Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
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Speaker 1: Would of Bank of America Security's head of the Research
Speaker 1: Investment Committee joint us Right now, Jared the difference between
Speaker 1: a sustainable rotation and another head fake draw the distinction
Speaker 1: for us. Look, all right, we keep it simple here.
Speaker 1: I think any move to value, any rotation to supercyclical
Speaker 1: sectors is going to be a tactical, short term flash
Speaker 1: in the pan until you have some real structural changes
Speaker 1: in the economy that can broaden out the economic base
Speaker 1: and provide some real ballots that would that would move
Speaker 1: growth meaningfully higher. Until then, I think these are all
Speaker 1: sort of noisy moves that a lot of investors can ignore.
Speaker 1: I'm certainly also, because yields are higher, that should be
Speaker 1: good for the cyclicals, that should be good for the banks.
Speaker 1: Why is that not another sign perhaps of outperformance Given
Speaker 1: the fact that all things being equal, there isn't necessarily
Speaker 1: any reason behind this rally well, as you mentioned a
Speaker 1: woman to go. I mean, there's a lot of cross
Speaker 1: currents in the bond market right now. There's a lot
Speaker 1: of confusion about what supply will be like in the future.
Speaker 1: And I think most importantly of all, the sense that
Speaker 1: if you'll really do rise in a meaningful way, that
Speaker 1: the feed will come in with yield curve control and
Speaker 1: and and and cap you know, any any big move anyway,
Speaker 1: So the long term benefits the correlation that you might
Speaker 1: expect between yields, UM and UH and banks and other
Speaker 1: cyclical sectors. I think it's not going to be what
Speaker 1: it once was until again, until the economy is structured
Speaker 1: in a very different way. You mentioned the financials. That's
Speaker 1: the problem, isn't it. We saw and yesterday session the
Speaker 1: financials can outperform on the way down? Can they outperform
Speaker 1: in an up market? Charrett? Given the white scenes of
Speaker 1: big tech? Can they? There's a few things that I
Speaker 1: think are special about financials that can that can work.
Speaker 1: If you start to see UM deposit growth slow, you
Speaker 1: start to see you know, loan growth pick up maybe
Speaker 1: in the you know, later part of this quarter, UM,
Speaker 1: then there I think there are some some moves that
Speaker 1: can happen in financials that are worth taking a peak at.
Speaker 1: But for a medium or longer termorial investor, Um, this
Speaker 1: is a moment in which, you know, we're much more
Speaker 1: concerned that you know, secular stagnation plus epic stimulus equals
Speaker 1: a really epic bubble in in growth stocks in tech
Speaker 1: and healthcare. We calculated that you know, tech broadly defined
Speaker 1: plus healthcare accounts now for more than fifty of the
Speaker 1: market cap of the S and P five hunter that's
Speaker 1: the highest ever. And just incidentally, you know, if you
Speaker 1: if you sustain the current pace that we've seen this year, UM,
Speaker 1: you know, tech and healthcare would would would account for
Speaker 1: the entirety of the market. You're I don't have more
Speaker 1: faith in a sustainable rotation if we had a deal
Speaker 1: down in Washington, d C. We don't. Are you surprised
Speaker 1: by the calm around that currently? I am? Actually I
Speaker 1: think that the you know, a lot of investors are
Speaker 1: watching this really closely. They understand that more stimuluts isn't
Speaker 1: necessarily understand that, you know, two hundred dollars a week
Speaker 1: unemployment insurance is a disaster. Three is tough. Four dollars
Speaker 1: might keep us on the footing that we are um
Speaker 1: at today, but right now we've got none of it.
Speaker 1: And um I think there's a there's a real sense
Speaker 1: of watching and waiting. And if it we go into
Speaker 1: another week of of no progress on talks, then I
Speaker 1: think you'll start to see the market care a bit more.
Speaker 1: Al Right, care a bit more. How does that translate,
Speaker 1: in other words, how big of a sell off could
Speaker 1: we see if there is no deal after the next
Speaker 1: week or so. In September two tho eight, when the
Speaker 1: House voted down TARP the first time, you recall, you know,
Speaker 1: the S and P fell I think about in the
Speaker 1: in the sessions after that, just for context, not saying
Speaker 1: we will get the same move you know this year,
Speaker 1: but I think that there is a sense in which,
Speaker 1: if it really does look like policy is going to fail,
Speaker 1: the market can can care a lot and care very quickly.
Speaker 1: Um So, if if you know, maybe a scenario in
Speaker 1: which the market has temple was a little bit of
Speaker 1: discipline on on Washington and you see a big equity
Speaker 1: sell off that sparks finally, uh, some level of compromise.
Speaker 1: We told investors you know this week, we think it's
Speaker 1: a it's a Q three. Whether it's a hedging risk
Speaker 1: or a buying opportunity maybe depends on your time frame,
Speaker 1: but we wouldn't be surprised if we get a lot
Speaker 1: more volatility before there's some peace in Washington. John, I
Speaker 1: gotta say what Jared just said. There, This idea that
Speaker 1: perhaps the market will impose some discipline on Washington goes
Speaker 1: to something that you said last week with Larry Cudlow,
Speaker 1: where you said, isn't it problematic that you have so
Speaker 1: many people losing their jobs at a time when you
Speaker 1: have markets rallying down in Washington? They don't care about
Speaker 1: the jobless rate as much as they do about what
Speaker 1: they get in terms of a signal from equities. I mean,
Speaker 1: you just have to wonder what does that say about
Speaker 1: the deliver a deliberation process down in Washington. Think it's
Speaker 1: embarrassingly su and Jared, I think you can speak to
Speaker 1: that as well. If this market lower, if this equity
Speaker 1: market was down and down hard like it was in March.
Speaker 1: I think we've seen some follow up in Washington, and
Speaker 1: we don't we wanted, Jared for you, what's the cut
Speaker 1: off point? What's the point at which you look at
Speaker 1: things down in Washington and think it's not happening, Well,
Speaker 1: I mean it's it's it's a tough call because our
Speaker 1: conversations with with folks and the and the sense down
Speaker 1: there is that everyone involved, basically everyone involved understands the
Speaker 1: need for for more stimulus, the need for more aid,
Speaker 1: and they're just sort of haggling about who gets what
Speaker 1: and who gets uh, you know, credit for for for
Speaker 1: pushing things through. Um, a little bit of real stress
Speaker 1: can can overcome some of those challenges. So we do
Speaker 1: expect that, you know, whether it's a week from now
Speaker 1: or two or three weeks from now, at some point,
Speaker 1: we do expect there will be you know, more stimulus.
Speaker 1: I guess it's just a question of the path we
Speaker 1: follow to get there. If if you know, on the
Speaker 1: other hand, there was the sense of a different calculation,
Speaker 1: the calculation that maybe some more economic stress now changes
Speaker 1: votes for people, you know, in November in a way
Speaker 1: that they think is favorable. Um, that's something to really
Speaker 1: worry about. So if you started here, you will never
Speaker 1: hear messaging about that. But if you start started the
Speaker 1: sense that people are thinking in those terms, then that's
Speaker 1: something that's a very different market a very different situation,
Speaker 1: something you definitely um, you know, raise cash on the backup. Yeah,
Speaker 1: before we let you go, we need to talk about
Speaker 1: the sixty forty split. It's something that you and a
Speaker 1: team of Bank for America has been talking about for
Speaker 1: quite a one in fact, ahead of the curve in
Speaker 1: many ways, plenty more people talking about this now what
Speaker 1: to do with the forty portion? And I just wanted
Speaker 1: the lessons of the last couple of days, the correlation
Speaker 1: between treasuries and growth and more broadly therefore the equity
Speaker 1: market as well, John, can you speak to that the
Speaker 1: problems there? Well, we wrote this week that that the
Speaker 1: secular stagnation, this economic malaise has really started to blur
Speaker 1: the lines between ourset classes in some sense. You know,
Speaker 1: a long term treasury bond is not that different from
Speaker 1: a high flying tech stock that pays you a tiny dividend.
Speaker 1: Neither one gives you a positive income stream, you know,
Speaker 1: adjustice for inflation, and they both start to look really
Speaker 1: unattractive if we do see a world either of you know,
Speaker 1: stagflationary populism or a world in which industrial policy and
Speaker 1: other investments a boost productivity really change the game. And
Speaker 1: so That's why we suggest investors think non in terms
Speaker 1: of asset classes as much as in terms of the
Speaker 1: kinds of risk they want to take. In the world
Speaker 1: of ample liquidity, that means you can own gold, you
Speaker 1: can also own you know, things like closed in funds
Speaker 1: with a big discount. You can also own credit risk
Speaker 1: in a way that UM has less to do with.
Speaker 1: It's it's it's it's you know, design as a fixed
Speaker 1: income instrant, and what to do with where we are
Speaker 1: in the cycle and what we see is potential for
Speaker 1: fundamentals UM in any world, you know, those conventional methodologies,
Speaker 1: Can the ways of valocating assets start to make a
Speaker 1: little bit less sense? Investors need to be a little
Speaker 1: more flexible, and they're thinking Jared gold. A lot of
Speaker 1: people saying that it could be a hedge against equities,
Speaker 1: and yet they're moving in tandem. Can you reconcile that
Speaker 1: I'd really think about gold as a as a kind
Speaker 1: of a measure of in some ways at this point,
Speaker 1: you know, policy success, You've got you know, one point
Speaker 1: six percent inflation. That's a modest recovery. It's not a
Speaker 1: huge breakout. You've got to fed on hold UM treasuries yield,
Speaker 1: you know, point six percent or so. That negative one
Speaker 1: percent real yield the kind of a signal from both
Speaker 1: the bond marketing from gold moving in tandem that you
Speaker 1: can buy basically anything but nominal bonds and you'll be
Speaker 1: you'd be better off. So in that sense, gold is
Speaker 1: a kind of a get out of here trade from
Speaker 1: the perspective of the bond markets. And and I think
Speaker 1: that's the signal investors are picking up. You see them
Speaker 1: rotating not just to gold, but to other speculative things,
Speaker 1: to spack I p o s too, you know, cryptocurrencies,
Speaker 1: all kinds of assets that otherwise wouldn't make sense if
Speaker 1: the cost to carry was really meaningful. UM. So to
Speaker 1: extent that we get policy success and inflation and growth,
Speaker 1: wee wile to normalize UM. Then you'll see investors, you know,
Speaker 1: continue I think, allocating to things that maybe they wouldn't
Speaker 1: have done in the past. Jeric right to catch you up.
Speaker 1: Our best of the saying job would at that bank
Speaker 1: for America Security. Let's get straight to Harry Chin and
Speaker 1: Carry and Shawi BMP paraplehead of Commodity market Strategy. Harry
Speaker 1: dried to catch up with you, mate. Let's talk about it.
Speaker 1: What happened in the last count of Dace. I think,
Speaker 1: first and foremost gold has reached another historical high, and
Speaker 1: the question eventually was going to be when will be
Speaker 1: when will people be taking profits? But I guess more fundamentally,
Speaker 1: what we're looking at the BNP party about, it's the
Speaker 1: leveling off and break even inflation rates. So that's sort
Speaker 1: of stabilizing negative real rates where they're at right now,
Speaker 1: and that sort of removes one factor of supports for gold.
Speaker 1: And then on top of that you start adding investor
Speaker 1: flows into silver, which is a sort of cheaper alternative
Speaker 1: than engineer macro risk. Then then you could see the
Speaker 1: consolidation that's taken place. Harry, Yesterday's sell off in gold
Speaker 1: really violent, I mean, considering the fact that there weren't
Speaker 1: similar kinds of violent moves elsewhere, it was the biggest
Speaker 1: sell off since April. Does this indicate a positioning squeeze?
Speaker 1: Something about the nature of this trade that gives you
Speaker 1: pause about how much higher gold can go? Well currently,
Speaker 1: in our view, again trying to link gold to sort
Speaker 1: of macro reckon only fundamentals, we really watch closely what
Speaker 1: the US real rates are doing. So with the nominals
Speaker 1: being relatively flatish, it's a question of, you know, did
Speaker 1: it still have the fuel to to move higher? And
Speaker 1: oftentimes when you reach an historical peak and you have
Speaker 1: this kind of acceleration in prices, the correction could be
Speaker 1: quite quite important. Now, I'll give it. The US real
Speaker 1: rates on a five year basis are still at negative
Speaker 1: one point. There is support from a macro perspective for
Speaker 1: gold to hold onto its recent game. So we're thinking
Speaker 1: about gold trading in the nineteen hundred nineteen hundred fifty
Speaker 1: uh thereabouts before potentially having another rally next year. Okay,
Speaker 1: another fundamentally it's it's still good. Okay, so another rally
Speaker 1: next year. Tom Keene took the day off to go
Speaker 1: buy some more jewelry for Mrs Keene to invest in gold.
Speaker 1: How much higher could we see the price go in
Speaker 1: the next heel of this U in the next leg
Speaker 1: of this of this rally. Well, we're viewing in our forecasts,
Speaker 1: are being too power about the next leg coming in
Speaker 1: in Q one next year, especially as you see realize inflation,
Speaker 1: you're on your benefiting from base effects, which would help
Speaker 1: that famous break even inflation measure move higher. Understanding that
Speaker 1: the FED is going to keep yields really low, potentially
Speaker 1: even adopt yield current control. And it's on that basis
Speaker 1: with those break evens moving higher and nominals remaining pretty
Speaker 1: much where they are, you get that further impetus for
Speaker 1: goal to successfully move about two thousand Again, Harry, are
Speaker 1: you having new conversations, different conversations with a different poll
Speaker 1: of investors that maybe you weren't having back in. T's
Speaker 1: a new angle to this gold trate that wasn't there
Speaker 1: about ten years ago, I suppose, and you guys were
Speaker 1: mentioning it. Uh, there's a lot of retail interests that's
Speaker 1: happening that I don't talk to retail investors, but there's
Speaker 1: certainly a big shift in terms of retail interests, even
Speaker 1: robbit Wood investors looking at gold. But I think more prosaically,
Speaker 1: you have a number of institutional investors are looking at
Speaker 1: all as a very good uh macro hedge because equity
Speaker 1: evaluations being sky high. If you do have a correction
Speaker 1: there as a result of disappointing economic outcome tied to
Speaker 1: the evolution of COVID, then golds there to hedge your portfolio. Harry,
Speaker 1: how effective do you think that will be given the
Speaker 1: positive correlation between gold and growth stocks at the moment,
Speaker 1: How effective do you think it will be as a hedge. Well,
Speaker 1: the hedge comes in really if you take losses on
Speaker 1: the equity side, then you will sell that gold portfolio,
Speaker 1: which obviously has seen a very big increase in price,
Speaker 1: so as to mitigate that the losses you have elsewhere.
Speaker 1: That's that's really it's primary functions. Harry, Great to catch
Speaker 1: up with you, as always, really good to see Harry,
Speaker 1: Chin and Gore in there of being parabout all. Now,
Speaker 1: what is happening with this gold market? Johns now straight
Speaker 1: out al under James Berban c c l A, Chief
Speaker 1: investment Officer, James, Great to hear your voice, sir, So
Speaker 1: let's get straight back to it. Is this rotation a
Speaker 1: head faith or something more sustainable. I certainly think that
Speaker 1: exuties will grind higher because I absolutely believe that the
Speaker 1: Federal Reserve and the Treasury will continue to provide liquidity,
Speaker 1: and that has got to be good news for the
Speaker 1: quality growth companies that have been taking the market ever higher. However,
Speaker 1: I was found two notes of caution. One was the
Speaker 1: market reaction to the news from Russia yesterday that they
Speaker 1: had found a vaccine for COVID nineteen. Although it was
Speaker 1: early stage, the market's initial reaction I thought was really
Speaker 1: interesting because what we saw was that the big text
Speaker 1: stocks sold off while bank stocks rallied. It was also
Speaker 1: the case the precious metal prices dipped and bond deals rose.
Speaker 1: And I think this is a real taster of what
Speaker 1: will happen if the COVID nineteen crisis passes by. But
Speaker 1: equally I worry that investors have been very undiscriminating in
Speaker 1: terms of what they have been prepared to buy in
Speaker 1: this liquidity driven melt up. It is the case that
Speaker 1: we can make sensible investment decisions on quality stocks. And
Speaker 1: if you press me for where the SMP five hundred
Speaker 1: might finish this year and next year, I wouldn't be
Speaker 1: at all surprize given where bond deals are, that we
Speaker 1: didn't get to thirty five d this year and thirty
Speaker 1: eight hundred next year. But the villain of the piece,
Speaker 1: I think is distressed debt, because when I look at
Speaker 1: the default volumes in Q two that came in at
Speaker 1: forty one spot one billion dollars. Now that is in
Speaker 1: comparison of the previous record of thirty nine and a
Speaker 1: half billion set back in two thousand and nine. Now,
Speaker 1: while for liquidity can stop markets ending up in a
Speaker 1: credit crunch, they can't provide companies in trouble with cash
Speaker 1: flow and simulated those companies will be found out. And
Speaker 1: that's why I think it's so important to look through
Speaker 1: to what's really going on at the companies level, whether
Speaker 1: it's achieving sufficient revenues to justify long term access to
Speaker 1: the capital markets. So, in other words, an argument for
Speaker 1: active management. I want to stick on this idea of
Speaker 1: liquidity versus solvency, liquidity versus the recovery story. It seems
Speaker 1: to be in me that you believe in a further
Speaker 1: rally in equities, and yet you're saying it's going to
Speaker 1: remain a liquidity story, albeit with perhaps some progress on
Speaker 1: the virus front. How much can it can remain a
Speaker 1: liquidity story to sustain this type of rally? In other words,
Speaker 1: can it just be concentrated in the big tech names,
Speaker 1: have them drive the stock market higher with this idea
Speaker 1: that they will stay solvent through this even if you
Speaker 1: have those bankruptcies increase, or do you expect there to
Speaker 1: be sort of some rotation to sustain that going forward. Well,
Speaker 1: what found very interesting is how many people, when challenged
Speaker 1: us whare equity markets going for, talk about mean reversion
Speaker 1: to the long term averages, And the story I hear
Speaker 1: often is that the forward price sendings multiples the S
Speaker 1: and P five hundred as an index is currently over
Speaker 1: twenty two times the average since fifteen times, and therefore,
Speaker 1: on that simple basis, exuty markets do a very substantial
Speaker 1: mark down. However, that argument forgets what's happened to bond
Speaker 1: yields and bond deals have been craters in the way
Speaker 1: that we have described, and therefore we can justify a
Speaker 1: much higher valuation for the equity market. And if one
Speaker 1: is going to think about the fair valuation of equity
Speaker 1: based on the company's return on equity, cost of equity,
Speaker 1: and growth, then actually the text doc still in my view,
Speaker 1: look reasonably good value. I don't think this is the
Speaker 1: right moment to give up on quality growth. I worry
Speaker 1: that there are plenty of people talking about companies with
Speaker 1: high operational and financial gearing benefiting from a cycle up turn.
Speaker 1: I just don't see that happening, and that'fore I think
Speaker 1: that's a really dangerous strategy to follow. James, You've raised
Speaker 1: a really important point, in fact a couple, So let's
Speaker 1: get to the first one, that's on benchmarking valuations through history.
Speaker 1: Can we just sit there for a moment, James, what's
Speaker 1: the effective way of doing that? Well, I think if
Speaker 1: you're going to look at history, you've got to be
Speaker 1: very clear about which portion of history you want to
Speaker 1: look at. And I would say that the the really
Speaker 1: important issue is to to look at the connection between
Speaker 1: bond yields and valuations and therefore by extension the exty
Speaker 1: risk premium, so the forward return for taking ecuty risk
Speaker 1: relative to the current bond yield. And I would say
Speaker 1: there we are still looking at equities being cheap, and
Speaker 1: hence my expectation that we can get to futty five
Speaker 1: sp five hundred for the end of the year. The
Speaker 1: story goes horribly wrong if bond yields rise very dramatically
Speaker 1: and that there is a sell off in global treasuries.
Speaker 1: But I don't see central banks and governments permitting that
Speaker 1: to happen, because to get rid of the real cost
Speaker 1: of the debt overhang that is now around the next
Speaker 1: of the global economic participants that have to be a
Speaker 1: period where inflation is considerably an excess of nominal bond yields,
Speaker 1: so that the real value of that debt is run down.
Speaker 1: So for me, the obvious long term losers are the
Speaker 1: bond holders. The obvious long term winners are investors in
Speaker 1: good quality companies as long as they buy a decent
Speaker 1: free cash flow that sustained well, James, this assumes they
Speaker 1: can control the yield curve. So let's assume they can.
Speaker 1: Particularly hear the United States, Haven't they just fixed the
Speaker 1: equity game? Then? Doesn't that mean financials cannot work in
Speaker 1: this regime? Well? You know interesting. When I think about financials,
Speaker 1: I would say two things. Why. One is that we
Speaker 1: should not anticipate that the treasury yield curve and the
Speaker 1: pricing of debt in the marketplace are one and the same.
Speaker 1: I mean, I am absolutely aware that there are companies
Speaker 1: issue debts in the marketplace that yields that frankly look
Speaker 1: way too low for the riskiness that they represent to investors.
Speaker 1: But nevertheless, there are record deals going through in the
Speaker 1: bond markets as sensible prices, where banks, if they replicate
Speaker 1: those yields in loans to customers will be able to
Speaker 1: make sensible returns. The other part is that I think
Speaker 1: that there will be some real winners and yet some
Speaker 1: real losers within the banking sector. So I think that
Speaker 1: the muscularity of JP Morgan will mean that they will
Speaker 1: grow market share. They will kind of this with more
Speaker 1: pricing power. They have made some very significant acquisitions, as
Speaker 1: we know, in recent years, and I don't think that
Speaker 1: they have driven the efficiency gains of those acquisitions through
Speaker 1: to shell the value as of yet. So I am
Speaker 1: a bull of JPM, your bull of JP Morgan. I
Speaker 1: want to look forward a couple of months and we
Speaker 1: start talking about the election. I'm old enough to remember
Speaker 1: we weren't talking about the virus, and we weren't talking
Speaker 1: about the worst recession since the Great Depression, and we
Speaker 1: were talking about trade tensions and tensions in general. This Saturday,
Speaker 1: the US and China are going to talk about the
Speaker 1: Phase one trade deal. They're going to assess the progress,
Speaker 1: China still very much behind. How much is this factor
Speaker 1: into your trading at all? I mean, can this is
Speaker 1: this a tradeable event or factor into your investment thesis
Speaker 1: or is this just basically more sort of smoke on
Speaker 1: both sides leading to some protracted cold war that's already
Speaker 1: in existence now. I think it's a really important point,
Speaker 1: and I would say one of the reasons the dollars
Speaker 1: weakness is the global concerned that the US may turn
Speaker 1: the current debate about the current cancer trade into a
Speaker 1: debate about what happens on the Capitola count. And I
Speaker 1: would observe that people are of the view that trade
Speaker 1: tariffs simply hurt consumers because if you're a Chinese company
Speaker 1: exporting to the States, you get your money for the product.
Speaker 1: We all know that the China governments has been subsidizing exports.
Speaker 1: But the loser then is the consumer who has to
Speaker 1: pay more when the tariff is applied. On the capital
Speaker 1: account front, I think that Team Trump recognized that China
Speaker 1: has a huge demand for global capital. Huge chunks of
Speaker 1: the cash generated by US quantity of easing ended up
Speaker 1: in China. I guess not many people have joined the dots,
Speaker 1: but that's the reality of the credit flows to China,
Speaker 1: and the US is clearly again to look at this,
Speaker 1: and I think that one of the things that we
Speaker 1: can observe is that has been very considerable borrowing of
Speaker 1: dollars outside of the US, which has depressed the value
Speaker 1: of the US dollar, and were we to see either
Speaker 1: an end to the aggravation there's been escalating between the China,
Speaker 1: between China and the US, or actually an outright decision
Speaker 1: so the uncertainty is removed on what will happen on
Speaker 1: the capitol tone, the dollar has room to runny. So
Speaker 1: I am not at the school of thought that the
Speaker 1: dollar is one way and one way only being done,
Speaker 1: and norma of the view that the RMB, China's currency
Speaker 1: has any chance of becoming a global reserve currency. Hey, James,
Speaker 1: great to catch up wide regging interview there, James Review.
Speaker 1: Good to hear from you, sir. You sounds safe and
Speaker 1: wow too. That makes me happy, James Bevan of c
Speaker 1: c l A. Jeffrey right joining us now you write
Speaker 1: a group the US analyst Jeffrey Kamala Harris getting the
Speaker 1: VP pick. I just wonder for enthusiasm, which is what
Speaker 1: former VP Jo Biden has been criticized for that he
Speaker 1: lacks the enthusiasm in his base that maybe the current
Speaker 1: president Donald Trump has. Does this do anything to make
Speaker 1: in roads there? It may help a bit. I think
Speaker 1: it probably helps somewhat with African American Democrats, who are
Speaker 1: very important constituency for the party. But I think in general,
Speaker 1: President Trump is going to do all the bring all
Speaker 1: the enthusiasm for Democrats. I think as the campaign really
Speaker 1: kicks into gear, as you saw in the twenty eight
Speaker 1: teen midterms, you know, the negative partisanship, the feelings of
Speaker 1: hatred that Trump inspuyers in the Democratic base, that's going
Speaker 1: to be I think enough motivation. Uh. And so Harris
Speaker 1: is really a pick to do no harm. She's a
Speaker 1: pretty safe pick, and I think you you start with
Speaker 1: somebody who's not going to hurt you, and she certainly
Speaker 1: does that all right. Well, given the fact that she's
Speaker 1: a safe pick and she's in line with where Joe
Speaker 1: Biden was going, or that it seems to be the
Speaker 1: party line, what does that mean in terms of the
Speaker 1: US is international policy. And I say this ahead of
Speaker 1: trade discussions between the US and China and increasing hard
Speaker 1: line from President Trump that President Trump will probably be
Speaker 1: uh campaigning on how different will it be in the
Speaker 1: Democratic candidate. I don't think Harris's selection changes much there.
Speaker 1: Trump has tried to attack Biden over China. It's been
Speaker 1: I think tough sledding for them so far, because the
Speaker 1: only thing that voters really care about right now is
Speaker 1: the coronavirus and the economy. Uh. And so you know, Harris,
Speaker 1: I think comes with uh, you know, some political help
Speaker 1: for the ticket. I don't think she brings a whole
Speaker 1: lot of policy heft or or changes to the places
Speaker 1: that that Biden was already in. On policy and particularly
Speaker 1: in foreign policy. Biden has a very well developed operation
Speaker 1: from his years in the Senate and his time as
Speaker 1: Vice president. So I think her influence on on foreign
Speaker 1: policy is probably going to be pretty small. Maybe on
Speaker 1: on some domestic policy areas, you see her her impact.
Speaker 1: All right, let's go to the domestic policy. Then we
Speaker 1: really don't have any kind of agreement. In fact, you've
Speaker 1: got stalemate in Washington, d C. When it comes to
Speaker 1: the second round a fiscal support even as we have
Speaker 1: an unemployment rate it seems to be uh stabilizing here
Speaker 1: above that ten percent rate. Do voters in general, from
Speaker 1: what you can tell, view President Trump is doing the
Speaker 1: right thing and winning this round in the stalemate with
Speaker 1: Democrats or do they do you see increasing ambivalence about
Speaker 1: which party has the better plan here? Economically. Yeah, I
Speaker 1: don't think that voters in general are paying close enough
Speaker 1: attention to understand the sort of machinations going on in Congress.
Speaker 1: I think basically, the longer they go without a deal,
Speaker 1: the more it hurts Trump. It's generally a very simple equation.
Speaker 1: The incumbent is on the hook for the economy. Whether
Speaker 1: that's fair or not. I mean, you can say that
Speaker 1: Democrats are holding out, but ultimately Trump owns the economy,
Speaker 1: and the longer it goes without additional fiscal support, uh,
Speaker 1: you know, the more severe this, this sort of mini
Speaker 1: downturn is going to be. I think so. I think
Speaker 1: regardless of who blames who for what, Trump is on
Speaker 1: the hook here because he's the president, he owns the
Speaker 1: economy for better or worse. Jeffrey, do you have to
Speaker 1: assume that we get a deal done in Washington before
Speaker 1: the end of the month. Yeah. We maybe not before
Speaker 1: the end of this month. I think there's a good
Speaker 1: chance now that it stretches into September. But I do
Speaker 1: think we get a deal before the end of September,
Speaker 1: before the government funding deadline, which provides sort of another
Speaker 1: forcing mechanism for Congress. What are the signposts that you're
Speaker 1: looking for. That might change your calculation and say, there's
Speaker 1: a chance here we won't get a deal, because everyone
Speaker 1: we're speaking to still assumes deal, maybe at the end
Speaker 1: of the month, maybe at some point in September, but
Speaker 1: deal and something around one point five trillion dollars. What
Speaker 1: would change that for you, jeff I think if if
Speaker 1: Trump decides that he doesn't want a deal anymore, which
Speaker 1: is you know, I think possible. I think that move
Speaker 1: would be against his own political interests, because he really
Speaker 1: needs fiscal support for the economy right now. But you know,
Speaker 1: we've seen him make make moves in the past that
Speaker 1: we're not in his own interests, and you know, it's
Speaker 1: possible that he gets so frustrated with Pelosi and Schumer
Speaker 1: and the and the way that they've tried to handle
Speaker 1: this negotiation that he walks away from it. I think
Speaker 1: that's the that's the most plausible way that you you
Speaker 1: don't get a deal. Jeffrey, great to catch up, as always,
Speaker 1: our best of the team, Jeffrey, right there of your
Speaker 1: AGA group. Special coverage of the Democratic Conventions standing Monday
Speaker 1: night on Bloomberg TV and on radio as well, and
Speaker 1: then the week after of course the Republican Convention, kicking
Speaker 1: our full coverage of that as well. Let's continue the conversation,
Speaker 1: shall we with Anna Hannahels Fargo, securities equity strategist. Anna
Speaker 1: Great to catch up with you. Let's start with a
Speaker 1: simple one. I wonder whether we are overestimating Europe's recovery
Speaker 1: and underestimating what is happening in the United States. What's
Speaker 1: your take? Well, you saw Europe kind of be one
Speaker 1: of the first areas to fall with the COVID crisis,
Speaker 1: and usually we're the belief that first in, first out.
Speaker 1: But what they didn't have necessarily was a size and
Speaker 1: the depth of the monitoring the fiscal stimuluts that we've
Speaker 1: had here in the States. So while they are progressing,
Speaker 1: if you want to put neck to neck, it's a
Speaker 1: bit difficult to say who's the front runner here? And
Speaker 1: how do you price in a delayed second fiscal support
Speaker 1: deal in Washington, d C. Since we are not getting one.
Speaker 1: It doesn't look like this week, and it's unclear one
Speaker 1: exactly Republicans and Democrats will get together. Well, yeah, we
Speaker 1: started miss the deadline this time, right before the summer
Speaker 1: recesses started. But what we do know is we have
Speaker 1: another deficit or a budget deficit plan that's going to
Speaker 1: be due at the end of September and towards that fall,
Speaker 1: as we get closer to the U S elections, it's
Speaker 1: gonna become a big indicator of how the economy is
Speaker 1: going to go forward and what things are going to
Speaker 1: shake out for equities in particular, and what do you
Speaker 1: look at what data to give you confidence that there
Speaker 1: is some sort of continuing recovery and not the stalling
Speaker 1: out that a lot of people were talking about when
Speaker 1: they were looking at the high frequency data. Well, I
Speaker 1: think you have to acknowledge that we are seeing song stalling.
Speaker 1: It's been a bit slower since let's say late June
Speaker 1: and July, but we are seeing far from a reversal.
Speaker 1: And as we get that sequentially improved story in indicators,
Speaker 1: for example, like an earning or you see even with
Speaker 1: investor confidence weekend from before maybe a month ago, but
Speaker 1: still much better than we were in the winter. Those
Speaker 1: are the signs that things are progressing slowly but forward.
Speaker 1: Are you comfortable embracing cyclicality at this point? We're still
Speaker 1: risk on, John. We do think that cyclicality in particular
Speaker 1: with its COVID BAT data. Data will be the winning
Speaker 1: play longer term. But that's not to say that this
Speaker 1: melt up doesn't have us a little more cautious than usual.
Speaker 1: What are the cycnical parts of the security market at
Speaker 1: that you would be uncomfortable with just breaking it down
Speaker 1: from sector to sector if you can, Well, when you
Speaker 1: dig in really sectorist sector, where you think about a
Speaker 1: locality and where value may be uncomfortable is where is
Speaker 1: the traps? Where are the areas of the market where
Speaker 1: they look like they're cheap but they're not going to
Speaker 1: have a multiple expansion as rapidly or as easily as
Speaker 1: you would suspect. And for now, what's been a difficult
Speaker 1: spot for us, it's probably the financials market a lot
Speaker 1: to do with also the suppressed yields, the financials, the
Speaker 1: banks and low yields which are gonna be here with
Speaker 1: us for a long time. And it right to catch
Speaker 1: up with you, Anna had wist Fuga Securities Equity Strategists.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane. Before
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio two.