WEBVTT - Surveillance: Rotation Has Just Begun, Laidler Says 0:00:05.120 --> 0:00:09.280 Welcome to the Bloomberg Surveillance Podcast Downtown Keene. Along with 0:00:09.440 --> 0:00:13.200 Jonathan Ferroll and Lisa Brownwitz Jay Leye, we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations, 0:00:18.960 --> 0:00:23.840 Fine Bloomberg Surveillance and Apple podcast SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.160 and of course on the Bloomberg terminal. John's just simple, 0:00:30.160 --> 0:00:32.559 we're opening up, we're doing better, and we're opening up 0:00:32.560 --> 0:00:35.479 pretty quickly. Ben later joining us now tell Hudson Research 0:00:35.560 --> 0:00:38.560 CEO Ben fantastic to catch up with you, sir. Let's 0:00:38.560 --> 0:00:40.400 just start with a simple one. It's the path of 0:00:40.520 --> 0:00:46.360 least resistance for equities still higher. Simple answers. Yes, I mean, 0:00:46.560 --> 0:00:48.279 I think we're very focused on the sort of bond 0:00:48.360 --> 0:00:51.400 market in the tantrum and everything we've had, and that's 0:00:51.400 --> 0:00:54.200 gonna bring valuations down. They're always going to come down 0:00:54.280 --> 0:00:56.240 from the sort of you know, twenty three times PU. 0:00:56.240 --> 0:00:57.800 It was not a normal number of the S and P. 0:00:58.520 --> 0:01:00.960 It was a reflection of these very rest earnings. Earnings 0:01:00.960 --> 0:01:04.720 are now bouncing back, you know, very quickly, and things 0:01:04.800 --> 0:01:07.240 like the stimulus just give us more and more visibility 0:01:07.280 --> 0:01:09.360 on that. I think we're set up for a big 0:01:09.400 --> 0:01:13.279 earnings surprise. This year, We're gonna get strowth, not twenty 0:01:13.280 --> 0:01:15.640 out of the US, We're gonna get forty, not thirty 0:01:15.680 --> 0:01:18.880 out of international. That is a huge insurance policy to 0:01:19.480 --> 0:01:22.280 somewhat lower evaluations, and I think sets you up for, 0:01:22.600 --> 0:01:26.559 you know, another another very rare strong year for US 0:01:26.600 --> 0:01:29.800 and global equities. Ben later coming out of HSBC with 0:01:29.880 --> 0:01:32.399 that wonderful car you made two years ago, and then 0:01:32.400 --> 0:01:35.160 with Tara Hudson, and you've announced you're moving on to 0:01:35.240 --> 0:01:38.680 a wonderful new opportunity. The timeline of that is what 0:01:38.880 --> 0:01:42.120 is key here, Ben Laidler, No one but you has 0:01:42.160 --> 0:01:47.160 talked about the robustness of this ballmarket a three year run. 0:01:47.640 --> 0:01:50.880 How does this end? Well, how do you visualize that 0:01:51.000 --> 0:01:54.720 the double digit Ben Laidler's stock market ends out there? 0:01:56.280 --> 0:01:59.040 I mean, ultimately it gets killed by the fed um 0:02:00.000 --> 0:02:03.400 either a prematurely by a by a policy mistake, which 0:02:03.520 --> 0:02:06.840 I don't think we're going to get. I think, you know, 0:02:06.920 --> 0:02:09.919 Chairman Powell has been very very clear that rates are 0:02:10.320 --> 0:02:12.760 at least at the short end of staying are staying 0:02:12.840 --> 0:02:15.600 low for low for longer. But you know, ultimately they're 0:02:15.600 --> 0:02:17.320 going to have to They're gonna have to tape her, 0:02:17.360 --> 0:02:20.960 and but I think that's a discussion for another day. 0:02:21.080 --> 0:02:23.200 I you know, I don't think that's a discussion for 0:02:23.200 --> 0:02:24.800 the next sort of six or nine months. So I 0:02:24.800 --> 0:02:26.280 think that's a little bit of a red herring. I 0:02:26.280 --> 0:02:30.280 think the focus right now is this unfolding growth surprise, 0:02:30.760 --> 0:02:33.760 which I don't think we have sort of fully baked 0:02:33.800 --> 0:02:38.239 into numbers, and especially from these sort of cyclicals, reopeners, 0:02:38.440 --> 0:02:41.320 sort of value stocks, where I think that rotation has 0:02:41.680 --> 0:02:43.720 just begun in the last sort of month or so, 0:02:43.880 --> 0:02:46.560 and after a decade of under performance. So I think 0:02:46.600 --> 0:02:48.280 to be calling the end of that or the top 0:02:48.320 --> 0:02:51.040 of that right now is is dramatically premature. But I 0:02:51.080 --> 0:02:53.080 want to serve this idea of a policy error for 0:02:53.120 --> 0:02:54.840 a little bit, because there are some people who say 0:02:54.840 --> 0:02:56.760 there would be a policy error the FED does not 0:02:56.960 --> 0:02:59.640 hike rates in the face of persistent two and a 0:02:59.639 --> 0:03:02.640 half per cent inflation. Do you think that if we 0:03:02.760 --> 0:03:05.320 do get that kind of inflation, which Morgan Stanley frankly 0:03:05.400 --> 0:03:07.880 is calling for next year, do you think then that 0:03:07.919 --> 0:03:09.960 it would be appropriate for the third to raise rates, 0:03:09.960 --> 0:03:12.440 that it would be taken well by the equity markets, 0:03:12.520 --> 0:03:14.520 or do you think that would totally change the narrative 0:03:14.760 --> 0:03:18.919 and would make you reassess your car and equities. Yeah, 0:03:18.919 --> 0:03:21.440 I mean, I don't think we're looking at those sort 0:03:21.440 --> 0:03:23.160 of inflation numbers. I mean I think we've got a 0:03:23.160 --> 0:03:26.360 lot baked in already. I mean, inflation expectations, market inflation 0:03:26.360 --> 0:03:29.880 expectations already sort of over over two percent, sort of 0:03:29.919 --> 0:03:32.760 medium term. Again, I think we've sort of baked baked 0:03:32.800 --> 0:03:35.720 a lot in there. Um. You know, despite you know, 0:03:35.760 --> 0:03:38.960 this recovery narrative, we're still coming off very depressed levels. 0:03:38.960 --> 0:03:41.120 It's still a very big output gap. There were start 0:03:41.280 --> 0:03:44.120 very depressed sort of segments of the of the labor market. 0:03:44.160 --> 0:03:46.360 We had a core inflation number sort of last week 0:03:46.400 --> 0:03:48.840 well well below that sort of two percent number, So 0:03:49.000 --> 0:03:50.400 you know, we're going to get a sort of headline 0:03:50.440 --> 0:03:52.800 spike over the next few months off this sort of 0:03:52.880 --> 0:03:55.040 very depressed sort of base level. But I think to 0:03:55.080 --> 0:03:57.600 be calling for those sort of you know, north of 0:03:57.640 --> 0:04:00.400 two percent core inflation numbers, which is really gonna get 0:04:00.440 --> 0:04:03.320 the Fed sort of concerned and and looking to sort 0:04:03.320 --> 0:04:06.520 of unwind um this sort of very easy policy starts. 0:04:07.240 --> 0:04:10.320 I think to me having that discussion now, I just 0:04:10.360 --> 0:04:12.400 think I just think it's too early. Let's just go 0:04:12.440 --> 0:04:15.440 through the headlines from the Goldman note from last Friday 0:04:15.520 --> 0:04:18.400 to the revisions to forecasts eight percent GDP growth in 0:04:18.480 --> 0:04:21.600 twenty one Q four over Q four, unemployment to drop 0:04:21.640 --> 0:04:23.839 to four percent at the end of twenty one, three 0:04:23.880 --> 0:04:27.480 point five percent in twenty two, three point two, twenty three. 0:04:27.520 --> 0:04:30.760 But here's the kicker here. It's about inflation dynamics, and 0:04:30.800 --> 0:04:33.400 as far as Goldman are concerned, Tom, we expect inflation 0:04:33.480 --> 0:04:36.240 dynamics to mirror those of the last cycle. So you 0:04:36.240 --> 0:04:39.680 can have that boom that reopening for about twelve months. 0:04:39.680 --> 0:04:41.839 But the dynamics and the cycle for inflation, at least 0:04:41.839 --> 0:04:44.680 in the view of Goldman Tom, doesn't change. Ben Laylor 0:04:44.760 --> 0:04:47.000 what to do to the denominators. I mean, if you 0:04:47.000 --> 0:04:49.040 get eight percent GDP and I get it, there's a 0:04:49.120 --> 0:04:51.200 ramp down to wherever we're going. I mean, the fact 0:04:51.360 --> 0:04:57.039 is corporations adapt corporations are just do we grossly underestimate 0:04:57.080 --> 0:05:02.520 their revenue growth and margin expansion in this boom? Yes? 0:05:02.680 --> 0:05:05.120 I think, well, I think we're gonna where the danger is, 0:05:05.279 --> 0:05:09.479 especially for the sort of reopener's value cyclicals, calling what 0:05:09.520 --> 0:05:13.400 you will the amount of operating Lebridge is going to 0:05:13.480 --> 0:05:16.720 be dramatic because not only is the top line very depressed, 0:05:16.960 --> 0:05:19.680 and let's not forget how depressed. I mean you look 0:05:19.720 --> 0:05:22.640 at you know, you look you look at the car 0:05:22.680 --> 0:05:25.400 rental companies, the hotels that you mean, you name it. 0:05:25.640 --> 0:05:29.920 Revenues are still down sort of um, but we also 0:05:30.000 --> 0:05:32.919 underestimate that the operating Lebridge, all these companies have just 0:05:33.000 --> 0:05:35.800 taken costs out over the last twelve months. So when 0:05:35.800 --> 0:05:37.360 you get a bit of revenue growth coming back of 0:05:37.520 --> 0:05:40.200 a lower a lower cost base, I think the earnings 0:05:40.200 --> 0:05:42.719 recovery is going to be dramatic. And then let's not 0:05:42.839 --> 0:05:44.680 forget the tech names. So I mean these are still 0:05:44.720 --> 0:05:47.960 all secular growth stories that are growing sort of fifteen 0:05:49.040 --> 0:05:52.040 so um. You know by all means you know, overweight 0:05:52.160 --> 0:05:54.800 focus on those sort of cyclical recovery names. But you know, 0:05:54.880 --> 0:05:56.840 I don't think these sort of big tech names are 0:05:56.839 --> 0:05:59.479 out for the count. And I would just say you 0:05:59.520 --> 0:06:01.680 do need to share, have you if you're going to 0:06:01.760 --> 0:06:03.920 own us or Globe equity has just given how big 0:06:04.000 --> 0:06:07.120 they are. I mean, equities don't work unless so tech 0:06:07.160 --> 0:06:08.960 at least sort of treads water. So I think we're 0:06:08.960 --> 0:06:11.640 looking for you know, cypronicals catch up, not a big 0:06:11.800 --> 0:06:13.840 rotation out of tech. Ben, we've gotta let you go. 0:06:14.160 --> 0:06:16.720 But before we let you go, congratulations on a tremendous 0:06:16.800 --> 0:06:19.200 last couple of years covering this equity market after the 0:06:19.240 --> 0:06:22.520 partnering HSBC. Just some really brilliant calls in the face 0:06:22.560 --> 0:06:24.360 of a lot of skepticism, and Ben, we look forward 0:06:24.400 --> 0:06:26.160 to seeing how you do in the new venture. Ben 0:06:26.279 --> 0:06:36.080 later there Tallo Hudson Research. David Rubinstein is with Carlisle Group. 0:06:36.440 --> 0:06:39.520 His value to us, his peer to beer conversations have 0:06:39.720 --> 0:06:43.480 been wonderful. David, do you perceive an end to the pandemic? 0:06:44.920 --> 0:06:48.800 Not overnight, not anytime soon. I do think that if 0:06:48.960 --> 0:06:53.880 the vaccination program in the United States is as successful 0:06:53.960 --> 0:06:56.919 as the President hopes it will be, it is likely 0:06:57.000 --> 0:07:00.200 by the fall we can return to some type of normality. 0:07:00.640 --> 0:07:02.640 But I don't think it's going to happen overnight. Now, 0:07:03.360 --> 0:07:06.440 what are business people doing? I mean, you've got great context, 0:07:06.560 --> 0:07:08.960 not only your daily work with Carlisle, but your earn 0:07:09.040 --> 0:07:12.640 credibility over the decades. And this is the key question 0:07:12.760 --> 0:07:15.880 I have, David. The business people ramp up for a 0:07:16.000 --> 0:07:19.760 seven to eight percent economy and hope and pray, or 0:07:19.840 --> 0:07:22.760 do they settle and manage for a three or four 0:07:22.840 --> 0:07:26.920 percent growth rate? Which is it? I think the business 0:07:26.960 --> 0:07:28.760 community is assuming it will have a pretty good growth 0:07:28.880 --> 0:07:31.280 rate because the stimulus package is obviously going to stimulate 0:07:31.320 --> 0:07:33.840 the economy. It's a very very large package. For sure, 0:07:34.120 --> 0:07:36.520 I'd be very surprised if growth is at three or 0:07:36.560 --> 0:07:39.880 four percent given this stimulus. On the other hand, we 0:07:39.880 --> 0:07:42.800 should recognize that the country has two different business communities. 0:07:43.080 --> 0:07:45.600 You have the business community of private equity or finance 0:07:45.760 --> 0:07:48.280 or technology, which is doing quite well, what might do 0:07:48.400 --> 0:07:50.640 better than four or five, six or seven percent. But 0:07:50.720 --> 0:07:54.080 then you have the the underclass, the blue collar workers 0:07:54.120 --> 0:07:56.320 that people have been laid off, people that that don't 0:07:56.360 --> 0:07:58.480 have enough food and so forth. Those people are not 0:07:58.560 --> 0:08:00.040 going to be growing at that kind of rates. So 0:08:00.120 --> 0:08:02.440 we do have two different economies we're really dealing with. 0:08:03.040 --> 0:08:05.760 For your company that you are a leader at, how 0:08:05.880 --> 0:08:08.320 important is it for you to get your employees vaccinated 0:08:08.440 --> 0:08:11.840 right now? I think it's very important to have people 0:08:11.880 --> 0:08:14.680 to be vaccinated. Clearly, I think when you have a 0:08:14.760 --> 0:08:17.360 vaccination process, you're gonna have a healthier economy and you're 0:08:17.360 --> 0:08:20.360 gonna have a healthier population. You can't force people to 0:08:20.400 --> 0:08:23.640 get vaccinated. And I've been disappointed that so many people 0:08:23.680 --> 0:08:26.040 in the country, relatively speaking, are saying they don't want 0:08:26.040 --> 0:08:29.280 to be vaccinated. And I say so many. Maybe the 0:08:29.320 --> 0:08:32.319 population is not yet convinced it needs to be vaccinated. 0:08:32.720 --> 0:08:36.120 And I think that we really can't get complete heard humanity, humanity, 0:08:36.400 --> 0:08:40.839 herd immunity unless we get a very large percentage vaccinated. 0:08:40.960 --> 0:08:43.920 So I'm disappointed that some people don't want to be vaccinated. 0:08:43.960 --> 0:08:46.480 I understand why, but I think it's it's probably the 0:08:46.559 --> 0:08:48.959 wrong decision. Well, and this really raises a conundrum for 0:08:49.000 --> 0:08:52.040 a lot of executives where they want their employees to 0:08:52.200 --> 0:08:54.679 have the vaccine, they don't know how to encourage it. 0:08:54.760 --> 0:08:57.280 They can't force them, As you say, what are the 0:08:57.360 --> 0:09:00.040 best incentives and how important is it for you to 0:09:00.120 --> 0:09:03.679 get people back to the office, back traveling again, and 0:09:04.040 --> 0:09:07.400 leading more normal pre COVID types of lives. I think 0:09:07.480 --> 0:09:10.120 employers are struggling with this, but to some extent, I 0:09:10.160 --> 0:09:13.520 think some employers will say, if you're not vaccinated, don't 0:09:13.559 --> 0:09:16.320 come into the office, And therefore some people will continue 0:09:16.320 --> 0:09:18.920 to work at home, or there will be special places 0:09:18.960 --> 0:09:21.920 in offices for people that are not vaccinated, but they'll 0:09:21.960 --> 0:09:23.520 have to be tested when they go in and so 0:09:23.679 --> 0:09:25.920 forth every day about whether they have the virus. That's 0:09:25.960 --> 0:09:28.760 not an optimal situation. Clearly, it'd be much better for 0:09:28.880 --> 0:09:32.280 all employers if they're most local employees are willing to 0:09:32.320 --> 0:09:35.720 be vaccinated. For those who, for variety of reasons don't 0:09:35.720 --> 0:09:37.640 want to be vaccinated, they're gonna have to be special 0:09:37.800 --> 0:09:40.040 ways to handle them. But I don't think you can 0:09:40.120 --> 0:09:44.960 force people to be vaccinated against their their wishes. Yeah, 0:09:45.000 --> 0:09:46.880 this definitely has been an issue, Tom. I mean, think 0:09:46.880 --> 0:09:49.600 about a special place to put people at a time 0:09:49.880 --> 0:09:52.800 when there is concern about the ongoing spread of a 0:09:52.880 --> 0:09:55.880 virus that is mutating. That's an interesting idea. And David, 0:09:55.960 --> 0:09:58.360 this goes back to your public service with President Carter 0:09:58.440 --> 0:10:02.400 a few years. How close are we, David Rubinstein, to 0:10:02.520 --> 0:10:07.959 the common sense idea of the vaccine passport. Well, I 0:10:08.040 --> 0:10:11.079 think it's possible, um, but I don't think that you 0:10:11.160 --> 0:10:16.160 really are likely to have uh um people being forced 0:10:16.520 --> 0:10:19.120 to take vaccines. And I just think there's gonna be 0:10:19.160 --> 0:10:22.679 too much resistance to forcing people to be vaccinated. I 0:10:22.760 --> 0:10:24.839 just don't think that will work. There are many people 0:10:24.920 --> 0:10:27.120 and I would say, in the minority community, for example, 0:10:27.200 --> 0:10:30.720 many African Americans are have the view that very often 0:10:30.800 --> 0:10:35.800 they they've been used inappropriately for vaccines that maybe weren't 0:10:35.800 --> 0:10:38.680 as safe as or other uh tests that weren't as 0:10:38.720 --> 0:10:41.199 safe UH, And therefore there is some resistance in the 0:10:41.280 --> 0:10:44.360 in the minority community, African American community, there's some resistance 0:10:44.360 --> 0:10:48.480 among white males, many of whom, for political or other reasons, 0:10:48.520 --> 0:10:50.319 just think that the government shouldn't be telling them what 0:10:50.400 --> 0:10:55.199 to do. So you see that white male voters who 0:10:55.280 --> 0:10:59.559 are Republicans, some of them are are fairly fairly determined 0:10:59.600 --> 0:11:02.360 not to be vaccinated, and you can't force them to 0:11:02.480 --> 0:11:05.719 be vaccinated. David, what's the pulse of mergers and acquisitions 0:11:05.840 --> 0:11:09.920 right now? Transactions and combinations not only traditional but also 0:11:10.000 --> 0:11:13.040 the effervescence we see in the market with SPACs and such. 0:11:14.600 --> 0:11:17.160 Well for people who are in the M and A 0:11:17.320 --> 0:11:20.360 world and people in the private equity world, in finance world, 0:11:20.559 --> 0:11:24.079 it's almost as if there wasn't a pandemic because deals 0:11:24.120 --> 0:11:26.960 are going on, just people aren't meeting face to face 0:11:27.040 --> 0:11:31.000 by and large, and so it hasn't had a deletarious effect. Uh. 0:11:31.440 --> 0:11:33.640 Really on this part of the of the economy, and 0:11:34.160 --> 0:11:36.880 the SPACs are something that no one could have predicted. 0:11:37.080 --> 0:11:40.040 They clearly are very effervescent. It is the word you 0:11:40.280 --> 0:11:42.640 maybe have used um at some point, maybe some of 0:11:42.679 --> 0:11:44.760 them won't work out. But I don't think spacts are 0:11:44.800 --> 0:11:47.439 going away. I don't think that SPACs are here just 0:11:47.559 --> 0:11:50.520 as a temporary measure because of the of the pandemic. 0:11:50.880 --> 0:11:54.160 SPACs do serve a purpose some cases. Some cases they 0:11:54.240 --> 0:11:57.800 do get wildly inflated in terms of the valuations when 0:11:57.840 --> 0:12:00.880 you have companies with no no revenue get very very 0:12:00.960 --> 0:12:03.880 high valuations. On the other hand, they do serve a purpose, 0:12:03.920 --> 0:12:05.360 and I don't think they're going away. They're gonna be 0:12:05.360 --> 0:12:08.160 a permanent part of our financial structure. I think David 0:12:08.200 --> 0:12:09.960 always great to get you on the program. Come back soon, 0:12:10.000 --> 0:12:13.319 won't you stay close? David Rubinstein, that group found a 0:12:18.320 --> 0:12:21.599 with invest go on fixed income and particularly loans. No 0:12:21.880 --> 0:12:24.880 Choram joins us, and what's wonderful about Noel and she 0:12:25.000 --> 0:12:28.400 started out in the trenches of the trading desk as well, 0:12:28.480 --> 0:12:31.120 and that's really cool. It's a very rare that you 0:12:31.240 --> 0:12:34.680 get academics with her, you know, ability in the classroom 0:12:34.760 --> 0:12:37.839 that come out of the trenches of trading. What does 0:12:37.880 --> 0:12:40.640 the loan market look like right now? Invest goes up 0:12:40.679 --> 0:12:44.040 to their eyeballs and loans. What's the character of the 0:12:44.160 --> 0:12:47.959 loan market? Tom? Before we get started, I have to 0:12:48.040 --> 0:12:51.880 tell you that my Todd so perfectly gave me this 0:12:52.160 --> 0:12:54.439 this morning, and I just thought it was too perfect 0:12:54.679 --> 0:12:57.160 not to show you for St. Patty's Day. So let's 0:12:57.200 --> 0:12:59.000 just Sat Patty's Day, which means when you have to 0:12:59.040 --> 0:13:03.199 have a Guinness on for people who are listening on radio. 0:13:03.360 --> 0:13:07.760 She held up a big sparkly bow tie from with sequence, 0:13:07.880 --> 0:13:16.200 just like wear it carry one. So how about those loans? 0:13:17.360 --> 0:13:19.240 I want to give you more backdrop of kind of 0:13:19.320 --> 0:13:22.679 growth growth where just below Goldman I would say, we're 0:13:22.720 --> 0:13:25.599 expecting around seven percent growth for the year. Inflation we 0:13:25.679 --> 0:13:28.040 expect to be messy, and that's ultimately going to keep 0:13:28.080 --> 0:13:31.760 the Fed on the sidelines. We do expect as inflation 0:13:31.880 --> 0:13:35.040 is messy, we could see some more rates volatility, and um, 0:13:35.240 --> 0:13:39.480 we could see as a result loans um loans demand 0:13:39.600 --> 0:13:42.160 and you've already seen that, you've seen the retail investor 0:13:42.240 --> 0:13:45.240 step in significant in a significant way. UM, I would 0:13:45.440 --> 0:13:48.560 you know caveat that the retail investor also steps out, 0:13:48.760 --> 0:13:50.800 you know, when they start to get worried pretty quickly. 0:13:50.880 --> 0:13:53.640 So just of course, um, you know, don't put We 0:13:53.760 --> 0:13:56.480 never suggest putting all your eggs in one basket. Diverse 0:13:56.559 --> 0:13:59.719 by where you can, especially with levels where they are, 0:14:00.080 --> 0:14:03.040 you know, in terms of evaluations, the first play across 0:14:03.559 --> 0:14:06.760 bond asset this is really important. Typically when we talk 0:14:06.800 --> 0:14:09.559 about fixed income, we don't talk about retail participation. What 0:14:09.720 --> 0:14:13.120 is that incremental retail participation in leverage loans? Like, what 0:14:13.160 --> 0:14:15.079 does that look like in the last month or so, 0:14:16.160 --> 0:14:18.720 it's really stepped up because right a lot of investors 0:14:18.760 --> 0:14:22.600 are worried about that that raids volatility. We haven't seen 0:14:22.680 --> 0:14:25.520 it that we haven't seen the volatility carried through into 0:14:25.560 --> 0:14:28.520 the other asset classes though, and that's kind of, uh, 0:14:28.640 --> 0:14:31.800 you know, the main reason that we're still bullish on credit. 0:14:32.080 --> 0:14:35.320 I wouldn't say we're over our skis and risks here, 0:14:35.400 --> 0:14:36.920 but we do think that growth is going to be 0:14:36.960 --> 0:14:40.320 supportive for fundamentals this year and that is ultimately why 0:14:40.520 --> 0:14:44.720 you know, we would suggest UM investing in in bonds. 0:14:44.840 --> 0:14:48.280 We think the growth is going to support UM companies 0:14:48.320 --> 0:14:50.800 throughout the year, and that's really what's gonna you know 0:14:51.000 --> 0:14:54.720 be be the the story in well, I want to 0:14:54.720 --> 0:14:56.680 pick up on one of your lines and it's without context. 0:14:56.760 --> 0:14:58.240 You can give us that in just a moment. But 0:14:58.320 --> 0:15:00.480 it's something I've read a million times if ext income, 0:15:00.520 --> 0:15:02.000 and I've read it over the last months, I've read 0:15:02.000 --> 0:15:03.680 it six months ago, nine months ago, and over the 0:15:03.760 --> 0:15:06.840 last several years too. Valuations are rich, Thus investors are 0:15:06.840 --> 0:15:09.800 not getting paid for this risk. Is that just the story? 0:15:09.880 --> 0:15:12.240 And fixed income is that the new normal? That valuations 0:15:12.240 --> 0:15:14.320 will always be rich and investors will not be getting 0:15:14.360 --> 0:15:16.960 compensated for risk because we live in a new world now. 0:15:18.600 --> 0:15:20.560 So it is a new world. We are, you know, 0:15:20.800 --> 0:15:24.640 at very rich levels. Um, and we do think a 0:15:24.760 --> 0:15:28.240 lot of this year will be about clipping the coupon. 0:15:28.560 --> 0:15:30.840 But because of the volatility that we are like this 0:15:31.680 --> 0:15:34.680 in stocks, the rates, it does make sense to diverse 0:15:34.760 --> 0:15:37.800 by your portfolio. So of course we're we're actually seeing 0:15:37.800 --> 0:15:39.600 a lot of crossover investors and I've got a lot 0:15:39.640 --> 0:15:42.480 of crossover demand come into high yield em to pick 0:15:42.600 --> 0:15:45.840 up the yield there and diverse by their portfolios there 0:15:46.200 --> 0:15:49.600 and then um, you know, compensate themselves. We still think 0:15:49.640 --> 0:15:54.600 there's some value specifically within the services sectors um that 0:15:54.760 --> 0:15:56.480 you can also pick up, and there's still a little 0:15:56.480 --> 0:15:58.760 bit of value and leverage loans relative to high yield 0:15:58.800 --> 0:16:01.200 and of course i G. Taking a step back, there's 0:16:01.240 --> 0:16:03.520 a larger question going forward to what about whether the 0:16:03.600 --> 0:16:06.120 FED is put a floor under the default rate? In 0:16:06.160 --> 0:16:09.080 other words, is the FED put basically going to prevent 0:16:09.160 --> 0:16:12.160 the default rate among corporate debt from getting too high 0:16:12.240 --> 0:16:14.480 because they will sweep in and they will end up 0:16:14.480 --> 0:16:17.160 buying that debt and reducing borrowing costs enough to let 0:16:17.240 --> 0:16:21.920 these companies continue to survive. This year, it's really about growth, 0:16:22.080 --> 0:16:24.520 right and you know, we expect the faults to come down. 0:16:24.640 --> 0:16:28.000 It's an i G. It's really gonna's expect lower supply. 0:16:28.160 --> 0:16:30.000 It's going to be a lot about the leveraging. So 0:16:30.120 --> 0:16:32.160 a lot of companies are making the right moves that 0:16:32.240 --> 0:16:35.520 we would expect in a high growth year. We would 0:16:35.760 --> 0:16:37.760 you know, expect most of the growth to come in 0:16:37.800 --> 0:16:40.520 the next couple of quarters as the stimulus has spent, 0:16:40.760 --> 0:16:43.480 of course, and then you know, and before we would 0:16:43.520 --> 0:16:46.280 start to look for any kind of creeping back of 0:16:46.920 --> 0:16:49.960 COVID concerns. But ultimately we expect to end of the 0:16:50.080 --> 0:16:53.560 year at potential in terms of growth. So if credit 0:16:53.640 --> 0:16:56.200 risk isn't the main risk here, are you delving also 0:16:56.440 --> 0:16:59.440 into the riskiest of corporate debt, the triple C rated stuff, 0:16:59.760 --> 0:17:01.840 even in on the fixed side, even on the bond 0:17:01.880 --> 0:17:07.000 side A little bit, I'd say, because valuations are where 0:17:07.080 --> 0:17:11.480 they are that in and if you see continued volatility 0:17:12.200 --> 0:17:14.879 and you're not being compensated as much as you know 0:17:15.000 --> 0:17:17.280 you'd like it as an investor, As an investor with 0:17:17.400 --> 0:17:20.240 rich valuations, it doesn't make sense, of course to go 0:17:20.720 --> 0:17:23.480 you know, over your skis on risk and take a 0:17:23.520 --> 0:17:26.239 bunch of risk in your portfolio. But it does make 0:17:26.320 --> 0:17:29.879 sense to reach incrementally into these higher risk here higher 0:17:30.000 --> 0:17:33.240 risk areas, because we do expect growth to support these 0:17:33.280 --> 0:17:37.240 companies and allow them to improve their fundamentals on the ear. No, 0:17:37.560 --> 0:17:39.600 good to see you as always and love the boat high. 0:17:39.760 --> 0:17:44.920 Now call him that you started. You started out the 0:17:45.000 --> 0:17:48.480 program talking about a Sesame Street routs. We ended up 0:17:48.640 --> 0:17:50.840 first of all, do they watch Sesame Street the UK? 0:17:51.040 --> 0:17:54.600 Did you grow up watching it? Watches st Okay, we 0:17:54.720 --> 0:17:57.440 got that and then we got to this weekend. Obviously 0:17:59.000 --> 0:18:07.880 carry on with us now a gentleman of profile encouraged 0:18:07.960 --> 0:18:12.119 Michael Mayo joins as well as far ago securities on banking. Michael, 0:18:12.119 --> 0:18:14.480 you're very good at buying straw hats and winner the 0:18:14.560 --> 0:18:17.520 banks that were in winter any number of months ago. 0:18:17.640 --> 0:18:19.880 The banks have had a great move. Can you still 0:18:20.080 --> 0:18:25.800 own the banks here? Absolutely? Tom, I mean you still 0:18:25.840 --> 0:18:29.760 haven't made up uh, the underperformance versus the general market 0:18:30.280 --> 0:18:36.200 since the start of and so the catch up trade 0:18:36.640 --> 0:18:40.000 still has room to go for the banks. And today, 0:18:40.119 --> 0:18:44.760 in fact, we increased our esthmates on JP Morgan to 0:18:44.880 --> 0:18:47.639 the high on the street. Um, so we think that 0:18:49.359 --> 0:18:52.720 earnings will be a lot better than expected, uh, in 0:18:52.960 --> 0:18:56.359 the specific case for Jake Morgan and probably others. And 0:18:56.480 --> 0:18:59.440 what's so important here, Michael Mayo is you know and 0:18:59.560 --> 0:19:04.240 pulse and he knows this too. Corporations adapt to the 0:19:04.400 --> 0:19:07.680 news that they are given the strategy they're giving out 0:19:07.760 --> 0:19:10.880 one year, three years, five years. How does James Diamond 0:19:11.000 --> 0:19:17.560 adapt to eight g D P Well, well, first I'd say, 0:19:17.760 --> 0:19:20.600 what's good for JP Morgan's customers, what's good to the 0:19:20.640 --> 0:19:24.280 banking industries customers is good for the banks. It's mutually beneficial. 0:19:24.480 --> 0:19:27.760 But uh, Tom, you know, I'll stay here. A happy birthday, 0:19:27.840 --> 0:19:31.879 Albert Einstein. That was yesterday. And guess which executive quotes 0:19:31.960 --> 0:19:39.639 Albert Einstein the most. Mr Diamond exactly, And he often says, quote, 0:19:40.480 --> 0:19:44.600 everything should be made as simple as possible, but no simpler. 0:19:45.480 --> 0:19:48.720 So that's an Einstein quote that he uses to reduce 0:19:48.800 --> 0:19:51.960 the complexity of running a bank down to simple concepts. 0:19:52.280 --> 0:19:56.080 And one of those very simple concept is in a downturn, 0:19:56.720 --> 0:20:00.200 invest invest, invest like you would any other time time. 0:20:00.560 --> 0:20:03.760 So Tom, your question is what happens with this accelerating 0:20:04.080 --> 0:20:07.920 GDP growth? Well, JP Morgan is a few steps ahead 0:20:08.000 --> 0:20:10.760 at a time when some other banks are dusting off 0:20:10.840 --> 0:20:14.120 some expansion plans, are trying to get everything straight. They've 0:20:14.160 --> 0:20:17.840 already been investing. In fact, they've increased their investment dollars 0:20:17.920 --> 0:20:20.119 by two and a half times over the last five years, 0:20:20.520 --> 0:20:23.000 and they're increasing it by one fourth of the last year. 0:20:23.040 --> 0:20:25.439 It raised a lot of ivan brows, like why are 0:20:25.480 --> 0:20:27.919 you spending all this extra money? I mean, there there 0:20:27.960 --> 0:20:32.320 are a lot of concerned about that. And now you're saying, okay, hey, 0:20:32.359 --> 0:20:35.000 it makes sense to expand branches to all the lower 0:20:35.080 --> 0:20:38.760 forty states. It makes sense to expand bankers in the 0:20:38.920 --> 0:20:42.240 US and outside. They're investing more in tech. So they're 0:20:42.320 --> 0:20:46.720 coming this investing is really a sweet spot of the economy. 0:20:46.800 --> 0:20:49.080 So they've been very smart and let's face it, a 0:20:49.119 --> 0:20:51.879 little bit lucky too. Who thought we'd be this far 0:20:51.960 --> 0:20:55.680 along with the vaccines, I mean President Biden talking about 0:20:55.760 --> 0:20:59.879 Independence Day, uh from COVID July four, and then the 0:21:00.000 --> 0:21:03.720 stimulus one point nine trillion dollars last week for the 0:21:03.840 --> 0:21:08.359 environment's looking up just at the time when Jake Morgan 0:21:08.440 --> 0:21:11.439 is at peak investment spending. So this is similar. It's 0:21:11.520 --> 0:21:15.159 kind of history repeating itself with JP Morgan coming out 0:21:15.200 --> 0:21:17.840 of the Global stands for crisis. JP Morgan came through 0:21:17.920 --> 0:21:21.440 that much stronger and through the pandemic. We think JP 0:21:21.560 --> 0:21:24.719 Morgan will come through this much stronger once again. All Right, 0:21:24.760 --> 0:21:27.920 So Mike, there's this grand reopening trading in Goldman's Access 0:21:27.960 --> 0:21:30.800 raising their GDP forecast and there, uh, you know, take 0:21:30.840 --> 0:21:33.320