920 is with drawn guidance. No one can have any kind 0:04:30.960 --> 0:04:35.360 of foresight here. How is it if for you? So, look, 0:04:35.839 --> 0:04:38.479 I think it's a great point, but I've actually asked 0:04:38.520 --> 0:04:41.160 that question to some of our institutional investors clients and 0:04:41.200 --> 0:04:44.719 asking them, you know, are you pleased, disappointed? You know, 0:04:45.200 --> 0:04:47.720 management should be providing their best gas at the very 0:04:47.800 --> 0:04:50.640 least um, you know, with and give you know, caveats. 0:04:50.720 --> 0:04:53.960 This is our base case scenario. This is our you know, 0:04:54.240 --> 0:04:57.719 dramatically bad scenario ten percent, whatever it might be once 0:04:57.760 --> 0:04:59.480 you want them to provide that. And really it's an 0:04:59.480 --> 0:05:03.000 interesting of responses from from that industrial group and that 0:05:03.160 --> 0:05:04.720 some of them are saying, look, I want to buy 0:05:04.720 --> 0:05:07.480 good businesses. UM that kind of are looking out to 0:05:07.640 --> 0:05:10.159 three years, not to three months. So I don't really 0:05:10.160 --> 0:05:12.240 care that they're not telling me the second quarter guidance 0:05:12.240 --> 0:05:15.039 because nobody really can predict how that it could be. Um, 0:05:15.360 --> 0:05:17.560 but are you doing the right things for the you know, 0:05:17.600 --> 0:05:21.320 for the business over a longer timeframe? Um? That's in 0:05:21.480 --> 0:05:23.840 some of the people and the others one the other. 0:05:24.120 --> 0:05:26.279 So you know, it's not like we really listened to 0:05:26.279 --> 0:05:28.719 the guidance anyway. We we use it as a benchmark, 0:05:29.160 --> 0:05:32.160 but you know, management teams also kind of screw up 0:05:32.200 --> 0:05:34.080 every once in a while. Well, let's talk about the 0:05:34.160 --> 0:05:36.320 former group and what they've told you about that within 0:05:36.440 --> 0:05:38.440 this to buy sick the calacy and the airs of 0:05:38.440 --> 0:05:41.360 the market that still have serious evaluation damage that hasn't 0:05:41.360 --> 0:05:44.360 really recovered. I'm thinking of the financials in America now, sweats, 0:05:44.400 --> 0:05:47.039 but US, what are those conversations lack at the moment. Look, 0:05:47.080 --> 0:05:51.400 they'd rather be um in companies that have what you 0:05:51.480 --> 0:05:55.440 might say bulletproof balance sheets, secular growth characteristics, free cash 0:05:55.480 --> 0:05:59.560 flow because that's called quote unquote the quality trade. Right. Um, 0:05:59.640 --> 0:06:01.680 that's one of the places that everybody's hiding out. And 0:06:01.720 --> 0:06:04.200 the problem is there's there's so many people crowded into 0:06:04.240 --> 0:06:08.880 that space, uh, including institutional investors domestically foreign investors who 0:06:08.960 --> 0:06:11.400 who've had to come to the US in many respects 0:06:11.480 --> 0:06:15.320 to do this. Similar to back ind when they were 0:06:15.320 --> 0:06:18.000 buying the dot coms because it was the only place 0:06:18.000 --> 0:06:20.159 that they really could do it that wasn't available in 0:06:20.240 --> 0:06:24.160 any great number of stocks in Europe, for instance, so 0:06:24.200 --> 0:06:27.479 we've seen that as well. And then there's the individual investor, 0:06:27.560 --> 0:06:31.000 the retail investor that probably is going into some more 0:06:31.000 --> 0:06:34.920 speculative areas as well that may not be the right investments, 0:06:34.960 --> 0:06:38.680 but they're kind of exciting and there they rise rapidly 0:06:38.760 --> 0:06:41.400 and people feel good in near term UM, and probably 0:06:41.400 --> 0:06:43.320 you are taking a bit too too great a risk 0:06:43.480 --> 0:06:47.159 for their portfolio. So that's been the crowded trade. If 0:06:47.200 --> 0:06:49.400 you believe that the cycle is going to be better 0:06:49.720 --> 0:06:52.120 over the next six months, which we think it will be. 0:06:52.200 --> 0:06:55.720 If you go just from standstill economy to doing something, 0:06:55.760 --> 0:06:58.559 it's an improvement. The problem is you know what level 0:06:58.560 --> 0:07:02.520 of improvement, and there's there's a great series of reasons 0:07:02.560 --> 0:07:04.880 to think the cadence of that recovery is going to 0:07:04.880 --> 0:07:08.840 be less than thrilling UM. But if you do believe 0:07:08.880 --> 0:07:10.760 there's a turn, then you probably should be looking at 0:07:10.760 --> 0:07:13.280 some of these circl colls. UM. It's a little early 0:07:13.360 --> 0:07:15.560 for it. Probably you're gonna need to cep ms turn. 0:07:15.600 --> 0:07:18.680 They usually lead cyclcals by about three months UM. But 0:07:18.880 --> 0:07:21.960 areas like financials, like even the chip stocks probably makes 0:07:21.960 --> 0:07:24.920 some sense uh to be looking at because they're pricing 0:07:24.920 --> 0:07:27.080 in a lot of bad news as opposed to again 0:07:27.120 --> 0:07:29.680 these crowded, calm, large cap tech mans. But they're not 0:07:29.720 --> 0:07:34.560 necessarily all tech um that seems are not priced. I 0:07:34.600 --> 0:07:37.240 would say they're priced for perfection, but they're certainly not 0:07:37.320 --> 0:07:39.880 priced for bad news. It's a Boss Grice cash out 0:07:39.880 --> 0:07:41.880 with It's a Boss Lefkovich city. It's fast, thanks for 0:07:41.920 --> 0:07:47.240 showing up today and on time as well. Who cares? 0:07:47.280 --> 0:07:50.560 But Shan is a fantidays growth target everybody expected at 0:07:50.600 --> 0:07:53.120 front sense sense. There's the tension between the United States 0:07:53.160 --> 0:07:56.440 and China, and once again things flaring up in Hong 0:07:56.480 --> 0:07:59.200 Kong once more. Leaving our coverage in Hong Kong has 0:07:59.200 --> 0:08:02.320 been Evon Man. There's been many coverages in Hong Kong, 0:08:02.400 --> 0:08:06.000 of course, away from this immediate issue, of course, the 0:08:06.080 --> 0:08:08.960 protests of months ago, and then really a first mover 0:08:09.080 --> 0:08:12.280 pandemic response that we have followed on in America. Evan 0:08:12.400 --> 0:08:15.440 Man joins us right now, if on what will happen 0:08:15.520 --> 0:08:18.840 into your Saturday and into your Sunday, do you expect 0:08:19.320 --> 0:08:24.440 thousands in the street, Well, Tom already hearing tonight a 0:08:24.480 --> 0:08:27.000 lot of political activists or out in the streets they're 0:08:27.000 --> 0:08:30.600 handing out pamphlets educating people about this national security law, 0:08:30.640 --> 0:08:32.760 and then there have been planned the next couple of 0:08:32.840 --> 0:08:36.480 days to hit the streets once again. So here we 0:08:36.559 --> 0:08:38.559 go again. We seem to be saying the stage for 0:08:38.600 --> 0:08:42.160 another repeat of last year. And this is a signal 0:08:42.200 --> 0:08:45.440 that we got from Beijing the NPC that perhaps the 0:08:45.520 --> 0:08:48.440 mainland patients is running thin. They're frustrated by the months 0:08:48.440 --> 0:08:51.240 of unrest at a trot the economy. They're frustrated by 0:08:51.320 --> 0:08:55.040 lawmakers who have failed to get through this legislation that 0:08:55.080 --> 0:08:58.160 has basically stalled the bills in two thousand and three. 0:08:58.320 --> 0:09:02.439 With new strategy now is to bypass the Legislative Council, 0:09:02.559 --> 0:09:06.240 bypassed the legislative process altogether. And they're still figuring out 0:09:06.280 --> 0:09:08.480 the mechanics of how this is all going to work. 0:09:08.520 --> 0:09:11.240 But you already here the pro democracy side saying this 0:09:11.320 --> 0:09:13.400 is the end of Hong Kong. The status of Hong 0:09:13.480 --> 0:09:16.240 Kong as an international city will be gone very soon, 0:09:16.720 --> 0:09:19.760 and this move by Beijing threatens the One Country to 0:09:19.960 --> 0:09:23.240 Systems framework. China, though, continues to defend this law, saying 0:09:23.240 --> 0:09:26.720 it's absolutely necessary and this is something other countries already 0:09:26.720 --> 0:09:29.199 had seek to have equity markets shaking this off in 0:09:29.200 --> 0:09:31.680 the United States. Futures term positive in America, but they 0:09:31.760 --> 0:09:34.640 certainly weren't shaking it off on a Hang sang if 0:09:34.679 --> 0:09:37.120 on my question as follows, and I think the answer 0:09:37.160 --> 0:09:40.240 might be obvious just China actually value the special training 0:09:40.240 --> 0:09:45.120 status that Hong Kong has. Well. I think what we're 0:09:45.160 --> 0:09:48.600 trying seeing here, Jonathan, is that us TV think has 0:09:48.600 --> 0:09:51.400 been threatened not just with the rising unemployment that we're 0:09:51.440 --> 0:09:54.280 seeing in the mainland from the COVID nineteen l breaks, 0:09:54.320 --> 0:09:57.760 but there's also a potential big loss that China could 0:09:57.760 --> 0:10:00.760 see in in the Hong Kong legislative elections that are 0:10:00.760 --> 0:10:03.360 set to happen in September. So the Communist Party now 0:10:03.760 --> 0:10:06.080 is deciding that so HAPs they have more to gain 0:10:06.679 --> 0:10:10.720 by actively asking decisively to try to put down these 0:10:10.720 --> 0:10:13.520 threats for now. And they're basically sending a message to 0:10:13.600 --> 0:10:16.520 President Trump that we can do whatever we want with 0:10:16.640 --> 0:10:20.320 Hong Kong. We're not scared to consequences, and this is 0:10:20.840 --> 0:10:24.720 a domestic issue essentially. So at this point, you know, 0:10:24.760 --> 0:10:26.719 we heard from President Trump saying that they're going to 0:10:26.760 --> 0:10:29.560 address this issue very strongly. They threatened to renege on 0:10:29.559 --> 0:10:32.440 the Phase one trade deal, but withdrawing that Hong Kong 0:10:32.520 --> 0:10:35.640 special status. We were speaking to experts saying, if they 0:10:35.679 --> 0:10:39.160 do so, this actually punishes Hong Kong more so than 0:10:39.320 --> 0:10:42.400 China because essentially you're putting the city into the hands 0:10:42.400 --> 0:10:46.120 of the mainland because you're just astilating what their plan 0:10:46.200 --> 0:10:49.080 has been all along, is to absorb Hong Kong and 0:10:49.160 --> 0:10:52.920 make it another southern city in the mainland. Van, Can 0:10:52.960 --> 0:10:56.120 you just elaborate a little bit more the idea that 0:10:56.240 --> 0:11:00.640 Beijing feels like the US perhaps won't be able to 0:11:00.720 --> 0:11:04.040 respond and full will be distracted by the economic backdrop 0:11:04.480 --> 0:11:07.520 or already has shown that they are reluctant to do more. 0:11:07.760 --> 0:11:10.319 Is that the reason for the timing as to why now? 0:11:12.800 --> 0:11:15.719 I think the reason why now is is two fronts. Yes, 0:11:15.760 --> 0:11:18.800 perhaps they're saying we don't really care about the consequences 0:11:18.840 --> 0:11:21.640 we perhaps we we dare the US to kind of 0:11:22.160 --> 0:11:24.640 class back on what we're doing right now. But it's also, 0:11:24.760 --> 0:11:28.000 i think also a domestic issue because they're seeing that 0:11:28.080 --> 0:11:32.439 there are more benefits to actually stemming this unrest right now. 0:11:32.679 --> 0:11:35.760 And of course we have seen this unrest decimate the 0:11:35.800 --> 0:11:38.640 economy for for months now that they need to put 0:11:38.679 --> 0:11:40.920 an end to this. So you do see those on 0:11:41.040 --> 0:11:44.120 the pro government size same. Perhaps this is encouraging news 0:11:44.120 --> 0:11:46.680 that we do need to finally put an end to 0:11:47.120 --> 0:11:51.839 the protest. UH. And President she is trying to show 0:11:51.960 --> 0:11:54.600 a bit of strength here in the midst of what 0:11:54.760 --> 0:11:57.720 he's been dealing with with the U S, the back 0:11:57.760 --> 0:12:01.320 and forth about plowing fingers and blame him on who 0:12:01.440 --> 0:12:03.520 who is to blame for this start of this virus, 0:12:03.840 --> 0:12:06.320 also with the trade tensions as well. So I think 0:12:06.360 --> 0:12:09.480 this is the Paul and the platform NPC to really 0:12:09.840 --> 0:12:13.600 show that strength. What will how will that strength be 0:12:13.920 --> 0:12:17.559 imputed to Hong Kong in the coming days? I mean, 0:12:17.600 --> 0:12:20.000 do they show up with military on every corner? I 0:12:20.040 --> 0:12:23.360 don't see that, Ivan. But what's the next step to 0:12:23.480 --> 0:12:31.000 show force or power Beijing on the streets of Hong Kong. Oh, 0:12:31.040 --> 0:12:33.560 we haven't seen that yet. As you said, Tom, But 0:12:33.640 --> 0:12:37.079 this isn't just about the National Security Law that we 0:12:37.200 --> 0:12:40.320 just heard from from Beijing. UH. There's also a lot 0:12:40.320 --> 0:12:43.200 of issues that the Hong Kong is also facing as well, 0:12:43.320 --> 0:12:47.400 especially with this National Anthem Bill which the Chief Executive, 0:12:47.760 --> 0:12:51.200 Carrie Lamb has been pushing for. This legislation to go 0:12:51.320 --> 0:12:55.880 through this basically criminalizes anyone that makes fun or threatening 0:12:55.960 --> 0:12:59.679 the national anthem in China. So these are the reasons 0:12:59.679 --> 0:13:02.600 why people are telling, or at least the pro democracy 0:13:02.679 --> 0:13:06.040 side is telling demonstrators to hit the streets once again. 0:13:06.080 --> 0:13:09.600 And now that this pandemic in Hong Kong, the outbreak 0:13:09.640 --> 0:13:12.520 has stabilized quite substantially, I think people are feel a 0:13:12.520 --> 0:13:14.720 little bit more comfortable of hitting the streets once again. 0:13:14.760 --> 0:13:19.160 We've already seen some social unrest, some gatherings in malls 0:13:19.200 --> 0:13:21.320 in the last couple of weeks or so, so we 0:13:21.360 --> 0:13:24.199 hadn't seen any response from Beijing yet in terms of 0:13:24.360 --> 0:13:27.720 action on the streets per day. But we've seen that 0:13:27.880 --> 0:13:30.600 fear bubbling once again. I mean we saw when it 0:13:30.640 --> 0:13:34.360 came to VPN downloads, we saw that spike among Hong 0:13:34.440 --> 0:13:36.640 Kong residents in the last twenty four hours or so, 0:13:36.920 --> 0:13:40.160 and then even Google searches for migration that shot up 0:13:40.280 --> 0:13:42.800 in Hong Kong on news of this security law. If 0:13:43.000 --> 0:13:44.480 I can only imagine what it's been like to live 0:13:44.520 --> 0:13:47.320 in Hong Kong over the last year, it just must 0:13:47.320 --> 0:13:50.280 be so tense constantly over several issues. If on my 0:13:50.320 --> 0:13:53.360 thoughts with you truly Ivon Man from Hong Kong on 0:13:53.440 --> 0:13:59.480 the latest she's senior vice president. You'll curve control for 0:13:59.559 --> 0:14:02.520 two D securities. Pre a misread joins us right now 0:14:03.240 --> 0:14:08.360 in your textbooks. Was their yield curve control? There wasn't. 0:14:08.760 --> 0:14:12.440 There wasn't an unprecedented shock in uh, you know, economic 0:14:12.440 --> 0:14:15.920 activity either. But I think what's very clear that this 0:14:16.000 --> 0:14:20.160 is an aggressive, creative central bank. I would say globally, 0:14:20.160 --> 0:14:23.040 but certainly with the FED that's looking at other tools, 0:14:23.160 --> 0:14:26.200 and so they've addressed yelk of control. I think Brainard 0:14:26.200 --> 0:14:28.240 has brought it up in the past, and then we 0:14:28.360 --> 0:14:31.480 heard from by Check Clarity as well. I think they 0:14:31.560 --> 0:14:34.120 might have no option but to go into yield of control. 0:14:34.160 --> 0:14:36.200 But I think the market is not testing them right now, 0:14:36.400 --> 0:14:39.400 so I don't see it imminently, but by year end, 0:14:39.720 --> 0:14:42.880 if the market continues to price in hikes in four 0:14:42.960 --> 0:14:45.600 or five years, I wouldn't be surprised that they actually 0:14:45.640 --> 0:14:48.480 just slammed the yelk of down, and particularly as as 0:14:49.000 --> 0:14:51.000 supply is going to pick up with I guess additional 0:14:51.120 --> 0:14:54.080 rounds of stimulus. It's pre in some ways they already have. 0:14:54.280 --> 0:14:56.880 I mean yesterday at four thirty pm Wall Street time, 0:14:57.240 --> 0:15:00.680 the FED released their balance sheet assets, which have climbed 0:15:00.720 --> 0:15:03.560 beyond seven trillion dollars, just to give you a sense, 0:15:03.920 --> 0:15:08.600 up from three point eight trillion dollars back last year. 0:15:08.680 --> 0:15:11.840 I'm trying to understand how they're going to use their 0:15:11.880 --> 0:15:15.760 balance sheet to suppress treasury yields while also engaging in 0:15:15.760 --> 0:15:19.600 an accelerating corporate debt et F purchase program. I mean, 0:15:19.720 --> 0:15:22.560 is the emphasis going to be on treasuries? Are they 0:15:22.600 --> 0:15:26.920 going to emphasize expanding into new assets? So I think 0:15:26.960 --> 0:15:30.280 they're absolutely going to use all of those facilities and 0:15:30.320 --> 0:15:34.040 maybe more putting three facilities um to sort of you know, 0:15:34.200 --> 0:15:37.800 keep credit going. But I think they'll have no choice 0:15:37.840 --> 0:15:40.240 but to buy a lot of treasuries as well, because 0:15:40.280 --> 0:15:42.440 even if you think that they do yield of control, 0:15:42.480 --> 0:15:44.880 they can pin the front end, but to try and 0:15:44.920 --> 0:15:47.240 look at the tenny and the thirty year, that pinnie 0:15:47.320 --> 0:15:49.480 is not that strong. So I think they'll have to 0:15:49.600 --> 0:15:52.960 buy treasuries that we're actually expecting that they'll be buying 0:15:52.960 --> 0:15:56.040 all the way up until the end of one. We 0:15:56.120 --> 0:15:58.680 have the balance sheet growing to a max of twelve 0:15:58.720 --> 0:16:01.280 trillion by the end of next year, which will which 0:16:01.320 --> 0:16:04.280 is you know, making some assumption about additional system stimulus. 0:16:04.320 --> 0:16:06.720 I think they might be able to lower the amount 0:16:06.720 --> 0:16:08.680 of treasuries they're buying in the front end the zero 0:16:08.800 --> 0:16:11.560 five years, because if they've told you they're not hiking rates, well, 0:16:11.560 --> 0:16:14.760 then I'm happy to hold the five years. Anything beyond that, 0:16:14.840 --> 0:16:17.280 I think they're going to be the marshal buyer of 0:16:17.360 --> 0:16:20.280 treasuries out there. We'll pretty of Nowaday, this is two 0:16:20.400 --> 0:16:23.680 very very different policy decisions. If they just turn around 0:16:23.720 --> 0:16:26.680 and offer Canada based guidance and say the policy rate 0:16:26.760 --> 0:16:29.960 remains X for why a man of years, then the 0:16:30.000 --> 0:16:32.200 front end is already there and there's actually not much 0:16:32.280 --> 0:16:34.880 quie they might have to do to support that whole policy. 0:16:35.000 --> 0:16:37.640 That's just a that's just a supplement to Canada base guidance, 0:16:37.680 --> 0:16:40.680 which is something Vice Chair Clarada talked about yesterday. But 0:16:40.720 --> 0:16:43.120 if they go out to the ten year, if they 0:16:43.120 --> 0:16:46.160 do what Japan has done for me, that's a game 0:16:46.240 --> 0:16:50.800 changer in the treasury market. That requires far more heavy lifting, 0:16:51.160 --> 0:16:53.480 a lot more work on behalf of the federal reserve. 0:16:53.960 --> 0:16:56.640 Now are you saying you expect the former to happen 0:16:57.280 --> 0:17:00.840 or do you expect the latter to happen. I expect 0:17:00.920 --> 0:17:03.480 the former, so I think the yelk of control will 0:17:03.560 --> 0:17:06.480 be maybe three, I think max five years. I think 0:17:06.480 --> 0:17:09.000 when they talk about four guidance impact is really in 0:17:09.040 --> 0:17:11.159 the zero to five years sector, so they could do 0:17:11.240 --> 0:17:13.439 yelk of control all the way out to the five years. 0:17:13.560 --> 0:17:15.560 I agree with you, I think going out the curve 0:17:15.640 --> 0:17:17.760 in the treasury market. I mean, the bug did this. 0:17:18.640 --> 0:17:21.480 They did hold a very large amount of jgbs, but 0:17:21.520 --> 0:17:23.600 the U S treasury market is not the jgb market, 0:17:23.640 --> 0:17:25.800 So I don't think they take the step that far 0:17:26.320 --> 0:17:29.000 into yelk of control of the tenure, but they need 0:17:29.040 --> 0:17:31.359 to continue to do que. I think all they can 0:17:31.400 --> 0:17:33.560 do is through yelk of control, lower the amount of 0:17:33.600 --> 0:17:35.480 buying in the front end. But I think they'll have 0:17:35.600 --> 0:17:37.800 to be involved in the wrong and especially as as 0:17:37.840 --> 0:17:40.600 the Treasury is shooting a lot of long and bonds. Folks, 0:17:40.640 --> 0:17:44.919 what pre Misterage just said, there is so so so important. 0:17:45.040 --> 0:17:49.080 You said, Pria, this is not the Japanese bond market. Now, 0:17:49.119 --> 0:17:53.479 each bond market is different. What is distinctive about the 0:17:53.560 --> 0:17:58.400 American full faith and credit market that doesn't give the 0:17:58.440 --> 0:18:04.239 FED or others the options that other nations have right, 0:18:04.280 --> 0:18:06.520 So it's I would say it's the fact that the 0:18:06.560 --> 0:18:09.000 dollar is the safe haven currency. I think that's the 0:18:09.000 --> 0:18:13.080 biggest one. Also, we rely a lot on foreign demand 0:18:13.200 --> 0:18:16.119 to hold on to these treasuries. The j GB market 0:18:16.119 --> 0:18:19.080 tends to be more domestically helped, so you know, the 0:18:19.160 --> 0:18:22.240 BOJ owns it, or some Japanese pension fund owns it. 0:18:22.680 --> 0:18:24.760 You know, there's not that much of a difference with 0:18:24.880 --> 0:18:28.119 the US. We've got the dollar, which is the reserve asset, 0:18:28.160 --> 0:18:30.160 and I think there's really no competitor. I'm not saying 0:18:30.160 --> 0:18:32.960 that the dollar is the best out there, but to 0:18:33.040 --> 0:18:36.440 the best among every other option. So I think going 0:18:36.440 --> 0:18:40.119 into yelk of control, you run into credibility issues, political, 0:18:40.640 --> 0:18:43.560 you know, lack of independence. I think you're really getting 0:18:43.560 --> 0:18:46.119 into hairy issues when you start looking at week of 0:18:46.200 --> 0:18:49.159 control further out. But I think even now, the market 0:18:49.200 --> 0:18:52.080 is not forcing their hands, So I think the problem 0:18:52.119 --> 0:18:55.080 we're all grappening with a very grim message from the FED, 0:18:55.560 --> 0:18:57.960 but they're not really doing anything new, and the market 0:18:58.000 --> 0:19:00.360 likes the new shiny tool, which is why negat rate 0:19:00.520 --> 0:19:03.560 eaker of control. We tend to gravitate to those things, 0:19:04.000 --> 0:19:06.560 but rates are pretty low, so I think they'll use 0:19:06.680 --> 0:19:09.560 this if we start to you know, if equities continue 0:19:09.560 --> 0:19:11.600 to go to the moon, at some point, rates are 0:19:11.640 --> 0:19:13.760 going to start to rise, particularly in the long end. 0:19:14.119 --> 0:19:15.920 That's when I think they use the balance sheet to 0:19:15.960 --> 0:19:18.880 the fullest and just buy whatever it takes to keep 0:19:18.960 --> 0:19:21.280 rates law. Let's build on this, because you're right to 0:19:21.320 --> 0:19:23.680 say the j g B market is not the treasury market. 0:19:23.680 --> 0:19:26.480 I wouldn't even call the j GP market a market anymore. 0:19:26.560 --> 0:19:29.080 Some of these securities hardly trade. The bulk of it 0:19:29.200 --> 0:19:31.000 is how at the Bank of Japan. But there are 0:19:31.040 --> 0:19:33.800 some people worried that that is the way the treasury 0:19:33.800 --> 0:19:36.920 market is going. Doesn't mean it happens tomorrow, but over time, 0:19:36.920 --> 0:19:39.320 prayer and I'm trying to understand just how much of 0:19:39.359 --> 0:19:42.159 this federal reserve, how much of this treasury market this 0:19:42.240 --> 0:19:46.520 feed will actually hold. So you know, they have been 0:19:46.560 --> 0:19:49.119 lowering the amount they are buying. Um, I think the 0:19:49.280 --> 0:19:52.040 aim and they haven't been very explicit. They kept saying 0:19:52.040 --> 0:19:54.840 it's market functioning. Well, if it was only market functioning 0:19:54.920 --> 0:19:57.400 driving treasury buying, they should have stopped buying, I would 0:19:57.440 --> 0:19:59.840 say months ago. The fact that they're still buying is 0:19:59.880 --> 0:20:02.280 to link you that they're needed, but you know I 0:20:02.320 --> 0:20:04.760 see them. Well. A big question is how much more 0:20:04.800 --> 0:20:06.800 supply are we going to get. I think the US 0:20:06.920 --> 0:20:10.240 Congress is going to do, you know, many more potentially 0:20:10.280 --> 0:20:12.960 fiscal stimulus plans, so we'll have a lot more supply. 0:20:13.480 --> 0:20:15.679 But I think the FED will have to switch it 0:20:15.840 --> 0:20:19.560 from saying this is just market functioning to financial conditions. 0:20:19.560 --> 0:20:22.159 We need to keep it low in the long end. 0:20:22.200 --> 0:20:25.520 I think they might be fifty of the market in 0:20:25.560 --> 0:20:29.080 the near term. Remember it's still the dollar is the 0:20:29.119 --> 0:20:32.040 reserve asset. It's just you know, if I were to buy, 0:20:32.200 --> 0:20:34.000 the front end is very safe for me because the 0:20:34.040 --> 0:20:36.200 Fed's not about to hide. So I think it will 0:20:36.280 --> 0:20:39.320 vary across the yek of Pretty fantastic at your thoughts 0:20:39.320 --> 0:20:42.399 this morning, Really important conversation. Enjoy the long weekend, weren't you, 0:20:42.440 --> 0:20:44.000 and send up best to the family. Pretty must for 0:20:44.080 --> 0:20:50.119 that of the security. We decided on Friday that is 0:20:50.200 --> 0:20:54.200 incredibly important to find a daughter out there who properly 0:20:54.359 --> 0:20:58.800 celebrated her mother's eightieth birthday, and that would be Diane's 0:20:58.800 --> 0:21:01.920