WEBVTT - Low-Rated Junk Bonds Not Properly Pricing Risk: TCW's Rivelle 0:00:01.360 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.200 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEOs, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Find the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple podcast or wherever you listen to podcasts, 0:00:17.000 --> 0:00:21.279 and on Bloomberg dot Com. And Lisa bram Boyd's filling 0:00:21.280 --> 0:00:24.720 in for Vonnie Queen alongside Paul Sweeney. Yesterday was an 0:00:24.720 --> 0:00:28.960 extraordinary day in markets. Stocks dropped about three and a 0:00:29.040 --> 0:00:32.680 half percent, but gold was down and so were treasuries. 0:00:32.760 --> 0:00:36.880 Treasury yields rose priced down, which was unusual and it's 0:00:36.920 --> 0:00:41.879 only happened twice since March eleventh and March eighteen. This 0:00:41.960 --> 0:00:45.199 according to Bank of America Global Analysts, the question is 0:00:45.400 --> 0:00:49.360 our treasury is no longer a hedge against equity volatility. 0:00:49.680 --> 0:00:52.800 Joining us to answer that question, Tad Revel, chief Investment 0:00:52.800 --> 0:00:56.040 Officer for Fixing come at TCW with two five billion 0:00:56.080 --> 0:01:01.240 dollars of assets under management. Tad, what's your view on that? Well, 0:01:01.240 --> 0:01:04.360 there's a lot of incoherence in the capital markets, and 0:01:04.440 --> 0:01:08.320 I think pointing out the anomaly of gold and bonds 0:01:08.680 --> 0:01:12.000 versus equity, and the breakdown of some of the traditional 0:01:12.120 --> 0:01:16.240 relationships between those asset classes is one of the manifestations 0:01:16.280 --> 0:01:19.520 of this, Uh, how do I call it? Let's call 0:01:19.560 --> 0:01:22.479 it a massic economy in the sense that there's a 0:01:22.520 --> 0:01:26.800 massive policy response that's still working its way through the 0:01:27.040 --> 0:01:30.560 underlying economy and getting price into the capital markets, and 0:01:30.600 --> 0:01:34.160 that's very much at odds with the actual reality that 0:01:34.200 --> 0:01:36.199 we're facing in front of us. There is so much 0:01:36.600 --> 0:01:41.240 opacity as it relates to the ongoing withdrawal of stimulus 0:01:41.240 --> 0:01:44.880 that's taking place over time. The question that overhangs will 0:01:44.920 --> 0:01:48.200 some of this be renewed or potentially enhanced with the elections. 0:01:48.600 --> 0:01:51.000 There's issues related to the vaccines. So I don't know 0:01:51.040 --> 0:01:53.760 that there's much that you can judge on the basis 0:01:53.840 --> 0:01:57.840 of historical relationships in order to make judgments about how 0:01:57.880 --> 0:02:00.200 assets are going to be correlating with one. In other 0:02:00.760 --> 0:02:04.800 that said, there is so much suppression of rates and 0:02:04.880 --> 0:02:08.320 volatility on the part of the FED um the FED 0:02:08.400 --> 0:02:10.400 is not in a in a sense allowing the capital 0:02:10.440 --> 0:02:14.160 markets to speak up and express what they perceive to 0:02:14.200 --> 0:02:17.120 be this underlying level of uncertainty, and so it does 0:02:17.200 --> 0:02:20.720 call into question whether owning treasuries at these very low, 0:02:21.080 --> 0:02:25.400 historically low, galactically low interest rates actually is going to 0:02:25.480 --> 0:02:30.200 correlate or provide any hedge against anything on an ongoing basis. 0:02:30.200 --> 0:02:33.440 All right, So tad obvious. It seems clear, particularly after 0:02:33.480 --> 0:02:36.040 hearing from Madame Leguard this morning of the e c B, 0:02:36.240 --> 0:02:40.000 that we are in a world of lower rates for longer. 0:02:40.680 --> 0:02:42.880 What is a person like you, I manage your fund 0:02:42.880 --> 0:02:45.400 manager like you, what do you do in terms of 0:02:45.400 --> 0:02:49.120 perhaps looking for some incremental yield in a in a 0:02:49.160 --> 0:02:52.280 world where it's lower for longer. Yeah. So, in a sense, 0:02:52.320 --> 0:02:54.480 you have to take the gift that's being offered by 0:02:54.480 --> 0:02:57.240 the central banks to the extent to which they're so 0:02:57.360 --> 0:03:01.440 to speak, allowing you to rely on borrowed funds in 0:03:01.560 --> 0:03:04.720 order to make your bones um. One of the ways 0:03:04.720 --> 0:03:07.160 you can do that is by accessing the t B 0:03:07.280 --> 0:03:13.600 a agency mortgage back market. There are exceedingly low um rates, 0:03:14.360 --> 0:03:16.839 lower than the rates that you can earn by being 0:03:16.960 --> 0:03:20.359 long the agency mortgage that are implied in the financing 0:03:20.680 --> 0:03:25.040 and so relying essentially on the gift that's being given 0:03:25.160 --> 0:03:28.760 by the by the agency mortgage market courtesy of the 0:03:28.800 --> 0:03:31.360 central banks is one thing that can be done. The 0:03:31.440 --> 0:03:33.480 other thing that I think that can be done is 0:03:33.600 --> 0:03:37.160 to remind yourself that we ain't through this yet. I mean, 0:03:37.160 --> 0:03:39.840 there is a uh it's it's rather clear, at least 0:03:40.000 --> 0:03:43.880 from our vantage point, that there's an ongoing economic transformation. 0:03:44.160 --> 0:03:46.200 It's a bit glib to put it this way, but 0:03:46.280 --> 0:03:49.560 the economy of so to speak, is being fast forwarded 0:03:50.040 --> 0:03:53.520 practically into the present day. And what that means, of course, 0:03:53.680 --> 0:03:55.920 is that there are a lot of business models and 0:03:55.960 --> 0:03:58.000 a lot of assets that are going to be rendered 0:03:58.040 --> 0:04:02.280 obsolete or unprofitable. So wait, you can see this being 0:04:02.320 --> 0:04:06.400 expressed through delinquency rates on commercial loans in the hotel space. 0:04:06.720 --> 0:04:08.920 We don't need to talk a whole lot about what's 0:04:08.920 --> 0:04:12.840 been happening, the devastation in so much of the industries 0:04:12.880 --> 0:04:15.520 that are vulnerable to social distancing. And we have this 0:04:15.640 --> 0:04:20.320 huge question. We ran this amazing experiment in which we 0:04:20.440 --> 0:04:25.240 took many millions of professional working professionals and move them 0:04:25.240 --> 0:04:28.159 out of the office environment and put them in a 0:04:28.360 --> 0:04:31.719 work from home type situation. So big question I guess 0:04:31.720 --> 0:04:35.120 that overhangs is how much commercial real estate do we 0:04:35.240 --> 0:04:38.240 need going forward? If you hold back, I suspect that 0:04:38.240 --> 0:04:41.120 there's going to be lots of opportunities as these asset 0:04:41.160 --> 0:04:43.960 classes were priced right now, we're living in a world 0:04:44.080 --> 0:04:46.720 where the sellers in general in so many of these 0:04:46.800 --> 0:04:50.039 related asset classes are looking for last year's prices, and 0:04:50.040 --> 0:04:53.080 the buyers obviously aren't stepping up to to validate that, 0:04:53.200 --> 0:04:55.880 which is the reason Tad why there's been paralysis in 0:04:55.960 --> 0:04:58.440 certain commercial real estate markets, because there just hasn't been 0:04:58.440 --> 0:05:00.600 a meeting of minds in terms of what of value 0:05:00.640 --> 0:05:02.680 is I want to go to a more liquid market 0:05:03.040 --> 0:05:06.960 just to gauge the appetite for risk and to get 0:05:07.000 --> 0:05:09.360 your sense of whether people are perhaps getting a little 0:05:09.360 --> 0:05:11.400 ahead of themselves in terms of how much of a 0:05:11.440 --> 0:05:13.840 backstop the FED is going to provide. I'm looking at 0:05:13.880 --> 0:05:17.400 triple C rated junk bonds. This is the lowest rated 0:05:17.839 --> 0:05:20.920 debt that is the closest to default. And yes, yields 0:05:20.920 --> 0:05:23.520 recently have ticked up a little bit, prices down, but 0:05:23.600 --> 0:05:27.240 still the yields are now sub ten percent versus a 0:05:27.360 --> 0:05:30.400 high this year of nearly twenty at the peak of 0:05:30.440 --> 0:05:35.560 the disruption in March. Are people pricing in the type 0:05:35.640 --> 0:05:39.919 of insolvencies or struggles that you're talking about that are inevitable, 0:05:40.160 --> 0:05:42.719 regardless of all of the FED support and regardless of 0:05:42.720 --> 0:05:46.520 any fist glade. I mean, the short answer is that 0:05:47.120 --> 0:05:50.440 as we localize the conversation to that part of the 0:05:50.520 --> 0:05:53.360 high yield market, that the triple C area, the highly 0:05:53.480 --> 0:05:57.120 leveraged and in many cases high operating leverage married to 0:05:57.200 --> 0:06:00.840 high financial leverage, there are there is not a sufficient 0:06:00.880 --> 0:06:04.800 degree of of appreciation for the defaults that are going 0:06:04.839 --> 0:06:07.520 to be coming in those in those sectors, and nor, 0:06:07.680 --> 0:06:10.680 as you alluded to, I think, is there sufficient appreciation 0:06:10.760 --> 0:06:12.880 of the defaults that are going to be coming into 0:06:13.080 --> 0:06:16.680 the commercial real estate market as well. So it's it's 0:06:16.800 --> 0:06:19.960 very interesting. I mean, the FED can liquefy markets, but 0:06:20.400 --> 0:06:21.720 at the end of the day, are they going to 0:06:21.800 --> 0:06:26.120 make good operating losses to the bondholders or to essentially 0:06:26.120 --> 0:06:30.400 allow obsolete businesses to sustain themselves in a zombified way 0:06:30.560 --> 0:06:34.400 on an ongoing basis. So it creates this huge tiering 0:06:34.560 --> 0:06:37.000 in which double B spreads or I don't know about 0:06:37.000 --> 0:06:40.240 three hundred and fifty basis points over treasuries and triple 0:06:40.320 --> 0:06:42.880 C s, which, as you pointed out, they have actually 0:06:42.880 --> 0:06:46.280 been an outstanding performer um from the point of view 0:06:46.279 --> 0:06:48.440 of where we were in March, and yet the level 0:06:48.600 --> 0:06:51.760 of credit risk associated with that part of the market 0:06:52.240 --> 0:06:55.400 is probably not properly priced at all in many cases 0:06:56.160 --> 0:06:59.320 ataches real quickly seconds in the corporate credit market. Any 0:06:59.360 --> 0:07:02.600 areas of opportun a new for you right here, There's 0:07:02.600 --> 0:07:05.320 been a number of them. Actually, um the but but 0:07:05.440 --> 0:07:08.840 the short take on it essentially is that you want 0:07:08.880 --> 0:07:13.240 to stick with the sectors that are most that are 0:07:13.400 --> 0:07:18.360 least at risk of disruption by the the ongoing changes 0:07:18.440 --> 0:07:23.120 transformations that are occurring in the underlying economy. So basically, uh, 0:07:23.280 --> 0:07:26.400 in some cases, just we're really sticking with mostly higher 0:07:26.480 --> 0:07:32.160 quality investment grade type type issuers. Tad, thanks as always 0:07:32.160 --> 0:07:34.360 for joining us. We always appreciate getting your thoughts on 0:07:34.400 --> 0:07:39.320 all things fixed income. Tad Revel, chief investment officer of TCW. 0:07:39.480 --> 0:07:42.080 That's Trust Company of the West, one of the big 0:07:42.120 --> 0:07:45.280 big money managers out there, two thirty five billion dollars 0:07:45.480 --> 0:07:47.760 firm wide. It was a must stop for me back 0:07:47.760 --> 0:07:49.680 in my analyst days while on the West Coast. You 0:07:49.680 --> 0:07:52.119 had to go see the good folks at TCW. Getting 0:07:52.160 --> 0:07:55.960 his thoughts on the credit markets. Fixed income markets here 0:07:55.960 --> 0:07:58.720 really an issue here as we kind of go into 0:07:59.360 --> 0:08:05.320 another love of this pandemic. Well, we got a sloom 0:08:05.360 --> 0:08:10.040 of economic data this morning. GDP number thirty three percent 0:08:10.280 --> 0:08:13.600 increase in the quarter, off setting the prior quarter thirty 0:08:13.800 --> 0:08:19.040 or partially offsetting the prior quarters declined jobs claims came 0:08:19.200 --> 0:08:21.800 in a little bit better than expected, but still stubbornly high. 0:08:21.880 --> 0:08:24.640 Let's dig into some of the meat of those numbers. 0:08:24.720 --> 0:08:27.680 We can do that with Constance Hunter, chief economists for 0:08:27.760 --> 0:08:30.960 KPMG based in New York City. Constants, thanks so much 0:08:30.960 --> 0:08:33.160 for joining us here. Let's start with the GDP number. 0:08:33.200 --> 0:08:37.440 Obviously a big print, but we're no, we're not back 0:08:37.440 --> 0:08:40.880 to where we were pre pandemic by any stretch, are we. Yeah, Paul, 0:08:40.960 --> 0:08:44.240 that's a great point. We are two thirds below the 0:08:44.280 --> 0:08:47.400 pre pandemic level of GDP. And and just to put 0:08:47.440 --> 0:08:51.120 this in contact, on a per capita GDP basis, we're 0:08:51.200 --> 0:08:56.319 back at Q four levels, right. So I think it's 0:08:56.360 --> 0:08:59.559 important when you see such a bifurcation and the impact 0:08:59.600 --> 0:09:02.240 of who the impacts to think about not just the 0:09:02.280 --> 0:09:06.120 GDP level, but the per capita GDP. And then of 0:09:06.120 --> 0:09:08.319 course on a year of a year basis, we're still 0:09:08.520 --> 0:09:13.240 down two point nine percent. So Um, we're not back. 0:09:13.400 --> 0:09:17.480 And more importantly, what this data says about the future 0:09:17.520 --> 0:09:20.080 growth rate is very interesting. When we look at that 0:09:20.160 --> 0:09:26.040 bifurcation between goods consumption and services consumption constants built up 0:09:26.040 --> 0:09:28.280 on that place, What does that say about the future 0:09:28.520 --> 0:09:32.400 of goods versus services. Well, so, first of all, normally 0:09:32.440 --> 0:09:36.439 in a recession, we don't see services consumption fall that much. 0:09:36.480 --> 0:09:38.520 And the reason is because people still go to the 0:09:38.640 --> 0:09:41.640 dentist and they still get their hair cut even during 0:09:41.640 --> 0:09:47.840 a recession. Right. So um, that fell dramatically um services 0:09:47.840 --> 0:09:50.400 as a percentage GDP in part because of lockdowns and 0:09:50.440 --> 0:09:54.040 in part because of reduced capacity. Um nobody bought World 0:09:54.040 --> 0:09:57.480 Series tickets, for example, So um, there was a lot 0:09:57.520 --> 0:10:01.480 of services consumption that just didn't occur. And then when 0:10:01.520 --> 0:10:05.080 we compound this with people spending more time at home, 0:10:05.520 --> 0:10:08.480 people are buying goods right there. They're buying fire pits, 0:10:08.480 --> 0:10:13.440 they're buying you know, outdoors, uh, you know, like Lawan furniture, 0:10:13.480 --> 0:10:17.480 and they're buying pelotons and things like that, right And 0:10:17.480 --> 0:10:20.480 and there's only so many pelotons you're going to buy. Right, 0:10:20.520 --> 0:10:24.120 So that goods consumption while it rose dramatically, and it's 0:10:24.240 --> 0:10:28.600 up five point five per cent Q over q UM. 0:10:28.640 --> 0:10:32.719 It is not going to continue at that pace right now. 0:10:32.760 --> 0:10:37.439 The and so the hope is that services continues to rise. 0:10:37.679 --> 0:10:39.760 It only rose at two point eight percent q over 0:10:39.840 --> 0:10:43.560 q and and and that as we continue to reopen 0:10:43.600 --> 0:10:47.160 services consumption is going to resume. The concern, of course, 0:10:47.360 --> 0:10:50.719 is that the virus is surging in a number of 0:10:50.800 --> 0:10:53.120 parts of the country and and actually growing in some 0:10:53.160 --> 0:10:56.199 parts of the country where it was not growing previously. 0:10:56.559 --> 0:10:58.679 And the concern here is this is going to hold 0:10:58.679 --> 0:11:01.640 back conservices comes option. So we're not going to see 0:11:01.640 --> 0:11:05.480 a repeat of the goods consumption. And unless services consumptions grow, 0:11:05.559 --> 0:11:08.080 we're conservices consumption grows, we're going to see a pull 0:11:08.120 --> 0:11:10.720 back in the pace of growth of GDP pretty significantly. 0:11:11.640 --> 0:11:14.880 Cons Where are you were you kind of coming out 0:11:14.760 --> 0:11:17.640 at KPMG in terms of your GDP look for the 0:11:17.679 --> 0:11:23.160 remainder this year. But more importantly, yeah, so in UM, 0:11:23.360 --> 0:11:26.520 we're so our base forecast at the moment does not 0:11:26.720 --> 0:11:30.040 have additional stimulus. And and let me just say that 0:11:30.080 --> 0:11:33.840 I think that's going to end up well, yes, and no, 0:11:34.040 --> 0:11:35.360 I was gonna say I think that's going to end 0:11:35.440 --> 0:11:40.440 up being incorrect because, um, if the president wins reelection, 0:11:40.840 --> 0:11:43.680 he will try to put forth a stimulus plan. If 0:11:43.880 --> 0:11:46.319 Biden wins, he will try to put forth a stimulus plan. 0:11:46.400 --> 0:11:49.560 And the sign of that stimulus plan depends in large 0:11:49.640 --> 0:11:52.680 part on whether the same party that holds the White 0:11:52.720 --> 0:11:55.560 House holds the Senate. Right, So if you have a 0:11:55.600 --> 0:11:57.800 different party holding the White House and holding the Senate, 0:11:57.840 --> 0:11:59.680 the stimulus who is going to be smaller. If you 0:11:59.720 --> 0:12:02.160 have the same party, the stimulus is going to be bigger. 0:12:02.400 --> 0:12:05.000 And it honestly, both the Republicans and the Democrats, if 0:12:05.040 --> 0:12:07.200 they are in control, are going to put forth similar 0:12:07.280 --> 0:12:11.760 sizes of stimulus. The focus on where those stimulus stellars goes, 0:12:11.840 --> 0:12:14.280 of course, will be very very different, depending upon whether 0:12:14.320 --> 0:12:17.160 it is a Republican or Democratic resident constants. Just give 0:12:17.240 --> 0:12:18.960 us a sense of how big the spread is in 0:12:19.000 --> 0:12:22.280 your estimates for the economy if we get a fiscal 0:12:22.320 --> 0:12:26.280 support bill or if we don't. Yeah, so it's it's 0:12:26.280 --> 0:12:29.320 pretty significant, I mean um, and where where it really 0:12:29.320 --> 0:12:31.760 comes down as in personal income, So we'll see personal 0:12:31.800 --> 0:12:37.440 income decline um in one. If we don't get stimulus, um, 0:12:37.480 --> 0:12:39.640 we will see it rise. And this sort of this 0:12:39.679 --> 0:12:42.360 sort of makes the difference between like a five percent 0:12:42.360 --> 0:12:45.200 rebound in GDP and like a six and a half 0:12:45.200 --> 0:12:49.080 percent rebound in GDP. Wow, that's huge, Constance Hunter, thank 0:12:49.120 --> 0:12:51.000 you so much for being with us and for all 0:12:51.040 --> 0:12:54.960 of your research. Constance Hunter as chief economistic KPMG joining 0:12:55.040 --> 0:12:57.640 us on those GDP figures. We didn't even get to 0:12:57.840 --> 0:13:01.000 the jobless claims figures that we got today, which were 0:13:01.040 --> 0:13:04.080 better than expected, but still a very hefty amount nearly 0:13:04.120 --> 0:13:07.160 eight hundred thousand new claims coming in and a number 0:13:07.200 --> 0:13:11.880 of people shifting to permanent unemployment. This is the sticking 0:13:11.920 --> 0:13:13.920 point to meet at. Paul and I think about this 0:13:13.960 --> 0:13:17.800 all the time. What is the structural scarring that we 0:13:17.840 --> 0:13:20.800 are experiencing at this point? People who are not going 0:13:20.840 --> 0:13:24.480 to get back into the workforce for years. That's exactly right. 0:13:24.480 --> 0:13:26.280 And you know, the longer this goes on, at least 0:13:26.559 --> 0:13:28.959 the expectation is, you know, the more permanent some of 0:13:29.000 --> 0:13:31.120 those job losses will in fact become. And we saw 0:13:31.880 --> 0:13:34.000 that with the financial crisis in two thousand and eight 0:13:34.040 --> 0:13:36.400 and two thousand nine. You know, many of those jobs 0:13:36.440 --> 0:13:40.360 took several years uh to kind of get refilled and 0:13:40.880 --> 0:13:44.280 get back to a stronger employment situation, and the concern 0:13:44.400 --> 0:13:47.760 is we may have something like that this time around. Yeah, 0:13:47.880 --> 0:13:50.400 with the added emphasis and this idea that there's an 0:13:50.400 --> 0:13:53.199 increasing focus on tech. So what jobs are going to 0:13:53.280 --> 0:13:57.880 be required. I don't know whose idea this was to 0:13:57.880 --> 0:14:02.120 have Alphabet, Amazon, Apple, on Facebook, and Twitter all reporting 0:14:02.160 --> 0:14:06.560 earnings after the bow on October twenty nine. But here 0:14:06.559 --> 0:14:08.280 we are, and we are going to be trying to 0:14:08.320 --> 0:14:12.480 pass through all of these earnings reports today, even though 0:14:12.679 --> 0:14:15.880 they account for a significant chunk of the entire equity 0:14:15.920 --> 0:14:18.160 market of the United States, not to mention the world economy, 0:14:18.240 --> 0:14:21.080 joining us to help us focus on what the most 0:14:21.120 --> 0:14:24.520 important aspects of these earnings reports will be. As David Garretty, 0:14:24.840 --> 0:14:27.640 chief market strategist for laid Law and Company and partner 0:14:28.000 --> 0:14:32.240 at bat Block, David, what were they thinking all coming 0:14:32.240 --> 0:14:36.640 out in the same day? I gotta start there, well, Lisa, 0:14:36.760 --> 0:14:38.760 it reminds me a lot of UH. I used to 0:14:38.760 --> 0:14:42.200 work from the more of the Japanese bank back around 0:14:42.200 --> 0:14:44.880 two thousand and it used to be the Japanese companies, 0:14:45.000 --> 0:14:47.600 all the banks would all schedule the release date for 0:14:47.640 --> 0:14:50.000 the same day. So I don't really want to say 0:14:50.000 --> 0:14:52.400 it here, but you know, the tech Big Five. Are 0:14:52.400 --> 0:14:55.960 they turning Japanese? Uh? Very good. I saw what you 0:14:56.000 --> 0:14:58.280 did there, all right, David, So let's step back here. 0:14:58.280 --> 0:15:02.360 We've gotta you know, some real bell weathers for the 0:15:02.440 --> 0:15:08.120 technology economy, for the consumer economy, um, for the advertising economy. 0:15:08.200 --> 0:15:09.880 What are you going to be looking for as you 0:15:09.960 --> 0:15:12.200 kind of read across some of these big names the 0:15:12.240 --> 0:15:16.160 section in Yeah, certainly, I mean probably starting off at 0:15:16.200 --> 0:15:18.760 the top with Apple, I mean, clearly, what's gonna be 0:15:18.800 --> 0:15:20.960 happening in terms of sell through or at least three 0:15:21.080 --> 0:15:25.360 orders for the latest iPhone is going to be most significant. Also, 0:15:25.440 --> 0:15:28.360 at the same time, looking at what continued demand there 0:15:28.480 --> 0:15:31.440 is for hardware. We've certainly seen from data sources such 0:15:31.480 --> 0:15:34.400 as mp D that you know, laptop shipments are up 0:15:34.440 --> 0:15:37.760 substantially year over year, seeing some of their strongest years 0:15:37.800 --> 0:15:40.760 in decades. Uh So, certainly we expect Apple to be 0:15:40.800 --> 0:15:45.760 participating in that, um, you know, clearly looking for Amazon, um, 0:15:45.800 --> 0:15:50.280 you know, people continue to be staying home. Obviously Amazon 0:15:50.400 --> 0:15:52.760 is feeling more and more of their needs. Amazon also, 0:15:52.800 --> 0:15:55.080 at the same time, the movements of the cloud. We 0:15:55.080 --> 0:15:58.239 saw the strength and Microsoft's numbers earlier this week, Amazon's 0:15:58.360 --> 0:16:00.640 leader in that sector. We would also say that Amazon 0:16:00.720 --> 0:16:04.080 has been moving more in terms of online advertising. So clearly, 0:16:04.320 --> 0:16:07.120 you know, Amazon has a lot of weapons to work 0:16:07.160 --> 0:16:10.160 with and we expect to see them deploy them all. Uh, 0:16:10.200 --> 0:16:13.240 if we're looking at Alphabet, you know, even though you 0:16:13.320 --> 0:16:15.160 had a lot of heat being put on the CEO 0:16:15.560 --> 0:16:19.040 last week from yesterday from the Senate Commerce Committee, Uh, 0:16:19.160 --> 0:16:22.760 we do expect online advertising continues to do well. Uh. 0:16:22.800 --> 0:16:24.800 There may be some drags that we see in terms 0:16:24.840 --> 0:16:27.360 of some of their startup ventures, but you know, from 0:16:27.400 --> 0:16:29.680 that standpoint, we still think that their market to remain 0:16:29.800 --> 0:16:33.080 strong and they are clearly a significant player. Even though 0:16:33.160 --> 0:16:37.560 Apple has been looking at moving off Google as being 0:16:37.600 --> 0:16:40.720 the main search engine on its bones. But still we 0:16:40.760 --> 0:16:44.960 think Google's alphabet's position remains quite strong looking. You know, 0:16:45.160 --> 0:16:49.160 Facebook also the subject of the Commerce here in Commerce 0:16:49.160 --> 0:16:52.120 Committee hearings yesterday in the Senate UM. You know, certainly 0:16:52.160 --> 0:16:55.600 Facebook also benefiting as well also with the run up 0:16:55.600 --> 0:17:00.520 into the election next week. All the social media companies Facebook, Twitter, 0:17:00.840 --> 0:17:04.840 Snap to some extent have all been beneficiaries of influx 0:17:04.880 --> 0:17:09.320 in terms of more campaign driven spending. But that's something 0:17:09.359 --> 0:17:12.480 that's cyclical phenomenon. But elections look have only become more 0:17:12.480 --> 0:17:15.560 expensive over time, So we're seeing a nice uptick here 0:17:15.600 --> 0:17:18.240 from two thousand and sixteen levels as far as spending 0:17:18.359 --> 0:17:21.720 is concerned. And then you know, uh, let's see. I 0:17:21.760 --> 0:17:25.240 think that I think we got to you got through 0:17:25.280 --> 0:17:26.879 a lot of it. I don't know, just home in 0:17:26.920 --> 0:17:30.239 on one. In particular, Amazon, I'm particularly curious about the 0:17:30.280 --> 0:17:33.920 costs that they have incurred to operate in this environment, 0:17:34.320 --> 0:17:36.600 to pay their employees enough to keep them coming back 0:17:36.640 --> 0:17:39.600 to work, to provide the right pps and whatever else 0:17:39.640 --> 0:17:43.000 to keep their workers from getting sick. Do you think 0:17:43.000 --> 0:17:45.600 that they will be able to deliver the margins that 0:17:45.640 --> 0:17:48.040 are being priced into their share prices after the run 0:17:48.119 --> 0:17:51.680 up that we've seen this year. I think that while 0:17:51.720 --> 0:17:56.200 you may have costs in their online e commerce business, 0:17:56.359 --> 0:18:00.119 specifically related to worker protection, you know, remain high as 0:18:00.119 --> 0:18:03.080 they were back during the second quarter, I think that 0:18:03.160 --> 0:18:05.679 the uptick that you see in terms of profitability on 0:18:05.720 --> 0:18:09.760 the cloud as well on online advertising could help to 0:18:09.920 --> 0:18:12.560 offset some of that margin pressure. So I think the 0:18:12.640 --> 0:18:16.160 mix of Amazon continues to improve favorably. And I think 0:18:16.320 --> 0:18:19.200 obviously we're sitting here in front of the year end 0:18:19.200 --> 0:18:22.280 holiday shopping season, which given all the news about COVID. 0:18:22.480 --> 0:18:24.119 People are not gonna be going at the stores to 0:18:24.200 --> 0:18:26.480 do shopping. So where are they going to go? I 0:18:26.520 --> 0:18:28.679 guess it's Amazon? So you know, you don't want to 0:18:28.680 --> 0:18:31.680 sell the stock here in front of the strongest seasonal 0:18:31.760 --> 0:18:35.520 quarter of the year, David. Uh. That hearing we had 0:18:35.600 --> 0:18:38.480 yesterday were some of the you know, the Microsoft Uh. 0:18:39.040 --> 0:18:41.000 You know, we had some of the big CEO s 0:18:41.000 --> 0:18:43.280 there is that. What do you make of that? Is 0:18:43.280 --> 0:18:47.760 that important risk for some of the big tech companies? UM? 0:18:47.800 --> 0:18:50.399 I mean what's been interesting to look at here, Paul, 0:18:50.560 --> 0:18:52.320 is the fact that you know, the tech companies have 0:18:52.359 --> 0:18:55.280 been ramping up their lobbying spending. Actually the tech company's 0:18:55.320 --> 0:18:58.240 Amazon being one, and are actually spending more on lobbying 0:18:58.240 --> 0:19:01.000 than Boeing or a lock Keed Martin, who you would 0:19:01.000 --> 0:19:05.280 think of as the DC lobbying giants. Historically. Clearly, these 0:19:05.320 --> 0:19:09.000 spending levels are indications of what kind of regulatory risk 0:19:09.200 --> 0:19:12.560 these companies perceive around their businesses. And all we really 0:19:12.560 --> 0:19:16.199 saw last yesterday, I hate to say it was the 0:19:16.200 --> 0:19:18.080 fact that just a lot of grandstanding, you know, the 0:19:18.160 --> 0:19:21.159 GOP coming down in these companies because of where their 0:19:21.200 --> 0:19:24.879 headquarters are geographically or what kind of contributions from a 0:19:24.920 --> 0:19:28.320 political standpoint their employees make. I mean, good, Lord Paul, 0:19:28.520 --> 0:19:30.080 I mean the next thing you're gonna hear is that 0:19:30.119 --> 0:19:32.879 they're gonna start criticizing these companies because of the religions 0:19:32.880 --> 0:19:35.680 of their employees or the color of their skin. Come on, 0:19:36.040 --> 0:19:40.480 this is ridiculous. I think that Maria Senator Cantwell from 0:19:40.560 --> 0:19:44.080 Washington I basically did the right thing and basically stepped 0:19:44.119 --> 0:19:46.280 in on the democratic side and said, look, there's a 0:19:46.320 --> 0:19:49.480 freedom of speech in this country that needs to be protected. 0:19:49.720 --> 0:19:52.520 And these companies in the testimony came out and talked 0:19:52.560 --> 0:19:56.040 about what they're doing to try and safeguard social media 0:19:56.160 --> 0:19:58.760 as difficult as it is is from being manipulated by 0:19:58.800 --> 0:20:01.200 outside sources. Right, we'll have to say that's going to 0:20:01.240 --> 0:20:03.360 play out over the long term, certainly. David Garretty, Chief 0:20:03.359 --> 0:20:05.159 Market strategis, thanks so much for joining us. He's a 0:20:05.240 --> 0:20:08.360 laid long company also a partner at bt block giving 0:20:08.440 --> 0:20:14.240 his tech rundown. Well as companies and governments around the 0:20:14.240 --> 0:20:18.399 world race forward in look in search of therapeutics and 0:20:18.520 --> 0:20:21.360 vaccines for this virus. That's probably we're taking a look 0:20:21.400 --> 0:20:24.639 at Operation warp Speed. That's the US government's effort to 0:20:24.720 --> 0:20:28.280 accelerate development of a vaccine. We can do that with 0:20:28.320 --> 0:20:32.800 Stephanie Baker, financial investigation senior writer for Bloomberg News. She 0:20:32.880 --> 0:20:35.640 joins us on the phone from London and she has 0:20:35.680 --> 0:20:38.400 a Bloomberg Business Week story. I think it's just fascinating here. 0:20:38.760 --> 0:20:41.840 Operation Warp Speed could shape up to be an eighteen 0:20:41.920 --> 0:20:45.720 billion dollar bargain. Stephanie, thanks so much for joining us here. 0:20:45.960 --> 0:20:52.400 What's your key takeaway with the status of Operation Warp Speed. Wait? UM, 0:20:52.480 --> 0:20:57.639 you know, given that Trump has not UM pursuit a 0:20:57.680 --> 0:21:01.920 strategy of trying to contain virus in the US, Warp 0:21:02.000 --> 0:21:08.040 Speed is really the most visible tangible response of the 0:21:08.040 --> 0:21:12.560 Trump administration to the COVID pandemic, and it's it is 0:21:12.600 --> 0:21:17.440 a unique initiative public private partnership where they've given out 0:21:17.600 --> 0:21:20.320 billions of dollars to pharmaceutical companies to try to fast 0:21:20.359 --> 0:21:25.679 track a COVID vaccine and UM utilize the expertise, the 0:21:25.800 --> 0:21:29.320 logistics expertise of the Department of Defense to try to 0:21:29.400 --> 0:21:34.119 help on the manufacturing side, to try to help, you know, 0:21:34.480 --> 0:21:38.520 fast track everything from you know, the manufacturing of you know, 0:21:38.600 --> 0:21:44.680 syringes to vials. UM and other uh parts of the 0:21:44.800 --> 0:21:48.639 vaccine manufacturing process to make sure that once a vaccine 0:21:48.800 --> 0:21:52.560 is approved, there are doses ready. So obviously there's no 0:21:52.600 --> 0:21:55.040 point in having an approved vaccine unless there are doses 0:21:55.680 --> 0:21:58.880 um waiting and ready to go into people's arms. So 0:21:59.240 --> 0:22:01.000 we're just to set it to take a closer look. 0:22:01.040 --> 0:22:04.240 Is it working? You know, how are these companies interacting 0:22:04.280 --> 0:22:07.000 with the federal government, What help exactly are they getting 0:22:07.040 --> 0:22:08.760 from the U. S. Military? And it was kind of 0:22:08.760 --> 0:22:12.720 a fascinating look behind scenes to try to figure out 0:22:12.720 --> 0:22:15.520 exactly what is happening. It does seem like it is 0:22:15.560 --> 0:22:18.080 moving forward. It's still an open question of course, is 0:22:18.160 --> 0:22:21.800 to you know, will we get enough doses, will there 0:22:21.800 --> 0:22:23.879 be a vaccine that will be approved, and if so 0:22:24.080 --> 0:22:26.800 when they're quite bullish in terms of when we might 0:22:26.880 --> 0:22:30.920 get one that operation work speed Um folks are saying 0:22:30.960 --> 0:22:32.760