WEBVTT - Gorman's Model Reaps Rewards for Morgan Stanley: Whalen 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.200 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEO, market pros and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Kind the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple podcast or wherever you listen to podcasts, 0:00:17.000 --> 0:00:21.160 and on Bloomberg dot com. Let's bring somebody in who 0:00:21.160 --> 0:00:23.480 knows a lot about Morgan Stanley and can be construct 0:00:23.520 --> 0:00:24.840 a little bit of what's going on with the big 0:00:24.840 --> 0:00:28.280 banks right now, and that is Chris Whelan. Chris thrilled 0:00:28.280 --> 0:00:31.040 to have you. And you heard what some of Mr 0:00:31.080 --> 0:00:34.920 Pruzan said. You know, obviously there's going to be a 0:00:34.960 --> 0:00:38.639 good face put forward, but what are the problems that 0:00:38.680 --> 0:00:40.959 you see being stored up in the banks for down 0:00:41.000 --> 0:00:42.800 the road when some of all of this gets sorted out. 0:00:43.800 --> 0:00:46.600 Well for Morgan Stanley, you know, it's a great quarter, Bunny, 0:00:46.840 --> 0:00:49.600 and I think they are one of the few franchises 0:00:49.880 --> 0:00:53.440 this quarter that are reporting up revenues across the board. 0:00:54.200 --> 0:00:57.480 Um As John was just saying, he doesn't have a 0:00:57.480 --> 0:01:01.480 lot of credit risk and interesting he didn't talk about it, 0:01:01.520 --> 0:01:04.120 but one of his great strengths is that bank holding 0:01:04.160 --> 0:01:07.720 company doesn't have to go out into the market and 0:01:07.840 --> 0:01:11.360 raise net funds. They have such a big deposit base 0:01:11.520 --> 0:01:15.080 now that they are actually a net provider of funds 0:01:15.640 --> 0:01:19.360 among banks. So totally different from Goldman Sacks, which has 0:01:19.400 --> 0:01:22.959 a very high dependence on the money markets to fund themselves. 0:01:22.959 --> 0:01:26.959 So asset management, the strong investment bank. Plus they have 0:01:27.000 --> 0:01:30.080 liquidity in the background, which is great. Is that part 0:01:30.120 --> 0:01:32.840 of the reason why they bought eating Vance though, Chris, 0:01:32.920 --> 0:01:36.200 is that to make sure that that stays the case. Well, 0:01:36.240 --> 0:01:38.840 he Advance gives you two things. Funny, it gives you 0:01:38.920 --> 0:01:42.279 the a u M assets under management, which generates fees. 0:01:42.640 --> 0:01:46.120 That's a very stable leg for the stool, you know, 0:01:46.240 --> 0:01:48.800 think about it. He has cash, he has the asset 0:01:48.840 --> 0:01:51.600 management business which pays you every quarter, and then the 0:01:51.760 --> 0:01:55.800 sc investment bank, which can fluctuate. Right, So they get 0:01:55.800 --> 0:01:58.440 the assets under management. But with that a u M 0:01:58.720 --> 0:02:02.800 comes deposits from those high network customers. And remember Morgan 0:02:02.920 --> 0:02:06.160 Stanley has got a very broad wealth management business. They 0:02:06.160 --> 0:02:08.480 don't just have very rich people. They have all sorts 0:02:08.520 --> 0:02:11.359 of people different from Goldman. You know, a trillion in 0:02:11.440 --> 0:02:14.080 a u M at Goldman and over a trillion now 0:02:14.120 --> 0:02:17.480 in a um at Morgan Stanley are two different businesses, 0:02:17.720 --> 0:02:21.680 very different profile. The bank that had always been the 0:02:21.680 --> 0:02:24.640 bank of you know, the Vault if you like, the 0:02:24.680 --> 0:02:27.640 Fortress bounce Sheet, had been JP Morgan is Morgan Stanley 0:02:27.680 --> 0:02:28.919 is sort of giving them a run for their money 0:02:28.919 --> 0:02:32.639 at this point. No, no, no, Jamie Diamond's got well 0:02:32.680 --> 0:02:36.440 over two trillion dollars in court deposits. Morgan Stanley is 0:02:36.480 --> 0:02:39.000 a little shy of a trillion until lass it's funny, 0:02:39.200 --> 0:02:42.600 and it's about forty funded by bank deposits. So in 0:02:42.600 --> 0:02:46.280 other words, their banks inside Morgan Stanley can lend to 0:02:46.360 --> 0:02:49.240 the broker dealer on an arms length basis. You know, 0:02:49.320 --> 0:02:51.720 they have to be priced like the market, um, but 0:02:51.840 --> 0:02:55.000 that's a huge advantage. It's huge. Now Jamie Diamond is 0:02:55.040 --> 0:02:57.760 like a country. He has so much going on inside 0:02:57.800 --> 0:03:01.400 of his bank. Oftentimes the payments don't leave the bank, 0:03:01.800 --> 0:03:04.639 it just goes from one customer to another. So he's 0:03:04.680 --> 0:03:07.080 an island of liquidity like all of the top four. 0:03:07.360 --> 0:03:10.560 But Goldman and Mortgage Stanley are more broker deal are 0:03:10.680 --> 0:03:13.720 still than they are bank. That's the key thing to remember. 0:03:14.120 --> 0:03:15.760 So we'll get to well as far ago maybe at 0:03:15.760 --> 0:03:18.400 the end, because it's a slightly separate case. But what 0:03:18.480 --> 0:03:21.000 about Golden Sacks this year? Is Goldman feeling a little 0:03:21.000 --> 0:03:23.000 bit of pressure even though they also had you know, 0:03:23.120 --> 0:03:26.360 a great quarter of course, you know, it's great to 0:03:26.360 --> 0:03:28.240 see them hit one out of the park like this, 0:03:28.639 --> 0:03:30.840 but they are the last dinosaur in the line. You know, 0:03:30.880 --> 0:03:33.240 if you ever watch the Animal Planet, the one at 0:03:33.240 --> 0:03:35.480 the end is the one the t rex seats. So 0:03:35.520 --> 0:03:38.920 in terms of funding, in terms of volatility of the business, 0:03:39.040 --> 0:03:41.640 I think Goldman is still very vulnerable as his city. 0:03:41.880 --> 0:03:44.320 Those are the two at the back. The rest of 0:03:44.360 --> 0:03:46.600 the group is doing better, and I think, you know, 0:03:46.680 --> 0:03:49.360 God bless Jim Gorman. He had a lot of people 0:03:49.440 --> 0:03:53.000 criticizing him, but he's ended up creating a business that 0:03:53.160 --> 0:03:55.119 kind of looks like the U B S is any 0:03:55.160 --> 0:03:58.200 other big European asset managers. But he's got a world 0:03:58.240 --> 0:04:01.680 class investment back. So it's a much more balanced model, 0:04:01.720 --> 0:04:04.720 I think than a lot of his competitors. So talk 0:04:04.800 --> 0:04:07.520 to us then about City. It's been a decade at 0:04:07.520 --> 0:04:10.040 this point, Chris, and it looks like it's going to 0:04:10.120 --> 0:04:12.480 have to need some kind of i don't know more, 0:04:12.720 --> 0:04:15.240 if not restructuring, massaging. There's going to be a new 0:04:15.360 --> 0:04:17.440 CEO to try and do this. She was present the 0:04:17.520 --> 0:04:19.880 last time there was a restructuring, so she knows exactly 0:04:19.920 --> 0:04:22.760 what's going on inside the bad bank and the big 0:04:22.800 --> 0:04:24.800 good bank and in the units that have spun off 0:04:24.800 --> 0:04:28.600 and so on. We would your prescription for cityv Well. 0:04:28.640 --> 0:04:31.880 City suffers from the h of sandy while you know, 0:04:32.240 --> 0:04:35.120 uh my core back has done a great job of 0:04:35.200 --> 0:04:38.479 turning things around, but he was the first competent CEO 0:04:38.520 --> 0:04:41.320 of that bank had had in fifteen years. And again 0:04:41.400 --> 0:04:45.200 Jane Fraser, great operator. She's touched all the relevant parts 0:04:45.200 --> 0:04:47.320 of the bank, and I think she's got to just 0:04:47.400 --> 0:04:50.839 try and work with her board to fashion a business 0:04:51.440 --> 0:04:53.800 that makes sense. You know, they're not really much of 0:04:53.800 --> 0:04:56.920 a U S bank well that you only have about 0:04:57.440 --> 0:05:00.440 core deposits inside City. The rest of it is funded 0:05:00.640 --> 0:05:03.640 like Goldman Sachs in the markets. Their cost of funds 0:05:03.720 --> 0:05:05.760 is higher and the thing that saves them is the 0:05:05.800 --> 0:05:09.440 big consumer book because their credit card book has you know, 0:05:10.000 --> 0:05:12.800 a gross yield in the teens, so that makes up 0:05:12.839 --> 0:05:14.719 for a lot of sins. But she's got to figure 0:05:14.720 --> 0:05:17.599 out a way, I think, to get back or buy 0:05:17.760 --> 0:05:21.359 an asset manager um, so she can compete with the 0:05:21.400 --> 0:05:25.039 rest of these universal banks. Right, They're not just monolithic 0:05:25.080 --> 0:05:28.760 commercial banks with a broker dealer anymore. Funny, everybody wants 0:05:28.760 --> 0:05:31.320 to have a trillion trillion and a half two trillion 0:05:31.360 --> 0:05:33.920 in a u M, so they can compete with black Rock, 0:05:34.080 --> 0:05:37.719 which is much bigger than all of them. So that 0:05:37.839 --> 0:05:40.480 to me is the competitive landscape. She's got a decent 0:05:41.279 --> 0:05:45.240 capital markets investment bank. It's not as good as Morgan Stanley. 0:05:45.480 --> 0:05:48.520 And she's got a great, great advantage in that consumer 0:05:48.600 --> 0:05:51.039 book because it throws off a lot of income in 0:05:51.120 --> 0:05:53.800 good times. So that to me is a challenge with 0:05:53.839 --> 0:05:56.560 City What do they want to be when they grow up? Okay, 0:05:57.120 --> 0:05:59.799 because look, you know we've had systems and control issues 0:06:00.040 --> 0:06:01.960 so you and I were kids. Funny, we've been watching 0:06:01.960 --> 0:06:04.760 this movie for twenty five years. This goes back to 0:06:04.839 --> 0:06:07.920 John Reid and when Sandy Wild started buying those non 0:06:07.920 --> 0:06:10.600 bank businesses, that's where they got into trouble. When you 0:06:10.680 --> 0:06:14.279 started turning you know, sales offices of Associates Corp. Into 0:06:14.279 --> 0:06:16.960 branches of City Bank, that was that was not a 0:06:16.960 --> 0:06:19.039 good idea. Yeah, I mean, and and so many of 0:06:19.080 --> 0:06:20.839 the places where these banks were able to make a 0:06:20.839 --> 0:06:24.359 little extra cat on the side. They just don't exist anymore, right, Chris, 0:06:24.400 --> 0:06:26.719 You know, currency trading and so on, Like it's just 0:06:26.760 --> 0:06:31.160 become such a different kind of experience to run a bank. 0:06:31.480 --> 0:06:34.000 But tell me this. You look at the banks and 0:06:34.400 --> 0:06:36.240 the quarters that they've had, and yes, a lot of 0:06:36.240 --> 0:06:38.719 it has come from the capital markets, but you would 0:06:38.760 --> 0:06:41.440 also imagine by looking at them that the consumer is 0:06:41.480 --> 0:06:45.640 extraordinarily comfortable right now. But that's not the case. We 0:06:45.800 --> 0:06:48.560 just got more initial jobless claims that don't even reflect 0:06:48.560 --> 0:06:52.640 the problems in California nine hundred thousand initial jobless claims 0:06:52.640 --> 0:06:56.839 just for last week. Empire Manufacturing is down to ten 0:06:56.880 --> 0:07:01.040 point five. We had obviously a better Philly fired business 0:07:01.040 --> 0:07:04.800 outlook and so on, and you know, there's definitely mixed data. 0:07:05.200 --> 0:07:09.600 But how are the banks going to whether out what's 0:07:09.640 --> 0:07:13.680 obviously coming to the consumer if we don't get more stimulus. Well, 0:07:13.720 --> 0:07:18.160 it's it's kind of a tale of two countries, Bonnie. 0:07:18.200 --> 0:07:20.960 We have a lot of people who are unemployed now 0:07:21.000 --> 0:07:24.040 who may or may not have been particularly bankable. If 0:07:24.040 --> 0:07:27.960 you think of the bomb Americans, they're not big users 0:07:27.960 --> 0:07:30.920 of credit because either they don't have credit at all 0:07:31.040 --> 0:07:33.640 or their scores are quite low. And so in this 0:07:33.800 --> 0:07:38.080 bullmarket you've seen for mortgages, for example, other areas, even 0:07:38.080 --> 0:07:41.680 auto autos is doing fine. Um. You know, it's the 0:07:41.680 --> 0:07:44.200 middle to the upper third of the market and the 0:07:44.240 --> 0:07:47.440 credit terms. So will the banks feel that, Yes, the 0:07:47.480 --> 0:07:51.280 ones with big consumer exposure, City Capital One, some of 0:07:51.320 --> 0:07:54.360 the others. But look at American Express. American Express is 0:07:54.360 --> 0:07:58.040 almost back up the four times book. Um. So you know, 0:07:58.400 --> 0:07:59.960 you have to think of it in terms of the 0:08:00.040 --> 0:08:04.720 segmentation of society, and unfortunately, the lowest income Americans are 0:08:04.760 --> 0:08:08.200 the biggest losers. And then you think about the cost 0:08:08.280 --> 0:08:10.480 that we've put on top of the banks for dealing 0:08:10.520 --> 0:08:14.400 with consumer issues over the past ten years. Kamala Harris, 0:08:14.400 --> 0:08:16.920 that's not helpful either, because there's no incentive for those 0:08:16.920 --> 0:08:19.880 banks to stretch and lend. They could do good loans 0:08:19.920 --> 0:08:23.040 all day long. You know, if there's anything that's a 0:08:23.080 --> 0:08:26.200 reflection of a shaped recovery, it's that, Chris. I mean, 0:08:26.200 --> 0:08:28.200 it's it's really something to say when you say, well, 0:08:28.760 --> 0:08:31.720 banks aren't seeing it among their consumers because their consumers 0:08:31.760 --> 0:08:34.480 are fine. The ones that are suffering can't even get 0:08:34.520 --> 0:08:37.800 banked in this country and in many other countries too, Chris, 0:08:37.840 --> 0:08:40.080 I have one more and Funny Freddy. You know, if 0:08:40.080 --> 0:08:43.440 we get a different administration or just you know, a 0:08:43.480 --> 0:08:47.720 continuation of the same, what happens next for Fanny Freddy. Nothing, 0:08:48.240 --> 0:08:51.880 nothing can happen anyway. But it's just problematic. You cannot 0:08:51.920 --> 0:08:56.680 detach these things from government support, direct sovereign credit support 0:08:56.679 --> 0:08:59.160 and expect them to survive. You know, it's just not 0:08:59.240 --> 0:09:01.439 going to happen. Um. But one thing I do want 0:09:01.480 --> 0:09:03.600 to leave you with, Funny, is the reason the banks, 0:09:03.840 --> 0:09:07.280 especially JP, we're able to pause in terms of putting 0:09:07.280 --> 0:09:10.480 aside more cash for future losses is because of the 0:09:10.520 --> 0:09:13.800 Forbearance and the Cares Act. The FED has said, well, 0:09:13.800 --> 0:09:18.400 those are not delinquent loans. Until those are considered delinquent loans, 0:09:18.600 --> 0:09:21.560 the banks don't have to put more cash aside for them. 0:09:21.600 --> 0:09:26.480 So we're pausing. Can that pause be forever? Pause? And well, 0:09:26.720 --> 0:09:28.920 ohly if we want to become Europeans. I mean, that's 0:09:28.920 --> 0:09:30.800 what they did in Europe. They used to just ignore 0:09:31.120 --> 0:09:34.760 nonperforming loans and it was a horrible, horrible mistake on 0:09:34.840 --> 0:09:38.680 the part of the Meracle government. So you know, that's 0:09:38.880 --> 0:09:40.800 that's kind of where we are. I think US banks 0:09:40.800 --> 0:09:42.560 are in much better shape. They're going to clean up 0:09:42.559 --> 0:09:44.880 the mess. Fourth quarter will be taking a lot of 0:09:44.880 --> 0:09:47.400 stuff to the curb, Bunny, Chris. It's one of more 0:09:47.480 --> 0:09:50.040 sanglent interviews that I've had with you. You seem actually 0:09:50.120 --> 0:09:53.439 quite positive, which is he I work in a mortgage business. 0:09:53.600 --> 0:09:56.080 We're going to do four and a half trillion dollars 0:09:56.080 --> 0:09:59.199 worth the mortgages this year. That's the higher, almost higher 0:09:59.200 --> 0:10:01.880 than two thousand war, which is a little scary, but 0:10:01.960 --> 0:10:04.440 at least we have part of the economy that is 0:10:04.440 --> 0:10:06.760 going to help pull us out. And housing, I think 0:10:07.280 --> 0:10:11.520 there's accumulated demand. You have a lot of demographic factors, 0:10:11.600 --> 0:10:13.959 younger people, one of you know, five families, and you're 0:10:13.960 --> 0:10:16.520 going outside of the big cities, which I think is great. 0:10:16.760 --> 0:10:18.679 This is a very good point. Maybe it's karma, the 0:10:18.679 --> 0:10:23.280 mortgage industry finally getting a bit jp. The banks aren't 0:10:23.280 --> 0:10:26.200 buying a third party production right now. But Jamie did 0:10:26.360 --> 0:10:29.520 enough new mortgages so he had almost no net change 0:10:29.520 --> 0:10:32.360 in the value of his servicing. I'll guarantee you his 0:10:32.440 --> 0:10:37.040 servicing book is pre paying a year. Well, that's good, 0:10:37.280 --> 0:10:39.640 it's it's good given what the mortgage industry went through 0:10:39.760 --> 0:10:43.719 ten years ago, right, and some of it brought We 0:10:43.760 --> 0:10:45.600 can have a longer conversation about that some other time, 0:10:45.640 --> 0:10:47.080 and Chris, we have to let you go, but thank 0:10:47.120 --> 0:10:50.080 you so much. That is Chris Whalen, chairman of Whalen 0:10:50.280 --> 0:10:53.280 Global Adviser, is always a pleasure to speak with. Chris. 0:10:57.200 --> 0:11:00.360 Let's get some more market reaction out of Sapons, who 0:11:00.360 --> 0:11:02.559 covers all of the assets for us. She is cost 0:11:02.600 --> 0:11:05.160 asset reporter here at Bloomberg News, and she's been obviously 0:11:05.240 --> 0:11:08.120 keeping an eye on equities today because that's you know, 0:11:08.240 --> 0:11:11.520 what's really sort of moving the most to the naked 0:11:11.520 --> 0:11:14.160 eye at least. But there's a lot going on, Sarah. 0:11:14.240 --> 0:11:17.520 In Europe and in the United States with those jobless claims, 0:11:17.559 --> 0:11:20.319 there is a lot going on and not necessarily what 0:11:20.400 --> 0:11:24.320 you want to see to bring optimism to this market. 0:11:24.440 --> 0:11:26.920 So in the United States, jobless claims did come in 0:11:26.920 --> 0:11:30.160 at eight hundred ninety thousand. The estimate was for eight 0:11:30.400 --> 0:11:33.160 d twenty five thousand, and the prior week was also 0:11:33.240 --> 0:11:36.640 revised hire to eight hundred forty five thousand, So not 0:11:36.800 --> 0:11:39.560 only just a miss of that estimate, but also an 0:11:39.640 --> 0:11:44.000 unexpected increase in jobless claims now. As Chris Lowe over 0:11:44.040 --> 0:11:47.000 at FHN Financial put it, he said, the ongoing decline 0:11:47.040 --> 0:11:50.160 and claims paid stretching from late April to two weeks 0:11:50.160 --> 0:11:54.160 ago is encouraging. There he is referring to those continuing claims. 0:11:54.400 --> 0:11:57.240 But then he said the increase in initial claims is disturbing. 0:11:57.320 --> 0:11:59.760 It is difficult to see it and not think there 0:11:59.760 --> 0:12:03.480 are cocovery is vulnerable, and that really just epitomizes where 0:12:03.480 --> 0:12:07.160 we currently stand. Yes, we have gotten through the rebound. 0:12:07.240 --> 0:12:09.920 We have gotten through that initial stage of the v 0:12:10.080 --> 0:12:12.760 shaped recovery, if you want to call it that. However, 0:12:12.800 --> 0:12:16.120 the question is now what is next, especially since it 0:12:16.120 --> 0:12:18.600 looks like we may not be getting fiscal stimulus. We 0:12:18.679 --> 0:12:21.720 do see COVID cases rising, particularly you look at Europe 0:12:21.840 --> 0:12:25.240 right now, where we see record cases in particular countries 0:12:25.280 --> 0:12:28.760 like Germany, Italy, Australia, the Czech Republic at the same time, 0:12:29.120 --> 0:12:33.080 or hearing about restrictions in London, curfews in Paris, so 0:12:33.440 --> 0:12:36.800 not what you want to see. Globally, when COVID cases 0:12:36.840 --> 0:12:38.880 are rising, there's fears of another wave ahead of the 0:12:38.880 --> 0:12:41.680 winter and a labor market recovery. In the United States, 0:12:41.720 --> 0:12:45.200 seems to be stalling. And with all that said, we 0:12:45.280 --> 0:12:48.040 still have in disease not far from records. I mean, yes, 0:12:48.040 --> 0:12:50.760 we're down one percent today and the sack down wanted 0:12:50.760 --> 0:12:52.480 a half percent and so on, but I mean that's 0:12:52.520 --> 0:12:54.280 not even that much of a self. Well, that's why 0:12:54.320 --> 0:12:57.200 it's so important to keep this all in perspective. I mean, 0:12:57.240 --> 0:12:58.920 I think about the earning season that we are in 0:12:58.920 --> 0:13:01.240 the middle of. Shirt is very very very early on. 0:13:01.679 --> 0:13:04.880 But to this point, the beat rate for US companies 0:13:04.920 --> 0:13:09.040 that have reported earning so far is about that would 0:13:09.040 --> 0:13:12.120 be a record beat rate. However, if you look at 0:13:12.120 --> 0:13:15.160 the average move for a stock that has reported earnings 0:13:15.160 --> 0:13:18.520 in the twenty four hours post reporting, that average move 0:13:18.559 --> 0:13:21.760 has actually been about a two percent decline. So even 0:13:21.800 --> 0:13:25.480 though companies are beating, companies are delivering, it's not showing 0:13:25.559 --> 0:13:27.360 up in the stock market. And part of the reason 0:13:27.400 --> 0:13:30.240 for that is, yes, the fact that many of these 0:13:30.400 --> 0:13:34.160 estimates analysts had no clue what was going to happen. 0:13:34.240 --> 0:13:36.800 We had gotten no guidance. It was almost as though 0:13:36.840 --> 0:13:39.400 we were living in a vacuum, and an information vacuum. 0:13:39.600 --> 0:13:43.200 And you see that sparity between the estimates and the 0:13:43.240 --> 0:13:45.320 actual numbers that are coming out. But when you have 0:13:45.400 --> 0:13:48.120 markets that are trading at record highs, it is such 0:13:48.120 --> 0:13:50.480 a different setup than the beginning of the second quarter 0:13:50.600 --> 0:13:53.000 or first quarter earning season, when even though we got 0:13:53.040 --> 0:13:56.160 such negative numbers, we saw an unbelievable rally in the 0:13:56.200 --> 0:13:59.200 stock market of older notes that you read ol day, 0:13:59.280 --> 0:14:04.120 and I know you so many how many people are pessimistic, Sarah, 0:14:04.120 --> 0:14:06.440 because of the ones I read, It really doesn't seem 0:14:06.559 --> 0:14:08.319 short of a couple of mornings here and there, that 0:14:08.440 --> 0:14:12.359 people out on wool Street sending out research are that pessimistic. 0:14:12.520 --> 0:14:14.680 I would say that my read is very similar to yours. 0:14:14.679 --> 0:14:16.880 It seems at this point in time, more and more 0:14:16.920 --> 0:14:20.600 strategists are actually highlighting breadth measures, for example of the 0:14:20.640 --> 0:14:22.800 market saying that this is a market that has been 0:14:22.840 --> 0:14:26.360 broadening out that Davis reach Arch, for example, had highlighted 0:14:26.400 --> 0:14:28.840 this the other day, changing their stance on US equities 0:14:28.880 --> 0:14:31.480 to become a bit more optimistic, saying that one of 0:14:31.520 --> 0:14:34.440 their breadth measures had actually flagged and was now positive 0:14:34.440 --> 0:14:36.080 and pointing to the fact that we are in the 0:14:36.120 --> 0:14:38.960 early stages of a true bowl market and that does 0:14:39.040 --> 0:14:42.720 seem to be what the majority of those notes that 0:14:42.720 --> 0:14:44.640 I am reading are saying. People are saying, yes, of 0:14:44.680 --> 0:14:46.760 course there are risks out there. You have an election, 0:14:46.800 --> 0:14:49.000 you have COVID nineteen. You need to see what happens 0:14:49.040 --> 0:14:51.200 with the labor market, not just in the United States, 0:14:51.280 --> 0:14:53.720 but the economy around the world. However, at the same time, 0:14:53.760 --> 0:14:56.280 if you look at the internals of the market, many 0:14:56.280 --> 0:14:59.600 strategists are starting to say this is resembling a true 0:14:59.680 --> 0:15:02.920 early stage bowl market. I suppose the next catalyst will 0:15:02.960 --> 0:15:05.760 be the actual election itself. At this point, I mean, yes, 0:15:05.840 --> 0:15:08.040 we might get something between now and then on breaks 0:15:08.080 --> 0:15:10.560 it all. Well, it's not likely. We might get some 0:15:10.600 --> 0:15:12.520 better news on the virus, but you might also get 0:15:12.520 --> 0:15:15.560 some worse news. So I suppose is that what people 0:15:15.600 --> 0:15:18.720 are focused on the election coming up, especially considering the 0:15:18.760 --> 0:15:21.080 fact that nineteen days away as the U S election, 0:15:21.120 --> 0:15:23.880 that is thirteen training sessions, so it's going to be 0:15:23.960 --> 0:15:26.280 here before we know it. It's pretty unbelievable, but I 0:15:26.320 --> 0:15:28.600 would say still top of mind, and you really can't 0:15:28.600 --> 0:15:31.480 get away from it. It's just COVID nineteen, especially when 0:15:31.480 --> 0:15:34.400 you see headlines of what is happening in Europe currently, 0:15:34.680 --> 0:15:37.840 and also when we see headlines dropping about officials or 0:15:37.880 --> 0:15:41.440 people involved in the White House or campaigns testing positive 0:15:41.480 --> 0:15:44.480 as well. That brings it into it too, And it 0:15:44.600 --> 0:15:47.960 is really what's dictating our lives, businesses, and the economy 0:15:48.000 --> 0:15:49.960 at the moment. And I'm sure everyone has seen by now. 0:15:50.000 --> 0:15:53.800 But obviously Kamala Harris has to stop traveling because AIDS 0:15:53.800 --> 0:15:56.760 in her front office tested positive as well. So the 0:15:57.480 --> 0:16:00.400 effecting both sides. We're going to get to tell holes 0:16:00.400 --> 0:16:02.720 to competing town holds nights. We'll see if we hear 0:16:02.800 --> 0:16:06.400 anything that might change the narrative, but it doesn't feel 0:16:06.400 --> 0:16:09.160 like we will at this point. The other quick things 0:16:09.160 --> 0:16:12.480 Sarah that I'm watching, and it hearkens back to everybody 0:16:12.520 --> 0:16:15.360 buying outdoor patio furniture and heaters and so on, is 0:16:16.040 --> 0:16:19.040 energy prices. They might go up a little, right. It's 0:16:19.080 --> 0:16:22.560 interesting because when you think about the COVID nineteen pandemic. 0:16:22.600 --> 0:16:25.480 Originally this was seen as a deflationary force. Now some 0:16:25.560 --> 0:16:27.640 are wondering if we are going to see pockets of 0:16:27.720 --> 0:16:30.360 inflation pick up. We saw that in the last CPI 0:16:30.440 --> 0:16:33.880 report with used cars, for example. There are certain pockets 0:16:33.920 --> 0:16:37.520 of the economy that may benefit. Now we will see 0:16:37.520 --> 0:16:39.440 what happens as we start getting into the winter. Like 0:16:39.480 --> 0:16:43.280 you said, it would be imaginable that many restaurants, uh, 0:16:43.520 --> 0:16:46.360 people maybe in their homes are trying to get heaters 0:16:46.400 --> 0:16:49.280 to use outside. In particular, I have heard that there 0:16:49.280 --> 0:16:53.240 are extreme backlogs to achieve these because they're in such 0:16:53.280 --> 0:16:56.040 hot demand currently. But yes, you have to think about 0:16:56.080 --> 0:17:00.000 the derivative effects. I bought some p Paine from local 0:17:00.040 --> 0:17:03.240 hardware store and they're why and I felt like saying, well, 0:17:03.520 --> 0:17:07.040 it's it's for heating. What else is complaine used for 0:17:07.080 --> 0:17:12.080 these days? Leave out to your imagination. Sarah Ponzac, thank you, 0:17:12.200 --> 0:17:16.800 cross Usset reporter here at Bloomberg News and general just genius. 0:17:18.680 --> 0:17:22.080 Carl Weinberg joins US now founder in chief, international economist 0:17:22.080 --> 0:17:25.800 of High Frequency Economics. Carl, Let's get straight to the point. 0:17:26.359 --> 0:17:29.159 How awful is it out there? What are we going 0:17:29.200 --> 0:17:32.919 to see in terms of recession in layers or not 0:17:33.040 --> 0:17:35.760 in layers for the US this year and next year? 0:17:35.840 --> 0:17:40.240 Most importantly? Okay, well, thank you for having me on vannie. 0:17:40.480 --> 0:17:42.720 You know we're looking at a second wave of the virus, 0:17:42.800 --> 0:17:46.280 and we've maintained the high economics that you can forecast 0:17:46.320 --> 0:17:48.280 the future of the economy until you know where the 0:17:48.359 --> 0:17:51.000 virus is going to go, and we don't know there 0:17:51.040 --> 0:17:54.640 can possibly be a real recovery until we see a 0:17:54.680 --> 0:17:57.040 cure for the virus or at least a good treatment 0:17:57.119 --> 0:17:59.560 for the virus, and none of that is at hand. 0:18:00.000 --> 0:18:03.960 As the virus spread increases, we're getting increasingly pessimistic in 0:18:04.000 --> 0:18:06.760 our outlook for the U. S. Economy, especially when you 0:18:06.800 --> 0:18:09.600 see Europe right now, right, Carl, because so many countries 0:18:09.600 --> 0:18:12.360 in Europe did do at least partially the right thing, 0:18:12.560 --> 0:18:15.080 and France in particular just can't keep it under control 0:18:15.160 --> 0:18:18.679 right now, that's right, Varney. Also in the United States 0:18:18.680 --> 0:18:21.760 from seeing outbreaks in the heartland of America at an 0:18:21.800 --> 0:18:25.480 accelerating pace. The issue is with the virus now and 0:18:25.480 --> 0:18:27.760 why this is different from what we saw West Springs. 0:18:27.800 --> 0:18:30.840 West Spring, we closed the economy down, and then we 0:18:30.920 --> 0:18:33.040 use the same power that we invoke to close it 0:18:33.080 --> 0:18:35.679 down to open it up again. Right now, the virus 0:18:35.760 --> 0:18:38.400 is in charge, and the virus shuts down the economy 0:18:38.440 --> 0:18:42.199 by infection. One worker missing from a factory, sick at 0:18:42.200 --> 0:18:45.400 a factory closes an assembly line if what that factory 0:18:45.440 --> 0:18:47.879 makes is used to make something else. Saying in the 0:18:47.960 --> 0:18:51.159 auto industry, one part for the assembly line missing shuts 0:18:51.200 --> 0:18:54.360 down the whole assembly line. And similarly, one students sick 0:18:54.400 --> 0:18:57.000 at the school closes a whole university or a whole 0:18:57.000 --> 0:18:59.960 school and keeps kids at home, or one office work 0:19:00.040 --> 0:19:02.840 they're ill, shuts down the whole office. Right now, the 0:19:02.960 --> 0:19:06.560 virus is in charge, and we don't know how soon 0:19:07.000 --> 0:19:09.320 this is going to be brought under control and what 0:19:09.480 --> 0:19:12.399 kind of economic activity it's going to take out along 0:19:12.440 --> 0:19:15.080 the way. Just a quick update for people. COVID is 0:19:15.119 --> 0:19:18.479 in forties six states right now detectively and that we 0:19:18.560 --> 0:19:22.480 know of, and deaths around the world have topped one 0:19:22.520 --> 0:19:26.200 million there at one point zero nine million. New York 0:19:26.320 --> 0:19:30.359 hotspots are leveling off, but Houston, I see use intensive 0:19:30.400 --> 0:19:34.000 care units are seeing a surge. Carl. Let's talk about then, 0:19:34.000 --> 0:19:36.639 what we do know. We got economic data this morning 0:19:36.640 --> 0:19:39.040 that showed in a jobless claims are just not getting 0:19:39.040 --> 0:19:42.240 any better. And that's pretty distorted data right now, and 0:19:42.280 --> 0:19:45.000 there's lots to not not like out there, including the 0:19:45.080 --> 0:19:48.520 fact that the stimulus talks are just going nowhere. Yeah, 0:19:48.600 --> 0:19:50.200 I mean, there's a lot not to like. In this 0:19:50.359 --> 0:19:55.000 morning's employment claims number claims are are not going down 0:19:55.440 --> 0:19:58.200 as we like them too. And more importantly, the number 0:19:58.200 --> 0:20:00.840 of people who are on benefits are going down for 0:20:00.880 --> 0:20:03.760 the wrong reason. Probably people want it's losting the benefits 0:20:03.800 --> 0:20:06.520 that they have. They've lost their all supporter. They're going 0:20:06.560 --> 0:20:09.000 to lose that all supports from any number of programs. 0:20:09.359 --> 0:20:11.679 And what this means is that the income hit that 0:20:11.800 --> 0:20:15.239 we've avoided so far has now started to catch up 0:20:15.280 --> 0:20:17.680 with us, and it's probably started in July, but it's 0:20:17.680 --> 0:20:19.400 going to get a lot worse in the next month 0:20:19.520 --> 0:20:22.360 or two. The next detail sales number that we're going 0:20:22.440 --> 0:20:25.680 to see is probably not going to be too terrible. However, 0:20:25.880 --> 0:20:28.280 we're very grim about what's coming up in the months 0:20:28.280 --> 0:20:32.800 ahead as people lose their support unemployment insurance and jobs 0:20:33.000 --> 0:20:36.160 do not need materialize to put them back to work. 0:20:36.560 --> 0:20:38.320