WEBVTT - Surveillance: Bond Investing With Bill Gross 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.320 Bloomberg dot Com, and of course on the Bloomberg With 0:00:27.440 --> 0:00:30.200 the phrase financial repression, that is a good secuite year 0:00:30.320 --> 0:00:33.320 into William Gross the world would stop when he worked 0:00:33.320 --> 0:00:37.239 at PIMCO for a monthly newsletter. He has been in 0:00:37.280 --> 0:00:40.760 a kind retirement where his golf game has uh. I 0:00:40.880 --> 0:00:44.159 believe reports have it has improved. But we're thrilled that 0:00:44.240 --> 0:00:47.760 Bill Gross would join us today. And here is why 0:00:48.320 --> 0:00:50.360 the New Normal is one of the great calls of 0:00:50.360 --> 0:00:53.680 the decade. There's Steve Major at HSBC, Gary Shilling with 0:00:53.800 --> 0:00:56.960 his call on deflation and disinflation, and then there was 0:00:57.040 --> 0:01:00.360 Gross in ll area in the New Normal. Bill, if 0:01:00.360 --> 0:01:04.080 you look back over ten years to the advent of 0:01:04.080 --> 0:01:08.200 the New normal, now you've got a pandemic overlay. Do 0:01:08.319 --> 0:01:14.800 we escape your new normal at any point? Oh? I 0:01:15.680 --> 0:01:20.600 think we began to escape it um and and and 0:01:20.640 --> 0:01:23.920 perhaps we will continue to do so. You know, the 0:01:23.959 --> 0:01:27.440 new normal was was based on a slower economy, lower 0:01:27.480 --> 0:01:34.280 influence in incorporated globalization to some extent, demographics. I think 0:01:34.360 --> 0:01:40.680 that demographic influence continues. Globalization has actually turned into deglobalization, 0:01:40.840 --> 0:01:46.200 which is not deflationary but inflationary. So that's been a 0:01:46.280 --> 0:01:49.400 change outside the pandemic. And of course the pandemic is 0:01:49.440 --> 0:01:56.720 not um has not helped globalization. It's actually accelerated deglobalization, 0:01:56.880 --> 0:02:02.320 so too to some extent, Yes, the virus is changing 0:02:02.400 --> 0:02:05.640 things rather bill any number of things to talk about, 0:02:05.640 --> 0:02:07.760 But I've got to go to your memo today where 0:02:07.760 --> 0:02:11.520 you talk about a six trillion dollar deficit. We've heard 0:02:11.560 --> 0:02:15.560 this from other sources. The great economist Claudiasm has made 0:02:15.560 --> 0:02:20.120 clear we need much much more deficit coverage. What does 0:02:20.200 --> 0:02:23.919 your world do? What does the bond world do if 0:02:23.919 --> 0:02:27.639 we get out to three, four, five, and six trillion 0:02:27.680 --> 0:02:32.680 dollar deficits? Well, the bond world at the moment, uh, 0:02:33.240 --> 0:02:36.920 you know, it is a melding of of the Fed 0:02:37.040 --> 0:02:39.919 and the Treasury. Uh you know. To my way of thinking, 0:02:40.000 --> 0:02:44.280 this this sounds rather derogatory, but the you know, the 0:02:44.280 --> 0:02:47.920 Fed is and the Treasury is wagging it. And to 0:02:48.000 --> 0:02:51.160 a certain extent, if if the Treasury wants money, if 0:02:51.160 --> 0:02:54.680 they want four or five six trillion, and the FED 0:02:54.720 --> 0:02:59.920 will provide it through uh MMT and through uh through purchases, 0:03:00.080 --> 0:03:03.640 which they've done. Now do I endorse that? Know? Is 0:03:03.680 --> 0:03:07.919 that a constructive thing down the road? Probably not? Does 0:03:07.960 --> 0:03:12.360 it inflationary? Probably yes, we'll have to see, but it 0:03:12.400 --> 0:03:15.400 hasn't been in Japan. But I think that we've melded 0:03:15.440 --> 0:03:19.919 fiscal and monetary, and I think rather permanently. Now. Um, Yeah, 0:03:20.240 --> 0:03:23.720 deficits can increase, but gosh, Tom, we're at pent of 0:03:23.760 --> 0:03:29.519 GDP already and it goes to at some point, as 0:03:29.560 --> 0:03:33.400 others point out, if the if the FEDS stays out 0:03:33.440 --> 0:03:38.680 of it or or their influence, then inflation is gonna 0:03:38.960 --> 0:03:42.440 come back. In any case, we've had inflation with financial 0:03:42.480 --> 0:03:44.960 assets and with commodities, and so let's just come back 0:03:44.960 --> 0:03:47.440 in another form. Bill. I remember the day where you 0:03:47.440 --> 0:03:50.120 recommended the Procter and Gamble dividend in the bond world 0:03:50.160 --> 0:03:53.960 fell off its collective chair. Now we have permanence of 0:03:54.080 --> 0:03:57.760 gross financial repression. I'm gonna give you great credit for 0:03:57.840 --> 0:04:01.000 coming up with that concept. Do we have an asset 0:04:01.120 --> 0:04:08.120 bubble or bubbles plural? Because we have your financial repression? Oh? 0:04:08.160 --> 0:04:11.160 I think so? Um, And we have an asset bubble 0:04:11.200 --> 0:04:14.440 because interest rates are near zero and negative and uh, 0:04:14.840 --> 0:04:18.120 many parts of the world and that at least to 0:04:18.200 --> 0:04:21.680 my way of thinking, you know, through even in discount 0:04:21.680 --> 0:04:25.480 models and so on, have inflated growth stocks and anything 0:04:25.520 --> 0:04:29.520 that you know have profits far in the future, better 0:04:29.560 --> 0:04:35.160 growing fast. So um. So yeah. But financial repression, if 0:04:35.200 --> 0:04:38.320 we want to speak to that, is something that's always 0:04:38.360 --> 0:04:41.040 been swept under the rug by, not only by Powell 0:04:41.080 --> 0:04:44.600 but by Yelling and Bernankey, etcetera. It's something that can 0:04:44.640 --> 0:04:48.120 be fixed at a later point because you know, prior 0:04:48.240 --> 0:04:54.479 fed share persons have either focused on inflation or focused 0:04:54.480 --> 0:04:58.640 on you know, revigorating the economy and to the extent 0:04:58.800 --> 0:05:03.320 that the retirees and to the extent of pension funds 0:05:03.480 --> 0:05:06.600 and savers so to speak, or being hurt. Well, that 0:05:06.680 --> 0:05:10.120 can just wait. But at some point it can't. And 0:05:10.200 --> 0:05:12.279 I think we're beginning to see that. I mean, we 0:05:12.320 --> 0:05:17.360 don't have to talk about prudential or insurance companies or banks. Uh, 0:05:17.279 --> 0:05:19.919 we can talk about mom pop on main Street in 0:05:20.000 --> 0:05:23.480 des Moine, Iowa, where um, they have no more savings 0:05:23.600 --> 0:05:27.520 and they're not able to earn money on whatever they 0:05:27.560 --> 0:05:32.680 have left, and uh, you know, the problem year by year, uh, 0:05:33.120 --> 0:05:37.120 just getting increasingly greater, and I think ultimately that becomes 0:05:37.200 --> 0:05:41.239 the the real chink in the armor of this entire 0:05:41.400 --> 0:05:46.240 financial complex. Bill Jonathan Hare always enjoy your right thing, 0:05:46.440 --> 0:05:48.760 and you've never hit in your personality when you do right. 0:05:49.279 --> 0:05:52.200 I do think however, today, when people read this investment outlook, 0:05:52.839 --> 0:05:55.200 the investment calls within, it aren't the things that are 0:05:55.200 --> 0:05:57.279 going to jump out at them. It's the things you 0:05:57.320 --> 0:05:59.800 write about your family. And I ask you this question, Bill, 0:05:59.800 --> 0:06:02.679 with the deep amount of respect for your career, what's 0:06:02.760 --> 0:06:08.200 behind that this morning as you put this out. Well, 0:06:08.240 --> 0:06:12.080 I've always wanted to let people know who I am, um, 0:06:13.080 --> 0:06:15.240 and to the extent that they know who you are, 0:06:15.279 --> 0:06:20.200 and there's a certain amount of honesty in talking about 0:06:20.240 --> 0:06:22.680 yourself and your life. Then, you know, to my way 0:06:22.680 --> 0:06:26.799 of thinking, it always translated into a an equal amount 0:06:26.839 --> 0:06:32.520 of honesty in terms of the investment world. And yeah, 0:06:31.200 --> 0:06:36.479 I think it's always been an autobiographical type of thing. 0:06:36.880 --> 0:06:38.799 I didn't want to write a book about my life, 0:06:38.800 --> 0:06:42.360 but to a certain extent, these outlooks, um, you know, 0:06:42.520 --> 0:06:45.160 outline my life as as I've moved along in the 0:06:45.520 --> 0:06:49.479 current one where I talk about my son's tattoos. Um, 0:06:49.520 --> 0:06:52.440 you know, I think it's pretty interesting. That's a topical, 0:06:52.640 --> 0:06:56.960 uh piece of information, not only for my family, but 0:06:57.040 --> 0:07:01.119 for society. And uh, you know, uh to the extent 0:07:01.160 --> 0:07:03.000 the readers like it. Find if they don't like it, 0:07:03.120 --> 0:07:06.720 then some don't, then that's fine too. Well. Bill, you 0:07:06.760 --> 0:07:09.560 know that many people are interested in your life. And 0:07:09.600 --> 0:07:11.360 once again, with a deep amount of respect for the 0:07:11.400 --> 0:07:13.600 family members that might read this and be terribly upset, 0:07:13.640 --> 0:07:16.720 you do refer to your son as a disappointment. And 0:07:16.760 --> 0:07:18.600 I'm trying to understand from you look happy right now 0:07:18.600 --> 0:07:21.480 as we talk, hugely successful, and when people read this, 0:07:21.520 --> 0:07:25.360 they might just be thinking, Bill, sounds really bitter and unhappy. 0:07:25.480 --> 0:07:28.920 What would you respond to them if they asked you that? Well, 0:07:28.960 --> 0:07:31.560 I you know, I talked about tattoo as I said, 0:07:31.560 --> 0:07:35.920 he was a disappointment in terms of tattoos, and that, um, 0:07:37.120 --> 0:07:40.000 you know, that doesn't mean he necessarily a disappointment as 0:07:40.000 --> 0:07:43.320 a son. Didn't have enough room and space for that. 0:07:43.400 --> 0:07:45.880 But you know, I talked about my early two kids 0:07:45.880 --> 0:07:53.280 as well, relatively tattooed free and uh, something funny to 0:07:53.400 --> 0:07:56.560 talk about, especially the tattoo on the inside of my 0:07:56.640 --> 0:08:00.480 Son's lip. Who you know at least is here is 0:08:00.480 --> 0:08:03.680 the sun didn't get a forty niners tattoo. That's the 0:08:03.760 --> 0:08:06.000 real issue, and you're gonna go get a tots tattoo. 0:08:06.040 --> 0:08:07.920 I do want to say, just going back to the 0:08:07.920 --> 0:08:10.760 investment thesis bill and the idea that you're making an 0:08:10.760 --> 0:08:13.600 analogy of the tattoo on the global economy that can't 0:08:13.600 --> 0:08:16.280 be removed for a very long time. And you talk 0:08:16.360 --> 0:08:19.400 about how you expect the bulk of stimulus have already 0:08:19.400 --> 0:08:22.320 occurred and that it's time to get more defensive. What 0:08:22.360 --> 0:08:24.960 does it mean to get defensive with yields so low 0:08:25.080 --> 0:08:29.520 right now? Well, a number of things, and yes that 0:08:29.680 --> 0:08:34.680 I think the tattoo, uh, you know it's applicable to 0:08:34.760 --> 0:08:38.240 the global economy. Tattoo is a discoloring of the skin. 0:08:38.400 --> 0:08:43.520 And and certainly the global economy has been discolored by UH, 0:08:43.679 --> 0:08:46.240 by the virus, and things have changed in many ways 0:08:45.920 --> 0:08:49.240 as you've spoken to you know, certainly in the past 0:08:49.240 --> 0:08:52.640 half hour. What does it mean, uh, in terms of 0:08:52.640 --> 0:08:57.360 investments and defensive yield types of investments. I'm always amazed, 0:08:57.360 --> 0:09:02.679 and I don't discount the phenomen gonna gross stocks and 0:09:02.679 --> 0:09:05.800 and the fangs and the Big five as I call them, 0:09:06.080 --> 0:09:09.800 UM and others. Because you know, as real interest rates 0:09:09.800 --> 0:09:14.560 have declined in the US to amazing in the five 0:09:14.679 --> 0:09:17.000 years to a minus a hundred and thirty basis points, 0:09:17.080 --> 0:09:19.760 much more than other countries, then you know this diving 0:09:19.800 --> 0:09:22.640 a discount models would account for that and make gross 0:09:22.640 --> 0:09:25.480 stocks too much better than certainly other investments in the 0:09:25.559 --> 0:09:29.400 US and and and and globally. Um. But in terms 0:09:29.400 --> 0:09:32.560 of dividends, I'm always amazed that others don't recognize it. 0:09:32.600 --> 0:09:35.600 If you can borrow money at U zero and one percent, 0:09:35.720 --> 0:09:38.679 and investors can probably borrow it at two percent on margin, 0:09:39.120 --> 0:09:43.600 then a relatively stable seven to eight percent investment, call 0:09:43.679 --> 0:09:47.600 it the tobacco stock. Are you know where I gravitated 0:09:47.760 --> 0:09:53.959 to some natural gas pipeline stocks with relatively firm dividends 0:09:54.720 --> 0:09:58.400 This perform US and and if you compound that uh 0:09:58.440 --> 0:10:00.920 six or seven percent a year relative to your bar 0:10:01.080 --> 0:10:03.600 and right, well that's uh, it's almost as good as 0:10:03.640 --> 0:10:06.360 a gross stock. Not as good as an Amazon, but 0:10:07.000 --> 0:10:10.360 pretty good a stable investor bill. Just real quick, here 0:10:10.400 --> 0:10:12.839 are you saying that leverage is good in this kind 0:10:12.840 --> 0:10:15.880 of environment given how low rates are? Oh? For sure, 0:10:16.640 --> 0:10:18.880 you know, you've got a lever and to the extent 0:10:19.000 --> 0:10:22.040 that leverage comes back and snaps you, it does that 0:10:22.120 --> 0:10:26.360 one Central Banks raised rates and of course, uh, you know, 0:10:26.440 --> 0:10:29.400 I don't think and O there's and most don't think 0:10:29.440 --> 0:10:31.800 that rates will be raised for a long long time. So, yes, 0:10:32.320 --> 0:10:33.960 you've got to be able to borrow money. You can 0:10:34.000 --> 0:10:36.199 do that with closed and funds that lever you can 0:10:36.240 --> 0:10:39.880 do that with you know, margin at your own account. Uh. 0:10:40.000 --> 0:10:42.600 Whenever you lever, however, you want to do it safely 0:10:42.720 --> 0:10:50.080 because as we know, ultimately leverage is destructive and the 0:10:50.080 --> 0:10:51.640 fore runner of a bear market as opposed to a 0:10:51.640 --> 0:10:56.960 bull market. Bill always appreciate transparency and you're always generous 0:10:56.960 --> 0:10:58.280 with the time. Thanks for you wanting to us today. 0:10:58.280 --> 0:11:01.360 Bill gross that honest and an outlook that he released 0:11:01.360 --> 0:11:08.520 earlier this morning. Let's use every second we have with 0:11:08.640 --> 0:11:11.360 Dana eyes here and with wet Bush securities. I'm sure 0:11:11.400 --> 0:11:13.480 most of our audience on radio and television no of 0:11:13.600 --> 0:11:16.719 his enthusiasm for technology. Dan, we want to talk to 0:11:16.760 --> 0:11:20.400 you about China, America and technology, and yes, talk tick 0:11:20.480 --> 0:11:23.319 and all that, but Dana, I've just reaffirmed for is 0:11:23.400 --> 0:11:26.760 your bullishness on these belieguered texts. Right now, is this 0:11:26.840 --> 0:11:29.920 the mother of all by the dip opportunities in Apple, 0:11:30.040 --> 0:11:33.560 in Amazon and the others. Yeah, Look, I do it 0:11:33.559 --> 0:11:37.560 as a golden buying opportunity because in my opinion, we're 0:11:37.559 --> 0:11:40.559 still in the sixth inning of a rerating in tech 0:11:41.120 --> 0:11:43.120 and this is just a healthy pull back. I still 0:11:43.200 --> 0:11:47.360 view twenty percent higher for text stocks and sign names 0:11:47.360 --> 0:11:50.760 over the next six nine months. And when you say 0:11:50.800 --> 0:11:53.720 that to clients in a zoom meeting whatever it is 0:11:53.800 --> 0:11:58.320 these days, higher, what did they say back? Right now? 0:11:59.640 --> 0:12:03.239 M most of the questions are which are the names? 0:12:03.240 --> 0:12:06.520 Who in software do you own? Where the text teams? 0:12:06.960 --> 0:12:09.679 Because John, what I would tell you is it's it's 0:12:09.760 --> 0:12:13.480 to the one ratio investors were going to do the 0:12:13.600 --> 0:12:16.599 work on who the winners are rad and hit the 0:12:16.679 --> 0:12:20.360 panic button and sound that's in twenty plus years covering 0:12:20.480 --> 0:12:24.280 tech in terms of just from a scale white knuckles 0:12:25.080 --> 0:12:28.120 from my perscus. I think that your band cast this 0:12:28.280 --> 0:12:30.000 question the last week or so down. So let me 0:12:30.000 --> 0:12:32.559 ask him of you the distinction between the tech revolution 0:12:33.120 --> 0:12:37.599 and a bubble. A bubble which I you know I was. 0:12:38.040 --> 0:12:40.599 I was an analyst through nine and two thousands. It 0:12:40.760 --> 0:12:44.120 was all about secular themes that might happen in the 0:12:44.200 --> 0:12:48.319 stocks were massively over and play with no profitable business models. Now, 0:12:48.480 --> 0:12:50.520 the secular themes you here to say, in my opinion, 0:12:50.800 --> 0:12:54.040 the most transformational tech teams that I've seen in twenty 0:12:54.080 --> 0:12:59.040 plus years terms of Cloud, five G, cybersecurity and others. 0:12:59.760 --> 0:13:03.360 And these numbers now are starting reflected. That's the difference. 0:13:03.960 --> 0:13:07.720 The secular themes are here and they're on the horizon. 0:13:07.880 --> 0:13:10.679 It's not on the common a hoop. And I think 0:13:10.760 --> 0:13:13.719 that's the difference, and that's why this continues to be 0:13:13.800 --> 0:13:16.920 a powerdigm change in terms of valuations or tech doctor. 0:13:17.160 --> 0:13:19.559 And I don't view these last week or two is 0:13:19.600 --> 0:13:22.120 the end or some sort of sign about bubble. And 0:13:22.240 --> 0:13:23.559 there are a lot of people who would agree with you. 0:13:23.720 --> 0:13:26.120 They would say that the tops page on top tic, 0:13:26.360 --> 0:13:28.679 as Tom might put it, would do really well and 0:13:28.760 --> 0:13:32.200 could drive revenue. But what multiples makes sense? I mean, 0:13:32.280 --> 0:13:35.480 how high can we go at this point? Yeah? I 0:13:35.559 --> 0:13:37.600 think that that's where I think a lot of these 0:13:37.679 --> 0:13:40.679 names chapter you. It is some of the parts as 0:13:40.760 --> 0:13:43.760 well as ultimately what numbers look like in a normalized 0:13:43.800 --> 0:13:46.160 state when we look out over next twelve d eight months, 0:13:46.480 --> 0:13:49.160 and a lot of these growth stories they've been accelerated 0:13:49.280 --> 0:13:52.120 by one to two years, sometimes two to three years, 0:13:52.840 --> 0:13:55.720 so that these are still a digestion process. And somebody's 0:13:55.760 --> 0:13:58.679 work from home names a zoom a document sign and 0:13:58.800 --> 0:14:01.679 the scale or some the core cybersecurity. And when you 0:14:01.720 --> 0:14:04.640 look at large top path, I mean the stronger getting stronger, 0:14:04.640 --> 0:14:06.439 and I think we go into earnings in terms of 0:14:06.520 --> 0:14:09.920 three Q that's gonna be another Pattle's higher in my opinion, 0:14:10.000 --> 0:14:11.720 And Dan, I want to rip the script right now. 0:14:11.800 --> 0:14:14.520 This is really important. Cisco and Oracle are you know, 0:14:14.720 --> 0:14:17.360 to amateurs like me, are tech companies, but they're really not. 0:14:17.559 --> 0:14:21.440 Their hardware companies up nine nine percent per year for 0:14:21.480 --> 0:14:24.120 the last decade, which is MOULDI compared to the group 0:14:24.240 --> 0:14:27.720 you following. How bad do you perceive Lawrence Ellison wants 0:14:27.760 --> 0:14:30.880 to be like the other guys? Well, I mean that's 0:14:30.920 --> 0:14:34.040 the TikTok deal. It's on the outside looking in and 0:14:34.200 --> 0:14:36.800 for for Allison Oracle that was once there. I mean, 0:14:37.040 --> 0:14:40.560 this is an opportunity for them from a TikTok perspective, 0:14:40.640 --> 0:14:43.800 to topsy partner and get in the game and getting 0:14:43.840 --> 0:14:47.520 that conversation. But but I continue to view this as 0:14:47.600 --> 0:14:50.840 a massive head scratcher in terms of Oracle looking at 0:14:50.840 --> 0:14:54.040 the deal and obviously a partnership which is totally different 0:14:54.080 --> 0:14:56.880 than outright said, which continues to be the issue Dan 0:14:57.120 --> 0:14:59.800 a head scratcher, and yet Oracle shares uh in pre 0:15:00.000 --> 0:15:02.960 are con trading up more than nine percent. Isn't this 0:15:03.160 --> 0:15:05.360 the kind of activity that would point at some of 0:15:05.400 --> 0:15:08.240 the frost that you're rejecting basically the idea. People don't 0:15:08.320 --> 0:15:10.160 understand it. They don't even understand how real it is. 0:15:10.200 --> 0:15:11.920 They don't even understand what kind of deal this is. 0:15:12.360 --> 0:15:16.320 And yet Bio Oracle, well, no, I think that that's 0:15:16.360 --> 0:15:18.560 why I don't have to distinguish between is your car 0:15:18.680 --> 0:15:21.720 frad and fundamental drivers. And I think this is an 0:15:21.760 --> 0:15:25.000 example of it's it's a head scratch and some theorical 0:15:25.040 --> 0:15:27.680 partnership and alter in what that even means and if 0:15:27.720 --> 0:15:30.560 it ultimately gets approved by the White House. And this 0:15:30.720 --> 0:15:33.200 is nachas all noise because it's not a salid investiture. 0:15:33.520 --> 0:15:35.960 But that's why it's an investor. I think you gotta see, 0:15:36.280 --> 0:15:37.840 you've got to go through the noise and look at 0:15:37.880 --> 0:15:40.280 the fundamental drivers like you loo can name like Apple 0:15:40.720 --> 0:15:42.760 to five you supercycle. I think it's a once in 0:15:42.840 --> 0:15:46.240 a decade cycle. That's why you own that mean others 0:15:46.600 --> 0:15:48.680 might have throught. We saw that with Slack over the 0:15:48.760 --> 0:15:51.280 last week or two, so I think you have to 0:15:51.320 --> 0:15:54.040 look at the individual stories. It's not just a rising 0:15:54.080 --> 0:15:57.320 tide to with tall boats. Then you mentioned Apple. We 0:15:57.360 --> 0:15:59.200 don't do this often, but let's do it now. Can 0:15:59.240 --> 0:16:01.240 you just talk to me about the middle of March 0:16:01.840 --> 0:16:04.120 when you dropped your price target but you maintained that 0:16:04.200 --> 0:16:07.160 outperform rating. I just want to give you a victory 0:16:07.240 --> 0:16:09.480 lap for that down because when we were in those 0:16:09.520 --> 0:16:13.280 depths of March, people just decided that was it. This 0:16:13.480 --> 0:16:17.320 bullmarket was over, and Dan, you just stuck with it 0:16:17.680 --> 0:16:19.720 with the big tech names. What was the lesson from 0:16:19.760 --> 0:16:23.680 that moment, No, I appreciate. Look, the lesson from that 0:16:23.840 --> 0:16:27.800 moment is it was all about the installed base and 0:16:28.040 --> 0:16:32.280 seeing the forest of the trees and understanding that this 0:16:32.520 --> 0:16:35.800 was a panic sell off and if you just sort 0:16:35.840 --> 0:16:38.640 of stuck to those fundamental drivers, the stock was going 0:16:38.680 --> 0:16:41.640 to reread further up and and and that's why I 0:16:41.840 --> 0:16:44.120 view when you look at Apple, and obviously we've talked 0:16:44.160 --> 0:16:47.400 about many times over the last five six years many 0:16:47.480 --> 0:16:50.440 times that they were dead from a growth perspective, but 0:16:50.560 --> 0:16:52.440 you had to come back. Look, and that's why the 0:16:52.520 --> 0:16:55.240 heaters will heat. But it just creates the opportunity. In 0:16:55.280 --> 0:17:02.000 my opinion, I think still think one basks up on 0:17:02.080 --> 0:17:04.320 the down fantastic to catch up with you as a 0:17:04.359 --> 0:17:10.080 white down if stet of wet Bush joining. So Francis 0:17:10.160 --> 0:17:14.280 Donald with manual life asset management doing wonderful work across 0:17:14.359 --> 0:17:18.879 the entire equation of economics. Francis Donald, are the airlines 0:17:18.960 --> 0:17:23.639 and outlier or can you actually see US economic growth 0:17:23.800 --> 0:17:27.960 slowing into the end of the year. Oh, certainly the 0:17:28.119 --> 0:17:32.000 momentum constall are you a first deriva ever second revative 0:17:32.040 --> 0:17:35.040 type of guide? Tom, Really, this is an incredibly interesting 0:17:35.080 --> 0:17:37.240 recovery because you can take a sector and make a 0:17:37.400 --> 0:17:39.960 story out of it, or you can also pick strect 0:17:40.000 --> 0:17:42.760 sectors that are doing very well. Anything in the manufacturing 0:17:42.880 --> 0:17:45.680 space we're gonna end up with and I hate to 0:17:45.800 --> 0:17:48.440 use the letter shape recovery, it seems pretty simplific, but 0:17:48.520 --> 0:17:50.600 we're going to end up with a K shape recovery here, 0:17:50.640 --> 0:17:53.919 which is that segments of the economy like airlines are 0:17:53.960 --> 0:17:56.240 going to do really poorly and you're also going to 0:17:56.359 --> 0:17:59.080 have areas like in inductrial manufacturers going to do well. 0:17:59.160 --> 0:18:01.320 So you can have any analysts on they'll take a 0:18:01.359 --> 0:18:03.760 sector they can make a story out of it, really 0:18:03.800 --> 0:18:07.560 careful about disaggregating what's the happening, and at least so 0:18:07.640 --> 0:18:09.560 there's a new alphabet out there now, it's a K 0:18:09.760 --> 0:18:12.600 shaped recovery. According to Msdonald, I know because of your 0:18:12.640 --> 0:18:15.040 support of Arsenal, it's going to be an A shaped 0:18:15.119 --> 0:18:18.320 recovery here in about twelve weeks. Absolutely are G shaped 0:18:18.600 --> 0:18:21.200 recovery for the gunners, I will say Francis, though, you know, 0:18:21.280 --> 0:18:24.080 talking about the airlines is emblematic. One thing that has 0:18:24.119 --> 0:18:27.760 been constant has been airlines layoffs of employees, and they're 0:18:27.760 --> 0:18:30.600 planning to do another round of possibly tens hundreds of 0:18:30.720 --> 0:18:34.119 thousands of layoffs once they're aid from the government and 0:18:34.160 --> 0:18:37.080 the federal government wears out. And and to Tom's point, 0:18:37.160 --> 0:18:39.040 this is probably why they don't want to get a bailout. 0:18:39.080 --> 0:18:41.040 They don't want the strings attached. They don't have the 0:18:41.080 --> 0:18:44.359 strings attached from the capital markets. How much is that 0:18:44.480 --> 0:18:47.480 being factored into some of the projections for the economy, 0:18:47.520 --> 0:18:50.040 The fact that some of these big employers still have 0:18:50.240 --> 0:18:53.600 layoffs to make that haven't necessarily been even announced. Yet. 0:18:55.320 --> 0:18:58.520 Once again, we're using one sector to really paint an 0:18:58.560 --> 0:19:01.359 excellent example for what's happened underlying the surface, and that 0:19:01.480 --> 0:19:04.160 is we really have to employment shocks in the US 0:19:04.240 --> 0:19:07.120 and global economy. We had those eight percent of those 0:19:07.160 --> 0:19:10.560 who were initially laid off forward towards your job losses temporary, 0:19:10.920 --> 0:19:13.040 and now that number is falling quickly. We have, you know, 0:19:13.160 --> 0:19:15.959 eight hundred thousands of a million Americans a week who 0:19:16.000 --> 0:19:19.040 are filing for unemployment insurance. Those job losses are not 0:19:19.200 --> 0:19:21.720 going to be temporary. Those are more like two thousand 0:19:21.840 --> 0:19:24.560 one or two thousand eight style recessions. So even those 0:19:24.600 --> 0:19:26.639 who were told their job loss would be temporary may 0:19:26.680 --> 0:19:29.520 become permanent. My suspicion is actually, even though we have 0:19:29.720 --> 0:19:32.800 fewer people are unemployed now, the composition of the labor 0:19:32.840 --> 0:19:36.040 market is actually much less healthy now in August September 0:19:36.280 --> 0:19:38.840 than it was in April. So we really have to 0:19:39.000 --> 0:19:41.359 move away from that headline figure pay attention to the 0:19:41.480 --> 0:19:44.840 quality underlying the surface. Well, Francis, let's build on that 0:19:44.960 --> 0:19:46.880 just a little bit more. The composition of this economy 0:19:46.920 --> 0:19:49.040 going forward, capital economics in the last twenty four hours. 0:19:49.080 --> 0:19:50.760 That a nice little job on this. It's not about 0:19:50.800 --> 0:19:53.400 the recovery for the next six or twelve months. It's 0:19:53.400 --> 0:19:56.159 about the permanent changes of this economy and the sector 0:19:56.240 --> 0:19:59.120 makeup of it, and the shifts the permanent shifts were witnessing. 0:19:59.320 --> 0:20:02.800 Can you speak to the Francis. Yes, it's a huge 0:20:02.920 --> 0:20:05.440 challenge if you're an asset manager, because you know there's 0:20:05.480 --> 0:20:08.320 another five to COVID and we don't know when it is, 0:20:08.440 --> 0:20:10.120 and we don't even know what unlocks it. I would 0:20:10.160 --> 0:20:12.200 argue it's not even a vaccine, it's just you know, 0:20:12.280 --> 0:20:14.920 reduction in the fatality rate. So what do you do. 0:20:15.080 --> 0:20:18.000 You have to trade tactical portfolios, but ultimately focus on 0:20:18.040 --> 0:20:20.239 the long term trend. Now there will be those who 0:20:20.280 --> 0:20:22.800 are going to focus on behavioral changes or composition of 0:20:22.840 --> 0:20:26.000 the economy changes. My view is a macroeconomist is to 0:20:26.040 --> 0:20:29.080 say what's fundamentally changed here, And what's fundamentally changed is 0:20:29.119 --> 0:20:31.359 that we're going to have base bottom interest rates for 0:20:31.520 --> 0:20:34.600 at least five years and possibly longer. We're going to 0:20:34.680 --> 0:20:39.080 have extraordinarily large government deficits and debt to GDP, and 0:20:39.520 --> 0:20:42.480 we've entered this new paradigm, particularly in North America, where 0:20:42.520 --> 0:20:44.840 a government issues a bond and a central bank buys it. 0:20:45.000 --> 0:20:46.960 So we can call that all types of different things. 0:20:47.080 --> 0:20:49.440 But I'm a little bit like debt monetization to me. 0:20:49.600 --> 0:20:52.480 So these are the structural trends that have really affected 0:20:52.480 --> 0:20:54.840 our financial system. And sure you can be excited about 0:20:55.040 --> 0:20:57.919 digilization of the economy or or the end of malls, 0:20:58.080 --> 0:21:00.960 but what really starts seeing are addressing. The way that 0:21:01.000 --> 0:21:03.399 I'm thinking about my portfolio is what do we do 0:21:03.560 --> 0:21:05.760 when government bonds are doing us a negative return and 0:21:05.800 --> 0:21:09.040 we have to make are you predicting it? Are you 0:21:09.119 --> 0:21:13.719 predicting negative interest rates just because of the structural challenges, well, 0:21:13.840 --> 0:21:16.119 not predicting negative interest rates in the United States, So 0:21:16.240 --> 0:21:19.119 I suspect they're The probability is signed by the market 0:21:19.200 --> 0:21:22.159 is still probably too low. But we have of the 0:21:22.200 --> 0:21:25.240 global government bond universe that's negative yielding. So if you're 0:21:25.240 --> 0:21:27.480 an asset manager and you have to allocate the global 0:21:27.520 --> 0:21:30.040 government bonds, this is an asset class that has lost 0:21:30.119 --> 0:21:32.520 a huge amount of appeal, So you have to rotate 0:21:32.600 --> 0:21:35.120 into another asset class. You have to generate your six 0:21:35.200 --> 0:21:37.239 to seven percent. It means We're going to see big 0:21:37.320 --> 0:21:40.760 flows into under own asset classes, more flows in international 0:21:41.000 --> 0:21:43.960 and more flows into emerging market debt high yield. This 0:21:44.119 --> 0:21:46.440 is why these sectors are doing fundamentally well, because we 0:21:46.520 --> 0:21:48.639 have to put the money somewhere doesn't exist in the 0:21:48.680 --> 0:21:52.040 traditional global government bond asset class anymore. So, Francis, you're 0:21:52.080 --> 0:21:55.040 talking about how the labor market looks less healthy now, 0:21:55.160 --> 0:21:58.040 and you're talking about places to allocate your money based 0:21:58.119 --> 0:22:01.200 on low yielding the yield low yielding regime that we're in, 0:22:01.640 --> 0:22:06.639 when real fundamentals matter anymore anymore or again? Um I 0:22:06.840 --> 0:22:09.160 I hope soon because I like my job as someone 0:22:09.200 --> 0:22:11.879 who does fundamental analysis. But I will say, you know, 0:22:12.000 --> 0:22:14.879 we talk about this disconnect between the economy and the 0:22:14.920 --> 0:22:18.600 stock market. I'm not so convinced the disconnected as large 0:22:18.640 --> 0:22:21.040 as people believe. It is the reason that I, you know, 0:22:21.280 --> 0:22:23.000 really give in to this idea that we do have 0:22:23.040 --> 0:22:25.320 a K shape recovery is because it's a simplific way 0:22:25.359 --> 0:22:29.320 to highlight manufacturing is really doing quite fine. We press 0:22:29.440 --> 0:22:31.600