WEBVTT - Surveillance: Rolling W's Recovery Likely, Sonders Says 0:00:09.880 --> 0:00:13.760 Welcome to the Bloomberg Surveillance podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.560 Bloomberg dot Com, and of course on the Bloomberg. Someone 0:00:27.560 --> 0:00:30.120 who is always fold of history into our analysis is 0:00:30.200 --> 0:00:33.440 liz Anne Saunders. She is at Charles Schwab and she 0:00:33.600 --> 0:00:37.240 has been a foundation voice on belief in the stock 0:00:37.320 --> 0:00:40.120 market for decades. We're thrilled to get an update from 0:00:40.159 --> 0:00:42.640 miss Saunders this morning. Liz Ane, I've got to go 0:00:42.720 --> 0:00:45.760 to the money question always with you, which is what 0:00:45.840 --> 0:00:49.920 do you observe at Schwab of what people are doing 0:00:50.000 --> 0:00:53.000 with their money? Are they in this bullmarket? So, if 0:00:53.000 --> 0:00:57.400 you from a fun flow perspective, consistent with with broad aggregates, 0:00:58.000 --> 0:01:01.280 you've seen money actually coming out of equities in the 0:01:01.320 --> 0:01:05.360 last several months more into fixed income more recently in 0:01:05.360 --> 0:01:08.400 the last couple of weeks. Where you have seen aggressiveness 0:01:08.440 --> 0:01:10.880 in terms of flows is in the e t s, 0:01:11.200 --> 0:01:13.400 particularly the q q q s, which is the Nasdaq 0:01:13.480 --> 0:01:16.640 one hundred inflows and then the Russell two thousand, the 0:01:16.680 --> 0:01:19.800 i w N outflows that's really where we're seeing some 0:01:19.840 --> 0:01:22.440 aggressive action. But what we have seen in general is 0:01:22.480 --> 0:01:24.720 not consistent with what some of the headlines have been 0:01:24.760 --> 0:01:28.640 around some of the newly minted smaller day traders, where 0:01:28.720 --> 0:01:32.520 in that coort you have seen some really rampant speculation, 0:01:32.720 --> 0:01:36.120 but broadly among our investors, that's not what we've been seeing. 0:01:36.200 --> 0:01:38.480 I mean, this is interesting folks in the cubes, folks 0:01:38.480 --> 0:01:41.720 of the nastac one D of course of proxy for Apple, Amazon, 0:01:41.840 --> 0:01:44.800 Facebook and the rest of them as well. Luis Ane, 0:01:44.880 --> 0:01:48.760 can you predict a catalyst or event that will finally 0:01:48.760 --> 0:01:52.360 give us a tangible shift from cubes over to Russell 0:01:52.400 --> 0:01:55.760 two thousand? What's going to make that happen? I can't 0:01:55.760 --> 0:01:59.360 predict anything. Uh. You know, you've seen the Russell have 0:01:59.480 --> 0:02:03.279 bouts of relative out performance over the last couple of months. 0:02:03.280 --> 0:02:06.080 You know they're they're trying to develop that out performance. 0:02:06.120 --> 0:02:09.600 I think we would have to see station in sort 0:02:09.600 --> 0:02:13.079 of the financial system, a real sense that we're back 0:02:13.080 --> 0:02:16.800 in recovery mode because a fundamental differential between small caps 0:02:16.840 --> 0:02:19.880 in the aggregate and large caps it's still fairly wide 0:02:19.880 --> 0:02:21.760 when you look at debt to equity ratios, when you 0:02:21.800 --> 0:02:24.040 look at the percentage of the russell that are so 0:02:24.120 --> 0:02:27.280 called zombie companies. When you look at the percentage of 0:02:27.280 --> 0:02:30.320 the russell that are not profitable and likely won't be 0:02:30.400 --> 0:02:33.880 for an extended period of time, versus the larger CAP indexes, 0:02:34.160 --> 0:02:37.359 there's really no comparison. But if we really start to 0:02:37.400 --> 0:02:40.280 see the recovery kick into gear, that tends to bring 0:02:40.320 --> 0:02:43.839 a bias down the CAP spectrum. So one month of 0:02:43.840 --> 0:02:46.600 of good data I think doesn't suggest a v rebound. 0:02:46.639 --> 0:02:48.160 I think we'd have to see a few months of 0:02:48.200 --> 0:02:52.440 it to believe that the recovery is sustainable such that 0:02:52.520 --> 0:02:55.520 everybody can participate. Lazan, this is a huge debate the 0:02:55.639 --> 0:02:58.720 ingredients needed for durable roatation into the most cyclical areas 0:02:58.960 --> 0:03:01.160 of this market. You have any confidence that this V 0:03:01.440 --> 0:03:03.800 this bounce that we witness of off the bottom as 0:03:03.840 --> 0:03:05.880 we re output and can continue, Oh I don't. I 0:03:05.880 --> 0:03:08.760 don't think to the extent of the percentage increases off 0:03:08.800 --> 0:03:11.880 the bottom we saw are able to persist. Absolutely not. 0:03:11.919 --> 0:03:14.920 I think mathematically it just doesn't work that way. That 0:03:15.040 --> 0:03:17.400 the law of small numbers is such you can press 0:03:17.440 --> 0:03:20.560 the data to such a significant degree, it's very natural 0:03:20.600 --> 0:03:22.680 that the bounce back in percentage terms is going to 0:03:22.720 --> 0:03:25.720 be massive, but you can't extrapolate that into the future. 0:03:25.720 --> 0:03:27.480 And that's why I think what we're more likely to 0:03:27.480 --> 0:03:30.520 see is rolling ws. So you get the shot up 0:03:30.560 --> 0:03:32.720 initially and then you back down a little bit. And 0:03:32.720 --> 0:03:35.680 the second order economic effects are not just specific to 0:03:36.480 --> 0:03:39.640 second waves. If you can even consider the first wave 0:03:39.720 --> 0:03:42.640 over of the virus, there are second wave economic effects 0:03:42.640 --> 0:03:45.320 that are coming down the pike regardless of whether we 0:03:45.880 --> 0:03:50.320 see additional increased cases in the virus, temporary layoffs becoming 0:03:50.320 --> 0:03:54.920 permanent job losses, what we're seeing in the bankruptcy environment. 0:03:55.000 --> 0:03:58.200 So I just think there's going to be a pretty 0:03:58.280 --> 0:04:03.440 choppy recovery even absent the implications of the virus and LISIA. 0:04:03.520 --> 0:04:06.280 That means that tech remains the safe haven play here. 0:04:06.640 --> 0:04:10.040 I'm wondering, though, how much the recent regulatory pressures could 0:04:10.040 --> 0:04:14.400 threaten that. Given the Facebook voycott among advertisers, we know 0:04:14.440 --> 0:04:16.880 Facebook is meeting with some of them today. This idea 0:04:17.080 --> 0:04:19.440 that that could actually accelerate some of the pressure coming 0:04:19.480 --> 0:04:22.680 from Washington, d C. How much are you watching this? Well? 0:04:22.960 --> 0:04:25.880 You know this, This risk about regulatory pressure is not 0:04:25.960 --> 0:04:29.840 a new one. This is not really an election cycle risk. 0:04:29.960 --> 0:04:32.800 This has been ongoing for a couple of years now, 0:04:32.920 --> 0:04:36.440 so clearly it has not prevented many of those names 0:04:36.560 --> 0:04:39.479 from doing well. I think as you get close to 0:04:39.520 --> 0:04:42.520 the election, depending on how far up the priority spectrum 0:04:42.560 --> 0:04:45.359 you see it on either candidate, then I think it 0:04:45.400 --> 0:04:48.600 becomes an issue. But with most issues have become election 0:04:48.640 --> 0:04:51.719 platform issues, they don't tend to really start to impact 0:04:51.720 --> 0:04:55.560 stocks until around Labor Day or post labor day environment, 0:04:55.640 --> 0:04:59.920 so I'd be more focused on the messaging around regulator 0:05:00.240 --> 0:05:03.640 environment and of course the ability to do something depending 0:05:03.680 --> 0:05:07.960 on the divisions in Congress as a post labor day phenomenon. Luzanne, 0:05:08.040 --> 0:05:09.520 I think a lot of people in the market would 0:05:09.520 --> 0:05:12.320 agree with you that the regulatory train moves very slowly, 0:05:12.360 --> 0:05:14.840 if at all. On the other hand, how much are 0:05:14.880 --> 0:05:17.880 these boycotts just an excuse for big companies to cut 0:05:17.920 --> 0:05:21.640 their advertising budgets in a highly uncertain environment. That's going 0:05:21.680 --> 0:05:24.320 to affect the Googles, the facebooks, the Twitters of the 0:05:24.320 --> 0:05:27.520 world regardless of policy. Oh, I think companies across the 0:05:27.520 --> 0:05:30.839 spectrum of industries are probably looking for some sort of 0:05:30.880 --> 0:05:33.760 margin edge in this very difficult environment. So you know, 0:05:33.800 --> 0:05:35.320 I don't coverage, you know, at least I don't cover 0:05:35.400 --> 0:05:37.919 individual companies, so I'm not I'm not down in the 0:05:37.960 --> 0:05:41.560 weeds with these companies, but it's not surprising to see 0:05:41.600 --> 0:05:43.520 an attempt at at raining in the cost side of 0:05:43.520 --> 0:05:46.080 the equation in this environment. Luzanne, you were just on 0:05:46.200 --> 0:05:49.240 a Delaware or maybe starting at Delaware when there was 0:05:49.279 --> 0:05:54.440 a modest moment the crash of rucks are on a 0:05:54.480 --> 0:05:59.320 Friday night, Mr Rukaiser, on a Friday night, had Sir 0:05:59.440 --> 0:06:02.159 John Tom Pilton and a few other third were these 0:06:02.279 --> 0:06:06.080 Robert Kirby a capitol group out to comblin nation down 0:06:06.920 --> 0:06:09.799 right now on Global Wall Street? We need to comb 0:06:09.800 --> 0:06:13.480 the nation? Is our new lu Rue Kaiser? Jerome Powell? 0:06:14.080 --> 0:06:16.440 Is he the one doing the calming of the nation 0:06:16.640 --> 0:06:22.680 and the financial markets? Um, maybe without the humorous equips 0:06:22.720 --> 0:06:26.800 that we all remember lou four and I certainly won't 0:06:26.839 --> 0:06:31.400 forget that, particularly the Friday night before seven, where you 0:06:31.440 --> 0:06:33.760 know my boss at the time, the late Great Marty's Way, 0:06:34.000 --> 0:06:37.800 came on and actually predicted the crash that was to 0:06:37.880 --> 0:06:40.880 come three days later, And little did I know how 0:06:40.920 --> 0:06:43.800 difficult that was to do. But I do think I 0:06:43.839 --> 0:06:47.040 think Powell is doing a very good job. He's also 0:06:47.120 --> 0:06:49.320 learned to sort of stay on message a little bit 0:06:49.320 --> 0:06:53.120 more um than maybe in the past half ago tripped 0:06:53.160 --> 0:06:54.840 him up a little bit. But what I think the 0:06:54.880 --> 0:06:58.279 most important message Powell has been imparting is not about 0:06:58.600 --> 0:07:01.040 you know, we will be here or there is this 0:07:01.120 --> 0:07:04.720 isn't a certain period of time, but we've got the ammunition. 0:07:04.760 --> 0:07:07.200 We're not going to run run out of ammunition. I 0:07:07.240 --> 0:07:09.520 think the most important messaging has been well too or 0:07:09.560 --> 0:07:11.520 two of them. One. Some of these tools will go 0:07:11.560 --> 0:07:13.920 back in the toolbox when it's appropriate that this is 0:07:13.920 --> 0:07:17.240 not adam finitum in terms of these new facilities. But 0:07:17.320 --> 0:07:21.000 also he has repeatedly emphasized that there's a difference in 0:07:21.040 --> 0:07:24.080 the fed's mind and should be an investors minds, between 0:07:24.160 --> 0:07:28.000 financial system stability, of which the FED is a big part, 0:07:28.120 --> 0:07:31.320 and financial market volatility. So I think he's trying to 0:07:31.320 --> 0:07:34.720 get the message that volatility in the financial markets in 0:07:34.760 --> 0:07:38.880 and of itself shouldn't trigger FED action unless it becomes 0:07:38.880 --> 0:07:42.440 a risk to the financial system. More broadly, so, that 0:07:42.480 --> 0:07:45.400 to me is the most resident message that he has 0:07:45.440 --> 0:07:48.040 been putting out there, not just in this recent period 0:07:48.480 --> 0:07:51.679 but over the lapt past year. Lasan Love catching Lsan 0:07:51.760 --> 0:07:58.720 sounds a child schwab. You're mid year trying to adjust 0:07:58.720 --> 0:08:00.800 an adapt at all. He's helped talked to one of 0:08:00.800 --> 0:08:04.200 the major bankers of Global Wall Street. We did that 0:08:04.280 --> 0:08:07.480 this morning, for instance, and myself here's our conversation, the 0:08:07.560 --> 0:08:10.960 highlights of it. But just stately of Berkeley's, I think 0:08:11.000 --> 0:08:13.880 there is a sort of gathering storm out there. I 0:08:13.880 --> 0:08:16.520 mean the furlough program, uh, you know, being fund the 0:08:16.520 --> 0:08:20.080 State's quite amazing to watch and how significant the program 0:08:20.160 --> 0:08:22.960 is in the UK and how that has buffered the 0:08:23.000 --> 0:08:28.520 impact of this incredible uh medical crisis. Um. But the 0:08:28.560 --> 0:08:31.160 government has been very strong in terms of you know, 0:08:31.200 --> 0:08:35.120 putting small business loans out guaranteed by the government. We 0:08:35.200 --> 0:08:38.280 ourselves have done over two hundred thousand small business loans 0:08:38.280 --> 0:08:40.360 in the last couple of weeks, about six and a 0:08:40.400 --> 0:08:44.360 half billion pounds UM, all the way to major commercial 0:08:44.400 --> 0:08:47.680 paper programs being bought by Her Majesty's Treasuries and we've 0:08:47.679 --> 0:08:50.840 done over ten billion pounds of that type of of 0:08:51.000 --> 0:08:55.200 lending as as well. So the the reaction has been 0:08:55.280 --> 0:08:57.560 quite strong, and what that has enabled us to do is, 0:08:57.880 --> 0:09:00.200 you know, stay focused on the financial and tech the 0:09:00.679 --> 0:09:04.880 Barkley Barkley is being a very strong, highly capitalized bank 0:09:05.360 --> 0:09:08.160 UH is critical if we're gonna play our role in 0:09:08.240 --> 0:09:11.160 helping the UK and the world recover from this up 0:09:11.240 --> 0:09:13.560 this virus. We were fortunate France scene. We walked in 0:09:13.920 --> 0:09:16.720 with the highest level of capitalization in the history of 0:09:16.720 --> 0:09:20.520 Barkley's thirteen point eight percent capital to a risk, wedded assets, 0:09:20.640 --> 0:09:22.840 very liquid. So I think we had the strength of 0:09:22.840 --> 0:09:26.120 a very strong balance sheet and a profitable underlying business 0:09:26.200 --> 0:09:29.800 that hopefully we can be a you know, a firewall 0:09:29.880 --> 0:09:32.480 as we try to get through this economic crisis. Jes 0:09:32.600 --> 0:09:36.080 if you look at the deterioration deterioration of the UK economy, 0:09:36.160 --> 0:09:38.480 is it actually worse than expected? And again, what does 0:09:38.480 --> 0:09:41.679 that mean for your client activity? I think right now 0:09:42.120 --> 0:09:45.680 the contraction in the economy is probably less than we 0:09:45.760 --> 0:09:49.040 would have expected or anticipated a month or a month 0:09:49.040 --> 0:09:52.600 and a half ago. Spin has started to recover. It's 0:09:52.640 --> 0:09:55.679 not down nearly as much as it was a couple 0:09:55.720 --> 0:09:59.280 of months ago. Um, you know, aided by the government 0:09:59.280 --> 0:10:02.280 programs A to buy the furlough programs. As you said, 0:10:02.280 --> 0:10:04.199 I do think there's a little bit of storm gathering 0:10:04.280 --> 0:10:08.000 once you know, we have ninety thousand mortgage payment holidays 0:10:08.040 --> 0:10:10.559 out there, and we've given payment holidays to our credit 0:10:10.600 --> 0:10:13.840 card holders. You've got the furlough program. A lot of 0:10:13.840 --> 0:10:15.920 that is going to start to end as we come 0:10:15.920 --> 0:10:19.160 into the end of June and July in August, and 0:10:19.160 --> 0:10:23.400 it will be interested to see, um uh, what happens 0:10:23.400 --> 0:10:26.000 to unemployment at that point in time, what happens with 0:10:26.040 --> 0:10:28.320 the furlow program. So we're clearing on out of the 0:10:28.360 --> 0:10:31.360 woods yet. I think we've recovered more right now than 0:10:31.400 --> 0:10:33.800 we would have fought a little bit ago. But there 0:10:33.880 --> 0:10:36.520 is that second storm coming uh in a couple of 0:10:36.520 --> 0:10:39.200 months ago. Heirston Young is really under the gun here. 0:10:39.200 --> 0:10:43.240 There's clearly a massive missed audit at wire Card as well. 0:10:43.280 --> 0:10:46.120 I want you to speak for the rigor of auditing 0:10:46.280 --> 0:10:49.800 at Barclay's. Do you feel there's any mysteries on your 0:10:49.840 --> 0:10:53.080 book in relation to wire Card? Do you think the 0:10:53.160 --> 0:10:56.520 auditing is tight enough just on simple things like what's 0:10:56.559 --> 0:10:59.199 an X number of banks? Yeah? I know we started 0:10:59.200 --> 0:11:01.800 taking a cost this approach to work hard quite some 0:11:01.880 --> 0:11:06.280 time ago. Um uh, you know, so again very mindful 0:11:06.320 --> 0:11:09.120 of we're all wait wait wait, wait, wait wait wait, 0:11:09.240 --> 0:11:13.480 just just some time ago, like last Thursday or a 0:11:13.520 --> 0:11:18.360 few years ago, let's say, uh, a long time ago, 0:11:18.480 --> 0:11:21.680 not last Thursday. You know, wik Card didn't have you 0:11:21.880 --> 0:11:27.120 question uh before, So we've been you know, conservative and 0:11:27.160 --> 0:11:29.480 how we dealt with them. There are very big business. 0:11:29.559 --> 0:11:32.680 They've got a very big business in the UK as well. 0:11:32.920 --> 0:11:37.000 It's a very tough situation obviously. Uh. It seems like 0:11:37.040 --> 0:11:40.520 something quite significant was missed. Uh And I think uh 0:11:40.559 --> 0:11:42.320 and I think the markets will pay a price for it. 0:11:42.800 --> 0:11:46.679 Mr Staley there of Berkeley's with some humor over wire 0:11:46.800 --> 0:11:54.000 card and policy a huge focus for all of us worldwide. 0:11:54.120 --> 0:11:56.400 I started the conversation with David Lebovitz of j P. 0:11:56.559 --> 0:12:00.120 Mulkin Asset Management. David, let's stop there, what's your focus 0:12:00.160 --> 0:12:02.360 a little bit like this afternoon? So, you know, I 0:12:02.600 --> 0:12:04.480 think we're going to be looking for for a couple 0:12:04.480 --> 0:12:07.400 of things. One, the reaffirmation of the message that, as 0:12:07.400 --> 0:12:10.000 you guys point out, you know, more stimulus is almost 0:12:10.320 --> 0:12:14.160 required at this juncture. But also any hints um particularly 0:12:14.200 --> 0:12:17.480 from pal Um as to the trajectory that monetary policy 0:12:17.520 --> 0:12:19.680 may take here over the next couple of months. You know, 0:12:19.720 --> 0:12:22.679 they've finally gotten a lot of these corporate credit facilities 0:12:22.760 --> 0:12:25.160 up and running and in the original term sheets, those 0:12:25.160 --> 0:12:28.000 were actually set to expire at the end of September, 0:12:28.000 --> 0:12:30.880 And so does he suggest that perhaps there's more runway 0:12:30.920 --> 0:12:32.920 around some of these new FED programs. I think will 0:12:32.960 --> 0:12:35.679 be particularly important in complimenting anything that we hear from 0:12:35.720 --> 0:12:38.880 Minutian with respect to more and more on the fiscal 0:12:38.920 --> 0:12:41.040 side over the next couple of weeks. Here and David, 0:12:41.080 --> 0:12:44.280 I thought to note from Casman and Farole from JPM 0:12:44.280 --> 0:12:48.360 Morrigan this weekend was absolutely spectacular, and they talked about 0:12:48.480 --> 0:12:52.160 things like yield curve curve control and being on Mars 0:12:52.280 --> 0:12:55.480 or being on Venus. Your wing of the ship is 0:12:55.559 --> 0:12:58.920 on planet Earth and you have to actually invest money 0:12:59.360 --> 0:13:03.640 in this rate uncertainty? What is your six month strategy 0:13:04.040 --> 0:13:08.160 strategy at JP Morgan Asset Management. So we we continue 0:13:08.160 --> 0:13:09.720 to kind of play it the way that we've been 0:13:09.760 --> 0:13:12.760 approaching things over the course of the past couple of months. Um. 0:13:12.800 --> 0:13:15.280 You know, when we were seeing that nascent rotation into 0:13:15.400 --> 0:13:18.080 value a couple of weeks back, we really held back 0:13:18.120 --> 0:13:21.800 on embracing a lot more cyclicality and portfolios because by 0:13:21.800 --> 0:13:24.240 our lights, this was really about the delta or the 0:13:24.320 --> 0:13:26.760 rate of change, and we assume that at some point, 0:13:26.800 --> 0:13:29.080 the market would begin to focus on the absolute level, 0:13:29.160 --> 0:13:32.680 so still really grounding portfolios and high quality assets. On 0:13:32.679 --> 0:13:35.199 the equity side, that's things like technology, and then from 0:13:35.200 --> 0:13:38.520 a regional standpoint, the US on the fixed income side, 0:13:38.559 --> 0:13:41.880 you know, barbelling between investment grade corporate bonds and various 0:13:41.880 --> 0:13:45.440 securitized types of paper given the inherent FED support in 0:13:45.480 --> 0:13:48.880 those markets with treasury bonds, because we do anticipate um 0:13:48.920 --> 0:13:50.360 that the markets are going to be a little bit 0:13:50.440 --> 0:13:52.800 choppy here, I think that there's a clear expectation that 0:13:52.920 --> 0:13:55.800 that more stimulus is needed. Um, I'm not sure the 0:13:55.840 --> 0:13:57.679 path to get there is going to be smooth. And 0:13:57.720 --> 0:14:00.120 at the same time, you know, as the economy is 0:14:00.160 --> 0:14:03.160 back online for longer periods of time, these big jumps 0:14:03.160 --> 0:14:05.200 in the data like we saw in retail sales a 0:14:05.200 --> 0:14:08.760 few weeks back, are going to become fewer and more infrequent, 0:14:08.800 --> 0:14:11.640 and so I think investors are going to focus increasingly 0:14:11.679 --> 0:14:14.160 on where things stand, and that's going to drive a 0:14:14.200 --> 0:14:17.800 relatively volatile and range bound market here through the through 0:14:17.840 --> 0:14:20.400 the end of the year. David is most reliable investment 0:14:20.440 --> 0:14:24.800 thesis at this point, purely investing on policy, purely investing 0:14:24.800 --> 0:14:27.760 on more FED stimulus on some sort of fiscal bailout 0:14:27.760 --> 0:14:31.360 package from Washington, d C. Rather than look at any 0:14:31.400 --> 0:14:33.560 of the data, rather than looking at the rising trade 0:14:33.600 --> 0:14:36.680 dentis between the China and the US and potentially a 0:14:36.800 --> 0:14:39.560 boycott with social media. So, you know, I think that 0:14:39.600 --> 0:14:42.880 those some of those other issues are are definitely secondary 0:14:43.000 --> 0:14:46.120 right now. I think that fundamentally, you know, when I 0:14:46.160 --> 0:14:49.000 was thinking about this earlier today, and it all comes 0:14:49.040 --> 0:14:51.280 down to cash flow, right and right now, the market 0:14:51.280 --> 0:14:53.440 doesn't care where that cash flow is coming from. Is 0:14:53.480 --> 0:14:57.000 it generated organically by the companies, is it visa the 0:14:57.160 --> 0:15:00.560 various rounds of fiscal and monetary stimulus. Right They just 0:15:00.640 --> 0:15:02.440 want to know that that the economy is going to 0:15:02.560 --> 0:15:05.200 keep running even if we're kind of artificially propping it 0:15:05.320 --> 0:15:08.400 up with FED and government support. But I do think 0:15:08.400 --> 0:15:10.760 that as we get closer to the election in November 0:15:11.240 --> 0:15:14.120 in particular, you may see some of these secondary issues, 0:15:14.160 --> 0:15:18.200 particularly the more political issues, really begin to crystallize in 0:15:18.200 --> 0:15:20.600 in the eyes of the market and just become another 0:15:20.840 --> 0:15:23.360 source of angst. You know, you can you can ride 0:15:23.360 --> 0:15:26.240 the liquidity wave for for only so long, and at 0:15:26.280 --> 0:15:27.960 some point the economy is going to be left to 0:15:28.000 --> 0:15:30.280 stand on its own two feet, and that's when things 0:15:30.360 --> 0:15:32.760 like the corporate fundamentals and the outlook for policy are 0:15:32.760 --> 0:15:35.640 going to become increasingly important. Again. I think that that's 0:15:35.640 --> 0:15:38.520 going to coincide with the election later on this year. Well, 0:15:38.520 --> 0:15:40.280 that might be a story for several months away and 0:15:40.320 --> 0:15:42.000 the here and now. David, it's a market, as you 0:15:42.040 --> 0:15:44.240 point out, that is suffering in the middle of this 0:15:44.280 --> 0:15:47.680 tug of war between the direction of the recovery still positive, 0:15:47.720 --> 0:15:50.160 expected to be so for the next several weeks and months, 0:15:50.320 --> 0:15:52.600 and the pace of it and the realization that we 0:15:52.640 --> 0:15:56.600 will be below potential for a long long time. So 0:15:56.640 --> 0:15:59.800 long as we maintain a positive trajectory, do you think 0:15:59.800 --> 0:16:03.920 that sufficient to drive further equity gains? So, I do 0:16:04.000 --> 0:16:06.240 think that that equity upside is going to be a 0:16:06.320 --> 0:16:10.240 little bit capped until we get more clarity from the 0:16:10.280 --> 0:16:14.280 corporations themselves. And so I think one of the issues 0:16:14.320 --> 0:16:16.320 that we're going to be particularly focused on over the 0:16:16.360 --> 0:16:19.800 next couple of weeks is as companies begin to report 0:16:19.880 --> 0:16:23.320 report their second quarter profit data, are they providing guidance 0:16:23.360 --> 0:16:26.320 for what they expect in the remainder of in the 0:16:26.320 --> 0:16:28.760 beginning of one And I think that you know, the 0:16:29.040 --> 0:16:31.400 market has been kind of standing on this three legged 0:16:31.440 --> 0:16:34.280 stool here of what's going on with case growth, the 0:16:34.360 --> 0:16:37.720 policy response, and the outlook for economic reopening, and the 0:16:37.720 --> 0:16:40.880 trajectory of corporate profits. Um, we we see what's going 0:16:40.920 --> 0:16:43.040 on with the virus, we we see what's going on 0:16:43.160 --> 0:16:45.880 with the policy response. There's still a lot of uncertainty 0:16:45.920 --> 0:16:48.040 around how all of this is going to translate into 0:16:48.080 --> 0:16:51.920 actual economic activity and corporate profitability over the next eighteen months. 0:16:52.120 --> 0:16:53.720 And I think that's going to be the key thing 0:16:53.840 --> 0:16:56.720 that you know, either pushes equities further to the upside 0:16:56.760 --> 0:16:59.240 or perhaps caps their potential over the next the next 0:16:59.240 --> 0:17:01.920 couple of months. I mean, David, I get all this 0:17:02.000 --> 0:17:05.800 hips up. At the bottom line is everybody's recalibrating their 0:17:05.880 --> 0:17:10.719 fundamental investment theories. Dr Siegel down at Wharton is beginning 0:17:10.720 --> 0:17:15.040 to question sixty forty, her sixty ten. He's even advocating 0:17:15.080 --> 0:17:18.600 eight twenty. You've got a pension plan out in California 0:17:18.680 --> 0:17:21.639 talking about leveraging up to get yield. It seems like 0:17:21.680 --> 0:17:25.480 a world tipped upside down. What's the allocation you would 0:17:25.520 --> 0:17:30.120 recommend off a traditional sixty forty split. So I think 0:17:30.160 --> 0:17:33.080 that you know, you increasingly need to take more risk 0:17:33.200 --> 0:17:37.600 in inequities. That is inherently difficult for for some investors 0:17:37.640 --> 0:17:40.000 to do, but we would We would add some equity exposure, 0:17:40.000 --> 0:17:42.440 assuming that return targets are in line with the numbers 0:17:42.440 --> 0:17:44.920 that that we see most clients trying to hit. Um 0:17:45.000 --> 0:17:46.840 you know, within fixed income, we wouldn't get rid of 0:17:46.880 --> 0:17:50.280 fixed income. You need that ballast in portfolios, and particularly 0:17:50.320 --> 0:17:52.479 given the view that things might be a little bit 0:17:52.520 --> 0:17:54.720 choppy here going forward, we want to make sure that 0:17:54.760 --> 0:17:57.880 we have that protection if markets were to strongly move 0:17:58.000 --> 0:18:01.040 to to the downside. But you know, what you're really 0:18:01.080 --> 0:18:03.760 seeing emerge from all of this is a need for 0:18:04.280 --> 0:18:06.760 uncorrelated sources of income. And one of the things that 0:18:06.800 --> 0:18:09.040 we've seen a lot of the institutional investors that we 0:18:09.040 --> 0:18:11.480 work with do over the past couple of years is 0:18:11.520 --> 0:18:14.360 take some of that exposure that has had historically been 0:18:14.359 --> 0:18:18.240 oriented towards fixed income and reallocate that towards core real 0:18:18.240 --> 0:18:21.520 assets things like real estate and infrastructure. You obviously need 0:18:21.520 --> 0:18:23.840 to be selective, but what that allows you to do 0:18:23.920 --> 0:18:27.399 is increase the overall income that your portfolio generates without 0:18:27.400 --> 0:18:30.359 adding more equity volatility. And that's really the the issue 0:18:30.400 --> 0:18:32.440 at the end of the day is people don't want 0:18:32.440 --> 0:18:35.159 to just add volatility to their portfolio to stretch for 0:18:35.280 --> 0:18:38.600 return um and we're increasingly seeing people looking for ways 0:18:38.640 --> 0:18:41.560 of accomplishing that goal without just making their portfolios a 0:18:41.600 --> 0:18:44.400 little more jumpy by adding to the risk asset side 0:18:44.400 --> 0:18:47.119 of the equation. David, Just to tie this all together, 0:18:47.280 --> 0:18:49.679 one big risk people have been talking about is that 0:18:49.720 --> 0:18:52.359 liquidity does not equal solvency and that we get a 0:18:52.440 --> 0:18:56.040 cascading wave of bankruptcies the picks up steam later in 0:18:56.040 --> 0:18:57.879 the year. We have not seen that yet, and some 0:18:57.920 --> 0:18:59.639 people are saying that we are going to see the 0:18:59.680 --> 0:19:03.000 more domestic of those scenarios based on the liquidity in 0:19:03.040 --> 0:19:05.320 the markets. Do you still see that it is a 0:19:05.520 --> 0:19:09.200 very real risk, as we had toward the election season. Um. 0:19:09.240 --> 0:19:11.199 I think it's a risk that needs to be on 0:19:11.320 --> 0:19:13.920 investors radar. I think the chart that's been making the 0:19:14.000 --> 0:19:17.080 rounds looks at the relationship between bankruptcy filings and the 0:19:17.119 --> 0:19:19.800 unemployment rate, and the two have been very tightly correlated 0:19:20.359 --> 0:19:22.600 over the past twenty five years, and so I think 0:19:22.600 --> 0:19:24.560 people look at that and say, well, if the unemployment 0:19:24.640 --> 0:19:27.919 rate only comes down slowly, that inherently needs to result 0:19:28.000 --> 0:19:30.439 in a in a wave of bankruptcies. But you know, 0:19:30.520 --> 0:19:33.800 maybe bringing us back to where the conversation started, we're 0:19:33.880 --> 0:19:37.119 just now seeing the main street lending facility get up 0:19:37.160 --> 0:19:39.400 and running. I think that that's going to help address 0:19:39.440 --> 0:19:41.879 a lot of those issues. So I do think that, 0:19:42.040 --> 0:19:44.520 given the support we've seen from the SAD and the 0:19:44.560 --> 0:19:47.720 federal government over the past couple of months, that relationship 0:19:47.760 --> 0:19:49.800 may not play out the way that it has historically 0:19:49.840 --> 0:19:53.280 here going forward. David Levitz, if Jack f Mugans have 0:19:53.320 --> 0:19:55.080 it always quite to cash? How with you send up 0:19:55.080 --> 0:20:02.080 best to the team, won't you? Right now? Our interview 0:20:02.080 --> 0:20:05.040 of the day for fixed income and for rates. Stephen 0:20:05.080 --> 0:20:08.600 Major has been an HSBC for ages and he has 0:20:08.640 --> 0:20:12.199 been on on on on about the vector of the 0:20:12.280 --> 0:20:15.639 dynamic of the bond market and particularly full faith and credit. 0:20:15.720 --> 0:20:19.120 He joins us now Stephen to begin the conversation. Bring 0:20:19.200 --> 0:20:22.879 us up to date and the inertial force of yields 0:20:23.119 --> 0:20:26.840 lower and particularly the benchmark tenure. How low can the 0:20:26.920 --> 0:20:30.359 ten year go? Well, our forecast is fifty basis points 0:20:30.400 --> 0:20:33.360 for year end, so we're still some way from that. 0:20:34.440 --> 0:20:37.080 I know it doesn't sound very exciting, to go from 0:20:37.119 --> 0:20:40.760 sixty three to fifty. But the consensus forecast, according to 0:20:40.800 --> 0:20:44.879 Bloomberg is nearly one hundred for year end, So clearly 0:20:44.880 --> 0:20:47.560 our view is somewhat different to everybody else. I think 0:20:47.560 --> 0:20:50.919 we have the lowest forecasts on the street. What matters 0:20:50.960 --> 0:20:53.560 to me is looking through the noise. It's it's not 0:20:53.680 --> 0:20:56.760 about the discussion about whether there's going to be a 0:20:56.800 --> 0:21:01.840 recovery or not. Let's not confuse ouns with recovery either. 0:21:02.600 --> 0:21:06.560 To me, what matters is the long term debt dynamics 0:21:06.880 --> 0:21:11.600 and the longer term structural drivers, including the impact of 0:21:11.680 --> 0:21:17.320 technology and the demographics. All of this points to low 0:21:17.440 --> 0:21:21.360