WEBVTT - Surveillance: The Case For Value With Kostin 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:14.000 --> 0:00:17.599 we bring you insight from the best in economics, finance, investment, 0:00:18.040 --> 0:00:23.560 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.200 Bloomberg dot Com, and of course on the Bloomberg. This 0:00:27.280 --> 0:00:30.920 conversation is so important with David Constant and Golden Sacks 0:00:31.200 --> 0:00:32.839 that we're gonna get right to it. All three of 0:00:32.920 --> 0:00:35.919 us are really curious about his nuance. Why is that 0:00:36.280 --> 0:00:38.760 in April he got it right? He made a call 0:00:38.960 --> 0:00:41.640 forget about another bot on the gloom Crew torm to 0:00:41.680 --> 0:00:44.880 shreds and Constant went long and there's been a nuance 0:00:44.920 --> 0:00:48.960 to Golden Sachs view forward through this tumultuous two thousand 0:00:49.080 --> 0:00:52.159 twenty David Constant, thank you so much for joining. Just 0:00:52.280 --> 0:00:57.880 simple now what now? What well? This year has been 0:00:58.120 --> 0:01:02.920 about the medical situation. At the core of the challenge 0:01:02.960 --> 0:01:05.760 is medicine. And so if you think about what the 0:01:05.840 --> 0:01:10.640 super Forecasting Project at the University of Pennsylvania is showing, 0:01:11.520 --> 0:01:15.759 they have a estimate every day of what the likelihood 0:01:16.280 --> 0:01:19.679 that there will be twenty five million doses of an 0:01:19.720 --> 0:01:25.680 FDA approved vaccine somewhere in the next six months, twelve months, 0:01:25.720 --> 0:01:28.480 eighteen months, various points in time. The reason I mentioned that, 0:01:28.520 --> 0:01:30.640 Tom is because if you look at where we were 0:01:30.880 --> 0:01:37.960 in July, middle of July, it was reading sixt likelihood 0:01:38.319 --> 0:01:42.560 that there would be a vaccine widely distributed between October 0:01:42.560 --> 0:01:46.200 of this year and April next year. Okay, that ran 0:01:46.319 --> 0:01:49.280 up to sev by the first week of September, and 0:01:49.320 --> 0:01:52.680 the market, the stock market went up around eleven, so 0:01:52.760 --> 0:01:57.320 you check your numbers, that's around. However, that probability has 0:01:57.320 --> 0:02:00.560 since turned around and it's gone from seventy down to 0:02:02.400 --> 0:02:05.960 this morning, and that likelihood has corresponded with a decline 0:02:06.040 --> 0:02:08.680 in the S and P five hundred by around nearly ten. 0:02:09.440 --> 0:02:12.720 So my kind of message to you is that basically 0:02:12.880 --> 0:02:15.480 we have been treating the likelihood of a vaccine and 0:02:15.520 --> 0:02:17.359 you can see that in the data. And John, I 0:02:17.440 --> 0:02:19.480 just want to mention this is Phil Tetlock at the 0:02:19.600 --> 0:02:23.280 University of Pennsylvania with this wonderful book super Forecasting. John 0:02:24.400 --> 0:02:26.480 and David, you were looking at the benchmark compared to 0:02:26.560 --> 0:02:29.359 the probability of getting a vaccine. Can you got beneath 0:02:29.400 --> 0:02:32.040 the benchmark? Because you put out some research on this recently, 0:02:32.080 --> 0:02:34.120 and I think it's really quite interesting. Can you build 0:02:34.120 --> 0:02:37.720 on it? Forest David? Sure. So, I'd say the fundamental 0:02:37.840 --> 0:02:40.519 just a couple of key debates they're going on with 0:02:40.760 --> 0:02:43.519 the with the investor community right now. One is related 0:02:43.520 --> 0:02:46.120 into yield curve and inflation and with the rate interest 0:02:46.240 --> 0:02:48.959 rate market will be But another one at the core 0:02:49.000 --> 0:02:52.880 of that is about growth versus value and where should 0:02:53.000 --> 0:02:57.120 one be. And the core argument is that the people 0:02:57.200 --> 0:03:00.480 behind the value story would say that, gee, when there's 0:03:00.480 --> 0:03:04.079 a vaccine that's developed, when and if that that that 0:03:04.160 --> 0:03:08.960 takes place, that will allow the acceleration of the normalization 0:03:09.120 --> 0:03:12.000 of economic activity, and that means the companies and the 0:03:12.120 --> 0:03:15.440 industries and the sectors that are more cyclical will rebound 0:03:15.520 --> 0:03:18.520 and do better. Uh, that's sort of the narrative behind 0:03:18.600 --> 0:03:22.079 why to own cyclicals. Now I would reject that or 0:03:22.120 --> 0:03:25.639 say that there's a better approach, that the gap in 0:03:25.760 --> 0:03:30.160 valuation is so significant its value not necessarily cyclicals, that 0:03:30.320 --> 0:03:32.720 is the better place to be. So that's the first observation. 0:03:32.800 --> 0:03:36.320 You want to be in value as opposed to necessarily cyclicals. 0:03:36.520 --> 0:03:38.560 And then the question is what's the investment arising so 0:03:38.880 --> 0:03:42.240 tactically value maybe it maybe is attractive right now, no 0:03:42.400 --> 0:03:45.560 question about that, one of the more attractive UH times 0:03:45.600 --> 0:03:48.160 to see value over the last twenty years. But ultimately, 0:03:48.240 --> 0:03:51.000 if you're looking for a longer term story, the secular 0:03:51.040 --> 0:03:54.800 growth companies the ones that have actually generated revenue growth 0:03:55.040 --> 0:03:58.680 and earn his growth despite the pandemic. If we look 0:03:58.720 --> 0:04:01.040 at what happened the second quarter, third quarter looking out, 0:04:01.440 --> 0:04:03.680 the way you want to think about this is if 0:04:03.720 --> 0:04:08.040 you go into the entire market, how many companies are 0:04:08.200 --> 0:04:14.200 able to consistently deliver double digit revenue growth? Well, the 0:04:14.240 --> 0:04:17.279 answer is you start looking at who's generated revenue growth 0:04:17.320 --> 0:04:20.440 in two thousand eighteen and two thousand nineteen. We'll skip 0:04:20.560 --> 0:04:22.839 over this year for a minute. Expected for two thousand 0:04:22.920 --> 0:04:25.960 twenty one, two thousand twenty two, let's get a five 0:04:26.080 --> 0:04:28.960 year compound annual growth will pick up this year, So 0:04:29.040 --> 0:04:32.920 that five year period, only one stocks are expected to 0:04:33.120 --> 0:04:35.480 have been delivering and are expected to do so. So 0:04:35.640 --> 0:04:37.840 that I think is an important argument. So I think 0:04:37.880 --> 0:04:40.400 there's a two two prong way to approach the market 0:04:40.640 --> 0:04:45.200 tactically value, but ultimately it's about growth and the secular 0:04:45.240 --> 0:04:48.040 growth stories I think are likely to be the winners 0:04:48.120 --> 0:04:50.800 for portfolio managers. If you look out twelve months from now. 0:04:51.880 --> 0:04:54.000 It's David, two parts to the argument that you just 0:04:54.120 --> 0:04:55.680 laid out. Let's get to the second part in just 0:04:55.760 --> 0:04:57.600 a moment and pick out the first part. Just give 0:04:57.640 --> 0:05:00.839 us a little one. I want the distinction between value 0:05:00.880 --> 0:05:04.560 and cyclicals. What is that right now? So it's an 0:05:04.600 --> 0:05:08.520 excellent question, Jonathan. It is the idea most people conflate 0:05:08.600 --> 0:05:11.279 those two and they think about cyclical stocks that are 0:05:11.360 --> 0:05:14.920 necessary sort of industrial UH would be would be a 0:05:15.000 --> 0:05:19.760 classic example. UH. Financial stocks often interest rate sensitive. Our 0:05:19.839 --> 0:05:23.440 view basically, cyclical move with the economy, and that's true. 0:05:23.800 --> 0:05:26.479 But then when we think about that those are factually true. 0:05:26.520 --> 0:05:28.160 We can look at a correlation. You say, well, gee, 0:05:28.240 --> 0:05:31.760 is economic data getting better? What sectors and and and 0:05:32.120 --> 0:05:34.840 and stocks tend to do better in that kind of environment. 0:05:35.040 --> 0:05:38.120 Those would be defined as cyclical sort of high UH 0:05:38.320 --> 0:05:42.000 correlation with economic activity. But value is about what is 0:05:42.080 --> 0:05:44.440 the market trading, and so you can look at at 0:05:44.560 --> 0:05:48.640 multiples and and pe multiples or earning zealds are different 0:05:48.680 --> 0:05:51.680 ways of thinking about valuation, and it doesn't necessarily mean 0:05:51.760 --> 0:05:54.840 they're economically sensitive. And so the message Jonathan's kind of 0:05:54.920 --> 0:05:57.719 that first part is we want to find lower multiple 0:05:57.800 --> 0:06:03.320 companies valuation, they aren't necessarily cyclical sensitivity. For example, you 0:06:03.320 --> 0:06:06.720 look at the financials be challenging in a flat yield 0:06:06.760 --> 0:06:12.360 curve environment to actually deliver on better growth, slim net 0:06:12.440 --> 0:06:17.679 interest margins, big reserves because of potential UH long losses, 0:06:17.880 --> 0:06:21.800 UH difficulty to under the c CAR proposals, whether the 0:06:22.279 --> 0:06:25.120 financials can pay dividends or buyback stock. So those are 0:06:25.160 --> 0:06:28.840 some of the headwinds. So those are classically cyclical areas 0:06:28.839 --> 0:06:31.600 of the market, but it wouldn't necessarily UH screen is 0:06:31.600 --> 0:06:35.200 attractive on evaluation basis. That's an example, David, just broadening out, 0:06:35.360 --> 0:06:38.160 you still reasserted your call for thirty six hundred on 0:06:38.200 --> 0:06:40.960 the SMP at year end less than two weeks ago. 0:06:41.560 --> 0:06:44.680 If we don't get fiscal support in Washington, do you 0:06:44.839 --> 0:06:49.880 still affirm your thirty six hundred forecasts. The answer is yes, 0:06:49.960 --> 0:06:53.880 thirty six hundred is a target for end of the year, 0:06:54.080 --> 0:06:56.800 thirty eight hundred middle of next year. And the argument 0:06:56.880 --> 0:06:59.440 I said at the very beginning, ultimately this is a 0:07:00.080 --> 0:07:05.400 medical situation, medical challenge for the economy, for society, and 0:07:05.560 --> 0:07:08.080 ultimately for the equity markets. And I pointed out that 0:07:08.200 --> 0:07:10.840 the level of the market at the broad level has 0:07:10.880 --> 0:07:15.480 really been trading pretty carefully, pretty closely with the probability 0:07:15.840 --> 0:07:19.080 of a vaccine being introduced. So part of the assumption, 0:07:19.560 --> 0:07:22.080 uh that I'm making is that there will be a 0:07:22.360 --> 0:07:28.120 vaccine that's identified. Probably what most portfolio managers are expecting 0:07:28.160 --> 0:07:31.400 and what some of the forecasts are are projecting is 0:07:32.120 --> 0:07:35.480 perhaps in October, may be approved by the FD at 0:07:35.480 --> 0:07:38.080 the end of the year and be widely distributed in 0:07:38.120 --> 0:07:40.280 the first six months and next year. The market, as 0:07:40.360 --> 0:07:42.840 you know, is forward looking, and so they'll start to 0:07:42.960 --> 0:07:45.760 discount that back. And a few weeks ago, with a 0:07:46.080 --> 0:07:49.280 seventy likelihood that it was going to be a vaccine 0:07:49.280 --> 0:07:51.840 available by the end of the first quarter, stock market 0:07:51.920 --> 0:07:54.720 was close to our target, and now it's obviously pulled back. 0:07:54.920 --> 0:07:57.880 I think that's a little less uh probable in the 0:07:58.200 --> 0:08:00.840 in in terms of the data, So there's condrad remains it. 0:08:01.000 --> 0:08:04.480 I don't think it's as essential from a from a 0:08:04.720 --> 0:08:08.040 fundamental point of view, I want to see the resolution 0:08:08.040 --> 0:08:10.920 in Washington. David John Farrell loaded the boat on Apple 0:08:11.000 --> 0:08:13.280 and Amazon a long time ago. That's why he's in London. 0:08:13.320 --> 0:08:15.640 He's looking at four thousand square feet and notting Hill, 0:08:16.000 --> 0:08:18.320 which is great, but what do you do on a 0:08:18.480 --> 0:08:23.280 relative or absolute basis if you want to rebalance out 0:08:23.360 --> 0:08:26.360 of a tech overload? I mean, how do you approach 0:08:27.120 --> 0:08:30.480 the institutional or retail account to high net worth account 0:08:30.840 --> 0:08:33.679 that says, look, I've made a success of it, like Pharaoh? 0:08:34.480 --> 0:08:36.240 What do I do? How do I move out of it? 0:08:36.520 --> 0:08:40.559 How do you lighten up? Intelligently? So it is a 0:08:41.320 --> 0:08:46.439 an absolute essential issue that many growth portfolio managers are 0:08:46.640 --> 0:08:50.640 grappling with. And the issue is as follows that when 0:08:50.679 --> 0:08:53.839 you look at the Russell one thousand Growth Index, the 0:08:54.000 --> 0:08:58.439 top five stocks, those five stocks about twenty five of 0:08:58.480 --> 0:09:01.240 the equity cap of the SMP five andred but the 0:09:01.440 --> 0:09:04.360 thirty nine of the Russell one thousand Growth. So a 0:09:04.440 --> 0:09:08.160 lot of growth managers are actually uh in passive violation, 0:09:08.960 --> 0:09:12.040 out of compliance with the SEC guidelines. What makes it 0:09:12.200 --> 0:09:16.280 diversified mutual fund because they have too great a concentration 0:09:16.360 --> 0:09:20.199 in some of those positions. So the answer that that 0:09:20.360 --> 0:09:22.720 I was sort of providing to you, and that framework 0:09:23.120 --> 0:09:27.440 is looking at which companies can emulate from a earning 0:09:27.559 --> 0:09:29.520 from a revenue, from a sales growth point. If you 0:09:29.600 --> 0:09:32.480 can emulate those big stocks, that you're just mentioning some 0:09:32.559 --> 0:09:34.760 of the big tech stocks and there's only there's not 0:09:34.840 --> 0:09:38.000 that many. But you can think about Vertex, you can 0:09:38.040 --> 0:09:42.719 think about PayPal, UH, you can see Intuitive Surgical. There's 0:09:42.760 --> 0:09:46.880 a variety of companies that have delivered on ten percent 0:09:47.040 --> 0:09:49.559 revenue growth last several years and are projected to do so. 0:09:50.240 --> 0:09:53.599 In some cases have wide moats around their businesses. And 0:09:53.640 --> 0:09:56.320 when I work with the analysts at Goldman, these are 0:09:56.400 --> 0:09:59.040 some of the stocks that we screen as a strategist 0:09:59.160 --> 0:10:03.360 and then also UH that corresponds with the fundamental analysis 0:10:03.400 --> 0:10:06.200 of the companies. And so the answer, Tom is that's 0:10:06.240 --> 0:10:09.400 a way of substituting for some of those large cap 0:10:09.440 --> 0:10:11.839 growth companies. Those growth companies will still do well, but 0:10:11.960 --> 0:10:14.280 these are companies that are maybe more middle size or 0:10:14.559 --> 0:10:17.200 sort of in the ranking order, maybe number seventy one 0:10:17.320 --> 0:10:20.240 or seventy three, seventy They can move up the ranking 0:10:20.360 --> 0:10:22.400 to be one of the larger stocks and that leads 0:10:22.440 --> 0:10:25.199 to out performance. And Tom, that's how I committed that 0:10:25.400 --> 0:10:28.480 tackle that problem. Devid is good to hear from you, 0:10:28.760 --> 0:10:30.880 as always, send out best of the team. David coosten 0:10:30.920 --> 0:10:39.680 neck Alma, SAKS, Chief Equity Strategists. This is the Conversation 0:10:39.760 --> 0:10:42.319 of the Day on fixed income. Cathy Jones is a 0:10:42.440 --> 0:10:46.520 swab center for financial research, and what's important here is 0:10:46.640 --> 0:10:51.640 she's got a wonderful visibility on the challenges individual investors 0:10:51.679 --> 0:10:54.360 are having in bonds. Kathy Jones, where did the sixty 0:10:54.440 --> 0:10:58.840 forty portfolio go? Yeah, a lot of people have tried 0:10:58.880 --> 0:11:02.720 to abandon it and hopes of getting more income, getting 0:11:02.720 --> 0:11:06.000 more safety, getting more diversification. But I really don't think 0:11:06.080 --> 0:11:08.719 it's disappeared entirely. I think it just has to be 0:11:08.880 --> 0:11:12.480 more nuanced on the fixed income side. So if you 0:11:12.679 --> 0:11:14.760 you know, if you look at rolling correlations over the 0:11:14.880 --> 0:11:18.600 last six months or five years, you're still getting diversification 0:11:18.840 --> 0:11:22.480 from treasuries and you know, higher quality bonds. It's just 0:11:22.640 --> 0:11:25.360 the upside is much more limited and the magnitude of 0:11:25.400 --> 0:11:28.719 those changes is much smaller. What's the elasticity on the 0:11:28.800 --> 0:11:32.959 downside if we get yield up and priced down, what 0:11:33.080 --> 0:11:36.599 could be the magnitude of that price down? You know, 0:11:36.720 --> 0:11:39.480 I'm looking at if I look at the tenure treasury 0:11:39.920 --> 0:11:42.199 and we we get to move up and yield this 0:11:42.440 --> 0:11:44.800 year or in the next year, I'd say maybe ninety 0:11:45.280 --> 0:11:47.840 basis points to one percent. I don't think we get 0:11:47.960 --> 0:11:51.000 much more than that on the upside. On the downside, 0:11:51.040 --> 0:11:53.520 you might get down about forty five basis points or 0:11:53.600 --> 0:11:56.719 so in our even less I suppose in a real 0:11:56.960 --> 0:12:00.560 negative scenario. So it isn't the kind of move used 0:12:00.600 --> 0:12:03.360 to see six to ten basis points a day on 0:12:03.480 --> 0:12:06.280 a big down day. And treasuries, I mean in the 0:12:06.360 --> 0:12:09.520 stock market. I'm you're not seeing that in treasuries now. 0:12:09.559 --> 0:12:13.040 It's a much more limited move. In fact, yield high 0:12:13.160 --> 0:12:15.400 in the last twenty four US by a basis point 0:12:15.440 --> 0:12:18.120 with two three move in the equity market, Kathy, so 0:12:18.200 --> 0:12:21.080 many people in stocks have been queuing off what's happened 0:12:21.120 --> 0:12:23.200 with real yields? Can you just unpack that for us 0:12:23.240 --> 0:12:26.319 a little bit what you're seeing at the moment. Yeah, 0:12:26.440 --> 0:12:30.199 you know, the fattest holding nominal rates very steady between 0:12:30.280 --> 0:12:33.719 their zero policy, their forward guidance that it's going to 0:12:33.760 --> 0:12:36.920 stay there for a long time, and what we've seen 0:12:36.960 --> 0:12:40.800 though as inflation expectations come up. So the real yield 0:12:40.800 --> 0:12:44.439 has come down to about negative one percent on the 0:12:44.559 --> 0:12:48.960 ten year treasury, and that gives you very limited choices 0:12:49.640 --> 0:12:52.800 in terms of where you invest your money and the 0:12:52.880 --> 0:12:55.480 fixed income market, But It does work for the FED 0:12:55.679 --> 0:12:59.000 because it makes the hurdle rate for investments very low. 0:12:59.320 --> 0:13:02.400 It encouraged as people to borrow, spend, and invest, and 0:13:02.559 --> 0:13:05.040 that's really what the FEED is trying to get the 0:13:05.160 --> 0:13:08.720 economy to do. The right side of the story anchored. 0:13:08.760 --> 0:13:11.000 I'm just wondering, Kathy. I'm trying to work out where 0:13:11.040 --> 0:13:14.080 you think inflation expectations are going to turn and whether 0:13:14.120 --> 0:13:16.880 we could actually see really to get less negative because 0:13:16.880 --> 0:13:19.720 inflation expectations come in given what we're seeing worldwide at 0:13:19.760 --> 0:13:21.840 the moment. Any thoughts on that, on fact how things 0:13:21.880 --> 0:13:25.920 are developing, Kathy, Yeah, I want My biggest fear in 0:13:26.000 --> 0:13:29.280 the US, and now it extends to Europe because of 0:13:29.360 --> 0:13:33.199 another round of outbreaks of the coronavirus. My biggest concern 0:13:33.360 --> 0:13:36.720 is we don't get fiscal stimulus, the economy slows down again. 0:13:37.240 --> 0:13:40.040 Worst case scenario is a double differ recession. It's not 0:13:40.120 --> 0:13:43.280 our base case, but it's a worst case scenario at 0:13:43.360 --> 0:13:45.679 particularly if we were starting would start to see a 0:13:45.760 --> 0:13:49.800 resurgence in in virus cases here as well. So um, 0:13:49.880 --> 0:13:52.280 I think we're walking a fine line right now. Our 0:13:52.320 --> 0:13:55.160 base case is still for continued improvement in the economy, 0:13:55.280 --> 0:13:58.360 but without the phiscal stimulus, and if we were to 0:13:58.440 --> 0:14:02.439 see more virus cases, we could double dip into a 0:14:02.480 --> 0:14:05.240 recession in the next six months or so. What's the playbook? 0:14:05.280 --> 0:14:07.480 What's the haven in that scenario? If there isn't that 0:14:07.679 --> 0:14:10.319 much lower the ten ure yields can go. It used 0:14:10.320 --> 0:14:13.040 to be investment grade credit, and yet we've seen outflows 0:14:13.120 --> 0:14:15.000 in a little bit of under performance there. What is 0:14:15.040 --> 0:14:17.880 it now? Yeah, I still think it's treasuries. I I 0:14:18.640 --> 0:14:20.400 You're not going to get as much as you did 0:14:20.520 --> 0:14:23.480 in the past out of that trade, but it's still treasuries. 0:14:23.560 --> 0:14:26.240 And keep in mind, I guess in a very negative scenario, 0:14:27.000 --> 0:14:29.400 nominally yields can go negative at the long end. That 0:14:29.760 --> 0:14:32.560 probably would force the Fed to take much more aggressive action. 0:14:32.720 --> 0:14:35.400 But it's not without precedent. If you look at Europe 0:14:35.480 --> 0:14:38.920 that's happened. What about with riskier credit, We've seen some 0:14:39.000 --> 0:14:42.800 pretty big outflows from high bond funds of lady. Is 0:14:42.880 --> 0:14:45.760 this the beginning of a larger trend? You know? I 0:14:46.160 --> 0:14:48.920 think the market needs some correction in high yield has 0:14:48.960 --> 0:14:52.320 gotten very frothy. Some of the junkiest of the junk 0:14:52.400 --> 0:14:55.280 has rallied quite a bit. I don't think that we're 0:14:55.320 --> 0:14:58.240 going to see investors abandon it because you do get 0:14:58.320 --> 0:15:00.760 positive care, you're going to get a year that's you know, 0:15:01.080 --> 0:15:04.440 five percent in high yield. That's tough to get. So 0:15:04.520 --> 0:15:08.000 I think you'll see people come back in barring another recession. 0:15:08.400 --> 0:15:10.880 But it did get overdone. Spreads were very tight, and 0:15:11.240 --> 0:15:14.600 the again the lowest of the low started to do well. 0:15:14.960 --> 0:15:18.000 You mentioned a couple of questions ago, Kathy Jones, this 0:15:18.320 --> 0:15:21.720 idea of what the Fed wants which is completely removed 0:15:22.280 --> 0:15:27.440 from the coupon given duration that the individual investor wants. 0:15:28.040 --> 0:15:30.400 And we spoke with Richard Clarity yesterday. It was a 0:15:30.440 --> 0:15:33.720 complete class act. Great but does he or the people 0:15:33.840 --> 0:15:39.520 around him, do they actually care about financial repression. I 0:15:39.600 --> 0:15:42.840 would say no. Um. I think they look at the 0:15:42.920 --> 0:15:46.480 policy of the Fed as being better for the greater 0:15:46.600 --> 0:15:49.760 good and that that's not going to change their policy. 0:15:49.880 --> 0:15:54.280 They think that savers and investors, although we hear a 0:15:54.360 --> 0:15:57.320 lot of complaints about low interest rates, they think savers 0:15:57.400 --> 0:16:00.280 and investors are benefiting from the rise and risk set 0:16:00.480 --> 0:16:03.280 and their focus is really on the point. John Farrell, 0:16:03.320 --> 0:16:05.800 I think this is just an absolute fundamental condition. We 0:16:05.920 --> 0:16:08.680 tried out in our fancy suits and ties and talk 0:16:08.760 --> 0:16:12.560 all those theoretic mumbo jumbo why retirees and others are 0:16:12.600 --> 0:16:18.600 getting absolutely crushed well over a decade, Kathy, this is 0:16:18.760 --> 0:16:21.680 really important that these interest rates have been low for 0:16:21.760 --> 0:16:23.760 a long long time, not just in the United States 0:16:23.800 --> 0:16:26.080 but also in Europe, and the lower they've gone in 0:16:26.120 --> 0:16:30.320 places like Europe and Japan, they've never gone back up again. Kathy, 0:16:30.400 --> 0:16:33.880 do you worry about the same thing happening in America. Yeah, 0:16:34.600 --> 0:16:37.960 one of the biggest fears we have is something like Japanification, 0:16:38.160 --> 0:16:41.800 where we get stuck in a deflation area or a 0:16:42.000 --> 0:16:46.240 very low inflationary environment and there's not much more monetary 0:16:46.360 --> 0:16:49.560 policy can do. Again, it's not our base case scenario. 0:16:49.720 --> 0:16:52.480 We think that we're actually starting to see the economy 0:16:52.520 --> 0:16:55.680 do a little bit better. I'm relatively optimistic that get 0:16:55.720 --> 0:16:58.760 the virus under control, that it will continue to recover. 0:16:59.200 --> 0:17:01.480 But it is a we're case scenario, and you can't 0:17:01.560 --> 0:17:04.040 rule it out. I mean, there's there's a probability there. 0:17:04.440 --> 0:17:07.399 Maybe it's a low probability, maybe it's five or ten percent, 0:17:07.560 --> 0:17:10.919 but it exists. Kathy. I can tell that I'm going 0:17:11.000 --> 0:17:13.200 to have a long morning with Tom Keane this morning, 0:17:13.440 --> 0:17:14.959 and you can make it a whole lot better if 0:17:14.960 --> 0:17:17.560 you turned around and just played a little tune on 0:17:17.600 --> 0:17:23.200 that piano. Seriously, play the microphones going to work. If 0:17:23.240 --> 0:17:27.760 you can, just please, it would make you that she's 0:17:27.800 --> 0:17:29.360 got I can see you over on the left John 0:17:29.400 --> 0:17:32.520 and Bloomberg Radio, or her beautiful piano behind her, folks, 0:17:32.560 --> 0:17:34.560 and over on the left side. You can see she's 0:17:34.600 --> 0:17:36.880 got her one direction book. Okay. I can just see 0:17:37.000 --> 0:17:41.040 the real turning in her head saying do this show 0:17:41.080 --> 0:17:43.160 again a couple of minutes, Kathy, this is going to work. 0:17:43.200 --> 0:17:47.080 The piano is right by the microphone. Next time, I'll 0:17:47.119 --> 0:17:51.040 play Claire to Loon for Lisa. I promise, thank you 0:17:51.160 --> 0:17:59.080 for Lisa, not for Tom. I love what that that 0:17:59.359 --> 0:18:02.880 right there, that right that describes our relationship with every 0:18:02.920 --> 0:18:05.600 guest that comes on this program. I'll do it for Lisa, 0:18:06.200 --> 0:18:08.080 but not for you, guys. Kathy is going to see it. 0:18:10.440 --> 0:18:17.080 Kathy giants, thank you. Trowan has provided real leadership in 0:18:17.200 --> 0:18:21.520 Washington with piecing together a really smart group linking policy 0:18:21.760 --> 0:18:25.000 into reality. Chris Krueger has provided leadership there with the 0:18:25.119 --> 0:18:28.360 Cohen Washington Research Group, and he joins us right now Chris, 0:18:28.440 --> 0:18:31.159 I got eight ways to go here. But there's a 0:18:31.240 --> 0:18:34.800 point where there's a belief in salvation by Capitol Hill. 0:18:35.520 --> 0:18:39.560 Mark your calendar. When do we see salvation from Capitol Hill? 0:18:41.320 --> 0:18:45.920 Not this year? Um? So you know, uh, forty days 0:18:46.520 --> 0:18:49.720 to election day when hopefully we'll know the outcome of 0:18:49.800 --> 0:18:54.119 the election. But you know, even before the tragic passing 0:18:54.200 --> 0:18:58.800 of Justice Ginsburg, the Phase four fiscal talks, the you 0:18:58.880 --> 0:19:01.800 know two trillion dollar or sort of fiscal lifeline for 0:19:01.960 --> 0:19:06.560 the economy was really hanging by a thread. And now 0:19:06.760 --> 0:19:10.720 with the Continuing Resolution having passed the House, which will 0:19:10.760 --> 0:19:14.040 keep the government from shutting down next week, you've really 0:19:14.160 --> 0:19:17.200 lost your last must pass bill to to get a 0:19:17.280 --> 0:19:19.760 fiscal package done. I say this, Chris Kruger, with great 0:19:19.800 --> 0:19:23.520 respect for all the people working in Washington on policy. 0:19:24.040 --> 0:19:26.600 This debate that we're going to see on Tuesday is 0:19:26.680 --> 0:19:28.800 your world removed from it? Is it just going to 0:19:28.840 --> 0:19:31.680 be a debate about our culture wars, about the great 0:19:31.760 --> 0:19:36.840 differences between Mr Biden and the President. Well, so Chris 0:19:36.920 --> 0:19:41.600 Wallace is moderating from Cleveland on Tuesday night. Um, he's 0:19:41.640 --> 0:19:45.200 announced six of the topics, and you know, one of 0:19:45.240 --> 0:19:47.920 the you know two of the topics involved the Supreme Court. 0:19:48.160 --> 0:19:51.520 And you know whether or not the candidates are going 0:19:51.600 --> 0:19:55.320 to agree to h the election results. So you know, 0:19:55.400 --> 0:19:57.680 at least a third of the debate is going to 0:19:57.840 --> 0:20:04.080 be deeply controversial for nearly four years. Chris, the abnormal 0:20:04.280 --> 0:20:08.520 has become normal. Yesterday President Trump refusing to confirm a 0:20:08.640 --> 0:20:12.840 peaceful transceller of power. Should Joe Biden win the ballots? 0:20:13.359 --> 0:20:16.480 What kind of abnormal should we be girding ourselves for 0:20:16.840 --> 0:20:21.159 from November to December. I would even say November to 0:20:21.359 --> 0:20:26.560 to January twentieth, when the Constitution would end the the 0:20:26.800 --> 0:20:31.920 term of president and vice president. Um, so a few things, 0:20:32.200 --> 0:20:34.520 you know, I'm not I don't think people should be 0:20:34.640 --> 0:20:37.680 terribly surprised about this. I mean, recall in ts Sten 0:20:37.720 --> 0:20:41.680 when when when Trump won the won the presidency in 0:20:41.720 --> 0:20:45.000 the electoral College, losing the popular vote. He then established 0:20:45.040 --> 0:20:50.359 a commission on voter fraud. Combine that with his views 0:20:50.480 --> 0:20:53.280 on mail in ballots over the past six months, and 0:20:53.400 --> 0:20:58.480 this is a pretty um, you know, obvious outcome to 0:20:58.640 --> 0:21:00.680 to where we are. When you look at some of 0:21:00.760 --> 0:21:04.840 the hard and fast dates as laid out by the Constitution, 0:21:04.960 --> 0:21:08.679 the first one is December eight. That's when the states 0:21:08.800 --> 0:21:12.440 must make their final decision on any controversies around the 0:21:12.520 --> 0:21:16.000 appointments of their electors. So there are really no sort 0:21:16.040 --> 0:21:20.480 of hard catalyst between November three and December eight. Um. 0:21:20.760 --> 0:21:23.400 You know, hopefully we'll know the outcome of the election 0:21:23.480 --> 0:21:25.760 on election night, but with the amount of mail in 0:21:25.920 --> 0:21:30.359 ballots that um we we you know, it may not 0:21:30.520 --> 0:21:34.280 be election night. It could be election month. Chris, let's 0:21:34.280 --> 0:21:36.800 talk about that what this could mean for financial markets. 0:21:37.080 --> 0:21:39.760 That's something the market is pricing. It's price for you 0:21:39.840 --> 0:21:42.200 see that in the volatility curve. We talk about that 0:21:42.280 --> 0:21:44.680 often on this program. Chris, I just wander, as you 0:21:44.720 --> 0:21:46.680 look at the polls right now, does it scream tight 0:21:46.840 --> 0:21:50.800 rice to you from what you look at? I think 0:21:50.920 --> 0:21:53.960 what is the real key? The real key here is 0:21:54.040 --> 0:21:57.320 going to be the margin of the Senate because for 0:21:57.640 --> 0:22:02.399 for investors, for markets, you know, a a fifty fifty 0:22:02.560 --> 0:22:06.440 Senate is very different than a you know, a fifty 0:22:06.520 --> 0:22:11.040 five fifty five Democrats in the Senate or even a 0:22:11.119 --> 0:22:14.960 Republican Senate. So I think looking at the Senate margin 0:22:15.320 --> 0:22:18.080 is really going to be critical. And would would point 0:22:18.119 --> 0:22:20.800 out to that a number of the Senate races Uh, 0:22:20.920 --> 0:22:24.760 could come down to recounts, and you have too likely 0:22:24.920 --> 0:22:29.920 runoffs in Georgia which won't happen until January uh fourth 0:22:30.040 --> 0:22:33.560 or fifth. You know. Reminder that the Florida recount in 0:22:33.600 --> 0:22:37.600 two thousand took thirty six or thirty one days, thirty 0:22:37.640 --> 0:22:40.600 two days, something like that. And the Minnesota Senate race 0:22:40.680 --> 0:22:43.960 in in two thousand eight, which was the crucial sixtie 0:22:44.080 --> 0:22:48.600 seat for Democrats, took over six months. So um, you know, 0:22:48.680 --> 0:22:51.719 it's not just the presidential race. I think senate recounts, 0:22:52.280 --> 0:22:54.560 uh in Senate runoffs or something to to keep in 0:22:54.640 --> 0:22:57.440 mind as well, Christ to building what John is talking about, 0:22:57.480 --> 0:22:59.159 a lot of people taking a look at the polls 0:22:59.440 --> 0:23:02.639 saying to very close race even though former Vice President 0:23:02.720 --> 0:23:05.680 Joe Biden has come out ahead. Are you taking any 0:23:05.760 --> 0:23:08.960 messages from the polls that perhaps is different than what 0:23:09.200 --> 0:23:14.240 is commonly believed. Well, you have the national polls and 0:23:14.320 --> 0:23:17.680 you have the battleground state polls. Um. Despite all that 0:23:17.760 --> 0:23:22.119 has happened over the past six months, the pandemic, the recession, 0:23:23.000 --> 0:23:29.119