1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,360 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Giant. 5 00:00:27,400 --> 00:00:29,960 Speaker 1: Would of Bank of America Security's head of the Research 6 00:00:30,000 --> 00:00:33,280 Speaker 1: Investment Committee joint us Right now, Jared the difference between 7 00:00:33,479 --> 00:00:37,760 Speaker 1: a sustainable rotation and another head fake draw the distinction 8 00:00:37,840 --> 00:00:40,639 Speaker 1: for us. Look, all right, we keep it simple here. 9 00:00:40,840 --> 00:00:45,400 Speaker 1: I think any move to value, any rotation to supercyclical 10 00:00:45,479 --> 00:00:48,600 Speaker 1: sectors is going to be a tactical, short term flash 11 00:00:48,600 --> 00:00:52,000 Speaker 1: in the pan until you have some real structural changes 12 00:00:52,040 --> 00:00:54,040 Speaker 1: in the economy that can broaden out the economic base 13 00:00:54,400 --> 00:00:57,240 Speaker 1: and provide some real ballots that would that would move 14 00:00:57,280 --> 00:01:00,320 Speaker 1: growth meaningfully higher. Until then, I think these are all 15 00:01:00,440 --> 00:01:03,400 Speaker 1: sort of noisy moves that a lot of investors can ignore. 16 00:01:03,960 --> 00:01:07,040 Speaker 1: I'm certainly also, because yields are higher, that should be 17 00:01:07,160 --> 00:01:09,720 Speaker 1: good for the cyclicals, that should be good for the banks. 18 00:01:10,040 --> 00:01:13,360 Speaker 1: Why is that not another sign perhaps of outperformance Given 19 00:01:13,400 --> 00:01:16,240 Speaker 1: the fact that all things being equal, there isn't necessarily 20 00:01:16,240 --> 00:01:19,200 Speaker 1: any reason behind this rally well, as you mentioned a 21 00:01:19,200 --> 00:01:21,080 Speaker 1: woman to go. I mean, there's a lot of cross 22 00:01:21,080 --> 00:01:23,080 Speaker 1: currents in the bond market right now. There's a lot 23 00:01:23,080 --> 00:01:25,760 Speaker 1: of confusion about what supply will be like in the future. 24 00:01:25,959 --> 00:01:28,160 Speaker 1: And I think most importantly of all, the sense that 25 00:01:28,400 --> 00:01:30,800 Speaker 1: if you'll really do rise in a meaningful way, that 26 00:01:30,920 --> 00:01:33,039 Speaker 1: the feed will come in with yield curve control and 27 00:01:33,040 --> 00:01:37,360 Speaker 1: and and and cap you know, any any big move anyway, 28 00:01:37,480 --> 00:01:42,160 Speaker 1: So the long term benefits the correlation that you might 29 00:01:42,200 --> 00:01:45,560 Speaker 1: expect between yields, UM and UH and banks and other 30 00:01:45,600 --> 00:01:47,680 Speaker 1: cyclical sectors. I think it's not going to be what 31 00:01:47,720 --> 00:01:51,440 Speaker 1: it once was until again, until the economy is structured 32 00:01:51,480 --> 00:01:53,640 Speaker 1: in a very different way. You mentioned the financials. That's 33 00:01:53,680 --> 00:01:55,680 Speaker 1: the problem, isn't it. We saw and yesterday session the 34 00:01:55,680 --> 00:01:58,960 Speaker 1: financials can outperform on the way down? Can they outperform 35 00:01:59,040 --> 00:02:01,600 Speaker 1: in an up market? Charrett? Given the white scenes of 36 00:02:01,680 --> 00:02:04,400 Speaker 1: big tech? Can they? There's a few things that I 37 00:02:04,440 --> 00:02:06,920 Speaker 1: think are special about financials that can that can work. 38 00:02:06,920 --> 00:02:10,480 Speaker 1: If you start to see UM deposit growth slow, you 39 00:02:10,600 --> 00:02:13,120 Speaker 1: start to see you know, loan growth pick up maybe 40 00:02:13,160 --> 00:02:15,520 Speaker 1: in the you know, later part of this quarter, UM, 41 00:02:15,639 --> 00:02:17,480 Speaker 1: then there I think there are some some moves that 42 00:02:17,480 --> 00:02:19,960 Speaker 1: can happen in financials that are worth taking a peak at. 43 00:02:20,160 --> 00:02:23,040 Speaker 1: But for a medium or longer termorial investor, Um, this 44 00:02:23,120 --> 00:02:25,840 Speaker 1: is a moment in which, you know, we're much more 45 00:02:25,840 --> 00:02:29,800 Speaker 1: concerned that you know, secular stagnation plus epic stimulus equals 46 00:02:29,880 --> 00:02:33,440 Speaker 1: a really epic bubble in in growth stocks in tech 47 00:02:33,480 --> 00:02:36,720 Speaker 1: and healthcare. We calculated that you know, tech broadly defined 48 00:02:36,760 --> 00:02:40,120 Speaker 1: plus healthcare accounts now for more than fifty of the 49 00:02:40,160 --> 00:02:41,840 Speaker 1: market cap of the S and P five hunter that's 50 00:02:41,840 --> 00:02:44,320 Speaker 1: the highest ever. And just incidentally, you know, if you 51 00:02:44,440 --> 00:02:47,799 Speaker 1: if you sustain the current pace that we've seen this year, UM, 52 00:02:47,840 --> 00:02:50,080 Speaker 1: you know, tech and healthcare would would would account for 53 00:02:50,200 --> 00:02:53,280 Speaker 1: the entirety of the market. You're I don't have more 54 00:02:53,280 --> 00:02:55,320 Speaker 1: faith in a sustainable rotation if we had a deal 55 00:02:55,360 --> 00:02:58,359 Speaker 1: down in Washington, d C. We don't. Are you surprised 56 00:02:58,360 --> 00:03:01,440 Speaker 1: by the calm around that currently? I am? Actually I 57 00:03:01,440 --> 00:03:03,840 Speaker 1: think that the you know, a lot of investors are 58 00:03:03,880 --> 00:03:06,880 Speaker 1: watching this really closely. They understand that more stimuluts isn't 59 00:03:06,880 --> 00:03:09,320 Speaker 1: necessarily understand that, you know, two hundred dollars a week 60 00:03:09,360 --> 00:03:13,600 Speaker 1: unemployment insurance is a disaster. Three is tough. Four dollars 61 00:03:13,680 --> 00:03:15,960 Speaker 1: might keep us on the footing that we are um 62 00:03:16,000 --> 00:03:18,200 Speaker 1: at today, but right now we've got none of it. 63 00:03:18,360 --> 00:03:20,200 Speaker 1: And um I think there's a there's a real sense 64 00:03:20,240 --> 00:03:22,239 Speaker 1: of watching and waiting. And if it we go into 65 00:03:22,240 --> 00:03:26,000 Speaker 1: another week of of no progress on talks, then I 66 00:03:26,040 --> 00:03:27,799 Speaker 1: think you'll start to see the market care a bit more. 67 00:03:27,960 --> 00:03:30,200 Speaker 1: Al Right, care a bit more. How does that translate, 68 00:03:30,240 --> 00:03:31,880 Speaker 1: in other words, how big of a sell off could 69 00:03:31,880 --> 00:03:34,639 Speaker 1: we see if there is no deal after the next 70 00:03:34,680 --> 00:03:37,520 Speaker 1: week or so. In September two tho eight, when the 71 00:03:37,560 --> 00:03:40,200 Speaker 1: House voted down TARP the first time, you recall, you know, 72 00:03:40,240 --> 00:03:42,760 Speaker 1: the S and P fell I think about in the 73 00:03:42,800 --> 00:03:46,040 Speaker 1: in the sessions after that, just for context, not saying 74 00:03:46,080 --> 00:03:47,960 Speaker 1: we will get the same move you know this year, 75 00:03:47,960 --> 00:03:49,440 Speaker 1: but I think that there is a sense in which, 76 00:03:49,720 --> 00:03:52,040 Speaker 1: if it really does look like policy is going to fail, 77 00:03:52,560 --> 00:03:55,400 Speaker 1: the market can can care a lot and care very quickly. 78 00:03:55,840 --> 00:03:59,000 Speaker 1: Um So, if if you know, maybe a scenario in 79 00:03:59,000 --> 00:04:00,520 Speaker 1: which the market has temple was a little bit of 80 00:04:00,520 --> 00:04:03,400 Speaker 1: discipline on on Washington and you see a big equity 81 00:04:03,440 --> 00:04:07,240 Speaker 1: sell off that sparks finally, uh, some level of compromise. 82 00:04:07,520 --> 00:04:09,760 Speaker 1: We told investors you know this week, we think it's 83 00:04:09,800 --> 00:04:13,080 Speaker 1: a it's a Q three. Whether it's a hedging risk 84 00:04:13,200 --> 00:04:15,400 Speaker 1: or a buying opportunity maybe depends on your time frame, 85 00:04:15,520 --> 00:04:17,040 Speaker 1: but we wouldn't be surprised if we get a lot 86 00:04:17,040 --> 00:04:20,000 Speaker 1: more volatility before there's some peace in Washington. John, I 87 00:04:20,040 --> 00:04:22,760 Speaker 1: gotta say what Jared just said. There, This idea that 88 00:04:22,839 --> 00:04:26,080 Speaker 1: perhaps the market will impose some discipline on Washington goes 89 00:04:26,120 --> 00:04:28,919 Speaker 1: to something that you said last week with Larry Cudlow, 90 00:04:28,960 --> 00:04:32,120 Speaker 1: where you said, isn't it problematic that you have so 91 00:04:32,160 --> 00:04:35,400 Speaker 1: many people losing their jobs at a time when you 92 00:04:35,440 --> 00:04:38,920 Speaker 1: have markets rallying down in Washington? They don't care about 93 00:04:39,000 --> 00:04:41,080 Speaker 1: the jobless rate as much as they do about what 94 00:04:41,160 --> 00:04:43,840 Speaker 1: they get in terms of a signal from equities. I mean, 95 00:04:43,839 --> 00:04:46,359 Speaker 1: you just have to wonder what does that say about 96 00:04:46,400 --> 00:04:49,280 Speaker 1: the deliver a deliberation process down in Washington. Think it's 97 00:04:49,320 --> 00:04:51,400 Speaker 1: embarrassingly su and Jared, I think you can speak to 98 00:04:51,400 --> 00:04:54,440 Speaker 1: that as well. If this market lower, if this equity 99 00:04:54,440 --> 00:04:56,560 Speaker 1: market was down and down hard like it was in March. 100 00:04:56,600 --> 00:04:58,839 Speaker 1: I think we've seen some follow up in Washington, and 101 00:04:58,960 --> 00:05:02,120 Speaker 1: we don't we wanted, Jared for you, what's the cut 102 00:05:02,120 --> 00:05:03,920 Speaker 1: off point? What's the point at which you look at 103 00:05:03,960 --> 00:05:08,360 Speaker 1: things down in Washington and think it's not happening, Well, 104 00:05:08,400 --> 00:05:11,400 Speaker 1: I mean it's it's it's a tough call because our 105 00:05:11,440 --> 00:05:13,640 Speaker 1: conversations with with folks and the and the sense down 106 00:05:13,640 --> 00:05:17,120 Speaker 1: there is that everyone involved, basically everyone involved understands the 107 00:05:17,160 --> 00:05:19,560 Speaker 1: need for for more stimulus, the need for more aid, 108 00:05:19,600 --> 00:05:22,080 Speaker 1: and they're just sort of haggling about who gets what 109 00:05:22,200 --> 00:05:24,400 Speaker 1: and who gets uh, you know, credit for for for 110 00:05:24,520 --> 00:05:28,279 Speaker 1: pushing things through. Um, a little bit of real stress 111 00:05:28,839 --> 00:05:31,039 Speaker 1: can can overcome some of those challenges. So we do 112 00:05:31,080 --> 00:05:33,480 Speaker 1: expect that, you know, whether it's a week from now 113 00:05:33,560 --> 00:05:35,880 Speaker 1: or two or three weeks from now, at some point, 114 00:05:36,120 --> 00:05:38,240 Speaker 1: we do expect there will be you know, more stimulus. 115 00:05:38,240 --> 00:05:39,680 Speaker 1: I guess it's just a question of the path we 116 00:05:39,720 --> 00:05:42,960 Speaker 1: follow to get there. If if you know, on the 117 00:05:42,960 --> 00:05:46,680 Speaker 1: other hand, there was the sense of a different calculation, 118 00:05:46,760 --> 00:05:50,239 Speaker 1: the calculation that maybe some more economic stress now changes 119 00:05:50,560 --> 00:05:53,480 Speaker 1: votes for people, you know, in November in a way 120 00:05:53,520 --> 00:05:56,000 Speaker 1: that they think is favorable. Um, that's something to really 121 00:05:56,040 --> 00:05:58,080 Speaker 1: worry about. So if you started here, you will never 122 00:05:58,160 --> 00:06:00,080 Speaker 1: hear messaging about that. But if you start started the 123 00:06:00,200 --> 00:06:03,080 Speaker 1: sense that people are thinking in those terms, then that's 124 00:06:03,080 --> 00:06:05,719 Speaker 1: something that's a very different market a very different situation, 125 00:06:05,800 --> 00:06:10,080 Speaker 1: something you definitely um, you know, raise cash on the backup. Yeah, 126 00:06:10,200 --> 00:06:11,559 Speaker 1: before we let you go, we need to talk about 127 00:06:11,560 --> 00:06:13,320 Speaker 1: the sixty forty split. It's something that you and a 128 00:06:13,400 --> 00:06:15,160 Speaker 1: team of Bank for America has been talking about for 129 00:06:15,240 --> 00:06:16,760 Speaker 1: quite a one in fact, ahead of the curve in 130 00:06:16,800 --> 00:06:20,240 Speaker 1: many ways, plenty more people talking about this now what 131 00:06:20,360 --> 00:06:22,599 Speaker 1: to do with the forty portion? And I just wanted 132 00:06:22,600 --> 00:06:24,600 Speaker 1: the lessons of the last couple of days, the correlation 133 00:06:24,640 --> 00:06:28,840 Speaker 1: between treasuries and growth and more broadly therefore the equity 134 00:06:28,839 --> 00:06:30,880 Speaker 1: market as well, John, can you speak to that the 135 00:06:30,920 --> 00:06:35,679 Speaker 1: problems there? Well, we wrote this week that that the 136 00:06:35,680 --> 00:06:38,880 Speaker 1: secular stagnation, this economic malaise has really started to blur 137 00:06:39,000 --> 00:06:41,640 Speaker 1: the lines between ourset classes in some sense. You know, 138 00:06:41,680 --> 00:06:43,880 Speaker 1: a long term treasury bond is not that different from 139 00:06:43,880 --> 00:06:46,480 Speaker 1: a high flying tech stock that pays you a tiny dividend. 140 00:06:46,760 --> 00:06:49,400 Speaker 1: Neither one gives you a positive income stream, you know, 141 00:06:49,400 --> 00:06:52,080 Speaker 1: adjustice for inflation, and they both start to look really 142 00:06:52,120 --> 00:06:55,080 Speaker 1: unattractive if we do see a world either of you know, 143 00:06:55,320 --> 00:06:59,000 Speaker 1: stagflationary populism or a world in which industrial policy and 144 00:06:59,000 --> 00:07:02,599 Speaker 1: other investments a boost productivity really change the game. And 145 00:07:02,640 --> 00:07:04,800 Speaker 1: so That's why we suggest investors think non in terms 146 00:07:04,800 --> 00:07:06,800 Speaker 1: of asset classes as much as in terms of the 147 00:07:06,880 --> 00:07:08,560 Speaker 1: kinds of risk they want to take. In the world 148 00:07:08,560 --> 00:07:10,880 Speaker 1: of ample liquidity, that means you can own gold, you 149 00:07:10,880 --> 00:07:13,080 Speaker 1: can also own you know, things like closed in funds 150 00:07:13,080 --> 00:07:15,280 Speaker 1: with a big discount. You can also own credit risk 151 00:07:15,360 --> 00:07:17,520 Speaker 1: in a way that UM has less to do with. 152 00:07:17,560 --> 00:07:19,600 Speaker 1: It's it's it's it's you know, design as a fixed 153 00:07:19,600 --> 00:07:21,160 Speaker 1: income instrant, and what to do with where we are 154 00:07:21,200 --> 00:07:23,360 Speaker 1: in the cycle and what we see is potential for 155 00:07:23,360 --> 00:07:27,520 Speaker 1: fundamentals UM in any world, you know, those conventional methodologies, 156 00:07:27,520 --> 00:07:29,960 Speaker 1: Can the ways of valocating assets start to make a 157 00:07:29,960 --> 00:07:32,560 Speaker 1: little bit less sense? Investors need to be a little 158 00:07:32,560 --> 00:07:35,640 Speaker 1: more flexible, and they're thinking Jared gold. A lot of 159 00:07:35,640 --> 00:07:38,680 Speaker 1: people saying that it could be a hedge against equities, 160 00:07:38,680 --> 00:07:40,880 Speaker 1: and yet they're moving in tandem. Can you reconcile that 161 00:07:42,000 --> 00:07:44,080 Speaker 1: I'd really think about gold as a as a kind 162 00:07:44,080 --> 00:07:46,520 Speaker 1: of a measure of in some ways at this point, 163 00:07:46,720 --> 00:07:48,880 Speaker 1: you know, policy success, You've got you know, one point 164 00:07:48,920 --> 00:07:52,000 Speaker 1: six percent inflation. That's a modest recovery. It's not a 165 00:07:52,040 --> 00:07:55,880 Speaker 1: huge breakout. You've got to fed on hold UM treasuries yield, 166 00:07:55,960 --> 00:07:58,840 Speaker 1: you know, point six percent or so. That negative one 167 00:07:58,920 --> 00:08:01,320 Speaker 1: percent real yield the kind of a signal from both 168 00:08:01,360 --> 00:08:04,000 Speaker 1: the bond marketing from gold moving in tandem that you 169 00:08:04,040 --> 00:08:06,680 Speaker 1: can buy basically anything but nominal bonds and you'll be 170 00:08:06,920 --> 00:08:09,360 Speaker 1: you'd be better off. So in that sense, gold is 171 00:08:09,400 --> 00:08:11,560 Speaker 1: a kind of a get out of here trade from 172 00:08:11,600 --> 00:08:13,680 Speaker 1: the perspective of the bond markets. And and I think 173 00:08:13,720 --> 00:08:16,200 Speaker 1: that's the signal investors are picking up. You see them 174 00:08:16,320 --> 00:08:18,640 Speaker 1: rotating not just to gold, but to other speculative things, 175 00:08:18,680 --> 00:08:21,960 Speaker 1: to spack I p o s too, you know, cryptocurrencies, 176 00:08:21,960 --> 00:08:24,240 Speaker 1: all kinds of assets that otherwise wouldn't make sense if 177 00:08:24,240 --> 00:08:27,040 Speaker 1: the cost to carry was really meaningful. UM. So to 178 00:08:27,080 --> 00:08:30,320 Speaker 1: extent that we get policy success and inflation and growth, 179 00:08:30,320 --> 00:08:33,440 Speaker 1: wee wile to normalize UM. Then you'll see investors, you know, 180 00:08:33,520 --> 00:08:36,280 Speaker 1: continue I think, allocating to things that maybe they wouldn't 181 00:08:36,280 --> 00:08:38,439 Speaker 1: have done in the past. Jeric right to catch you up. 182 00:08:38,480 --> 00:08:40,439 Speaker 1: Our best of the saying job would at that bank 183 00:08:40,480 --> 00:08:52,640 Speaker 1: for America Security. Let's get straight to Harry Chin and 184 00:08:52,679 --> 00:08:56,360 Speaker 1: Carry and Shawi BMP paraplehead of Commodity market Strategy. Harry 185 00:08:56,440 --> 00:08:58,360 Speaker 1: dried to catch up with you, mate. Let's talk about it. 186 00:08:58,559 --> 00:09:02,200 Speaker 1: What happened in the last count of Dace. I think, 187 00:09:02,240 --> 00:09:05,560 Speaker 1: first and foremost gold has reached another historical high, and 188 00:09:05,600 --> 00:09:07,800 Speaker 1: the question eventually was going to be when will be 189 00:09:08,200 --> 00:09:11,680 Speaker 1: when will people be taking profits? But I guess more fundamentally, 190 00:09:11,760 --> 00:09:14,000 Speaker 1: what we're looking at the BNP party about, it's the 191 00:09:14,120 --> 00:09:16,920 Speaker 1: leveling off and break even inflation rates. So that's sort 192 00:09:16,960 --> 00:09:19,960 Speaker 1: of stabilizing negative real rates where they're at right now, 193 00:09:20,520 --> 00:09:23,520 Speaker 1: and that sort of removes one factor of supports for gold. 194 00:09:23,960 --> 00:09:26,320 Speaker 1: And then on top of that you start adding investor 195 00:09:26,360 --> 00:09:29,120 Speaker 1: flows into silver, which is a sort of cheaper alternative 196 00:09:29,160 --> 00:09:32,280 Speaker 1: than engineer macro risk. Then then you could see the 197 00:09:32,320 --> 00:09:36,720 Speaker 1: consolidation that's taken place. Harry, Yesterday's sell off in gold 198 00:09:37,200 --> 00:09:39,680 Speaker 1: really violent, I mean, considering the fact that there weren't 199 00:09:39,720 --> 00:09:42,240 Speaker 1: similar kinds of violent moves elsewhere, it was the biggest 200 00:09:42,240 --> 00:09:47,319 Speaker 1: sell off since April. Does this indicate a positioning squeeze? 201 00:09:47,320 --> 00:09:50,280 Speaker 1: Something about the nature of this trade that gives you 202 00:09:50,320 --> 00:09:54,680 Speaker 1: pause about how much higher gold can go? Well currently, 203 00:09:55,120 --> 00:09:59,320 Speaker 1: in our view, again trying to link gold to sort 204 00:09:59,320 --> 00:10:03,000 Speaker 1: of macro reckon only fundamentals, we really watch closely what 205 00:10:03,040 --> 00:10:05,439 Speaker 1: the US real rates are doing. So with the nominals 206 00:10:05,440 --> 00:10:08,520 Speaker 1: being relatively flatish, it's a question of, you know, did 207 00:10:08,559 --> 00:10:11,400 Speaker 1: it still have the fuel to to move higher? And 208 00:10:11,440 --> 00:10:14,040 Speaker 1: oftentimes when you reach an historical peak and you have 209 00:10:14,160 --> 00:10:17,440 Speaker 1: this kind of acceleration in prices, the correction could be 210 00:10:17,520 --> 00:10:21,000 Speaker 1: quite quite important. Now, I'll give it. The US real 211 00:10:21,120 --> 00:10:23,560 Speaker 1: rates on a five year basis are still at negative 212 00:10:23,600 --> 00:10:28,720 Speaker 1: one point. There is support from a macro perspective for 213 00:10:28,800 --> 00:10:31,800 Speaker 1: gold to hold onto its recent game. So we're thinking 214 00:10:31,840 --> 00:10:35,760 Speaker 1: about gold trading in the nineteen hundred nineteen hundred fifty 215 00:10:36,200 --> 00:10:41,080 Speaker 1: uh thereabouts before potentially having another rally next year. Okay, 216 00:10:41,080 --> 00:10:45,439 Speaker 1: another fundamentally it's it's still good. Okay, so another rally 217 00:10:45,520 --> 00:10:47,680 Speaker 1: next year. Tom Keene took the day off to go 218 00:10:47,760 --> 00:10:51,480 Speaker 1: buy some more jewelry for Mrs Keene to invest in gold. 219 00:10:51,800 --> 00:10:53,960 Speaker 1: How much higher could we see the price go in 220 00:10:54,000 --> 00:10:56,120 Speaker 1: the next heel of this U in the next leg 221 00:10:56,160 --> 00:11:00,600 Speaker 1: of this of this rally. Well, we're viewing in our forecasts, 222 00:11:00,600 --> 00:11:02,760 Speaker 1: are being too power about the next leg coming in 223 00:11:02,760 --> 00:11:07,160 Speaker 1: in Q one next year, especially as you see realize inflation, 224 00:11:07,160 --> 00:11:10,200 Speaker 1: you're on your benefiting from base effects, which would help 225 00:11:10,240 --> 00:11:14,680 Speaker 1: that famous break even inflation measure move higher. Understanding that 226 00:11:14,760 --> 00:11:17,320 Speaker 1: the FED is going to keep yields really low, potentially 227 00:11:17,360 --> 00:11:20,840 Speaker 1: even adopt yield current control. And it's on that basis 228 00:11:21,280 --> 00:11:24,400 Speaker 1: with those break evens moving higher and nominals remaining pretty 229 00:11:24,480 --> 00:11:27,400 Speaker 1: much where they are, you get that further impetus for 230 00:11:27,520 --> 00:11:31,320 Speaker 1: goal to successfully move about two thousand Again, Harry, are 231 00:11:31,360 --> 00:11:35,840 Speaker 1: you having new conversations, different conversations with a different poll 232 00:11:35,880 --> 00:11:38,520 Speaker 1: of investors that maybe you weren't having back in. T's 233 00:11:38,559 --> 00:11:41,079 Speaker 1: a new angle to this gold trate that wasn't there 234 00:11:41,320 --> 00:11:46,640 Speaker 1: about ten years ago, I suppose, and you guys were 235 00:11:46,679 --> 00:11:50,480 Speaker 1: mentioning it. Uh, there's a lot of retail interests that's 236 00:11:50,480 --> 00:11:54,040 Speaker 1: happening that I don't talk to retail investors, but there's 237 00:11:54,080 --> 00:11:57,000 Speaker 1: certainly a big shift in terms of retail interests, even 238 00:11:57,080 --> 00:12:01,240 Speaker 1: robbit Wood investors looking at gold. But I think more prosaically, 239 00:12:01,320 --> 00:12:04,439 Speaker 1: you have a number of institutional investors are looking at 240 00:12:04,520 --> 00:12:09,800 Speaker 1: all as a very good uh macro hedge because equity 241 00:12:09,800 --> 00:12:12,680 Speaker 1: evaluations being sky high. If you do have a correction 242 00:12:12,720 --> 00:12:16,679 Speaker 1: there as a result of disappointing economic outcome tied to 243 00:12:16,920 --> 00:12:21,520 Speaker 1: the evolution of COVID, then golds there to hedge your portfolio. Harry, 244 00:12:21,559 --> 00:12:23,320 Speaker 1: how effective do you think that will be given the 245 00:12:23,360 --> 00:12:27,040 Speaker 1: positive correlation between gold and growth stocks at the moment, 246 00:12:27,080 --> 00:12:31,440 Speaker 1: How effective do you think it will be as a hedge. Well, 247 00:12:31,640 --> 00:12:34,280 Speaker 1: the hedge comes in really if you take losses on 248 00:12:34,280 --> 00:12:36,920 Speaker 1: the equity side, then you will sell that gold portfolio, 249 00:12:37,040 --> 00:12:39,760 Speaker 1: which obviously has seen a very big increase in price, 250 00:12:39,800 --> 00:12:42,360 Speaker 1: so as to mitigate that the losses you have elsewhere. 251 00:12:42,720 --> 00:12:46,080 Speaker 1: That's that's really it's primary functions. Harry, Great to catch 252 00:12:46,160 --> 00:12:48,600 Speaker 1: up with you, as always, really good to see Harry, 253 00:12:48,640 --> 00:12:50,920 Speaker 1: Chin and Gore in there of being parabout all. Now, 254 00:12:51,000 --> 00:13:03,720 Speaker 1: what is happening with this gold market? Johns now straight 255 00:13:03,720 --> 00:13:06,120 Speaker 1: out al under James Berban c c l A, Chief 256 00:13:06,240 --> 00:13:09,400 Speaker 1: investment Officer, James, Great to hear your voice, sir, So 257 00:13:09,520 --> 00:13:12,160 Speaker 1: let's get straight back to it. Is this rotation a 258 00:13:12,240 --> 00:13:16,600 Speaker 1: head faith or something more sustainable. I certainly think that 259 00:13:16,640 --> 00:13:20,040 Speaker 1: exuties will grind higher because I absolutely believe that the 260 00:13:20,040 --> 00:13:24,160 Speaker 1: Federal Reserve and the Treasury will continue to provide liquidity, 261 00:13:24,200 --> 00:13:25,800 Speaker 1: and that has got to be good news for the 262 00:13:25,880 --> 00:13:31,000 Speaker 1: quality growth companies that have been taking the market ever higher. However, 263 00:13:31,440 --> 00:13:34,680 Speaker 1: I was found two notes of caution. One was the 264 00:13:34,760 --> 00:13:38,679 Speaker 1: market reaction to the news from Russia yesterday that they 265 00:13:38,760 --> 00:13:43,240 Speaker 1: had found a vaccine for COVID nineteen. Although it was 266 00:13:43,360 --> 00:13:47,240 Speaker 1: early stage, the market's initial reaction I thought was really 267 00:13:47,320 --> 00:13:52,480 Speaker 1: interesting because what we saw was that the big text 268 00:13:52,480 --> 00:13:56,560 Speaker 1: stocks sold off while bank stocks rallied. It was also 269 00:13:56,640 --> 00:14:00,720 Speaker 1: the case the precious metal prices dipped and bond deals rose. 270 00:14:01,280 --> 00:14:03,520 Speaker 1: And I think this is a real taster of what 271 00:14:03,640 --> 00:14:08,280 Speaker 1: will happen if the COVID nineteen crisis passes by. But 272 00:14:08,360 --> 00:14:12,440 Speaker 1: equally I worry that investors have been very undiscriminating in 273 00:14:12,520 --> 00:14:15,360 Speaker 1: terms of what they have been prepared to buy in 274 00:14:15,720 --> 00:14:19,440 Speaker 1: this liquidity driven melt up. It is the case that 275 00:14:19,480 --> 00:14:24,440 Speaker 1: we can make sensible investment decisions on quality stocks. And 276 00:14:24,440 --> 00:14:27,480 Speaker 1: if you press me for where the SMP five hundred 277 00:14:27,600 --> 00:14:30,280 Speaker 1: might finish this year and next year, I wouldn't be 278 00:14:30,280 --> 00:14:32,840 Speaker 1: at all surprize given where bond deals are, that we 279 00:14:32,840 --> 00:14:35,000 Speaker 1: didn't get to thirty five d this year and thirty 280 00:14:35,000 --> 00:14:38,040 Speaker 1: eight hundred next year. But the villain of the piece, 281 00:14:38,240 --> 00:14:43,360 Speaker 1: I think is distressed debt, because when I look at 282 00:14:43,400 --> 00:14:47,960 Speaker 1: the default volumes in Q two that came in at 283 00:14:48,040 --> 00:14:51,600 Speaker 1: forty one spot one billion dollars. Now that is in 284 00:14:51,680 --> 00:14:54,440 Speaker 1: comparison of the previous record of thirty nine and a 285 00:14:54,480 --> 00:14:57,920 Speaker 1: half billion set back in two thousand and nine. Now, 286 00:14:57,920 --> 00:15:01,920 Speaker 1: while for liquidity can stop markets ending up in a 287 00:15:02,000 --> 00:15:06,480 Speaker 1: credit crunch, they can't provide companies in trouble with cash 288 00:15:06,520 --> 00:15:09,920 Speaker 1: flow and simulated those companies will be found out. And 289 00:15:09,920 --> 00:15:12,040 Speaker 1: that's why I think it's so important to look through 290 00:15:12,080 --> 00:15:14,960 Speaker 1: to what's really going on at the companies level, whether 291 00:15:15,000 --> 00:15:18,840 Speaker 1: it's achieving sufficient revenues to justify long term access to 292 00:15:18,880 --> 00:15:21,440 Speaker 1: the capital markets. So, in other words, an argument for 293 00:15:21,480 --> 00:15:23,440 Speaker 1: active management. I want to stick on this idea of 294 00:15:23,480 --> 00:15:28,160 Speaker 1: liquidity versus solvency, liquidity versus the recovery story. It seems 295 00:15:28,200 --> 00:15:30,320 Speaker 1: to be in me that you believe in a further 296 00:15:30,440 --> 00:15:32,560 Speaker 1: rally in equities, and yet you're saying it's going to 297 00:15:32,640 --> 00:15:36,280 Speaker 1: remain a liquidity story, albeit with perhaps some progress on 298 00:15:36,320 --> 00:15:39,640 Speaker 1: the virus front. How much can it can remain a 299 00:15:39,680 --> 00:15:43,200 Speaker 1: liquidity story to sustain this type of rally? In other words, 300 00:15:43,320 --> 00:15:45,760 Speaker 1: can it just be concentrated in the big tech names, 301 00:15:45,760 --> 00:15:48,800 Speaker 1: have them drive the stock market higher with this idea 302 00:15:48,880 --> 00:15:52,120 Speaker 1: that they will stay solvent through this even if you 303 00:15:52,200 --> 00:15:55,520 Speaker 1: have those bankruptcies increase, or do you expect there to 304 00:15:55,560 --> 00:15:59,520 Speaker 1: be sort of some rotation to sustain that going forward. Well, 305 00:15:59,520 --> 00:16:03,920 Speaker 1: what found very interesting is how many people, when challenged 306 00:16:04,040 --> 00:16:07,840 Speaker 1: us whare equity markets going for, talk about mean reversion 307 00:16:07,880 --> 00:16:10,280 Speaker 1: to the long term averages, And the story I hear 308 00:16:10,360 --> 00:16:13,720 Speaker 1: often is that the forward price sendings multiples the S 309 00:16:13,760 --> 00:16:17,440 Speaker 1: and P five hundred as an index is currently over 310 00:16:17,520 --> 00:16:22,840 Speaker 1: twenty two times the average since fifteen times, and therefore, 311 00:16:22,920 --> 00:16:27,359 Speaker 1: on that simple basis, exuty markets do a very substantial 312 00:16:27,760 --> 00:16:31,920 Speaker 1: mark down. However, that argument forgets what's happened to bond 313 00:16:32,000 --> 00:16:34,560 Speaker 1: yields and bond deals have been craters in the way 314 00:16:34,600 --> 00:16:37,800 Speaker 1: that we have described, and therefore we can justify a 315 00:16:38,040 --> 00:16:42,040 Speaker 1: much higher valuation for the equity market. And if one 316 00:16:42,120 --> 00:16:44,680 Speaker 1: is going to think about the fair valuation of equity 317 00:16:44,760 --> 00:16:47,960 Speaker 1: based on the company's return on equity, cost of equity, 318 00:16:48,240 --> 00:16:51,400 Speaker 1: and growth, then actually the text doc still in my view, 319 00:16:51,440 --> 00:16:54,840 Speaker 1: look reasonably good value. I don't think this is the 320 00:16:54,920 --> 00:16:57,920 Speaker 1: right moment to give up on quality growth. I worry 321 00:16:58,120 --> 00:17:01,880 Speaker 1: that there are plenty of people talking about companies with 322 00:17:02,040 --> 00:17:06,200 Speaker 1: high operational and financial gearing benefiting from a cycle up turn. 323 00:17:06,560 --> 00:17:08,840 Speaker 1: I just don't see that happening, and that'fore I think 324 00:17:08,880 --> 00:17:11,600 Speaker 1: that's a really dangerous strategy to follow. James, You've raised 325 00:17:11,600 --> 00:17:13,520 Speaker 1: a really important point, in fact a couple, So let's 326 00:17:13,520 --> 00:17:17,600 Speaker 1: get to the first one, that's on benchmarking valuations through history. 327 00:17:17,880 --> 00:17:19,560 Speaker 1: Can we just sit there for a moment, James, what's 328 00:17:19,560 --> 00:17:23,159 Speaker 1: the effective way of doing that? Well, I think if 329 00:17:23,160 --> 00:17:24,639 Speaker 1: you're going to look at history, you've got to be 330 00:17:24,760 --> 00:17:28,520 Speaker 1: very clear about which portion of history you want to 331 00:17:28,560 --> 00:17:33,920 Speaker 1: look at. And I would say that the the really 332 00:17:33,920 --> 00:17:37,400 Speaker 1: important issue is to to look at the connection between 333 00:17:37,800 --> 00:17:42,199 Speaker 1: bond yields and valuations and therefore by extension the exty 334 00:17:42,359 --> 00:17:47,000 Speaker 1: risk premium, so the forward return for taking ecuty risk 335 00:17:47,640 --> 00:17:50,640 Speaker 1: relative to the current bond yield. And I would say 336 00:17:50,680 --> 00:17:54,600 Speaker 1: there we are still looking at equities being cheap, and 337 00:17:54,600 --> 00:17:57,080 Speaker 1: hence my expectation that we can get to futty five 338 00:17:57,720 --> 00:18:01,040 Speaker 1: sp five hundred for the end of the year. The 339 00:18:01,080 --> 00:18:05,680 Speaker 1: story goes horribly wrong if bond yields rise very dramatically 340 00:18:06,160 --> 00:18:08,879 Speaker 1: and that there is a sell off in global treasuries. 341 00:18:09,280 --> 00:18:12,400 Speaker 1: But I don't see central banks and governments permitting that 342 00:18:12,440 --> 00:18:17,080 Speaker 1: to happen, because to get rid of the real cost 343 00:18:17,200 --> 00:18:20,240 Speaker 1: of the debt overhang that is now around the next 344 00:18:20,320 --> 00:18:23,800 Speaker 1: of the global economic participants that have to be a 345 00:18:23,880 --> 00:18:27,639 Speaker 1: period where inflation is considerably an excess of nominal bond yields, 346 00:18:27,880 --> 00:18:30,880 Speaker 1: so that the real value of that debt is run down. 347 00:18:31,240 --> 00:18:33,439 Speaker 1: So for me, the obvious long term losers are the 348 00:18:33,480 --> 00:18:36,800 Speaker 1: bond holders. The obvious long term winners are investors in 349 00:18:36,840 --> 00:18:39,720 Speaker 1: good quality companies as long as they buy a decent 350 00:18:39,800 --> 00:18:42,959 Speaker 1: free cash flow that sustained well, James, this assumes they 351 00:18:42,960 --> 00:18:45,760 Speaker 1: can control the yield curve. So let's assume they can. 352 00:18:45,840 --> 00:18:48,879 Speaker 1: Particularly hear the United States, Haven't they just fixed the 353 00:18:48,920 --> 00:18:52,000 Speaker 1: equity game? Then? Doesn't that mean financials cannot work in 354 00:18:52,040 --> 00:18:58,560 Speaker 1: this regime? Well? You know interesting. When I think about financials, 355 00:18:58,600 --> 00:19:01,400 Speaker 1: I would say two things. Why. One is that we 356 00:19:01,680 --> 00:19:05,359 Speaker 1: should not anticipate that the treasury yield curve and the 357 00:19:05,520 --> 00:19:09,600 Speaker 1: pricing of debt in the marketplace are one and the same. 358 00:19:10,080 --> 00:19:13,200 Speaker 1: I mean, I am absolutely aware that there are companies 359 00:19:13,640 --> 00:19:17,400 Speaker 1: issue debts in the marketplace that yields that frankly look 360 00:19:17,760 --> 00:19:22,679 Speaker 1: way too low for the riskiness that they represent to investors. 361 00:19:22,720 --> 00:19:26,840 Speaker 1: But nevertheless, there are record deals going through in the 362 00:19:26,840 --> 00:19:31,480 Speaker 1: bond markets as sensible prices, where banks, if they replicate 363 00:19:31,600 --> 00:19:34,159 Speaker 1: those yields in loans to customers will be able to 364 00:19:34,240 --> 00:19:38,440 Speaker 1: make sensible returns. The other part is that I think 365 00:19:38,480 --> 00:19:40,359 Speaker 1: that there will be some real winners and yet some 366 00:19:40,400 --> 00:19:43,280 Speaker 1: real losers within the banking sector. So I think that 367 00:19:43,320 --> 00:19:46,680 Speaker 1: the muscularity of JP Morgan will mean that they will 368 00:19:46,720 --> 00:19:49,200 Speaker 1: grow market share. They will kind of this with more 369 00:19:49,240 --> 00:19:52,760 Speaker 1: pricing power. They have made some very significant acquisitions, as 370 00:19:52,760 --> 00:19:54,879 Speaker 1: we know, in recent years, and I don't think that 371 00:19:54,920 --> 00:19:58,400 Speaker 1: they have driven the efficiency gains of those acquisitions through 372 00:19:58,720 --> 00:20:01,240 Speaker 1: to shell the value as of yet. So I am 373 00:20:01,240 --> 00:20:05,199 Speaker 1: a bull of JPM, your bull of JP Morgan. I 374 00:20:05,440 --> 00:20:07,760 Speaker 1: want to look forward a couple of months and we 375 00:20:07,760 --> 00:20:10,840 Speaker 1: start talking about the election. I'm old enough to remember 376 00:20:10,960 --> 00:20:13,359 Speaker 1: we weren't talking about the virus, and we weren't talking 377 00:20:13,400 --> 00:20:15,959 Speaker 1: about the worst recession since the Great Depression, and we 378 00:20:15,960 --> 00:20:19,639 Speaker 1: were talking about trade tensions and tensions in general. This Saturday, 379 00:20:19,800 --> 00:20:22,080 Speaker 1: the US and China are going to talk about the 380 00:20:22,080 --> 00:20:24,720 Speaker 1: Phase one trade deal. They're going to assess the progress, 381 00:20:24,800 --> 00:20:27,520 Speaker 1: China still very much behind. How much is this factor 382 00:20:27,560 --> 00:20:29,480 Speaker 1: into your trading at all? I mean, can this is 383 00:20:29,520 --> 00:20:32,600 Speaker 1: this a tradeable event or factor into your investment thesis 384 00:20:32,720 --> 00:20:35,800 Speaker 1: or is this just basically more sort of smoke on 385 00:20:35,840 --> 00:20:38,919 Speaker 1: both sides leading to some protracted cold war that's already 386 00:20:38,920 --> 00:20:42,639 Speaker 1: in existence now. I think it's a really important point, 387 00:20:42,680 --> 00:20:44,920 Speaker 1: and I would say one of the reasons the dollars 388 00:20:45,000 --> 00:20:48,359 Speaker 1: weakness is the global concerned that the US may turn 389 00:20:48,760 --> 00:20:53,679 Speaker 1: the current debate about the current cancer trade into a 390 00:20:53,760 --> 00:20:57,119 Speaker 1: debate about what happens on the Capitola count. And I 391 00:20:57,160 --> 00:21:01,920 Speaker 1: would observe that people are of the view that trade 392 00:21:01,960 --> 00:21:06,400 Speaker 1: tariffs simply hurt consumers because if you're a Chinese company 393 00:21:06,440 --> 00:21:09,560 Speaker 1: exporting to the States, you get your money for the product. 394 00:21:09,800 --> 00:21:14,240 Speaker 1: We all know that the China governments has been subsidizing exports. 395 00:21:14,240 --> 00:21:16,520 Speaker 1: But the loser then is the consumer who has to 396 00:21:16,520 --> 00:21:19,920 Speaker 1: pay more when the tariff is applied. On the capital 397 00:21:19,960 --> 00:21:24,000 Speaker 1: account front, I think that Team Trump recognized that China 398 00:21:24,080 --> 00:21:29,000 Speaker 1: has a huge demand for global capital. Huge chunks of 399 00:21:29,160 --> 00:21:32,800 Speaker 1: the cash generated by US quantity of easing ended up 400 00:21:32,880 --> 00:21:35,520 Speaker 1: in China. I guess not many people have joined the dots, 401 00:21:35,560 --> 00:21:38,600 Speaker 1: but that's the reality of the credit flows to China, 402 00:21:38,680 --> 00:21:40,320 Speaker 1: and the US is clearly again to look at this, 403 00:21:40,440 --> 00:21:42,679 Speaker 1: and I think that one of the things that we 404 00:21:42,760 --> 00:21:46,840 Speaker 1: can observe is that has been very considerable borrowing of 405 00:21:46,960 --> 00:21:51,960 Speaker 1: dollars outside of the US, which has depressed the value 406 00:21:52,320 --> 00:21:57,119 Speaker 1: of the US dollar, and were we to see either 407 00:21:57,320 --> 00:22:02,120 Speaker 1: an end to the aggravation there's been escalating between the China, 408 00:22:02,200 --> 00:22:06,080 Speaker 1: between China and the US, or actually an outright decision 409 00:22:06,200 --> 00:22:09,399 Speaker 1: so the uncertainty is removed on what will happen on 410 00:22:09,440 --> 00:22:11,800 Speaker 1: the capitol tone, the dollar has room to runny. So 411 00:22:11,840 --> 00:22:14,840 Speaker 1: I am not at the school of thought that the 412 00:22:14,920 --> 00:22:17,679 Speaker 1: dollar is one way and one way only being done, 413 00:22:18,280 --> 00:22:21,280 Speaker 1: and norma of the view that the RMB, China's currency 414 00:22:21,320 --> 00:22:25,240 Speaker 1: has any chance of becoming a global reserve currency. Hey, James, 415 00:22:25,240 --> 00:22:28,280 Speaker 1: great to catch up wide regging interview there, James Review. 416 00:22:28,720 --> 00:22:30,520 Speaker 1: Good to hear from you, sir. You sounds safe and 417 00:22:30,560 --> 00:22:32,280 Speaker 1: wow too. That makes me happy, James Bevan of c 418 00:22:32,359 --> 00:22:43,840 Speaker 1: c l A. Jeffrey right joining us now you write 419 00:22:43,880 --> 00:22:47,159 Speaker 1: a group the US analyst Jeffrey Kamala Harris getting the 420 00:22:47,240 --> 00:22:50,480 Speaker 1: VP pick. I just wonder for enthusiasm, which is what 421 00:22:50,800 --> 00:22:53,240 Speaker 1: former VP Jo Biden has been criticized for that he 422 00:22:53,320 --> 00:22:56,240 Speaker 1: lacks the enthusiasm in his base that maybe the current 423 00:22:56,280 --> 00:22:59,080 Speaker 1: president Donald Trump has. Does this do anything to make 424 00:22:59,119 --> 00:23:01,520 Speaker 1: in roads there? It may help a bit. I think 425 00:23:01,520 --> 00:23:05,280 Speaker 1: it probably helps somewhat with African American Democrats, who are 426 00:23:05,600 --> 00:23:09,280 Speaker 1: very important constituency for the party. But I think in general, 427 00:23:09,880 --> 00:23:12,240 Speaker 1: President Trump is going to do all the bring all 428 00:23:12,240 --> 00:23:16,000 Speaker 1: the enthusiasm for Democrats. I think as the campaign really 429 00:23:16,080 --> 00:23:19,080 Speaker 1: kicks into gear, as you saw in the twenty eight 430 00:23:19,080 --> 00:23:23,840 Speaker 1: teen midterms, you know, the negative partisanship, the feelings of 431 00:23:23,960 --> 00:23:26,960 Speaker 1: hatred that Trump inspuyers in the Democratic base, that's going 432 00:23:27,040 --> 00:23:30,639 Speaker 1: to be I think enough motivation. Uh. And so Harris 433 00:23:30,720 --> 00:23:33,560 Speaker 1: is really a pick to do no harm. She's a 434 00:23:33,600 --> 00:23:36,399 Speaker 1: pretty safe pick, and I think you you start with 435 00:23:36,440 --> 00:23:38,760 Speaker 1: somebody who's not going to hurt you, and she certainly 436 00:23:38,800 --> 00:23:40,480 Speaker 1: does that all right. Well, given the fact that she's 437 00:23:40,520 --> 00:23:43,320 Speaker 1: a safe pick and she's in line with where Joe 438 00:23:43,359 --> 00:23:45,240 Speaker 1: Biden was going, or that it seems to be the 439 00:23:45,240 --> 00:23:47,720 Speaker 1: party line, what does that mean in terms of the 440 00:23:47,840 --> 00:23:50,679 Speaker 1: US is international policy. And I say this ahead of 441 00:23:50,680 --> 00:23:54,040 Speaker 1: trade discussions between the US and China and increasing hard 442 00:23:54,040 --> 00:23:57,159 Speaker 1: line from President Trump that President Trump will probably be 443 00:23:57,520 --> 00:24:00,720 Speaker 1: uh campaigning on how different will it be in the 444 00:24:00,720 --> 00:24:05,879 Speaker 1: Democratic candidate. I don't think Harris's selection changes much there. 445 00:24:06,320 --> 00:24:10,160 Speaker 1: Trump has tried to attack Biden over China. It's been 446 00:24:10,520 --> 00:24:13,600 Speaker 1: I think tough sledding for them so far, because the 447 00:24:13,640 --> 00:24:15,720 Speaker 1: only thing that voters really care about right now is 448 00:24:15,720 --> 00:24:20,479 Speaker 1: the coronavirus and the economy. Uh. And so you know, Harris, 449 00:24:20,520 --> 00:24:24,000 Speaker 1: I think comes with uh, you know, some political help 450 00:24:24,080 --> 00:24:26,000 Speaker 1: for the ticket. I don't think she brings a whole 451 00:24:26,000 --> 00:24:30,040 Speaker 1: lot of policy heft or or changes to the places 452 00:24:30,119 --> 00:24:33,280 Speaker 1: that that Biden was already in. On policy and particularly 453 00:24:33,280 --> 00:24:36,879 Speaker 1: in foreign policy. Biden has a very well developed operation 454 00:24:36,960 --> 00:24:38,960 Speaker 1: from his years in the Senate and his time as 455 00:24:39,080 --> 00:24:43,159 Speaker 1: Vice president. So I think her influence on on foreign 456 00:24:43,160 --> 00:24:45,480 Speaker 1: policy is probably going to be pretty small. Maybe on 457 00:24:45,480 --> 00:24:48,680 Speaker 1: on some domestic policy areas, you see her her impact. 458 00:24:48,920 --> 00:24:50,800 Speaker 1: All right, let's go to the domestic policy. Then we 459 00:24:50,840 --> 00:24:53,440 Speaker 1: really don't have any kind of agreement. In fact, you've 460 00:24:53,440 --> 00:24:55,720 Speaker 1: got stalemate in Washington, d C. When it comes to 461 00:24:55,800 --> 00:24:58,720 Speaker 1: the second round a fiscal support even as we have 462 00:24:58,760 --> 00:25:02,080 Speaker 1: an unemployment rate it seems to be uh stabilizing here 463 00:25:02,160 --> 00:25:06,120 Speaker 1: above that ten percent rate. Do voters in general, from 464 00:25:06,119 --> 00:25:08,720 Speaker 1: what you can tell, view President Trump is doing the 465 00:25:08,800 --> 00:25:11,960 Speaker 1: right thing and winning this round in the stalemate with 466 00:25:12,040 --> 00:25:15,800 Speaker 1: Democrats or do they do you see increasing ambivalence about 467 00:25:15,800 --> 00:25:18,840 Speaker 1: which party has the better plan here? Economically. Yeah, I 468 00:25:19,320 --> 00:25:23,160 Speaker 1: don't think that voters in general are paying close enough 469 00:25:23,160 --> 00:25:27,720 Speaker 1: attention to understand the sort of machinations going on in Congress. 470 00:25:28,000 --> 00:25:30,600 Speaker 1: I think basically, the longer they go without a deal, 471 00:25:30,720 --> 00:25:34,120 Speaker 1: the more it hurts Trump. It's generally a very simple equation. 472 00:25:34,840 --> 00:25:37,160 Speaker 1: The incumbent is on the hook for the economy. Whether 473 00:25:37,200 --> 00:25:38,960 Speaker 1: that's fair or not. I mean, you can say that 474 00:25:39,080 --> 00:25:43,400 Speaker 1: Democrats are holding out, but ultimately Trump owns the economy, 475 00:25:43,520 --> 00:25:47,720 Speaker 1: and the longer it goes without additional fiscal support, uh, 476 00:25:47,760 --> 00:25:50,400 Speaker 1: you know, the more severe this, this sort of mini 477 00:25:50,480 --> 00:25:53,160 Speaker 1: downturn is going to be. I think so. I think 478 00:25:53,280 --> 00:25:56,520 Speaker 1: regardless of who blames who for what, Trump is on 479 00:25:56,560 --> 00:25:58,879 Speaker 1: the hook here because he's the president, he owns the 480 00:25:58,880 --> 00:26:01,359 Speaker 1: economy for better or worse. Jeffrey, do you have to 481 00:26:01,400 --> 00:26:03,880 Speaker 1: assume that we get a deal done in Washington before 482 00:26:03,920 --> 00:26:07,200 Speaker 1: the end of the month. Yeah. We maybe not before 483 00:26:07,240 --> 00:26:08,880 Speaker 1: the end of this month. I think there's a good 484 00:26:08,960 --> 00:26:11,000 Speaker 1: chance now that it stretches into September. But I do 485 00:26:11,040 --> 00:26:13,840 Speaker 1: think we get a deal before the end of September, 486 00:26:13,920 --> 00:26:17,320 Speaker 1: before the government funding deadline, which provides sort of another 487 00:26:17,640 --> 00:26:20,680 Speaker 1: forcing mechanism for Congress. What are the signposts that you're 488 00:26:20,720 --> 00:26:23,960 Speaker 1: looking for. That might change your calculation and say, there's 489 00:26:24,000 --> 00:26:25,800 Speaker 1: a chance here we won't get a deal, because everyone 490 00:26:25,840 --> 00:26:29,000 Speaker 1: we're speaking to still assumes deal, maybe at the end 491 00:26:29,040 --> 00:26:30,879 Speaker 1: of the month, maybe at some point in September, but 492 00:26:31,000 --> 00:26:33,760 Speaker 1: deal and something around one point five trillion dollars. What 493 00:26:33,840 --> 00:26:36,560 Speaker 1: would change that for you, jeff I think if if 494 00:26:36,640 --> 00:26:40,640 Speaker 1: Trump decides that he doesn't want a deal anymore, which 495 00:26:40,720 --> 00:26:44,760 Speaker 1: is you know, I think possible. I think that move 496 00:26:44,800 --> 00:26:48,040 Speaker 1: would be against his own political interests, because he really 497 00:26:48,080 --> 00:26:51,479 Speaker 1: needs fiscal support for the economy right now. But you know, 498 00:26:51,520 --> 00:26:53,679 Speaker 1: we've seen him make make moves in the past that 499 00:26:53,720 --> 00:26:56,600 Speaker 1: we're not in his own interests, and you know, it's 500 00:26:56,600 --> 00:26:59,200 Speaker 1: possible that he gets so frustrated with Pelosi and Schumer 501 00:26:59,280 --> 00:27:01,240 Speaker 1: and the and the way that they've tried to handle 502 00:27:01,280 --> 00:27:04,080 Speaker 1: this negotiation that he walks away from it. I think 503 00:27:04,119 --> 00:27:06,960 Speaker 1: that's the that's the most plausible way that you you 504 00:27:07,000 --> 00:27:09,720 Speaker 1: don't get a deal. Jeffrey, great to catch up, as always, 505 00:27:09,760 --> 00:27:11,479 Speaker 1: our best of the team, Jeffrey, right there of your 506 00:27:11,520 --> 00:27:15,320 Speaker 1: AGA group. Special coverage of the Democratic Conventions standing Monday 507 00:27:15,400 --> 00:27:18,240 Speaker 1: night on Bloomberg TV and on radio as well, and 508 00:27:18,240 --> 00:27:21,280 Speaker 1: then the week after of course the Republican Convention, kicking 509 00:27:21,280 --> 00:27:34,600 Speaker 1: our full coverage of that as well. Let's continue the conversation, 510 00:27:34,640 --> 00:27:38,200 Speaker 1: shall we with Anna Hannahels Fargo, securities equity strategist. Anna 511 00:27:38,560 --> 00:27:40,480 Speaker 1: Great to catch up with you. Let's start with a 512 00:27:40,520 --> 00:27:44,520 Speaker 1: simple one. I wonder whether we are overestimating Europe's recovery 513 00:27:44,920 --> 00:27:48,280 Speaker 1: and underestimating what is happening in the United States. What's 514 00:27:48,280 --> 00:27:51,760 Speaker 1: your take? Well, you saw Europe kind of be one 515 00:27:51,760 --> 00:27:54,520 Speaker 1: of the first areas to fall with the COVID crisis, 516 00:27:54,520 --> 00:27:58,080 Speaker 1: and usually we're the belief that first in, first out. 517 00:27:58,359 --> 00:28:02,159 Speaker 1: But what they didn't have necessarily was a size and 518 00:28:02,320 --> 00:28:05,240 Speaker 1: the depth of the monitoring the fiscal stimuluts that we've 519 00:28:05,280 --> 00:28:08,440 Speaker 1: had here in the States. So while they are progressing, 520 00:28:08,800 --> 00:28:10,639 Speaker 1: if you want to put neck to neck, it's a 521 00:28:10,640 --> 00:28:13,720 Speaker 1: bit difficult to say who's the front runner here? And 522 00:28:14,000 --> 00:28:17,199 Speaker 1: how do you price in a delayed second fiscal support 523 00:28:17,240 --> 00:28:20,040 Speaker 1: deal in Washington, d C. Since we are not getting one. 524 00:28:20,400 --> 00:28:22,680 Speaker 1: It doesn't look like this week, and it's unclear one 525 00:28:22,680 --> 00:28:26,679 Speaker 1: exactly Republicans and Democrats will get together. Well, yeah, we 526 00:28:26,720 --> 00:28:30,000 Speaker 1: started miss the deadline this time, right before the summer 527 00:28:30,000 --> 00:28:32,840 Speaker 1: recesses started. But what we do know is we have 528 00:28:32,960 --> 00:28:36,760 Speaker 1: another deficit or a budget deficit plan that's going to 529 00:28:36,840 --> 00:28:39,800 Speaker 1: be due at the end of September and towards that fall, 530 00:28:39,840 --> 00:28:42,440 Speaker 1: as we get closer to the U S elections, it's 531 00:28:42,440 --> 00:28:46,040 Speaker 1: gonna become a big indicator of how the economy is 532 00:28:46,080 --> 00:28:48,240 Speaker 1: going to go forward and what things are going to 533 00:28:48,280 --> 00:28:51,120 Speaker 1: shake out for equities in particular, and what do you 534 00:28:51,200 --> 00:28:53,920 Speaker 1: look at what data to give you confidence that there 535 00:28:54,080 --> 00:28:57,160 Speaker 1: is some sort of continuing recovery and not the stalling 536 00:28:57,240 --> 00:28:59,320 Speaker 1: out that a lot of people were talking about when 537 00:28:59,320 --> 00:29:02,680 Speaker 1: they were looking at the high frequency data. Well, I 538 00:29:02,720 --> 00:29:05,680 Speaker 1: think you have to acknowledge that we are seeing song stalling. 539 00:29:05,840 --> 00:29:08,600 Speaker 1: It's been a bit slower since let's say late June 540 00:29:08,640 --> 00:29:12,320 Speaker 1: and July, but we are seeing far from a reversal. 541 00:29:12,680 --> 00:29:16,800 Speaker 1: And as we get that sequentially improved story in indicators, 542 00:29:16,920 --> 00:29:19,720 Speaker 1: for example, like an earning or you see even with 543 00:29:19,800 --> 00:29:24,120 Speaker 1: investor confidence weekend from before maybe a month ago, but 544 00:29:24,280 --> 00:29:27,360 Speaker 1: still much better than we were in the winter. Those 545 00:29:27,360 --> 00:29:30,640 Speaker 1: are the signs that things are progressing slowly but forward. 546 00:29:30,720 --> 00:29:35,360 Speaker 1: Are you comfortable embracing cyclicality at this point? We're still 547 00:29:35,480 --> 00:29:38,880 Speaker 1: risk on, John. We do think that cyclicality in particular 548 00:29:38,920 --> 00:29:42,560 Speaker 1: with its COVID BAT data. Data will be the winning 549 00:29:42,560 --> 00:29:45,400 Speaker 1: play longer term. But that's not to say that this 550 00:29:45,520 --> 00:29:48,400 Speaker 1: melt up doesn't have us a little more cautious than usual. 551 00:29:48,600 --> 00:29:50,560 Speaker 1: What are the cycnical parts of the security market at 552 00:29:50,640 --> 00:29:53,120 Speaker 1: that you would be uncomfortable with just breaking it down 553 00:29:53,160 --> 00:29:56,560 Speaker 1: from sector to sector if you can, Well, when you 554 00:29:56,640 --> 00:30:00,040 Speaker 1: dig in really sectorist sector, where you think about a 555 00:30:00,120 --> 00:30:02,800 Speaker 1: locality and where value may be uncomfortable is where is 556 00:30:02,840 --> 00:30:05,880 Speaker 1: the traps? Where are the areas of the market where 557 00:30:06,080 --> 00:30:08,560 Speaker 1: they look like they're cheap but they're not going to 558 00:30:08,640 --> 00:30:11,920 Speaker 1: have a multiple expansion as rapidly or as easily as 559 00:30:11,920 --> 00:30:15,040 Speaker 1: you would suspect. And for now, what's been a difficult 560 00:30:15,080 --> 00:30:17,840 Speaker 1: spot for us, it's probably the financials market a lot 561 00:30:17,920 --> 00:30:21,520 Speaker 1: to do with also the suppressed yields, the financials, the 562 00:30:21,560 --> 00:30:24,080 Speaker 1: banks and low yields which are gonna be here with 563 00:30:24,160 --> 00:30:25,840 Speaker 1: us for a long time. And it right to catch 564 00:30:25,920 --> 00:30:28,840 Speaker 1: up with you, Anna had wist Fuga Securities Equity Strategists. 565 00:30:29,200 --> 00:30:33,400 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 566 00:30:33,440 --> 00:30:38,760 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 567 00:30:38,840 --> 00:30:43,080 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane. Before 568 00:30:43,080 --> 00:30:46,920 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg 569 00:30:47,000 --> 00:31:00,320 Speaker 1: Radio two.