1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,400 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Let's 5 00:00:27,400 --> 00:00:29,240 Speaker 1: bring in the guest of the Morning Show. We Bruce Castman, 6 00:00:29,320 --> 00:00:32,400 Speaker 1: JP Morgan, Chief Economist and Money to Bruce the morning. 7 00:00:32,600 --> 00:00:35,000 Speaker 1: For the markets, investors have been focusing on the likely 8 00:00:35,040 --> 00:00:37,720 Speaker 1: stimulus response coming out of China. It's just easy to 9 00:00:37,760 --> 00:00:41,080 Speaker 1: get your hands around the possible fallout from the containment effort. 10 00:00:41,240 --> 00:00:44,599 Speaker 1: Much harder the process. What's your base case at the moment? Well, 11 00:00:44,640 --> 00:00:46,480 Speaker 1: the base case here is that we have a huge 12 00:00:46,520 --> 00:00:49,600 Speaker 1: disruption that's very narrowly based in China and a few 13 00:00:49,600 --> 00:00:52,120 Speaker 1: other countries. In the month of February and in the 14 00:00:52,120 --> 00:00:54,840 Speaker 1: first quarter, we have Chinese growth getting down to want 15 00:00:54,840 --> 00:00:58,480 Speaker 1: it could even be flat on the quarter. Sequentially, global 16 00:00:58,520 --> 00:01:01,320 Speaker 1: growth gets down to the lowest level we've seen since 17 00:01:01,360 --> 00:01:04,000 Speaker 1: the global financial crisis. But the effects on the U 18 00:01:04,040 --> 00:01:05,880 Speaker 1: S and Western Europe are pretty small, and they're not 19 00:01:06,240 --> 00:01:09,960 Speaker 1: one way. Remember that Chinese demand coming down also lowers 20 00:01:10,000 --> 00:01:12,840 Speaker 1: global energy prices at lowers global interest rates, which actually 21 00:01:12,880 --> 00:01:16,600 Speaker 1: is a plus for consumers in the UH in the West. UM. 22 00:01:16,640 --> 00:01:18,679 Speaker 1: But the bottom line, I think is that this is 23 00:01:18,680 --> 00:01:21,320 Speaker 1: going to be extremely disruptive, but it is not going 24 00:01:21,360 --> 00:01:23,600 Speaker 1: to derail what we will actually believe is a pretty 25 00:01:23,640 --> 00:01:27,400 Speaker 1: positive story for the global economy. In let's get some numbers, Bruce, 26 00:01:27,480 --> 00:01:30,560 Speaker 1: Q one, what is it at in China? UH sequentially 27 00:01:30,560 --> 00:01:34,000 Speaker 1: about one percent? Q two nine and a half percent. 28 00:01:34,040 --> 00:01:36,679 Speaker 1: That's a massive v That's a massive be All you 29 00:01:36,760 --> 00:01:38,800 Speaker 1: really need is that by the time we're sitting here 30 00:01:38,800 --> 00:01:41,120 Speaker 1: at the end of March, the virus is starting to 31 00:01:41,200 --> 00:01:43,759 Speaker 1: fade and produces are starting to make up the lost 32 00:01:43,880 --> 00:01:46,240 Speaker 1: output that they had in the month of February in 33 00:01:46,319 --> 00:01:49,280 Speaker 1: early March. That's that's the way it happened after Tohoku. 34 00:01:49,360 --> 00:01:51,680 Speaker 1: That's the way it happened after Stars. You just have 35 00:01:51,760 --> 00:01:53,640 Speaker 1: to believe, and this is the real call, is that 36 00:01:53,720 --> 00:01:56,040 Speaker 1: this doesn't spread and become a global event over the 37 00:01:56,040 --> 00:01:59,400 Speaker 1: next two Have you ever seen that in your study 38 00:01:59,480 --> 00:02:02,000 Speaker 1: your Puch Columbia where you go from one to nine 39 00:02:02,800 --> 00:02:04,920 Speaker 1: in a hundred days. We see it all the time. 40 00:02:04,920 --> 00:02:07,680 Speaker 1: Whenever you have this, Usually it's not on a macro basis. 41 00:02:07,920 --> 00:02:10,160 Speaker 1: But you see these events where you have storms, where 42 00:02:10,200 --> 00:02:12,400 Speaker 1: you have shocks. We have a couple of weeks down 43 00:02:12,480 --> 00:02:16,160 Speaker 1: and then a quick rebound. It's like Whenlan wins, I 44 00:02:16,160 --> 00:02:19,760 Speaker 1: mean the Italian economy shifts. I'm not sure we rebound. 45 00:02:20,000 --> 00:02:22,480 Speaker 1: I will say there is a question also how much 46 00:02:22,520 --> 00:02:26,080 Speaker 1: this rebound is predicated on more stimulus from central banks. Um, 47 00:02:26,120 --> 00:02:28,760 Speaker 1: it's not predicated on more stimulus, but we might get 48 00:02:28,800 --> 00:02:32,280 Speaker 1: some more stimulus. It is predicated on the idea that 49 00:02:32,320 --> 00:02:35,359 Speaker 1: the Chinese government comes in here and prevents any credit 50 00:02:35,680 --> 00:02:39,040 Speaker 1: problems coming from the disruption, and that they continue to 51 00:02:39,080 --> 00:02:42,160 Speaker 1: provide stimulus. But that's more of an issue around growth 52 00:02:42,160 --> 00:02:44,160 Speaker 1: in the second half of the year. Which you really 53 00:02:44,200 --> 00:02:46,919 Speaker 1: just need is for factories to open up and people 54 00:02:46,960 --> 00:02:49,080 Speaker 1: to start moving around again in the month of March. 55 00:02:49,200 --> 00:02:51,399 Speaker 1: Not now, but as we look over the next four 56 00:02:51,440 --> 00:02:53,639 Speaker 1: to six weeks, we have to be comfortable that things 57 00:02:53,680 --> 00:02:56,240 Speaker 1: start to get more normal and you comfortable. I'm not 58 00:02:56,280 --> 00:02:57,840 Speaker 1: as comfortable as I'd like to be, and I don't 59 00:02:57,840 --> 00:03:00,440 Speaker 1: want to ignore the downside risk here. I think what 60 00:03:00,520 --> 00:03:03,079 Speaker 1: you have in the market is a small but very 61 00:03:03,160 --> 00:03:06,800 Speaker 1: dangerous risk factor that things turn out to be unprecedented 62 00:03:06,840 --> 00:03:08,400 Speaker 1: in terms of how it plays out. John, this is 63 00:03:08,400 --> 00:03:10,800 Speaker 1: what I'm struggling with. It's one thing for industrial production 64 00:03:10,840 --> 00:03:13,240 Speaker 1: to come back, It's another thing for services. It's another 65 00:03:13,240 --> 00:03:16,079 Speaker 1: thing for the Starbucks stores that are closed. I don't 66 00:03:16,160 --> 00:03:19,360 Speaker 1: understand from that perspective, Bruce, how we get how we 67 00:03:19,440 --> 00:03:24,120 Speaker 1: compensate for those lost business opportunities. We don't compensate for it. 68 00:03:24,200 --> 00:03:28,120 Speaker 1: We gradually recover. And remember, in growth terms, going from 69 00:03:28,160 --> 00:03:30,960 Speaker 1: having a factory shut down to a factory operating at 70 00:03:31,000 --> 00:03:34,240 Speaker 1: seventy or having a Starbucks shut down to a Starbucks 71 00:03:34,280 --> 00:03:37,480 Speaker 1: opening but still having fifty or six of the of 72 00:03:37,600 --> 00:03:40,280 Speaker 1: the flow is a big change in growth. And I 73 00:03:40,320 --> 00:03:42,400 Speaker 1: want to emphasize this. We we live in a world 74 00:03:42,440 --> 00:03:44,960 Speaker 1: where we talk about growth, but the level of activity 75 00:03:45,040 --> 00:03:46,880 Speaker 1: is going to be lower than it would have been 76 00:03:47,320 --> 00:03:49,200 Speaker 1: probably all the way through the end of the year 77 00:03:49,200 --> 00:03:52,320 Speaker 1: in China, and very small amount though on the global basis. 78 00:03:52,560 --> 00:03:56,760 Speaker 1: We're coming with Europe not Quants was struggling. If you're 79 00:03:56,760 --> 00:03:59,800 Speaker 1: looking for one percent out of China in Q one 80 00:04:00,040 --> 00:04:02,880 Speaker 1: and you have a European economy nest stole speed, yeah, 81 00:04:03,000 --> 00:04:06,000 Speaker 1: do you get a v shak recovery in Europe? Well, 82 00:04:06,200 --> 00:04:08,600 Speaker 1: I wouldn't call the European recovery v shape because I 83 00:04:08,600 --> 00:04:10,120 Speaker 1: don't think Europe is going to get hit by the 84 00:04:10,160 --> 00:04:13,000 Speaker 1: same disruptive effect. But I actually think what we're missing 85 00:04:13,120 --> 00:04:15,800 Speaker 1: is we're watching the weak data in Europe. Is that 86 00:04:15,880 --> 00:04:19,120 Speaker 1: the idiosyncratic drags that have hit the UK have hit 87 00:04:19,200 --> 00:04:23,359 Speaker 1: Germany around the global drag from trade conflicts fading is 88 00:04:23,400 --> 00:04:25,400 Speaker 1: I think setting us up for Europe being the biggest 89 00:04:25,400 --> 00:04:29,880 Speaker 1: surprise to the upside Europe. Swiss this morning, Tom, lowest 90 00:04:29,960 --> 00:04:34,560 Speaker 1: level since the Swissies ripping the Euros breaking down, Bruce, 91 00:04:34,640 --> 00:04:38,400 Speaker 1: what is the quantitative linkage of all these economies if 92 00:04:38,440 --> 00:04:40,560 Speaker 1: you're having a beverage of your choice with Vice German 93 00:04:40,600 --> 00:04:43,960 Speaker 1: Clarada or with Sherman Powell? What are the linkages of 94 00:04:44,040 --> 00:04:47,840 Speaker 1: Mercedes Benz flat on its back in Germany versus You 95 00:04:47,839 --> 00:04:49,839 Speaker 1: know that we're hearing reports of the chance of the 96 00:04:49,839 --> 00:04:52,359 Speaker 1: exchequer stepping aside? Is that right, John? Yeah, we're just 97 00:04:52,360 --> 00:04:55,719 Speaker 1: getting that confirmed. I mean, the challenge, the resigning tone, 98 00:04:55,880 --> 00:04:58,880 Speaker 1: the cacophony of the news out there. How linked does 99 00:04:58,920 --> 00:05:02,320 Speaker 1: all this or is it really idiosyncratic? Well? I think 100 00:05:02,360 --> 00:05:05,200 Speaker 1: the the way to look at what happened in two 101 00:05:05,279 --> 00:05:08,719 Speaker 1: thousand and nineteen is we had a set of country 102 00:05:08,720 --> 00:05:12,839 Speaker 1: specific factors and hitting in Europe around the global story 103 00:05:12,880 --> 00:05:15,800 Speaker 1: around US China trade. And now what we think we're 104 00:05:15,800 --> 00:05:19,120 Speaker 1: seeing is that global shock begin to fade. And we're 105 00:05:19,160 --> 00:05:22,320 Speaker 1: also believing that the Brexit shock, along with you, okay, 106 00:05:22,360 --> 00:05:25,640 Speaker 1: fiscal stimulus, the German auto industry shock, which has proved 107 00:05:25,920 --> 00:05:29,080 Speaker 1: to push German inventories to super low levels, is going 108 00:05:29,160 --> 00:05:31,960 Speaker 1: to be coming together to provide some fuel on the 109 00:05:32,040 --> 00:05:34,120 Speaker 1: issue of China. And I think this is really important. 110 00:05:34,120 --> 00:05:37,120 Speaker 1: The difference between having factory shut down for three or 111 00:05:37,120 --> 00:05:39,680 Speaker 1: four weeks and three or four months is huge. The 112 00:05:39,720 --> 00:05:42,800 Speaker 1: supply chain can handle two or three weeks without a 113 00:05:42,839 --> 00:05:45,359 Speaker 1: serious disruption, but if you extend this out for a 114 00:05:45,400 --> 00:05:47,920 Speaker 1: few months, then the world looks very different and the 115 00:05:48,000 --> 00:05:51,520 Speaker 1: dynamics of spillovers begin to come much more serious. You 116 00:05:51,520 --> 00:05:54,000 Speaker 1: guys still the cost house out of China this morning 117 00:05:54,040 --> 00:05:57,720 Speaker 1: down for the month of January, and the association that 118 00:05:57,760 --> 00:06:00,000 Speaker 1: puts these numbers together looking for another drop of thirty 119 00:06:00,080 --> 00:06:02,359 Speaker 1: sent in the month of February, biggest drop ever for 120 00:06:02,400 --> 00:06:04,560 Speaker 1: the month of January. And this is exactly where my 121 00:06:04,600 --> 00:06:06,240 Speaker 1: mind when which is the question is how does this 122 00:06:06,279 --> 00:06:08,520 Speaker 1: bleed over into Germany? How does this bleed over into 123 00:06:08,600 --> 00:06:11,679 Speaker 1: global auto demand? But here's the point, We're gonna start 124 00:06:11,720 --> 00:06:14,159 Speaker 1: to see data coming in for January and February, and 125 00:06:14,200 --> 00:06:18,080 Speaker 1: particularly February, it's gonna look horrible. And then the real 126 00:06:18,160 --> 00:06:20,360 Speaker 1: question is how much does it bounce back in March. 127 00:06:20,480 --> 00:06:22,840 Speaker 1: If you're a German producer and you think the Chinese 128 00:06:22,839 --> 00:06:26,200 Speaker 1: sales pullback is about the virus and it's gonna last 129 00:06:26,200 --> 00:06:28,679 Speaker 1: four or five weeks, you don't stop production, You build 130 00:06:28,680 --> 00:06:31,800 Speaker 1: inventories for that period and you continue more normally. The 131 00:06:31,880 --> 00:06:34,640 Speaker 1: question isn't going to be coming back to normal relatively 132 00:06:34,720 --> 00:06:37,280 Speaker 1: quickly for something drowning and happy? This week we've had 133 00:06:37,360 --> 00:06:39,919 Speaker 1: three major bulls in the bull market. You're coming in, 134 00:06:40,000 --> 00:06:42,880 Speaker 1: you're happy on a lift as well. I got Valentine's 135 00:06:42,880 --> 00:06:44,520 Speaker 1: to day to small, So I'm ready to fall off 136 00:06:44,520 --> 00:06:47,800 Speaker 1: a cliff into negativity. Okay, help me here. How does 137 00:06:47,920 --> 00:06:50,960 Speaker 1: David Kelly and others at JP Morgan, how do they 138 00:06:51,000 --> 00:06:54,040 Speaker 1: take your optimism and bring it over to markets? Can 139 00:06:54,080 --> 00:06:59,600 Speaker 1: you link Chasman optimism twelve months out into market optimism? Yeah? 140 00:06:59,640 --> 00:07:02,240 Speaker 1: I think are sure? I think we have to obviously 141 00:07:02,320 --> 00:07:05,320 Speaker 1: price in that risk, and we don't ignore that small risk. 142 00:07:05,600 --> 00:07:07,560 Speaker 1: But I think if you're sitting as an investor and 143 00:07:07,600 --> 00:07:09,920 Speaker 1: you think that as I do, by the time we're 144 00:07:09,960 --> 00:07:11,840 Speaker 1: sitting here in June and July, we're not going to 145 00:07:11,920 --> 00:07:14,360 Speaker 1: be talking about viruses, but we're gonna be talking about 146 00:07:14,600 --> 00:07:17,520 Speaker 1: lifting the global economy, then risky acids are gonna do 147 00:07:17,600 --> 00:07:21,280 Speaker 1: relatively well, and we're gonna be watching the world pick 148 00:07:21,360 --> 00:07:23,520 Speaker 1: up in a broad based way. And that's as a 149 00:07:23,560 --> 00:07:28,000 Speaker 1: relatively simple but it's not necessarily ignoring some small tere 150 00:07:28,080 --> 00:07:29,840 Speaker 1: risks that we have to deal with. Here. Here's the 151 00:07:29,880 --> 00:07:32,960 Speaker 1: way it is, Folks, Global Wall Street, Friday afternoon and 152 00:07:32,960 --> 00:07:35,760 Speaker 1: into Friday evening. You will wait for the research note 153 00:07:35,760 --> 00:07:38,800 Speaker 1: from Bruce cas and Michael Fairli and the rest JP 154 00:07:38,840 --> 00:07:41,120 Speaker 1: Morgan John Bruce grab to catch up of the Bruce cask, 155 00:07:41,240 --> 00:07:44,120 Speaker 1: the JP Morgan chief economists wait and get on the 156 00:07:44,160 --> 00:07:51,560 Speaker 1: likess with markets front and sentence home. A new method 157 00:07:51,760 --> 00:07:55,640 Speaker 1: for testing the coronavirus in Hubei leading to a spike 158 00:07:56,040 --> 00:08:00,280 Speaker 1: in coronavirus cases. Yeah, and the methodology of the body count. 159 00:08:00,280 --> 00:08:02,480 Speaker 1: And this is of course done undercast what they built 160 00:08:02,480 --> 00:08:04,720 Speaker 1: a hospital in what ten days or something? I mean 161 00:08:04,720 --> 00:08:09,240 Speaker 1: this is crisis proportions in a new ratios, new mathematics 162 00:08:09,240 --> 00:08:12,120 Speaker 1: this morning that everyone's adjusting to. We have been so 163 00:08:12,200 --> 00:08:16,640 Speaker 1: advantaged to speak to Peter Hotez of Baylor, of Anthony Fruit, 164 00:08:16,760 --> 00:08:20,560 Speaker 1: she arguably America's giant in immunology. And now we speak 165 00:08:20,600 --> 00:08:23,720 Speaker 1: again with Dr Rohn of uc L. She began at 166 00:08:23,720 --> 00:08:28,240 Speaker 1: the University of Washington in their world class microbiology program. 167 00:08:28,360 --> 00:08:31,760 Speaker 1: She still has Malachi Green under her fingernails from micro 168 00:08:31,960 --> 00:08:35,160 Speaker 1: one oh one years ago at Washington, and she is 169 00:08:35,320 --> 00:08:40,440 Speaker 1: truly definitive on virus and particularly some of the oddities 170 00:08:40,480 --> 00:08:43,600 Speaker 1: of the acclaimed cat virus and research from years ago. 171 00:08:44,320 --> 00:08:46,600 Speaker 1: Dr Rohan, wonderful to have you back with us today. 172 00:08:46,720 --> 00:08:51,680 Speaker 1: What have you learned in the last week about this virus? Well, 173 00:08:51,720 --> 00:08:56,079 Speaker 1: things have changed quite considerably, even overnight. So things were 174 00:08:56,120 --> 00:08:58,959 Speaker 1: looking a little bit predictable. It looked as if the virus, 175 00:08:59,080 --> 00:09:01,960 Speaker 1: although it was still going strong in China, appeared to 176 00:09:02,000 --> 00:09:05,760 Speaker 1: be heading toward a plateau. But overnight that all changed 177 00:09:07,080 --> 00:09:09,120 Speaker 1: and it's looking now as if there may be many 178 00:09:09,160 --> 00:09:13,000 Speaker 1: more cases than we initially thought because they've now revised 179 00:09:13,040 --> 00:09:16,720 Speaker 1: the ways they're diagnosing the patients over there. I calculated 180 00:09:16,800 --> 00:09:19,000 Speaker 1: the illness rate on one of the cruise ships, not 181 00:09:19,040 --> 00:09:20,840 Speaker 1: the one in the Gulf of Thailand. It's something in 182 00:09:20,840 --> 00:09:23,360 Speaker 1: the vicinity of six percent of the ship is sick. 183 00:09:23,840 --> 00:09:25,880 Speaker 1: What is and I use this word as an amateur, 184 00:09:25,960 --> 00:09:29,760 Speaker 1: what is the virulence of this virus as compared to 185 00:09:29,840 --> 00:09:35,400 Speaker 1: things you've seen before. Well, it's definitely highly infectious, so 186 00:09:35,400 --> 00:09:39,320 Speaker 1: it's a very contagious virus. However, despite all of the 187 00:09:39,360 --> 00:09:41,840 Speaker 1: scary things that we're hearing from China and Wuhan, at 188 00:09:41,880 --> 00:09:44,160 Speaker 1: the moment, it still looks as it's the lethality right, 189 00:09:44,679 --> 00:09:48,319 Speaker 1: it's not greater than that of say, seasonal influenza. That 190 00:09:48,360 --> 00:09:51,400 Speaker 1: doesn't mean it's a pussy cat. Seasonal influenza in the 191 00:09:51,480 --> 00:09:54,480 Speaker 1: US alone kills twelve to sixteen thousand people a year, 192 00:09:55,120 --> 00:09:58,240 Speaker 1: but we have immunity to influenza. It's an old virus. 193 00:09:58,440 --> 00:10:01,600 Speaker 1: So if if the coronavirus gets that same kind of 194 00:10:01,600 --> 00:10:04,920 Speaker 1: foothold as as our seasonal flu with the same fatality rate, 195 00:10:04,920 --> 00:10:07,160 Speaker 1: we we could be looking at a lot of people dying. 196 00:10:08,000 --> 00:10:11,240 Speaker 1: Speak for Wall Street and for investors in financial markets, 197 00:10:11,240 --> 00:10:13,880 Speaker 1: that seems to be this morning, at least relatively speaking. 198 00:10:13,880 --> 00:10:16,280 Speaker 1: A lack of faith in the data coming out of China. Now, 199 00:10:16,400 --> 00:10:18,640 Speaker 1: are they under reporting? Those are the questions that I'm 200 00:10:18,679 --> 00:10:22,440 Speaker 1: hearing consistently. I think one worry is that the top 201 00:10:22,559 --> 00:10:25,240 Speaker 1: US health experts that want to join an international group 202 00:10:25,280 --> 00:10:27,760 Speaker 1: heading to the center of the coronavirus outbreak in China 203 00:10:28,120 --> 00:10:30,080 Speaker 1: said they still haven't had an answer on whether they'll 204 00:10:30,080 --> 00:10:33,000 Speaker 1: be allowed into the country. What's happening in terms of 205 00:10:33,000 --> 00:10:36,079 Speaker 1: getting that foreign help into the country to get more 206 00:10:36,160 --> 00:10:40,280 Speaker 1: hands on that data. It's really difficult. I mean, I 207 00:10:40,320 --> 00:10:43,400 Speaker 1: don't think they're necessarily under reporting because they're trying to 208 00:10:43,440 --> 00:10:47,000 Speaker 1: hide things. I think Wuhan, in particularly upper center, is 209 00:10:47,040 --> 00:10:51,560 Speaker 1: in complete chaos. Now other other cities in China are 210 00:10:51,600 --> 00:10:55,800 Speaker 1: better off, but still everybody's on lockdown. It's nobody knows 211 00:10:55,840 --> 00:10:58,560 Speaker 1: what's going on, probably not even the Chinese. We can't 212 00:10:58,600 --> 00:11:01,920 Speaker 1: really necessarily blame them for this. It's it's out of 213 00:11:01,920 --> 00:11:06,520 Speaker 1: control in Hubai Province, and I think until we have 214 00:11:06,600 --> 00:11:09,760 Speaker 1: any idea of how contagious this is and how how 215 00:11:09,760 --> 00:11:12,760 Speaker 1: well their lockdown has worked, it probably is quite dangerous 216 00:11:12,760 --> 00:11:15,960 Speaker 1: to travel there. Dr Orohn. What questions you need to 217 00:11:16,000 --> 00:11:19,280 Speaker 1: see answer to determine whether we're getting towards some sort 218 00:11:19,280 --> 00:11:23,160 Speaker 1: of Plateau, Well, we need to know how many people 219 00:11:23,160 --> 00:11:27,400 Speaker 1: are infective. This has become increasingly difficult now because initially 220 00:11:27,600 --> 00:11:30,280 Speaker 1: outside of China, we were using the very old, reliable 221 00:11:30,360 --> 00:11:33,880 Speaker 1: method of contact tracing. We knew every single individual who 222 00:11:33,960 --> 00:11:36,840 Speaker 1: had traveled to China. We were tracing them in their contacts. 223 00:11:36,880 --> 00:11:40,000 Speaker 1: But now with with the recent developments in the United Kingdom, 224 00:11:40,240 --> 00:11:42,920 Speaker 1: where we've had this man who went to a Singapore 225 00:11:42,960 --> 00:11:45,040 Speaker 1: and then he went to a ski chalet in France 226 00:11:45,040 --> 00:11:48,040 Speaker 1: and he inadvertently infected a number of people even though 227 00:11:48,040 --> 00:11:51,400 Speaker 1: he wasn't showing any symptoms himself. That's really scary because 228 00:11:51,400 --> 00:11:53,240 Speaker 1: I think the cats out of the bag now. We 229 00:11:53,280 --> 00:11:56,400 Speaker 1: can no longer trace every last person that has been 230 00:11:56,440 --> 00:11:58,920 Speaker 1: in contact with this virus. And given that the symptoms 231 00:11:58,920 --> 00:12:01,160 Speaker 1: are so non specific, you know, a cough, a fever, 232 00:12:01,640 --> 00:12:03,600 Speaker 1: And if you don't know you've been in contact with 233 00:12:03,640 --> 00:12:05,520 Speaker 1: somebody from China, how on earth are you going to 234 00:12:05,559 --> 00:12:07,640 Speaker 1: know that you need to get tested. It's a really 235 00:12:07,640 --> 00:12:09,840 Speaker 1: difficult proposition. I think if we're starting to lose a 236 00:12:09,840 --> 00:12:13,160 Speaker 1: little bit of control outside of China. Dr Rohn, what 237 00:12:13,200 --> 00:12:16,120 Speaker 1: do you think of China's decision to revise the way 238 00:12:16,200 --> 00:12:20,120 Speaker 1: they diagnose cases and their new tally they released overnight, 239 00:12:22,000 --> 00:12:24,520 Speaker 1: and I mean it's it's been confusing for everybody who's 240 00:12:24,559 --> 00:12:28,200 Speaker 1: tracking the calculations. But actually I totally understand why they've 241 00:12:28,200 --> 00:12:31,280 Speaker 1: done it. That the test itself is not very reliable. 242 00:12:31,280 --> 00:12:34,240 Speaker 1: It can take at least three goes before you're before 243 00:12:34,400 --> 00:12:37,280 Speaker 1: a positive test is actually reliably recorded. You know, it 244 00:12:37,280 --> 00:12:40,680 Speaker 1: has this false negative rate. Um they really need to 245 00:12:40,720 --> 00:12:43,080 Speaker 1: know who's got the virus, and the test isn't reliable 246 00:12:43,440 --> 00:12:45,440 Speaker 1: and they're overwhelmed. So they've they've gone back to the 247 00:12:45,440 --> 00:12:47,920 Speaker 1: old fashioned medical way of doing it, which is looking 248 00:12:47,920 --> 00:12:51,480 Speaker 1: at symptoms, looking at the lung scans and you know, saying, 249 00:12:51,520 --> 00:12:53,560 Speaker 1: you know it quacks like a duck, it must be 250 00:12:53,559 --> 00:12:55,040 Speaker 1: a duck. You know, these people are in the center 251 00:12:55,040 --> 00:12:57,960 Speaker 1: of an episode of an epidemic. They've got the symptoms, 252 00:12:58,000 --> 00:13:01,040 Speaker 1: they've got bad lungs. Let's just say they've got the virus. 253 00:13:01,120 --> 00:13:03,160 Speaker 1: I mean, that makes sense to me. More and more 254 00:13:03,200 --> 00:13:05,960 Speaker 1: companies are pushing out their travel curves. We've heard from 255 00:13:06,000 --> 00:13:08,880 Speaker 1: several air lines now that are talking about not restarting 256 00:13:08,880 --> 00:13:12,040 Speaker 1: flights into the mainland until perhaps April, the end of April. 257 00:13:12,679 --> 00:13:15,839 Speaker 1: It's been a controversial question amongst the community that you're 258 00:13:15,880 --> 00:13:18,120 Speaker 1: in that I've asked several guests and got several different 259 00:13:18,160 --> 00:13:23,599 Speaker 1: answers to where the travel curbs actually help from your perspective, 260 00:13:23,679 --> 00:13:26,840 Speaker 1: do they? You can never get a straight answer from 261 00:13:26,840 --> 00:13:29,640 Speaker 1: a scientist, but I will say, I mean, I think 262 00:13:30,200 --> 00:13:32,400 Speaker 1: obviously a travel plan is going to help. You know, 263 00:13:32,440 --> 00:13:35,120 Speaker 1: if if you keep infected people out of your country 264 00:13:35,200 --> 00:13:37,760 Speaker 1: or potentially inspected people out of your countries, it will 265 00:13:37,800 --> 00:13:40,120 Speaker 1: help it. But at what cost? You know, what economic 266 00:13:40,200 --> 00:13:43,960 Speaker 1: cost can any other country afford to do this draconian 267 00:13:44,000 --> 00:13:46,600 Speaker 1: lockdown that the China has done. I don't think we can. 268 00:13:46,679 --> 00:13:49,199 Speaker 1: It's not reasonable and it's probably not warranted. Yet You're 269 00:13:49,200 --> 00:13:51,560 Speaker 1: in a classroom U c L. You've got a piece 270 00:13:51,559 --> 00:13:54,800 Speaker 1: of chalk in your hand, and you're scaling the illness 271 00:13:54,920 --> 00:14:00,120 Speaker 1: level of this virus with things our listeners no worldwide. Okay, right, 272 00:14:00,160 --> 00:14:04,520 Speaker 1: I'm gonna go back to virulence. How deadly, how how sickly, 273 00:14:04,760 --> 00:14:10,520 Speaker 1: how virulent is this virus versus other compares we have? Yeah, 274 00:14:10,520 --> 00:14:13,000 Speaker 1: I've got to keep going back to the seasonal influenza model. 275 00:14:13,040 --> 00:14:15,240 Speaker 1: I mean, it is looking to be just as contagious 276 00:14:15,280 --> 00:14:17,960 Speaker 1: as flu and just as lethal people don't think of 277 00:14:17,960 --> 00:14:21,560 Speaker 1: flu as a dangerous incredibly dangerous, as I mentioned, killing 278 00:14:21,600 --> 00:14:25,560 Speaker 1: up to sixteen people in the US. Okay, but but 279 00:14:25,800 --> 00:14:29,640 Speaker 1: do we have a hysteria about the seasonal flu like 280 00:14:29,720 --> 00:14:35,720 Speaker 1: we have about China. No, we don't because seasonal flu, 281 00:14:36,160 --> 00:14:40,200 Speaker 1: most of us have immunity to flu. Flu circulates around, 282 00:14:40,280 --> 00:14:42,040 Speaker 1: you know, sometimes we get it sometimes, So the key 283 00:14:42,080 --> 00:14:44,440 Speaker 1: You're not to interrupt, doctor, but this is absolutely critical. 284 00:14:44,600 --> 00:14:49,120 Speaker 1: Your major concern is the globe does not have the 285 00:14:49,200 --> 00:14:52,200 Speaker 1: immunity to this virus like it does to the flu. 286 00:14:52,680 --> 00:14:57,440 Speaker 1: John Farrell had three weeks ago. Yeah, this is this 287 00:14:57,480 --> 00:14:59,640 Speaker 1: is what I'm worried about. So it can sweep through 288 00:14:59,680 --> 00:15:03,120 Speaker 1: the spulation because the population has absolutely no resistance the 289 00:15:03,240 --> 00:15:06,280 Speaker 1: brand new virus. It's just jumped from the animal. Again. 290 00:15:06,800 --> 00:15:09,320 Speaker 1: It could mutate, but it may not be completely stable. 291 00:15:09,360 --> 00:15:12,400 Speaker 1: It might become more virulent. We really have no way 292 00:15:12,400 --> 00:15:15,120 Speaker 1: of knowing. It's a huge unknown. Doctor. I hate to 293 00:15:15,120 --> 00:15:17,240 Speaker 1: say it, but we have a patient here. John Farrell 294 00:15:17,360 --> 00:15:20,640 Speaker 1: has one final question. Dr Jennifer. Right, I'm going to 295 00:15:20,720 --> 00:15:23,360 Speaker 1: let speak to the doctor trying to cause travel. Dr 296 00:15:23,440 --> 00:15:32,240 Speaker 1: Chaffer wrote microbiologists for University College London, John, why don't 297 00:15:32,240 --> 00:15:34,400 Speaker 1: you bring in the Andrew Shapes because the math in 298 00:15:34,520 --> 00:15:37,280 Speaker 1: his research reports is just outstanding. Love catching up with 299 00:15:37,280 --> 00:15:40,800 Speaker 1: Andrew C. Smorgan, Stanley's chief cross assets strategist. He joins 300 00:15:40,880 --> 00:15:43,960 Speaker 1: us Now, Andrew, why are people still confident about the 301 00:15:43,960 --> 00:15:48,280 Speaker 1: global economy and global markets this year? Well? I think 302 00:15:48,280 --> 00:15:51,040 Speaker 1: because there were some pretty powerful tail winds that were 303 00:15:51,080 --> 00:15:55,560 Speaker 1: operating before these recent public health concerns. The base effects, 304 00:15:55,960 --> 00:15:58,760 Speaker 1: given how Week twenty nineteen was make it makes it 305 00:15:58,800 --> 00:16:02,680 Speaker 1: easy to show improvement. Inventory levels in China and Europe 306 00:16:02,680 --> 00:16:06,240 Speaker 1: and other places were low, and fiscal policy in addition 307 00:16:06,280 --> 00:16:11,800 Speaker 1: to monetary policy, is getting easier this year. Japan, China, Russia, India, 308 00:16:11,960 --> 00:16:14,680 Speaker 1: the UK, They're they're all going to ease fiscal policy. 309 00:16:14,840 --> 00:16:17,160 Speaker 1: So you know, the way that we think about this is, 310 00:16:17,560 --> 00:16:19,880 Speaker 1: I think we still have a global recovery that is 311 00:16:20,320 --> 00:16:23,600 Speaker 1: delayed rather than derailed. And I think you have some 312 00:16:23,640 --> 00:16:26,280 Speaker 1: potential that the market still gives the benefit of the 313 00:16:26,360 --> 00:16:29,680 Speaker 1: doubt to the global economy and looks past kind of 314 00:16:29,720 --> 00:16:32,040 Speaker 1: a weak months or two of data. But I think 315 00:16:32,080 --> 00:16:34,400 Speaker 1: the risk lies actually a little bit further out if 316 00:16:34,440 --> 00:16:38,400 Speaker 1: that temporary disruption becomes something bigger. How much is the 317 00:16:38,400 --> 00:16:41,160 Speaker 1: weakness that we're seeing in the data due to the coronavirus, 318 00:16:41,200 --> 00:16:44,200 Speaker 1: and how much is just underlying weakness that people are 319 00:16:44,240 --> 00:16:48,600 Speaker 1: just overlooking. Well, I think it's interesting. I think in 320 00:16:48,680 --> 00:16:51,160 Speaker 1: terms of weakness from the coronavirus itself, I think that's 321 00:16:51,160 --> 00:16:53,640 Speaker 1: still to come. I think that the data that will 322 00:16:53,720 --> 00:16:56,200 Speaker 1: reflect that is is what we're going to see over 323 00:16:56,200 --> 00:16:58,200 Speaker 1: the next month. And I think some of the initial 324 00:16:58,400 --> 00:17:01,400 Speaker 1: readings of that data. Um, if we look at Korean 325 00:17:01,520 --> 00:17:04,880 Speaker 1: import and export data or data directly related to China, 326 00:17:04,880 --> 00:17:08,680 Speaker 1: they're they're quite quite bad. They show quite severer shifts 327 00:17:09,280 --> 00:17:12,280 Speaker 1: in demand and consumption. Now, I think in the background 328 00:17:12,280 --> 00:17:14,639 Speaker 1: of that, you know, some of the data really was 329 00:17:14,680 --> 00:17:18,040 Speaker 1: looking better until this, until this happened. But I think 330 00:17:18,040 --> 00:17:21,120 Speaker 1: it reflects a global economy that's still very uneven, where 331 00:17:21,160 --> 00:17:23,199 Speaker 1: the pace of growth is uneven. I think some of 332 00:17:23,200 --> 00:17:26,959 Speaker 1: the questions about the fiscal policy response and how quickly 333 00:17:27,000 --> 00:17:29,520 Speaker 1: that will come online this year that where there's also 334 00:17:29,520 --> 00:17:31,760 Speaker 1: a lot of uncertainty around that. You've been the place 335 00:17:31,800 --> 00:17:34,320 Speaker 1: to look to for the last two years Andrew to 336 00:17:34,440 --> 00:17:36,960 Speaker 1: understand the dynamic of the US versus the rest of 337 00:17:37,000 --> 00:17:40,240 Speaker 1: the world from the slow down in early that started 338 00:17:40,280 --> 00:17:43,880 Speaker 1: an ASA and started to spread globally from there. Walk 339 00:17:43,920 --> 00:17:46,320 Speaker 1: me through that dynamic now, because as I see things 340 00:17:46,320 --> 00:17:49,560 Speaker 1: at the moment, the US is looking good relative to 341 00:17:49,680 --> 00:17:54,560 Speaker 1: everywhere else. Does it stay that way through well? I 342 00:17:54,600 --> 00:17:58,159 Speaker 1: think these these recent public health concerns ironically probably do 343 00:17:58,400 --> 00:18:02,960 Speaker 1: help keep the US relatively supported. Verse versus the rest 344 00:18:03,000 --> 00:18:04,960 Speaker 1: of the world, the US has less of a direct 345 00:18:05,000 --> 00:18:08,159 Speaker 1: economic impact. The US is seen as as a as 346 00:18:08,200 --> 00:18:11,280 Speaker 1: a safe haven, both on the equity side, the fixed 347 00:18:11,280 --> 00:18:14,520 Speaker 1: income side, and the currency side. But if we take 348 00:18:14,520 --> 00:18:17,240 Speaker 1: a step back and we think of the broader full 349 00:18:17,320 --> 00:18:21,080 Speaker 1: year trends in terms of where inventories are, in terms 350 00:18:21,119 --> 00:18:24,640 Speaker 1: of where fiscal policy is is shifting, just in terms 351 00:18:24,680 --> 00:18:26,600 Speaker 1: of where the base of growth was. That all that 352 00:18:26,640 --> 00:18:28,119 Speaker 1: looks better in the rest of the world. And so 353 00:18:28,160 --> 00:18:30,560 Speaker 1: I still think on a full year basis you could 354 00:18:30,560 --> 00:18:32,560 Speaker 1: see the rest of the world look better, but that's 355 00:18:32,640 --> 00:18:35,119 Speaker 1: certainly been delayed by these effects. You know, it was 356 00:18:35,160 --> 00:18:39,119 Speaker 1: the Brown mathematician we go Matthew and partial differentials paragraph 357 00:18:39,160 --> 00:18:42,480 Speaker 1: two of your important note handrew sheets. You are defined 358 00:18:42,560 --> 00:18:48,920 Speaker 1: by value expansion valuation expansion in two thousand nineteen. What's 359 00:18:48,960 --> 00:18:52,639 Speaker 1: the history of trying to get out front a valuation 360 00:18:52,960 --> 00:18:56,440 Speaker 1: shrinkage in a given year, this year and next year. 361 00:18:56,480 --> 00:18:59,720 Speaker 1: How do you do that? Well, okay, I think it's 362 00:18:59,800 --> 00:19:03,159 Speaker 1: it's very hard. Right. The the efficacy of trying to 363 00:19:03,359 --> 00:19:08,080 Speaker 1: invest based on valuation alone is very good with a 364 00:19:08,080 --> 00:19:11,480 Speaker 1: five or ten year horizon, but very bad even with 365 00:19:11,720 --> 00:19:14,639 Speaker 1: a twelve month horizon. And so you know, look, we 366 00:19:15,160 --> 00:19:17,080 Speaker 1: even as as much as we all want to buy 367 00:19:17,160 --> 00:19:22,000 Speaker 1: things cheap and seldom expensive, that history says that history 368 00:19:22,080 --> 00:19:24,040 Speaker 1: says that that over six or twelve months, that that 369 00:19:24,080 --> 00:19:27,280 Speaker 1: often just just doesn't work. So look, that's why we're 370 00:19:27,280 --> 00:19:29,400 Speaker 1: focused on some other factors. I think that's why we're 371 00:19:29,440 --> 00:19:32,440 Speaker 1: looking for signs at some of the relative momentum shifting. Andrew, 372 00:19:32,440 --> 00:19:34,600 Speaker 1: it doesn't work over six or twelve hours, which is 373 00:19:34,640 --> 00:19:38,840 Speaker 1: one protest before we let you go, Can we bring 374 00:19:38,920 --> 00:19:41,320 Speaker 1: some life into one of the most talked about interviews 375 00:19:41,520 --> 00:19:43,480 Speaker 1: that at least I've heard about for a long long time. 376 00:19:43,520 --> 00:19:47,520 Speaker 1: It's Greg Peters, formerly of Morgan Stanley, sitting across from 377 00:19:47,520 --> 00:19:51,639 Speaker 1: a young Andrew Sheets who could draw cartoons. And Greg 378 00:19:51,640 --> 00:19:53,960 Speaker 1: Peters is sitting there thinking, you know what, I like 379 00:19:54,119 --> 00:19:55,959 Speaker 1: this kid, and I could use this in our research, 380 00:19:56,000 --> 00:19:58,560 Speaker 1: which is why some of this research became world famous 381 00:19:58,560 --> 00:20:01,560 Speaker 1: in credit markets are on the financial crisis because Andrew 382 00:20:01,600 --> 00:20:05,439 Speaker 1: Sheets could take these stories and make little cartoons excuse me, 383 00:20:05,480 --> 00:20:08,800 Speaker 1: and they're like really good carton fantastic And to this day, 384 00:20:08,840 --> 00:20:12,600 Speaker 1: Greg paide Is still talks about have you ever done 385 00:20:12,600 --> 00:20:18,080 Speaker 1: a cartoon for Mr Gorman? Not not not directly, but look, 386 00:20:18,080 --> 00:20:21,320 Speaker 1: Greg wasn't was an excellent um was an excellent strategist. 387 00:20:21,320 --> 00:20:23,560 Speaker 1: He was an excellent analyst. And I think he always 388 00:20:24,160 --> 00:20:26,280 Speaker 1: tried to think about markets in in a different way 389 00:20:26,320 --> 00:20:29,760 Speaker 1: and I think that's maybe, maybe hopefully why he decided 390 00:20:29,760 --> 00:20:32,000 Speaker 1: to take that risk. The tone you just heard their 391 00:20:32,000 --> 00:20:35,520 Speaker 1: folks from Mr Sheets is like if you leave Morgan Stanley, 392 00:20:35,560 --> 00:20:40,680 Speaker 1: it's like you don't exist, just like God. I think 393 00:20:40,720 --> 00:20:46,040 Speaker 1: they were still on a talking basis. Greg's are always 394 00:20:46,080 --> 00:20:49,480 Speaker 1: a great analyst. We're on best buds basis with Mr Gorman. 395 00:20:49,560 --> 00:20:53,560 Speaker 1: I highly recommend a cartoon for Mr Gorman. Andrew Sheets, 396 00:20:53,560 --> 00:21:00,600 Speaker 1: thank you so much, Andrew, thank you. I'm gonna give 397 00:21:00,600 --> 00:21:03,520 Speaker 1: Paul Sweeney's opinion on this before our guest hangs up 398 00:21:03,560 --> 00:21:07,480 Speaker 1: on us. I am biased. There's there's different kinds of 399 00:21:07,560 --> 00:21:12,119 Speaker 1: equity strategists, and Paul, some come from economics great, and 400 00:21:12,160 --> 00:21:16,680 Speaker 1: others come from following an industry and following a sector. 401 00:21:17,359 --> 00:21:20,320 Speaker 1: And I really really listening listen to the people who 402 00:21:20,359 --> 00:21:24,320 Speaker 1: were analysts before they were equity strategists. I think it 403 00:21:24,320 --> 00:21:28,800 Speaker 1: it clears the mind to be right and do occasionally 404 00:21:28,840 --> 00:21:32,560 Speaker 1: be wrong on right. And that would be Tavis McCourt, 405 00:21:32,640 --> 00:21:38,760 Speaker 1: technology guy exactly. Raymond James, institutional equity strategist, joins us 406 00:21:38,760 --> 00:21:41,640 Speaker 1: on the phone. Tavis, thanks so much for joining us here. 407 00:21:41,680 --> 00:21:45,160 Speaker 1: You know, coming into the year after a move up 408 00:21:45,160 --> 00:21:48,280 Speaker 1: in the SP nineteen, a lot of folks were saying, 409 00:21:48,680 --> 00:21:52,520 Speaker 1: all right, expectation wise, let's thank mid maybe it's mid 410 00:21:52,520 --> 00:21:55,560 Speaker 1: to high single digit returns for the equity of markets. Well, 411 00:21:55,560 --> 00:21:57,479 Speaker 1: here we are already up four and a half percent 412 00:21:57,560 --> 00:22:01,080 Speaker 1: in mid February. What is your take for kind of 413 00:22:01,119 --> 00:22:06,800 Speaker 1: performance expectations people should have equity markets? Well, I think 414 00:22:06,840 --> 00:22:11,320 Speaker 1: the virus has has has really upset um expectations, right. 415 00:22:11,359 --> 00:22:13,399 Speaker 1: I mean that this market over the last month feels 416 00:22:13,400 --> 00:22:16,280 Speaker 1: a lot like the trade war market, where you've had 417 00:22:16,359 --> 00:22:20,000 Speaker 1: emerging markets under pressure, UH, risk free yields under pressure, 418 00:22:20,080 --> 00:22:23,080 Speaker 1: commodities under pressure, and yet equities kind of kind of 419 00:22:23,160 --> 00:22:26,359 Speaker 1: levitate um. But they do it in a very liquidity 420 00:22:26,440 --> 00:22:28,800 Speaker 1: centric way, so that the money is just pouring into 421 00:22:29,960 --> 00:22:32,480 Speaker 1: the most the most liquid index isn't even even within 422 00:22:32,520 --> 00:22:35,000 Speaker 1: the S and P the most liquid names within the index. 423 00:22:35,080 --> 00:22:38,399 Speaker 1: And I expect that will reverse once once UM, once 424 00:22:38,400 --> 00:22:41,200 Speaker 1: the impact of the viruses is behind us several months 425 00:22:41,240 --> 00:22:43,520 Speaker 1: from now. UM. But but I think that's probably the 426 00:22:43,800 --> 00:22:48,320 Speaker 1: biggest theme that's changed versus now versus versus you know, 427 00:22:48,400 --> 00:22:51,680 Speaker 1: six weeks ago. So does that suggest here, given the 428 00:22:51,760 --> 00:22:54,960 Speaker 1: uncertainties out there, large cap growth, let's just stick with it. 429 00:22:55,040 --> 00:22:58,000 Speaker 1: Let's not try to find pockets of value, whether that's 430 00:22:58,040 --> 00:23:02,120 Speaker 1: small cap or emerging market. Yeah. I'm actually a big 431 00:23:02,119 --> 00:23:05,400 Speaker 1: believer in finding pockets of value UM. And and and 432 00:23:05,480 --> 00:23:07,320 Speaker 1: you know, I call it kind of a rotation back 433 00:23:07,359 --> 00:23:10,440 Speaker 1: in the cyclicals and the small caps. I suspect it's 434 00:23:10,440 --> 00:23:13,560 Speaker 1: going to happen when when earnings most expectations start to 435 00:23:13,640 --> 00:23:18,479 Speaker 1: broaden out across the economy and UM that was starting 436 00:23:18,480 --> 00:23:22,639 Speaker 1: to happen in December and January, and coronavirus has basically 437 00:23:22,640 --> 00:23:27,280 Speaker 1: delayed that. UM. You've got a very significant dislocation in 438 00:23:27,280 --> 00:23:31,720 Speaker 1: in in UH global economic growth UM, which which is 439 00:23:31,800 --> 00:23:35,160 Speaker 1: basically pushing pushing money back into kind of liquid saper 440 00:23:35,440 --> 00:23:37,960 Speaker 1: bond proxies. I hate to go to your core knowledge, 441 00:23:38,000 --> 00:23:40,280 Speaker 1: but what does technology do? I mean, some of these 442 00:23:40,280 --> 00:23:43,280 Speaker 1: stocks are priced to perfection and other ones are, you know, 443 00:23:43,440 --> 00:23:46,840 Speaker 1: barely under price to perfection. I mean, what's your your 444 00:23:46,960 --> 00:23:50,919 Speaker 1: your appetite for marginal share purchase of the various and 445 00:23:50,960 --> 00:23:55,240 Speaker 1: sundry technology subsectors out there. Yeah, there's there's a lot 446 00:23:55,280 --> 00:23:59,200 Speaker 1: of um interesting things going on in the tech sector 447 00:23:59,680 --> 00:24:02,040 Speaker 1: right out. But I think the primary reason why it's 448 00:24:02,080 --> 00:24:06,200 Speaker 1: outperformed the last couple of years it's just very very 449 00:24:06,320 --> 00:24:10,520 Speaker 1: material share share buy backs, much more as a percentage 450 00:24:10,600 --> 00:24:14,960 Speaker 1: of cash weal from operations than than other sectors. And 451 00:24:14,960 --> 00:24:17,240 Speaker 1: and and that'll start to wane this year and next, 452 00:24:17,280 --> 00:24:19,480 Speaker 1: but I think that's kind of kept kept the sector 453 00:24:20,240 --> 00:24:25,359 Speaker 1: um performing very well even when when we're subpar. Okay, 454 00:24:25,400 --> 00:24:28,720 Speaker 1: well said, But as the margin persistent, I mean, everybody 455 00:24:28,760 --> 00:24:32,359 Speaker 1: got wrong the persistent margins of Apple. Is it a 456 00:24:32,400 --> 00:24:36,359 Speaker 1: proven margin persistency where you have to price in the 457 00:24:36,480 --> 00:24:39,800 Speaker 1: present value of all that future share buy back from 458 00:24:39,800 --> 00:24:44,359 Speaker 1: those ample cash flows. Yeah, and you basically had twenty 459 00:24:44,440 --> 00:24:48,800 Speaker 1: years roughly of of accelerated share buy backs happen in 460 00:24:48,800 --> 00:24:51,600 Speaker 1: in in roughly two years because of all the of 461 00:24:51,640 --> 00:24:53,840 Speaker 1: all the cash that was off shore, so so that 462 00:24:53,920 --> 00:24:57,639 Speaker 1: that benefited the sector UM and the other things benefited sectors. Look, 463 00:24:57,680 --> 00:24:59,800 Speaker 1: the earnings have been better. Like if you're looking for 464 00:24:59,840 --> 00:25:04,600 Speaker 1: a cyclical kind of UH resurgence and earnings growth, of 465 00:25:04,640 --> 00:25:08,199 Speaker 1: all the cyclical sectors, UH, the tech is the one 466 00:25:08,200 --> 00:25:10,840 Speaker 1: where earning has gotten better because because frankly the supply 467 00:25:10,920 --> 00:25:14,280 Speaker 1: change are tighter so so so it tends to feel 468 00:25:14,720 --> 00:25:18,040 Speaker 1: in market demand a lot factor than than sectors like 469 00:25:18,040 --> 00:25:21,920 Speaker 1: like industrial and so UM that the earnings trend is 470 00:25:22,160 --> 00:25:24,320 Speaker 1: helping out the sector well. But the one thing I 471 00:25:24,320 --> 00:25:26,520 Speaker 1: would point out Tom is because I did this yesterday, 472 00:25:26,520 --> 00:25:28,520 Speaker 1: I thought it was fascinating if you look at the 473 00:25:28,520 --> 00:25:32,160 Speaker 1: the large cap versus small cap bias across every sector 474 00:25:32,440 --> 00:25:35,600 Speaker 1: UH in the and in kind of a broad Russell 475 00:25:35,680 --> 00:25:39,080 Speaker 1: three thousand, three thousand index, large caps in tech have 476 00:25:39,160 --> 00:25:43,399 Speaker 1: outperformed small caps in tech by t UH since the 477 00:25:43,440 --> 00:25:45,720 Speaker 1: trade war stars. So it's it's that the the text 478 00:25:45,760 --> 00:25:48,960 Speaker 1: story is not universal across that very specific to large 479 00:25:48,960 --> 00:25:51,040 Speaker 1: cap tech. I want to go out the belly on 480 00:25:51,080 --> 00:25:53,840 Speaker 1: your Paul Sweeney. But the bottom line is there's this 481 00:25:53,880 --> 00:25:56,359 Speaker 1: idea that share buybacks is not a good use of 482 00:25:56,400 --> 00:25:58,800 Speaker 1: free cash flow. And you know, I know, I know, 483 00:25:58,800 --> 00:26:01,640 Speaker 1: it's various company company, but the bottom line is these 484 00:26:01,640 --> 00:26:06,399 Speaker 1: people are mint am I wrong. They're minting money, minting cash. 485 00:26:06,440 --> 00:26:08,800 Speaker 1: And you know, as a growth company, as a tech company, 486 00:26:08,800 --> 00:26:11,480 Speaker 1: as Tabs Wells knows, you'd like to see them reinvesting 487 00:26:11,520 --> 00:26:13,840 Speaker 1: back in their own companies because that's where the growth is. 488 00:26:13,880 --> 00:26:17,440 Speaker 1: But some of these companies, it's just so much cash, 489 00:26:17,440 --> 00:26:19,480 Speaker 1: like like an Apple sixty billion a free cash flow, 490 00:26:19,560 --> 00:26:21,280 Speaker 1: what do you do with it? So, Tavis, as we 491 00:26:21,320 --> 00:26:24,879 Speaker 1: think about just kind of evaluations overall in the market, 492 00:26:25,280 --> 00:26:28,000 Speaker 1: we've got to be getting pretty rich here. I mean, 493 00:26:28,080 --> 00:26:31,600 Speaker 1: you think about the performance we had in SMP that 494 00:26:31,720 --> 00:26:35,520 Speaker 1: it was with little to no earnings growth whatsoever. So 495 00:26:35,640 --> 00:26:38,640 Speaker 1: doesn't that suggest that valuations here in the market overall 496 00:26:38,960 --> 00:26:43,040 Speaker 1: are stretched. Well, it's it's it's a really bifurcated story 497 00:26:43,119 --> 00:26:45,040 Speaker 1: that it did. If you look at the SMP five 498 00:26:45,520 --> 00:26:50,080 Speaker 1: trailing trailing pees um, we've really only been more expensive 499 00:26:50,080 --> 00:26:52,200 Speaker 1: than we are today during a period of time that 500 00:26:52,280 --> 00:26:54,639 Speaker 1: we now call the tech bubble um. Whether or not 501 00:26:54,760 --> 00:26:56,479 Speaker 1: that will be you in history as as a tech 502 00:26:56,520 --> 00:26:58,520 Speaker 1: bubble or not we'll see. But if you look at 503 00:26:58,760 --> 00:27:02,080 Speaker 1: mid Captain small cup and says, Um, we're not exceptionally 504 00:27:02,160 --> 00:27:05,000 Speaker 1: cheap like we were last summer. We're not at twenty 505 00:27:05,080 --> 00:27:07,880 Speaker 1: year lows like we were, but we're still kind of 506 00:27:08,000 --> 00:27:11,000 Speaker 1: slightly below the medium of of twenty of the last 507 00:27:11,000 --> 00:27:14,000 Speaker 1: twenty years. So so so the market is again it's 508 00:27:14,040 --> 00:27:17,600 Speaker 1: got a very significant, uh, liquidity bias to it, and 509 00:27:17,600 --> 00:27:21,960 Speaker 1: and that makes larger stocks more expensive when you look 510 00:27:21,960 --> 00:27:25,200 Speaker 1: at kind of valuations in history than than smaller stocks. 511 00:27:25,720 --> 00:27:28,359 Speaker 1: And you mentioned liquidity, I'm thinking about liquidity in the 512 00:27:28,480 --> 00:27:32,480 Speaker 1: global marketplace. Is that created you know, there's been some 513 00:27:32,520 --> 00:27:36,000 Speaker 1: concern that that has created asset bubbles and that may 514 00:27:36,040 --> 00:27:39,280 Speaker 1: even include US equity markets. How was that on your 515 00:27:39,320 --> 00:27:42,840 Speaker 1: your list of concerns? You know, I would say it 516 00:27:42,880 --> 00:27:45,800 Speaker 1: was it was. It would have been zero concern two 517 00:27:45,880 --> 00:27:48,200 Speaker 1: years ago because there really was no evidence that there 518 00:27:48,359 --> 00:27:50,800 Speaker 1: that that you had this kind of large cap bias 519 00:27:50,920 --> 00:27:55,960 Speaker 1: to returns or to or to valuations. Um, it's modest. Now, Um, 520 00:27:56,359 --> 00:27:59,440 Speaker 1: we we've had basically two consecutive years, a little little 521 00:27:59,440 --> 00:28:03,800 Speaker 1: over two years is a really significant pe inflation in 522 00:28:03,920 --> 00:28:07,040 Speaker 1: large caps relative to smaller caps, which we had not 523 00:28:07,160 --> 00:28:11,000 Speaker 1: seen for the previous seventeen eighteen years. So um, I 524 00:28:11,040 --> 00:28:12,800 Speaker 1: wouldn't say it the first thing on the concern list, 525 00:28:12,800 --> 00:28:16,000 Speaker 1: but it's worth paying attention to now, and definitely colors 526 00:28:16,080 --> 00:28:19,600 Speaker 1: the that the valuation talk, because it's hard to say 527 00:28:19,640 --> 00:28:23,080 Speaker 1: stocks expensive. You know, you can say the hundred largest 528 00:28:23,080 --> 00:28:26,399 Speaker 1: stocks are expensive, but but broadly stocks are kind of Okay. 529 00:28:27,160 --> 00:28:29,119 Speaker 1: Before I let you go, then what is your called 530 00:28:29,119 --> 00:28:32,680 Speaker 1: twelve months out? I mean, we're up twentysomething percent last year, 531 00:28:32,800 --> 00:28:34,840 Speaker 1: four or five percent this year, and we're down right 532 00:28:34,840 --> 00:28:37,199 Speaker 1: now negative one o nine on the Dow with the 533 00:28:37,240 --> 00:28:39,960 Speaker 1: market's trading folks, But twelve months out, can you get 534 00:28:39,960 --> 00:28:44,200 Speaker 1: all double digit on us? Tavis? I think we can. 535 00:28:44,240 --> 00:28:46,000 Speaker 1: I think the big story in the market is going 536 00:28:46,040 --> 00:28:51,080 Speaker 1: to be rotation versus overall index performance. Um that that 537 00:28:51,120 --> 00:28:53,160 Speaker 1: the you know, we may get a little appreciation over 538 00:28:53,160 --> 00:28:56,200 Speaker 1: the course of twelve twelve months in in the SMP, 539 00:28:56,640 --> 00:28:59,000 Speaker 1: but I think that the big the big story is 540 00:28:59,000 --> 00:29:02,280 Speaker 1: going to be how the turns really start to rotate 541 00:29:02,320 --> 00:29:04,560 Speaker 1: into some of these cyclical sectors and into small cap 542 00:29:04,640 --> 00:29:07,560 Speaker 1: indexes as earnings growth broadens out. We had a real 543 00:29:07,600 --> 00:29:10,720 Speaker 1: earnings earnings recession in a lot of parts of the 544 00:29:10,720 --> 00:29:15,160 Speaker 1: economy in in two thousand nineteen, and that recovers after 545 00:29:15,320 --> 00:29:17,920 Speaker 1: the coronavirus, so that it will be several months from now. 546 00:29:18,200 --> 00:29:20,680 Speaker 1: I suspect you're gonna see this really big rotation in 547 00:29:20,880 --> 00:29:25,000 Speaker 1: UM within the equity indexes. Tamas, thanks so much. Tamas 548 00:29:25,080 --> 00:29:29,000 Speaker 1: McCart with us. Raymond James, thanks for listening to the 549 00:29:29,000 --> 00:29:35,520 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 550 00:29:35,880 --> 00:29:40,080 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 551 00:29:40,160 --> 00:29:44,400 Speaker 1: Tom Keane before the podcast. You can always catch us worldwide. 552 00:29:44,840 --> 00:29:45,960 Speaker 1: I'm Bloomberg Radio