Speaker 1: Welcome to the Bloomberg Surveillance Podcast and I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Joyce
Speaker 1: cheg with us now a head of research at JP Morgan.
Speaker 1: Joyce has wonderful mathematical abilities out of Berkeley. We're thrilled
Speaker 1: that she could join us. That's one of Joyce. We
Speaker 1: had the honors talking to John Leoy's recently. It was
Speaker 1: my research paper the summer, not on a forecast, but
Speaker 1: on a model about the US tenure yield with migrate
Speaker 1: lower and lower and dare I say JP Morgan alluded
Speaker 1: to us UH negative interest rates as a possibility. Can
Speaker 1: can the United States culturally, socially, financially handle negative interest rates?
Speaker 1: Are we prepared to be like Germany and Switzerland? I
Speaker 1: think in the US, I mean you could see negative
Speaker 1: yields happen because we're just so close to that edge.
Speaker 1: But as a matter of policy, negative deposit rates, I
Speaker 1: do not see the Feds going there at all. Now
Speaker 1: they're gonna have to stay with DROO rates. You know,
Speaker 1: the forward guidance increasing the purchases is I think the
Speaker 1: routes that are going to go and even yield curve control.
Speaker 1: But I think the seed's going to go through a
Speaker 1: lot more of the tool kit before they think that
Speaker 1: would be the right option to take. And I think
Speaker 1: pl comments would mean not very clear Joyce. There's an
Speaker 1: interesting distinction here between market determined negative rates as we're
Speaker 1: seeing in the United Kingdom and frankly as we have
Speaker 1: seen in the US, perhaps not at sale but certainly
Speaker 1: in post sale trading, and the actual policy rate. How
Speaker 1: long can this continue where the market is pricing in
Speaker 1: negative yields while the policy were at rate remains positive.
Speaker 1: Everybody's going to just have to take a look at
Speaker 1: what kind of recovery lies ahead. Now we're looking at
Speaker 1: a third quarter rebound um that we think could be
Speaker 1: around thirty seven percent annual live After going down so
Speaker 1: hard in the first app now you're starting to see
Speaker 1: the recovery take place. So you're gonna have a discussion
Speaker 1: on just the path of the recovery. You know, we're
Speaker 1: still a long ways from talking about inflation as being
Speaker 1: a problem. There's a whole discussion on you know, deflationary risk.
Speaker 1: You know that's really heating up in Japan in particular,
Speaker 1: and so I think that, you know, this is something
Speaker 1: that is going to take time. You could have negative
Speaker 1: yields and flirting with those negative fields there for quite
Speaker 1: some scient time, and we saw that happened after the
Speaker 1: global financial crisis, and it's enduring now. So I don't
Speaker 1: think that we're going to go away from this topic
Speaker 1: anytime soon. Yeah, this is a question I've raised on
Speaker 1: this program a couple of times. In Europe, we saw
Speaker 1: that in twelve the front end of a lot of
Speaker 1: core European sovereign debt markets was negative, several years before
Speaker 1: negative rights actually became a reality at the policy levels.
Speaker 1: What I think is quite interesting going forward is we
Speaker 1: do face the very real prospect of the UK joining
Speaker 1: the club. We've had two policymakers in the last few
Speaker 1: days alone start to talk up negative interest rates. So
Speaker 1: let's game this out a little bit. You can have
Speaker 1: a negative policy rate the e c B, a negative
Speaker 1: policy rate at the BOJ potentially, and at the Bank
Speaker 1: of England all three, and then look at the Federal Reserve.
Speaker 1: I see no willingness whatsoever to go there. We all
Speaker 1: hope they don't. But let's talk about what they could
Speaker 1: mean for the treasury market. If we have several big
Speaker 1: and important central banks in the world with negative interest rates,
Speaker 1: how that shapes the front end of the treasury market. Yeah, yeah, Look,
Speaker 1: I think what you've seen that the Treasury do is
Speaker 1: they announced for this quarter just record issuance. I mean
Speaker 1: three trillion dollars. We haven't ever seen anything like that.
Speaker 1: That I think is going to be very hard to
Speaker 1: absorb you on the long end of it. But I
Speaker 1: think you're right on the front end. Everybody is looking
Speaker 1: at this global dynamic right now and the fact that
Speaker 1: you have even emerging market central banks from learning the
Speaker 1: qv right now, and still that you yields are coming
Speaker 1: down there, so you know that you're going to move
Speaker 1: into negative yields even if it's not the liberate policy,
Speaker 1: I think it's just a reality that's with us right now.
Speaker 1: Can you flip the reciprocal Joyce chain? Can you take
Speaker 1: all this bond talk. I mean, that's all Pharaoll wants
Speaker 1: to do, folks as bond talk, because look, for the
Speaker 1: real dull this conversation, the real yield under discussion to
Speaker 1: return Joyce chain. Can you flip the reciprocal and get
Speaker 1: yourself to huge valuations for equities? I mean, I don't
Speaker 1: even know what you do with a negative rate and
Speaker 1: a flip reciprocal to get to a multiple of thirty
Speaker 1: forty for a utility. But can you can you just
Speaker 1: keep the linkage with bonds and equities intact? Well, I
Speaker 1: think you're still going to see a winner takes all
Speaker 1: UM strategy play out in equity. So the texaster has
Speaker 1: moved away from the rest of the market that was
Speaker 1: in place even before the pandemics, and now you're seeing
Speaker 1: that even more exaggerated. So you know, on the equity
Speaker 1: market there's going to be a focus on your earning dividends.
Speaker 1: We've seen dividends being suspended in thirty three companies. We've
Speaker 1: seen them being cut in um more companies as well.
Speaker 1: So I think on the equity market, the focus is
Speaker 1: once again going to be winner takes all. A lot
Speaker 1: of the tech sector, you know, at the farm sector
Speaker 1: has sort of moved away from where the rest of
Speaker 1: the market is, and I think the debate will you
Speaker 1: actually look at what's the what's the impact UM that
Speaker 1: this is going to have as far as the duration
Speaker 1: um and as you said with Europe, this went on
Speaker 1: for you know, years, and is something that became Is
Speaker 1: it exceptional? Is this like a fast um You'll fall
Speaker 1: down in the in the GDP numbers and we're gonna
Speaker 1: have a quick backup and we're normalizing to something or
Speaker 1: are we really stuck in something that's much more in
Speaker 1: the ways that could go on for a longer period
Speaker 1: of time. Tom, I'm really glad you brought this up.
Speaker 1: I've actually been giving a lot of thought to this,
Speaker 1: and I was looking at sort of the fed bottle,
Speaker 1: at the dividend yield, the earnings yield on the SMP
Speaker 1: for example, versus treasuries and the problem that I have,
Speaker 1: and Tom, maybe you've done more research on this than I.
Speaker 1: The problem I have is how much is that dividend
Speaker 1: yield forward looking? And how much have stock investors already
Speaker 1: priced in some of the cuts that we're seeing Haliburton,
Speaker 1: for example, today reducing its dividend by scent. You know,
Speaker 1: how much is the bond market pricing in well more
Speaker 1: than the dividend yield currently is. But this is brilliant
Speaker 1: Joyce because what This comes down to your point, Joyce
Speaker 1: Chang and winner takes all. Is the idea that we're
Speaker 1: gonna have these few companies with persistent cash flows that
Speaker 1: can lead to that dividend growth belief that Lisa is
Speaker 1: talking about to get to a higher valuation. Joyce. Michael
Speaker 1: Mabusian years ago at Credit Swiezen, like Mason, was brilliant
Speaker 1: on this is that where we're heading, Joyce? And is
Speaker 1: it just fewer winners? I mean, is that all this
Speaker 1: is coming. It's not gonna be SMP five hundred, John,
Speaker 1: It's gonna be SMP. Well, I think that's what we're seeing,
Speaker 1: is that there's just more consolidation that's going on as
Speaker 1: a result of this crisis. And you know, I think
Speaker 1: a lot of people still look at the equity market
Speaker 1: and say, look, this doesn't really reflect the growth expectations.
Speaker 1: It's in line with the credit spread tightening. So this
Speaker 1: still it goes back to the policy support that we're
Speaker 1: seeing the said facilities, the fact that you've got you know,
Speaker 1: high grade bond issue in this year hitting a record
Speaker 1: one point six trillion, So is it about the growth
Speaker 1: or is it about the credit spread tightening? The said
Speaker 1: facilities um and um. Is this something where we're just
Speaker 1: going to see greater concentration, which happens after a lot
Speaker 1: of crisis. It's the survival of the fittest joyce fun
Speaker 1: sense to catch the joyce of global research right now
Speaker 1: out of physics at Yale in case Western is Matthew
Speaker 1: Harrison and Morgan Stanley, who has an acuity on biotech
Speaker 1: like no one out there. Matthew, what's the biggest hot
Speaker 1: air you see right now? To John's point, and I
Speaker 1: don't mean to pick on moderna, but what's the hot
Speaker 1: arab biotechnology right now that you dismissed the most? Um?
Speaker 1: I mean you're asking specifically related to COVID tom or
Speaker 1: or something just to COVID. I mean COVID what we're
Speaker 1: focused on. Matthew, Let's stay with that. What's the thing
Speaker 1: that well, I don't think there's something that upsets me
Speaker 1: the most. I mean I think I think the thing
Speaker 1: for everybody to remember here is is twofold one. There's
Speaker 1: a lot of early data and everybody is very focused
Speaker 1: on looking for treatments, and I think companies are doing
Speaker 1: the best job they can, but we should be careful
Speaker 1: in understanding that data is early in data is subject
Speaker 1: to change, and just being realistic about that. I think,
Speaker 1: you know, you've got a lot of generalists and people
Speaker 1: who don't typically look at these stocks, and so understanding
Speaker 1: what we know and what we don't know, um, I
Speaker 1: think is important. And I think it's a skill that
Speaker 1: people are maybe getting used to because they didn't always
Speaker 1: have to look at early data sets like this. So, Matt,
Speaker 1: help us build their skill because I think it's absolutely critical.
Speaker 1: It's a blind spot for so many of us. It's
Speaker 1: your world, and I think at the moment, subconsciously people
Speaker 1: are biased because they really want these potential vaccines to work.
Speaker 1: We all want to believe they'll work. I also think
Speaker 1: it's an obvious social stigma attached to journalists and analysts
Speaker 1: and people more broadly. You aren't familiar with these names
Speaker 1: to ask necessary questions to be skeptical. So can you
Speaker 1: help establish some guard rails for us as for when
Speaker 1: this news comes out again, this kind of news, how
Speaker 1: we can look at it a little bit more critically. Yeah,
Speaker 1: I think it's I think that the biggest understanding is
Speaker 1: to know what we know and we know and so
Speaker 1: I would say the core of the debate right now
Speaker 1: is that we don't we still don't know what level
Speaker 1: of antibodies are protective for people with COVID, and so
Speaker 1: comparing results from vaccine studies or other clinical studies against
Speaker 1: surrogate endpoints, right because what's been reported so far as
Speaker 1: a surrogate end point, usually in a large scale study,
Speaker 1: you're going to just test people who didn't get a
Speaker 1: vaccine and people who got a vaccine and find out
Speaker 1: if less people got infected with the disease who got
Speaker 1: the vaccine. That's the that's the truth, the true sort
Speaker 1: of market. But right now we're relying on surrogate endpoints,
Speaker 1: and because we're so early in the stages of of
Speaker 1: the outbreak, all of the work has not been done
Speaker 1: to establish exactly what level of antibodies are protected. People
Speaker 1: have guesses, we have ideas, we know what we should
Speaker 1: focus on in terms of that, but I don't think
Speaker 1: scientifically that debate has been settled, and so therefore, in
Speaker 1: trying to understand um how to interpret results, that scientific
Speaker 1: debate I think spills out into the media. I love
Speaker 1: this line and a Drew Armstrong story of Bloomberg News.
Speaker 1: By the standards of medical studies, such early partial data
Speaker 1: are considered the territory of specialists and day traders. I
Speaker 1: want to talk about the share sale that Moderna completed
Speaker 1: late Monday, one point three billion dollars of stock sold,
Speaker 1: arguably perhaps at the highs at of the recent moment,
Speaker 1: and I'm wondering it, can you give us a pathway
Speaker 1: from a vaccine, Matthew, to profits and how investors can
Speaker 1: really value a first mover kind of advantage here. Sure,
Speaker 1: we we've tried to think about what the market may
Speaker 1: look like, and I described the market in two ways. Right,
Speaker 1: there's in our view, there's going to be the pandemic market,
Speaker 1: which probably lasts through two and then the endemic market.
Speaker 1: And what I mean the difference there is, once you
Speaker 1: get through the pandemic period and you have to vaccinate everybody,
Speaker 1: try to vaccinate everybody, there's likely to be portions of
Speaker 1: the population that haven't been vaccinated. These might mutate. Children
Speaker 1: who are born need to be vaccinated, So that's going
Speaker 1: to be smaller, but that might be a longer tail.
Speaker 1: And so we've tried to price the vaccine, you know,
Speaker 1: at least theoretically around the pricing of flu vaccines, which
Speaker 1: are among the lowest of vaccines available, and so the
Speaker 1: numbers we put the pandemic period is like between ten
Speaker 1: and thirty billion dollars and the endemic period of somewhere
Speaker 1: between two and twenty five. The reason for that wide range,
Speaker 1: especially in the endemic period, is because we don't really
Speaker 1: know how much of the population needs to be revaccinated,
Speaker 1: either on an annual or or some other basis. Matthew,
Speaker 1: what will the big companies do? I mean, there's the
Speaker 1: idea of traditional pharmacology and then your esoteric world of biotech,
Speaker 1: and everybody gets all leathered up and they go to lunch,
Speaker 1: just to society which biotech company to buy? Is that?
Speaker 1: What's the future of feeding frenzy of the bigger companies,
Speaker 1: A bigger pharmacology companies buying up the biotechs. I think
Speaker 1: that's a I think that's a theme right that that
Speaker 1: we've we've observed for a while. UM. Biotech companies tend
Speaker 1: to be more entrepreneurial, tend to take more risk, tend
Speaker 1: to use new technologies and once they're proven and you know,
Speaker 1: they might be a new a new way to move
Speaker 1: quicker or move faster. Large companies tend to look at them,
Speaker 1: and I think that the biggest differences. Sometimes smaller companies
Speaker 1: have resources to focus on one small area where their
Speaker 1: technology could work. But once you prove that, a big
Speaker 1: company can say, well I can apply that for ten
Speaker 1: or twenty ways, and they have the massive amount of
Speaker 1: ability to push that forward. Matthew Harrison, thank you so much.
Speaker 1: With Morgan Stanley today, I'm Ada and all of biotech.
Speaker 1: Megan Dreen has had a wonderful set of academics and
Speaker 1: then work in market economics, and now she has her
Speaker 1: parchment out at the Harvard Kennedy School where she is
Speaker 1: a senior fellow. Megan, are we still in the United
Speaker 1: States where all this policy is stimulus? Are we finally
Speaker 1: getting to the point where we're going to admit it's
Speaker 1: about three million javas claims in its income substitution, wage substitution,
Speaker 1: and and indeed demand assistance. So I think we are
Speaker 1: getting to the ladder actually um and you can see
Speaker 1: it in terms of you know who Joe Biden has
Speaker 1: been bringing on to advise him, for example, So there
Speaker 1: are signs that there might be a shift further towards
Speaker 1: the last bringing people on like Stephanie Keelton, right, who's
Speaker 1: a big MMT proponent. There. It's just the beginning of
Speaker 1: a kernel of a hint that actually the Democratic Party
Speaker 1: is starting to think maybe kind of a right to
Speaker 1: point isn't gonna do it. We're gonna need to rethink
Speaker 1: how we approached the economy because a lot of people,
Speaker 1: you know, we're outraged that you know, half of Americans
Speaker 1: made more now on this unemployment insurance and they did
Speaker 1: in their regular jobs and thought that meant there was
Speaker 1: a problem with the unemployment insurance. But that's not the problem.
Speaker 1: The problem is that we've been paying people so little
Speaker 1: to begin with, and now lots of them don't even
Speaker 1: have jobs, so that we're looking at demand boosting, Megan brilliant.
Speaker 1: But if if, if Mr Biden swings to a policy
Speaker 1: prescription much like Europe, is the rest of America gonna
Speaker 1: go with him? Or is he gonna hey the presidency
Speaker 1: to a conservative America that flat out doesn't agree with
Speaker 1: that prescription. Well that's a great question, and I think
Speaker 1: anyone would be crazy to try to handicap the election
Speaker 1: at this point. But sure, at Harvard, so you can
Speaker 1: do that. I am at Harvard, But I think it's
Speaker 1: honestly too too difficult to tell. Um. I do think
Speaker 1: that people are realizing with this crisis that they weren't
Speaker 1: before that you know, a lot about our economy is broken, right,
Speaker 1: our healthcare is broken, our education is broken, We protect
Speaker 1: the most vulnerable is broken. And so I do think,
Speaker 1: you know, whether it's from the left side or maybe
Speaker 1: even the right side, we're all going to have a
Speaker 1: bigger role for the government in our lives. And that's
Speaker 1: generally a pernicious thing. We don't like that. I mean,
Speaker 1: higher taxes and maybe surveillance, contact tracing, all kinds of
Speaker 1: negative things, but there could be a positive implications and
Speaker 1: that maybe we start to rethink our economy and figure
Speaker 1: out how to protect those most vulnerable, and perhaps we
Speaker 1: should be doing that. But there is this terrible habit
Speaker 1: and not saying you're doing it, Megan, because I know
Speaker 1: you're not. There's just a terrible habit at the moment
Speaker 1: of looking down your nose at people who are taking entitlement,
Speaker 1: spending if it's benefits, whatever it is, welfare, if its
Speaker 1: employment benefits, and believing that somehow people would rather be
Speaker 1: on that than have a job. I don't know anyone
Speaker 1: that would prefer to have a handout over having a
Speaker 1: job and having that empowering moment of going to work.
Speaker 1: And for me, Megan, the story going into November is
Speaker 1: who's got the message to say that we're going to
Speaker 1: create the most jobs, They're going to be well paid jobs,
Speaker 1: and this is how we're going to do it. Yeah,
Speaker 1: and this time really is different in that you can
Speaker 1: easily look and say, actually, all these people out of work,
Speaker 1: it is not their fault, right, the virus is nobody's fault.
Speaker 1: And so that doesn't mean there is opportunity for kind
Speaker 1: of social mobilization here in a way that there hasn't
Speaker 1: been in the past. Um So I do. I do
Speaker 1: think there could be hoped for some kind of change
Speaker 1: on that front. And if you look at history, right,
Speaker 1: to be any guests and Council's Last of the UK
Speaker 1: came out of World Wars, Social security came out of
Speaker 1: the Great Depression. So stranger things have happened. I will
Speaker 1: say that, Megan. The conversation in Washington seems to be shifting,
Speaker 1: at least among Republicans to tying the next phase of
Speaker 1: rescue financing to employment with a payroll tax cut. Or
Speaker 1: other types of sort of employment contingent benefits. How do
Speaker 1: you see that factoring into the next phase of recovery,
Speaker 1: if at all, given that the previous rounds were really
Speaker 1: focused on the unemployed, the people who are furloughed or
Speaker 1: lost their jobs as a result of the pandemic. Yeah,
Speaker 1: I think you point out a weakness and the approach
Speaker 1: going forward, and there's also an inherent reticence among Republicans
Speaker 1: it seems to actually spend much more money. We saw
Speaker 1: this in two thousand and eight, two thousand nine as well,
Speaker 1: where you've got a few rounds of funding past and
Speaker 1: everyone figured we would just do the rest and perfect
Speaker 1: this UM in future rounds, and then quickly discovered the
Speaker 1: political capital wasn't really there to pass more ouns. And
Speaker 1: I think we'll have more rounds of this still stimulus here,
Speaker 1: but I think that the conversation is increasingly shifting, UM
Speaker 1: towards the skeptical side on spending more money on this
Speaker 1: in the way it's being directed, as you point out,
Speaker 1: as towards you know, tax tweaks that aren't really going
Speaker 1: to help people who don't have jobs or pensioners for example. Um,
Speaker 1: that's worrisome. I think no one should be actually worried
Speaker 1: about how to pay for this war right now. That's
Speaker 1: a totally inappropriate question to be asking at this point.
Speaker 1: Defin financing is the answer for the US. Megan Green,
Speaker 1: what's the Green Genie coefficient look like for America? I mean,
Speaker 1: it's a it's a complex math and it's a complex geometry,
Speaker 1: but it's real simple. Inequalities are gonna widen. James Diamond
Speaker 1: is talking about it and others. Is it just simple
Speaker 1: you would believe out of this pandemic inequality widens yep.
Speaker 1: I think unfortunately, inequality gets worse. Um, the people who
Speaker 1: lost their jobs were the hourly service workers who's never
Speaker 1: got wage games in the past recoveries, so they hadn't
Speaker 1: even gotten back on their feet since the last crisis
Speaker 1: and now they've been n sut down again. Market concentration
Speaker 1: should increase significantly, which undermines workers ability to negotiate their
Speaker 1: wages with big companies with access to capital markets take
Speaker 1: over for the small independent shops that are getting wiped
Speaker 1: out by this. Unfortunately, I think there will be greater inequality,
Speaker 1: will have higher taxes off the back of this, So
Speaker 1: maybe there will be some distribution to off set a
Speaker 1: bit of that, But generally I think the US has
Speaker 1: had a problem with income inequality going into this. The
Speaker 1: Genie coefficient is just under point five percent in the US,
Speaker 1: which is pretty high and rising, and it's just gonna
Speaker 1: go higher. Is the FED exacerbating that? I mean, the
Speaker 1: focus really very much on the Federal Reserve and its actions,
Speaker 1: especially given the disagreements in Congress. But a lot of
Speaker 1: the FED stimulus has really gone toward corporations, and I'm
Speaker 1: wondering how much that's factoring in here to the wealth gap.
Speaker 1: So yeah, every action by the FED has distributed effects, UM,
Speaker 1: and it ad exacerbating that. Although the FED is also
Speaker 1: providing funding the small businesses UM and so that feeds
Speaker 1: through into those who are more vulnerable. UM. That being said,
Speaker 1: you know, the set half stepped in, So I actually
Speaker 1: think we can't blame the FET on this one. UM.
Speaker 1: Maybe further down the line we'll figure I need to
Speaker 1: figure out how to tweak this. But the FED right
Speaker 1: now had to step into get rid of market dislocations,
Speaker 1: without which we would have had UM an even bigger
Speaker 1: crisis that would have hit the most vulnerable. Evening you
Speaker 1: know better than that. We will find a way of
Speaker 1: blaming the Federal Reserve. And they've been at Harvard for
Speaker 1: a little while. But that's not how this works. You
Speaker 1: know that we find ways to blame the feed. That's
Speaker 1: what we do on shows like this. She had her
Speaker 1: choice of like six schools, and she just took the
Speaker 1: one closest to Fenway Park. I know exactly the reasoning
Speaker 1: of it, but I just you know, you know, being
Speaker 1: around academia just a month too long. That's what we
Speaker 1: do here. We blame the feed for stuff. Megan, We
Speaker 1: love thank you for joining us. Megan Green. Of Harvard
Speaker 1: away from the Bloomberg School of Public Health is their
Speaker 1: huge medical establishment. Lawrence is expert at j h U
Speaker 1: in emergency medicine, and I asked her not about the death,
Speaker 1: but about the case dynamics right now here is Lawrence soer.
Speaker 1: We're seeing a lot of cases of um middle aged
Speaker 1: Americans who have these co morbidities, but we're also seeing
Speaker 1: younger people as well. UM. So, I think the early
Speaker 1: data that that we saw that this is all affecting
Speaker 1: the elderly with the co morbid populations is not necessarily true.
Speaker 1: We have a wide age range UM in our population,
Speaker 1: we have a lot of essential workers who have been
Speaker 1: working this whole time. We have a very large Hispanic
Speaker 1: population that we're serving at Hopkins right now, and I
Speaker 1: think that's true in many cities across the country. It's
Speaker 1: fascinating in the cd IDA know that in certain geographies
Speaker 1: we're going back and yet the younger people going back
Speaker 1: and all that. When you see younger people trying to
Speaker 1: get back to what we knew, do you feel like
Speaker 1: they're at a greater risk because they think the only
Speaker 1: one that gets the virus is seventy five and over.
Speaker 1: I think that early messaging about it only being the
Speaker 1: elderly didn't help. I think we saw young people resistant
Speaker 1: to social distancing, resistant to some of the other public
Speaker 1: health approaches that we use UM. And you know, they
Speaker 1: were exactly like you're saying, we're still going out. They
Speaker 1: were still interacting socially and and I think we're seeing
Speaker 1: the effects of that, that resistance to adopting these measures.
Speaker 1: I think that's what we're seeing right now. I also
Speaker 1: think that these people are UM. They are part of
Speaker 1: the essential workforce, so we're seeing healthcare workers were across
Speaker 1: the country we're seeing people from these meat packing plants,
Speaker 1: from farms, from food processing centers UM and, and they
Speaker 1: are younger UM folks as well. Laurens talk to me
Speaker 1: a little bit about this modernal vaccine that then we
Speaker 1: had reports yesterday that it just didn't give us enough
Speaker 1: information to knew whether it was going in the right direction.
Speaker 1: Are we going to have news flows like that more regularly.
Speaker 1: It's not uncommon for these companies to put out press releases,
Speaker 1: but usually they have data attached to them. UM. This
Speaker 1: report showed that the UM, the people in the study,
Speaker 1: eight people that they had UM conducted the full review
Speaker 1: of had neutralizing antibodies, which is good. So UM they
Speaker 1: basically saw that people in four of the different arms
Speaker 1: that they built UM developed neutralizing antibodies. The challenge with
Speaker 1: it only being eight people is partially because it takes
Speaker 1: a long time to do the neutralizing antibody research. UM
Speaker 1: and we didn't hear from the other I think it
Speaker 1: was thirty thirty five or thirty six trial participants as
Speaker 1: to how they did or why they didn't develop neutralizing antibodies,
Speaker 1: or even if they didn't develop them. UM we need
Speaker 1: more time to understand those data and so there's no
Speaker 1: there's no way to know what these data mean. UM.
Speaker 1: And so I think that's what we're all waiting for.
Speaker 1: We're waiting for that resulting data set to do that
Speaker 1: analysis to know if the response is going to be durable,
Speaker 1: to know, um, you know what the rest of that
Speaker 1: vaccine population looks like. So I think we still have
Speaker 1: a ways to go. UM. It was a surprisingly upbeat
Speaker 1: uh result, but I think it is definitely a positive finding.
Speaker 1: We just we just have to wait and see what
Speaker 1: happens next. What do you make of what we've heard
Speaker 1: from the World Health Organization overall? So we had the
Speaker 1: Health Assembly, who's in charge of briefing governments in this
Speaker 1: Do you rely on the World Health Organization or is
Speaker 1: it each country for their own Yeah? I think the
Speaker 1: World Health Organization is still our number one leading international body, UM,
Speaker 1: serving all of these member states and UM, they are
Speaker 1: putting in place the structure which this entire international response
Speaker 1: is happening. UM. We did here. You know, it's a
Speaker 1: digital World Health Assembly. It's just a couple of days,
Speaker 1: so I think it's not going to be the same
Speaker 1: as it normally is. We did hear calls from the
Speaker 1: EU and Australia for an inquiry into the origins of
Speaker 1: the COVID nineteen outbreak, which UM clearly seems to be
Speaker 1: directed at China, even though China wasn't specifically named UM,
Speaker 1: and I think that there is some there remains some
Speaker 1: political politicization around UM China's role in this outbreak response.
Speaker 1: So UM not even the origins, but but how that
Speaker 1: early response occurred. And so I think we'll continue to
Speaker 1: see tensions around the Assembly, but we have to continue
Speaker 1: to support the w h O and their role in
Speaker 1: in global pandemic preparedness and response. Lauren love to talk
Speaker 1: to JOHNS Hopkins University really quite brave an emergency medicine
Speaker 1: down there, that first line that we see at any hospital. Well,
Speaker 1: Sweeten and I wanted to find somebody who could rationalize
Speaker 1: down thousand. That would be Ron Temple of Lazard, head
Speaker 1: of US Equities, and of course one of our most
Speaker 1: astute guests, with his experience on Wall Street about trying
Speaker 1: to push away the noise. Ron, We've never seen the
Speaker 1: noise like this. We've got plus unemployment rate on and on.
Speaker 1: You know, the drill is, well, how do I keep
Speaker 1: my mind focused on thousand. I'm trying to make seven
Speaker 1: percent a year and someday out there it will be
Speaker 1: Dow fifty Tho, how do I maintain that discipline? Well,
Speaker 1: that's that's a really tough challenge obviously, So I think
Speaker 1: you know, in the near term, I would caution about
Speaker 1: getting too caught up in the day to day and
Speaker 1: really start thinking what to try to keep yourself thinking
Speaker 1: about the long term investment potential of different companies. Um
Speaker 1: when you're making these investments, I would say point number
Speaker 1: one is it's really important to be active right now.
Speaker 1: I think you're gonna have a lot of disperse within
Speaker 1: this market over the next day, twelve to eighteen months
Speaker 1: as the economic implications unfold. Some companies aren't gonna make it,
Speaker 1: some companies will make it but by the skin of
Speaker 1: their teeth, and some companies actually are going to thrive
Speaker 1: and pick up market share. And so when you're really
Speaker 1: thinking about how you're going to achieve your investment objectives
Speaker 1: over the next day, five to ten years, I think
Speaker 1: it's critical to really focus on the companies with the
Speaker 1: balance sheet strength and the funding and liquidity profiles to
Speaker 1: make it through this downturn, and not only make it through,
Speaker 1: but win some extra competitive advantage market share and grow
Speaker 1: their profit potential. So I think that should be the
Speaker 1: eye on the prize is picking those securities and avoiding
Speaker 1: avoiding the losers, which we obviously all try to do
Speaker 1: on a daily basis. Tom, I think one of the
Speaker 1: reasons you like Ron is because he is a Duke
Speaker 1: graduate and we all know there absolutely so, Tom, as
Speaker 1: you think about kind of where we are right now,
Speaker 1: a really solid rebound off of that pull back when
Speaker 1: the you know, the pandemic really gripped the mark get
Speaker 1: back there in early in mid March, do you feel
Speaker 1: comfortable where the market is here or do you think
Speaker 1: feel like it's gotten a little bit ahead of itself
Speaker 1: given some of that dire economic data that we're experiencing
Speaker 1: and like it experience in the quarters to come. You know,
Speaker 1: it's it's interesting that when we look at the market,
Speaker 1: I mean, the market itself has rebounded a lot, Like
Speaker 1: you say that the market as of yesterday's close was
Speaker 1: down just under ten percent from the peak, but the
Speaker 1: median stock was down se So I think one thing
Speaker 1: to be careful of is the index tells one story,
Speaker 1: but there are a lot of different stories underneath that index.
Speaker 1: That said, I do worry that the market is a
Speaker 1: little ahead of itself in terms of optimism and and
Speaker 1: not necessarily thinking comprehensively enough about the scenarios that might unfold.
Speaker 1: For example, I mean, I'm very you know, it was
Speaker 1: very good to see positive news coming out regarding the
Speaker 1: potential for a vaccine on Monday. UM. I do think
Speaker 1: that's good news. But our analysis still says at the
Speaker 1: earliest you get a vaccine for COVID nineteen that's available
Speaker 1: for widespread use early next year. Now that based is
Speaker 1: one scenario. UM. What that doesn't take into account is
Speaker 1: the risk that you get second or third waves of infections. UM.
Speaker 1: So I've been watching, for example, very closely in Germany
Speaker 1: one month ago today they started reopening small small businesses,
Speaker 1: say shops. I think the limit was up to square feet. UM.
Speaker 1: We're starting to, you know, really carefully watch the infection
Speaker 1: numbers in the new case numbers to see what happens
Speaker 1: when you start to reopen. So I don't think the
Speaker 1: market is necessarily pricing in the risk of a second
Speaker 1: or third wave. UM, the risk that the vaccines might
Speaker 1: not be available as quickly as possible, and how that
Speaker 1: will play out in different parts of the market. Ron,
Speaker 1: there's so many obvious questions Paul and I want to
Speaker 1: talk to you about over the next three hours. But uh, Ron,
Speaker 1: I've I've really got to ask about how you approach
Speaker 1: these wonder stocks that just go up and up and up.
Speaker 1: But obviously it's associated with Jim Kramer's wonderful phrase the frames,
Speaker 1: and I get all that as well, but the tenors
Speaker 1: so stocks out there, what do you do? I mean,
Speaker 1: if you own them, what do you do? And do
Speaker 1: you climb on board if you're not well? I think
Speaker 1: the biggest challenge with some of these Part one. This
Speaker 1: kind of goes back to our first question when when
Speaker 1: I'm thinking about these companies, I'm thinking about what does
Speaker 1: their balance sheet look like? Um, do they have a
Speaker 1: lot of cash on the balance sheet? What strategic optionality
Speaker 1: is that going to give them over the next few years.
Speaker 1: And by the way, you know, I'm assuming we're talking
Speaker 1: primarily tech stocks. If I think back to twelve months ago,
Speaker 1: a lot of the tech industry seemed to be in
Speaker 1: a kind of regulatory political reputation of bull's eye. If anything,
Speaker 1: They've come through this looking better and have proven in
Speaker 1: many cases that they're more mission critical than people would
Speaker 1: have thought of, so their position is improved there in
Speaker 1: some cases not all. They've got great balance sheets where
Speaker 1: they can actually pull off buying in even more capabilities,
Speaker 1: or basically developing their own where some of their competitors
Speaker 1: who have weak balance sheets are no longer as competitive. Um,
Speaker 1: and then I'm thinking about again, what's their balance sheet potential?
Speaker 1: And I think the key with any of these docks
Speaker 1: is is a real balancing act here of thinking far
Speaker 1: enough into the future that you don't miss the potential,
Speaker 1: but not getting so irrational that you say, well, if
Speaker 1: you think out twenty years, they're going to really be great. Well,
Speaker 1: You're twenty years is pretty far beyond anyone's crystal ball.
Speaker 1: So so trying to kind of balance out how far
Speaker 1: you have to think in the future, recognizing it maybe
Speaker 1: on a short term basis they get overvalued, but you
Speaker 1: know what, they might grow their earnings in the next
Speaker 1: six or twelve months enough to make you think I
Speaker 1: want to buy it back at the same price, so
Speaker 1: then you shouldn't be selling it. I mean, Paul, this
Speaker 1: is fascinating because I think so many of our listeners,
Speaker 1: including me. Long term is a three year vision on
Speaker 1: Amazon or Netflix or whatever. Amazon another all time high today,
Speaker 1: so roun You know. One of the things that people
Speaker 1: have been talking about I find fascinating is will this
Speaker 1: pandemic fundamentally alter consumer behavior in any ways? And if so,
Speaker 1: how do you plan for it as from an investment standpoint?
Speaker 1: Or you know, is it just working from home more?
Speaker 1: Are people are going to spend less, save more? Are
Speaker 1: you starting to think about some of these bigger macro issues. Yeah,
Speaker 1: we're definitely thinking about that. I do think, by the way,
Speaker 1: there's a propensity to assume during a downturn or a
Speaker 1: crisis that everything's going to change forever. Well, the reality is,
Speaker 1: I think as soon as restaurants and bars are open,
Speaker 1: a lot of people are going to be pretty eager
Speaker 1: to go back, assuming they know they're safe. Right. So,
Speaker 1: so to me, the kind of the milestone I'm really
Speaker 1: watching for is a vaccine that we can use broadly globally. Now,
Speaker 1: Once that vaccines available, I think a lot of things
Speaker 1: are going to go back to the way they were.
Speaker 1: Some of the things I think won't. I do think
Speaker 1: working from home will become more common that's been discussed
Speaker 1: a lot, but that does have complications for how many
Speaker 1: miles people drive, It has implications for oil consumption, for
Speaker 1: transport us. But when I really step back, I think
Speaker 1: the thing that has not been discussed enough is what's
Speaker 1: going to happen to savings and spending behavior in general,
Speaker 1: because coming out of this countries companies and households are
Speaker 1: gonna have a lot more debt. And by the way,
Speaker 1: really importantly, even a year ago, early this year, I
Speaker 1: was talking before COVID about the upcoming crisis we're gonna
Speaker 1: have on the retronment side, half the baby boomers have retired,
Speaker 1: the other half are within a decade of retirement, and
Speaker 1: in general, making a broad speaking statement, they don't have
Speaker 1: enough savings to retire. Even before that rip up the
Speaker 1: script here, it's like, you know, around you know, Roger
Speaker 1: Ferguson is leading this debate. What is the national solution down?
Speaker 1: Isn't it just for starters to increase the amount people
Speaker 1: can put aside? Well, you know, I think what we
Speaker 1: found in our study of the retirement crisis is not
Speaker 1: that people could put need to put more aside if
Speaker 1: they don't have the income to put anything aside. I mean,
Speaker 1: so when we look at the pretrache of household you know,
Speaker 1: if you think about defined benefit programs are largely gone.
Speaker 1: I think it's around thirty percent of the country still
Speaker 1: has access to a dB program. Of the people other
Speaker 1: other than that, sixty of the people have a defined
Speaker 1: contribution program have nothing. You've got a lot of people
Speaker 1: who don't have a dime put away in a retirement account,
Speaker 1: and part of the reason for that is they just
Speaker 1: don't make enough money to pay their bills today, much
Speaker 1: less put away money for retirement. So I think it's
Speaker 1: going to be multifaceted in terms of solution. One is
Speaker 1: there's gonna have to be more generous social Security benefits, which,
Speaker 1: by the way, is the opposite of what a lot
Speaker 1: of the conversation has been for the last twenty years.
Speaker 1: But maybe it just needs to be more progressive where
Speaker 1: you're really focusing those resources on people who need it
Speaker 1: the most. Um, too, is allowing people to put money away.
Speaker 1: Three is making it more accessible. We found is around
Speaker 1: the people who work for small businesses have no access
Speaker 1: to a defined contribution program at all. The employer doesn't
Speaker 1: offer it. So let's find a way to offer it,
Speaker 1: not through the employers, so you always have access to
Speaker 1: a four oh one K. And so I think there
Speaker 1: are a number of things we can do around getting
Speaker 1: access to programs, reinforcing the stability of social security and frankly,
Speaker 1: reinforcing this financial solvency of defined benefit programs that are
Speaker 1: still out there because they're really critical to a big
Speaker 1: part of the population. Run Temple, We're gonna get you
Speaker 1: back on to do this again. I'd love to do
Speaker 1: a joint interview with you and uh. Uh Roger Ferguson
Speaker 1: a t I A craft on this with his leadership
Speaker 1: on this issue, folks, huge deal and was shout out
Speaker 1: in Boston to Boston College, which I think is just
Speaker 1: the best retirement center. Uh. Going round Temple from Duke
Speaker 1: University is with Lazari. Thank you so much, Run for
Speaker 1: joining us today. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio