1 00:00:09,880 --> 00:00:13,760 Speaker 1: Welcome to the Bloomberg Surveillance podcast. I'm Tom Keane. Daily 2 00:00:13,960 --> 00:00:17,560 Speaker 1: we bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,560 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Someone 5 00:00:27,560 --> 00:00:30,120 Speaker 1: who is always fold of history into our analysis is 6 00:00:30,200 --> 00:00:33,440 Speaker 1: liz Anne Saunders. She is at Charles Schwab and she 7 00:00:33,600 --> 00:00:37,240 Speaker 1: has been a foundation voice on belief in the stock 8 00:00:37,320 --> 00:00:40,120 Speaker 1: market for decades. We're thrilled to get an update from 9 00:00:40,159 --> 00:00:42,640 Speaker 1: miss Saunders this morning. Liz Ane, I've got to go 10 00:00:42,720 --> 00:00:45,760 Speaker 1: to the money question always with you, which is what 11 00:00:45,840 --> 00:00:49,920 Speaker 1: do you observe at Schwab of what people are doing 12 00:00:50,000 --> 00:00:53,000 Speaker 1: with their money? Are they in this bullmarket? So, if 13 00:00:53,000 --> 00:00:57,400 Speaker 1: you from a fun flow perspective, consistent with with broad aggregates, 14 00:00:58,000 --> 00:01:01,280 Speaker 1: you've seen money actually coming out of equities in the 15 00:01:01,320 --> 00:01:05,360 Speaker 1: last several months more into fixed income more recently in 16 00:01:05,360 --> 00:01:08,400 Speaker 1: the last couple of weeks. Where you have seen aggressiveness 17 00:01:08,440 --> 00:01:10,880 Speaker 1: in terms of flows is in the e t s, 18 00:01:11,200 --> 00:01:13,400 Speaker 1: particularly the q q q s, which is the Nasdaq 19 00:01:13,480 --> 00:01:16,640 Speaker 1: one hundred inflows and then the Russell two thousand, the 20 00:01:16,680 --> 00:01:19,800 Speaker 1: i w N outflows that's really where we're seeing some 21 00:01:19,840 --> 00:01:22,440 Speaker 1: aggressive action. But what we have seen in general is 22 00:01:22,480 --> 00:01:24,720 Speaker 1: not consistent with what some of the headlines have been 23 00:01:24,760 --> 00:01:28,640 Speaker 1: around some of the newly minted smaller day traders, where 24 00:01:28,720 --> 00:01:32,520 Speaker 1: in that coort you have seen some really rampant speculation, 25 00:01:32,720 --> 00:01:36,120 Speaker 1: but broadly among our investors, that's not what we've been seeing. 26 00:01:36,200 --> 00:01:38,480 Speaker 1: I mean, this is interesting folks in the cubes, folks 27 00:01:38,480 --> 00:01:41,720 Speaker 1: of the nastac one D of course of proxy for Apple, Amazon, 28 00:01:41,840 --> 00:01:44,800 Speaker 1: Facebook and the rest of them as well. Luis Ane, 29 00:01:44,880 --> 00:01:48,760 Speaker 1: can you predict a catalyst or event that will finally 30 00:01:48,760 --> 00:01:52,360 Speaker 1: give us a tangible shift from cubes over to Russell 31 00:01:52,400 --> 00:01:55,760 Speaker 1: two thousand? What's going to make that happen? I can't 32 00:01:55,760 --> 00:01:59,360 Speaker 1: predict anything. Uh. You know, you've seen the Russell have 33 00:01:59,480 --> 00:02:03,279 Speaker 1: bouts of relative out performance over the last couple of months. 34 00:02:03,280 --> 00:02:06,080 Speaker 1: You know they're they're trying to develop that out performance. 35 00:02:06,120 --> 00:02:09,600 Speaker 1: I think we would have to see station in sort 36 00:02:09,600 --> 00:02:13,079 Speaker 1: of the financial system, a real sense that we're back 37 00:02:13,080 --> 00:02:16,800 Speaker 1: in recovery mode because a fundamental differential between small caps 38 00:02:16,840 --> 00:02:19,880 Speaker 1: in the aggregate and large caps it's still fairly wide 39 00:02:19,880 --> 00:02:21,760 Speaker 1: when you look at debt to equity ratios, when you 40 00:02:21,800 --> 00:02:24,040 Speaker 1: look at the percentage of the russell that are so 41 00:02:24,120 --> 00:02:27,280 Speaker 1: called zombie companies. When you look at the percentage of 42 00:02:27,280 --> 00:02:30,320 Speaker 1: the russell that are not profitable and likely won't be 43 00:02:30,400 --> 00:02:33,880 Speaker 1: for an extended period of time, versus the larger CAP indexes, 44 00:02:34,160 --> 00:02:37,359 Speaker 1: there's really no comparison. But if we really start to 45 00:02:37,400 --> 00:02:40,280 Speaker 1: see the recovery kick into gear, that tends to bring 46 00:02:40,320 --> 00:02:43,839 Speaker 1: a bias down the CAP spectrum. So one month of 47 00:02:43,840 --> 00:02:46,600 Speaker 1: of good data I think doesn't suggest a v rebound. 48 00:02:46,639 --> 00:02:48,160 Speaker 1: I think we'd have to see a few months of 49 00:02:48,200 --> 00:02:52,440 Speaker 1: it to believe that the recovery is sustainable such that 50 00:02:52,520 --> 00:02:55,520 Speaker 1: everybody can participate. Lazan, this is a huge debate the 51 00:02:55,639 --> 00:02:58,720 Speaker 1: ingredients needed for durable roatation into the most cyclical areas 52 00:02:58,960 --> 00:03:01,160 Speaker 1: of this market. You have any confidence that this V 53 00:03:01,440 --> 00:03:03,800 Speaker 1: this bounce that we witness of off the bottom as 54 00:03:03,840 --> 00:03:05,880 Speaker 1: we re output and can continue, Oh I don't. I 55 00:03:05,880 --> 00:03:08,760 Speaker 1: don't think to the extent of the percentage increases off 56 00:03:08,800 --> 00:03:11,880 Speaker 1: the bottom we saw are able to persist. Absolutely not. 57 00:03:11,919 --> 00:03:14,920 Speaker 1: I think mathematically it just doesn't work that way. That 58 00:03:15,040 --> 00:03:17,400 Speaker 1: the law of small numbers is such you can press 59 00:03:17,440 --> 00:03:20,560 Speaker 1: the data to such a significant degree, it's very natural 60 00:03:20,600 --> 00:03:22,680 Speaker 1: that the bounce back in percentage terms is going to 61 00:03:22,720 --> 00:03:25,720 Speaker 1: be massive, but you can't extrapolate that into the future. 62 00:03:25,720 --> 00:03:27,480 Speaker 1: And that's why I think what we're more likely to 63 00:03:27,480 --> 00:03:30,520 Speaker 1: see is rolling ws. So you get the shot up 64 00:03:30,560 --> 00:03:32,720 Speaker 1: initially and then you back down a little bit. And 65 00:03:32,720 --> 00:03:35,680 Speaker 1: the second order economic effects are not just specific to 66 00:03:36,480 --> 00:03:39,640 Speaker 1: second waves. If you can even consider the first wave 67 00:03:39,720 --> 00:03:42,640 Speaker 1: over of the virus, there are second wave economic effects 68 00:03:42,640 --> 00:03:45,320 Speaker 1: that are coming down the pike regardless of whether we 69 00:03:45,880 --> 00:03:50,320 Speaker 1: see additional increased cases in the virus, temporary layoffs becoming 70 00:03:50,320 --> 00:03:54,920 Speaker 1: permanent job losses, what we're seeing in the bankruptcy environment. 71 00:03:55,000 --> 00:03:58,200 Speaker 1: So I just think there's going to be a pretty 72 00:03:58,280 --> 00:04:03,440 Speaker 1: choppy recovery even absent the implications of the virus and LISIA. 73 00:04:03,520 --> 00:04:06,280 Speaker 1: That means that tech remains the safe haven play here. 74 00:04:06,640 --> 00:04:10,040 Speaker 1: I'm wondering, though, how much the recent regulatory pressures could 75 00:04:10,040 --> 00:04:14,400 Speaker 1: threaten that. Given the Facebook voycott among advertisers, we know 76 00:04:14,440 --> 00:04:16,880 Speaker 1: Facebook is meeting with some of them today. This idea 77 00:04:17,080 --> 00:04:19,440 Speaker 1: that that could actually accelerate some of the pressure coming 78 00:04:19,480 --> 00:04:22,680 Speaker 1: from Washington, d C. How much are you watching this? Well? 79 00:04:22,960 --> 00:04:25,880 Speaker 1: You know this, This risk about regulatory pressure is not 80 00:04:25,960 --> 00:04:29,840 Speaker 1: a new one. This is not really an election cycle risk. 81 00:04:29,960 --> 00:04:32,800 Speaker 1: This has been ongoing for a couple of years now, 82 00:04:32,920 --> 00:04:36,440 Speaker 1: so clearly it has not prevented many of those names 83 00:04:36,560 --> 00:04:39,479 Speaker 1: from doing well. I think as you get close to 84 00:04:39,520 --> 00:04:42,520 Speaker 1: the election, depending on how far up the priority spectrum 85 00:04:42,560 --> 00:04:45,359 Speaker 1: you see it on either candidate, then I think it 86 00:04:45,400 --> 00:04:48,600 Speaker 1: becomes an issue. But with most issues have become election 87 00:04:48,640 --> 00:04:51,719 Speaker 1: platform issues, they don't tend to really start to impact 88 00:04:51,720 --> 00:04:55,560 Speaker 1: stocks until around Labor Day or post labor day environment, 89 00:04:55,640 --> 00:04:59,920 Speaker 1: so I'd be more focused on the messaging around regulator 90 00:05:00,240 --> 00:05:03,640 Speaker 1: environment and of course the ability to do something depending 91 00:05:03,680 --> 00:05:07,960 Speaker 1: on the divisions in Congress as a post labor day phenomenon. Luzanne, 92 00:05:08,040 --> 00:05:09,520 Speaker 1: I think a lot of people in the market would 93 00:05:09,520 --> 00:05:12,320 Speaker 1: agree with you that the regulatory train moves very slowly, 94 00:05:12,360 --> 00:05:14,840 Speaker 1: if at all. On the other hand, how much are 95 00:05:14,880 --> 00:05:17,880 Speaker 1: these boycotts just an excuse for big companies to cut 96 00:05:17,920 --> 00:05:21,640 Speaker 1: their advertising budgets in a highly uncertain environment. That's going 97 00:05:21,680 --> 00:05:24,320 Speaker 1: to affect the Googles, the facebooks, the Twitters of the 98 00:05:24,320 --> 00:05:27,520 Speaker 1: world regardless of policy. Oh, I think companies across the 99 00:05:27,520 --> 00:05:30,839 Speaker 1: spectrum of industries are probably looking for some sort of 100 00:05:30,880 --> 00:05:33,760 Speaker 1: margin edge in this very difficult environment. So you know, 101 00:05:33,800 --> 00:05:35,320 Speaker 1: I don't coverage, you know, at least I don't cover 102 00:05:35,400 --> 00:05:37,919 Speaker 1: individual companies, so I'm not I'm not down in the 103 00:05:37,960 --> 00:05:41,560 Speaker 1: weeds with these companies, but it's not surprising to see 104 00:05:41,600 --> 00:05:43,520 Speaker 1: an attempt at at raining in the cost side of 105 00:05:43,520 --> 00:05:46,080 Speaker 1: the equation in this environment. Luzanne, you were just on 106 00:05:46,200 --> 00:05:49,240 Speaker 1: a Delaware or maybe starting at Delaware when there was 107 00:05:49,279 --> 00:05:54,440 Speaker 1: a modest moment the crash of rucks are on a 108 00:05:54,480 --> 00:05:59,320 Speaker 1: Friday night, Mr Rukaiser, on a Friday night, had Sir 109 00:05:59,440 --> 00:06:02,159 Speaker 1: John Tom Pilton and a few other third were these 110 00:06:02,279 --> 00:06:06,080 Speaker 1: Robert Kirby a capitol group out to comblin nation down 111 00:06:06,920 --> 00:06:09,799 Speaker 1: right now on Global Wall Street? We need to comb 112 00:06:09,800 --> 00:06:13,480 Speaker 1: the nation? Is our new lu Rue Kaiser? Jerome Powell? 113 00:06:14,080 --> 00:06:16,440 Speaker 1: Is he the one doing the calming of the nation 114 00:06:16,640 --> 00:06:22,680 Speaker 1: and the financial markets? Um, maybe without the humorous equips 115 00:06:22,720 --> 00:06:26,800 Speaker 1: that we all remember lou four and I certainly won't 116 00:06:26,839 --> 00:06:31,400 Speaker 1: forget that, particularly the Friday night before seven, where you 117 00:06:31,440 --> 00:06:33,760 Speaker 1: know my boss at the time, the late Great Marty's Way, 118 00:06:34,000 --> 00:06:37,800 Speaker 1: came on and actually predicted the crash that was to 119 00:06:37,880 --> 00:06:40,880 Speaker 1: come three days later, And little did I know how 120 00:06:40,920 --> 00:06:43,800 Speaker 1: difficult that was to do. But I do think I 121 00:06:43,839 --> 00:06:47,040 Speaker 1: think Powell is doing a very good job. He's also 122 00:06:47,120 --> 00:06:49,320 Speaker 1: learned to sort of stay on message a little bit 123 00:06:49,320 --> 00:06:53,120 Speaker 1: more um than maybe in the past half ago tripped 124 00:06:53,160 --> 00:06:54,840 Speaker 1: him up a little bit. But what I think the 125 00:06:54,880 --> 00:06:58,279 Speaker 1: most important message Powell has been imparting is not about 126 00:06:58,600 --> 00:07:01,040 Speaker 1: you know, we will be here or there is this 127 00:07:01,120 --> 00:07:04,720 Speaker 1: isn't a certain period of time, but we've got the ammunition. 128 00:07:04,760 --> 00:07:07,200 Speaker 1: We're not going to run run out of ammunition. I 129 00:07:07,240 --> 00:07:09,520 Speaker 1: think the most important messaging has been well too or 130 00:07:09,560 --> 00:07:11,520 Speaker 1: two of them. One. Some of these tools will go 131 00:07:11,560 --> 00:07:13,920 Speaker 1: back in the toolbox when it's appropriate that this is 132 00:07:13,920 --> 00:07:17,240 Speaker 1: not adam finitum in terms of these new facilities. But 133 00:07:17,320 --> 00:07:21,000 Speaker 1: also he has repeatedly emphasized that there's a difference in 134 00:07:21,040 --> 00:07:24,080 Speaker 1: the fed's mind and should be an investors minds, between 135 00:07:24,160 --> 00:07:28,000 Speaker 1: financial system stability, of which the FED is a big part, 136 00:07:28,120 --> 00:07:31,320 Speaker 1: and financial market volatility. So I think he's trying to 137 00:07:31,320 --> 00:07:34,720 Speaker 1: get the message that volatility in the financial markets in 138 00:07:34,760 --> 00:07:38,880 Speaker 1: and of itself shouldn't trigger FED action unless it becomes 139 00:07:38,880 --> 00:07:42,440 Speaker 1: a risk to the financial system. More broadly, so, that 140 00:07:42,480 --> 00:07:45,400 Speaker 1: to me is the most resident message that he has 141 00:07:45,440 --> 00:07:48,040 Speaker 1: been putting out there, not just in this recent period 142 00:07:48,480 --> 00:07:51,679 Speaker 1: but over the lapt past year. Lasan Love catching Lsan 143 00:07:51,760 --> 00:07:58,720 Speaker 1: sounds a child schwab. You're mid year trying to adjust 144 00:07:58,720 --> 00:08:00,800 Speaker 1: an adapt at all. He's helped talked to one of 145 00:08:00,800 --> 00:08:04,200 Speaker 1: the major bankers of Global Wall Street. We did that 146 00:08:04,280 --> 00:08:07,480 Speaker 1: this morning, for instance, and myself here's our conversation, the 147 00:08:07,560 --> 00:08:10,960 Speaker 1: highlights of it. But just stately of Berkeley's, I think 148 00:08:11,000 --> 00:08:13,880 Speaker 1: there is a sort of gathering storm out there. I 149 00:08:13,880 --> 00:08:16,520 Speaker 1: mean the furlough program, uh, you know, being fund the 150 00:08:16,520 --> 00:08:20,080 Speaker 1: State's quite amazing to watch and how significant the program 151 00:08:20,160 --> 00:08:22,960 Speaker 1: is in the UK and how that has buffered the 152 00:08:23,000 --> 00:08:28,520 Speaker 1: impact of this incredible uh medical crisis. Um. But the 153 00:08:28,560 --> 00:08:31,160 Speaker 1: government has been very strong in terms of you know, 154 00:08:31,200 --> 00:08:35,120 Speaker 1: putting small business loans out guaranteed by the government. We 155 00:08:35,200 --> 00:08:38,280 Speaker 1: ourselves have done over two hundred thousand small business loans 156 00:08:38,280 --> 00:08:40,360 Speaker 1: in the last couple of weeks, about six and a 157 00:08:40,400 --> 00:08:44,360 Speaker 1: half billion pounds UM, all the way to major commercial 158 00:08:44,400 --> 00:08:47,680 Speaker 1: paper programs being bought by Her Majesty's Treasuries and we've 159 00:08:47,679 --> 00:08:50,840 Speaker 1: done over ten billion pounds of that type of of 160 00:08:51,000 --> 00:08:55,200 Speaker 1: lending as as well. So the the reaction has been 161 00:08:55,280 --> 00:08:57,560 Speaker 1: quite strong, and what that has enabled us to do is, 162 00:08:57,880 --> 00:09:00,200 Speaker 1: you know, stay focused on the financial and tech the 163 00:09:00,679 --> 00:09:04,880 Speaker 1: Barkley Barkley is being a very strong, highly capitalized bank 164 00:09:05,360 --> 00:09:08,160 Speaker 1: UH is critical if we're gonna play our role in 165 00:09:08,240 --> 00:09:11,160 Speaker 1: helping the UK and the world recover from this up 166 00:09:11,240 --> 00:09:13,560 Speaker 1: this virus. We were fortunate France scene. We walked in 167 00:09:13,920 --> 00:09:16,720 Speaker 1: with the highest level of capitalization in the history of 168 00:09:16,720 --> 00:09:20,520 Speaker 1: Barkley's thirteen point eight percent capital to a risk, wedded assets, 169 00:09:20,640 --> 00:09:22,840 Speaker 1: very liquid. So I think we had the strength of 170 00:09:22,840 --> 00:09:26,120 Speaker 1: a very strong balance sheet and a profitable underlying business 171 00:09:26,200 --> 00:09:29,800 Speaker 1: that hopefully we can be a you know, a firewall 172 00:09:29,880 --> 00:09:32,480 Speaker 1: as we try to get through this economic crisis. Jes 173 00:09:32,600 --> 00:09:36,080 Speaker 1: if you look at the deterioration deterioration of the UK economy, 174 00:09:36,160 --> 00:09:38,480 Speaker 1: is it actually worse than expected? And again, what does 175 00:09:38,480 --> 00:09:41,679 Speaker 1: that mean for your client activity? I think right now 176 00:09:42,120 --> 00:09:45,680 Speaker 1: the contraction in the economy is probably less than we 177 00:09:45,760 --> 00:09:49,040 Speaker 1: would have expected or anticipated a month or a month 178 00:09:49,040 --> 00:09:52,600 Speaker 1: and a half ago. Spin has started to recover. It's 179 00:09:52,640 --> 00:09:55,679 Speaker 1: not down nearly as much as it was a couple 180 00:09:55,720 --> 00:09:59,280 Speaker 1: of months ago. Um, you know, aided by the government 181 00:09:59,280 --> 00:10:02,280 Speaker 1: programs A to buy the furlough programs. As you said, 182 00:10:02,280 --> 00:10:04,199 Speaker 1: I do think there's a little bit of storm gathering 183 00:10:04,280 --> 00:10:08,000 Speaker 1: once you know, we have ninety thousand mortgage payment holidays 184 00:10:08,040 --> 00:10:10,559 Speaker 1: out there, and we've given payment holidays to our credit 185 00:10:10,600 --> 00:10:13,840 Speaker 1: card holders. You've got the furlough program. A lot of 186 00:10:13,840 --> 00:10:15,920 Speaker 1: that is going to start to end as we come 187 00:10:15,920 --> 00:10:19,160 Speaker 1: into the end of June and July in August, and 188 00:10:19,160 --> 00:10:23,400 Speaker 1: it will be interested to see, um uh, what happens 189 00:10:23,400 --> 00:10:26,000 Speaker 1: to unemployment at that point in time, what happens with 190 00:10:26,040 --> 00:10:28,320 Speaker 1: the furlow program. So we're clearing on out of the 191 00:10:28,360 --> 00:10:31,360 Speaker 1: woods yet. I think we've recovered more right now than 192 00:10:31,400 --> 00:10:33,800 Speaker 1: we would have fought a little bit ago. But there 193 00:10:33,880 --> 00:10:36,520 Speaker 1: is that second storm coming uh in a couple of 194 00:10:36,520 --> 00:10:39,200 Speaker 1: months ago. Heirston Young is really under the gun here. 195 00:10:39,200 --> 00:10:43,240 Speaker 1: There's clearly a massive missed audit at wire Card as well. 196 00:10:43,280 --> 00:10:46,120 Speaker 1: I want you to speak for the rigor of auditing 197 00:10:46,280 --> 00:10:49,800 Speaker 1: at Barclay's. Do you feel there's any mysteries on your 198 00:10:49,840 --> 00:10:53,080 Speaker 1: book in relation to wire Card? Do you think the 199 00:10:53,160 --> 00:10:56,520 Speaker 1: auditing is tight enough just on simple things like what's 200 00:10:56,559 --> 00:10:59,199 Speaker 1: an X number of banks? Yeah? I know we started 201 00:10:59,200 --> 00:11:01,800 Speaker 1: taking a cost this approach to work hard quite some 202 00:11:01,880 --> 00:11:06,280 Speaker 1: time ago. Um uh, you know, so again very mindful 203 00:11:06,320 --> 00:11:09,120 Speaker 1: of we're all wait wait wait, wait, wait wait wait, 204 00:11:09,240 --> 00:11:13,480 Speaker 1: just just some time ago, like last Thursday or a 205 00:11:13,520 --> 00:11:18,360 Speaker 1: few years ago, let's say, uh, a long time ago, 206 00:11:18,480 --> 00:11:21,680 Speaker 1: not last Thursday. You know, wik Card didn't have you 207 00:11:21,880 --> 00:11:27,120 Speaker 1: question uh before, So we've been you know, conservative and 208 00:11:27,160 --> 00:11:29,480 Speaker 1: how we dealt with them. There are very big business. 209 00:11:29,559 --> 00:11:32,680 Speaker 1: They've got a very big business in the UK as well. 210 00:11:32,920 --> 00:11:37,000 Speaker 1: It's a very tough situation obviously. Uh. It seems like 211 00:11:37,040 --> 00:11:40,520 Speaker 1: something quite significant was missed. Uh And I think uh 212 00:11:40,559 --> 00:11:42,320 Speaker 1: and I think the markets will pay a price for it. 213 00:11:42,800 --> 00:11:46,679 Speaker 1: Mr Staley there of Berkeley's with some humor over wire 214 00:11:46,800 --> 00:11:54,000 Speaker 1: card and policy a huge focus for all of us worldwide. 215 00:11:54,120 --> 00:11:56,400 Speaker 1: I started the conversation with David Lebovitz of j P. 216 00:11:56,559 --> 00:12:00,120 Speaker 1: Mulkin Asset Management. David, let's stop there, what's your focus 217 00:12:00,160 --> 00:12:02,360 Speaker 1: a little bit like this afternoon? So, you know, I 218 00:12:02,600 --> 00:12:04,480 Speaker 1: think we're going to be looking for for a couple 219 00:12:04,480 --> 00:12:07,400 Speaker 1: of things. One, the reaffirmation of the message that, as 220 00:12:07,400 --> 00:12:10,000 Speaker 1: you guys point out, you know, more stimulus is almost 221 00:12:10,320 --> 00:12:14,160 Speaker 1: required at this juncture. But also any hints um particularly 222 00:12:14,200 --> 00:12:17,480 Speaker 1: from pal Um as to the trajectory that monetary policy 223 00:12:17,520 --> 00:12:19,680 Speaker 1: may take here over the next couple of months. You know, 224 00:12:19,720 --> 00:12:22,679 Speaker 1: they've finally gotten a lot of these corporate credit facilities 225 00:12:22,760 --> 00:12:25,160 Speaker 1: up and running and in the original term sheets, those 226 00:12:25,160 --> 00:12:28,000 Speaker 1: were actually set to expire at the end of September, 227 00:12:28,000 --> 00:12:30,880 Speaker 1: And so does he suggest that perhaps there's more runway 228 00:12:30,920 --> 00:12:32,920 Speaker 1: around some of these new FED programs. I think will 229 00:12:32,960 --> 00:12:35,679 Speaker 1: be particularly important in complimenting anything that we hear from 230 00:12:35,720 --> 00:12:38,880 Speaker 1: Minutian with respect to more and more on the fiscal 231 00:12:38,920 --> 00:12:41,040 Speaker 1: side over the next couple of weeks. Here and David, 232 00:12:41,080 --> 00:12:44,280 Speaker 1: I thought to note from Casman and Farole from JPM 233 00:12:44,280 --> 00:12:48,360 Speaker 1: Morrigan this weekend was absolutely spectacular, and they talked about 234 00:12:48,480 --> 00:12:52,160 Speaker 1: things like yield curve curve control and being on Mars 235 00:12:52,280 --> 00:12:55,480 Speaker 1: or being on Venus. Your wing of the ship is 236 00:12:55,559 --> 00:12:58,920 Speaker 1: on planet Earth and you have to actually invest money 237 00:12:59,360 --> 00:13:03,640 Speaker 1: in this rate uncertainty? What is your six month strategy 238 00:13:04,040 --> 00:13:08,160 Speaker 1: strategy at JP Morgan Asset Management. So we we continue 239 00:13:08,160 --> 00:13:09,720 Speaker 1: to kind of play it the way that we've been 240 00:13:09,760 --> 00:13:12,760 Speaker 1: approaching things over the course of the past couple of months. Um. 241 00:13:12,800 --> 00:13:15,280 Speaker 1: You know, when we were seeing that nascent rotation into 242 00:13:15,400 --> 00:13:18,080 Speaker 1: value a couple of weeks back, we really held back 243 00:13:18,120 --> 00:13:21,800 Speaker 1: on embracing a lot more cyclicality and portfolios because by 244 00:13:21,800 --> 00:13:24,240 Speaker 1: our lights, this was really about the delta or the 245 00:13:24,320 --> 00:13:26,760 Speaker 1: rate of change, and we assume that at some point, 246 00:13:26,800 --> 00:13:29,080 Speaker 1: the market would begin to focus on the absolute level, 247 00:13:29,160 --> 00:13:32,680 Speaker 1: so still really grounding portfolios and high quality assets. On 248 00:13:32,679 --> 00:13:35,199 Speaker 1: the equity side, that's things like technology, and then from 249 00:13:35,200 --> 00:13:38,520 Speaker 1: a regional standpoint, the US on the fixed income side, 250 00:13:38,559 --> 00:13:41,880 Speaker 1: you know, barbelling between investment grade corporate bonds and various 251 00:13:41,880 --> 00:13:45,440 Speaker 1: securitized types of paper given the inherent FED support in 252 00:13:45,480 --> 00:13:48,880 Speaker 1: those markets with treasury bonds, because we do anticipate um 253 00:13:48,920 --> 00:13:50,360 Speaker 1: that the markets are going to be a little bit 254 00:13:50,440 --> 00:13:52,800 Speaker 1: choppy here, I think that there's a clear expectation that 255 00:13:52,920 --> 00:13:55,800 Speaker 1: that more stimulus is needed. Um, I'm not sure the 256 00:13:55,840 --> 00:13:57,679 Speaker 1: path to get there is going to be smooth. And 257 00:13:57,720 --> 00:14:00,120 Speaker 1: at the same time, you know, as the economy is 258 00:14:00,160 --> 00:14:03,160 Speaker 1: back online for longer periods of time, these big jumps 259 00:14:03,160 --> 00:14:05,200 Speaker 1: in the data like we saw in retail sales a 260 00:14:05,200 --> 00:14:08,760 Speaker 1: few weeks back, are going to become fewer and more infrequent, 261 00:14:08,800 --> 00:14:11,640 Speaker 1: and so I think investors are going to focus increasingly 262 00:14:11,679 --> 00:14:14,160 Speaker 1: on where things stand, and that's going to drive a 263 00:14:14,200 --> 00:14:17,800 Speaker 1: relatively volatile and range bound market here through the through 264 00:14:17,840 --> 00:14:20,400 Speaker 1: the end of the year. David is most reliable investment 265 00:14:20,440 --> 00:14:24,800 Speaker 1: thesis at this point, purely investing on policy, purely investing 266 00:14:24,800 --> 00:14:27,760 Speaker 1: on more FED stimulus on some sort of fiscal bailout 267 00:14:27,760 --> 00:14:31,360 Speaker 1: package from Washington, d C. Rather than look at any 268 00:14:31,400 --> 00:14:33,560 Speaker 1: of the data, rather than looking at the rising trade 269 00:14:33,600 --> 00:14:36,680 Speaker 1: dentis between the China and the US and potentially a 270 00:14:36,800 --> 00:14:39,560 Speaker 1: boycott with social media. So, you know, I think that 271 00:14:39,600 --> 00:14:42,880 Speaker 1: those some of those other issues are are definitely secondary 272 00:14:43,000 --> 00:14:46,120 Speaker 1: right now. I think that fundamentally, you know, when I 273 00:14:46,160 --> 00:14:49,000 Speaker 1: was thinking about this earlier today, and it all comes 274 00:14:49,040 --> 00:14:51,280 Speaker 1: down to cash flow, right and right now, the market 275 00:14:51,280 --> 00:14:53,440 Speaker 1: doesn't care where that cash flow is coming from. Is 276 00:14:53,480 --> 00:14:57,000 Speaker 1: it generated organically by the companies, is it visa the 277 00:14:57,160 --> 00:15:00,560 Speaker 1: various rounds of fiscal and monetary stimulus. Right They just 278 00:15:00,640 --> 00:15:02,440 Speaker 1: want to know that that the economy is going to 279 00:15:02,560 --> 00:15:05,200 Speaker 1: keep running even if we're kind of artificially propping it 280 00:15:05,320 --> 00:15:08,400 Speaker 1: up with FED and government support. But I do think 281 00:15:08,400 --> 00:15:10,760 Speaker 1: that as we get closer to the election in November 282 00:15:11,240 --> 00:15:14,120 Speaker 1: in particular, you may see some of these secondary issues, 283 00:15:14,160 --> 00:15:18,200 Speaker 1: particularly the more political issues, really begin to crystallize in 284 00:15:18,200 --> 00:15:20,600 Speaker 1: in the eyes of the market and just become another 285 00:15:20,840 --> 00:15:23,360 Speaker 1: source of angst. You know, you can you can ride 286 00:15:23,360 --> 00:15:26,240 Speaker 1: the liquidity wave for for only so long, and at 287 00:15:26,280 --> 00:15:27,960 Speaker 1: some point the economy is going to be left to 288 00:15:28,000 --> 00:15:30,280 Speaker 1: stand on its own two feet, and that's when things 289 00:15:30,360 --> 00:15:32,760 Speaker 1: like the corporate fundamentals and the outlook for policy are 290 00:15:32,760 --> 00:15:35,640 Speaker 1: going to become increasingly important. Again. I think that that's 291 00:15:35,640 --> 00:15:38,520 Speaker 1: going to coincide with the election later on this year. Well, 292 00:15:38,520 --> 00:15:40,280 Speaker 1: that might be a story for several months away and 293 00:15:40,320 --> 00:15:42,000 Speaker 1: the here and now. David, it's a market, as you 294 00:15:42,040 --> 00:15:44,240 Speaker 1: point out, that is suffering in the middle of this 295 00:15:44,280 --> 00:15:47,680 Speaker 1: tug of war between the direction of the recovery still positive, 296 00:15:47,720 --> 00:15:50,160 Speaker 1: expected to be so for the next several weeks and months, 297 00:15:50,320 --> 00:15:52,600 Speaker 1: and the pace of it and the realization that we 298 00:15:52,640 --> 00:15:56,600 Speaker 1: will be below potential for a long long time. So 299 00:15:56,640 --> 00:15:59,800 Speaker 1: long as we maintain a positive trajectory, do you think 300 00:15:59,800 --> 00:16:03,920 Speaker 1: that sufficient to drive further equity gains? So, I do 301 00:16:04,000 --> 00:16:06,240 Speaker 1: think that that equity upside is going to be a 302 00:16:06,320 --> 00:16:10,240 Speaker 1: little bit capped until we get more clarity from the 303 00:16:10,280 --> 00:16:14,280 Speaker 1: corporations themselves. And so I think one of the issues 304 00:16:14,320 --> 00:16:16,320 Speaker 1: that we're going to be particularly focused on over the 305 00:16:16,360 --> 00:16:19,800 Speaker 1: next couple of weeks is as companies begin to report 306 00:16:19,880 --> 00:16:23,320 Speaker 1: report their second quarter profit data, are they providing guidance 307 00:16:23,360 --> 00:16:26,320 Speaker 1: for what they expect in the remainder of in the 308 00:16:26,320 --> 00:16:28,760 Speaker 1: beginning of one And I think that you know, the 309 00:16:29,040 --> 00:16:31,400 Speaker 1: market has been kind of standing on this three legged 310 00:16:31,440 --> 00:16:34,280 Speaker 1: stool here of what's going on with case growth, the 311 00:16:34,360 --> 00:16:37,720 Speaker 1: policy response, and the outlook for economic reopening, and the 312 00:16:37,720 --> 00:16:40,880 Speaker 1: trajectory of corporate profits. Um, we we see what's going 313 00:16:40,920 --> 00:16:43,040 Speaker 1: on with the virus, we we see what's going on 314 00:16:43,160 --> 00:16:45,880 Speaker 1: with the policy response. There's still a lot of uncertainty 315 00:16:45,920 --> 00:16:48,040 Speaker 1: around how all of this is going to translate into 316 00:16:48,080 --> 00:16:51,920 Speaker 1: actual economic activity and corporate profitability over the next eighteen months. 317 00:16:52,120 --> 00:16:53,720 Speaker 1: And I think that's going to be the key thing 318 00:16:53,840 --> 00:16:56,720 Speaker 1: that you know, either pushes equities further to the upside 319 00:16:56,760 --> 00:16:59,240 Speaker 1: or perhaps caps their potential over the next the next 320 00:16:59,240 --> 00:17:01,920 Speaker 1: couple of months. I mean, David, I get all this 321 00:17:02,000 --> 00:17:05,800 Speaker 1: hips up. At the bottom line is everybody's recalibrating their 322 00:17:05,880 --> 00:17:10,719 Speaker 1: fundamental investment theories. Dr Siegel down at Wharton is beginning 323 00:17:10,720 --> 00:17:15,040 Speaker 1: to question sixty forty, her sixty ten. He's even advocating 324 00:17:15,080 --> 00:17:18,600 Speaker 1: eight twenty. You've got a pension plan out in California 325 00:17:18,680 --> 00:17:21,639 Speaker 1: talking about leveraging up to get yield. It seems like 326 00:17:21,680 --> 00:17:25,480 Speaker 1: a world tipped upside down. What's the allocation you would 327 00:17:25,520 --> 00:17:30,120 Speaker 1: recommend off a traditional sixty forty split. So I think 328 00:17:30,160 --> 00:17:33,080 Speaker 1: that you know, you increasingly need to take more risk 329 00:17:33,200 --> 00:17:37,600 Speaker 1: in inequities. That is inherently difficult for for some investors 330 00:17:37,640 --> 00:17:40,000 Speaker 1: to do, but we would We would add some equity exposure, 331 00:17:40,000 --> 00:17:42,440 Speaker 1: assuming that return targets are in line with the numbers 332 00:17:42,440 --> 00:17:44,920 Speaker 1: that that we see most clients trying to hit. Um 333 00:17:45,000 --> 00:17:46,840 Speaker 1: you know, within fixed income, we wouldn't get rid of 334 00:17:46,880 --> 00:17:50,280 Speaker 1: fixed income. You need that ballast in portfolios, and particularly 335 00:17:50,320 --> 00:17:52,479 Speaker 1: given the view that things might be a little bit 336 00:17:52,520 --> 00:17:54,720 Speaker 1: choppy here going forward, we want to make sure that 337 00:17:54,760 --> 00:17:57,880 Speaker 1: we have that protection if markets were to strongly move 338 00:17:58,000 --> 00:18:01,040 Speaker 1: to to the downside. But you know, what you're really 339 00:18:01,080 --> 00:18:03,760 Speaker 1: seeing emerge from all of this is a need for 340 00:18:04,280 --> 00:18:06,760 Speaker 1: uncorrelated sources of income. And one of the things that 341 00:18:06,800 --> 00:18:09,040 Speaker 1: we've seen a lot of the institutional investors that we 342 00:18:09,040 --> 00:18:11,480 Speaker 1: work with do over the past couple of years is 343 00:18:11,520 --> 00:18:14,360 Speaker 1: take some of that exposure that has had historically been 344 00:18:14,359 --> 00:18:18,240 Speaker 1: oriented towards fixed income and reallocate that towards core real 345 00:18:18,240 --> 00:18:21,520 Speaker 1: assets things like real estate and infrastructure. You obviously need 346 00:18:21,520 --> 00:18:23,840 Speaker 1: to be selective, but what that allows you to do 347 00:18:23,920 --> 00:18:27,399 Speaker 1: is increase the overall income that your portfolio generates without 348 00:18:27,400 --> 00:18:30,359 Speaker 1: adding more equity volatility. And that's really the the issue 349 00:18:30,400 --> 00:18:32,440 Speaker 1: at the end of the day is people don't want 350 00:18:32,440 --> 00:18:35,159 Speaker 1: to just add volatility to their portfolio to stretch for 351 00:18:35,280 --> 00:18:38,600 Speaker 1: return um and we're increasingly seeing people looking for ways 352 00:18:38,640 --> 00:18:41,560 Speaker 1: of accomplishing that goal without just making their portfolios a 353 00:18:41,600 --> 00:18:44,400 Speaker 1: little more jumpy by adding to the risk asset side 354 00:18:44,400 --> 00:18:47,119 Speaker 1: of the equation. David, Just to tie this all together, 355 00:18:47,280 --> 00:18:49,679 Speaker 1: one big risk people have been talking about is that 356 00:18:49,720 --> 00:18:52,359 Speaker 1: liquidity does not equal solvency and that we get a 357 00:18:52,440 --> 00:18:56,040 Speaker 1: cascading wave of bankruptcies the picks up steam later in 358 00:18:56,040 --> 00:18:57,879 Speaker 1: the year. We have not seen that yet, and some 359 00:18:57,920 --> 00:18:59,639 Speaker 1: people are saying that we are going to see the 360 00:18:59,680 --> 00:19:03,000 Speaker 1: more domestic of those scenarios based on the liquidity in 361 00:19:03,040 --> 00:19:05,320 Speaker 1: the markets. Do you still see that it is a 362 00:19:05,520 --> 00:19:09,200 Speaker 1: very real risk, as we had toward the election season. Um. 363 00:19:09,240 --> 00:19:11,199 Speaker 1: I think it's a risk that needs to be on 364 00:19:11,320 --> 00:19:13,920 Speaker 1: investors radar. I think the chart that's been making the 365 00:19:14,000 --> 00:19:17,080 Speaker 1: rounds looks at the relationship between bankruptcy filings and the 366 00:19:17,119 --> 00:19:19,800 Speaker 1: unemployment rate, and the two have been very tightly correlated 367 00:19:20,359 --> 00:19:22,600 Speaker 1: over the past twenty five years, and so I think 368 00:19:22,600 --> 00:19:24,560 Speaker 1: people look at that and say, well, if the unemployment 369 00:19:24,640 --> 00:19:27,919 Speaker 1: rate only comes down slowly, that inherently needs to result 370 00:19:28,000 --> 00:19:30,439 Speaker 1: in a in a wave of bankruptcies. But you know, 371 00:19:30,520 --> 00:19:33,800 Speaker 1: maybe bringing us back to where the conversation started, we're 372 00:19:33,880 --> 00:19:37,119 Speaker 1: just now seeing the main street lending facility get up 373 00:19:37,160 --> 00:19:39,400 Speaker 1: and running. I think that that's going to help address 374 00:19:39,440 --> 00:19:41,879 Speaker 1: a lot of those issues. So I do think that, 375 00:19:42,040 --> 00:19:44,520 Speaker 1: given the support we've seen from the SAD and the 376 00:19:44,560 --> 00:19:47,720 Speaker 1: federal government over the past couple of months, that relationship 377 00:19:47,760 --> 00:19:49,800 Speaker 1: may not play out the way that it has historically 378 00:19:49,840 --> 00:19:53,280 Speaker 1: here going forward. David Levitz, if Jack f Mugans have 379 00:19:53,320 --> 00:19:55,080 Speaker 1: it always quite to cash? How with you send up 380 00:19:55,080 --> 00:20:02,080 Speaker 1: best to the team, won't you? Right now? Our interview 381 00:20:02,080 --> 00:20:05,040 Speaker 1: of the day for fixed income and for rates. Stephen 382 00:20:05,080 --> 00:20:08,600 Speaker 1: Major has been an HSBC for ages and he has 383 00:20:08,640 --> 00:20:12,199 Speaker 1: been on on on on about the vector of the 384 00:20:12,280 --> 00:20:15,639 Speaker 1: dynamic of the bond market and particularly full faith and credit. 385 00:20:15,720 --> 00:20:19,120 Speaker 1: He joins us now Stephen to begin the conversation. Bring 386 00:20:19,200 --> 00:20:22,879 Speaker 1: us up to date and the inertial force of yields 387 00:20:23,119 --> 00:20:26,840 Speaker 1: lower and particularly the benchmark tenure. How low can the 388 00:20:26,920 --> 00:20:30,359 Speaker 1: ten year go? Well, our forecast is fifty basis points 389 00:20:30,400 --> 00:20:33,360 Speaker 1: for year end, so we're still some way from that. 390 00:20:34,440 --> 00:20:37,080 Speaker 1: I know it doesn't sound very exciting, to go from 391 00:20:37,119 --> 00:20:40,760 Speaker 1: sixty three to fifty. But the consensus forecast, according to 392 00:20:40,800 --> 00:20:44,879 Speaker 1: Bloomberg is nearly one hundred for year end, So clearly 393 00:20:44,880 --> 00:20:47,560 Speaker 1: our view is somewhat different to everybody else. I think 394 00:20:47,560 --> 00:20:50,919 Speaker 1: we have the lowest forecasts on the street. What matters 395 00:20:50,960 --> 00:20:53,560 Speaker 1: to me is looking through the noise. It's it's not 396 00:20:53,680 --> 00:20:56,760 Speaker 1: about the discussion about whether there's going to be a 397 00:20:56,800 --> 00:21:01,840 Speaker 1: recovery or not. Let's not confuse ouns with recovery either. 398 00:21:02,600 --> 00:21:06,560 Speaker 1: To me, what matters is the long term debt dynamics 399 00:21:06,880 --> 00:21:11,600 Speaker 1: and the longer term structural drivers, including the impact of 400 00:21:11,680 --> 00:21:17,320 Speaker 1: technology and the demographics. All of this points to low 401 00:21:17,440 --> 00:21:21,360 Speaker 1: for longer and the FED itself it's guiding rates unchanged 402 00:21:21,400 --> 00:21:24,200 Speaker 1: for for years into the future. So to me, it's 403 00:21:24,320 --> 00:21:27,920 Speaker 1: very difficult for bond yields to go up, and I 404 00:21:28,080 --> 00:21:30,399 Speaker 1: think that we're stuck here for a long time. By 405 00:21:30,440 --> 00:21:34,520 Speaker 1: the way, total return on US treasuries this year is 406 00:21:34,600 --> 00:21:40,960 Speaker 1: pushing towards ten percent in long bonds. That's not bad 407 00:21:41,320 --> 00:21:43,680 Speaker 1: for an asset class that's supposed to be a store 408 00:21:43,720 --> 00:21:46,440 Speaker 1: of value. Better than not bad. Steve, considering where we 409 00:21:46,480 --> 00:21:49,040 Speaker 1: started the year and people's outlook for when we came 410 00:21:49,080 --> 00:21:52,680 Speaker 1: into it. Let's talk about whether the tracery supply matters 411 00:21:52,960 --> 00:21:55,879 Speaker 1: to supply matter for the long end. Short answer is no. 412 00:21:57,040 --> 00:21:58,960 Speaker 1: Do you want the long answer, well, I'm going to 413 00:21:59,080 --> 00:22:03,640 Speaker 1: give it. I don't have the on guardcer um. There's 414 00:22:03,680 --> 00:22:08,160 Speaker 1: not a client meeting when somebody doesn't talk about que 415 00:22:08,680 --> 00:22:12,919 Speaker 1: supply inflation. And there's there's quite a few misconceptions about 416 00:22:12,960 --> 00:22:17,640 Speaker 1: all of these subjects. There's no lack of demand. And 417 00:22:17,720 --> 00:22:22,200 Speaker 1: this is uh fifteen year old economics trying to map 418 00:22:22,280 --> 00:22:25,159 Speaker 1: the demanded supply curves and looking at the various shapes. 419 00:22:25,440 --> 00:22:27,800 Speaker 1: To me, the demand has been huge. Look at the 420 00:22:27,880 --> 00:22:31,960 Speaker 1: savings rate in the US. We're not exactly sure where 421 00:22:32,000 --> 00:22:34,880 Speaker 1: it is, but it's getting close to Second World War levels. 422 00:22:35,200 --> 00:22:38,000 Speaker 1: People are saving. Why is that because they're unsure about 423 00:22:38,040 --> 00:22:41,520 Speaker 1: the future. The money that gets saved gets recycled into 424 00:22:41,600 --> 00:22:45,359 Speaker 1: bills and bonds through the banking system. So this idea 425 00:22:45,440 --> 00:22:49,720 Speaker 1: about supply mattering needs to be put in the context 426 00:22:49,800 --> 00:22:53,000 Speaker 1: of the demand, and I think that that's being missed. 427 00:22:53,200 --> 00:22:55,919 Speaker 1: It's it's really naive to look at one side of 428 00:22:56,000 --> 00:22:59,800 Speaker 1: the equation. The same is true of the que. People 429 00:23:00,000 --> 00:23:02,520 Speaker 1: look at the Fed's balance sheet and they think that 430 00:23:02,640 --> 00:23:07,879 Speaker 1: it has to be an inflationary source of of of 431 00:23:07,880 --> 00:23:09,840 Speaker 1: trouble for the future people. People are looking at one 432 00:23:09,880 --> 00:23:13,520 Speaker 1: side of the balance sheet that the FEDS purchases do 433 00:23:13,600 --> 00:23:17,119 Speaker 1: not explain the fact that the yield is low. The 434 00:23:17,160 --> 00:23:21,000 Speaker 1: fence purchases are just part of the whole dynamic. The 435 00:23:21,080 --> 00:23:24,200 Speaker 1: Feds been able to buy what they have because banks 436 00:23:24,240 --> 00:23:27,600 Speaker 1: have taken so much money in the last few months. 437 00:23:28,359 --> 00:23:32,119 Speaker 1: The banking system is financing the feds asset purchases. Now, 438 00:23:32,160 --> 00:23:34,639 Speaker 1: I've heard guests come on your show and talk about 439 00:23:34,760 --> 00:23:39,160 Speaker 1: printing of money and inflation expectations. This just isn't right. 440 00:23:39,280 --> 00:23:41,720 Speaker 1: It's looking at one side of the balance sheet and 441 00:23:41,760 --> 00:23:44,880 Speaker 1: not understanding the whole picture. There's no lack of demand 442 00:23:45,080 --> 00:23:49,400 Speaker 1: and we see this for quite some time to come. Stephen, 443 00:23:49,560 --> 00:23:52,000 Speaker 1: I would love a window into some of the responses 444 00:23:52,040 --> 00:23:55,200 Speaker 1: that you've gotten to your your theories and your predictions 445 00:23:55,240 --> 00:23:57,480 Speaker 1: going forward, as they do run counter to a lot 446 00:23:57,520 --> 00:24:00,440 Speaker 1: of what's out there on Wall Street. Taking I said, 447 00:24:00,600 --> 00:24:03,399 Speaker 1: is there no limit then to the money printing? To 448 00:24:03,480 --> 00:24:06,240 Speaker 1: this idea that the Fed can monetize the debt of 449 00:24:06,240 --> 00:24:12,119 Speaker 1: the United States as the US deficit gets deeper and deeper. Yeah, Well, 450 00:24:12,480 --> 00:24:15,880 Speaker 1: there's a lot to this. I would say, first of all, 451 00:24:15,920 --> 00:24:19,800 Speaker 1: it's loose talk to talk about monetization in the same 452 00:24:19,840 --> 00:24:22,400 Speaker 1: way that some talk about money printing. It's loose talk 453 00:24:22,520 --> 00:24:26,719 Speaker 1: is technically incorrect. There's an asset and a liability. So 454 00:24:26,760 --> 00:24:29,760 Speaker 1: in answer to your question, there is a constraint. It's 455 00:24:29,800 --> 00:24:32,560 Speaker 1: it's the banking system. And when you look at this 456 00:24:33,000 --> 00:24:36,000 Speaker 1: the FED, the FED is probably aware of where that 457 00:24:36,080 --> 00:24:39,760 Speaker 1: constraint may be. Have you noticed how fast they tapered 458 00:24:40,240 --> 00:24:43,600 Speaker 1: from the QUEUEI that was started in March. In fact, 459 00:24:43,640 --> 00:24:46,720 Speaker 1: it wasn't really quey because in the first stage it 460 00:24:46,800 --> 00:24:50,480 Speaker 1: was reversing some of the QT, it was putting back 461 00:24:50,560 --> 00:24:53,480 Speaker 1: what was missing into the system, and it was dealing 462 00:24:53,480 --> 00:24:57,200 Speaker 1: with some of the dysfunction in the in the asset markets. 463 00:24:58,119 --> 00:25:01,800 Speaker 1: But the tapering is nine t plus percent from the 464 00:25:01,840 --> 00:25:05,840 Speaker 1: original level. That's happened without any disruption to the bomb market. 465 00:25:06,320 --> 00:25:09,240 Speaker 1: Isn't it impressive how the yields have been in a 466 00:25:09,320 --> 00:25:11,840 Speaker 1: ten basis point range for most of the last two 467 00:25:11,920 --> 00:25:15,080 Speaker 1: or three months. People don't give it credit for what 468 00:25:15,640 --> 00:25:19,000 Speaker 1: for what it's clearly worked. The market is functioning very well, 469 00:25:19,280 --> 00:25:22,159 Speaker 1: and looking through the noise now, I think that it 470 00:25:22,280 --> 00:25:26,080 Speaker 1: may be the people a victims of nine seventies education 471 00:25:26,520 --> 00:25:30,040 Speaker 1: looking at the kind of money supply and freedom and 472 00:25:30,160 --> 00:25:33,080 Speaker 1: night view of things. I'm not saying it's wrong, it's 473 00:25:33,119 --> 00:25:36,919 Speaker 1: just inappropriate for the current time. Steve Major, this has 474 00:25:36,920 --> 00:25:39,160 Speaker 1: been a wonderful discussion of theory. I feel like we've 475 00:25:39,160 --> 00:25:42,000 Speaker 1: got to get our new pixel out and reread it again. 476 00:25:42,280 --> 00:25:44,720 Speaker 1: That's all fine and well, but for our listeners and 477 00:25:44,720 --> 00:25:48,800 Speaker 1: our viewers of this simulcast, it's real simple. There's no 478 00:25:48,880 --> 00:25:53,080 Speaker 1: real return and the nominal return is Dickenzie and it's 479 00:25:53,080 --> 00:25:57,639 Speaker 1: out of the nineteenth century as well. That is unsustainable, 480 00:25:57,920 --> 00:26:01,040 Speaker 1: isn't it. At some point there's got to be a 481 00:26:01,080 --> 00:26:04,959 Speaker 1: real rate of return, right, Well, it depends where rates go. 482 00:26:05,200 --> 00:26:08,480 Speaker 1: It's all about rates. So today we're closed to zero. 483 00:26:08,600 --> 00:26:11,880 Speaker 1: We could go negative. It's not out of the questions. 484 00:26:11,960 --> 00:26:15,800 Speaker 1: So it's a non zero probability that rates will be 485 00:26:15,840 --> 00:26:21,680 Speaker 1: negative next year. It's a small probability but a huge impact. 486 00:26:22,000 --> 00:26:25,160 Speaker 1: And when you invest, you invest on a scenario basis. 487 00:26:25,200 --> 00:26:28,600 Speaker 1: You think about all possible scenarios, not one single base case. 488 00:26:29,200 --> 00:26:31,439 Speaker 1: So it seems to me that when we look across 489 00:26:31,520 --> 00:26:36,119 Speaker 1: the possibilities, rates aren't going up anytime soon, and I 490 00:26:36,160 --> 00:26:39,639 Speaker 1: think investors will lower their sites in terms of total return. 491 00:26:39,720 --> 00:26:42,640 Speaker 1: If you can keep your money, that's good news. Keep 492 00:26:42,640 --> 00:26:47,840 Speaker 1: your capital, don't lose money. Um, maybe a total return 493 00:26:48,000 --> 00:26:51,560 Speaker 1: of single digit is going to be reasonable in the 494 00:26:51,600 --> 00:26:55,199 Speaker 1: in the next decade. And I think that the problem 495 00:26:55,359 --> 00:26:57,840 Speaker 1: is is that people have got used to having these 496 00:26:57,920 --> 00:27:02,040 Speaker 1: huge returns in the equity market. That isn't sustainable. What 497 00:27:02,280 --> 00:27:05,680 Speaker 1: is sustainable is a reasonable road of return. Now. So 498 00:27:05,720 --> 00:27:08,439 Speaker 1: far this year we've had nine percent. I imagine that 499 00:27:08,480 --> 00:27:11,440 Speaker 1: we could get another two percent out of that into 500 00:27:11,520 --> 00:27:15,359 Speaker 1: year end. UM, then we'll have to rethink for next year. 501 00:27:16,160 --> 00:27:18,880 Speaker 1: But I don't think we're looking at a huge sell 502 00:27:18,880 --> 00:27:21,879 Speaker 1: off in bonds anytime soon. And I think that there 503 00:27:21,880 --> 00:27:23,840 Speaker 1: are other things to do. You can go into investment 504 00:27:23,880 --> 00:27:26,760 Speaker 1: grade credit, for example. You can go up the yield curve, 505 00:27:26,800 --> 00:27:29,520 Speaker 1: which is quite steep towards the longer end that there 506 00:27:29,520 --> 00:27:31,760 Speaker 1: there's a whole lot of stuff to do. Steve. When 507 00:27:31,800 --> 00:27:33,720 Speaker 1: you say rates could go negative, are you talking about 508 00:27:33,720 --> 00:27:36,560 Speaker 1: the policy rate or you're talking about treaties, Well, well, 509 00:27:36,640 --> 00:27:40,800 Speaker 1: we've already seen treasuries or certainly bills trade negative. It 510 00:27:40,880 --> 00:27:43,280 Speaker 1: may be dismissed as being technical, but it did happen. 511 00:27:43,600 --> 00:27:46,480 Speaker 1: You know that Japan and Europe have got rates. It's 512 00:27:46,520 --> 00:27:49,080 Speaker 1: not out of the question. I think that it's more 513 00:27:49,119 --> 00:27:52,360 Speaker 1: one for next year. It's it's not for this year. 514 00:27:52,960 --> 00:27:56,560 Speaker 1: Any central bank that says it's truly all in and 515 00:27:56,680 --> 00:28:01,160 Speaker 1: using all available tools were not by definition include the possibility. 516 00:28:01,880 --> 00:28:04,240 Speaker 1: So everything is on the table and instrukes me that 517 00:28:04,280 --> 00:28:07,400 Speaker 1: if you're in for a long drawn out with session, 518 00:28:07,560 --> 00:28:10,520 Speaker 1: then negative rates are a policy option. Stay find a 519 00:28:10,640 --> 00:28:13,000 Speaker 1: question for you, and it's an important one. Do you 520 00:28:13,040 --> 00:28:15,199 Speaker 1: have more faith in your year end call on ten 521 00:28:15,280 --> 00:28:19,640 Speaker 1: year treasuries or your beloved west Ham avoiding relegation from 522 00:28:19,640 --> 00:28:23,320 Speaker 1: the Premier League this year? You certainly know how to 523 00:28:23,320 --> 00:28:27,600 Speaker 1: wind me up, Lanky Jonathan, I think I think I've 524 00:28:27,800 --> 00:28:31,240 Speaker 1: I've got more faith in the treasury forecast. I'm sorry, 525 00:28:31,560 --> 00:28:34,720 Speaker 1: I wish, I wish HSBC once they're here to Steve 526 00:28:35,320 --> 00:28:37,840 Speaker 1: Sty've always going to catch out your Steve Major of 527 00:28:38,040 --> 00:28:44,840 Speaker 1: HSBC on this bond market. Tell us for it too? 528 00:28:44,960 --> 00:28:47,520 Speaker 1: Is it d Davidson? And I'll be blunt about it. 529 00:28:47,600 --> 00:28:51,800 Speaker 1: Folks who spent a career being more insightful than most, 530 00:28:52,440 --> 00:28:55,840 Speaker 1: and how all this technology matters to us? And it 531 00:28:55,920 --> 00:28:59,480 Speaker 1: turns out into buy, holding, sell on different equities and such. 532 00:29:00,400 --> 00:29:03,040 Speaker 1: He's a perfect guy to comment on what we've seen 533 00:29:03,040 --> 00:29:06,720 Speaker 1: in this first half, which is the dominance of Apple 534 00:29:07,160 --> 00:29:10,240 Speaker 1: and Amazon. Tom Ford te what's so interesting to me 535 00:29:11,120 --> 00:29:15,280 Speaker 1: is the trees are growing to the sky at Amazon. 536 00:29:15,720 --> 00:29:19,200 Speaker 1: Do they just continue to grow? So, Tom, great introduction 537 00:29:19,240 --> 00:29:21,680 Speaker 1: there and always a pleasure being on your show. So 538 00:29:22,240 --> 00:29:27,880 Speaker 1: COVID nineteen has essentially injected Amazon with growth hormone. So 539 00:29:27,960 --> 00:29:30,840 Speaker 1: you think about e commerce sales and the strength of 540 00:29:30,880 --> 00:29:33,960 Speaker 1: e commerce sales not only in April and May, but 541 00:29:34,120 --> 00:29:38,440 Speaker 1: in June, and it's like injecting new life into Amazon 542 00:29:38,800 --> 00:29:42,160 Speaker 1: from a growth standpoint. So I like your comparison on 543 00:29:42,200 --> 00:29:44,920 Speaker 1: the trees growing to the moon. I definitely think the 544 00:29:44,960 --> 00:29:47,400 Speaker 1: trees are growing, but as you know, at some point 545 00:29:47,440 --> 00:29:50,680 Speaker 1: they have to stop growing. They can't keep growing in perpetuity. 546 00:29:51,000 --> 00:29:54,280 Speaker 1: The cloud has come to the rescue for Mr Bezos, 547 00:29:54,440 --> 00:29:57,920 Speaker 1: But can the cardboard boxes come to the rescue when 548 00:29:57,920 --> 00:30:01,600 Speaker 1: they deliver those boxes and with a new surge of 549 00:30:01,880 --> 00:30:05,520 Speaker 1: unit growth of boxes, can they bring that down to 550 00:30:05,640 --> 00:30:09,560 Speaker 1: some form of gross margin or dare I say net income? 551 00:30:09,920 --> 00:30:12,239 Speaker 1: So the challenge for Amazon has been the same as 552 00:30:12,280 --> 00:30:15,000 Speaker 1: the challenge for Target when you sell a lot of 553 00:30:15,120 --> 00:30:19,320 Speaker 1: toilet paper or essentials in general, and you so sell 554 00:30:19,440 --> 00:30:24,120 Speaker 1: fewer discretionary items or to your point, cloud is robust, 555 00:30:24,440 --> 00:30:27,360 Speaker 1: but maybe not revenue growth in cloud is as robust, 556 00:30:27,760 --> 00:30:30,440 Speaker 1: your profits suffer. And when you think about the June 557 00:30:30,520 --> 00:30:34,360 Speaker 1: quarter for Amazon, they're seemingly doing everything in their power 558 00:30:34,720 --> 00:30:39,320 Speaker 1: to combat COVID nineteen, talking about four billion dollars of 559 00:30:39,400 --> 00:30:43,000 Speaker 1: incremental spin, including hundreds of millions of dollars to test 560 00:30:43,000 --> 00:30:46,760 Speaker 1: their employees. I think the risk for Amazon is if 561 00:30:46,800 --> 00:30:50,760 Speaker 1: they're not careful, they exit COVID nineteen. With the unionized 562 00:30:50,840 --> 00:30:54,080 Speaker 1: labor force in the US, Tom, are we conflating the 563 00:30:54,120 --> 00:30:58,160 Speaker 1: tech sector with Amazon, perhaps incorrectly with the idea that 564 00:30:58,200 --> 00:31:00,600 Speaker 1: you see the Googles of the world, the Facebook, the Twitters, 565 00:31:00,600 --> 00:31:04,000 Speaker 1: they're basically advertising companies. You look at Apple, it is 566 00:31:04,040 --> 00:31:07,360 Speaker 1: a consumer discretionary purchase, although some people might say that 567 00:31:07,400 --> 00:31:11,080 Speaker 1: their iPhone isn't necessarily discretionary. At this point, these things 568 00:31:11,160 --> 00:31:15,920 Speaker 1: basically more susceptible to a significant downdraft in the economy. 569 00:31:16,040 --> 00:31:19,240 Speaker 1: Is that going to be present in the pricing going forward? 570 00:31:19,720 --> 00:31:22,400 Speaker 1: So conflation that is a brilliant term and yes we are. 571 00:31:22,840 --> 00:31:25,720 Speaker 1: So if you look at e commerce trends, what you're 572 00:31:25,720 --> 00:31:29,960 Speaker 1: seeing is the six point seven of the US that 573 00:31:30,000 --> 00:31:34,120 Speaker 1: are still employed is preferring to buy online rather than 574 00:31:34,120 --> 00:31:36,840 Speaker 1: going to a physical store, including for a period of 575 00:31:36,880 --> 00:31:39,680 Speaker 1: time where physical stores were not an option. By way 576 00:31:39,680 --> 00:31:44,360 Speaker 1: of comparison, the more economically sensitive advertising based revenue models 577 00:31:44,680 --> 00:31:49,720 Speaker 1: like Facebook and Google are seeing contraction. They've reported a 578 00:31:49,760 --> 00:31:53,200 Speaker 1: good number for Facebook and April was a flat revenue 579 00:31:53,200 --> 00:31:56,560 Speaker 1: performance on advertising. So yes, I do believe conflation is 580 00:31:56,600 --> 00:31:58,880 Speaker 1: going on and the trends and e commerce are not 581 00:31:58,920 --> 00:32:01,560 Speaker 1: the trends and online average. So I'm looking at Facebook 582 00:32:01,560 --> 00:32:04,200 Speaker 1: shares which are up more than seven percent year to date. 583 00:32:04,240 --> 00:32:07,120 Speaker 1: Are you expecting the gains of this year and a 584 00:32:07,200 --> 00:32:10,360 Speaker 1: lot of the tech companies aside from Amazon and Microsoft 585 00:32:10,560 --> 00:32:13,440 Speaker 1: to stall out heading into the second half as people 586 00:32:13,480 --> 00:32:16,360 Speaker 1: start to delineate between the big tech names and the 587 00:32:16,400 --> 00:32:19,680 Speaker 1: forces they're subject to. Absolutely, And the way that I 588 00:32:19,680 --> 00:32:22,560 Speaker 1: think about it is so COVID nineteen looks to be 589 00:32:22,600 --> 00:32:25,240 Speaker 1: a multi year event, and I think that what you're 590 00:32:25,280 --> 00:32:29,040 Speaker 1: going to see is multi year or multi quarter impact 591 00:32:29,120 --> 00:32:32,440 Speaker 1: on the economy. Now I know that the May retail 592 00:32:32,480 --> 00:32:36,320 Speaker 1: saves sales data was favorable, the May unemployment was favorable 593 00:32:36,440 --> 00:32:39,479 Speaker 1: versus April. But I still feel like a strong argument 594 00:32:39,480 --> 00:32:42,680 Speaker 1: could be made the word a depression and not a recession. 595 00:32:43,080 --> 00:32:45,280 Speaker 1: So to the extent that COVID nineteen again is a 596 00:32:45,360 --> 00:32:47,800 Speaker 1: multi year event, I think you may see some of 597 00:32:47,800 --> 00:32:51,600 Speaker 1: these more economically sensitive names like Facebook and Google start 598 00:32:51,640 --> 00:32:53,560 Speaker 1: to stall. For you, I have to go back to 599 00:32:53,640 --> 00:32:57,200 Speaker 1: your hugely interesting comment that we could see a unionization 600 00:32:57,320 --> 00:33:01,120 Speaker 1: of the hundreds of thousands of employees of Amazon. Does 601 00:33:01,160 --> 00:33:04,840 Speaker 1: that blow up the Bezos model? Absolutely? And if you 602 00:33:04,880 --> 00:33:08,640 Speaker 1: think about the acquisition of zooks, an argument I would 603 00:33:08,640 --> 00:33:13,400 Speaker 1: make is it's about automation at the fulfillment center level. 604 00:33:13,720 --> 00:33:16,000 Speaker 1: So you go back in time too, when Facebook was 605 00:33:16,040 --> 00:33:19,680 Speaker 1: showcasing their drone delivery effort well before it was ready. 606 00:33:20,160 --> 00:33:22,680 Speaker 1: I think they've realized that COVID nineteen has shown that 607 00:33:22,720 --> 00:33:27,160 Speaker 1: they're exposed to physical labor at the fulfillment center front, 608 00:33:27,400 --> 00:33:29,640 Speaker 1: and it's going to expedite their efforts to try to 609 00:33:29,680 --> 00:33:32,880 Speaker 1: automate that, which is why I think Zook's was acquired 610 00:33:32,880 --> 00:33:35,360 Speaker 1: by Amazon or intends to be acquired. I should say 611 00:33:35,760 --> 00:33:38,240 Speaker 1: some fo I gonna leave it that Thanks for listening 612 00:33:38,280 --> 00:33:42,840 Speaker 1: to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews 613 00:33:42,880 --> 00:33:48,120 Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 614 00:33:48,640 --> 00:33:52,000 Speaker 1: I'm on Twitter at Tom Keane before the podcast. You 615 00:33:52,040 --> 00:34:02,840 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio