WEBVTT - Surveillance: Reddit Revolution With Mishkin 0:00:05.120 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. 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, 0:00:23.600 --> 0:00:27.280 Bloomberg dot Com, and of course on the Bloomberg. We've 0:00:27.280 --> 0:00:29.640 gotta get to staying natives in this morning snacks banks, 0:00:29.640 --> 0:00:33.760 Ceio waiting patiently staying up. Just kick things off. Your 0:00:33.800 --> 0:00:36.360 take on the last couple of days in this market, please. 0:00:38.680 --> 0:00:40.720 I think it's super interesting and I think it plays 0:00:40.720 --> 0:00:43.479 into the bigger narrative. It's in place that we have 0:00:43.640 --> 0:00:46.560 a social revolution going on between the halfs and the 0:00:46.640 --> 0:00:49.320 half not in the words of the people who played 0:00:49.320 --> 0:00:52.239 the stock market, the Wall Street suits and and and 0:00:52.280 --> 0:00:55.880 the retailers. We have the fact a fat that continues 0:00:55.920 --> 0:00:58.680 to play a game where they ignore facts. I guess 0:00:58.880 --> 0:01:01.120 Paul's next statement, we're be that the world is flat 0:01:01.240 --> 0:01:04.520 or that gravity is something that was invented in terms 0:01:04.520 --> 0:01:07.840 of fake news. And finally, I think most most importantly, 0:01:07.920 --> 0:01:10.360 we have the fact that you know, fat needs to 0:01:10.360 --> 0:01:13.200 stand out one day soon together with the treachery secretary 0:01:13.240 --> 0:01:16.760 that's incoming and realized that the financial repression that goes 0:01:16.760 --> 0:01:20.280 on today creates a market which is in its nature 0:01:20.880 --> 0:01:24.839 is a one size bet with the market at old times. 0:01:24.840 --> 0:01:28.920 So you have created by virtue of this extended policy, 0:01:29.360 --> 0:01:32.480 and look into the future of even more extension of 0:01:32.600 --> 0:01:35.560 the same policy tool. With the financial repression, you create 0:01:35.600 --> 0:01:38.559 a betting market, a betting market. And just to fill 0:01:38.600 --> 0:01:40.920 in people who did not hear jr. Own Power yesterday, 0:01:41.440 --> 0:01:43.640 you are throwing shaded his comment where he said, if 0:01:43.640 --> 0:01:46.400 you look at what's really been driving asset prices really 0:01:46.400 --> 0:01:49.240 in the last couple of months, it isn't monetary policy. 0:01:49.320 --> 0:01:51.520 The connection between low interest rates and asset values is 0:01:51.520 --> 0:01:54.440 probably something that's not as tight as people think. Steve, 0:01:54.520 --> 0:01:57.600 given that we are in this betting market, do you 0:01:57.720 --> 0:02:00.520 think that this populist shift, this ang her that you're 0:02:00.560 --> 0:02:03.640 talking about that seems to be a hallmark, whether in 0:02:03.840 --> 0:02:06.240 actuality in terms of who's doing the trading, or at 0:02:06.280 --> 0:02:09.680 least in the sentiment on these chat rooms, how else 0:02:09.720 --> 0:02:11.840 will be expressed in markets? In other words, is this 0:02:11.960 --> 0:02:15.560 going to be a pervasive feature that does affect where 0:02:15.560 --> 0:02:19.960 prices end up going? It does, and I'd already done it. 0:02:20.000 --> 0:02:22.280 Of course you're all aware of a few hedgephones that's 0:02:22.280 --> 0:02:24.600 been in trouble. And if you look at the whole 0:02:24.639 --> 0:02:28.359 construction in the inside the fund management business of long 0:02:28.400 --> 0:02:32.520 short portfolios, if you have and and attacked the list 0:02:32.560 --> 0:02:35.880 of the most fifty most shortest stocks, you're also attagging 0:02:36.360 --> 0:02:40.680 the nominal names that everyone has in the short portfolio 0:02:40.680 --> 0:02:42.960 of the big hedge fund. So we will see, and 0:02:43.000 --> 0:02:46.720 we saw yesterday and particularly in the green transformation space, 0:02:46.800 --> 0:02:49.399 the energy space, that a lot of names came down 0:02:50.560 --> 0:02:54.720 inside today simply because the collateral value of the shorts 0:02:54.840 --> 0:02:57.600 blew up, or the lag of value in the shorts 0:02:57.639 --> 0:03:00.440 blew up, and they need to sell collateral against meaning 0:03:00.480 --> 0:03:02.560 that they had to sell the profity position. And I 0:03:02.600 --> 0:03:04.960 think at Lisa is very important to note that we 0:03:05.000 --> 0:03:08.320 had in percentage term, the single biggest move in VIC 0:03:08.440 --> 0:03:11.600 yesterday we've ever seen, not in nominal terms, but in 0:03:11.600 --> 0:03:14.359 in in in percentage terms, which is a clean indication. 0:03:14.560 --> 0:03:16.400 And for the record, if you look at the curve 0:03:16.800 --> 0:03:19.519 in the VIC futures, the indication of what is to come, 0:03:19.840 --> 0:03:22.160 we have seen that the front end contract is now 0:03:22.639 --> 0:03:25.840 of course, a gradually being priced relatively Steve part of 0:03:25.880 --> 0:03:27.959 your charm is unlike a lot of c I O s. 0:03:28.040 --> 0:03:31.400 You have massive trading experience of enjoying the bid, walking 0:03:31.440 --> 0:03:34.120 away the challenges a bid, and you can't find an 0:03:34.120 --> 0:03:36.600 ask out there. Right now, I want you to talk 0:03:36.640 --> 0:03:40.440 about what we're seeing hedge funds, short retail, the guys 0:03:40.440 --> 0:03:42.640 on the couch, and I think they're way more sophisticated 0:03:42.640 --> 0:03:45.320 than people think. But I want you to talk about 0:03:45.400 --> 0:03:48.960 the cost to short. The big guys clear their short 0:03:49.080 --> 0:03:52.720 everybody else's reshorting game stop right now, and the so 0:03:52.840 --> 0:03:57.240 called borrow too short is immense. What is that signal 0:03:57.280 --> 0:04:02.680 to you? It signals that you know, if there's one 0:04:02.720 --> 0:04:05.440 component of the market which and I agree with you, Tom, 0:04:05.520 --> 0:04:07.240 we have to give credit to these people in the 0:04:07.280 --> 0:04:10.120 retail spills. Not only are they going after the short 0:04:10.200 --> 0:04:13.400 names where the vulnerability is because you have to deliver 0:04:13.480 --> 0:04:15.880 these stocks back to the owners and they can get 0:04:15.960 --> 0:04:18.520 call on that, so they have, you know, a counterparty risk, 0:04:18.839 --> 0:04:22.760 but they also using the optionality, the convexity of options, 0:04:22.839 --> 0:04:26.160 which translated into plain English means that they're getting a 0:04:26.200 --> 0:04:29.719 massive leverage of just buying the nearby calls. And don't 0:04:29.760 --> 0:04:32.920 forget this is a generation of people, young people who 0:04:33.120 --> 0:04:36.640 primarily probably came from the betting industry. In the betting industry, 0:04:36.640 --> 0:04:39.680 the probability on a bed is at best fifty minus 0:04:39.800 --> 0:04:44.200 the house. Now they're they're aggurgating their voices, their money 0:04:44.240 --> 0:04:47.839 in a game against the short interest as you allude to, 0:04:48.360 --> 0:04:50.800 with a game that says, you know, we're playing this 0:04:50.960 --> 0:04:53.360 like a lottery ticket. We can buy the calls forever 0:04:53.720 --> 0:04:55.560 and we will lose, as we always start in the 0:04:55.600 --> 0:04:58.600 begging in the betting, you know, once in a while, 0:04:58.800 --> 0:05:01.040 but as long as the gains out with that. So 0:05:01.080 --> 0:05:04.440 we have changed the dynamics. And I think for us, 0:05:04.520 --> 0:05:07.520 all suits, as they call us, we need to realize 0:05:07.560 --> 0:05:09.840 that the game has changed and and and that and 0:05:10.360 --> 0:05:13.239 I have to go back to fit because sorry, Jonathan, 0:05:13.440 --> 0:05:15.479 just we have to go back to fit. It is 0:05:15.520 --> 0:05:18.320 a repression market. We have the repression of the markets. 0:05:18.440 --> 0:05:20.880 We have no price discovery. Of course we get to 0:05:20.920 --> 0:05:23.880 a betting situation. Well, let's add to that for Chairman 0:05:23.920 --> 0:05:26.799 Powell once it really get on his radar, staing, because 0:05:27.120 --> 0:05:29.080 in the last twenty four hours in that news conference, 0:05:29.400 --> 0:05:31.280 that was just the strug of the shoulders. We've got 0:05:31.279 --> 0:05:36.040 bigger things to worry about, and they do, and absolutely 0:05:36.040 --> 0:05:38.240 and I think probably also we should get credit to 0:05:38.320 --> 0:05:41.800 Powell to then connecting it to the full employment mandate 0:05:41.800 --> 0:05:43.680 that he's trying to operate. He put it in the 0:05:43.720 --> 0:05:46.520 context that despite the fact we run a very low 0:05:46.560 --> 0:05:49.279 interest rate and we have you know, on hold for 0:05:49.320 --> 0:05:51.800 at least into twenty four in terms of changes to 0:05:51.960 --> 0:05:54.560 that interst rate, we still have six million people who 0:05:54.560 --> 0:05:57.880 are unemployed. So the market disagree with Paul on the 0:05:57.920 --> 0:06:01.000 fact that you can go back to a a model 0:06:01.000 --> 0:06:04.039 where you have full employment. And for the record, you know, 0:06:04.120 --> 0:06:06.039 if you ask any future is to anyone who wants 0:06:06.040 --> 0:06:09.080 to look into the future, they all expect that by 0:06:09.080 --> 0:06:14.160 we'll have people maybe not unemployed, but deployed. Alternatively, So 0:06:14.279 --> 0:06:17.800 to creating a model now that drives towards full employment, 0:06:17.839 --> 0:06:22.400 full capacity under the headlines of the technology and and 0:06:22.400 --> 0:06:24.640 and and on the cult demographic is going the other way, 0:06:24.640 --> 0:06:29.200 I think just makes off a huge policy mistakes incoming Stein. 0:06:29.279 --> 0:06:31.840 I love what you said. They're about the conflation year 0:06:31.920 --> 0:06:36.360 of quantitative finance, and literally at Thorpe like betting over 0:06:36.400 --> 0:06:38.800 the people trying to play a game, as we heard 0:06:38.800 --> 0:06:42.400 from Villier, the hunted the hunter being hunted as well. 0:06:42.520 --> 0:06:45.880 I want you to conflate Paul Wilmon of Imperial College, 0:06:46.200 --> 0:06:49.480 the great Nacien Talab and also what we heard from 0:06:49.520 --> 0:06:53.200 the legend or dairy ed Thorpe, which is it's okay 0:06:53.240 --> 0:06:55.760 to take a loss. I know I'm going to take 0:06:55.800 --> 0:06:58.320 a loss, but I've got the upper hand right now. 0:06:58.560 --> 0:07:05.080 Explain that. Yeah. So, so it's really optionality. I mean crypto. 0:07:05.240 --> 0:07:08.520 The crypto space is another example. So let's use crypto 0:07:08.560 --> 0:07:11.640 as an optionality. And it's thoughts and these comments. If 0:07:11.920 --> 0:07:14.400 you play the game of crypto, you don't even need 0:07:14.440 --> 0:07:17.560 to understand crypto. You don't need to understand stocks. If 0:07:17.560 --> 0:07:20.720 you're betting every time five percent of your wage, five 0:07:21.080 --> 0:07:24.000 of your total amount, and you have an optionality that says, 0:07:24.080 --> 0:07:26.360 yet once in a while you get a fifty two 0:07:26.440 --> 0:07:29.760 hundred payback on that exactly bet, then you will always 0:07:29.760 --> 0:07:33.000 be ahead because you can control the destruction of your 0:07:33.040 --> 0:07:36.040 capital relative to your earning. So you have a very 0:07:36.120 --> 0:07:39.560 very high optionality game in the market. And that optionality, 0:07:39.720 --> 0:07:43.320 of course is being not only supported but being extended 0:07:43.360 --> 0:07:46.960 in terms of guarantees the length the death by by 0:07:47.000 --> 0:07:49.520 the Federal Reserve, who of course has a different agenda, 0:07:49.760 --> 0:07:52.480 but one of the unattended consequences being that the support 0:07:52.760 --> 0:07:56.600 that very optionality itself. Steve always great to catch up, 0:07:56.640 --> 0:08:00.560 Sir Stean Jacipson, Saxa Bank see io Steve, Thank very much. 0:08:05.320 --> 0:08:11.720 Shan across rights blisteringly straightforward tech reports. They're wonderfully clear. 0:08:12.240 --> 0:08:15.640 I love when it's seven pages, it's actually seven pages 0:08:15.880 --> 0:08:18.120 and not filled with a lot of fillers. She's across 0:08:18.400 --> 0:08:21.560 at Research and joins us now Shannon off of Microsoft 0:08:21.600 --> 0:08:23.880 and off of Apple. Let's just start with the big, 0:08:23.880 --> 0:08:27.400 big tech. What have you learned? Well, I mean, I 0:08:27.400 --> 0:08:30.280 think what we've learned is that certainly the consumer has 0:08:30.320 --> 0:08:34.640 been extremely resilient. UM. You know, iPhones were up seventy year. 0:08:34.840 --> 0:08:39.120 PC sales were very strong at at Microsoft, UM, you know. 0:08:39.160 --> 0:08:41.040 And I think we've also learned that the cloud is 0:08:41.480 --> 0:08:45.440 a big focus UM services within Apple on which we're up, 0:08:46.240 --> 0:08:49.360 we're driven partially by the cloud services they have. You know, 0:08:49.400 --> 0:08:53.160 obviously Azure was up fifty so UM. I think both 0:08:53.160 --> 0:08:56.199 of those trends are are strong. Enterprise a little weaker, UM, 0:08:56.960 --> 0:08:59.160 not a little weaker, but it remains remains a little 0:08:59.200 --> 0:09:03.160 bit shaky. Year I would say, in the game of extrapolation, 0:09:03.320 --> 0:09:06.040 what is your conviction out two years or five years 0:09:06.040 --> 0:09:09.440 on these names. They're getting a pandemic pop. How do 0:09:09.480 --> 0:09:14.800 you recalibrate your conviction out to to five years? You know, 0:09:15.160 --> 0:09:18.240 I actually I've remained really positive on both of these companies. 0:09:18.280 --> 0:09:21.119 I think you know, Apple is is. I mean, they're 0:09:21.160 --> 0:09:23.920 they have a billion iPhones out there, um and they're installed. 0:09:23.960 --> 0:09:26.480 They say at one point six billion devices that people 0:09:26.480 --> 0:09:30.480 are utilizing. Their services continue to grow. UM. They're spending 0:09:30.679 --> 0:09:33.720 you know, aggressively in R and D, which is continuing 0:09:33.760 --> 0:09:36.240 to support their product pipeline. You know, they came out 0:09:36.280 --> 0:09:39.040 with the their AirPod maxes. They're continuing to be sold 0:09:39.080 --> 0:09:41.760 out some of the Again, some of these products don't 0:09:41.760 --> 0:09:44.720 necessarily move the needle a lot, but in agg aggregate 0:09:44.800 --> 0:09:47.960 they do. UM. For Microsoft, you know, I think they're 0:09:48.440 --> 0:09:51.320 Azure is is quickly becoming, you know, one of the 0:09:51.480 --> 0:09:56.160 obviously the top choices from a cloud perspective. UM companies 0:09:56.200 --> 0:09:59.560 continue to shift to cloud services like Office three, six five. 0:10:00.160 --> 0:10:02.679 And you know the interesting thing about PCs is that 0:10:02.800 --> 0:10:05.040 where I don't know, a few years ago, everybody said 0:10:05.080 --> 0:10:06.520 they were dead and everybody was going to go to 0:10:06.559 --> 0:10:09.439 a tablet. Now the PC companies are all talking about 0:10:09.440 --> 0:10:12.360 one PC per person, that one PC per household. So 0:10:12.400 --> 0:10:14.320 there's still a long ways to go in terms of 0:10:14.640 --> 0:10:17.400 PC adoption and penetration. So then can we just take 0:10:17.400 --> 0:10:19.600 a step back. The shares are lower today because they 0:10:19.600 --> 0:10:22.760 didn't provide a forecast, and yet they had a revenue 0:10:22.840 --> 0:10:25.800 for the quarter of more than a hundred billion dollars, 0:10:25.800 --> 0:10:29.560 surpassing revenues for full years as recently as two thousand 0:10:29.640 --> 0:10:32.320 and eleven. And people are selling the shares because they 0:10:32.320 --> 0:10:34.280 don't have visibility in the near term that they're going 0:10:34.280 --> 0:10:36.280 to absolutely crush it the same way that they have. 0:10:36.640 --> 0:10:38.800 There is a question of what they have to do 0:10:38.880 --> 0:10:41.280 with their money with all of that cash in order 0:10:41.280 --> 0:10:43.800 to keep crushing it. At a time when Facebook views 0:10:43.840 --> 0:10:47.280 Apple is potentially it's biggest competitor, in Volkswagen views Apples 0:10:47.320 --> 0:10:50.800 its biggest competitor with Eye Message and the Apple Car, respectively. 0:10:51.080 --> 0:10:54.840 Is Apple investing its cash in enterprises that will lead 0:10:54.840 --> 0:10:57.680 it to that dominance in those particular industries in a 0:10:57.679 --> 0:11:00.720 different way than it is now. Well, I look, I 0:11:00.760 --> 0:11:03.959 think Apples running the playbook they've been running for several years, 0:11:03.960 --> 0:11:06.000 and it's clearly worked very well. So I don't think 0:11:06.000 --> 0:11:08.040 they need to go and buy something, um, you know, 0:11:08.080 --> 0:11:10.839 and be aggressive from an acquisition standpoint. You know, you 0:11:10.880 --> 0:11:14.280 look at their their R and D spend. It's it's significant. 0:11:14.600 --> 0:11:16.920 You know, we hear chatter about autos. You know, they're 0:11:16.960 --> 0:11:21.880 they're obviously investing heavily in healthcare. UM. I'm not sure 0:11:21.920 --> 0:11:24.440 that they need to really change what they're doing. I mean, 0:11:24.520 --> 0:11:26.640 you know, if you look at the trajectory of the revenue. 0:11:27.000 --> 0:11:29.840 You know, last year they did two billion, and this 0:11:29.960 --> 0:11:33.920 year we have them doing three two billion. UM. The 0:11:34.000 --> 0:11:36.320 numbers are staggering. I still remember when they gave us 0:11:36.360 --> 0:11:38.560 a model that said, you know, we're going to do 0:11:38.600 --> 0:11:41.840 eight to twelve billion over the next few years annually. 0:11:42.240 --> 0:11:46.199 So it's working. Um. And you know, I think that 0:11:46.679 --> 0:11:48.520 they will come out with They've always said they will 0:11:48.520 --> 0:11:50.880 come out with products when they're ready to release them, 0:11:50.880 --> 0:11:53.079 and they're the best product out there. They weren't the 0:11:53.160 --> 0:11:57.040 first product on PCs, they weren't the first product on iPods, 0:11:57.360 --> 0:11:59.960 they weren't the first products on tablets, and yet they 0:12:00.000 --> 0:12:02.719 have come out and and iPhones. I would say you 0:12:03.080 --> 0:12:05.040 can make the argument there they were at first with 0:12:05.040 --> 0:12:07.400 with the product they had, but you know, they have 0:12:07.559 --> 0:12:11.520 continued to take significant share and become dominant leaders in 0:12:11.559 --> 0:12:13.679 the categories, and I think we will see that again 0:12:13.720 --> 0:12:15.880 in some of these other products, but it will take 0:12:15.920 --> 0:12:18.559 some time. Shannon, we gotta go. There's an aline go 0:12:18.640 --> 0:12:26.880 into space. Shannon Cross Cross race an analyst. The gains 0:12:26.880 --> 0:12:29.440 and losses are not fifty fifty. You can have a 0:12:29.679 --> 0:12:32.800 you can have or eight percent or seven percent of 0:12:32.800 --> 0:12:35.679 the people capture the game and leasa to your point. 0:12:36.120 --> 0:12:39.320 Everybody else loses money on the way out. Ander Sheets 0:12:39.320 --> 0:12:41.439 studied this at Brown University. You're gonna get right to 0:12:41.480 --> 0:12:45.680 in futures of negative thirteen the vics thirty three, Ander Sheets, 0:12:45.760 --> 0:12:47.240 Let's open up, and I don't want to get you 0:12:47.240 --> 0:12:51.319 in trouble with Mr Gorman. You're really good at this mathematics. 0:12:51.360 --> 0:12:56.880 Your thoughts on this moment is the hedge funds get clovered? Well, 0:12:57.000 --> 0:12:59.640 I think it's important to to separate that there are 0:13:00.000 --> 0:13:04.480 you overlapping storylines in this market. There's a storyline around 0:13:04.640 --> 0:13:07.680 the strength of the recovery and will there be issues 0:13:07.800 --> 0:13:09.839 or delays with the rollout of vaccine, And then I 0:13:09.880 --> 0:13:13.560 think there's a separate discussion now around the concentration of 0:13:13.640 --> 0:13:15.880 positioning which I think has been a discussion now for 0:13:15.960 --> 0:13:18.320 some time. I think we've this has been a very 0:13:18.440 --> 0:13:22.840 unequal market for for years really, with very uneven valuations 0:13:22.880 --> 0:13:27.240 across sectors, across styles, and very uneven positioning among active 0:13:27.240 --> 0:13:29.400 investors to try and take advantage of that, and so 0:13:29.880 --> 0:13:33.280 I think it's important to separate those things out, and ultimately, 0:13:33.880 --> 0:13:36.760 in my view, the macroeconomic picture still looks good. We 0:13:36.840 --> 0:13:39.760 at Morgan Stanley are still very constructive on the growth backdrop, 0:13:40.160 --> 0:13:42.400 and that makes makes us think that this is a 0:13:42.440 --> 0:13:47.120 more modest adjustment rather than some larger um challenge for 0:13:47.200 --> 0:13:48.880 the market. Bear with me here, Andrew, I want to 0:13:48.880 --> 0:13:51.120 think this out with you. Live on at just one 0:13:51.120 --> 0:13:52.960 of the conversations that you and I have been having 0:13:52.960 --> 0:13:55.360 for the best part of the decade need to change. 0:13:55.840 --> 0:13:58.840 We see market moves, we talk about the stories that 0:13:58.840 --> 0:14:01.199 are driving those moves. We often draw a line back 0:14:01.240 --> 0:14:04.760 to the fundamentals, the outlook, the story, so to speak. 0:14:05.360 --> 0:14:07.480 And I just wanted sometimes at the moment, particularly I 0:14:07.480 --> 0:14:11.120 think back to late August early September, that maybe it's 0:14:11.160 --> 0:14:14.240 just this explosion in short dated call options, and it's 0:14:14.240 --> 0:14:16.680 the tailwack in the dog, and we'll sit around trying 0:14:16.720 --> 0:14:18.760 to come up with these fundamental reasons for any given 0:14:18.800 --> 0:14:22.640 moving in markets, because that's what we've done for decades. 0:14:23.120 --> 0:14:25.320 But I wonder Andrew, whether we just need to change 0:14:25.320 --> 0:14:27.440 our approach and the way we actually consider what's happening 0:14:27.440 --> 0:14:32.680 around us and the way we talk about the price action. Yeah. Look, 0:14:32.760 --> 0:14:34.440 I think that's a very good point, and I think 0:14:34.520 --> 0:14:36.600 this is a case where we're more than one thing 0:14:36.640 --> 0:14:38.600 can be true. I think it can be true that 0:14:38.640 --> 0:14:43.920 you're seeing an unusually large amount of retail industrial activity 0:14:43.960 --> 0:14:47.000 of call options activity that you're seeing, you know, on 0:14:47.080 --> 0:14:49.840 an unusually amount of large amount of liquidity that that's 0:14:49.840 --> 0:14:52.240 going into the market. And yet you know, viewed, I 0:14:52.240 --> 0:14:55.240 think from from other lenses, market is behaving and has 0:14:55.560 --> 0:14:58.120 been behaving for some time, I think in a very rational, 0:14:58.200 --> 0:15:01.760 fundamental way. My favorite example is if you look over 0:15:01.760 --> 0:15:05.000 the last decade, you know, the market that's performed the 0:15:05.040 --> 0:15:08.520 best by far has been the SMP five hundred, which 0:15:08.520 --> 0:15:11.720 has had the best earnings growth by far of the 0:15:11.760 --> 0:15:14.200 international markets. And so it's not the case that you know, 0:15:14.240 --> 0:15:17.440 the SMP is only up because rates are low or 0:15:17.480 --> 0:15:19.920 the set is doing que the the SMP has had 0:15:20.160 --> 0:15:24.200 significantly superior earnings growth to those other major markets. So 0:15:24.400 --> 0:15:26.240 I think it's a case of kind of both things 0:15:26.320 --> 0:15:29.720 can can be true. You can have shifts and market behavior, 0:15:29.920 --> 0:15:33.400 you can have um uh, you know, changing patterns of behavior. 0:15:33.440 --> 0:15:36.520 But I do think overall, those those broader fundamental trends 0:15:36.520 --> 0:15:39.360 remain intact and remain important. Andrew, I love that you 0:15:39.360 --> 0:15:42.120 started by talking about the different narratives going at the 0:15:42.160 --> 0:15:44.440 same time. It is a very difficult market to sum 0:15:44.520 --> 0:15:46.920 up in one word. One of the narratives is the 0:15:46.960 --> 0:15:49.720 concentration of markets, and we're seeing this both on a 0:15:49.760 --> 0:15:53.560 specific stock basis as well on as a consensus view 0:15:53.640 --> 0:15:56.240 perspective as well. For example, coming into the year, the 0:15:56.280 --> 0:15:59.520 weaker dollar call was very much consensus. The higher rate 0:15:59.560 --> 0:16:02.400 call was very much consensus. Both of those have been 0:16:02.440 --> 0:16:05.360 turned on their heads in the first few weeks. One 0:16:05.720 --> 0:16:08.200 how important is it to look at the concentration of 0:16:08.280 --> 0:16:11.440 positioning and move against that in order to avoid such 0:16:11.760 --> 0:16:16.680 violent repositioning going forward. Yeah, I think this is a 0:16:16.720 --> 0:16:19.040 really important point. And again I think a theme that 0:16:19.160 --> 0:16:22.280 that interestingly varies across markets. I think we find there 0:16:22.280 --> 0:16:24.200 are some views where I think we're in the consensus. 0:16:24.240 --> 0:16:26.480 We like a lot of people think interest rates in 0:16:26.520 --> 0:16:29.200 the US go higher. There's some areas where I think 0:16:29.240 --> 0:16:32.160 we're we're out of the consensus, or think some what differently, 0:16:32.200 --> 0:16:36.040 We're not in that week dollar camp. Um we we 0:16:36.120 --> 0:16:39.120 think that the equally weighted SMP five hundred while outperform 0:16:39.320 --> 0:16:42.000 the SMP five hundred. I e. You'll see a broadening 0:16:42.000 --> 0:16:45.000 of the market and and underperformance of some of those 0:16:45.080 --> 0:16:48.680 larger um those larger weighted stocks, as as often happens 0:16:48.680 --> 0:16:51.080 coming coming out of a recession. And again I think 0:16:51.120 --> 0:16:53.240 if you look at some of the recent price action, 0:16:53.760 --> 0:16:55.560 you know, again I think this is, you know, an 0:16:55.600 --> 0:16:59.600 interesting thing to uh to, an interesting or an important 0:16:59.600 --> 0:17:02.680 way to die diagnosed. What's going on is what's leading 0:17:02.680 --> 0:17:05.320 the market the most widely held stocks or is it 0:17:05.359 --> 0:17:09.240 the more economically sensitive ones? And there were all students 0:17:09.280 --> 0:17:11.840 of the mop up books on all these crisis I 0:17:11.840 --> 0:17:16.960 think of Stanley Fisher's classic book on inder sheets in 0:17:17.040 --> 0:17:21.000 the derivative space, whether notional or the small amount of 0:17:21.040 --> 0:17:24.520 actually derivatives issued traded, however you want to phrase it. 0:17:25.080 --> 0:17:27.800 What are the shadows out there for a guy like you? 0:17:28.359 --> 0:17:31.520 What are the unknowns? Are the mysteries of the derivative 0:17:31.560 --> 0:17:35.480 space right now. So I think this is this is 0:17:35.720 --> 0:17:38.400 quite fascinating actually because even you know, a week ago 0:17:38.480 --> 0:17:42.199 or two weeks ago and things seemed much calmer, the 0:17:42.240 --> 0:17:45.840 equity options market was still expecting quite a bit of 0:17:45.880 --> 0:17:49.040 volatility at the overall index level and was quite worried 0:17:49.080 --> 0:17:53.680 about a larger draw down. Right that that skew was 0:17:53.680 --> 0:17:56.639 was historically very steep, and so I don't think this 0:17:56.720 --> 0:17:58.200 is a case where you could say the market was 0:17:58.240 --> 0:18:01.920 completely blindsided. There was, you know, an elevated amount of 0:18:02.000 --> 0:18:05.720 uncertainty expected by the options market, and then what we 0:18:05.760 --> 0:18:08.320 saw yesterday was an even larger adjustment of that. You 0:18:08.400 --> 0:18:11.760 had a much larger move in the vix um than 0:18:11.840 --> 0:18:14.800 you did versus credit or other asset classes. So and 0:18:15.040 --> 0:18:17.280 I think that also speaks to the positioning nature of 0:18:17.320 --> 0:18:19.159 it that this has I think the hallmarks of a 0:18:19.280 --> 0:18:22.000 var shock or a kind of positioning shock, more so 0:18:22.560 --> 0:18:26.080 than a than a real economic shift in view, Well 0:18:26.119 --> 0:18:29.120 put Andrew interesting ty Andrew shas that of moments down 0:18:29.200 --> 0:18:35.320 Andrew right to catch up, Sir, I was in one 0:18:35.359 --> 0:18:37.560 of my fancy breakfasts that I have where I hold 0:18:37.600 --> 0:18:40.200 court yesterday with the entourage and I got a phone call. 0:18:40.240 --> 0:18:42.359 It's from Pharaoh, so I had to take it, of course, 0:18:42.800 --> 0:18:46.240 and he's screaming at me, Tom, forget about all these pundits. 0:18:46.720 --> 0:18:50.560 Get us a rocket scientist. So we came close. We've 0:18:50.560 --> 0:18:53.119 had a wonderful set of conversations. Mr Gartman on the 0:18:53.240 --> 0:18:56.080 history of the moment. Steve Jacobson, I thought was lights 0:18:56.080 --> 0:18:59.159 out at Saxel Bank. And now James Angel he is 0:18:59.200 --> 0:19:02.439 at Georgetown, Jim Angel. And what's so important here is 0:19:02.480 --> 0:19:05.600 he is a rocket scientist, is engineering out of cal Tech, 0:19:06.080 --> 0:19:09.240 his brilliance and mathematics at Berkeley, among others. And we're 0:19:09.280 --> 0:19:12.359 thrilled that the finance professor could join us this morning. 0:19:12.600 --> 0:19:14.639 I've got to go, Jim right away to you with 0:19:14.720 --> 0:19:18.200 a Bloomberg down the hallway at Georgetown about whether you're 0:19:18.200 --> 0:19:22.320 participating in this, if you enjoyed being long or short 0:19:22.520 --> 0:19:27.800 game stuff. Well, I was long until yesterday, but when 0:19:27.840 --> 0:19:31.000 the stock went crazy, I decided to go short just 0:19:31.080 --> 0:19:34.320 a little bit. Although I see that it is doubled overnight, 0:19:34.680 --> 0:19:36.800 so I've proven to myself once again I am a 0:19:36.840 --> 0:19:39.720 lousy trader. Now we need a booker here on surveillance, 0:19:39.720 --> 0:19:41.640 so if they throw you out the door Georgetown. You've 0:19:41.640 --> 0:19:44.040 got a job up here, Jim Angel. If that's the 0:19:44.280 --> 0:19:47.679 If that's the reality, are you worried that the people 0:19:47.760 --> 0:19:51.560 on the couches are dumb or are they as sophisticated 0:19:51.600 --> 0:19:57.359 as you are? Um, I'm sure they're more sophisticated than me, 0:19:57.480 --> 0:20:01.720 that's for sure. But I mean, what we have here 0:20:01.840 --> 0:20:06.080 is a confluence of events. Yeah, we have the mother 0:20:06.119 --> 0:20:09.200 of all short squeezes going on, you know, at the 0:20:09.240 --> 0:20:13.440 same time we have a retail herd. But I'm also 0:20:13.520 --> 0:20:17.640 hearing that hedge funds are jumping on board. As one 0:20:17.680 --> 0:20:20.480 hedge he told me, he said, Hey, when the herd 0:20:20.560 --> 0:20:24.960 moves through the gate, get on a cow. So I 0:20:25.000 --> 0:20:27.600 think what we're seeing is this move is being amplified 0:20:28.280 --> 0:20:33.320 by other hedge funds that are jumping on board. They 0:20:33.359 --> 0:20:35.840 smell the blood in the water, they can see that 0:20:36.080 --> 0:20:40.400 some that shorts are overexposed, and they're playing a game 0:20:40.440 --> 0:20:43.920 of musical chairs to ride it until it turns well. 0:20:44.000 --> 0:20:47.240 But Professor Angel, this goes to a broader issue here, 0:20:47.280 --> 0:20:51.040 which is the question of democratizing the market, allowing smaller 0:20:51.040 --> 0:20:54.840 traders to participate in a rally that has been unprecedented 0:20:54.880 --> 0:20:59.159 and phenomenal in equities fueled by policies versus protecting the 0:20:59.200 --> 0:21:03.760 individual and muster from institutional investors who are manipulating the 0:21:03.840 --> 0:21:06.000 herds to do their bidding right. And that's sort of 0:21:06.040 --> 0:21:08.840 the question. How do you distinguish one from the other. 0:21:10.680 --> 0:21:15.480 It's very hard, there's no easy way. Personally, I think 0:21:15.520 --> 0:21:18.320 investors should have the right to invest in anything they want, 0:21:18.960 --> 0:21:22.320 So I'm very literally about people who want to protect 0:21:22.480 --> 0:21:29.000 people from themselves. Your litera of people protecting people from 0:21:29.040 --> 0:21:31.359 their themselves. In other words, you think that there is 0:21:31.400 --> 0:21:33.960 nothing wrong with what's currently going on, and you disagree 0:21:33.960 --> 0:21:37.280 with Senator Warren in saying that the SEC regulators do 0:21:37.359 --> 0:21:39.840 your job, get involved because there is nothing for them 0:21:39.840 --> 0:21:41.919 to do. This is just markets the way that they 0:21:41.920 --> 0:21:45.679