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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily

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Speaker 1: we bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Our

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Speaker 1: Conversation of the Day for alternative and Dust. Robbert Prince

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Speaker 1: has been a bridge Water since nine including the Joy

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Speaker 1: of August of too many things to talk about, including

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Speaker 1: how out front he was at Davos a year ago.

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Speaker 1: On Life at the zero Bound, we speak with Bob

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Speaker 1: Prince of Bridgewater this morning. Bob, I must ask you

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Speaker 1: not about the specifics of Melvin or sit Front and

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Speaker 1: the others. That's inappropriate. But Bob, you and I know

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Speaker 1: when you are short and there's the trade goes against

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Speaker 1: you and there's derivative instruments evolved, cash must be involved

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Speaker 1: to cover the pain. Are we at a point this

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Speaker 1: morning where a lot of cash and billions is going

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Speaker 1: to be moved to cover up this hedge fund screw up? Well,

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Speaker 1: the reason it's all happening is because there is a

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Speaker 1: lot of cash out there moving. Yes, it's barely been

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Speaker 1: the printing of money by the Central Bank and the

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Speaker 1: distribution by the government that's financed a lot of the activity.

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Speaker 1: And you know, when you look at when you look

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Speaker 1: at I can't comment on the games that are being played,

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Speaker 1: excepted to say it's nice that the markets are kind

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Speaker 1: of exciting these days and things to talk about. But

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Speaker 1: you know, our clients, our clients went diversification, they went boring,

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Speaker 1: and they went up. So you know, that's that's somebody

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Speaker 1: else's world. But come on, Bob, you I I take

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Speaker 1: your point, But you've been in this game too long,

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Speaker 1: and I get the idea that the FED has provided

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Speaker 1: a new viscosity for the system where there's liquidity and

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Speaker 1: silly things happen. The last time has happened in you

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Speaker 1: and I know it redounded over to major banks into

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Speaker 1: the major system. Are we at risk here with this

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Speaker 1: foolishness that this will be something that folds over into

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Speaker 1: global Wall Street and into our government institutions. Um, I

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Speaker 1: don't think so. I don't think so. I think what

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Speaker 1: you have are some isolated cases happening. Um, the financial

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Speaker 1: system itself is not over leveraged as some of these

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Speaker 1: prior cases that you refer to, and so the knock

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Speaker 1: on effects are much likely to be much more limited

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Speaker 1: through the system you're you're gonna have you have just

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Speaker 1: have big impacts on individual players, individual markets. But the

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Speaker 1: system is very very liquid, uh, plenty of capital in

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Speaker 1: the banking system, and uh, not nearly as susceptible to that.

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Speaker 1: I mean, clearly, the pandemic was a bigger risk to

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Speaker 1: the system than uh, you know, leverage traits and the

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Speaker 1: options markets. So and it and the financial system has

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Speaker 1: come through that really really well. I'd love your assessment

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Speaker 1: on the options market right now, Bob. There's been so

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Speaker 1: much discussion over the last six month about the proliferation

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Speaker 1: of commission free platforms offering short dated options to retail

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Speaker 1: investors and whether the tale, so to speak, is whacking

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Speaker 1: the dog. But what's your assessment of that story at

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Speaker 1: the moment. Well, it's it just reflects the liquidity that

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Speaker 1: exists and the new players in the markets. You know,

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Speaker 1: historically it's indicative of a bubble type environment, but you

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Speaker 1: know it can go for a long time. I think

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Speaker 1: that the the but when you look at the underlying

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Speaker 1: root causes of it, it really is the transition of

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Speaker 1: monetary policies to the printing of money from interest rate

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Speaker 1: driven monetary policy what call MP three monetary policy three,

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Speaker 1: which is the printing the money to buy government bonds

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Speaker 1: to be distributed to people essentially in helicopter money. And

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Speaker 1: then because they're not but because they're not spending it

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Speaker 1: on goods and services, the money is going into financial assets.

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Speaker 1: And I think from uh, from you know, our client

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Speaker 1: base is really an institutional sovereign wealth fund, pension fund

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Speaker 1: client base, and I think the lesson to be learned here,

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Speaker 1: the thing to be thinking about is you really have

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Speaker 1: to question the idea of holding assets based on their

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Speaker 1: market cap um and the whole you know, capem based

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Speaker 1: investment process, because you know, just because the central bank

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Speaker 1: goes out and prints money and buys bonds and drives

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Speaker 1: and yield to zero and drives the price way up,

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Speaker 1: does that mean you should hold more bonds because their

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Speaker 1: their market cap is highered or just because you know,

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Speaker 1: a certain set of stocks is is get to flow

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Speaker 1: up money into it one way or another and now they're, uh,

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Speaker 1: you know, x times higher than price than they were,

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Speaker 1: Does that mean you should hold that many you know,

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Speaker 1: five times more of it? You know, it doesn't really

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Speaker 1: make any sense from an investment standpoint, and so, um,

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Speaker 1: I think that you know, what we see is we

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Speaker 1: see a big questioning around the world, and really, how

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Speaker 1: do you manage money? Do you do? You start with

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Speaker 1: the market cap portfolio. It also brings indexing into questions

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Speaker 1: because when you're when you're an index you automatically get

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Speaker 1: that and you automatically get it starting to get a

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Speaker 1: much more unbalanced portfolio because the narrow section of the

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Speaker 1: market that some of these cash flows are going into

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Speaker 1: is saying, well, you ought to hold more of that,

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Speaker 1: right and so, and it's reducing the diversification in your portfolio.

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Speaker 1: So I actually think I'd go all the other way,

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Speaker 1: and I think that probably we're going we're moving into

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Speaker 1: a world where security selection fundamental analysis are going to

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Speaker 1: be a security section fundamental analysis, and a view toward

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Speaker 1: real returns and wealth preservation over time is going to

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Speaker 1: be a much much much more rewarding process. So above

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Speaker 1: these two things, you've already just painted that how the

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Speaker 1: cyclists changed, how the policy was regime has changed, and

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Speaker 1: what that means for capital allocation decisions. At least, it's

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Speaker 1: gonna want to jump in on the latter in just

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Speaker 1: a moment, can we just sit on how the cyclists changed,

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Speaker 1: just for a brief second. Twelve months ago, were sitting

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Speaker 1: down in Davils together with Tom, myself and you in

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Speaker 1: a freezing colde and you talked about how to cycle.

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Speaker 1: The nature of the cycle has changed, and the headline

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Speaker 1: everyone ran away with this that Bob Prince says, the

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Speaker 1: boom bust cycle is done. But it was so much

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Speaker 1: more new once than that. But can you walk me

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Speaker 1: through how the character of the cycle has changed, how

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Speaker 1: what we're seeing recently backs that up, and what that

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Speaker 1: means for the policy regime we might be stuck in now? Right? Well,

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Speaker 1: I was what I said was the boom bus cycle

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Speaker 1: as we know it is over right, And what I

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Speaker 1: what I meant by that is the as we know

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Speaker 1: a part is very important because you know, the world

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Speaker 1: that we all grew up in was a world of

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Speaker 1: of booms and busts and tightening and easy to monetary

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Speaker 1: policy largely governed by the interest rate changes by the

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Speaker 1: Central Bank. And because of the debt levels and where

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Speaker 1: we are and what we refer to as a long

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Speaker 1: term debt cycle, the ability to raise interest rates without

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Speaker 1: causing problems is severely limited. But also the ability to

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Speaker 1: create a boom and cut interest rates is severely limited.

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Speaker 1: And so the the the management of an economy through

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Speaker 1: interest rate changes in monetary policy. That's over and we've

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Speaker 1: transitioned into a world where the levers to be pulled.

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Speaker 1: Is what we're seeing now, which is the printing of money.

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Speaker 1: And it's the it's the combined efforts of the fiscal government,

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Speaker 1: uh fiscal action with monetary action, the printing of money,

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Speaker 1: the issuance of bonds, and then the government distributing that

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Speaker 1: money through the economy as they choose, not based on

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Speaker 1: free markets where the interest rate is changing, the economics

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Speaker 1: of the flow of credit. Big change, and that came

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Speaker 1: upon us, you know, much faster than we expected. But

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Speaker 1: you know, we're we're in it right now. That's that's

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Speaker 1: the world we're in and I know that. Ray Dalio,

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Speaker 1: your colleague also about a year ago, said cash is

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Speaker 1: trash in this environment. The idea that cash is getting

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Speaker 1: devalued in places like the United States is printing money.

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Speaker 1: What is the trigger for that to actually be born out? Oh,

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Speaker 1: it's been born out. Um. We have a massive wealth

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Speaker 1: free balancing going on right now in the world. Uh.

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Speaker 1: And there's a rebalancing between the western hemisphere and the

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Speaker 1: eastern hemisphere in Asia, and there's a rebalancing between asset

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Speaker 1: holders and debtors, and and part of that is what

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Speaker 1: we're talking about. But when you look at the return

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Speaker 1: of cash, we have maths. We have massive wealth destruction

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Speaker 1: going on right now for asset holders. And what's to

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Speaker 1: the to the benefit of debtors to to relieve those

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Speaker 1: pressures on the dead side. Uh. We we've already had

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Speaker 1: a fifteen percent if you are a holder of T

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Speaker 1: bills or cash of some sort, we've already had a

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Speaker 1: fifteen percent declining your real purchasing power on your assets,

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Speaker 1: and and and counting right another ten years and it's

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Speaker 1: going to be thirty. Um. You look back through history,

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Speaker 1: cash is one of the riskiest assets that you can

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Speaker 1: hold through environments like this. You go back to the

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Speaker 1: thirties and before you had fifty and eighty percent drawdounds

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Speaker 1: in your real purchasing power by holding cash that's now

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Speaker 1: spread the bonds which locks it in. So among the

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Speaker 1: most expensive assets in the world are cash and bonds,

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Speaker 1: and they're destroying wealth through negative real returns. And that's

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Speaker 1: fueling a movement of all of that liquidity into these

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Speaker 1: other assets. And it's also fueling it will be fueling

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Speaker 1: a movement of money out of dollars. It's already begun

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Speaker 1: into different areas. Right. We've seen gold up, We've seen

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Speaker 1: the dollar down against the euro, twelve percent down against

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Speaker 1: the end, down against the R and B. Money's movie.

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Speaker 1: You see the money has been printed in the country

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Speaker 1: and and initially it stays in the country and drives

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Speaker 1: the local assets up, and then it goes out of

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Speaker 1: the country at some point because the yields and the

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Speaker 1: currency are unattractive. So when you look at sovereign wealth

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Speaker 1: funds around the world, where are they located? Not the

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Speaker 1: United States, They're located in Asia. They're located in China, Korea, Singapore,

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Speaker 1: Hong Kong, Australia. UM. That's where the money holders are

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Speaker 1: and UM for them to hold dollar asset is a

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Speaker 1: risk position. So they're making basis points on their bonds

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Speaker 1: and they're taking now so far as six loss on

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Speaker 1: the currency. You know, are you going to keep buying

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Speaker 1: those bonds as the as the Treasury is issuing them.

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Speaker 1: That's gonna put pressure on the Fed to buy the bonds.

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Speaker 1: And now what happens if we get a popping growth

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Speaker 1: at a popping inflation and the need to buy the

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Speaker 1: bonds is the long rate is rising. That's a dangerous

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Speaker 1: situation for the dollar. Let's stick into one thing that

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Speaker 1: you said, a pop in inflation, and what you're talking

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Speaker 1: about is dramatic asset price inflation, and yet we're not

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Speaker 1: seeing inflation in goods and services that's commensurate with that.

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Speaker 1: How long can that divergence happen? In other words, at

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Speaker 1: what point is one check the other? Well, what whether

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Speaker 1: money printing costs inflation or not is simply a matter

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Speaker 1: where the money goes, right, And so so far what's

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Speaker 1: happened is the money that's been printed was used to

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Speaker 1: augment uh incomes that were lost. But of of the

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Speaker 1: but the money that was distributed, not all of it

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Speaker 1: was spent. A lot of it was just socked away

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Speaker 1: and bank accounts. And so there's been an explosion in

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Speaker 1: bank deposits around the world that money market fund balances

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Speaker 1: held at zero and negative real returns um and so

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Speaker 1: as a result, because the money is not moving into

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Speaker 1: goods and services, the prices good and services are not

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Speaker 1: going up. The money is moving into financial assets, and

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Speaker 1: you're getting inflation and asset prices where the money goes,

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Speaker 1: but it's not going into all of them. It's just

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Speaker 1: going into particular areas, which is amplifying the asset inflation

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Speaker 1: in those particular markets. So the transition to inflation, really

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Speaker 1: it's very simple. It has to be that that money

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Speaker 1: that's been printed or the or sitting in bank accounts

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Speaker 1: has to get redirected to goods and services. And when

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Speaker 1: it does, it's just a matter of mechanics that if

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Speaker 1: that outpaces the amount of supply, then the price goes up.

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Speaker 1: So bub let's put a bell on it. In twelve

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Speaker 1: months of conversations between ourselves, the cyclists changed. The nights

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Speaker 1: where the cyclists changed when a new policy writing, the

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Speaker 1: approach of the investor has got to change away from

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Speaker 1: sixty forty, away from passive investing to market cat whites

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Speaker 1: and indices. Let's talk about core positions conviction traits in

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Speaker 1: this market right now, Bob, What are they for you? Well,

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Speaker 1: we see a lot of things that are very expensive

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Speaker 1: and a lot of things that are very cheaper on

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Speaker 1: the world. Uh, and then you've got your strategic mix,

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Speaker 1: right and so the most important thing is your strategic

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Speaker 1: mix and to have it well balanced. And people are

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Speaker 1: not nearly they don't have nearly enough geographic diversification. We're very,

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Speaker 1: very big on balancing the portfolio between different particularly between

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Speaker 1: East and West Asia, US and Europe, spreading that out.

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Speaker 1: And so that's the first thing. This from a tactical standpoint, Uh,

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Speaker 1: you know, you, like I said, you've got wealth destruction

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Speaker 1: in developed currency, cash and bonds the super expensive, and

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Speaker 1: then you've got a number of assets that are very cheap.

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Speaker 1: You know. Basically, we've just come out an environment of

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Speaker 1: an extreme economic environment with the extreme amount of liquidity produce,

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Speaker 1: and that's produced a stretching and a divergence of assets.

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Speaker 1: You'll get some degree of reversion in that. So we

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Speaker 1: think we think we favor Asian assets a lot, you know,

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Speaker 1: the the assets, the currency, the bonds, of stocks, you know,

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Speaker 1: just generally, um, you know, assets over there, they're the

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Speaker 1: rebalancing in the world is going that direction, But the

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Speaker 1: pricing is actually in the other direction. If you look

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Speaker 1: at the forward price the R and B against the dollar,

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Speaker 1: it's discounted to fall over the next ten years by

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Speaker 1: about even though Chinese growth is likely to be much

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Speaker 1: stronger than the US, and if you look at relative

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Speaker 1: earnings growth, it's likely it's discounted to be weaker. Now

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Speaker 1: that's purely that's not a matter of efficient market pricing.

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Speaker 1: That's a matter of where the liquidity went. The liquidity

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Speaker 1: went into the US assets right, and drove the interest

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Speaker 1: rate down, which drives the forward currency down and so forth.

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Speaker 1: But also you see a lot of emerging economies where

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Speaker 1: the combination of a down in the economy and a

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Speaker 1: contraction in widity has driven their currency down. It's driven

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Speaker 1: the spot currency down, it's driven the forward currency down

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Speaker 1: relative to the spot because the interest rate differentials widened,

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Speaker 1: and it's driven the equity UH down relative to the bonds.

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Speaker 1: And so if you take the tenure forward value of

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Speaker 1: of let's say a Brazilian reality, a Mexican pace, or

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Speaker 1: you just pick your country UH one year's worth of

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Speaker 1: earnings ten years from now priced in dollars, it's as

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Speaker 1: cheap as it's been in thirty thirty years. So you know,

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Speaker 1: those are the kind of things that we see in

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Speaker 1: terms of the stretching of the pricing move in one direction,

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Speaker 1: while the fundamentals are going to be moving in another direction. Well,

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Speaker 1: fantastic to catch up on a longer term kill well

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Speaker 1: prints that of Bridge Water come back swamp pop always

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Speaker 1: get to catch up, sir, Thank you. Bring out away

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Speaker 1: from game stuff is someone who does have to deal

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Speaker 1: with the volatility and the confidence of our markets operate.

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Speaker 1: Amlodia is a Wells Fargo asset management for years. It's

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Speaker 1: strong of Milwaukee at Wisconsin and she joins us this morning, Mlotia,

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Speaker 1: I want to cut to the chase. How does short bubbles, delta,

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Speaker 1: gamma vortex, how does that fold over to the confidence

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Speaker 1: of conservative investors? Well, tom My main concern is that

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Speaker 1: it actually hurts retail investors in the end. Right, institutional

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Speaker 1: failures would not be good for the market in general.

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Speaker 1: But the institutional players know what they're doing here. It's

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Speaker 1: the retail investors that could end up getting hurt and

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Speaker 1: that's not good for our business long term. We want

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Speaker 1: people to be comfortable investing, whether it's investing their own

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Speaker 1: money or or allowing us to help invest with the

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Speaker 1: future of their money. And so that's what really concerns

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Speaker 1: me about that for the long term. For the near term,

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Speaker 1: it does create more volatility UM. But our our managers

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Speaker 1: are used to dealing with this and it's fairly narrow

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Speaker 1: right now. Although I agree with a lot of the

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Speaker 1: concerns that other people have that it, I worry about

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Speaker 1: the spread and I worry about the spread of it,

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Speaker 1: mostly because we've seen some of the broadest multiple expansion

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Speaker 1: we have seen in the last two years. Will expand

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Speaker 1: on that, and I mean some people talking about how

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Speaker 1: this could be the trigger for a consolidation that's more

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Speaker 1: meaningful that a lot of people are looking for, just

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Speaker 1: by virtue of some of the stocks that hedge funds

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Speaker 1: have to sell in order to meet their their leverage calls.

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Speaker 1: What are you seeing in the market that's making you

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Speaker 1: concerns that there could be some validity to that argument. Well,

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Speaker 1: what it really concerns me is just that we had

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Speaker 1: a lot of narrow focus in the market during the

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Speaker 1: really sharp recovery. So if you look at the SMP

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Speaker 1: five Cornerstone Research put out a really good piece. I

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Speaker 1: talked about the earnings multiple increases that we've seen in

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Speaker 1: the SMP five hundred. Now that's a fairly large cap

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Speaker 1: focus um index, but what we saw there is that

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Speaker 1: the multiple expansion actually took that index up forty eight

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Speaker 1: percent over the last two years. If you didn't have

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Speaker 1: that multiple expansion, the market would have actually been down

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Speaker 1: three percent over those last two years. So what really

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Speaker 1: should matter right now is company fundamentals. Which companies can

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Speaker 1: you know, play the dream out can deliver on the

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Speaker 1: dream and certainly we're seeing some companies really can't. Through earnings.

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Speaker 1: We're seeing you know, Microsoft numbers. We're going to see

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Speaker 1: other companies that really are delivering on earnings, delivering on

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Speaker 1: cash flow, delivering on strong balance sheets. That's what our

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Speaker 1: fundamental investors are, portfolio managers are really focused on. Let's

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Speaker 1: get to fundamentals right now. M guys, if you could

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Speaker 1: get AMC entertainment pre market, I'm just say casual I've

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Speaker 1: got for radio to moonshot trading at is to not

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Speaker 1: about seven dollars. Just think about that pre pandemic a

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Speaker 1: theater company was trying at seven dollars and right now

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Speaker 1: is trying at seven seen And for the people that

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Speaker 1: get a round up about the Federal Reserve, I think

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Speaker 1: it's fair to say, Tom, this story is not possible

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Speaker 1: without the federal self. And what I did nine months

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Speaker 1: ago I take your point in it. Frankly, as Mr

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Speaker 1: Prince alluded to, it goes over to what we're seeing

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Speaker 1: with Game Stop. It's you know that I go back

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Speaker 1: to the physics of it and maybe the chemical engineering

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Speaker 1: of the viscosity of the system. And Malletti, how does

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Speaker 1: this viscosity, all this money worldwide change institutional investing. Do

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Speaker 1: you get more growthy with your strong heritage or do

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Speaker 1: you really have to stay in some form of value

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Speaker 1: and to take it further in is it some form

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Speaker 1: of new value trap? You know, Tom, I think you're

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Speaker 1: onto something there. One it's not either or Certainly there

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Speaker 1: are growth stocks that are livering on the fundamentals that

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Speaker 1: I talked about earlier. Some of those technology stocks have

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Speaker 1: the best growth rates to have the best cash flow. Um,

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Speaker 1: they're they're really delivering. But on the other side, we

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Speaker 1: are seeing a global recovery happen and that is good

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Speaker 1: for kind of the value space, the smaller cap names

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Speaker 1: that the manufacturing numbers that we're seeing all of that

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Speaker 1: is coming through. So for us, it's thinking more broadly

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Speaker 1: about the market and investing across the board, staying focused

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Speaker 1: on that, not just picking one area. True diversification focused

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Speaker 1: across the board. And then Tom, I think you're right

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Speaker 1: about the value sports space. It's different than it used

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Speaker 1: to be um way back when I was investing early on,

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Speaker 1: it was you know, it was okay to invest in

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Speaker 1: a company that was in decline as long as you

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Speaker 1: understood the rate of decline. In this day and age,

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Speaker 1: you really have to worry about secular challenges even more so.

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Speaker 1: And right to get you on the program Coma, I'm

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Speaker 1: Letty the of Las Franco Asset Management. Canther Man needs

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Speaker 1: no introduction, Global chief economist at City Group, and she

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Speaker 1: owns a phrase codependency cuther Man. We are all codependent

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Speaker 1: now on this terrible pandemic. As John mentioned, it seems

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Speaker 1: like the timeline is getting longer and longer. How does

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Speaker 1: that adjust your economic view of the world and of America. Well, so,

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Speaker 1: you know, we we in terms of our projections, we

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Speaker 1: have a base where we don't get to hurt immunity

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Speaker 1: in the advanced economies until the end of the year,

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Speaker 1: so end of this year, and so in our fundamentals

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Speaker 1: we always have had a very long process to get

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Speaker 1: from you know, discovering of access set of vaccines to

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Speaker 1: actually changing the economic performance of the economy. The markets

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Speaker 1: have tended to collapse all of the links in the chain.

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Speaker 1: There's no problem with manufacturing, there's no problems with logistics

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Speaker 1: of distribution, there's no problem with getting people to get

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Speaker 1: backs mean, there's no problem with changing and behavior, there's

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Speaker 1: no problem with business investment responses, and there's no problem

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Speaker 1: with opening those borders. The markets have taken all of

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Speaker 1: those links in the chain which we think are important

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Speaker 1: and are going to delay recovery until the end of

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Speaker 1: the year. They have all collapsed those into one and done,

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Speaker 1: you know, discover and everything is happening great. So when

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Speaker 1: we see pullbacks in the market is because there is

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Speaker 1: a realization that there are these links in the chain

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Speaker 1: from getting a discovery of vaccines to actually changing economic performance.

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Speaker 1: They're starting to realize that. Catherine, I'd love to get

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Speaker 1: a little bit more nuance than that as well. Just

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Speaker 1: another headline coming from the Prime Minister in the UK,

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Speaker 1: Boris Johnson England naming to reopen schools from March eighth.

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Speaker 1: So some of these restrictions will come off before we

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Speaker 1: get to her immunity due to a line in the

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Speaker 1: sand as well. So if her immunity for a year

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Speaker 1: end is what you anticipate, what about the restrictions being

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Speaker 1: slowly removed as well well? So the restrictions that really

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Speaker 1: matter are consumer behavior. Now, schools opening, that's certainly very important.

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Speaker 1: That allows some people to go back to work who

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Speaker 1: who have not been able to go out of the

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Speaker 1: house to work, um, and so that will help, But

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Speaker 1: until people's behavior really feel comfortable to go back to

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Speaker 1: doing the things that they used to do, especially on

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Speaker 1: the leisure, hospitality and tourism side. Um, you know that

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Speaker 1: that represents ten percent of global GDP and so and

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Speaker 1: it's basically flatlined. So you're you know, you've got some

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Speaker 1: you've got some work to do on that before you

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Speaker 1: get to the improvements in economic performance that we put

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Speaker 1: into the end of the year. Well, if you look

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Speaker 1: at a MC stocks, you wouldn't necessarily have that feeling

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Speaker 1: of people not going at the movie theater, which they're

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Speaker 1: not going, right, Well, they're not going And this actually

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Speaker 1: goes to a question that we were all talking about

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Speaker 1: a couple of minutes ago, this idea of to what

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Speaker 1: end are we keeping some of these companies alive by

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Speaker 1: having them get increasingly indebted, incurring debt for a bridge

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Speaker 1: to the other side. Yes, at cheap rates, but with

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Speaker 1: business models that are going to be challenged or at

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Speaker 1: least that are gonna be changing in a post pandemic world.

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Speaker 1: What kind of employment are we preserving now? What is

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Speaker 1: the longer term cost to employment and productivity? So this

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Speaker 1: question about zombies has been out there for a long time.

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Speaker 1: So the issue is not so much employment because of

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Speaker 1: course they're not really employing a whole lot of people

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Speaker 1: right now with theaters being closed. Uh. So the question

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Speaker 1: is what happens next year, not this year, because we're

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Speaker 1: still going to be in a position of a lot

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Speaker 1: of backstopping of of the markets, uh from the Federal

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Speaker 1: Reserve and from fysical policy. But next year, when things

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Speaker 1: start to look more normal, at least we're assuming that

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Speaker 1: that's the case, then you're going to have the hammer

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Speaker 1: calm down on some of those companies and that will

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Speaker 1: be creating turbulence for sure and financial markets. But the

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Speaker 1: objective is when you get to the other side, you

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Speaker 1: can handle that turbulence and you don't have to be uh,

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Speaker 1: you know, holding up the zombies any longer. Catherine always

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Speaker 1: great to hear from you. Thank you, kenthe men the City.

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Speaker 1: The groups chief economist, Elaine Stokes does not own game stock.

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Speaker 1: She's at Luma Sales with their full discretion team. Elaine,

433
00:24:10,760 --> 00:24:13,720
Speaker 1: thank you so much for joining us today when you

434
00:24:13,760 --> 00:24:17,560
Speaker 1: are fully discretion in a conservative shop like Loumas Sales

435
00:24:18,359 --> 00:24:23,960
Speaker 1: a LTCM. Do you watch out of the corner of

436
00:24:24,000 --> 00:24:28,640
Speaker 1: your eye all this stuff going on with this loose money, Um,

437
00:24:28,680 --> 00:24:30,320
Speaker 1: you gotta watch a little bit more than just out

438
00:24:30,320 --> 00:24:33,120
Speaker 1: of the corner of your eye. UM, you know right now,

439
00:24:33,520 --> 00:24:37,800
Speaker 1: all this craziness that um you know that game stop

440
00:24:38,720 --> 00:24:44,719
Speaker 1: is uh a function of it's the sideshow and we

441
00:24:44,760 --> 00:24:47,679
Speaker 1: need to make sure it doesn't become the main event

442
00:24:48,359 --> 00:24:53,639
Speaker 1: and we don't see um it becomes systemic, we don't

443
00:24:53,640 --> 00:25:00,520
Speaker 1: see uh, it becomes the focus of regulators and it

444
00:25:01,200 --> 00:25:06,040
Speaker 1: doesn't blow up into something bigger because of because it's

445
00:25:06,040 --> 00:25:09,560
Speaker 1: moved from retail to institutional. Who's the week? I mean,

446
00:25:09,800 --> 00:25:12,760
Speaker 1: this is really important, folks in Dennis Gartman earlier this

447
00:25:12,800 --> 00:25:16,200
Speaker 1: morning on JP Morgan in nineteen o seven, or you've

448
00:25:16,240 --> 00:25:18,760
Speaker 1: got you know this crisis in the thirties, or you've

449
00:25:18,800 --> 00:25:23,680
Speaker 1: got Elaine you're too young to remember the bottom line

450
00:25:23,800 --> 00:25:26,040
Speaker 1: is you know, as simple as I can, there's a

451
00:25:26,040 --> 00:25:29,200
Speaker 1: wee that's going to come save the day for Elaine Stokes,

452
00:25:29,280 --> 00:25:33,199
Speaker 1: who's the week. I'm not sure, I'm sure. I'm not

453
00:25:33,240 --> 00:25:36,840
Speaker 1: sure I really understand what you mean here. Um, I

454
00:25:36,880 --> 00:25:38,960
Speaker 1: don't think there's a wee that's going to come save

455
00:25:39,080 --> 00:25:44,760
Speaker 1: the day. I think this, Uh, enough people are going

456
00:25:44,840 --> 00:25:47,920
Speaker 1: to get hurt. Um. You know, this is a lot

457
00:25:47,960 --> 00:25:51,600
Speaker 1: of retail money now it's becoming hedge fund hedge fund money.

458
00:25:52,000 --> 00:25:54,320
Speaker 1: Enough people are going to get hurt, and we I

459
00:25:54,359 --> 00:25:58,040
Speaker 1: hope that it it peters out because enough people realize,

460
00:25:58,480 --> 00:26:04,200
Speaker 1: you know, there is no easy money. This isn't um

461
00:26:04,359 --> 00:26:08,040
Speaker 1: do it. You drisked what they're doing here. So hopefully

462
00:26:08,359 --> 00:26:11,080
Speaker 1: it happens go ahead. One could argue that some of

463
00:26:11,080 --> 00:26:13,960
Speaker 1: the easy money and what's driving this is the Federal

464
00:26:14,000 --> 00:26:16,760
Speaker 1: Reserve with their interest rate policy. What do you expect

465
00:26:16,800 --> 00:26:19,399
Speaker 1: to hear from the Fed? Um today and going forward?

466
00:26:20,119 --> 00:26:24,560
Speaker 1: You know, nothing new. I don't think today is going

467
00:26:24,600 --> 00:26:28,400
Speaker 1: to be you know, any big revelation. I think right

468
00:26:28,440 --> 00:26:32,640
Speaker 1: now the Fed actually it's it's time for the Fed

469
00:26:32,680 --> 00:26:35,640
Speaker 1: to maybe sit back a little bit past the baton

470
00:26:35,800 --> 00:26:39,920
Speaker 1: to fiscal policy and let let that take over for

471
00:26:39,960 --> 00:26:41,720
Speaker 1: a little while. They've been trying to do that for

472
00:26:41,800 --> 00:26:44,760
Speaker 1: some time, right, you know we've been hearing that, and

473
00:26:44,960 --> 00:26:50,280
Speaker 1: you know we've we've got a new UM package coming out,

474
00:26:50,359 --> 00:26:55,400
Speaker 1: a third, a third package being discussed. I think it's

475
00:26:55,400 --> 00:27:00,280
Speaker 1: it's not their moment. So what are you ex bacting.

476
00:27:00,359 --> 00:27:03,359
Speaker 1: What do you think this economy needs from Washington d C.

477
00:27:03,520 --> 00:27:08,280
Speaker 1: In terms of fiscal stimulus. I really think it needs

478
00:27:08,920 --> 00:27:13,600
Speaker 1: to UM to do something. They've already done something quickly, right,

479
00:27:14,000 --> 00:27:16,439
Speaker 1: and and they need there are certain things that just

480
00:27:16,520 --> 00:27:20,359
Speaker 1: need to be extended. But beyond just extending things like

481
00:27:20,600 --> 00:27:25,160
Speaker 1: unemployment and UM and and that, I think it needs

482
00:27:25,160 --> 00:27:29,920
Speaker 1: to become more targeted. And we're almost hit the point

483
00:27:29,960 --> 00:27:33,400
Speaker 1: where we could kind of start to go overboard on

484
00:27:33,440 --> 00:27:35,840
Speaker 1: the stimulus. Elaine Stokes, thank you so much for joining

485
00:27:35,880 --> 00:27:42,919
Speaker 1: us with Lomas Sales this morning. Greatly appreciate that this

486
00:27:43,000 --> 00:27:47,480
Speaker 1: is an important quote. Market risk and economic uncertainty have

487
00:27:47,600 --> 00:27:53,639
Speaker 1: caught individual and institutional investors unaware, and throughout all of

488
00:27:53,640 --> 00:28:00,399
Speaker 1: this technology continues to revolutionize how people invest. That is

489
00:28:00,560 --> 00:28:06,960
Speaker 1: Arthur Levitt after August, when the young Arthur Levitt stood

490
00:28:07,040 --> 00:28:10,560
Speaker 1: up with great courage and try to steer our Financial

491
00:28:10,600 --> 00:28:12,840
Speaker 1: System out of LTC. I'm in the rest of the

492
00:28:12,880 --> 00:28:18,160
Speaker 1: fun of August, the former chairman joins us this morning, Arthur,

493
00:28:18,200 --> 00:28:21,080
Speaker 1: I loved your essay. You're you know, you're you know,

494
00:28:21,119 --> 00:28:23,640
Speaker 1: I don't know. You're seventy nine and holding whatever age

495
00:28:23,680 --> 00:28:27,200
Speaker 1: you are. You could have written that sentence today, Arthur Levitt. Yes.

496
00:28:28,960 --> 00:28:32,400
Speaker 1: I think the lesson is how do we not repeat

497
00:28:33,160 --> 00:28:38,680
Speaker 1: that experience as a dark comedy. And what I'm suggesting

498
00:28:38,920 --> 00:28:46,320
Speaker 1: is going after market room and mongers aggressively evaluating the

499
00:28:46,440 --> 00:28:54,920
Speaker 1: science behind today's day trading platform, improving the boiler plate.

500
00:28:56,840 --> 00:28:59,960
Speaker 1: I rarely read the legal boiler prate warnings and most

501
00:29:00,000 --> 00:29:03,840
Speaker 1: of the items I buy and use they are written

502
00:29:03,880 --> 00:29:09,160
Speaker 1: to induce in difference. And if there's one thing we've seen,

503
00:29:10,640 --> 00:29:16,960
Speaker 1: it's the fact that recency bias is a powerful force. Arthur.

504
00:29:17,200 --> 00:29:22,600
Speaker 1: What that means is that recent market performance is an

505
00:29:22,600 --> 00:29:26,920
Speaker 1: indication of what's coming up. Arthur. You more than anyone

506
00:29:27,440 --> 00:29:31,000
Speaker 1: took us from Anticonda copper and three eighths down a

507
00:29:31,120 --> 00:29:35,760
Speaker 1: quarter two pennies. And the outcome of this is this

508
00:29:36,120 --> 00:29:45,280
Speaker 1: massive internal, technologically sophisticated trading. Obviously, it has damages along

509
00:29:45,320 --> 00:29:49,000
Speaker 1: the timeline. Do we need to go back to something

510
00:29:49,720 --> 00:29:53,920
Speaker 1: that has a spread and has a quiet to it. Well,

511
00:29:54,080 --> 00:29:59,480
Speaker 1: we lack precedence and for an angry bubble, so predictions

512
00:29:59,480 --> 00:30:04,000
Speaker 1: are probably be pretty difficult, but there are enough similarities

513
00:30:04,000 --> 00:30:10,479
Speaker 1: with the past to raise serious cause for concern. Uh. First,

514
00:30:10,520 --> 00:30:13,880
Speaker 1: the little guys have had their success so far with

515
00:30:13,960 --> 00:30:18,920
Speaker 1: the help of margin accounts and by using derivatives. That

516
00:30:19,000 --> 00:30:24,720
Speaker 1: creates its own small Dutch tool of mania mania. Second,

517
00:30:24,920 --> 00:30:30,280
Speaker 1: democratization of finance isn't new, and in itself it's nothing

518
00:30:30,320 --> 00:30:35,320
Speaker 1: that anyone can object to. The problem is that investment

519
00:30:35,880 --> 00:30:41,920
Speaker 1: and financial planning require time. So if you regulate these

520
00:30:41,960 --> 00:30:47,080
Speaker 1: things and you no longer have true democratization, that creates

521
00:30:47,600 --> 00:30:50,840
Speaker 1: issues and problems. You see, Paul, do you see how

522
00:30:50,960 --> 00:30:53,800
Speaker 1: Arthur Levitt comes on and game stop goes from three

523
00:30:53,880 --> 00:30:56,760
Speaker 1: seventy down to sixty nine and a cup of coffee.

524
00:30:56,760 --> 00:31:00,480
Speaker 1: It's exact the voice of reason, Arthur. What do you

525
00:31:00,760 --> 00:31:02,959
Speaker 1: say to the folks that you know are just make

526
00:31:03,000 --> 00:31:05,560
Speaker 1: the argument, this is the free market. These people have

527
00:31:05,640 --> 00:31:08,040
Speaker 1: free will to buy and sell whatever they want, and

528
00:31:08,800 --> 00:31:11,760
Speaker 1: you know, and just let the market take care of itself.

529
00:31:11,760 --> 00:31:14,080
Speaker 1: And if they get burned, they get burned. It's kind

530
00:31:14,080 --> 00:31:17,760
Speaker 1: of buy or beware. Well, you can say that they

531
00:31:17,800 --> 00:31:21,760
Speaker 1: were warned. I can remember giving speeches through the late

532
00:31:21,880 --> 00:31:26,880
Speaker 1: nineties alerting the investment public to the risks of that time,

533
00:31:27,960 --> 00:31:30,320
Speaker 1: and I'd say to them, over the long haul, yes,

534
00:31:30,440 --> 00:31:34,520
Speaker 1: investing is a wise path to building wealth, but over

535
00:31:34,560 --> 00:31:39,440
Speaker 1: the shorthul it involves risks and losses, some of them

536
00:31:39,520 --> 00:31:42,480
Speaker 1: quite crushed. Arthur. Your great grandson is sitting on the

537
00:31:42,520 --> 00:31:47,400
Speaker 1: couch right now with your two dogs. Day trading gigs stop, Arthur.

538
00:31:47,520 --> 00:31:50,600
Speaker 1: We got to this point where we got kids on laptops,

539
00:31:51,360 --> 00:31:55,360
Speaker 1: multiple trades per second, per hour. Do you see Gary

540
00:31:55,400 --> 00:31:58,760
Speaker 1: Gensler having the ability to begin to nudge this back

541
00:31:58,800 --> 00:32:03,840
Speaker 1: to something that's social good? Yes, I do think so. Uh.

542
00:32:03,920 --> 00:32:09,440
Speaker 1: This is all very familiar so for the New York giants,

543
00:32:09,440 --> 00:32:15,480
Speaker 1: so familiar that I found paragraph from nine speech I

544
00:32:15,600 --> 00:32:20,240
Speaker 1: gave at the National Press Club, and every word applies today.

545
00:32:20,520 --> 00:32:25,600
Speaker 1: We as a nation, as investors, as businesses, and as regulators,

546
00:32:26,080 --> 00:32:30,040
Speaker 1: should not get manic about the mania. Arthur Lovitt, our

547
00:32:30,120 --> 00:32:31,960
Speaker 1: honor to have you on here with us today. With

548
00:32:32,080 --> 00:32:34,600
Speaker 1: all we've seen, you, me and Paul are the only

549
00:32:34,640 --> 00:32:39,320
Speaker 1: ones that remember the former chairman the Securities Exchange Commission.

550
00:32:39,360 --> 00:32:43,920
Speaker 1: Bloomberg gil PYO board member Arthur Lovitt. Thanks for listening

551
00:32:43,960 --> 00:32:48,520
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

552
00:32:48,520 --> 00:32:53,800
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

553
00:32:54,320 --> 00:32:57,680
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

554
00:32:57,680 --> 00:33:01,120
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio