WEBVTT - We're Looking At A Secular Shift To Lower Rates: PGIM's Tipp 0:00:01.360 --> 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 CEOs, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Find 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 --> 0:00:20.600 and on Bloomberg dot com. Well, as we all know, 0:00:20.680 --> 0:00:23.560 it is f O m C Statement and News Conference day. 0:00:23.600 --> 0:00:25.640 We'll be hearing from FED here J Powell later on. 0:00:25.720 --> 0:00:27.960 It's not as if we haven't been hearing from FOOD members, 0:00:28.000 --> 0:00:30.680 but he can only add to the dialogue or the 0:00:30.680 --> 0:00:33.600 conversation that's being had across the country. Let's bring in 0:00:33.640 --> 0:00:36.199 somebody else who will be speculating about this, and that 0:00:36.360 --> 0:00:40.839 is Robert tip Managing director, chief investment strategist at p Jim, Robert, 0:00:40.840 --> 0:00:43.520 thanks for joining. So we'll get the statement to two pm. 0:00:43.560 --> 0:00:47.599 What will be different from the last statement I think 0:00:47.600 --> 0:00:49.960 the FED is going to take a breather here. I 0:00:50.000 --> 0:00:53.080 think they're gonna, you know, continue to emphasize that they're there, 0:00:53.760 --> 0:00:56.720 that they're bringing online all of the aggressive programs that 0:00:56.760 --> 0:01:00.840 they've announced. But I think they're at the bridge stage, 0:01:01.760 --> 0:01:05.839 you know, we've gone through the drop into the void, 0:01:06.280 --> 0:01:11.160 and they sprung into action and they instilled in the 0:01:11.240 --> 0:01:14.600 Market's really the first phase, which was the leap of faith. 0:01:15.560 --> 0:01:17.520 But now we're on the other side, we're getting evidence 0:01:17.560 --> 0:01:24.080 of recovery. And as you may have been made clear 0:01:24.080 --> 0:01:26.800 by the payroll number, I mean, obviously it's early days, 0:01:27.440 --> 0:01:30.520 but you'd expect the first stages could see some pretty 0:01:30.600 --> 0:01:34.360 rapid growth and so it's difficult for them to pour 0:01:34.680 --> 0:01:37.880 a lot of gas on and fire all remaining bullets 0:01:38.880 --> 0:01:43.759 as the economy is is um really accelerating. I think 0:01:43.760 --> 0:01:48.200 they're gonna plant some seeds here, uh and leave the 0:01:48.240 --> 0:01:52.280 door open and leave the impression that they definitely want 0:01:52.320 --> 0:01:55.040 to ensure this recovery and that they're not taking it 0:01:55.080 --> 0:02:00.880 for granted. But I think fresh steps here, I programs 0:02:00.920 --> 0:02:02.880 kind of shock and awe. I think it's gonna those 0:02:02.880 --> 0:02:05.920 are going to be limited. So, Robert, you mentioned that 0:02:05.960 --> 0:02:08.880 better unexpected jobs report we got last week. How are 0:02:08.919 --> 0:02:13.880 you thinking about the economic recovery for the remainder that 0:02:13.880 --> 0:02:16.720 you're going into next year? Now, how's that changed for 0:02:16.760 --> 0:02:19.639 you over the last several weeks. Sure, Well, I think 0:02:19.680 --> 0:02:23.480 the expectation was based on the way this is played 0:02:23.480 --> 0:02:27.360 out in other places that that you you know, should 0:02:27.440 --> 0:02:31.600 expect to see a rapid recovery in some ways in 0:02:31.639 --> 0:02:35.880 these early stages. I mean, we had a sudden stoppage 0:02:35.880 --> 0:02:40.080 and activity, everybody locking down and staying home. But you 0:02:40.120 --> 0:02:45.520 immediately saw sequential growth beginning weeks ago in auto sales 0:02:45.720 --> 0:02:49.120 in activity levels. And as that happens, you know you 0:02:49.160 --> 0:02:52.480 need service people on the ground coming back to work. 0:02:53.240 --> 0:02:57.600 So I think that this is a much more difficult stage. 0:02:57.639 --> 0:03:00.320 The leap of faith stage, there was a lot of police. 0:03:00.520 --> 0:03:03.800 There's a lot of value in the markets. Now you're 0:03:03.840 --> 0:03:08.760 looking at valuations and markets that are below average. Uh, 0:03:08.800 --> 0:03:12.359 and you're at the evidence stage. And so I think 0:03:12.440 --> 0:03:14.960 you're you're going to continue to get progress in markets, 0:03:15.000 --> 0:03:17.360 but you're going to get a lot more volatility, a 0:03:17.400 --> 0:03:20.600 lot more back and forth as people question whether this 0:03:20.760 --> 0:03:24.400 is going to be fast enough in terms of growth 0:03:24.440 --> 0:03:26.639 to get companies to the other side, how long it's 0:03:26.639 --> 0:03:29.280 going to be sustained, and so on. If we don't 0:03:29.320 --> 0:03:33.919 get more physical stimulus and unemployment benefits and the extra 0:03:33.960 --> 0:03:38.160 stimulus runs out in July, what happens, Robert? Yeah, I mean, 0:03:38.160 --> 0:03:41.760 I think you're going to have to get some more stimulus. 0:03:41.840 --> 0:03:45.080 They're going to have to keep that going to some 0:03:45.200 --> 0:03:51.600 extent um because you can't have uh, you know, a 0:03:51.720 --> 0:03:55.840 huge swap of the population, you know, without income, and 0:03:55.960 --> 0:03:59.920 there's a you know, when you look at the dead 0:04:00.040 --> 0:04:03.480 styles in terms of wealth, income, savings, and so on, 0:04:03.840 --> 0:04:08.360 there's very little wiggle room for uh, you know, broad 0:04:08.440 --> 0:04:12.600 spectrum of the population. And so I think that even 0:04:13.400 --> 0:04:17.479 if you're getting millions of jobs created every month, it's 0:04:17.560 --> 0:04:21.040 not going to be the majority of jobs getting recreated 0:04:21.120 --> 0:04:23.120 in the next few months. And so they're going to 0:04:23.200 --> 0:04:27.440 have to keep something going there. So, Robert, where do 0:04:27.480 --> 0:04:30.120 you see value in the fixed income markets? We've had 0:04:30.160 --> 0:04:34.839 again a nice rebound in risk assets. Where where do 0:04:34.880 --> 0:04:37.400 you see value? Yeah, let me answer that question and 0:04:37.440 --> 0:04:40.479 back and fill a little bit on the last one. So, 0:04:40.560 --> 0:04:42.640 you know, looking out over the long term, I think 0:04:42.680 --> 0:04:45.160 spread product is going to outperform. You're gonna have to 0:04:45.160 --> 0:04:48.960 be very selective though. You know, we're looking across pretty 0:04:49.040 --> 0:04:53.560 much all sectors, whether it's high quality structured product UH, 0:04:53.600 --> 0:04:57.800 European peripherals, hard currency and local emerging markets i g. 0:04:58.560 --> 0:05:02.600 High yield corporates. UH. There are good values in all 0:05:02.680 --> 0:05:06.919 of these areas UM. But as legislation is worked on, 0:05:07.160 --> 0:05:11.119 as we get closer to the election and we see 0:05:11.160 --> 0:05:16.120 more of Biden and the competition for leadership in that race, 0:05:16.839 --> 0:05:20.960 UH and all the other things geo politics, trade wars, UH. 0:05:21.000 --> 0:05:24.640 You know, you have UM investors in many cases that 0:05:24.720 --> 0:05:26.960 may have been chased into a rally that they didn't 0:05:26.960 --> 0:05:30.640 believe in. And you'll see, you know, more days like 0:05:30.720 --> 0:05:33.880 today where it's not just one way progress. You're gonna 0:05:33.920 --> 0:05:36.920 get backing and filling. I think over the long run though, 0:05:37.240 --> 0:05:39.120 that's where the value is going to be. Number one 0:05:39.839 --> 0:05:42.200 is in spread product. I think number two, there's gonna 0:05:42.200 --> 0:05:44.400 be a lot of opportunities on the interest rate side 0:05:44.760 --> 0:05:48.440 because I think whether the said UH really doubles up 0:05:48.440 --> 0:05:51.240 on their programs today or not, and I think that's unlikely. 0:05:51.800 --> 0:05:54.320 I think in the long run you're still looking at 0:05:54.360 --> 0:05:58.440 a shift of secular shift to lower rates and the 0:05:58.520 --> 0:06:02.080 long term forwards and markets. Frankly, right now, I don't 0:06:02.080 --> 0:06:05.440 really reflect that it's still some value even laft At 0:06:05.480 --> 0:06:08.800 back into the treasury curve, Robert, thank you, the back 0:06:08.880 --> 0:06:11.640 end of the treasury curve and spread products. Much appreciated 0:06:11.680 --> 0:06:15.760 your time today. It is Robert Tip, chief investment strategist 0:06:15.839 --> 0:06:18.040 at p JIM joining us there, and I do want 0:06:18.040 --> 0:06:19.880 to point out that the tenure yield today is at 0:06:19.920 --> 0:06:22.120 seventies seven basis points, just a little bit of move 0:06:22.160 --> 0:06:25.160 after we got that CPI data negative month over month, 0:06:25.400 --> 0:06:27.960 down by point one percent. At the two stands spread 0:06:28.000 --> 0:06:30.800 at fifty nine basis points right now, Remember when we 0:06:30.800 --> 0:06:35.440 were worried about that going negative. Surely fixed that one. Alright, 0:06:35.560 --> 0:06:38.040 Thanks once again to p Jim's Robert Tip. Always love 0:06:38.200 --> 0:06:43.520 chatting with him. It is time to check in with 0:06:43.560 --> 0:06:46.440 me work opinion. Now we're joined by opinion columnist Jonathan 0:06:46.520 --> 0:06:50.640 Bernstein on his latest column, to do with the elections 0:06:50.720 --> 0:06:53.599 coming up in a short five months from now. The 0:06:53.880 --> 0:06:58.120 column entitled be ready for a long election night this year. So, Jonathan, 0:06:58.320 --> 0:07:00.919 you say that administering the action would already be a 0:07:00.960 --> 0:07:04.000 challenge even if everyone acted in good face. But there 0:07:04.000 --> 0:07:06.560 are many more challenges this year, including that we could 0:07:06.600 --> 0:07:10.320 actually be looking at a whole week. Just explain if 0:07:10.320 --> 0:07:14.559 you can, what you mean by by that. Well, what's 0:07:14.600 --> 0:07:18.360 happened is as more and more voters are doing early voting, 0:07:18.440 --> 0:07:21.560 doing vote by mail, doing other forms of absentute voting, 0:07:21.960 --> 0:07:24.600 it just takes longer to count the ballots. And that's 0:07:24.600 --> 0:07:28.080 been a trend that's happening over the last several elections, 0:07:28.640 --> 0:07:30.880 and it's going to be accelerated this year because we're 0:07:30.920 --> 0:07:33.840 expecting way more vote by mail this year, and so 0:07:34.160 --> 0:07:35.920 there's going to be a lot of states that only 0:07:36.000 --> 0:07:38.840 can count you know, sixty or so of their ballots 0:07:38.960 --> 0:07:41.760 on election night, and so we need to expect that 0:07:41.840 --> 0:07:45.320 it's going to take days, maybe up to you know, 0:07:45.440 --> 0:07:50.040 ten days, fifteen days to get a final result from 0:07:50.080 --> 0:07:54.360 some states, including some of the battleground states. So is 0:07:54.400 --> 0:07:56.360 it the case that you know, we're not going to 0:07:56.400 --> 0:08:00.840 see uh, the election called on election night that no 0:08:00.880 --> 0:08:04.800 matter what, it's very likely that we won't have a 0:08:05.040 --> 0:08:08.840 conclusion to the election for again, up to maybe ten days. 0:08:09.760 --> 0:08:12.880 It depends on how close the election is. Of course, um, 0:08:13.200 --> 0:08:15.880 there are gonna there's a bunch of states that you know, 0:08:16.000 --> 0:08:18.240 basically are still going to be able to call the 0:08:18.280 --> 0:08:21.960 state that election night. But um in some of the 0:08:21.960 --> 0:08:25.800 other states, including Pennsylvania and Arizona, which are both major 0:08:25.840 --> 0:08:29.240 battleground states, expected to be this time if those states 0:08:29.280 --> 0:08:33.240 turn out to um be the margin of you know, 0:08:33.640 --> 0:08:36.600 victory we're not going to know, possibly for quite some time. 0:08:36.880 --> 0:08:38.840 And the thing is, there's nothing wrong with this. This 0:08:38.920 --> 0:08:42.160 is planned. This is how it needs to be to 0:08:42.240 --> 0:08:45.080 get everybody to vote and to have an accurate account. 0:08:45.160 --> 0:08:47.480 So one of the important things for everybody to do 0:08:47.920 --> 0:08:49.920 in a in a position to do so is to 0:08:50.000 --> 0:08:52.600 warn everyone in advance this is going to happen. This 0:08:52.679 --> 0:08:56.800 is okay, this is not fraud, this is not questionable. 0:08:56.960 --> 0:08:59.320 There's nothing wrong with this. This is the best way 0:08:59.360 --> 0:09:02.360 to let everybody vote and I get an accurate count. 0:09:02.960 --> 0:09:06.120 And yet, Jonathan, why do I have premonitions of all 0:09:06.240 --> 0:09:09.560 sorts of challenges and court cases on an attorneys general 0:09:09.640 --> 0:09:13.280 bring broad in. Well, there's no There's two things. One 0:09:13.400 --> 0:09:17.400 is legitimately, there's a close election. Both parties are going 0:09:17.480 --> 0:09:20.200 to fight for their rights, and that's you know, there's 0:09:20.240 --> 0:09:22.320 nothing wrong with that. Then, on top of that, we 0:09:22.360 --> 0:09:26.680 have a president United States who who alleged fraud without 0:09:26.840 --> 0:09:29.440 evidence in an election that he won. So we're sort 0:09:29.440 --> 0:09:33.080 of all expecting him to allege fraud no matter what happens, 0:09:33.120 --> 0:09:36.760 because that's what Donald Trump does. He claims fraud based 0:09:36.800 --> 0:09:40.079 on nothing. So you know it's it's gonna be a 0:09:40.280 --> 0:09:42.160 there's a good chance it's going to be a mess, 0:09:42.520 --> 0:09:45.000 especially if it's a close race. It's gonna be a mess. 0:09:45.000 --> 0:09:47.400 It's gonna look ugly. And the best we can do 0:09:47.559 --> 0:09:50.360 is warn everybody, Hey, this is what to expect. I mean, Paul, 0:09:50.480 --> 0:09:52.760 just you know, stop there for one second. I just 0:09:52.840 --> 0:09:57.640 think how strange it is that you're putting effort into 0:09:57.720 --> 0:09:59.920 explain to the public that fraud is not going to 0:10:00.000 --> 0:10:03.400 take place, but you have the president saying is taking place. 0:10:03.480 --> 0:10:08.040 How do you exact about that? It's interesting, you know, Jonathan, 0:10:08.040 --> 0:10:09.880 that's a great question. I mean, I think the issue 0:10:09.960 --> 0:10:15.880 is here, is the delay this election primarily driven by 0:10:16.000 --> 0:10:18.480 the write in votes, the mail in votes that are 0:10:18.520 --> 0:10:20.920 resulting from the pandemic, or is there anything else going 0:10:20.960 --> 0:10:23.600 on here? Well, a lot of states are just shifting 0:10:23.640 --> 0:10:27.120 more to mail in votes to begin with, and states 0:10:27.160 --> 0:10:30.959 have different rules so that some states you can the 0:10:31.520 --> 0:10:35.360 deadline is to get a um to give the ballot in, 0:10:35.679 --> 0:10:37.839 to give the ballot um you know, in the mail 0:10:38.000 --> 0:10:40.079 on election day, so it may take another day or 0:10:40.080 --> 0:10:42.200 two to be to arrive, and then they have to 0:10:42.200 --> 0:10:43.959 sort it and they have to come and it takes 0:10:44.000 --> 0:10:48.920 a lot longer to count um absentee votes and vote 0:10:48.920 --> 0:10:51.240 by mail because you have to certify it. You have 0:10:51.280 --> 0:10:52.640 to make sure it's a real bad You can't just 0:10:52.720 --> 0:10:56.559 you know, throw everything through the machine, so it takes longer. 0:10:56.840 --> 0:11:00.080 And then there's an additional complication, which is in the 0:11:00.120 --> 0:11:02.200 thing we have to let people know, which is that 0:11:02.559 --> 0:11:04.680 the people who tend to vote at the last minute 0:11:05.120 --> 0:11:08.040 tend to be more Democratic than Republican. So we need 0:11:08.080 --> 0:11:11.360 to expect in most states. It's not it's not consistent 0:11:11.400 --> 0:11:13.800 across all states, but it is true in both Pennsylvania 0:11:13.840 --> 0:11:17.280 and Arizona. We expect the election night count to be 0:11:17.280 --> 0:11:20.800 better for Republicans than the final result. And there's a 0:11:20.800 --> 0:11:24.600 good chance that Republicans may have to lead on election night, 0:11:25.200 --> 0:11:27.800 while experts who know you know, who know how this works, 0:11:28.280 --> 0:11:31.040 know that Democrats have a very good chance of overtaking that. 0:11:31.960 --> 0:11:34.640 How will this affect how we should read pulling on 0:11:34.720 --> 0:11:37.600 the way up to the election? Obviously pulling has not 0:11:37.720 --> 0:11:40.800 had a great record recently anyway, but you know, presumably 0:11:41.480 --> 0:11:44.040 there would be you know, different polls this year, a 0:11:44.080 --> 0:11:48.839 different types of of of collecting data and people reading 0:11:48.880 --> 0:11:51.520 them differently, and you would have thought, hopefully better than 0:11:51.600 --> 0:11:54.640 the last couple of elections. Will it make a difference. 0:11:55.240 --> 0:11:58.320 That's a great question. The pulling actually last time around 0:11:58.520 --> 0:12:01.920 was better than people thinking the national polls basically got 0:12:01.920 --> 0:12:04.480 it right, some of the state polls were wrong. Um, 0:12:04.559 --> 0:12:08.400 where there's no particular reason to think that absolutely voting 0:12:08.720 --> 0:12:11.640 vote by mail will really affect that. Posters have learned. 0:12:11.960 --> 0:12:15.600 You know, people now start voting in early October. Um, 0:12:15.920 --> 0:12:18.120 it's more of a one month election that then takes 0:12:18.120 --> 0:12:20.400 a week to count than a one day election that 0:12:20.440 --> 0:12:23.520 takes one night to count. Um. So so there's actually 0:12:23.720 --> 0:12:25.520 sort of slipped the JOm. Both sides and posters have 0:12:25.600 --> 0:12:28.800 gotten better, have gotten pretty good at knowing that's happening 0:12:29.120 --> 0:12:31.640 and adjusting for it. So we may have polling errors, 0:12:31.679 --> 0:12:36.160 but it shouldn't really affect the count that much. Johnathan Bernstein, 0:12:36.200 --> 0:12:39.120 thanks so much for joining us. Jonathan Bernstein, Bloomberg Opinion 0:12:39.559 --> 0:12:43.760 columnists covering all things political. I think, as you suggested, Vanni, 0:12:44.240 --> 0:12:46.400 this is going to get kind of ugly as we 0:12:46.480 --> 0:12:48.080 kind of get up to this election and trying to 0:12:48.120 --> 0:12:51.840 process the days after. Yeah, I mean we're definitely five 0:12:51.880 --> 0:12:54.400 months away. But yesterday alone you had Paul to to 0:12:54.480 --> 0:12:57.520 Jonesy and Bruce Richards already talking about starting to look 0:12:57.559 --> 0:12:59.360 towards the election, and so you know when you have 0:12:59.440 --> 0:13:01.080 major investor is like that doing it, you know the 0:13:01.080 --> 0:13:02.520 rest of the country is. But of course there's the 0:13:02.559 --> 0:13:05.600 conventions to get through first Pall Yeah, exactly, And Johnson 0:13:05.640 --> 0:13:09.040 said the key here's uh kind of education letting people 0:13:09.040 --> 0:13:11.360 know that this is going to happen. But Jonathan's columns 0:13:11.840 --> 0:13:14.160 the first time I kind of kind of came up 0:13:14.200 --> 0:13:16.480 to this issue. So there's a lot more education that 0:13:16.600 --> 0:13:18.840 needs to be had going forward, but it will be 0:13:18.880 --> 0:13:23.480 certainly an issue. Great Jared, thank you so much. We 0:13:23.520 --> 0:13:26.800 appreciate that. Market Drivers is brought to you by Commonwealth 0:13:26.840 --> 0:13:29.720 Financial Network for the sixth raight time. JD Power ranks 0:13:29.800 --> 0:13:35.640 Commonwealth number one and independent advisor satisfaction among financial investment firms. 0:13:35.720 --> 0:13:39.200 Visit Commonwealth dot com to learn more. Looking at the 0:13:39.200 --> 0:13:41.040 markets here, as Greig was just mentioning, we're kind of 0:13:41.080 --> 0:13:43.560 kind of a mixed SMP down slightly down, down a 0:13:43.600 --> 0:13:46.840 hundred and fifty points. But the NASTAC is hired to 0:13:46.840 --> 0:13:48.880 get a sense of what's really going on and how 0:13:48.920 --> 0:13:52.920 we should be thinking about these equity markets going forward. 0:13:52.920 --> 0:13:54.880 In the face of this global pandemic. We welcome our 0:13:54.880 --> 0:13:58.840 good friend Gina Martin Adams. She's an equity strategist for 0:13:58.960 --> 0:14:02.280 Bloomberg Intelli. Gina, thanks much for joining us here. Give 0:14:02.360 --> 0:14:04.720 us your sense here of kind of how you're viewing 0:14:04.720 --> 0:14:08.640 the markets here. After this nice bounce off the lows 0:14:08.640 --> 0:14:11.240 that we've seen any equity markets, how are you kind 0:14:11.240 --> 0:14:13.200 of taking a look at the next twelve months for 0:14:13.480 --> 0:14:16.480 the equity markets. Yeah, so when we think about where 0:14:16.480 --> 0:14:19.520 equity markets are, the bounce in our view has been 0:14:19.680 --> 0:14:23.080 entirely driven by policy infusion. Much lower rates for a 0:14:23.080 --> 0:14:25.240 longer period of time, a commitment by the Fed to 0:14:25.960 --> 0:14:28.200 at least double the size of the balance sheet and 0:14:28.320 --> 0:14:32.200 purchase many, many assets across the bond market spectrum has 0:14:32.320 --> 0:14:36.800 certainly elevated valuations and equities um. But we've now priced 0:14:36.840 --> 0:14:40.560 effectively priced that policy infusion in, so we're waiting for 0:14:40.600 --> 0:14:43.440 our next like higher And I do think that's why 0:14:43.440 --> 0:14:45.560 you're seeing the market sort of take a pause here, 0:14:45.840 --> 0:14:49.840 rotate back into some longer term winners. And I do 0:14:49.880 --> 0:14:52.160 think we're in for a period of maybe a rockier 0:14:52.280 --> 0:14:55.520 climb as we move into more of us show me 0:14:55.560 --> 0:14:57.520 market and by that I mean, we're going to have 0:14:57.640 --> 0:15:00.840 to see the economic data continue to improve of maybe 0:15:00.840 --> 0:15:04.520 a little upward revision momentum emerge in the earnings UH 0:15:04.640 --> 0:15:09.040 in the earnings expectations stream to really drive performance from here. 0:15:09.200 --> 0:15:11.960 So we've gone from policy driven market to what's likely 0:15:12.000 --> 0:15:14.640 to be more of an economically and earnings driven market 0:15:15.200 --> 0:15:17.280 over the next several months in our view. Yeah, just 0:15:17.320 --> 0:15:20.120 as you talk about that, we're seeing the fangs hire 0:15:20.200 --> 0:15:23.920 today which again shows the NASDA two thirds of percent, 0:15:23.960 --> 0:15:26.680 while the other indicries are lower, but Gina not by 0:15:26.800 --> 0:15:30.040 very much. And if you say we're going back to 0:15:30.040 --> 0:15:33.320 the fundamentals, you know, what does an improvement look like, 0:15:33.400 --> 0:15:37.040 Because we're looking at seriously negative numbers, particularly for earnings 0:15:37.080 --> 0:15:40.280 next quarter. We are, but the expectation is for that 0:15:40.360 --> 0:15:43.320 negativity to persist. And I think that's an important and 0:15:43.400 --> 0:15:46.200 important point to make. If you look at your average 0:15:46.240 --> 0:15:50.960 recovery following recession lows, you typically get a ten percent 0:15:51.480 --> 0:15:55.080 growth pace in EPs following those lows in the year 0:15:55.120 --> 0:15:59.200 after those lows, So ten percent is your average we're 0:15:59.240 --> 0:16:02.080 making in a five for some expectation in terms of 0:16:02.080 --> 0:16:04.360 our forecast for where the SMP five fundered is most 0:16:04.360 --> 0:16:07.160 likely to go the consensus expects only one and a 0:16:07.200 --> 0:16:10.080 half percent growth, So I think this is an important 0:16:10.120 --> 0:16:13.960 thing to keep in mind, is there's no implied expectation 0:16:14.160 --> 0:16:17.440 for recovery really in the earning stream. In terms of 0:16:17.480 --> 0:16:20.400 consensus expectations, I would argue the market is probably be 0:16:20.440 --> 0:16:23.760 pricing in about two percent growth following our our second 0:16:23.840 --> 0:16:26.920 quarter trough. So that's why we're so sensitive to what 0:16:27.000 --> 0:16:30.800 happens with the pace of economic growth and earnings recovery. Yes, 0:16:30.880 --> 0:16:33.760 the current economic numbers look bad, but they are getting 0:16:33.880 --> 0:16:36.280 less bad. As long as they continue to get less 0:16:36.280 --> 0:16:39.840 bad and start to migrate to potentially growth, we're more 0:16:39.920 --> 0:16:43.320 likely to see revision momentum revert higher or more likely 0:16:43.360 --> 0:16:46.960 to see earnings beat expectations, and that's going to keep 0:16:47.000 --> 0:16:50.400 the market most likely moving higher, albeit certainly not at 0:16:50.400 --> 0:16:54.120 the double digit pace of monthly growth that we've experienced 0:16:54.480 --> 0:16:57.440 most recently. It'll be it'll most likely be a rocky, 0:16:57.640 --> 0:17:00.600 rockier climb because it's driven more by improve the earnings 0:17:00.600 --> 0:17:04.240 expectations and improving economic outlook, which by its very nature 0:17:04.320 --> 0:17:07.080 is much more difficult and more difficult portion of the 0:17:07.119 --> 0:17:10.639 equity market climb than the pure valuation expansion driven portion 0:17:10.680 --> 0:17:13.480 that we've just been through. So you know, we've had 0:17:13.680 --> 0:17:15.480 the FED kind of come out, you know, since the 0:17:15.520 --> 0:17:18.880 beginning of this pandemic, could be quite aggressive, quite a 0:17:19.080 --> 0:17:21.760 forthright in kind of their views of how they need 0:17:21.800 --> 0:17:25.080 to stimulate the market and add to liquidity to the market. 0:17:25.640 --> 0:17:29.200 Fiscal stimulus is kind of taken a back seat here. 0:17:29.440 --> 0:17:31.560 Is that does the market need to see another big 0:17:31.640 --> 0:17:34.960 round of fiscal stimulus here or is that not a 0:17:35.040 --> 0:17:38.639 prerequisite for the support of this market right here? I 0:17:38.640 --> 0:17:41.600 think it will entirely depend upon the pace of economic recovery. 0:17:41.600 --> 0:17:42.959 I mean, I think we can all admit that we 0:17:42.960 --> 0:17:47.160 were very shocked by the pace of employment recovery recorded 0:17:47.160 --> 0:17:49.080 in the month of May, just on a couple of 0:17:49.119 --> 0:17:52.719 weeks of reopening. To see that kind of employment growth. 0:17:52.840 --> 0:17:55.280 There's a lot of skepticism as to whether it will continue. 0:17:55.320 --> 0:17:57.520 But if it does continue into June, I think the 0:17:57.520 --> 0:17:59.679 fiscal bodies are going to really start the question how 0:17:59.840 --> 0:18:03.040 much spending they need to do, how much stimulus they 0:18:03.080 --> 0:18:05.639 need to do. At the same time, you've got a 0:18:05.640 --> 0:18:07.080 lot of fear out there that we're going to have 0:18:07.119 --> 0:18:10.199 another reinfection wave, that we're going to experience some you know, 0:18:10.320 --> 0:18:15.000 sort of um greater shutdown come winter months, and so 0:18:15.040 --> 0:18:17.240 I think that they want to reserve some firepower in 0:18:17.240 --> 0:18:20.320 the event that we do see some sort of reinfection 0:18:20.359 --> 0:18:22.679 going forward. Not to mention, the fiscal budget is not 0:18:22.800 --> 0:18:26.360 exactly sanguine at this moment in time. We certainly accumulated 0:18:26.359 --> 0:18:29.080 a tremendous fiscal fiscal deficits, so I think they're going 0:18:29.119 --> 0:18:32.840 to be somewhat conservative, certainly follow the data. I think 0:18:32.840 --> 0:18:35.480 in certain cases there's enough political momentum, such as the 0:18:35.520 --> 0:18:41.000 extension of unemployment benefits, to probably get something through. But 0:18:41.080 --> 0:18:44.199 we're unlikely to see a massive Zooka package like we 0:18:44.280 --> 0:18:48.359 saw in the spring, simply because we do appear to 0:18:48.440 --> 0:18:51.280 be pushing past the worst of the worst, and as 0:18:51.320 --> 0:18:53.600 long as we're going to continue to see some incremental 0:18:53.640 --> 0:18:57.760 improvement in economic growth, your case for extraordinary fiscal expenditure 0:18:58.600 --> 0:19:01.359 um in that kind of environment, it is diminished somewhat, 0:19:01.359 --> 0:19:03.879 and the equity market is not necessarily counting on it. 0:19:03.960 --> 0:19:06.120 You know, with one and a half percent growth forecast 0:19:06.160 --> 0:19:08.920 for earnings over the next twelve months, the equity market 0:19:08.960 --> 0:19:11.720 is essentially just saying, hey, we're going to have incremental 0:19:11.760 --> 0:19:14.720 improvement in the economy. I would say another fiscal package 0:19:14.920 --> 0:19:18.159 is um likely to provide a big booth. Gina, very briefly, 0:19:18.160 --> 0:19:19.879 what do you make of the distressed equity investing that 0:19:19.920 --> 0:19:21.520 we're seeing right now? Her, it's jes a big j 0:19:21.640 --> 0:19:24.320 C penny. Yeah, I mean, I think it's just a 0:19:24.440 --> 0:19:26.959 risk tolerance move. I do think that what's happening in 0:19:27.000 --> 0:19:30.359 general is an improvement and risk tolerance investors are willing 0:19:30.960 --> 0:19:34.679 to go out the curve in terms of lower quality investments, 0:19:34.760 --> 0:19:40.280 higher volatility investments. That's very symptomatic of sort of recession loads, 0:19:40.359 --> 0:19:43.960 very consistent with experience as the past. UM. I wouldn't 0:19:43.960 --> 0:19:47.679 call it necessarily taking a flyer, but certainly finding those 0:19:47.920 --> 0:19:53.119 um those potential opportunities where we've seen extraordinary dislocation and 0:19:53.160 --> 0:19:55.680 maybe some mispricing in the market is definitely the risk 0:19:55.720 --> 0:19:58.280 appetite of the day, right, Gina. Thank you have to 0:19:58.280 --> 0:20:01.320 live there, Gina, Martin Addam when we're intelligence the chief 0:20:01.480 --> 0:20:08.199 equity strategists, Thank you for that. There's one CEO I 0:20:08.400 --> 0:20:10.399 probably not want to be during these times, and that 0:20:10.480 --> 0:20:13.120 is an insurance company CEO. They are on the hook 0:20:13.200 --> 0:20:16.160 for so much or at least they say they're not. 0:20:16.520 --> 0:20:20.359 But those who are claiming they are sometimes have a 0:20:20.520 --> 0:20:23.000 pretty good argument, or at least they think they do. 0:20:23.119 --> 0:20:25.720 Let's bring in somebody who knows both sides of the story, 0:20:25.760 --> 0:20:29.240 and that is Matt Pozzola, who covers all of the insurers, 0:20:29.320 --> 0:20:34.400 particularly the property and casualty insurers for US at Bloomberg Intelligence. So, Matt, 0:20:34.600 --> 0:20:36.840 the story for the insurers just keeps getting more and 0:20:36.920 --> 0:20:40.800 more complicated. We had the pandemic, we had events canceled 0:20:40.840 --> 0:20:44.119 for that reason, and then of course we had protests, 0:20:44.160 --> 0:20:47.280 some of which turned into riots. Just how on the 0:20:47.320 --> 0:20:51.960 hook are insurers for all of these events? Yeah, the 0:20:52.080 --> 0:20:56.159 combination of all these events will probably make for the 0:20:56.200 --> 0:21:00.240 worst insured loss year ever. UM as a bull of 0:21:00.359 --> 0:21:05.119 distinctions to make when you're you know, saying that, typically, UM, 0:21:05.160 --> 0:21:08.400 when you have a large event, which previously the most 0:21:08.440 --> 0:21:10.840 cost the event was Hurricane Katrina in the United States, 0:21:11.119 --> 0:21:14.600 that's usually isolated to at least one geographic region. So 0:21:15.240 --> 0:21:20.440 what's really distinguishing the pandemic is the fact that it's 0:21:20.480 --> 0:21:25.120 impacting pretty much every major, large global city in the world. UM. 0:21:25.480 --> 0:21:28.159 And that's what's going to contribute to this large loss Alright, 0:21:28.160 --> 0:21:32.960 so Matt, can the insurance industry handle this? Yeah, for sure. 0:21:33.040 --> 0:21:37.000 So the insurance industry is well capitalized. Two thousand seventeen 0:21:37.040 --> 0:21:39.560 and two thousand eighteen were pretty bad years in the 0:21:39.640 --> 0:21:43.119 United States for insured losses, with a number of hurricanes 0:21:43.160 --> 0:21:47.600 adding up, and even through that, insurance companies remained pretty 0:21:47.600 --> 0:21:51.040 well capitalized. And I think the other important point is 0:21:51.119 --> 0:21:57.040 that if these losses are very geographically dispersed um by region, 0:21:57.080 --> 0:22:00.520 they're going to be very very dispersed by company me too, 0:22:00.560 --> 0:22:03.880 So it's going to be spread across the entire global industry. 0:22:03.920 --> 0:22:07.280 So I wouldn't have capital concerns for the entire industry. 0:22:07.640 --> 0:22:10.600 Some companies here and there could get into trouble thought well. 0:22:10.600 --> 0:22:12.920 And of course we should note that when it comes 0:22:12.960 --> 0:22:16.720 to that side of the equation, insurance companies are huge investors, 0:22:16.720 --> 0:22:19.360 and with the out and NASDAC and all those industries 0:22:19.400 --> 0:22:23.520