Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: I'm Mike Creagan, a senior editor at Bloomberg, and this
Speaker 1: week on the show, the US equity market has almost
Speaker 1: doubled since it's lows during the COVID sell off of
Speaker 1: but the rally is stalled and the SP five hundred
Speaker 1: has basically gone sideways over the last three weeks despite
Speaker 1: what's clearly been a strong earning season. So where does
Speaker 1: that leave us going forward? Has the easy money all
Speaker 1: been made? We'll talk to a strategist who has some
Speaker 1: thoughts on what market stage we're actually in and why
Speaker 1: he's looking across the US border into Mexico and Canada
Speaker 1: for stocks that will benefit the most from the key
Speaker 1: themes of But first, Charlie Pellett tell us who this
Speaker 1: week's mystery co host is. The sweek's mystery co host
Speaker 1: is Diva Baljie. Diva is the team leader for Bloomberg's
Speaker 1: equity market coverage in the America's. She lives in Toronto
Speaker 1: and loves the Raptors, but she is not a fan
Speaker 1: of hockey due to all the fighting. Food and travel
Speaker 1: are her passions, and believe it or not, she says
Speaker 1: that's why she prefers New Jersey over New York. If
Speaker 1: you have, my heart grew three sizes when I heard
Speaker 1: that you preferred New Jersey over New York. Not that
Speaker 1: I have anything against New York, great city, grade state,
Speaker 1: but finally some respect for us here in the Garden State.
Speaker 1: But I got asked, what makes you bullishaw New Jersey?
Speaker 1: Especially the food? I'm curious, you know, I I'm pretty
Speaker 1: sure I'm going to get a lot of hate tweets
Speaker 1: from saying this, but it just kind of feels like
Speaker 1: New York's a bit overrated at this point, and having
Speaker 1: spent a lot of time in Jersey, We've got family there,
Speaker 1: and you know, we just the food is great. You know,
Speaker 1: people are friendly. Um, there's a lot of space. I
Speaker 1: just I really like it. I love to hear it.
Speaker 1: Direct your hate tweets at if you not at mean, actually,
Speaker 1: if you can direct him to me too. I'm curious
Speaker 1: curious what they say about that one. But hey, New
Speaker 1: Jersey just ranked the number one state for pizza by
Speaker 1: Food and Wine magazine. So the respect is finally coming. Finally,
Speaker 1: some some respect for the Garden State. But let's get
Speaker 1: to that Market's Chat. We're well, very happy to welcome
Speaker 1: back to the show. It's actually his third time on
Speaker 1: the show. I think he gets a tote bag or
Speaker 1: something for that. But he is the director of Global
Speaker 1: market Strategy at stone X Financialist. Name is Vincent de
Speaker 1: Luards and welcome back to the show. It to be here, Yeah,
Speaker 1: it's it. I've been reading some of your notes, and uh,
Speaker 1: you've got a pretty interesting, what I consider kind of
Speaker 1: a non consensus view of sort of where we are
Speaker 1: in the market cycle. And correct me if I'm misinterpreting
Speaker 1: you here at all, but you sort of have disregarded
Speaker 1: the very fast bear market of last year as something
Speaker 1: that did not in fact reset the market cycle and
Speaker 1: does not make this a new, younger bull market that's
Speaker 1: only say, a little over a year old. Rather you
Speaker 1: see it as sort of just a continuation of the long,
Speaker 1: decade long post financial crisis bull market. So walk us
Speaker 1: through your thinking on that and sort of what that
Speaker 1: means for returns going forward or volat totally going forward
Speaker 1: if we are kind of late in the cycle of
Speaker 1: a ball market. So the first discrepancy, and I think
Speaker 1: is just the speed of the gains we're looking at
Speaker 1: you know, basically doubling on the SMP five hundred index
Speaker 1: in evening about a year um, which again does not
Speaker 1: happen typically. I mean typically the classical saying is stocks
Speaker 1: stay the edited down and the stairway up right TPP.
Speaker 1: It's when you rally, it takes longer to get there. Here,
Speaker 1: we had such a nice, clean v that is more
Speaker 1: consistent with what we saw you in the Great Depression,
Speaker 1: when we had a lot of these very brutal bear
Speaker 1: market but also bullmarkets. I mean, some of the fastest
Speaker 1: rallies in history happened in the nineteen thirties, but of
Speaker 1: course they were not sustained. UM. Second indication that we
Speaker 1: are still in a in the same cycle as before
Speaker 1: is um the weakness of buybacks. So in in a
Speaker 1: bona fide um bull market, what you see is as
Speaker 1: as as stock valuations are depressed and earnings are coming back,
Speaker 1: cash flow was improving, you see companies buy back more
Speaker 1: of their stocks. This is happening to some extent, but
Speaker 1: we're still about fifty percent off the levels that we
Speaker 1: wear uh pre covid um, and a lot of the
Speaker 1: buy backs that we are seeing are really just coming
Speaker 1: from the tech sector where this is not really a
Speaker 1: buy back, it's a way to offset the delusion from
Speaker 1: stock based compensation. So you see buy backs, but you
Speaker 1: don't see the float drink um. Speaking of float, another
Speaker 1: inconsistency that we've seen is this this massive increase inequity issuance. UM.
Speaker 1: We had the biggest month quarter on record, much much
Speaker 1: higher than what we had during the Internet bubble, as
Speaker 1: companies have been really just taking advantage of these extraorminity
Speaker 1: evaluations to raise equity. Again, not something that you would
Speaker 1: see at the bottom. UM. The same thing with inside
Speaker 1: the selling. I mean typically at a major market bottom
Speaker 1: you see you know, insiders sell less and buy more.
Speaker 1: When we see the opposite we see especially among big
Speaker 1: tech company mas lack insiders as just cashing it out. UM.
Speaker 1: And then the last part that's um not consistent with
Speaker 1: a new ball market is the behavior of retail. So
Speaker 1: typically at the DNT of a new bull market, you
Speaker 1: know there's a lot of distrust, there's a lot of fear,
Speaker 1: so the money is more like players like one buffet
Speaker 1: long term investors that are you know, brave enough to
Speaker 1: dip their toes UM. Here it's exact opposite, right, you see. Um.
Speaker 1: You know, obviously cash level at at Berkshire is a
Speaker 1: closer record high. And on the other hand, we had
Speaker 1: the largest inflow UH for the in eats ever for
Speaker 1: the past uh eight weeks. So we are seeing basically
Speaker 1: corporations and inside of s catching out retail buy me in,
Speaker 1: which is typically what you see at major market tops
Speaker 1: or at least at the end of the ball market,
Speaker 1: not at the beginning. So Vincent, I guess, you know,
Speaker 1: I might be a bit more skeptical about this. I mean,
Speaker 1: there's a lot of things that play here, right, I mean,
Speaker 1: this market is so different from anything we've ever seen
Speaker 1: in the past. Um. You know, obviously there are companies
Speaker 1: that could possibly be cautious about doing buy backs right now.
Speaker 1: They might be waiting for just a little bit more
Speaker 1: normal fee um, you know, and from that buybacks perspective
Speaker 1: as well, US banks also just recently got the okay
Speaker 1: to buy shares or the purchase shares that should help
Speaker 1: with the comeback as well. UM. And also the retail
Speaker 1: buying that we've seen is also pretty unprecedented given the
Speaker 1: environment that we've been in. Um, how do you sort of,
Speaker 1: you know, say, okay, I'm looking at this and you know,
Speaker 1: not really this is why this we're coming to the
Speaker 1: end of the bull parking. I mean there's also the
Speaker 1: option of, like Tina, where what are your other opportunities
Speaker 1: out there to actually put your money in? Yeah? These
Speaker 1: are good old, very fair points. UM. I agree with
Speaker 1: you that this is unprecedented. Obviously it is. And in
Speaker 1: a way it makes me feel like we should even
Speaker 1: discard everything that happened, uh, you know between Mars and today.
Speaker 1: And this is what makes me think that we are
Speaker 1: still in that same cycle. I mean you mentioned the world, Tina.
Speaker 1: I mean this was the mentra of the past ten years. UM.
Speaker 1: So yes, the same thing with their investors. UM, Sarah
Speaker 1: whom I you know, after I'm sure we all regret
Speaker 1: that she's no longer here. You know, she she had
Speaker 1: she used to run these stories very early on the
Speaker 1: on the retail manua. UM. And I remember in this
Speaker 1: conversation with her like saying, well, oh no, these guys
Speaker 1: are gonna go away. You know it's retail investors the weekends.
Speaker 1: I mean, this has been a big surprise. How sustainable?
Speaker 1: Um did this has been? Um? I still think again
Speaker 1: I have been wrong on this before. And I may
Speaker 1: still be wrong, but I think eventually this this is
Speaker 1: not the ingredients for sustainable ballmarket. I mean, you don't
Speaker 1: build economic prosperity on on doogh coin and game stop
Speaker 1: and and mimes tongs. I mean, it's so fun, everybody
Speaker 1: is having a good time now, but um you know,
Speaker 1: you really don't have the ingredients for for sustainable economic
Speaker 1: growth on this. On the banks, I thought you raised
Speaker 1: a very interesting question, um um so, and it's key
Speaker 1: to me for the debate on on the inflation and
Speaker 1: the nature of the recovery. One thing that is stunning
Speaker 1: is that we've seen a collapse in the loan to
Speaker 1: deposit ratio. So typically, you know, we're learning school loan
Speaker 1: deposits make loan loans make deposit um the not. Usually
Speaker 1: there is about a one to one loan to deposit ratio.
Speaker 1: And with COVID, what we've seen is that that loan
Speaker 1: to deposit ratio has collapse to less than zero point
Speaker 1: five for the big four banks in some cases well
Speaker 1: as far Ago for example, it's because they are not
Speaker 1: allowed to but even the other the other big three, um,
Speaker 1: just there has been this lagging in loan insurance and
Speaker 1: there's the question is what happens next. And we can
Speaker 1: go with with your your your theory that you know
Speaker 1: now that banks are making money again, they're going to
Speaker 1: do buy backs again and that's that's where this extra
Speaker 1: capital is going to be returned, or um, we can
Speaker 1: go with what I think is more likely, which is
Speaker 1: inflacial review, which is we have all these kind of
Speaker 1: trapped kinetic energy in the banking sector. I calculately, if
Speaker 1: you just look at the Big four and if we
Speaker 1: wanted to go back to normal loan to deposit ratio,
Speaker 1: not not even pretty thousand eight, let's go post GFC,
Speaker 1: meaning with with all the new potential regulations. So if
Speaker 1: we were if we were to go from zero point
Speaker 1: five to zero point eight on the loan to deposit ratio,
Speaker 1: the big four bags will have to issue more than
Speaker 1: two point five chillion in new loans. So I think
Speaker 1: that's something that again the market is not really discounting.
Speaker 1: I mean, well, we have our eyes on all the
Speaker 1: infrastructure spending plan, the family Plan, the COVID PLANEL, all
Speaker 1: these there seems to be a new one every week,
Speaker 1: a new two trillion dollar panel. I would add, there's
Speaker 1: a hidden banking steamers, and I could see it happen
Speaker 1: in te one with a perfect storm for banks, right,
Speaker 1: because you have steeper yeld curve, so now it's profitable
Speaker 1: against the issue loans. They have generally over provisioned the losses.
Speaker 1: You saw that in the earnings of JP Morgan, right,
Speaker 1: I mean they were able to release some of these
Speaker 1: extra provisions. Some of that they can. They have too
Speaker 1: much capital, so you know, why keep that capital earning
Speaker 1: zero as excess visits and the FED when you have
Speaker 1: you know, an economy that's booming, a consumer that's very
Speaker 1: good out really really state sector that's on fire, steep
Speaker 1: heel curves, um, so that could add to these inflationary pressure.
Speaker 1: And again inflationary pressure should not be an early stage.
Speaker 1: Typically at the early stage of a rally. Yeah, you
Speaker 1: see some some pick up in commodity prices, right because
Speaker 1: they you know, they're the most cyclical, But the stickier
Speaker 1: parts of inflasion, whether it's wages or rents or bank lending,
Speaker 1: do not pick up quite yet. And I think this
Speaker 1: is what we're going to see, which is again more
Speaker 1: consistent with the late cycle dynamic than an early cycle one.
Speaker 1: I think that point about share supply is interesting. I
Speaker 1: mean that is often the I p O mania of
Speaker 1: sated is often pointed to is kind of the pin
Speaker 1: that that topped the bubble, that just over supply of
Speaker 1: chairs into the market. And um, you know, on the
Speaker 1: flip side, though you've you've written pretty eloquently about you
Speaker 1: call this big blob of money that's kind of chasing
Speaker 1: bubbles from place to place. I just want to read
Speaker 1: read a quote from the report because I think it's
Speaker 1: it's true and it's interesting. Uh you write, quote, the
Speaker 1: blob has created a rotating bubble from long bonds to
Speaker 1: big tech work from home stocks, three opening sectors, electrical vehicles,
Speaker 1: two spacts and obviously we could add doage coin and
Speaker 1: and whatever else n f T s to to that list,
Speaker 1: I imagine. So to me, I guess the play is,
Speaker 1: you know, it's almost impossible to to identify the top
Speaker 1: of a bubble and and to say short of bubble
Speaker 1: right before it pops. But it seems to me like
Speaker 1: the play for you is more kind of you know,
Speaker 1: getting ahead of where that blob is going to go next, right.
Speaker 1: I mean, there's swollen savings accounts in the US because
Speaker 1: of the government stimulus, the unemployment benefit enhancements, uh, you know,
Speaker 1: and just the lack of places to spend your money
Speaker 1: last year, your disposed lincome. So is that is at it? Vincent?
Speaker 1: Is it is the best move now not trying to
Speaker 1: time the pop of the bubbly parts of the market,
Speaker 1: but try to get in early on the on the next,
Speaker 1: the next bubbles in the making. Absolutely, yeah for your
Speaker 1: point on on the difficulty of of timing. Timing bubbles
Speaker 1: is impossible at the best of time. And now we
Speaker 1: have the situation on the bubbles don't don't burst like
Speaker 1: the blob just moves, but it leaves whether it was
Speaker 1: in a similar state of evaluation like you look at
Speaker 1: the r k TF. So clearly you know, this story
Speaker 1: to me is kind of over. But we haven't had
Speaker 1: the big you know, eighty to nine draw down that
Speaker 1: would have expected, you know, the way it paid out
Speaker 1: in with the Nazlak stops and in the two thousand, right,
Speaker 1: just kind of stays there. Um So, I would not
Speaker 1: try to shot it, but I would try to guess
Speaker 1: whether blob is going to move next. Um So, I
Speaker 1: would think there are three areas that have not been
Speaker 1: touched by the blob and are quickly um um talk
Speaker 1: about each one of them. So let me start with
Speaker 1: the one that I don't believe in, which is garb
Speaker 1: stock growth at a reasonable price, the quality names. I've
Speaker 1: seen a lot of strategies and you know, get into
Speaker 1: this stuff or you know, consumer staples, some healthcare stocks
Speaker 1: for example. These are these are the last parts of
Speaker 1: the market that the tech obviously was over value to
Speaker 1: start with. Then we had the reopened small care that
Speaker 1: so real? What leads it leads you with, like, you know,
Speaker 1: a handful of stock and consumer staples and and healthcare.
Speaker 1: I'm not excited about that, mostly because of my belief
Speaker 1: that inflation is gonna come here, and that's he's gonna
Speaker 1: come stronger and longer than people think. And you really
Speaker 1: don't want to be in these kind of stocks. Um.
Speaker 1: So the post that I'm more excited about our um
Speaker 1: in order playing some reopening trade in Europe, Mexico, which
Speaker 1: is by far my favorite short term call. And then
Speaker 1: precious metal. Um, do you want me to start with
Speaker 1: any any in new particular order? Yeah, you know, I was.
Speaker 1: I was gonna ask you about Mexico. I think that's
Speaker 1: an interesting one. I mean obviously a very sort of
Speaker 1: cyclical oriented benchmark, uh stock index, I mean a lot
Speaker 1: of commodity producers, energy producers. That's not all. But though
Speaker 1: I know you, you're one of the few strategists I've
Speaker 1: seen actually use the big MAC index and and uh
Speaker 1: the determined that the pace SO is undervalued. So I
Speaker 1: know that's part of it. But get into Mexico a
Speaker 1: little bit for us about what what are all the
Speaker 1: sort of book cases for for Mexican stocks? For you,
Speaker 1: what I think about Mexico, it's really an intersection of
Speaker 1: what I think are the four big stories. Uh. One
Speaker 1: is um this studying commodity rally, which you know, for Mexico,
Speaker 1: the biggest Achilles heal has always been Panics, which you
Speaker 1: know is horridly run, structural decline and difficult ordination the government.
Speaker 1: And you know this is this was an accident in
Speaker 1: the making, right, I mean, people thought, Okay, this is
Speaker 1: gonna hit in one and like it's like a lifeline,
Speaker 1: It's like a gift from heaven. With all prices above sixty,
Speaker 1: these guys are gonna they're not gonna be great, They
Speaker 1: will never be great. But at least that's the probably
Speaker 1: we don't have to worry about UH. And in general,
Speaker 1: you know, Mexico, the you know, energy and all is
Speaker 1: a huge part of Mexican GDP, so that they benefit
Speaker 1: from that. Second theme is the U S consumer, which
Speaker 1: you keep surprising to the upside. I mean, we saw
Speaker 1: it again with the lader's job numbers. Consumers, I mean
Speaker 1: just just keeps getting better and better. Um, and that
Speaker 1: benefits Mexico. I mean fifty percent of Mexican GDP is
Speaker 1: exposed to the US, so it's probably the kind of
Speaker 1: the single the economy has a single most leverage on
Speaker 1: the US consumer. It also plays out via remittancies. So
Speaker 1: we have all these Mexican workers that are working the
Speaker 1: US and they'll all be collecting the stimulus checks um
Speaker 1: and and you know, back home, you know, things are
Speaker 1: still pretty bad. I mean, Mexican economy suffered a lot
Speaker 1: last year, so you'll see a lot of money come
Speaker 1: back from the U S to Mexico, creating flaw setting
Speaker 1: the lola buying the paesel. I think it's already twenty
Speaker 1: five percent you over year, and as we get more stimulus,
Speaker 1: I expect that to continue, especially as a construction sector.
Speaker 1: Construction sector improves in the US, you could see this
Speaker 1: money flow back in UH. Third big big narrative for
Speaker 1: one is steeper yield curves which benefit financial Again, you
Speaker 1: look at the Mexican Index, huge weight of banks and
Speaker 1: financial which is typical of emerging markets which tend to
Speaker 1: benefit from steeper yield curve and rising yields um. And
Speaker 1: then the last theme is more kind of a secular theme,
Speaker 1: but it's this um ongoing competition or outright cold war
Speaker 1: between the U S and China, which means that you'll
Speaker 1: see a preference for shorter supply chain, more regionalization of trade.
Speaker 1: And of course Mexico, which has suffered so much from
Speaker 1: the rise of Asia, the makilga sector certainly is very
Speaker 1: competitive again in large part because people don't want to
Speaker 1: have these long supply chains, and also because the Paso,
Speaker 1: as you mentioned, is the area and the value. If
Speaker 1: you look at the Big MAC Index, it's in the
Speaker 1: value by about six And if you look at the
Speaker 1: current account deficit of Mexico, I mean Mexico has been
Speaker 1: a deficit country for ever since I was born. For
Speaker 1: the first time in I think thirty five years now,
Speaker 1: Mexico as a current account surplus. So here you go
Speaker 1: very in the valued currency uh, perfectly aligned with with
Speaker 1: energy with the US consumer with steeper yield curves uh.
Speaker 1: And then also a lot of pessimism or in Mexico,
Speaker 1: like people are very negative about amno. And you know,
Speaker 1: I don't think you could get any worse than that.
Speaker 1: So you know, as usual, you want to buy the stories.
Speaker 1: You know, you want to buy things going from You
Speaker 1: make most of your money when things are going from
Speaker 1: very bad to a little bit better. Not you know
Speaker 1: this this is the best time to invest in in
Speaker 1: an emerging market. Well, can we talk a little bit
Speaker 1: about North of the border as well? Not an emerging market,
Speaker 1: but you know, has a lot of similarities to Mexico
Speaker 1: from a cyclical perspective. Um. And given the fact that
Speaker 1: I set up in Canada. You know why why do
Speaker 1: you like Canada so much? Is it the stock market?
Speaker 1: Is it also the looney which I believe is one
Speaker 1: of the best performing currencies this year. Yeah, I think
Speaker 1: everything I said about Mexico applies to Canada. I would
Speaker 1: say to a lesser extent. I mean, I'm personally I
Speaker 1: prefer in Mexico, which is I think you have more
Speaker 1: more leverage, uh than you do in Canada. You also
Speaker 1: have less of a risk cover. You know, Canada. The
Speaker 1: big problems, of course a realistate bubble, which seemed again
Speaker 1: it's postponed year after year. I mean people have been
Speaker 1: calling for these two burst for ten years now and
Speaker 1: they've been wrong every year. So maybe it doesn't burst.
Speaker 1: But still, I mean in Canada you have this lingering question.
Speaker 1: Um but again, and I think you can play either way. Um.
Speaker 1: For you know, more conservative investors. Clearly Canada is a
Speaker 1: little bit less risky than Mexico, but I think in
Speaker 1: terms of risk reward, I prefer in Mexico. Yeah. So
Speaker 1: that's if if I'm a listener sort of a a
Speaker 1: retail trader at home trying to figure out, well, how
Speaker 1: do I play Mexico? How do I play Canada? I
Speaker 1: feel like a lot of us, say non institutional investors,
Speaker 1: get get a little nervous looking overseas at companies. Is it,
Speaker 1: you know, is this something you would play with E
Speaker 1: T F S or some somehow a sector based strategy?
Speaker 1: How would how would I is like Joe Schmo listening
Speaker 1: at home play Mexico under Canada. Yeah, so one of
Speaker 1: the issue with the Mexican e t F. The main
Speaker 1: one is the you know, the index is very UM
Speaker 1: skewed towards UH Didcom company and and Walmart, which may
Speaker 1: not be the best bet for for what I'm describing UM.
Speaker 1: I think it's mostly honestly, it's the currency play, even
Speaker 1: a fixed income play as well. UM. You know, one
Speaker 1: of the issues that UM investors are facing in one
Speaker 1: and even before is you know, the sixty four portfolio
Speaker 1: is dead, right, I mean, especially that that fully segment
Speaker 1: is dead, Like what are you gonna do with your
Speaker 1: fixed income on location? And you have very few places
Speaker 1: in the world where you can replace you know, US versialis.
Speaker 1: I would say Mexico is one of them. I mean
Speaker 1: I like Asian fixed income and I like Mexico especially
Speaker 1: on the short term. I mean, you have everything that
Speaker 1: I can play out. You can see the spreads compress,
Speaker 1: you can see the currency strengthened, and then you have
Speaker 1: a very nice coupon in Mexico. You know, yel curves
Speaker 1: are very even in the short term, they're they're quite high. UM.
Speaker 1: So maybe you played fixed income and then if you
Speaker 1: wanted to, I have a way around it, which I
Speaker 1: like is to play with Spanish banks. UM. If you
Speaker 1: look at the major Spanish banks, they make more money
Speaker 1: from Mexico than they do Spain UM. And that's the
Speaker 1: way to maybe get UM less of country specific risk
Speaker 1: and also with the Spanish banks. And that brings me
Speaker 1: to my um an next idea, which is you get
Speaker 1: a play on the reopening of Europe, the reopening of
Speaker 1: the tourism sector UM, which is going to happen this summer,
Speaker 1: and you can get them. I mean we're talking. You know,
Speaker 1: most banks in Spain trade at zero point. Fact is
Speaker 1: the open seven book value nine times earnings, so you
Speaker 1: get you get about a fifty percent discount compared to
Speaker 1: US banks. And you get a play on Latin America reflation,
Speaker 1: the week Dallar, the reopening of Europe, steeper curves, which
Speaker 1: to me are all going to be the themes of Alright,
Speaker 1: so Vincent, We've we've been to Mexico, we've been in Canada. Uh,
Speaker 1: we're devious. Even though she doesn't like hockey. I don't
Speaker 1: know they you might get more h streets about that. Actually, Vous,
Speaker 1: that's actually true. I feel like I feel like I've
Speaker 1: now put out a lot of negative so tweet tweet,
Speaker 1: there's just too much fighting hockey fans tweet at if
Speaker 1: you at. Uh, but let's let's stop now. Next port
Speaker 1: of call. Vincent is in Europe, um, and I want
Speaker 1: to read another line from one of your reports, Gredded.
Speaker 1: I'm reading this mainly because I find it hilarious, so
Speaker 1: let me just read it here. And you're you're talking
Speaker 1: about you took a trip to see some family in
Speaker 1: France and not too long ago, I guess it was April,
Speaker 1: maybe maybe late March, and uh kind of sounded like
Speaker 1: full on lockdown conditions were still in effect, and you
Speaker 1: write quote restaurants, cafes, bars, bookshops, museums, and theaters were closed,
Speaker 1: making Paris as blurring as Geneva. But so Vincent is
Speaker 1: gonna get some hate tweets from the from the Swiss
Speaker 1: as well, so direct them to Vincent. You can copy
Speaker 1: me on those two because I'm tying to trying to
Speaker 1: see those. But you refer to with the Vincent as
Speaker 1: what you call peak COVID despair meeting. Uh boy, everyone
Speaker 1: was just sick of lockdowns. There were starting to be
Speaker 1: conspiracy theories flying much like here in the US, and
Speaker 1: just kind of a dangerous situation. But to me is
Speaker 1: that that kind of contrarian instinct picks in and makes
Speaker 1: me think that sounds like the time to buy the
Speaker 1: reopening sectors, the you know, maybe the hotels, the airlines,
Speaker 1: that sort of thing. The banks, as you mentioned, uh,
Speaker 1: you know, the Spanish banks, European banks, which boy talked
Speaker 1: about something that went from radioactive not too long ago.
Speaker 1: So it's it's interesting to hear a bullish take on
Speaker 1: it now. But I mean, is it as simple as
Speaker 1: that that you know, when things look like they're at
Speaker 1: their worst in Europe, that that's the time to really
Speaker 1: get bullish on the reopening. Yes. By the way, I
Speaker 1: don't think this is something that Americans understand about how
Speaker 1: bad the lockdowns have been in Europe. Like it always
Speaker 1: amuses me when I see Americans like, you know, so
Speaker 1: like dantrums the mask on, like you know, try going
Speaker 1: to Europe. Why really, Like you're stuck in your home
Speaker 1: and you know if you go out without the right
Speaker 1: piece of paper, you know that you're gonna get a
Speaker 1: hard and fifty year of find. I mean, if only
Speaker 1: find cured COVID friends would totally lead the world. Like
Speaker 1: if we could have you know, we couldn't produce vaccines
Speaker 1: but paperwork and finds. I mean we were leaders there,
Speaker 1: um and and yeah, it's been very frustrating in Europe
Speaker 1: because it's like lockdown number three or four, right, I
Speaker 1: mean it's like I do think it's the last, right,
Speaker 1: but you know, people have you know, it's almost like
Speaker 1: a hope management strategy. They they just keep noticed, this
Speaker 1: is gonna keep going because so many times they've been
Speaker 1: told okay, and now we're going back to normal, only
Speaker 1: to shut down two months later. Uh, I do think
Speaker 1: this is the last. Uh. Yes, you're a bunch the
Speaker 1: vaccination program at the beginning, so it Canada by the way, Uh,
Speaker 1: you know we were late. Uh and that costs a
Speaker 1: lot of lives and that you know, that allowed the
Speaker 1: variants to spread. And this was a horrible policy mistake,
Speaker 1: no questions about that. But you know we went two
Speaker 1: months behind the US vaccine. Stop you look at infection
Speaker 1: in the US. This is when they started going down
Speaker 1: the cliff. So now we you know, all the vulnerable,
Speaker 1: all elderly sick population is now vaccinated. In Europe, they're
Speaker 1: getting to people in my age group. Then you'll get
Speaker 1: the weather. You know, same thing that happened last year. Right,
Speaker 1: we had a big outbreak in March April, and then
Speaker 1: we had a very normal summer because people started going
Speaker 1: out the viruses and spread as much. And then just
Speaker 1: just politically, I think the reason why we had the
Speaker 1: lockdown in Europe in in April is so that we
Speaker 1: could open in May June. Like you know, Macro and Druggy,
Speaker 1: there's smart people. They know the importance of tourism for
Speaker 1: the for the European economy, and they basically needed to
Speaker 1: get that curve to look like it's going down a
Speaker 1: little bit so that they could say, okay, fine, now
Speaker 1: we reopened, let's up a normal summer because we cannot
Speaker 1: afford another summer of lockdown. So um, we'll have the
Speaker 1: same dynamic and it will be magnified because in Europe,
Speaker 1: you know, occasions are a religion. Uh people, people have
Speaker 1: been cooked up inside. Um even last even last summer,
Speaker 1: the tourism season for the places that were open, what
Speaker 1: was actually very good. We saw higher bookings are normal. Um.
Speaker 1: So yeah, what is the conclusion you played the reopened
Speaker 1: in Europe In the US, it's done like it's more stuff.
Speaker 1: You look at the hotels, the airlines, the restaurants. It's
Speaker 1: it's it's more expensive than it was before COVID. It's
Speaker 1: insane and sometimes about a lot. Uh. While in Europe
Speaker 1: if you look at the major airlines, I would say
Speaker 1: we still a fifty percent below PRECOVID high if you
Speaker 1: look at the hotels, about thirty. Um. So we had
Speaker 1: this sketch up. Um that's you know, I think could
Speaker 1: happen in the the next couple of months. Um. I you know,
Speaker 1: we talked about Europe, we talked about US or North America,
Speaker 1: we talked about Mexico. Um, where does Asia stand in
Speaker 1: all of this? For you know, you mentioned Japanese Um,
Speaker 1: the Japanese stock market in your report, But um, where
Speaker 1: does Asia stand or where should Asia be in a
Speaker 1: person's portfolio at this point in general? Um? And maybe
Speaker 1: you can get into that later. But my view is
Speaker 1: Asia should be that fixed income of fixed income should
Speaker 1: be reallocated towards Asia because of the different policy response,
Speaker 1: because of the demography, because of the potential for currency appreciation.
Speaker 1: So I think as as people really retold the sixty
Speaker 1: four look at Asia for your forty percent and look
Speaker 1: at look at Asian government bonds. Um in terms of equities. Um, yeah,
Speaker 1: I mentioned Japan. I I like Japan for I think
Speaker 1: I viewed as the anti US trade. Um. You know,
Speaker 1: if if you buy the US or even a um
Speaker 1: just a world m MSCI world, you end up with
Speaker 1: so much weight into these you know, six or seven
Speaker 1: U S tech stocks, right, you're no longer getting any
Speaker 1: sort of diversification. While Japan is a lot more diversified
Speaker 1: because it's much higher weight in industrial much higher weight
Speaker 1: in a consumer discretion is stock, so you know it
Speaker 1: doesn't have that concentration problem. Um. The second reason why
Speaker 1: like Japan is again the supply and demand argument, which
Speaker 1: is exact opposite as that of the US, where you know,
Speaker 1: in the US we are seeing an increasing float because
Speaker 1: bar backs are which new offerings are very high, and
Speaker 1: right now is being absorbed by retail flow. But my
Speaker 1: concern is that this retail flour will eventually dry up. Um.
Speaker 1: In Japan, I think we'll eventually we're gonna run out
Speaker 1: of Japanese assets. Like the Bank of Japan has already
Speaker 1: monetized half of the public debt, So I mean the
Speaker 1: JGB market is structurally shrinking. Same thing on the equity side.
Speaker 1: You know, they buy e t f s every month.
Speaker 1: I think right now the Bank of Japan owns something
Speaker 1: like ten percent on the Japanese stock market. There's zero
Speaker 1: new instruants, there's bar backs because Japanese firm. There big
Speaker 1: government movement for a couple of governments re from in Japan.
Speaker 1: So you just see a structurally shrinking float um and
Speaker 1: as a result, prices are writing. I mean, no one cares,
Speaker 1: no one cares about PAM. But if you look at
Speaker 1: the performance of the topics since Albano Mix, since UM
Speaker 1: two thousand twelve, I mean this has just been straight up.
Speaker 1: We've also remarkably little correlation with the rest of the world,
Speaker 1: which is something else that I like because I think
Speaker 1: that's again as sixty or four in portfil guys. One
Speaker 1: thing that we're gonna see is, and I think we're
Speaker 1: seeing that already, is that negative correlation between stocks and bonds.
Speaker 1: Like back in the days, it was very easy, right
Speaker 1: if you had stocks, you just put thirty percent of
Speaker 1: your money long term treasuries. Even though the yell was
Speaker 1: not great because the diversification was so wonderful, it didn't
Speaker 1: improve your sharp ratio. So that's all you need to do.
Speaker 1: You only needed to buy treasuries to diversify the portfolio.
Speaker 1: This I think is not gonna happen if we see
Speaker 1: high invasion, if we see you know, stocks and bonds
Speaker 1: going down the same time. So you have to be
Speaker 1: smarter about diversification. And one of the markets with the
Speaker 1: least correlation in the rest of the world is Japan
Speaker 1: precisely for the supply and demand reason. I was describing
Speaker 1: stand clearer of the craziest things we saw in markets
Speaker 1: this week. All right, well, you we're going to drill
Speaker 1: into the craziest things we saw in markets this week
Speaker 1: that I know. This is a favorite segment of years
Speaker 1: as well. Uh, I'm gonna put you on the spot.
Speaker 1: Let's start with you. What's the craziest thing you saw
Speaker 1: in markets this week? You know, I have to say,
Speaker 1: it's really hard to figure out what the craziest thing
Speaker 1: is on any given week. I mean, we are in
Speaker 1: a world of Reddit traders in George coin, that equities
Speaker 1: team leader, you haven't seen anything crazy all year? I
Speaker 1: think nothing ever surprises me anymore. Um, here's something wild.
Speaker 1: A bottle of wine that was aged for fourteen months
Speaker 1: in space at the International Space Station is now up
Speaker 1: for sale, and it could fetch up to a million
Speaker 1: dollars um. This bottle is being bundled with an Earth
Speaker 1: aged wine so that the buyer can taste test both
Speaker 1: of them and decide which one tastes better. A billion
Speaker 1: bucks for spacewine. I dig it, I like it. I
Speaker 1: don't know. Hey, hats off to the astronauts who didn't
Speaker 1: drink that while it was up there. You know, I
Speaker 1: I would have. I think I would have downed that
Speaker 1: thing about the second night in space. I don't know,
Speaker 1: so it'd be very hard not to. They must have
Speaker 1: hit it somewhere, you know. They think it was in
Speaker 1: like some kind of steelcase cylinder, so no one could
Speaker 1: get to it anyway. Yeah, you don't want drunk astronauts
Speaker 1: find the station of the space station. I guess that
Speaker 1: that could get that could get ugly. But alright, vet,
Speaker 1: so that's pretty good one. That's a tough competition. You
Speaker 1: got a anything that can top a million dollar bottle
Speaker 1: of space mine. It is a red I guess it's
Speaker 1: a porto, right, a space bordo. I don't think anything
Speaker 1: in the space board. No, I actually went outside of markets,
Speaker 1: because you know, the markets in general are crazy, right.
Speaker 1: So my my anecdote is more about healthcare. And I
Speaker 1: saw that Americans took one and a half found for
Speaker 1: every month since the start of COVID. UH. So I
Speaker 1: think on average, people have put on twenty pounds UH
Speaker 1: since the start of COVID, which which I thought was
Speaker 1: pretty crazy because it's not like we started from a
Speaker 1: healthy base. UM. And it kind of brings me uh
Speaker 1: jokes aside to to kind of like my secular call
Speaker 1: on healthcare and also to some exciting FASI and I
Speaker 1: think you know, as we come out of COVID, there's
Speaker 1: been damages to the bodies and the minds of of people.
Speaker 1: I mean, this has been extrolling hard um. And we'll
Speaker 1: be dealing with the loan I mean long COVID for
Speaker 1: the people who are COVID, but also for the long lockdowns,
Speaker 1: if you will. The consequences of that, well, we'll play
Speaker 1: out over the next ten years. I think you'll see
Speaker 1: much higher healthcare spending because of the issues that we've
Speaker 1: acummenated with COVID UM and also potentially infasion UM. One
Speaker 1: of the big debates UM. But the FED is UM.
Speaker 1: You know we can push in our proment rate below
Speaker 1: four percent because participation is low. Right, that's the Elkosh
Speaker 1: Cary argument, that you have this reserved army of workers
Speaker 1: that I dropped out lay before we could come back anytime.
Speaker 1: I think COVID is actually shrunk that reserve army, and
Speaker 1: and we have like how much higher structural and employment
Speaker 1: due to mental and physical health issues as a result
Speaker 1: of COVID, And that to me increases the risk and
Speaker 1: the FED he's gonna mess up um, and it's gonna
Speaker 1: be too late because they don't understand the level of
Speaker 1: slack um in the economy labor market. Well, I will
Speaker 1: say that, Um, I am guilty of that pound and
Speaker 1: a half per per month. I think I I've probably
Speaker 1: put on sporting myself, but I've been trying desperately to
Speaker 1: take it off because I think we're coming back to
Speaker 1: the office soon and I I can't wear the sweatpants
Speaker 1: to work if Yeah, I gotta get back in the
Speaker 1: soup pants eventually, so desperately trying to take it off.
Speaker 1: But I I resemble that story a little a little
Speaker 1: too much for my comfort. So two good ones there,
Speaker 1: I I applaud both of you, I'll give you my
Speaker 1: mind's courtesy of the Wall Street Journal, And uh, this
Speaker 1: is I think the real sort of market plumbing walks
Speaker 1: out there will appreciate this the most um. Berkshire Hathaway's
Speaker 1: Class A share price has gotten so high that the
Speaker 1: NASDAC can't quote it anymore on some of its popular
Speaker 1: data feeds, and actually the newer exchange i X had
Speaker 1: a similar issue. So here's the sort of wonky explanation, again,
Speaker 1: courtesy of the Wall Street Journal. NASTAC and some other
Speaker 1: market operators record stock prices in a compact computer format
Speaker 1: that uses thirty two bits or ones and zeros. Stock
Speaker 1: prices are frequently stored using four decimal places to the
Speaker 1: right of the dollar signs, so, in other words, subpennies.
Speaker 1: So the highest possible price you can quote Berkshire at
Speaker 1: is four nine thousand, four hundred and ninety six dollars
Speaker 1: point seven to nine five. So I don't know why
Speaker 1: you need to quote a four nine thousand dollars stock
Speaker 1: in subpenny increments, But I guess there's some market maker
Speaker 1: out there making a quitter penny on these trades. So so, uh,
Speaker 1: I don't know what the solution is they have some
Speaker 1: kind of bug fix in the work that they can
Speaker 1: begin to quoting Berkshire again. But I don't know, Vincent,
Speaker 1: maybe a stock split or something. Maybe it's time for
Speaker 1: Warring to consider a stock split. He always said it
Speaker 1: was against it, so it's it's a great story point. Michael. Well,
Speaker 1: you guys have not disappointed me. Really appreciate your time.
Speaker 1: If you good luck with those tweets, I'm definitely going
Speaker 1: to need them. Yeah, you might want to just log
Speaker 1: off for a couple of weeks. I don't know. I
Speaker 1: don't know. Uh, and Vincent always great to catch up with.
Speaker 1: You appreciate your time and hopefully we can do it again.
Speaker 1: Thank you. What goes up, We'll be back next week.
Speaker 1: Until then, he can find us on the Bloomberg Terminal
Speaker 1: website and app or wherever you get your podcasts. We'd
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Speaker 1: find us. And you can find us on Twitter follow
Speaker 1: me at Reaganonymous. Debbia Balgie is at Dibia Balgie. You
Speaker 1: can also follow Bloomberg Podcasts at at podcasts. I thank
Speaker 1: you to Charlie pall of Bloomberg Radio and the voice
Speaker 1: of the New York City subway system. What Goes Up
Speaker 1: is produced by topur Foreheads. The head of Bloomberg Podcast
Speaker 1: is Francesco Levy. Thanks for listening, See you next time.