WEBVTT - Surveillance: Tech Dominance With Golub 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.280 Bloomberg dot Com, and of course on the Bloomberg And 0:00:27.320 --> 0:00:30.080 we speak with Jonathan Gollob. He's a credit Swiss. He 0:00:30.160 --> 0:00:34.320 writes piercingly detailed sell side reports on the state of 0:00:34.360 --> 0:00:36.879 the market, and his state has been a state of 0:00:36.960 --> 0:00:40.880 optimism for ages. John Gollob, what is the tech afternoon 0:00:40.880 --> 0:00:45.080 of yesterday? What does that signal for America? You know, 0:00:45.360 --> 0:00:47.680 for the what is the signal for America? I mean, 0:00:48.000 --> 0:00:50.720 you know, I'm not sure that it represents the whole economy. 0:00:50.760 --> 0:00:53.360 But when you're investing in the stock market, you're investing 0:00:53.360 --> 0:00:55.400 in a basket of five hundred or a thousand, or 0:00:55.400 --> 0:00:58.200 however many socks are in your portfolio. And what it 0:00:58.280 --> 0:01:01.520 says is the companies that are in the public markets, 0:01:01.520 --> 0:01:04.440 that you invested in a mutual funder in your brokerage account, 0:01:04.880 --> 0:01:09.480 they are in extremely strong shape, even though the economic 0:01:09.520 --> 0:01:11.960 backdrop is much more troubling. So here's what I hear. 0:01:12.000 --> 0:01:14.480 We've got a lot of smart people saying sell the 0:01:14.600 --> 0:01:19.160 tech move here, hold the tech move here. Can you 0:01:19.200 --> 0:01:21.960 make a case this morning that you acquire more shares 0:01:22.000 --> 0:01:25.440 of these juggernauts? Absolutely, And I don't think that the 0:01:25.800 --> 0:01:29.200 cases because they delivered great earnings yesterday alone. I mean 0:01:29.640 --> 0:01:32.200 these companies if you look at the top five companies, 0:01:32.200 --> 0:01:35.640 and yesterday we've got four of the top five reported 0:01:36.040 --> 0:01:40.080 they returned in the last twelve months. The rest of 0:01:40.120 --> 0:01:43.920 the market delivered zero. But more importantly, these companies have 0:01:44.080 --> 0:01:46.360 no debt on their balance sheets, They're sitting with cash, 0:01:46.720 --> 0:01:49.320 they are less volatile than the rest of the market. 0:01:49.360 --> 0:01:51.800 They're growing. In the last twelve months, they've grown their 0:01:51.800 --> 0:01:55.680 revenues something like ten times faster than the rest of 0:01:55.680 --> 0:01:58.720 the market. The p of these companies relative to the 0:01:58.840 --> 0:02:01.640 growth rate is half what it is on the market, 0:02:01.680 --> 0:02:05.160 so they're trading at a premium stock market multiple. They're 0:02:05.160 --> 0:02:09.080 more expensive, but they're delivering so much faster growth that 0:02:09.200 --> 0:02:12.119 the pe relative to the growth rate is the rest 0:02:12.120 --> 0:02:14.480 of the market. I think the surprise is going to 0:02:14.560 --> 0:02:18.040 be that these five or seven or many companies that 0:02:18.080 --> 0:02:21.120 are leading the market are going to the gap between 0:02:21.160 --> 0:02:23.600 them and everything else is going to continue to watch John, 0:02:23.600 --> 0:02:26.000 You've done some tremendous research on this over the last 0:02:26.040 --> 0:02:29.000 couple of weeks and it's all helped made personally compare 0:02:29.040 --> 0:02:32.080 and contrast the top five now to the top five 0:02:32.120 --> 0:02:35.960 back in two thousand. Yeah. Well, first of all, all 0:02:36.000 --> 0:02:38.360 five of them are tech today, and you had companies 0:02:38.440 --> 0:02:42.120 like ex On Mobile and and some others in back 0:02:42.680 --> 0:02:44.600 at the peak of the uh you know, in March 0:02:44.639 --> 0:02:49.400 of two thousand. But the companies back then were much faster, 0:02:49.680 --> 0:02:54.120 I'm sorry, they were much more expensive than they are today. 0:02:54.240 --> 0:02:57.600 Um they were. They were less healthy companies. Their earnings 0:02:57.600 --> 0:03:02.800 growth rates um were not um so superior. Rather compared 0:03:02.880 --> 0:03:05.200 to the rest of the market the way these companies 0:03:05.200 --> 0:03:07.920 are today. They had the you know, the the profile 0:03:07.960 --> 0:03:12.680 of these companies, UM, just is is much stronger. And 0:03:12.720 --> 0:03:16.080 if I were to say to you that the market 0:03:16.600 --> 0:03:19.720 is growing this fast and has these margins and doesn't 0:03:19.760 --> 0:03:22.200 have any debt, and would you rather be in them, 0:03:22.240 --> 0:03:24.560 you'd say yes. And then I say, by the way, 0:03:24.560 --> 0:03:27.560 it's only five companies. People say, wow, that sounds a 0:03:27.600 --> 0:03:30.840 little bit risky. It's only five names. That's not the 0:03:30.919 --> 0:03:33.320 key point. It's how healthy the businesses are. How does 0:03:33.320 --> 0:03:35.040 it get better than this, I think is a question 0:03:35.040 --> 0:03:37.200 some people will be asking this morning relative to the 0:03:37.240 --> 0:03:41.080 situation we faced in Q two. John, A conversation, rotation on, 0:03:41.280 --> 0:03:44.320 rotation off. It's a conversation we've had repeatedly over the 0:03:44.360 --> 0:03:48.880 last several months. Is rotation off again? No? I mean, 0:03:48.920 --> 0:03:51.400 I think the real I think the real question though is, 0:03:51.680 --> 0:03:54.240 and I know that you guys have have been addressing this. 0:03:55.240 --> 0:03:57.520 The story that has me really concerned. You know, this 0:03:57.640 --> 0:04:00.120 this fall and interest rates is basically the market saying 0:04:00.440 --> 0:04:02.640 we don't think there's gonna be any economic growth over 0:04:02.680 --> 0:04:04.480 the decade. Forget you know, we're going to get a 0:04:04.480 --> 0:04:06.640 bounce off the bottom. I know it's kind of slowing 0:04:06.640 --> 0:04:09.000 down and stalling out a little bit, but really the 0:04:09.080 --> 0:04:11.360 question is what is the impact of all this over 0:04:11.400 --> 0:04:13.559 the long run and all the debt that we're accumulating, 0:04:13.880 --> 0:04:17.560 and it's going to be slower the this weakening of 0:04:17.560 --> 0:04:22.800 this this bounce is really problematic for industrial companies and 0:04:23.240 --> 0:04:28.280 um mining companies and retailers and banks, and so you 0:04:28.440 --> 0:04:31.680 have a chunk of the market, maybe a third of 0:04:31.720 --> 0:04:34.760 the market, that is really susceptible to some of the 0:04:34.800 --> 0:04:38.240 economic problems that we're having, and then you have probably 0:04:38.279 --> 0:04:41.359 about seventy of the market, not just five names, but 0:04:41.440 --> 0:04:44.920 at the market that appears to be really healthy if 0:04:45.000 --> 0:04:48.200 you look at healthcare names and consumer staples names. Um, 0:04:48.320 --> 0:04:51.760 so you have this real bifurcation not only between just 0:04:51.880 --> 0:04:54.919 the five, but those that are are super exposed to 0:04:54.960 --> 0:04:57.960 these economic woes and then everything else, which seems pretty 0:04:57.960 --> 0:05:01.599 good when you talk about that benefit dramatically from the 0:05:01.600 --> 0:05:04.480 lower interest rates because they can borrow money at record 0:05:04.520 --> 0:05:07.240 low costs. How much do you expect the trend of 0:05:07.279 --> 0:05:10.560 borrowing money to buy back shares, to reduce the equity footprint, 0:05:10.600 --> 0:05:13.920 to shift the capital structure into cheap debt. How much 0:05:13.960 --> 0:05:16.800 do you expect that to continue, basically the privatization of 0:05:16.839 --> 0:05:19.760 the biggest and strongest companies in America at least, I 0:05:19.839 --> 0:05:22.440 don't think that that's the way that that things actually 0:05:22.480 --> 0:05:24.960 play out. I think that what happens is these companies 0:05:25.320 --> 0:05:30.360 are generating a boatload of free cash flow from their businesses, 0:05:30.440 --> 0:05:34.119 and that's what they're returning. So when you talk about 0:05:34.120 --> 0:05:36.000 the amount that they're buying back, in the amount that 0:05:36.000 --> 0:05:37.880 they maybe pay out and dividends and things like that, 0:05:38.400 --> 0:05:41.240 it's the fact that they're just they're generating more capital 0:05:41.600 --> 0:05:44.280 than than they need to run their businesses, and so 0:05:44.320 --> 0:05:49.200 they spew it back out to two shareholders. And I think, um, 0:05:49.240 --> 0:05:52.680 I think that's the that's the big story. The rest 0:05:52.720 --> 0:05:54.840 the market that can necessarily do the same, John, I 0:05:54.880 --> 0:05:58.480 want you to fold in your equity call with the 0:05:58.600 --> 0:06:02.120 stunning caution I has heard from your colleague James Sweeney. 0:06:02.360 --> 0:06:05.760 I've done James Sweeney for ages. He's a brilliant economist 0:06:06.000 --> 0:06:09.120 and I was thunderstruck earlier this week whenever it was 0:06:09.600 --> 0:06:14.960 over his cautious view forward. Fold that into your optimism 0:06:14.960 --> 0:06:19.120 on holding equity shares. Listen, I I love James, and 0:06:19.160 --> 0:06:22.279 I think that his call right now is is smack on. 0:06:22.880 --> 0:06:26.080 We have to separate out what is going on in 0:06:26.160 --> 0:06:28.880 a number of public companies that have a certain type 0:06:28.880 --> 0:06:32.279 of profile, and what's going on in employment markets and 0:06:32.320 --> 0:06:36.240 the economic data. It's really clear, especially as we move 0:06:36.320 --> 0:06:39.760 into September and October, that we're going to see some 0:06:39.880 --> 0:06:43.840 of these brilliant numbers economically that we have bouncing. I 0:06:44.080 --> 0:06:47.000 s M is bouncing. It will probably bounce towards sixty 0:06:47.080 --> 0:06:49.880 and then it's going to roll back down. We're ready 0:06:49.920 --> 0:06:52.560 starting to see this with some of the employment numbers 0:06:52.600 --> 0:06:56.240 that have stopped improving, and I think that it's it's 0:06:56.320 --> 0:06:59.560 the reason that you're seeing interest rates UM slip the 0:06:59.560 --> 0:07:02.880 way that they are. And I think investors have to 0:07:02.960 --> 0:07:06.720 kind of separate out when they think about equities are 0:07:06.760 --> 0:07:09.200 not the economy. They're married to each other, or they're 0:07:09.360 --> 0:07:11.560 or their cousins of each other, but but they're not 0:07:11.640 --> 0:07:13.880 the same thing. And I think his calls right, which 0:07:13.920 --> 0:07:17.080 is why I wouldn't be putting money in industrial stock 0:07:17.160 --> 0:07:19.840 today and I wouldn't be calling for some kind of 0:07:19.880 --> 0:07:22.440 a rotation out of the winners. I love James to 0:07:22.840 --> 0:07:29.640 Jonathan gollip a credit swas, let's get to throw scot 0:07:29.720 --> 0:07:32.720 Bridge Capital cod C. I try fantastic to catch up 0:07:32.720 --> 0:07:34.680 with you, sir. How on earth do you make a 0:07:34.800 --> 0:07:38.280 macro called self to data and then make the right 0:07:38.520 --> 0:07:44.080 market called equities higher credit spreads Tita. Yeah, well, obviously 0:07:44.080 --> 0:07:47.760 it's very difficult if you were timing the contraction economy 0:07:47.760 --> 0:07:50.160 and set we're in March. You know, most macro managers 0:07:50.200 --> 0:07:54.080 had a very difficult time timing the recovery. UM. We'd say, 0:07:54.080 --> 0:07:57.400 look the trends that were in place before the pandemic 0:07:57.520 --> 0:07:59.960 have just been exacerbated by it, right, And you alluded 0:08:00.000 --> 0:08:02.920 to before that the stock market has become less and 0:08:02.960 --> 0:08:06.160 less representative of the real economy. And you still have 0:08:06.440 --> 0:08:10.040 arguably the greatest divergence between real economic outcomes and the 0:08:10.040 --> 0:08:13.080 stock market, right. And why is that? Right? Obviously, big 0:08:13.120 --> 0:08:15.640 tech is dominating more and more. You know, the top 0:08:15.640 --> 0:08:17.400 five names of the SMP. You guys had a great 0:08:17.480 --> 0:08:23.080 article on this yesterday, have a two since January the 0:08:23.120 --> 0:08:26.640 rest of the stock markets up. That's a historic divergence. 0:08:26.960 --> 0:08:29.160 The other key factor, of course, has been the FED, right, 0:08:29.200 --> 0:08:31.280 and their balance sheet. Even though it has contracted by 0:08:31.280 --> 0:08:33.640 about two or fifty billion dollars the past five weeks 0:08:33.640 --> 0:08:36.320 as they've taken repot down, it's still up two point 0:08:36.360 --> 0:08:39.400 seven five trillion. And so you know those two factors. 0:08:39.720 --> 0:08:43.040 I mean, you know, asset reflation is here, and really 0:08:43.080 --> 0:08:44.760 the only way to make money is to be along 0:08:44.840 --> 0:08:48.199 equities and also be on credit um and enjoy the 0:08:48.559 --> 0:08:52.359 FED support. And then you're hoping that the real economy 0:08:52.440 --> 0:08:55.520 catches up and that there will be another round of stimulus, 0:08:55.559 --> 0:08:58.360 because that is a necessity now in order to keep 0:08:58.400 --> 0:09:01.559 them economy. Okay, where that's the macro view. I want 0:09:01.600 --> 0:09:03.760 to know what alternative investments are doing now in the 0:09:03.800 --> 0:09:07.440 world of Skybridge Capital. Are they under owned or over 0:09:07.559 --> 0:09:12.760 owned in these glory names in general? You know, long 0:09:12.800 --> 0:09:15.160 short tech funds have been lightening up on big tap 0:09:15.280 --> 0:09:19.320 tech for the last three months. Yeah. Well, and the 0:09:19.320 --> 0:09:22.880 main reason for that is that they're obviously extremely crowded. 0:09:22.880 --> 0:09:26.000 It's most crowded trade argumently in history, and there was 0:09:26.080 --> 0:09:30.280 concern over elevated multiple given where earnings were expected to be. 0:09:30.400 --> 0:09:34.840 Now clearly the strength of their earnings continue and revenue 0:09:34.880 --> 0:09:37.960 continues to be exceptionally strong. And so it's really the 0:09:38.040 --> 0:09:40.880 story of hedge funds for the last ten years. Right, 0:09:40.920 --> 0:09:44.200 the best trade has been long tech and short nothing. 0:09:44.640 --> 0:09:47.000 The second best tradesmen, they'll be long tech and short 0:09:47.040 --> 0:09:49.559 everything else. But if you're trying to be an alternative 0:09:49.600 --> 0:09:52.240 to that, you know you're positioning yourself to be better 0:09:52.280 --> 0:09:55.840 than bonds, hopefully compete with high yield and have less downside. 0:09:56.120 --> 0:09:59.679 But at this point, going not overweight big tech has 0:09:59.679 --> 0:10:02.160 been a huge problem because they have proven themselves again 0:10:02.160 --> 0:10:04.240 and again. I go to buy the rumor by the 0:10:04.240 --> 0:10:07.880 news because they delivered in a big way, beating expectations dramatically. 0:10:08.280 --> 0:10:10.600 Why not just go into them given the fact the 0:10:10.600 --> 0:10:13.200 biggest risk is regulatory and based on the hearings that 0:10:13.240 --> 0:10:15.440 we heard this week, that doesn't seem to be much 0:10:15.480 --> 0:10:18.360 of a risk. Yeah, we would completely agree that. You know, 0:10:18.400 --> 0:10:20.439 we've for the last three years people have been talking 0:10:20.440 --> 0:10:23.200 about regulatory risk right in the thought that that could 0:10:23.240 --> 0:10:26.560 drive some type of breakup or some type of hyper regulation, 0:10:27.000 --> 0:10:29.360 but it just hasn't come to pass. And so you 0:10:29.360 --> 0:10:32.240 know that that's part of being investor managers choosing you 0:10:32.240 --> 0:10:35.360 know what you're trying to achieve, and anybody can own 0:10:35.520 --> 0:10:38.280 large cap tech for free basically, so you're trying to 0:10:38.320 --> 0:10:42.160 provide alternative sources of return that certainly haven't kept up 0:10:42.160 --> 0:10:45.439 in this raging bole market, particularly for tech, but I 0:10:45.480 --> 0:10:48.880 have had the chance to outperform bonds and other asset classes. Troy, 0:10:48.920 --> 0:10:53.000 what's the cleanest trite on the underlying economy? Well, from 0:10:53.040 --> 0:10:56.400 our standpoint, the cleanest trade is still long residential mortgage 0:10:56.400 --> 0:10:59.920 BacT securities because that's very representative of the consumer of area, 0:11:00.000 --> 0:11:03.000 presentative of the economy. Spreads are still materially wider than 0:11:03.040 --> 0:11:06.440 they were in March. You have had some normalization but 0:11:06.559 --> 0:11:09.080 certainly not to the same degree. Um So, if the 0:11:09.080 --> 0:11:13.480 economy continues to recover and for varians requests continue to drop, 0:11:13.920 --> 0:11:15.880 that's their best way, in our opinion, of playing a 0:11:15.920 --> 0:11:18.719 real economic bounce without having material down. So what's Troy 0:11:18.720 --> 0:11:20.040 I reckon some of that with what the banks of 0:11:20.120 --> 0:11:22.679 town against? JP Morgan's Jammie Tummond basically just telling us 0:11:22.679 --> 0:11:24.920 in the last quota that the back end of the year, 0:11:25.160 --> 0:11:27.120 that's when you see the recession. We haven't seen the 0:11:27.160 --> 0:11:30.120 recession yet. How do you reconcile those two things? Well, 0:11:30.320 --> 0:11:32.480 like he also said in his learning is called right, 0:11:32.800 --> 0:11:34.920 what type of recession do you have where you have 0:11:35.080 --> 0:11:38.000 personal incomes up by seven percent? And just like you 0:11:38.160 --> 0:11:40.680 least some very interested in the personal income and outlay report, 0:11:41.000 --> 0:11:43.319 and you have home prices up right, so that that's 0:11:43.440 --> 0:11:46.200 very different, right, And that's helped keep for beans requests 0:11:46.280 --> 0:11:49.120 delinquency is lower than they would have been otherwise. Obviously 0:11:49.240 --> 0:11:51.520 from a banking standpoint, they're gonna have to earn their 0:11:51.559 --> 0:11:54.760 way out of their long lost reserves, and delinquencies are 0:11:54.800 --> 0:11:57.280 going up across the board, but it appears that they're 0:11:57.320 --> 0:12:00.280 gonna end up being much lower than people forecast as recently, 0:12:00.320 --> 0:12:03.280 it's ten weeks ago before the full effects the SteamOS 0:12:03.320 --> 0:12:06.439 were felt. Are we also seeing particular strength in r 0:12:06.520 --> 0:12:10.480 mbs and residential mortgage backed securities because wealthier individuals are 0:12:10.520 --> 0:12:13.000 more likely to own homes that are less affected by 0:12:13.080 --> 0:12:15.800 this downturn. Yeah, well, there's there's two things going on, 0:12:15.840 --> 0:12:19.120 all right. So in the in the primary residential market, 0:12:19.320 --> 0:12:22.679 you had very limited supply coming in and obviously very 0:12:22.720 --> 0:12:33.840 good demographics to Skybridge Capital CIO with the Sea principal 0:12:33.920 --> 0:12:38.280 Global investors and should write brilliant, brilliant notes extending out 0:12:38.440 --> 0:12:42.079 not so much the strategy but the opportunities, and with 0:12:42.240 --> 0:12:46.360 it some caution, Seema, there is the August of our discontent. 0:12:46.559 --> 0:12:52.160 August is here. How rocky will August be? It's sound 0:12:52.200 --> 0:12:53.920 great to be with you. I think it's gonna be 0:12:53.960 --> 0:12:55.920 really rocky, you know. I I off my colleague the 0:12:55.920 --> 0:12:58.240 other day. When did the summer long come? It doesn't 0:12:58.240 --> 0:13:00.760 seem like it's coming. There's just too much with the 0:13:00.800 --> 0:13:04.760 fiscal cliff. You've got the coronavirus cases most importantly, and 0:13:04.800 --> 0:13:06.640 then of course there's going to be speculation about what 0:13:06.720 --> 0:13:09.680 the FEDIC going to be doing. The August of our memories. 0:13:11.200 --> 0:13:13.600 I remember around the beach, the smell of the sweat, 0:13:13.679 --> 0:13:15.719 and it wasn't the beach and the heat, it was 0:13:15.920 --> 0:13:22.360 outright fear in August. Is the financial system stealed for 0:13:22.480 --> 0:13:28.080 this GDP plunges? The financial system stealed with less leverage 0:13:28.240 --> 0:13:32.560 than what we've seen in other crises. Well, it's an 0:13:32.600 --> 0:13:34.959 interesting question. I mean, I think the GP plans that 0:13:35.000 --> 0:13:37.480 we saw in Q two, I don't. I don't think 0:13:37.520 --> 0:13:39.360 the markets could have reacted too much to it because 0:13:39.360 --> 0:13:41.679 it was all priced in. Our concerns are is that 0:13:41.880 --> 0:13:44.199 you know, along of that momentum has already started. The 0:13:44.240 --> 0:13:46.760 plateau when you look at the high frequency data is 0:13:46.880 --> 0:13:49.199 really worrying, and you can see that it's very much 0:13:49.240 --> 0:13:51.960 tied in with cases. So where can we look whatever 0:13:52.000 --> 0:13:54.040 out that we may have about Monty policy or even 0:13:54.080 --> 0:13:57.400 fiscal policy. Unfortunately, it's still tied into the health crisis. 0:13:57.720 --> 0:13:59.719 And until we can find a way of breaking the 0:13:59.760 --> 0:14:03.160 can extend between mobility in cases, then I think we're 0:14:03.160 --> 0:14:05.120 going to be in a very difficult spot. What's the 0:14:05.240 --> 0:14:09.920 argument to buy bonds here a second wave? I think 0:14:10.000 --> 0:14:11.880 I think that would have to be your your main 0:14:12.000 --> 0:14:14.800 reason um at this stage, you know, from what can 0:14:14.840 --> 0:14:16.839 the Fed really do? And actually what can most central 0:14:16.880 --> 0:14:19.080 banks do at this stage? I think their effectiveness is 0:14:19.120 --> 0:14:20.680 starting to run out, and yet they still have to 0:14:20.760 --> 0:14:22.720 keep plowing in, so that's going to keep it down 0:14:22.760 --> 0:14:24.880 the pressure on yields. But also if we start to 0:14:24.960 --> 0:14:28.520 see this recovery that we've seen um started tail off 0:14:28.520 --> 0:14:31.520 and actually turn into negative territory, and that's my essential scenario. 0:14:31.520 --> 0:14:33.480 But if you were to see that, then I think 0:14:33.520 --> 0:14:36.560 that the negative space becomes more realistic. One of the 0:14:36.600 --> 0:14:39.040 big arguments for equities right now is there there is 0:14:39.120 --> 0:14:41.000 no alternative. If you take a look at bonds, you're 0:14:41.040 --> 0:14:43.640 earning nothing to own them. And yet we have a 0:14:43.720 --> 0:14:45.920 situation where if we do get a second wave, the 0:14:45.960 --> 0:14:49.360 economy will sour considerably. Do you see an end to 0:14:49.480 --> 0:14:52.200 the Tina trade, to the sort of move into equities 0:14:52.280 --> 0:14:54.760 because yields are so low if we do get a 0:14:54.800 --> 0:14:59.120 second wave or can this continue indefinitely? Yeah, that's a 0:14:59.160 --> 0:15:01.040 really interesting question. So when we've been looking at this, 0:15:01.160 --> 0:15:03.120 you know, we have I think I could slightly negative 0:15:03.120 --> 0:15:06.040 out look on the economy given concerns around the virus, 0:15:06.560 --> 0:15:08.680 But with bond deals where they are, you know, we 0:15:08.840 --> 0:15:12.640 can't really conceivably see excs pushing and hitting their their 0:15:12.720 --> 0:15:15.840 previous lows. So in that space, yes, you know, actually 0:15:16.000 --> 0:15:17.680 it's a pretty decent place to be, but you've got 0:15:17.760 --> 0:15:20.320 to pick your space widely. And one of the reasons 0:15:20.360 --> 0:15:22.120 that we have, you know, we've got down slightly are 0:15:22.400 --> 0:15:25.200 exposure to US equities. But it's all been placed in 0:15:25.440 --> 0:15:27.840 in megaccount and we're really comfortable with that story and 0:15:27.960 --> 0:15:31.640 we think that's really there to run. As you're speaking, 0:15:31.800 --> 0:15:35.080 we're seeing the two year yield test new lows one 0:15:35.200 --> 0:15:40.520 point excuse me, zero point one zero seven three. I'm sorry. 0:15:40.600 --> 0:15:43.240 The bond market is speaking, and there seems to be 0:15:43.360 --> 0:15:46.840 a guarantee of yield curve control. Do you buy it? 0:15:47.000 --> 0:15:50.800 Do you buy that the central banks can be successfully 0:15:51.000 --> 0:15:56.360 manipulative given what the bond markets doing. I think what 0:15:56.480 --> 0:15:58.840 the central banks are able to do is literally just 0:15:59.040 --> 0:16:01.400 keep things where are you know, in terms of the 0:16:01.480 --> 0:16:04.120 bond market, it's tell you something that's concerns out there, 0:16:04.920 --> 0:16:07.520 But abfully, what would explicit yeld of control? Where they 0:16:07.760 --> 0:16:10.120 going to go down the road change? At this stage, 0:16:10.360 --> 0:16:12.480 you know, yields are very very depressed and it doesn't 0:16:12.520 --> 0:16:15.080 look like they're going any higher up any time soon. 0:16:15.680 --> 0:16:17.440 You know, that's a big difference between now and ten 0:16:17.520 --> 0:16:20.000 years ago. Tom. The last time we took FED funds 0:16:20.080 --> 0:16:22.800 rate down to zero, Tom, everybody thought then the next 0:16:22.880 --> 0:16:25.120 couple of years right to would start climbing again. It 0:16:25.200 --> 0:16:28.880 wasn't until eleven that the two year yield actually bottomed out, 0:16:29.160 --> 0:16:31.000 And that for me makes the important difference between now 0:16:31.080 --> 0:16:33.880 and back then that we believe it's a reserve now 0:16:34.200 --> 0:16:36.080 and we believe that they're not going anywhere for a 0:16:36.160 --> 0:16:38.240 long long time. Do you know where the two year 0:16:38.320 --> 0:16:43.320 yield was at the back end of eighteen Tom? Okay, Well, John, 0:16:43.560 --> 0:16:45.520 you know, as we had the excellent headline here on 0:16:45.600 --> 0:16:48.000 the Bloomberg Right now, folks and John go to SEMA 0:16:48.360 --> 0:16:52.320 on this the tenure tip negative one point zero zero 0:16:52.880 --> 0:16:55.680 three four, John, that is so important. You can do 0:16:55.800 --> 0:16:58.080 the real yield deserve Tonoon. I'm looking forward to that, Tom, 0:16:58.160 --> 0:17:01.600 Thank you, Seema. Inflation next vactations drifting a little bit higher. 0:17:01.600 --> 0:17:04.080 It's part of the story as the white negative yield's 0:17:04.119 --> 0:17:06.480 negative real yield to become that more dominant in the 0:17:06.560 --> 0:17:09.680 last couple of weeks. What's behind the higher inflation expectations? 0:17:11.320 --> 0:17:12.920 I think it's difficult to say. I mean, I think 0:17:12.960 --> 0:17:14.840 one of the things is that, you know, I think 0:17:14.880 --> 0:17:16.440 there's a lot of people out there who do believe 0:17:16.480 --> 0:17:19.600 within about two to three years UM, the effect of 0:17:19.640 --> 0:17:22.920 all of this Montre policy, this fistical spending will eventually 0:17:23.000 --> 0:17:25.959 play fruit, pay fruit, and you'll start to see inflation 0:17:26.000 --> 0:17:27.960 picking up, as well as all of the structural reasons 0:17:28.240 --> 0:17:31.760 around supply chain, the globalization, etcetera. Um. Now when we 0:17:31.920 --> 0:17:34.480 think about this, you know, what, are we talking about 0:17:34.600 --> 0:17:37.920 inflation of more than three percent? Absolutely not, because anthly 0:17:37.960 --> 0:17:39.960 it's going to take a really long time for the 0:17:40.000 --> 0:17:42.040 economy to get backwards feet and to reach its pre 0:17:42.160 --> 0:17:45.840 COVID levels. So yes, because the inflation returning to some 0:17:46.320 --> 0:17:48.840 some reality, but certainly not the kind of levels that 0:17:48.960 --> 0:17:50.840 maybe some people in the market half fears over the 0:17:50.960 --> 0:17:52.560 same we're looking at this bond market right now, How 0:17:52.640 --> 0:17:57.320 on earth do you buy the banks? You know, it's 0:17:57.320 --> 0:17:59.120 a difficult one I have. So we are not we're 0:17:59.160 --> 0:18:01.639 not big fans of financial this at this point, and 0:18:01.680 --> 0:18:04.720 we still think the trade Renagerica acts have to be 0:18:04.880 --> 0:18:07.359 in the texting. You know, where is the set for 0:18:07.440 --> 0:18:09.879 growth coming from? It's not from many places but you 0:18:09.920 --> 0:18:11.960 are seeing in technology, and you're seeing in make ups. 0:18:12.240 --> 0:18:15.359 But when yelps those flats so low, where can it 0:18:15.400 --> 0:18:18.040 play you through for financials? So I say, from from 0:18:18.080 --> 0:18:22.040 my perspective, from an after allocation exposure, financial doesn't really 0:18:22.080 --> 0:18:25.000 feature this stage, see my Meanwhile, it's Friday, and today 0:18:25.080 --> 0:18:27.960 is the day when the enhanced unemployment benefits run out 0:18:28.119 --> 0:18:30.200 if there is not an extension that's passed. And we 0:18:30.240 --> 0:18:33.760 get data out today ancient history June personal income and 0:18:33.800 --> 0:18:37.080 spending data, and it shows the results of the enhanced 0:18:37.160 --> 0:18:40.520 jobless benefits, the idea that personal income dropped one point 0:18:40.640 --> 0:18:45.120 one percent, personal spending rows five point six percent, people 0:18:45.200 --> 0:18:47.640 getting money that they can spend from the government. How 0:18:47.760 --> 0:18:50.280 big a hit to the US equity market will it 0:18:50.400 --> 0:18:53.240 be if there is not some sort of extension past today. 0:18:55.480 --> 0:18:57.399 I don't think it's been priced in sufficially by the 0:18:57.440 --> 0:18:59.440 market by any means. I think it can be catastrophic. 0:19:00.000 --> 0:19:02.040 If you look at the upturn and spending over the 0:19:02.160 --> 0:19:04.399 last two months or so, A lot of that has 0:19:04.440 --> 0:19:06.159 been driven by the fact that there's been so much 0:19:06.200 --> 0:19:08.760 fiscal help coming through. If you start to take that away, 0:19:08.840 --> 0:19:11.600 not only are you dealing with a coronavirus kit, which 0:19:11.640 --> 0:19:15.200 is already suppressing a lot of the activity and increasing anxiety, 0:19:15.560 --> 0:19:17.320 and then you're taking away the ability of people to 0:19:17.400 --> 0:19:19.200 go out and spend. So I think this is this 0:19:19.359 --> 0:19:21.600 is something that of course Congress must be taking note 0:19:21.680 --> 0:19:24.000 of and thinking they have to resolve this as quickly 0:19:24.000 --> 0:19:26.800 as possible. And Tom noticing that the personal savings rate 0:19:26.920 --> 0:19:29.840 is and this goes to the narrative that there's a 0:19:29.960 --> 0:19:33.200 huge wall of cash just sitting in people's bank account 0:19:33.960 --> 0:19:36.200 looking to spend as soon as they get a sense 0:19:36.240 --> 0:19:38.960 of the economy is stabilizing, seem would you buy that? 0:19:42.680 --> 0:19:44.080 You know? I think, I think what we have seen 0:19:44.119 --> 0:19:45.840 so I think there's a couple of things that play here. 0:19:46.160 --> 0:19:47.840 Over the last few months, you've had it, as I said, 0:19:47.880 --> 0:19:51.000 you said the paychecks incomjective coming in and of help, 0:19:51.480 --> 0:19:53.399 but also there's been a lot of pent up demand 0:19:53.400 --> 0:19:56.080 which has been used up and those are your easy winds. 0:19:56.520 --> 0:19:58.680 But unfortunately a lot about savings rate. People have to 0:19:58.720 --> 0:20:01.119 be sitting out there the dream that maybe they have 0:20:01.200 --> 0:20:03.080 a job to get back to you today, But is 0:20:03.119 --> 0:20:04.760 that going to be true in six months time if 0:20:04.800 --> 0:20:07.200 we've still got the same kind of challenges going ahead, 0:20:07.560 --> 0:20:09.680 So well, actually, I think something is going to stay high. 0:20:10.119 --> 0:20:13.399 I think spending has been satiated to some extent um. 0:20:13.560 --> 0:20:15.880 So this is going to be very very challenging time 0:20:16.160 --> 0:20:18.680 into the second half of the year. John Farah, we 0:20:18.720 --> 0:20:20.720 can close the loop of the personal savings are in 0:20:21.840 --> 0:20:24.920 which that means a few iPhones were brought. Well, that's 0:20:24.960 --> 0:20:28.040 the truth time around the fiscal plan same the Federal 0:20:28.119 --> 0:20:33.240 Reserve divorced financial conditions from the underlying economy, and Congress 0:20:33.840 --> 0:20:38.359 essentially insulated personal income from the job losses. So how 0:20:38.440 --> 0:20:40.800 on earth going forward you have any kind of calculation 0:20:41.320 --> 0:20:42.879 on what the economy is going to do for the 0:20:42.920 --> 0:20:44.639 back end of this year and what it means for 0:20:44.720 --> 0:20:48.840 the market. So we are a little bit negative for 0:20:48.920 --> 0:20:50.320 Q three. It seems like a lot of it is 0:20:50.400 --> 0:20:53.159