Speaker 1: Strap on your parachute. It's time for What Goes Up
Speaker 1: with Sarah Ponzick and Mike Reagan. Hello and welcome to
Speaker 1: What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah Ponzek,
Speaker 1: reporter on the Cross Asset team, and I'm Mike Reagan,
Speaker 1: a senior editor at Bloomberg. This week on the show,
Speaker 1: for the first time in a year, benchmark tenure treasury
Speaker 1: yields spiked above one point six and the stock market
Speaker 1: started the show It's nerves. What's actually behind the spike
Speaker 1: and rates? And at what point does the equity market
Speaker 1: have to take serious notice? We discuss, and as always,
Speaker 1: we will close out the episode with our tradition the
Speaker 1: craziest thing we saw in markets this week? Uh, Sarah,
Speaker 1: another crazy week. I got a couple of good ones.
Speaker 1: I trust you do as well. I trust you have
Speaker 1: plenty good ones. Mike. Yeah. Um. And I'm excited this week.
Speaker 1: I mean, I know I'm excited every week, but I'm
Speaker 1: especially excited this week for one thing, because You've managed
Speaker 1: to drum up a ridiculous amount of interest in my
Speaker 1: high school nickname among listeners. I did not expect the
Speaker 1: demand to be so robust. I think the joke is
Speaker 1: on you, Mike, though, because I think you're actually the
Speaker 1: one who drummed up all this demand. I've just been
Speaker 1: going along for the ride, and here we are sitting
Speaker 1: knocking on the door of two hundred reviews, and that
Speaker 1: means that Mike's just gonna have to share his other
Speaker 1: other not as flattering high school nicknames soon. It backfired
Speaker 1: on me, It really did. I did not think. I
Speaker 1: did not think the demand would be that robust. But
Speaker 1: we're really up to one ninety seven now, so I
Speaker 1: will not reveal the high value nickname. I might reveal
Speaker 1: a lesser valued nickname at the end of the show
Speaker 1: if you stick around. So there's that. But the other
Speaker 1: reason I'm excited, Sarah is this week's guest is a
Speaker 1: bona fide Philadelphian like myself, at least suburban Philadelphia, which
Speaker 1: means I may slip into my sort of Delaware Valley
Speaker 1: accent and talk about winter ice and stuff like everyone
Speaker 1: would love that. Everyone I know, at least our guest, Uh,
Speaker 1: we'll understand what I'm talking about. And she is the
Speaker 1: chief investment strategist at P and C Financial Services Group,
Speaker 1: which manages the neighborhood of a hundred and fifty billion dollars.
Speaker 1: Her name is Amanda Gotti. Amanda, welcome to the show.
Speaker 1: Thank you so much for having me. I'm excited to
Speaker 1: be with you both today. Great and also I believe
Speaker 1: a loser if if my LinkedIn stalking is accurate. A
Speaker 1: Losern County native, or at least high school which is that?
Speaker 1: Is that is really impressive? Yes, I'm a Dallas High
Speaker 1: school grad, Losern County. Yes, Harvey's Lake. You've swimming Harvey's Lake,
Speaker 1: I assume and uh oh absolutely, many many summers spend
Speaker 1: at Harvey's Lake, like you should never ever be ashamed
Speaker 1: of LinkedIn stalking. Yeah, it's what we do. It's what
Speaker 1: we do. It's what we do. I'm impressed. But my
Speaker 1: people came from Wolk Spara not too far away from there,
Speaker 1: and and many summers at Harvey's Lake too. I'd not
Speaker 1: meet with them. But anyway, enough with all that, Amanda, I,
Speaker 1: as Sarah pointed out, the treasury market has really taken
Speaker 1: center stage this week. I guess, um, you know, it
Speaker 1: wasn't very surprising that we should see yields yields creep
Speaker 1: up the way they have. I think the rate of
Speaker 1: change is kind of what's alarming people how swiftly they've
Speaker 1: moved up. What is your thinking on that? You know,
Speaker 1: what are you telling clients about? This? Is it um
Speaker 1: you know to the moon? As they say on Reddit
Speaker 1: for yields an hours? This is this just sort of
Speaker 1: an anomaly and should should this at least the rate
Speaker 1: of change in the increase settled down? Do you think? Well?
Speaker 1: I think there's a lot to unpack as it relates
Speaker 1: to what's happening with interest rates here. I think at
Speaker 1: the end of the day, this feels like about as
Speaker 1: high as we can see the ten year ago from
Speaker 1: a market driven perspective. Can talk a little bit about
Speaker 1: why that's the case. I think there's some issues at
Speaker 1: the very short end of the curve. There's also some
Speaker 1: issues at the intermediate and longer end, and so when
Speaker 1: you combine those two things together, we're really seeing pretty
Speaker 1: dramatics deepening in the yield curve if I just take
Speaker 1: kind of the longer end as a starting point, So
Speaker 1: the tenure absolutely at the highest level of the pandemic
Speaker 1: um you know, really outsize moves more significant than even
Speaker 1: what we saw following the Georgia Senate runoffs and even
Speaker 1: the Fiser efficacy um news around their vaccine back in November,
Speaker 1: and yet we really haven't had a lot of meaningful news,
Speaker 1: so fairly extreme moves here on basically this idea that
Speaker 1: we're going to get a ton of stimulus coming into
Speaker 1: the system and fast, and so, you know, I think
Speaker 1: this is the bond market's interpretation that that Congress is
Speaker 1: going to effectively pull off at one point nine trillion
Speaker 1: dollar stimulus package and then turn right around and do
Speaker 1: another package, but infrastructure focused of the same magnitude or larger,
Speaker 1: just in a matter of a few months. And our
Speaker 1: take on this is that the bond market is obviously
Speaker 1: concerned about it, obviously fixated on it, but ultimately it's
Speaker 1: going to be very difficult to get all of this
Speaker 1: done and rapid succession. I think it's pretty clear and
Speaker 1: well understood that the one point nine trillion can get
Speaker 1: done through budget reconciliation, not at all clear that we
Speaker 1: can get the same magnitude of stimulus done for infrastructure
Speaker 1: without raising taxes. And so I think that's going to
Speaker 1: be the key to the path forward in terms of
Speaker 1: the intermediate and longer end of the curve, I think
Speaker 1: things are going to settle down a bit. We may
Speaker 1: not actually see rates fall back down meaningfully, but this
Speaker 1: rate of change has to slow down when you start
Speaker 1: to factor in UM increasing taxes. That's not going to
Speaker 1: be able to happen or turn on a dime US necessarily.
Speaker 1: The short end of the curve very different story, So
Speaker 1: much much more pressure on the downward side of the
Speaker 1: short end of the curve, and it's really a function
Speaker 1: of treasury related accounting as I would describe it. UM.
Speaker 1: There's an adjustment there in terms of cash reserves as
Speaker 1: it relates to their funded status and as it relates
Speaker 1: to what they think is going to happen from a
Speaker 1: stimulus perspective, and so net net, they are creating some
Speaker 1: scarcity of supply there, and I think that that is
Speaker 1: putting pretty significant pressure on short term rates. We've even
Speaker 1: seen REPO go into negative territory here again very recently,
Speaker 1: and so I think net net two very different forces
Speaker 1: applying a lot of pressure here on the yield curve,
Speaker 1: creating a lot of steepening UM. You know, the usual
Speaker 1: interpretation of steepening is that we're going to see this
Speaker 1: massive acceleration and growth and potentially an inflationary spike. But
Speaker 1: I would say we need to slow our role here
Speaker 1: a little bit, just given kind of the forces that
Speaker 1: are at play, a little bit of a head fake,
Speaker 1: not necessarily expecting a full normalization, but I think that
Speaker 1: this is you know, very significant short term volatility that
Speaker 1: will start to slow down a bit over the weeks
Speaker 1: and months ahead, So so focusing on the longer end
Speaker 1: of the curve. I mean, we heard from Jerome Powell
Speaker 1: this past week speaking to the Senate Banking Committee and
Speaker 1: which he said that you know what, essentially people shouldn't
Speaker 1: really worry about the backup and long and yield because
Speaker 1: it's a statement of competence and growth. And you mentioned
Speaker 1: that people kind of need to slow their role talking
Speaker 1: about this massive pickup and growth, possible worries about inflation
Speaker 1: down the road. But what is the takeaway here and
Speaker 1: when you look at the data and the expectations for
Speaker 1: trillions of dollars of stimulus coming our way, what is
Speaker 1: the outlook for growth, what is the outlook for inflation?
Speaker 1: And therefore what does it actually mean for assets like
Speaker 1: bonds and equities. Well, again, there's a lot to unpack
Speaker 1: here in terms of the path forward, I mean, I
Speaker 1: think it's pretty clear that we are not out of
Speaker 1: the woods yet. In terms of the pandemic, you know,
Speaker 1: case curves are definitely moving in the right direction. There
Speaker 1: is some progress on the vaccine front, but my goodness,
Speaker 1: things are moving a lot slower than I think all
Speaker 1: of us would like to see at this point, and
Speaker 1: so that really does pose some pretty significant challenges as
Speaker 1: it relates to the reopening and the path forward. You know,
Speaker 1: somewhere in the neighborhood of eight percent of US g
Speaker 1: d P is still in states that are under some
Speaker 1: form of economic restriction or lockdown. So we got a long,
Speaker 1: strange trip ahead of us, right was a very long,
Speaker 1: strange trip in one is setting the stage very similarly
Speaker 1: long and strange trip to get to a reopening. And
Speaker 1: while we think in the short run things are likely
Speaker 1: to be a little bit choppy on the economic growth
Speaker 1: side of things, and also in terms of this market rally,
Speaker 1: as we moved towards the second half of the year,
Speaker 1: and certainly as a setup for two, a much more
Speaker 1: bullish backdrop starts to come into focus. And so at
Speaker 1: the end of the day, it really comes back to
Speaker 1: the path forward very much being dictated by covid um
Speaker 1: and the pace or timing of getting this economy reopened,
Speaker 1: But certainly some fits and starts in the short run.
Speaker 1: As to your question around inflation, you know, back following
Speaker 1: the financial crisis, there was a lot of concern sort
Speaker 1: of deja vu all over again, very reminiscent today of
Speaker 1: the concerns and fears back then following the financial crisis
Speaker 1: that we were going to see this big inflationary spike
Speaker 1: or inflationary accident, and ultimately none of that really did transpire. Now,
Speaker 1: I fully admit that we are in unprecedented territory as
Speaker 1: it relates to stimulus coming into the system, far and
Speaker 1: away more today than what we saw back then. But
Speaker 1: we still think there are some structural forces in place
Speaker 1: that will keep a lid on inflation. So it isn't
Speaker 1: that we won't see some bouts of it here in
Speaker 1: the short run, certainly seeing it in terms of lumber prices,
Speaker 1: healthcare costs, childcare a costs. There isn't certainly a short
Speaker 1: list um, but net net, we don't think that that's
Speaker 1: enough to cause any kind of long term damage to
Speaker 1: the economic recovery or frankly the market rally, and then
Speaker 1: longer term, when you think about the structural forces like demographics,
Speaker 1: which are clearly deflationary here in the US, um technological
Speaker 1: innovation which really has been disinflationary, deflationary how you want
Speaker 1: to describe it throughout the pandemic, even before the pandemic
Speaker 1: took hold, and has really distinguished itself in terms of
Speaker 1: pulling away from the rest of the market pack. We
Speaker 1: think that technological innovation story is very much here to stay,
Speaker 1: and we'll also keep a lid on longer run um
Speaker 1: inflation measures. And then the one thing that had been
Speaker 1: pretty significant headwind to inflation, now we're seeing a little
Speaker 1: bit of a pop in it a certainly energy prices.
Speaker 1: But again, if you think about where we are today
Speaker 1: versus kind of the next three months or so relative
Speaker 1: to last year, boy, we have some awfully easy comparisons
Speaker 1: relative to inflation. I mean basically bouncing off of record
Speaker 1: no activity, right, not record low, but record no activity.
Speaker 1: And so is it any wonder that we might start
Speaker 1: to see a little bit of inflation pop here? No,
Speaker 1: But I think net net once the weather kind of
Speaker 1: normalizes in the middle of the country moves past the
Speaker 1: challenges they've faced over the last couple of weeks, we
Speaker 1: think that energy story is going to start to fade
Speaker 1: a bit into the background. So we are obviously watching
Speaker 1: the inflation backdrop very very closely in terms of, you know,
Speaker 1: all the stimulus coming into the system and this economic
Speaker 1: mac recovery that's in the very early inning still, but
Speaker 1: we're not not particularly alarmed um that inflation is going
Speaker 1: to be strong enough to derail the path forward. I
Speaker 1: gotta say, Amanda, you won my heart there with the long,
Speaker 1: strange trip, grateful dead reference. That's that's pretty good. She
Speaker 1: also Sarah referenced a door song break on through to
Speaker 1: the Other Side in a note which also in my
Speaker 1: I think we have the same record collection as as
Speaker 1: as kids have beended, but amazing. Yeah, you know, I
Speaker 1: have to I have to laugh one of the eye
Speaker 1: joke that it's one of the most important jobs that
Speaker 1: I have as the strategist for P and C. Other
Speaker 1: people would say, you've completely lost your mind. But every
Speaker 1: year we try really hard to kind of pick a
Speaker 1: song of the year or a musical reference that we
Speaker 1: think is really going to define the next twelve months.
Speaker 1: Either from an economy perspective or from a market perspective,
Speaker 1: and so unfortunately or fortunately, I'm not sure, the musical
Speaker 1: reference was trucking bad. And you know, to start the year,
Speaker 1: we were actually seeing this really interesting and attractive cyclical
Speaker 1: brightening of the backdrop. But then, of course, you know,
Speaker 1: everything fell apart with the pandemic that was not part
Speaker 1: of the musical reference by any means, was certainly not
Speaker 1: in our twenty outlook. And so it evolved from the
Speaker 1: cycle is going to keep on truck into my little long,
Speaker 1: strange trip. I love it so love worked. It still worked.
Speaker 1: I gotta say. I wrote a column years ago saying
Speaker 1: that the key to success as a strategist was how
Speaker 1: good your musical references were in the titles of notes.
Speaker 1: So you win, I think you win. Yeah, that's the
Speaker 1: only metric I I really I really followed. But but
Speaker 1: I wanted to get back to that. You mentioned, you
Speaker 1: know that the notion of a head fake in inflation,
Speaker 1: and I think that's super important right now. Um, not
Speaker 1: only you know, looking at the stimulus in the pipeline,
Speaker 1: but also the sort of craziness in the energy markets
Speaker 1: because of the Texas situation. Uh, you look at commodities
Speaker 1: across the board, you look at copper, it's it's really
Speaker 1: just going to the moon lately. Um. So I think
Speaker 1: that sort of uh colors the notion of the FED
Speaker 1: allowing inflation to run hot a little bit when you
Speaker 1: have such depressed base effects from the previous year, like
Speaker 1: like you you point out, Um, but I wonder, you know,
Speaker 1: if the bottom market could fall for that head fake
Speaker 1: and sell off even more aggressively. Um. And it gets
Speaker 1: to the notion of, well, what how does the FED respond?
Speaker 1: Everyone's kind of worried about a tapering. Um. I wonder
Speaker 1: if that, you know, that could be the wrong worry
Speaker 1: and and maybe you know, we should start thinking about
Speaker 1: what with the the FED go the other way and
Speaker 1: maybe buy more on the long end and sort of
Speaker 1: really do an explicit type of yield curve control? Is
Speaker 1: that something? Is that a possibility? Do you think? Or
Speaker 1: if I have, I've been listening to the grateful debt
Speaker 1: too much here and I'm going nothing. Well, you know,
Speaker 1: I don't pretend to be in the head of of
Speaker 1: the FED chairs and really kind of getting a sense
Speaker 1: of what they plan to do. I mean, I think
Speaker 1: it's certainly a possibility. Are base cases that you know
Speaker 1: the FED is going to continue not thinking about thinking
Speaker 1: about raising rates, right, A little bit of a riff
Speaker 1: there on on Powell's quote, you know, no major rate
Speaker 1: increases for the next two or three years potentially. So
Speaker 1: we're not in the camp we've we've seen members of
Speaker 1: the streets start talking about pulling forward rate increases UM
Speaker 1: into the nearer term. Outlook, we are not in that camp.
Speaker 1: We we think that we're going to stand pat here
Speaker 1: for a while, um, and that the Quei story is
Speaker 1: just going to continue. I think the piece of the
Speaker 1: puzzle here that just doesn't get enough attention in terms
Speaker 1: of rate movements is really global interest rate differentials. UM.
Speaker 1: There's that. We wrote a paper last fall talking about
Speaker 1: negative interest rates and the upside down world. That's a
Speaker 1: Stranger Things reference, not musical reference, but still ready for
Speaker 1: the next season. Totally totally obsessed with it, um. But
Speaker 1: we thought it was a really good analogy for the
Speaker 1: upside down world of negative interest rates. And so I
Speaker 1: think you still have to take into consideration global interest
Speaker 1: rate differentials and how wide they are that giant sucking
Speaker 1: effect from negative interest rates that gravitational poll um that
Speaker 1: we're seeing it has to come into play here in
Speaker 1: capping or putting a lid on longer term interest rates.
Speaker 1: The ten years now the second highest interest rate across
Speaker 1: developed market, I think, behind Iceland if I did my
Speaker 1: math right. Kind of fun fact there um and eight
Speaker 1: countries today in the developed world have a tenure with
Speaker 1: a negative yield. And so we really think that that
Speaker 1: is just going to continue to attract foreign investment into
Speaker 1: the US, really acting as that additional pressure on longer
Speaker 1: term rates, kind of creating this vicious or virtuous I guess,
Speaker 1: depending on how you want to look at it, kind
Speaker 1: of cycle. And so, yes, you know, the market can
Speaker 1: certainly take interest rates wherever they would like to. We've
Speaker 1: we've seen that certainly in the last few weeks. But
Speaker 1: I do think that there is this gravitational pull um
Speaker 1: at the longer end that is going to eventually put
Speaker 1: the brakes on in a big way. The other thing
Speaker 1: that we haven't really talked about too too much is
Speaker 1: how much pressure the equity market is starting to feel
Speaker 1: from this rapid increase in rates that may very well
Speaker 1: also put some breaks on this um here in the
Speaker 1: not too distant future. So what that said? I mean,
Speaker 1: I asked at the top of the show, at what
Speaker 1: point does the rising yield start to affect the equity market?
Speaker 1: And clearly we've seen some jitters this past week, and
Speaker 1: I feel like I've heard people ask this question over
Speaker 1: and over and over again, uh and pos in research
Speaker 1: reports left and right. Can't the point already be made, though,
Speaker 1: that we already have seen the bond market assert itself
Speaker 1: in the equity market when you look at the breakdown
Speaker 1: of the returns we've seen this year. I mean, for example,
Speaker 1: this week, you had financials hit a record high, you
Speaker 1: had banks rise to the high since twenty two thousand
Speaker 1: and seven. At the same time, you have energy on
Speaker 1: pace for its best month versus the SMP on record,
Speaker 1: And yet we see the likes of Tesla and the
Speaker 1: r q t F, NASA one hundred of growth docks
Speaker 1: all coming under pressure. I mean, aren't we already seeing
Speaker 1: the repercussions of this? Oh? I think we absolutely are.
Speaker 1: I think it will be a little bit more fleeting
Speaker 1: though than perhaps what the headlines suggests, and kind of
Speaker 1: what we're seeing in terms of regime shifts and market
Speaker 1: rotations and such I mean, if you think about the
Speaker 1: areas that are rallying on this this increase in rates here,
Speaker 1: it's really the value side of the equation. It's really
Speaker 1: the go outside trade. And so and this has been
Speaker 1: the case for a while now, right post the fiser
Speaker 1: efficacy news back in November, that kicked off a firestorm
Speaker 1: of a rotation, and yet it really largely has been
Speaker 1: a sentiment shift. It has not been an underlying fundamental
Speaker 1: improvement and fundamental acceleration. And so we're really of the
Speaker 1: mindset that this is really getting pretty extended here in
Speaker 1: terms of this value rally in the short run, and
Speaker 1: and this go outside trade. Not that we are of
Speaker 1: the mindset that we have to revert here and go
Speaker 1: back fully to the stay at home trade. But if
Speaker 1: you think about where the rubber meets the road, and
Speaker 1: it is in terms of earnings growth and fundamental improvement
Speaker 1: and profitability, the stay at home trade has really distinguished
Speaker 1: itself and continues to even as a function of Q
Speaker 1: four earnings season, such strong bright spots coming out of
Speaker 1: Q four earning season. It's still on that stay at
Speaker 1: home trade side. And so even though valuations are pushing
Speaker 1: pretty elevated levels. Right, it's not a stretch to say
Speaker 1: equity valuations are indeed stretched, but we actually think the
Speaker 1: underlying fundamentals in many aspects of the stay at home trade,
Speaker 1: the growth areas in particular, justify evaluations and so on
Speaker 1: a growth adjusted basis, we actually think there's still room left. Um,
Speaker 1: still much more of a hail Mary. I think in
Speaker 1: terms of this value rally, that we've seen markets starting
Speaker 1: to price for perfection on the value side of the
Speaker 1: equation when we know that we're nowhere near back to
Speaker 1: pre COVID you know, pre uh pre pre norms, and
Speaker 1: so pricing for a perfection in a backdrop that's anything,
Speaker 1: but that gives us a little bit of pause here
Speaker 1: at this stage of the market rally, you know, Amen.
Speaker 1: I think one of the really fascinating things that's happened
Speaker 1: over the last year has been this new focus on
Speaker 1: sort of alternative data sets UH, sort of high frequency
Speaker 1: economic data, you know, whether it be open table reservations, UH,
Speaker 1: airline traffic on a on a sort of weekly daily basis. Um.
Speaker 1: I know you've looked a lot at this type of data.
Speaker 1: You even talk about moving I'm not quite sure what
Speaker 1: that is. I assume it's some kind of moving uh
Speaker 1: how much people are moving APP. But it's so moving
Speaker 1: as a public transit from APP. And as a function
Speaker 1: of the pandemic, they actually started releasing data for major
Speaker 1: city usage and so that is actually, believe it or not,
Speaker 1: has become one of the key indicators for us in
Speaker 1: terms of the success or failure around reopening. And you
Speaker 1: called it out things like open table reservations, weekly retail
Speaker 1: sales data, even weekly airline passenger volumes. In pre COVID times,
Speaker 1: we would have never shortened up our line of sight
Speaker 1: and looked at such noisy, high frequency indicators. We really
Speaker 1: would have been looking more at the traditional usual suspects
Speaker 1: like industrial production, monthly retail sales, and GDP. I mean
Speaker 1: today thinking about GDP growth and the GDP forecast. You know,
Speaker 1: three months lagged with a number of revisions. I can't
Speaker 1: remember what for lunch yesterday, let alone what happened three
Speaker 1: months ago. It's a blur, and so it's not really
Speaker 1: giving us the right line of sight in terms of
Speaker 1: the path forward. And so no matter what indicator you're
Speaker 1: looking at on the high frequency side, any of these
Speaker 1: one that I've thrown out, um they're all still somewhere
Speaker 1: in the neighborhood of thirty to forty to fifty even
Speaker 1: seventy percent off pre COVID levels or even really year
Speaker 1: over year, given kind of where we are in late
Speaker 1: February here, and so I think it's just very helpful
Speaker 1: in terms of gauging this path forward. The consumer may
Speaker 1: very well still be consuming to a degree, but clearly
Speaker 1: we're all still very much living in a stay at
Speaker 1: home world, and so it's also very reflective of this
Speaker 1: massive divergence between Main Street and Wall Street and kind
Speaker 1: of how which one hooks towards the other. Um, it's
Speaker 1: a key question that the jury is still a little
Speaker 1: bit out yet, it's still pretty early on. Are actually
Speaker 1: very early on, but it seems like everyone's trying to
Speaker 1: game out how quickly people are going to feel comfortable
Speaker 1: going back to normal. And I'm just curious. I mean,
Speaker 1: considering that you track all this high frequency data in
Speaker 1: the early days of the vaccine rollout, have have we
Speaker 1: seen an increase in any type of this hyprecuncy data
Speaker 1: showing that some people are at least more comfortable. We
Speaker 1: definitely have seen an improvement. So even though I'm saying
Speaker 1: we're somewhere in the neighborhood of thirty to seventy percent
Speaker 1: of such a wide wide range, but thirty to seventy
Speaker 1: percent off pre COVID levels. That is better than the
Speaker 1: depths of the lockdowns for sure, So we are definitely
Speaker 1: moving in the right direction. I just think the market
Speaker 1: has started to price in basically a full reopening and
Speaker 1: back to business as usual and pre pandemic norms, and
Speaker 1: I think it's going to take a lot more time
Speaker 1: for the consumer and businesses and individuals to feel like
Speaker 1: things are back to normal. I think to two very
Speaker 1: recent data points that kind of reinforce that are on
Speaker 1: the sentiment side of the equation, So University of Michigan
Speaker 1: Consumer Sentiments Survey, worst reading since August of last year,
Speaker 1: big nose dive relative to the last few months. Even
Speaker 1: on the business side of the equation, the n f
Speaker 1: I be Small Business Optimism reading all the way back
Speaker 1: to the worst level since last May. And I think
Speaker 1: that's still just very much emblematic or symbolic of the
Speaker 1: high degree of uncertainty that we still find ourselves in.
Speaker 1: In terms of the path forward, we are just hashtag
Speaker 1: not out of the Woods yet I'm gonna look up
Speaker 1: that hashtag. I think you just made that one up,
Speaker 1: and then I don't know. I've been using that one
Speaker 1: for a while, and it's one of those things where
Speaker 1: if you use it and use it and use it,
Speaker 1: eventually maybe it catches on. It's kind of start saying it.
Speaker 1: I've already noticed in this episode that Mike's already said
Speaker 1: to the moon twice, so clearly Reddit has got into
Speaker 1: his head. It's rubbed off on me for sure, like
Speaker 1: it or not. Need to throw in a win Lambeau
Speaker 1: here once, but but about it's kind of bottom line
Speaker 1: it for us here if you will, I mean to me,
Speaker 1: you sound, um, perhaps not risk averse, but but certainly
Speaker 1: cautious about uh say, equities and how you would position
Speaker 1: your your investments right now. You know, if I'm a
Speaker 1: P ANDC client and I get you on the phone,
Speaker 1: um or perhaps one of the advisors that that works
Speaker 1: for PNC, uh, what is the sort of allocation portfolio
Speaker 1: allocation that you'd be advising at at this moment? Well,
Speaker 1: I think at this point in the market cycle and
Speaker 1: the economic recovery, you still have to be very picky
Speaker 1: and choosy. This is not an environment where a rising
Speaker 1: tide is going to lift all boats equally, and so
Speaker 1: on the equity side of the equation, even though I
Speaker 1: do believe that valuations are quite stretched, we still think
Speaker 1: that there are pockets of opportunity. So the brightest star
Speaker 1: in the equity asset class universe as far as we're
Speaker 1: concerned as emerging markets, UM, we think, you know, from
Speaker 1: a from an investment thesis standpoint, it's just a really
Speaker 1: strong backdrop setting the stage here in on and beyond
Speaker 1: potentially at the very earliest stages of a major regime shift.
Speaker 1: You know, the the baton tends to be handed off
Speaker 1: between the developed world and the emerging world every ten
Speaker 1: years or so, and we think this could very well
Speaker 1: be the start of that. When you look at the
Speaker 1: data as it relates to the pandemic UM they've done
Speaker 1: a better job managing through that up to this point,
Speaker 1: and it has enabled them to get their economies more reopened.
Speaker 1: It isn't that they are fully reopened, but they are
Speaker 1: certainly ahead of the developed world, and so that has
Speaker 1: had really positive implications for the trajectory of earnings growth
Speaker 1: across much of the emerging markets world. And so it's
Speaker 1: the highest earnings growth projection across the equities fore and beyond,
Speaker 1: really significant, like thirty five percent. You're over your growth
Speaker 1: relative to just the S and P five D still
Speaker 1: still attractive, but up twenty four so a big difference
Speaker 1: shoal there UM. So we think that that's a really
Speaker 1: interesting place to be. We also actually like the emerging
Speaker 1: market debt side of the equation. So from a policy stance,
Speaker 1: UM definitely many more levers to pull to the extent
Speaker 1: that they do run into a little bit of trouble
Speaker 1: or fits and starts around um an economic recovery and
Speaker 1: re acceleration here and then there's a fairly attractive yield
Speaker 1: story as well. So so we're definitely very positive on
Speaker 1: all things emerging markets, other areas and equities that we
Speaker 1: do like very much. I'll throw it out there. It's
Speaker 1: a very controversial trade called the q q q H.
Speaker 1: It's very very much in keeping with that stay at
Speaker 1: home trade. You know. They've really been able to, as
Speaker 1: we talked earlier, muscle through the pandemic and distinguish themselves
Speaker 1: in so many ways, and we think that will be
Speaker 1: used to their advantage in terms of the growth and
Speaker 1: yield star of world that we think we're still very
Speaker 1: much in and that lies ahead, so we're very positive
Speaker 1: on that area. We also like global infrastructure, which is
Speaker 1: kind of an interesting one, a quasi fixed income like exposure,
Speaker 1: taking a little bit of cyclicality out of equities, but
Speaker 1: definitely jacking up the potential for yield and income. And
Speaker 1: again in a yield star world, you have to get
Speaker 1: a little creative about how you pick it up in
Speaker 1: a thoughtful way, and so we think that's also interesting,
Speaker 1: like think like m LPs that type of thing. Well,
Speaker 1: I think what I would say is we we would
Speaker 1: avoid energy specific infrastructure, so it would be more traditional
Speaker 1: infrastructure airports, toll roads, rail, et cetera. That kind of
Speaker 1: you know, real asset type infrastructure investments as opposed to
Speaker 1: commodity based. The commodity ones just given you know what's
Speaker 1: happening with w T I and a whole host of
Speaker 1: other commodity prices inject an awful lot of volatility into it,
Speaker 1: and so you don't really the end up with the
Speaker 1: ballast that we're striving for um in terms of that exposure.
Speaker 1: And then on the fixed income side, you know, if
Speaker 1: we think equities are stretched and expensive. We think it's
Speaker 1: much more so in fixed income. If you look at
Speaker 1: the yield to duration ratio for investment grade corporates, even
Speaker 1: with the backup and rates that we've had, we're sitting
Speaker 1: at an all time high, handily favoring stocks over bonds,
Speaker 1: and so unfortunately, investors are being pushed a little bit
Speaker 1: further out the risk curve than they might otherwise like
Speaker 1: to try to pick up some yield, and we don't
Speaker 1: think that story is going to change too too much
Speaker 1: over the next few years. So we do have exposures
Speaker 1: to leverage loans to high yield um and then, as
Speaker 1: I said in the beginning, emerging market that got to
Speaker 1: be really thoughtful about picking up those types of exposures.
Speaker 1: Though credit analysis is just so critically important in some
Speaker 1: of these below investment grade asset classes, and especially given
Speaker 1: the uncertainty in the backdropt you don't want to just
Speaker 1: buy a passive benchmark like exposure there. So those are
Speaker 1: a few areas that we still think are attractive. Gave
Speaker 1: us a handful there, and now that Amanda's bottom lined
Speaker 1: it all for us, I think we should let Charlie
Speaker 1: Pellett tell us what time. It is like, stand clear
Speaker 1: of the craziest things we saw in markets this week?
Speaker 1: All right, it is indeed that time. Uh, Starry, let's
Speaker 1: start with you on I'm curious what you got for
Speaker 1: us this week? Alright. So I've been on a roll
Speaker 1: with the names that sound like other names, so I
Speaker 1: figured why not just keep going with it this week?
Speaker 1: There is this one story on the Bloomberg this week
Speaker 1: that it was just funny almost the way it was written,
Speaker 1: And the headline was biotex that sound like cannabis stocks
Speaker 1: joined frenzy pot rally. Um. So I'll just I'll read
Speaker 1: you part of this. Um. So it says drug makers
Speaker 1: that target the and I hope I'm pronouncing this right,
Speaker 1: the endocam, a binoid system which is believed to play
Speaker 1: a role in regulating body weight and controlling energy balance,
Speaker 1: have skyrocketed in. Then it says, well, those biotechs wouldn't
Speaker 1: necessarily benefit from any legislative push for the pot industry.
Speaker 1: Analysts say the stocks have jumped on the idea that
Speaker 1: they would be associated somehow with cannabis. Then there's a
Speaker 1: sentence that just says and they are not so very
Speaker 1: very blunt there, but just to give you a couple
Speaker 1: examples of Corbus Pharmaceuticals has almost doubled this year. Our
Speaker 1: Tello by Biosciences uh is up a So some massive
Speaker 1: rallies from companies that are believed to possibly be beneficiaries
Speaker 1: of the new administration in Washington, d C. But to
Speaker 1: repeat that sentence, supposedly they are not. So that's pretty good.
Speaker 1: That's pretty good. I see a lot of this these days.
Speaker 1: I'm gonna launch a spack that's like cannabis and blockchain unlimited. Uh,
Speaker 1: I'm sure it would do very well. Yeah, But all right,
Speaker 1: a man, have they prepared you for our sillyutrition? Here
Speaker 1: the craziest things we saw in markets this week? Do
Speaker 1: you do you have anything? First? I have one for you,
Speaker 1: And I don't know if I'm going out on a
Speaker 1: limb with this one, but I'm going going out on
Speaker 1: a limb is always good for them. I'm going NBA
Speaker 1: top shots. I don't know about you all, but I
Speaker 1: feel like we've kind of started to enter the crypto
Speaker 1: kiddie phase of the crypto bowl market here. Um that
Speaker 1: ended in kind of epic disaster back in two thousand
Speaker 1: and seventeen. But I don't know what is up with these.
Speaker 1: They call them non fungible tokens. It's amazing to see
Speaker 1: that these things have been trading for over hundred thousand
Speaker 1: dollars a pop, and even just in the last week alone,
Speaker 1: cumulative transaction value more than a hundred million dollars. To me,
Speaker 1: it's just mind blowing where we are in the cycle here.
Speaker 1: I'm convinced that NBA players are bidding up the prices
Speaker 1: of their own highlights. I think that's what's going on.
Speaker 1: I think we're gonna in a few years we're gonna
Speaker 1: read about NBA players who went broke because they spent
Speaker 1: their entire patient buying their own highlights on top shot, Mike,
Speaker 1: you should start looking into this, I think. I guess
Speaker 1: you can't short them, though, I uh but and shout
Speaker 1: out to one listener also brought up n f p s.
Speaker 1: I forgive me, I did not write down their handle,
Speaker 1: but they pointed out The New York Times had a
Speaker 1: big story on n f t s and it is
Speaker 1: it's it's remarkable. I mean, it's it's just this feels
Speaker 1: like there's just oversupply of money in the world that's
Speaker 1: chasing anything like this that that you could possibly make
Speaker 1: a buck off of. It's amazing. It's amazing and and
Speaker 1: some I mean a little bit different, but somewhat along
Speaker 1: these lines. Um Fred Hoffman, he's a professor at Rutger's
Speaker 1: Business School. He reached out and he showed a New
Speaker 1: York Times story basically just saying that there's two liber
Speaker 1: on James cards now worth seven million dollars. So again
Speaker 1: the alternative assets space, Mike, especially just looking at sports cards,
Speaker 1: I mean, through the roof to the moon, as you
Speaker 1: would say, it's it's absolutely amazing. I cannot wrap my
Speaker 1: head around it. In a way. I guess maybe it
Speaker 1: it works as sort of a valve, you know, a
Speaker 1: release valve of sort of excessive speculation in the markets.
Speaker 1: But maybe that's a generous way to look at it.
Speaker 1: I don't know, but I'll give you, uh my crazy
Speaker 1: thing which I hate to go back to game stop,
Speaker 1: but of course we have to go back to game stop.
Speaker 1: And what what is a week without a game? It
Speaker 1: really is transfixed us all but the craziest thing about
Speaker 1: this rally to me, this surge higher on Wednesdays. I
Speaker 1: looked up the it's a function on the Bloomberg called
Speaker 1: the quote recap, which tells you like, you know what
Speaker 1: exchange or was it a dark pool that it was
Speaker 1: executed on, and the size of the trade. And during
Speaker 1: that run up there was a remarkable huge number of
Speaker 1: single share trades involved, Like the vast majority of trades
Speaker 1: were for for one single stock, which I think you
Speaker 1: know obviously that your sort of knee jerk reaction is, well,
Speaker 1: this is the Wall Street bets crowd, the retail buying
Speaker 1: one share at a time. I mean, maybe that's what
Speaker 1: it means to live in a commission free world, is
Speaker 1: you can you know, you can buy one shared at
Speaker 1: a time. Others were saying, you know, maybe it's uh,
Speaker 1: it's an algou, which I to me and I'm no
Speaker 1: expert on algoes, but you know, maybe if there's someone
Speaker 1: out there as a listener who is, they could call
Speaker 1: us up and let us know what they think. But
Speaker 1: I always picture algoes as being trading you know, around
Speaker 1: lots of stock, in other words, a hundred shares at
Speaker 1: a time. I I would surprise me again as a
Speaker 1: non expert, but it would surprise me for an algo
Speaker 1: to actually break up trading into single shares at it's time,
Speaker 1: because I was mostly on the lip markets, on the
Speaker 1: NYC and the NASDAC and it just doesn't necessarily make
Speaker 1: sense to me. Larry. I asked Larry tab of our
Speaker 1: our guru here on market structure at Bloomberg Intelligence. He
Speaker 1: was kind of dumbfounded too. He said, Yeah, there's definitely
Speaker 1: probably some retail they might be uh separate account allocations.
Speaker 1: You know, some r I a putting people all their
Speaker 1: their clients into a little bit of game stop. I
Speaker 1: don't know, man, I don't know. If I don't know,
Speaker 1: if I can imagine any r I doing that with
Speaker 1: putting their clients in game stop, what do you think?
Speaker 1: I can't fathom it. Honestly, I would feel like that
Speaker 1: would be an epic breakdown from a risk management standpoint.
Speaker 1: So yeah, that it wasn't us, It wasn't me. Well, well,
Speaker 1: if anyone out there listening was trading game stop share
Speaker 1: by share, give us a call and let us know.
Speaker 1: And then we also got a tweet from another listener
Speaker 1: that I want to share also give some numbers around
Speaker 1: this a bit. Her name is a Laundre Garcia at
Speaker 1: a Laundra g M, and she said the craziest thing
Speaker 1: I saw in markets this week was brought to my
Speaker 1: attention by matt Levin's Money Stuff and she said the
Speaker 1: media and robin Hood account size is two. Meanwhile, the
Speaker 1: average account size is five thousand dollars, and of robin
Speaker 1: Hood traders trade options, so that gives you a sense.
Speaker 1: I mean, obviously the median account size at robin Hood
Speaker 1: is not so large, so maybe they are trading share
Speaker 1: by share, like yeah, that's boy. And the difference between
Speaker 1: the average and the median is it's very big. Yeah,
Speaker 1: So mostly you know, I guess you conclude it's mostly
Speaker 1: small dollar accounts, but then there are a few really
Speaker 1: big ones in there that that pulled up pretty interesting.
Speaker 1: That's good. And by the way, matt Levine's column is
Speaker 1: a is a great source of crazy. It is. Oh
Speaker 1: every column has something new and crazy in it. So
Speaker 1: you ever short of ideas, I'll admit some times occasionally
Speaker 1: I am can go and go check out matt Levin's
Speaker 1: Money Stuff com Now that you're back, absolutely well, Amanda Gotty,
Speaker 1: We're gonna have to leave it there. But thank you
Speaker 1: so so much for joining Mike and Iva Speak. Thank
Speaker 1: you so much for having me it was such fun
Speaker 1: What Goes Up. We'll be back next week. Until then,
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Speaker 1: you can find us on Twitter, follow me at Sarah Ponzack,
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Speaker 1: The head of Bloomberg podcast is Francesca Levi. Thanks for listening.
Speaker 1: See you next time. Before