Latest / Bloomberg Intelligence / Ark Funds Are Taking In As Much Flows As BlackRock: BI's Balchunas

Transcript

Ark Funds Are Taking In As Much Flows As BlackRock: BI's Balchunas · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
0:06
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
0:15
Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. So Cathy would founder
0:24
Speaker 1: and CEO and CEE. I oh, and I'm sure she
0:27
Speaker 1: has a ton of other titles that will bring to
0:29
Speaker 1: you later. At Ark invest has gotten a lot of
0:31
Speaker 1: attention lately. Her stellar fund performance has been marred after
0:36
Speaker 1: a sell off in Gulf some of their biggest bets.
0:38
Speaker 1: Would spoke with Bloomberg's Carol Master and Tim Stenovac on
0:42
Speaker 1: Bloomberg Business Week. Here's what she had to say. Well,
0:46
Speaker 1: I do believe we we love a wall of worry,
0:51
Speaker 1: and we were seeing the wall of worry starts to build.
0:54
Speaker 1: I saw it on social media, a lot of chatter,
0:58
Speaker 1: some just waiting for our funds in particular to take
1:03
Speaker 1: a tumble. Uh. Some maybe to buy, and some happy
1:08
Speaker 1: to sell and short and all of that. We love
1:11
Speaker 1: the liquidity that this provides us. We think it's very
1:14
Speaker 1: healthy and very healthy shakeout. So that's uh. I guess
1:20
Speaker 1: she needs no introduction, Carol Masser is what I'm talking about.
1:23
Speaker 1: Talking to Cathy wood Um really interesting because she kind
1:29
Speaker 1: of marked the bottom there. She bought the dip, and
1:32
Speaker 1: so did a number of others. Let's bring it, Eric
1:35
Speaker 1: Balcunas to talk about it, senior E t F analyst
1:38
Speaker 1: for Bloomberg Intelligence. Is this the most popular um of
1:42
Speaker 1: the new E t F s? Eric? I mean, of
1:45
Speaker 1: course g l D and j n K and some
1:47
Speaker 1: of the sort of plain vanilla ones, But is this
1:49
Speaker 1: the most popular special et F? Oh? Yeah, I mean
1:54
Speaker 1: this is the fastest growing asset manager in the country,
1:57
Speaker 1: if not the world, in terms of percentage growth. And
2:00
Speaker 1: it's not growth from like one million to ten million UM.
2:02
Speaker 1: It's basically from like four billion to forty fifty billion,
2:05
Speaker 1: so it's tenfold over a year. You rarely see that
2:09
Speaker 1: kind of growth, and you rarely see it from a
2:11
Speaker 1: stock picker. Those have been out of favor and in
2:14
Speaker 1: the issuer. There's not much distribution. She didn't have a
2:17
Speaker 1: lot of distribution network when she started, and also high cost.
2:20
Speaker 1: I mean her funds are seventy five basis points. Any
2:23
Speaker 1: one of those three things makes life very difficult in
2:25
Speaker 1: the et F industry. She's all three and is now
2:28
Speaker 1: basically taking in as much flows as black Rock, and
2:31
Speaker 1: it's the story is tremendous. Can't take my ass off
2:34
Speaker 1: of it. And obviously the performance is what is driving this.
2:36
Speaker 1: You look at her performance and you know, maybe half
2:39
Speaker 1: of it is a growth tech the cues, but the
2:44
Speaker 1: other half is really a hot hand and that's why
2:47
Speaker 1: she's getting the money. And you know, other people who
2:49
Speaker 1: are doing well but not that well, are not Eric.
2:53
Speaker 1: You know, some criticism of Cathy and of Arc is
2:56
Speaker 1: that it's just a derivative play on Tesla's at derivative
2:59
Speaker 1: play on maybe Bitcoin and maybe some of the hot
3:02
Speaker 1: names Apple, Amazon or whatever. It's really just reflective of
3:05
Speaker 1: what's going on in the nastack. What do you make
3:09
Speaker 1: of that? I mean, there's this a little truth of that.
3:13
Speaker 1: The testa call was major, but then that's about a
3:15
Speaker 1: fifth of a r k k's return though, so a
3:18
Speaker 1: fifth is major, but it's not it's not nearly it's
3:20
Speaker 1: not even close to half. You look, she's got internet stocks, also, biotech, software,
3:27
Speaker 1: commercial services, it's pretty it's across the board, and that's
3:31
Speaker 1: part of what I think she really tapped into. Back
3:34
Speaker 1: in the day, there was a lot of sector ets
3:36
Speaker 1: and some industry ets, but she said, you know, I
3:39
Speaker 1: don't be locked into a gig sector or an industry here,
3:42
Speaker 1: and also don't be locked into rules. So she said,
3:44
Speaker 1: we're gonna go after innovation, and she I think really
3:47
Speaker 1: tapped into this nature of how stocks are hard to
3:49
Speaker 1: classify these days, namely Tesla and Amazon UM. But if
3:53
Speaker 1: you look at her performance, so I think it's interesting
3:55
Speaker 1: about it is she only has a one percent overlap
3:58
Speaker 1: with the S and P five hundred, so is wells
4:01
Speaker 1: the SMP has done. She's figured out returns that aren't
4:03
Speaker 1: even in those benchmarks, which has also helped her in
4:07
Speaker 1: terms of marketing because she can say, look, you own
4:10
Speaker 1: the SMP, you don't need this active manager that has
4:13
Speaker 1: basically most of the SMP plus a couple of bets.
4:16
Speaker 1: You should go with me. I'm completely different and I
4:18
Speaker 1: can head you from the value stock stocks that you
4:21
Speaker 1: have in your SMP. And that's a pretty powerful pitch
4:23
Speaker 1: in my opinion, that goes even beyond just coming in
4:25
Speaker 1: and saying, hey, my return rules. By the way, a
4:28
Speaker 1: fifth isn't even half of a half. I wanted to
4:30
Speaker 1: point out that's how far away it is. Not the mathematician. Um,
4:36
Speaker 1: you know. It's It's funny because when Cathy would when
4:39
Speaker 1: the inflows were like supercharged, um, all the critics were like, oh,
4:45
Speaker 1: this is bad, she's got too much money. She she
4:47
Speaker 1: can't work with such what's such a high amount of inflows? Um.
4:51
Speaker 1: So I thought it was interesting that she did say
4:54
Speaker 1: this is healthy yesterday. I mean, Um, it's difficult to
4:58
Speaker 1: be to have so much firepower, isn't it. Yeah. So,
5:03
Speaker 1: on one hand, there's some stocks where she's over a
5:05
Speaker 1: ten percent owner, maybe about a dozen or so. That's
5:09
Speaker 1: tough because when you see inflows, you're gonna have to
5:11
Speaker 1: buy those stocks. People have impact costs, and there's been
5:13
Speaker 1: a front running. People know what she holds every day.
5:16
Speaker 1: We are in kind of a new world here because
5:19
Speaker 1: she's transparent. Back in the day, when you had to
5:20
Speaker 1: Peter Lynch or a hot manager, you didn't know really
5:23
Speaker 1: what they held. Um. In addition, she shows the holdings
5:26
Speaker 1: every day in the trades, and so you can go
5:28
Speaker 1: ahead and front run her or at least invest with her,
5:32
Speaker 1: But the flows, I think that you know, this is
5:34
Speaker 1: part of the issue, which it can create a little
5:36
Speaker 1: bit of upward spiral. The flows come in, you buy
5:38
Speaker 1: the stocks, stocks go up, you get more flows, and
5:40
Speaker 1: it could go a little bit on the downward. However,
5:42
Speaker 1: I know she's taken a couple there's a couple of
5:44
Speaker 1: things you can do with some megacap names to help
5:47
Speaker 1: with cash management. She can do cash and lou there's
5:49
Speaker 1: a few tricks there. Her argument as well, I'm investing
5:52
Speaker 1: in stocks. They're going to grow a lot anyway. And
5:54
Speaker 1: I also think that spacks and I p o s
5:57
Speaker 1: are going to replenish the market. So um. I've heard
6:00
Speaker 1: some people pushed back on both of those, but that's
6:02
Speaker 1: her argument. But largely she said they were built for scale.
6:05
Speaker 1: I will say, though, if you look at her small
6:07
Speaker 1: cap holdings, they had dwindle down to nothing. Um. They
6:10
Speaker 1: used to be about and they are gone. So she
6:13
Speaker 1: is going to be forced into large caps a little.
6:15
Speaker 1: I think that's the reality of the situation, but it
6:18
Speaker 1: certainly hasn't done too much the performance yet. Hey, Eric,
6:22
Speaker 1: thanks so much for joining us. Eric. We really appreciate
6:24
Speaker 1: that update. Just a fascinating story on Kathy Wooden arc
6:28
Speaker 1: and you've been on top of it. From a research perspective.
6:30
Speaker 1: Eric valcunis senior E t F analysts for Bloomberg Intelligence.
6:34
Speaker 1: I'll tell you, within the whole Bloomberg complex, I don't
6:36
Speaker 1: think there's anybody who is smarter uh and more on
6:41
Speaker 1: top of this whole ETS funds and the funds flows
6:44
Speaker 1: there have just been extraordinary and Eric has been all
6:46
Speaker 1: over it, so we appreciate his lots. Daniel DiMartino Boots.
6:52
Speaker 1: She's the CEO of Quill Intelligence UH and the former
6:57
Speaker 1: FED advisor UM. So we are going to bring her
7:01
Speaker 1: in in order to get more on what we heard
7:06
Speaker 1: from Powell yesterday and what we expect from FED chair
7:11
Speaker 1: Pale today. Danielle Um, what do you think of the chairman?
7:16
Speaker 1: I thought yesterday was like Goldilocks Powell. He was basically saying, No,
7:20
Speaker 1: rates aren't rising because of inflation, it's because of optimism
7:23
Speaker 1: for the economy. And that's exactly right, except for what
7:27
Speaker 1: Bloomberg Sebastian boyd Uh said a few hours ago that
7:31
Speaker 1: I tweeted out. You know, it's all good at rates
7:33
Speaker 1: are rising to reflect a reflating happy economy and you
7:37
Speaker 1: hear the birdies chirpid in the background, except for that
7:40
Speaker 1: fact that the stock market is the economy, and futures
7:44
Speaker 1: were down, and so this is this is the ultimate
7:47
Speaker 1: trade off and the sensitivity that we're seeing in housing,
7:54
Speaker 1: but also what we're seeing in investment grade bonds. You know,
7:59
Speaker 1: if you look at the are just E t F
8:01
Speaker 1: H y G, it's flat as a pancake. You're to date.
8:04
Speaker 1: If you look at l q D, which the Fed
8:07
Speaker 1: intervened directly in the largest investment grade E t F
8:12
Speaker 1: with its facilities that were shut down at year end,
8:15
Speaker 1: it's down more than four percent. So the market is
8:19
Speaker 1: telling you where your pressure points are in no uncertain terms.
8:24
Speaker 1: And in press conferences in the past, Powell has been
8:27
Speaker 1: very articulate about interest rate sensitive sectors. You've you've got
8:32
Speaker 1: your Barkley's Commercial Mortgage backed Securities index about to turn
8:36
Speaker 1: negative for the years interest rate sensitive sectors. So you
8:41
Speaker 1: can have all the reflating you want, you can have
8:44
Speaker 1: the vaccine narrative pulled off perfectly, flawlessly, but we still
8:49
Speaker 1: have a massively over indebted economy that is acutely sensitive
8:54
Speaker 1: to even I won't I won't even say the smallest
8:57
Speaker 1: since August the fourth, we've had the yield on the
8:59
Speaker 1: tenure trip bowl, and people forget that even though rates
9:02
Speaker 1: are very low on an absolute basis, that the delta,
9:05
Speaker 1: the starting point matters and to be triple off your
9:08
Speaker 1: lows in a matter of months, that that can be
9:11
Speaker 1: dramatical markets. So Daniel again, Chairman Pale's message, certainly from
9:16
Speaker 1: yesterday is consistent, which is lower for longer as it
9:19
Speaker 1: as it relates to interest rates. But is there a
9:21
Speaker 1: risk that the markets are just going to pass him
9:23
Speaker 1: by and uh it just kind of move on without him. Well,
9:29
Speaker 1: that is indeed the risk. And if you go back
9:32
Speaker 1: and read what laal brainer It has said about what
9:36
Speaker 1: yield curve control would look like. She's talking about the
9:39
Speaker 1: short end of the curve. She's speaking about two year paper,
9:43
Speaker 1: three year paper, the market has this ingrained thinking that
9:48
Speaker 1: the that the fet is referring to the tenure or
9:51
Speaker 1: the long bond, that's not what the original narrative, that's
9:55
Speaker 1: not what the original game plan was to be. It
9:58
Speaker 1: yield curve control was to be implemented. And that's why
10:02
Speaker 1: a lot of market participants were paying closer attention are
10:05
Speaker 1: saying further out on the maturity spectrum, further out on
10:08
Speaker 1: the maturity spectrum for the FED to target long term rate,
10:12
Speaker 1: which is why the wheels are falling off. He's not
10:15
Speaker 1: concerned about inflation, even though you know, if I look
10:18
Speaker 1: at a chart of the five year break evens it
10:20
Speaker 1: it almost goes vertical. And the government's about to spend
10:25
Speaker 1: another two trillion in stimulus. After that, they're gonna want
10:27
Speaker 1: to talk about the next two three four trillion dollar
10:30
Speaker 1: stimulus plan. Not I'm not exaggerating with those numbers. Um,
10:34
Speaker 1: are you worried about it? So? You know, I mean
10:39
Speaker 1: part of this is going to be withdrawing cash from
10:43
Speaker 1: the Treasury General account that the government's checking account that's
10:47
Speaker 1: housed at the FED stands at one point seven trillion
10:49
Speaker 1: right now, exactly, So part of this is already part
10:54
Speaker 1: of this check has already been written, if you will.
10:57
Speaker 1: But that being said, this massive thing just happened where
11:01
Speaker 1: I am in Texas. So you are going to have
11:04
Speaker 1: a fundamental source of support for all of the things
11:07
Speaker 1: we've been talking about are driving inflation because of the
11:10
Speaker 1: supply chain disruption copper, steel, lumber, things that have been
11:15
Speaker 1: doing things that are already out of control, expensive that
11:19
Speaker 1: the Fed is anticipating as being transitory in nature, are
11:22
Speaker 1: going to have a longer impact. To say nothing, a
11:26
Speaker 1: freight costs which we anticipate staying very high. And it
11:29
Speaker 1: was interesting Bloomberg did a great story a few weeks
11:31
Speaker 1: ago about the fact that we talked about all these
11:33
Speaker 1: deadhead freighters headed from the West coast ports back to
11:37
Speaker 1: Shanghai empty. This is causing a huge disruption in the
11:41
Speaker 1: global food chain. You've got sugar that can't get out
11:44
Speaker 1: of India, You've got coffee they can't get out of
11:46
Speaker 1: Vietnam because there's not there's not enofreighter's out there. So
11:51
Speaker 1: my concern for Powell is that that the persistence of
11:56
Speaker 1: inflation is going to be look and feel in the
11:59
Speaker 1: data be on summer as more than a transitory moment.
12:03
Speaker 1: He's also talking about just citing some of the commentary
12:06
Speaker 1: from yesterday, you know, talking about the vaccines as a
12:09
Speaker 1: single best policy. Expects economic activity to bounce back strongly,
12:13
Speaker 1: expect especially in the second half of the year GDP
12:16
Speaker 1: may grow six. Is that sound reasonable to you or
12:20
Speaker 1: is he perhaps a little optimistic? You know, that's the
12:24
Speaker 1: remains to be seen. If you do pure math and
12:27
Speaker 1: say this amount of money is going to get put
12:29
Speaker 1: into the economy, then then you get that at the
12:31
Speaker 1: other end. But we have to bear in mind the
12:34
Speaker 1: houses have been purchased. Home people even even put out
12:38
Speaker 1: a slight morning yesterday that said people might not redo
12:42
Speaker 1: their decks again. They just did them. And you know,
12:45
Speaker 1: people who were forced to stay at home, they're not
12:47
Speaker 1: gonna be pouring as much good spending into the economy,
12:51
Speaker 1: and they can't make up for the vacations that they
12:54
Speaker 1: that they didn't take, and they can't make up for
12:56
Speaker 1: the restaurant meals that they didn't have. So you'll see
12:59
Speaker 1: that big bold in service spending, but you'll also see
13:03
Speaker 1: an offset as people leave their homes because they're no
13:06
Speaker 1: longer going to be you know, basically inside of their
13:08
Speaker 1: homes and trapped and saying, God, I've got to redo
13:11
Speaker 1: this bathroom. It really is awful. So that that level
13:15
Speaker 1: of spending on goods just because there's a vaccine is
13:19
Speaker 1: going to take a hit. All right, Daniel, what's the
13:22
Speaker 1: biggest concern for you as we think about this reopening
13:26
Speaker 1: trade here in the economy. It seems like again We're
13:28
Speaker 1: getting some really good numbers the metrics on the pandemic.
13:32
Speaker 1: We're getting some really good UH data on the new
13:36
Speaker 1: vaccines Johnson and Johnson today, what's some of the what
13:38
Speaker 1: are some of the big concerns that you think maybe
13:40
Speaker 1: the market's overlooking. So again, I am following credit like
13:44
Speaker 1: a hawk. And we've also had the third test failed
13:49
Speaker 1: of if you if you add up pandemic and employment
13:52
Speaker 1: assistance to non seasonally adjusted state claims, you you may
13:56
Speaker 1: recall the Department of Labor change the methodology midway through panic.
14:00
Speaker 1: So I add up those two initials every week, and
14:04
Speaker 1: we've crossed through one point four million three times in
14:07
Speaker 1: a row when we shouldn't be. We should be in
14:10
Speaker 1: the process of a slow decline and steady decline in
14:15
Speaker 1: jobless claims, and yet we're not seeing that. So I'm
14:18
Speaker 1: looking for that to show sustained improvement and get below
14:22
Speaker 1: that line and continue to improve. By the way, um
14:26
Speaker 1: John Farah was interviewing Brian Deese the other day and
14:31
Speaker 1: trying to get trying to get a picture of whether
14:34
Speaker 1: or not um Biden has met with Powell. He couldn't
14:37
Speaker 1: get an answer out of dees, do you think this
14:40
Speaker 1: relationship is going to be a lot different than Powell Trump.
14:46
Speaker 1: I don't think that there's anything to suggest that the
14:48
Speaker 1: relationship will be in any way, shape or form contentious.
14:51
Speaker 1: And we know that Powell has a great working relationship
14:54
Speaker 1: with Yellen. So the line of communication is technically wide
14:57
Speaker 1: open to the White House. Um, what I would say
15:01
Speaker 1: is I am not personally sure that a man of
15:05
Speaker 1: his means necessarily wants to sign up for four more years.
15:09
Speaker 1: Come next to February, by the way, the birthday, so
15:13
Speaker 1: February Powell's birthday, So that may be something that is
15:19
Speaker 1: making it to where there is not justification to build
15:22
Speaker 1: this wonderful working relationship. Powell himself is not positive he
15:26
Speaker 1: wants to sign on for four more years, But again,
15:28
Speaker 1: Powell and Yellen have a very close working relationship. I
15:30
Speaker 1: wouldn't read too much into it. Hey, Danielle, thank you
15:33
Speaker 1: so much once again for joining us. Danielle di Martino
15:35
Speaker 1: bout cio and director of Intelligence at QUILL, former advisor
15:39
Speaker 1: also at the Dallas Federal Reserve. Right now we go
15:42
Speaker 1: to FED Chair Jerome pal testifying before the House Financial
15:45
Speaker 1: Services Committee with Chairwoman Maxine Waters kicking off the Q
15:48
Speaker 1: and a story. Certainly that's been over the last couple
15:54
Speaker 1: of days. FED Chairman poun As testimony in front of Congress,
15:57
Speaker 1: and I think the takeaway is lower for longer, but
16:00
Speaker 1: the bond market says otherwise. We've had a nice move
16:03
Speaker 1: up in yields here the ten years up about five
16:06
Speaker 1: basis points just today one point three nine percent. Will
16:09
Speaker 1: call it the thirty year up six basis points two
16:11
Speaker 1: point to four to help us get some perspective. We
16:15
Speaker 1: love chatting with Ted Ravel. He's the chief Tad Ravel,
16:18
Speaker 1: chief investment officer for fixed income at t c W. Boy,
16:21
Speaker 1: when I went out to l A on my marketing trips,
16:23
Speaker 1: t c W was the first meeting you had to
16:26
Speaker 1: get on your calendar. Tad, thanks so much for joining
16:28
Speaker 1: us here. What do you make of FED Chairman Pal's comments.
16:33
Speaker 1: I guess more of the same. Would you say, are
16:35
Speaker 1: you reading anything else into it? It was totally more
16:38
Speaker 1: of the same. I mean, I think a fair disaggregation
16:42
Speaker 1: of where the where the Fed's heads at is that
16:45
Speaker 1: they have pretty well committed to KIWI at the current
16:48
Speaker 1: pace well through two thousand and say call it this
16:51
Speaker 1: year twenty one. It takes at least twelve months to
16:54
Speaker 1: tape or if in fact you were going to do it,
16:56
Speaker 1: So that takes you through two thousand and twenty two,
17:00
Speaker 1: and then um, if there were going to be any
17:02
Speaker 1: rate rises, we're looking out into the next year beyond
17:05
Speaker 1: that two thousand and twenty three. Obviously, as you sort
17:08
Speaker 1: of alluded to, the market may have its own ideas
17:11
Speaker 1: about the advisability of a course of action of a
17:15
Speaker 1: zero percent policy, a one d and twenty billion per
17:19
Speaker 1: month QUEI policy in the face of a fiscal stimulus
17:23
Speaker 1: package that is just shy of two trillion dollars, and
17:27
Speaker 1: given that the forecasts from the Atlanta Fed and so
17:30
Speaker 1: forth have projected actually relatively elevated GDP in two thousand
17:36
Speaker 1: and twenty one, and that's probably why you're seeing the
17:39
Speaker 1: bond market react the way it is, which is to say,
17:42
Speaker 1: the tens and the thirties selling off as hard as
17:44
Speaker 1: as they have in the last two to three months. So,
17:48
Speaker 1: I mean, one of the things I noticed that Powell
17:50
Speaker 1: said yesterday was that it's not inflation driving rates higher,
17:55
Speaker 1: it's optimism for the economic recovery. But at the same
17:59
Speaker 1: time I look at break evens, it seems like the
18:02
Speaker 1: market does anticipate inflation to come back, And I can't
18:07
Speaker 1: imagine it's transient either, because you're not going to stop
18:10
Speaker 1: needing to buy copper or lumber in the face of
18:14
Speaker 1: rebuilding better. Um, what do you think, Dad, Well, I
18:19
Speaker 1: think that the discussion about inflation is um is always
18:24
Speaker 1: a bit squishy. And this is what I mean by
18:26
Speaker 1: it that it can be defined narrowly the way the
18:29
Speaker 1: Fed prefers to define it, which is to say that
18:32
Speaker 1: inflation is a form of currency debasement with respect to
18:37
Speaker 1: goods and services. But it can be defined a little
18:39
Speaker 1: bit more broadly. I don't know why it cannot be
18:42
Speaker 1: to include asset price and UH inflation. I think that
18:46
Speaker 1: if you ask the man on the street, what what
18:48
Speaker 1: does inflation mean to me? It means that I have
18:50
Speaker 1: to work longer and harder in order to get the
18:53
Speaker 1: things that I want. Now. If the if the reality
18:56
Speaker 1: is that, uh, the home that you want to live
18:59
Speaker 1: in has doubled in price, and you have to come
19:02
Speaker 1: up with twice the down payment, depending upon what your
19:05
Speaker 1: income and your savings and so forth, it could take
19:08
Speaker 1: quite a long number of years. That represents a deterioration
19:11
Speaker 1: in your lifestyle. So to ignore asset price inflation and
19:15
Speaker 1: to substitute it with the owner's equivalent rent. This sort
19:18
Speaker 1: of this wonky construct that looks at the carry costs
19:22
Speaker 1: of a house, but not really the primary issue that
19:25
Speaker 1: I think confronts particularly first time home buyers, which is
19:29
Speaker 1: they can make the payment all right, if someone would
19:31
Speaker 1: give them the down. So if we're thinking about currency
19:35
Speaker 1: debasement in a larger context, maybe we've already had, you know,
19:38
Speaker 1: some measure of inflation. And I also think that FED pronouncements,
19:43
Speaker 1: not just FED but central banking pronouncements about inflation are
19:47
Speaker 1: are inherently suspect because, first of all, they want they
19:51
Speaker 1: are committed to a zero rate policy, and they because
19:55
Speaker 1: they have, in the case of the US, a statutory
19:59
Speaker 1: um constraint to uh TO to not allow quote unquote
20:03
Speaker 1: inflation get out of hand um. Naturally they're going to
20:06
Speaker 1: forecast low rates of inflation. But look at their history.
20:09
Speaker 1: The history of central banks forecasting inflation is abysmal. It
20:13
Speaker 1: is really, it is really bad when you look at
20:15
Speaker 1: at the numbers that they have projected versus what's been realized.
20:19
Speaker 1: And then if you want to take a slightly academic
20:21
Speaker 1: and a longer you, let's say a fifty perspective on it.
20:25
Speaker 1: Let's look at it this way. In the sixties, the
20:28
Speaker 1: FED and their colleagues said, we know inflation. We got this,
20:32
Speaker 1: it's Phillips curves. When unemployment gets too low. Whoops. In
20:35
Speaker 1: the seventies you throw that in the trash. So then
20:37
Speaker 1: you say, okay, well, it's about monetary aggregates and the
20:40
Speaker 1: growth there there too. Well that kind of went out
20:43
Speaker 1: at the windows as well. And by the way, M
20:46
Speaker 1: two broad monetary aggregates have grown about over the last year. Interestingly,
20:52
Speaker 1: now the FED says it's kind of psychological, it's your
20:55
Speaker 1: expectations and so forth. I guess my point is is
20:58
Speaker 1: that when you have a feat currency, they are all
21:00
Speaker 1: kinds of ways that inflation can probably rear. It's it's
21:03
Speaker 1: very ugly head, simply because it really just comes down
21:07
Speaker 1: to the extent to which people trust the currency and
21:10
Speaker 1: trust in its long term stability. If you're going to
21:13
Speaker 1: buy an apartment building in dollars today and you have
21:16
Speaker 1: a ten year horizon associated with it or lend against it,
21:19
Speaker 1: you have to have some faith that, uh, that that
21:22
Speaker 1: dollars that you're going to receive or pay ten years
21:25
Speaker 1: from now is going to be within spitting distance of
21:28
Speaker 1: what you contemplate in today's contract. Yeah yeah, yeah, yeah,
21:33
Speaker 1: yeah right, just exactly like bitcoin, which is why you
21:35
Speaker 1: can't make a long term contract in bitcoin, because you
21:37
Speaker 1: have no idea whether you're gonna um be really unhappy
21:41
Speaker 1: or whether your counterparty is going to be really unhappy
21:44
Speaker 1: about it. So so anyway, my point is is that
21:47
Speaker 1: the FED is going to say what it needs to say,
21:49
Speaker 1: which is inflation is well controlled. Even though they don't
21:51
Speaker 1: really know what inflation is. They define it narrowly, and
21:55
Speaker 1: they have had a terrible history of forecasting it. All right,
21:59
Speaker 1: So had the Fed is doing its job, it is,
22:03
Speaker 1: you know, keeping rates, keeping liquidity into the marketplace. What
22:07
Speaker 1: do you expect or what do you need to see here?
22:09
Speaker 1: What do you think the market needs to see coming
22:11
Speaker 1: out of Washington? In terms of stimulus, it appears that
22:14
Speaker 1: the one point nine trillion is pretty much good to go.
22:17
Speaker 1: How are you viewing that? And maybe even a backup
22:20
Speaker 1: stimulus on the on the back of that. Right, So, uh,
22:25
Speaker 1: you know, I was asked this question, you know recently,
22:28
Speaker 1: that doesn't the market response of the last year and
22:31
Speaker 1: the Fed's actions sort of prove the people that advocated
22:36
Speaker 1: modern monetary theory, weren't they right that basically you can
22:39
Speaker 1: just print money and you know, just do helicopter drops
22:42
Speaker 1: and there's only benefits associated with it. And I guess
22:45
Speaker 1: time will tell. But the the thought that occurred to
22:49
Speaker 1: me was if you ask a doctor, what they'll tell
22:52
Speaker 1: you is that many medicines become poisonous at higher dosages
22:56
Speaker 1: or different dosages. And many poisons or medicines botox for instance,
23:01
Speaker 1: if you if you regulate, if you regulate the dosage. Okay,
23:06
Speaker 1: so when you're in the middle of a pandemic and
23:08
Speaker 1: you dose it the way you did, Uh. I give
23:11
Speaker 1: credit to all of the policymakers. They they appeared to
23:15
Speaker 1: have have under great darrests actually calculated and done very well.
23:20
Speaker 1: So does that mean that you just keep giving the
23:23
Speaker 1: patient the medicine because when they were sick, uh, they
23:27
Speaker 1: got better and now that they are, you know, looking
23:30
Speaker 1: a lot better. In some ways, I don't mean to
23:32
Speaker 1: minimize the pain and restaurant industries, hotel industries and so forth.
23:37
Speaker 1: That is very very very serious and maybe very structural.
23:40
Speaker 1: But if it is in fact structural, doing more helicopter
23:44
Speaker 1: drops isn't going to solve the problem. You can't. You
23:47
Speaker 1: can't stimulate. I mean, I hate to say it, but
23:50
Speaker 1: if I could, you can stimulate a hotel that just
23:55
Speaker 1: no longer has an economic function, You'll have somebody's has
23:59
Speaker 1: to make good the operation a lot zombie hotel. Hey, Tad,
24:02
Speaker 1: thanks so much for joining us. We really appreciate it.
24:04
Speaker 1: Tad Rovelle, chief investment officer for fixed income at tc
24:07
Speaker 1: W Group. Let's talk a little bit about vaccines. We
24:12
Speaker 1: just got a story out from Johnson and Johnson. It's
24:15
Speaker 1: COVID vaccine was found to be pretty effective. Seventy two
24:20
Speaker 1: percent is the mark that they got in an arrow
24:24
Speaker 1: when I'm personally thinking like it's got to be eighty
24:27
Speaker 1: year ninety or I don't want it. Let's bring in
24:29
Speaker 1: Sam Fazeli to uh sent me straight here. He's our
24:33
Speaker 1: senior pharmaceutical analyst and head of a media research for
24:37
Speaker 1: Bloomberg Intelligence. Sam, I know that actually seventy that's better
24:40
Speaker 1: than the typical flu vaccines that that we get every year. Right,
24:44
Speaker 1: Oh yes, oh yes, Um, and Matt, I mean these
24:47
Speaker 1: are all these vaccines have so far been better than
24:50
Speaker 1: the usual typical flu vaccine. Efficacy that you're seeing. So um, yeah, absolutely.
24:56
Speaker 1: And also we have to be careful that when we
24:58
Speaker 1: look at these things, because we haven't we have to
25:00
Speaker 1: dissect away what are we what are we worried about?
25:02
Speaker 1: Are we worried about ending up in hospital and getting
25:05
Speaker 1: severe disease or are we worried about catching the sniffles
25:09
Speaker 1: as they call it some people. So this this certainly
25:12
Speaker 1: gets better when you look at just the severe disease. Hey, Sam,
25:16
Speaker 1: I know in the UK you guys have had some
25:19
Speaker 1: pretty good success with the astra zenica vaccine. My question
25:23
Speaker 1: is it's working well for you guys. How come it's
25:25
Speaker 1: not approved here in the US. The Germans don't want
25:28
Speaker 1: it either. Yeah, well no, And I don't get that
25:31
Speaker 1: because wasn't somebody one of the politicians Germany recently said
25:34
Speaker 1: I'm going to go and get this astro vaccine or something.
25:37
Speaker 1: I mean, they're trying to walk some of that back
25:38
Speaker 1: because I think people are realizing that in Europe. And
25:41
Speaker 1: I'll come back to you, Paul in a second. In
25:43
Speaker 1: Europe they've kind of potentially shooting themselves in the foot
25:46
Speaker 1: after having shouted at the company for several weeks about
25:50
Speaker 1: supply and contract, and they've this the vaccine so much
25:55
Speaker 1: that there's a risk that they're the people will just
25:58
Speaker 1: turn the nose up at it. So so there's at
26:00
Speaker 1: the risk. But back in the US, of course, we
26:03
Speaker 1: you know, they're running a large US toil from which
26:06
Speaker 1: we expect data any day, any week, any day, So
26:09
Speaker 1: I think the regulator of the USA would require that
26:13
Speaker 1: I'll give you the low down here. So what happened
26:15
Speaker 1: was the Germans were I think frustrated because they really
26:19
Speaker 1: dropped the ball when it came to stocking up on vaccines,
26:23
Speaker 1: and they were there were some back and forth with
26:25
Speaker 1: astra Zenica. At the same time, Germany's biggest paper, which
26:29
Speaker 1: is actually I believe the most widely circulated newspaper in
26:32
Speaker 1: the world, the Builds Tongue Um, released a story saying
26:36
Speaker 1: the astros Ennica vaccine doesn't work for people over sixty five,
26:39
Speaker 1: and they cited a German government source. So it looked
26:42
Speaker 1: like the Germans were kind of throwing astro Zenica under
26:45
Speaker 1: the bus because of this spat that they were having.
26:47
Speaker 1: Turns out it was because the newspaper kind of understood
26:52
Speaker 1: the facts incorrectly. It was a couple of newspapers and
26:55
Speaker 1: so ever since then. Um, here in Germany, people don't
27:00
Speaker 1: think it works for the old for the older crowd,
27:02
Speaker 1: But the real m, the real facts were that it
27:06
Speaker 1: just wasn't tested on the older crowd, right, Sam, that's right,
27:10
Speaker 1: that's right. The fact is that there was only like
27:12
Speaker 1: six subjects in the sixty plus sixty five plus range,
27:17
Speaker 1: So you just don't know the answer. And we know
27:20
Speaker 1: that the vaccine in separate trials induced just as good
27:23
Speaker 1: as immune response in people of older age than those
27:27
Speaker 1: of younger age. Um. Listen. Bottom line air Affinity came
27:31
Speaker 1: out today and said the EU is finally ramping up
27:34
Speaker 1: its vaccines and if they can get the shots and arms, um,
27:37
Speaker 1: we should be to seventy five cent vaccinated by August.
27:42
Speaker 1: In the US. I know it's been widely panned, but
27:46
Speaker 1: there was one JOHNS. Hopkins professor who said we could
27:49
Speaker 1: see her immunity by April. Even if you think he's
27:52
Speaker 1: way too optimistic, Sam, are we gonna be good by
27:56
Speaker 1: the end of the year in the western world? Okay? Uh, yeah, Matt.
28:02
Speaker 1: The answer to that is yes, so long as we
28:05
Speaker 1: don't fall foul of the variants. So long as they
28:08
Speaker 1: don't end up taking hold in our regions while we're vaccinating,
28:14
Speaker 1: and so long as they don't actually prove more problematic
28:18
Speaker 1: as regards to the vaccines, and if that ends up
28:21
Speaker 1: being the case, then and I think we have a
28:23
Speaker 1: possibility that will end up with certainly fewer hospitalizations even
28:27
Speaker 1: in that case, but we will need to go back
28:29
Speaker 1: and re vaccinate everybody with a booster shot. Sam, Should
28:32
Speaker 1: people care which vaccine they get? I'm sending that Matt
28:35
Speaker 1: Miller's gonna a little bit of a vaccine snob here.
28:37
Speaker 1: He's only going to want the one with the highest efficacy.
28:40
Speaker 1: Or should we just whatever they jab in our arms
28:43
Speaker 1: will take it? I mean, with the with the current
28:46
Speaker 1: story that we have today, if I go into a
28:48
Speaker 1: doctor and he says to me, Sam, I've got your vaccine,
28:51
Speaker 1: this is it, I'll just take you whatever it is.
28:54
Speaker 1: M I have the least confidence in And this is
28:58
Speaker 1: not because they come from China. Is because I don't
29:00
Speaker 1: in the data that I've seen in the Sino farm
29:03
Speaker 1: a sign of act vaccine uh spot Nick five or
29:06
Speaker 1: the astrodenic Johnson and Johnson, whatever it is, I'll take
29:11
Speaker 1: them old. I'll tell you what for me, this is
29:14
Speaker 1: the honest truth, much like um Eric Baucuna speaks gospel
29:20
Speaker 1: when it comes to E. T. F S. For me,
29:21
Speaker 1: whatever Sam says is what I end up believing because
29:25
Speaker 1: I have fun with these crazy conspiracy theories. And yeah,
29:28
Speaker 1: I want spot Nick five because of the collectibility of it.
29:31
Speaker 1: But at the end of the day, if Sam says,
29:32
Speaker 1: just take what they give you, I'm gonna take whatever
29:34
Speaker 1: they want, and that's got to give thing. I think
29:36
Speaker 1: that's smart. And I've known Sam for twelve years and
29:39
Speaker 1: he is the farmer guy out there. He's our go
29:42
Speaker 1: to guy, and we appreciate him giving us some time here.
29:44
Speaker 1: Sam Fazelli senior Farmer analyst for Bloomberg Intelligence. He also
29:48
Speaker 1: has some management duties. He manages all of the European
29:51
Speaker 1: research efforts for Bloomberg Intelligence. He's located somewhere in Europe.
29:54
Speaker 1: I never know where he is. How cool would it be, though,
29:56
Speaker 1: to get spot Nick five, Like, yeah, in your neighborhood,
29:59
Speaker 1: you'd probab to be the only one who got it.
30:01
Speaker 1: For Shell, the kid who had it. I heard it's effective,
30:03
Speaker 1: so I mean, you know, it's interesting. I mean, there's
30:05
Speaker 1: a lot of Sam was saying yeah, exactly. I mean
30:08
Speaker 1: there's a lot out there. More and more is coming.
30:11
Speaker 1: The scientists have really come through. Now it's up to
30:13
Speaker 1: the supply chain to get it out here. Thanks for
30:17
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
30:21
Speaker 1: listen to interviews with Apple Podcasts or whatever podcast platform
30:25
Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
30:28
Speaker 1: Miller three. Put on fall Sweeney. I'm on Twitter at
30:32
Speaker 1: pt Sweeney Before the podcast. You can always catch us
30:35
Speaker 1: worldwide at Bloomberg Radio.