Latest / Bloomberg Intelligence / China Stock Delisting Threat Is All Bark, No Bite: KraneShares CIO

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China Stock Delisting Threat Is All Bark, No Bite: KraneShares CIO · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:18
  Speaker 1: that Bloomberg dot com. Well, the tensions between the US
• 0:23
  Speaker 1: and China seemed to be ramping up once again. Several
• 0:25
  Speaker 1: months ago it was trade and tariffs. Now it seems
• 0:28
  Speaker 1: to be US or Chinese companies listening in the US
• 0:32
  Speaker 1: and President Trump. Rheter coming out of President as relates
• 0:35
  Speaker 1: to the president she of China. Brendan A. Hearn, chief
• 0:37
  Speaker 1: investment officer of Crane Shares, joins us to discuss. So, Brendan,
• 0:41
  Speaker 1: let's start with just some of the rhetoric. Um, it
• 0:44
  Speaker 1: seems like President Trump is, you know, suggesting that the
• 0:46
  Speaker 1: country's leader, Gigi Ping, is behind quote a disinformation and
• 0:50
  Speaker 1: propaganda attack on the United States and Europe. What do
• 0:54
  Speaker 1: you think the strategy is of President Trump here as
• 0:56
  Speaker 1: it relates to economic issues with China. Well, I think
• 1:01
  Speaker 1: we tend to see US political rhetoric rise when equity
• 1:06
  Speaker 1: US equity markets are at high levels. Uh, that that
• 1:11
  Speaker 1: that we've we've recovered from from the lows. And so
• 1:15
  Speaker 1: we see this ratcheting up in in the rhetoric, and
• 1:19
  Speaker 1: you know, the market is doing what it usually does
• 1:21
  Speaker 1: following a ratching up of rhetoric, it falls. Um, you know,
• 1:25
  Speaker 1: we'll probably have Larry Cudlow wheeled out to try to
• 1:28
  Speaker 1: calm markets. Uh. You know we've kind of seen this before. Um,
• 1:33
  Speaker 1: so you know, I think, you know, there is a
• 1:35
  Speaker 1: lot of bark, but the end reality is there will
• 1:39
  Speaker 1: be probably a lot of bite. Very simply, China is
• 1:43
  Speaker 1: the third largest destination for US exports. So was this
• 1:48
  Speaker 1: tied to trade? Continuing trade negotiations, discussions terrorists? This you
• 1:54
  Speaker 1: think the rhetoric is all tied into keeping a certain
• 1:57
  Speaker 1: level of pressure on China from the US pact? Is
• 2:01
  Speaker 1: I mean? I mean maybe this is the art of
• 2:03
  Speaker 1: the deal, um, but maybe this is you know, a
• 2:08
  Speaker 1: deflection distraction strategy. Um. You know, um, you know this
• 2:14
  Speaker 1: this terrible pandemic. I think most people would would give
• 2:18
  Speaker 1: any leader a pass on what's happened. You know, we
• 2:21
  Speaker 1: haven't had a pandemic here in a hundred years. But
• 2:24
  Speaker 1: there's gonna be more pointing the finger as opposed to
• 2:26
  Speaker 1: looking in the mirror. Um. You know, I would have
• 2:29
  Speaker 1: hoped a nine eleven commission type committee would be formed
• 2:33
  Speaker 1: to kind of you prepare for the next time. But
• 2:36
  Speaker 1: but we're in We're in the blame game. We're not
• 2:38
  Speaker 1: in the accountability game exactly. Um. So what do you
• 2:41
  Speaker 1: make of the Senate, you know, approving legislation Wednesday that
• 2:44
  Speaker 1: could lead the Chinese companies such as you know, Ali Bob,
• 2:47
  Speaker 1: the big companies like that, being barred from listing on
• 2:50
  Speaker 1: U stock exchanges. Well, I think the senators themselves are
• 2:54
  Speaker 1: probably surprised that this thing passed, has put up for
• 2:57
  Speaker 1: unanimous consent. Uh. No one objected to a pass And
• 3:02
  Speaker 1: you know, US investors hold a trillion dollars worth of
• 3:07
  Speaker 1: US list of Chinese companies. This is not punishing China
• 3:11
  Speaker 1: in any form or fashion. Uh. US investors are the
• 3:16
  Speaker 1: ones that hold these stocks. The reality is, you know,
• 3:20
  Speaker 1: companies like Badu are not going to delist. The SEC
• 3:24
  Speaker 1: is not going to delist these companies. You know. You
• 3:27
  Speaker 1: know this that will go to the House next week.
• 3:30
  Speaker 1: It's it's going to pass. Trump will probably uh sign this.
• 3:36
  Speaker 1: Uh then reality it will take another year for the
• 3:39
  Speaker 1: actual details to be sorted out. And and you know,
• 3:43
  Speaker 1: I think there's going to be a tremendous effort from
• 3:46
  Speaker 1: the US financial industry to rewrite this. No one wants
• 3:50
  Speaker 1: to see US investors holding stocks that get delisted. Uh
• 3:55
  Speaker 1: So I think this is again hard of there's a
• 3:58
  Speaker 1: huge amount of bark. There's there's not gonna be I
• 4:02
  Speaker 1: don't think any bite to this. So given you know,
• 4:05
  Speaker 1: again more bark than bite here, what are your overall
• 4:08
  Speaker 1: views about investing in China these days? It appears that
• 4:13
  Speaker 1: they're getting back uh to work here. Um, are you
• 4:17
  Speaker 1: seeing some meaningful progress such that it would you know,
• 4:19
  Speaker 1: alter kind of your outlook preps? Well, I think you
• 4:23
  Speaker 1: know one, you know, these these US list of Chinese companies,
• 4:27
  Speaker 1: they're they're gonna relist in in Hong Kong. Anyway, you know,
• 4:31
  Speaker 1: over the last two years during this trade war, the
• 4:34
  Speaker 1: fundamentals of of these companies, I mean, I mean, I've
• 4:39
  Speaker 1: done nothing but improve, but but the stocks trade based
• 4:42
  Speaker 1: on every trade tweet. They have nothing to do with
• 4:45
  Speaker 1: the trade war. So they're gonna go back to a
• 4:47
  Speaker 1: market where they don't have to explain themselves. They're gonna
• 4:50
  Speaker 1: get valued at a higher level. They have the potential
• 4:53
  Speaker 1: for index inclusions like the Hang Sang index. There's the
• 4:57
  Speaker 1: potential for southbound connect flows. So mainland investors can buy
• 5:02
  Speaker 1: them and they're gonna bait them up. So so the
• 5:04
  Speaker 1: companies are gonna relist, you know, you know, that's that's
• 5:08
  Speaker 1: ultimately it sounds crazy, but that is a very good
• 5:11
  Speaker 1: thing for the investors in the U S shares because
• 5:13
  Speaker 1: the stocks are fungible. Yeah, interesting, real quickly thirty seconds, Brendan,
• 5:18
  Speaker 1: do you think this rhetoric that we've talked about today
• 5:20
  Speaker 1: is just gonna, you know, maybe give the next Chinese
• 5:23
  Speaker 1: company pause about listing on the US. We've had some
• 5:26
  Speaker 1: great success stories with Ali Baba and and others. But
• 5:28
  Speaker 1: do you think this is gonna put a little bit
• 5:30
  Speaker 1: of a pause on that. Well, I would think so.
• 5:33
  Speaker 1: You know, I think Hong Kong, the mainland exchanges are
• 5:37
  Speaker 1: you know as as evans. Hong Kong Stock Exchange went
• 5:40
  Speaker 1: up almost two percent today and am surpresident and go
• 5:42
  Speaker 1: up more, you know, So, so exchanges do compete with themselves,
• 5:45
  Speaker 1: and that's why there's a whole find US financial system
• 5:49
  Speaker 1: ecosystem is going to push back against this, you know, big,
• 5:52
  Speaker 1: big way. They don't want to see the the uh
• 5:54
  Speaker 1: basically the money train turned off. Yeah, exactly. Brendan Aheran,
• 5:59
  Speaker 1: thanks so much for joining us with appreciate your perspective
• 6:01
  Speaker 1: as it relates to China and the investment environments that
• 6:05
  Speaker 1: surrounding China. Brendan Ahearn, Chief investment officers from Crane Shares
• 6:10
  Speaker 1: based here in New York City. Uh. Talking about some
• 6:13
  Speaker 1: of those companies like Bai Do, uh, like Ali Baba,
• 6:17
  Speaker 1: they've just been such successful I p os and successful
• 6:20
  Speaker 1: stocks on the US exchanges. A lot of US investors
• 6:24
  Speaker 1: in those stories. They've been excellent growth stories really predicated
• 6:28
  Speaker 1: upon me think about on Ali Baba, predicated upon the
• 6:30
  Speaker 1: growth of the middle markets in China as more and
• 6:34
  Speaker 1: more of the Chinese economy, uh, you know, moves from
• 6:37
  Speaker 1: uh lower end of the economic cycle to kind of
• 6:41
  Speaker 1: more than middle market. You're listening to Bloomberg Markets with
• 6:46
  Speaker 1: Lisa Ramo, Eds and Paul Sweeney on Bloomberg Radio. Well,
• 6:50
  Speaker 1: as we all make our way through this pandemic. One
• 6:53
  Speaker 1: of the issues that we've discussed over the last several weeks.
• 6:56
  Speaker 1: Is how will consumer behavior change on the other side
• 6:59
  Speaker 1: of the as it relates to things like travel. Whill
• 7:02
  Speaker 1: we get on planes while we get on cruise ships,
• 7:04
  Speaker 1: retail sales, Will people just when they go into stores again,
• 7:08
  Speaker 1: or just kind of see an acceleration of online shopping.
• 7:11
  Speaker 1: That's why I'm so happy and excited to have our
• 7:13
  Speaker 1: next guest, Donnie Dorling. He's a professor of geography Oxford,
• 7:17
  Speaker 1: University of Oxford in England. He's also the author of
• 7:21
  Speaker 1: slow Down, The End of the Great Acceleration. Get a
• 7:25
  Speaker 1: sense of kind of how he thinks things are gonna
• 7:26
  Speaker 1: play it here, Donny, thanks so much for joining us.
• 7:29
  Speaker 1: We really appreciate you joining us. I wonder if you
• 7:32
  Speaker 1: have a sense of maybe how consumer behavior is going
• 7:36
  Speaker 1: to change on the other side of this pandemic as
• 7:39
  Speaker 1: we you know, at some point get out of the
• 7:42
  Speaker 1: lockdown and get back to some type of normal life.
• 7:44
  Speaker 1: What are the things you're looking at? Uh? Well, I
• 7:47
  Speaker 1: can tell you My guess is the course already guesses.
• 7:50
  Speaker 1: I spent six years looking at the late to change
• 7:53
  Speaker 1: in loads of forms of behavior. Um so whether something
• 8:00
  Speaker 1: was slowing down or whether it was speeding up. And
• 8:02
  Speaker 1: the shock of spending this the six years doing this
• 8:05
  Speaker 1: because the time that most things that were still rising,
• 8:07
  Speaker 1: people are buying more of things. The rise isn't as
• 8:10
  Speaker 1: big as it was in the past. In the very
• 8:14
  Speaker 1: first week of January, that's puddenly stopped changing it. So
• 8:16
  Speaker 1: the book is not about the pandemic. The book is
• 8:19
  Speaker 1: about what was already happening before the pandemic. And the
• 8:23
  Speaker 1: suggestion was that wages were not rising as fast as
• 8:27
  Speaker 1: they have been, our ability to spend wasn't rising. Are
• 8:30
  Speaker 1: borrowing although it's still rising, the increase was slowing down.
• 8:34
  Speaker 1: So the student that in America was glowing but not
• 8:38
  Speaker 1: going as quickly as it had done before. And the
• 8:40
  Speaker 1: importance of sail all of this for the pandemic is
• 8:44
  Speaker 1: this time it was different. This time the pandemic hit
• 8:48
  Speaker 1: at the point of slowdown. The great contrast of the
• 8:51
  Speaker 1: pandemics of the past fifty one, fifty seven, and sixty eight,
• 8:56
  Speaker 1: and I have some of those in the book. In
• 8:59
  Speaker 1: the past, when we had the normal's pandemic much much
• 9:01
  Speaker 1: bigger than this one pandemic, world GDP dropped by percent,
• 9:08
  Speaker 1: but the year later it rose by sixtent and it
• 9:11
  Speaker 1: was as if it had never happened. There's later pandemics
• 9:14
  Speaker 1: you've probably never heard of that. They all had a
• 9:16
  Speaker 1: higher mortality rate than this, and again no effect on
• 9:20
  Speaker 1: the economy. So the so there was safe wisdom is
• 9:23
  Speaker 1: pandemics don't matter. But I'm saying that this is different.
• 9:27
  Speaker 1: Why is this time different? If you talk about some
• 9:29
  Speaker 1: of the mortality rates and affection rates, it's different because
• 9:33
  Speaker 1: of the way we reacted to it. We didn't shut
• 9:36
  Speaker 1: down in the past. We have of course far fewer
• 9:41
  Speaker 1: people um and far fewer elderly people. But also we
• 9:46
  Speaker 1: didn't have twenty four hour news, we didn't have the veilance.
• 9:49
  Speaker 1: We didn't know that the pandemics were coming um and
• 9:53
  Speaker 1: but more importantly than that, more importantly than that, our
• 9:56
  Speaker 1: economies were so buoyant in the past, so you kind
• 9:59
  Speaker 1: of forced hind and growing was so big that propelling forward.
• 10:03
  Speaker 1: The markets were getting bigger. More people are being born,
• 10:06
  Speaker 1: they are going to be more consumers. But a pandemic
• 10:08
  Speaker 1: could be a blit. Whereas now, and like I say,
• 10:12
  Speaker 1: I put this book to bed before this thing hit,
• 10:15
  Speaker 1: and now so much was so shaky. We were talking
• 10:18
  Speaker 1: trade wars with China. You know, we were talking China
• 10:22
  Speaker 1: and here having six quote in December and that being
• 10:25
  Speaker 1: a terrible thing for China and so on. Things are
• 10:28
  Speaker 1: so shaky that it doesn't take very much to suddenly
• 10:31
  Speaker 1: uncover or you have a used deck crisis. Oh, so
• 10:35
  Speaker 1: many of your firms have no capital. No, they can't
• 10:38
  Speaker 1: just stop working the field four months, but you have
• 10:41
  Speaker 1: no reserved So the pandemic has revealed how shaky our
• 10:46
  Speaker 1: situation was and how much we were step killed, and
• 10:51
  Speaker 1: you can't rightlessly increase, So, professor, I mean, so I
• 10:56
  Speaker 1: guess where we are right now in terms of the
• 10:57
  Speaker 1: discussion as a religios to the pandemic and is kind
• 11:01
  Speaker 1: of and I think it probably goes to your book
• 11:03
  Speaker 1: a little bit in terms of, you know, the acceleration is,
• 11:06
  Speaker 1: how do we reopen economies across the world. How do
• 11:09
  Speaker 1: you balance the health care aspects versus the economic aspects?
• 11:13
  Speaker 1: How do you kind of think that discussion should be framed? Um, well,
• 11:19
  Speaker 1: we're probably going to have less in Tutu, and that's
• 11:21
  Speaker 1: one way of framing it. But the way I would
• 11:22
  Speaker 1: frame the balance thing, it's a mechanism called lives versus lives.
• 11:27
  Speaker 1: So you look at how many lives have put an
• 11:30
  Speaker 1: extra risk by unlocking versus how many lives have put
• 11:35
  Speaker 1: an extra risk by not unlocking. In the UK the
• 11:38
  Speaker 1: most obvious cases, we know that people have not been
• 11:41
  Speaker 1: checked the councils because of the pandemic, So we know
• 11:46
  Speaker 1: people will be getting council now and it will not
• 11:48
  Speaker 1: be being treated, and we can estimate and we will die.
• 11:51
  Speaker 1: So after pandemic here falls, and we're luckily we a
• 11:55
  Speaker 1: few weeks ahead of you at moments fall, there comes
• 11:58
  Speaker 1: the point when, unluckily we'll actually save lives. And I
• 12:01
  Speaker 1: think that is a way of doing it. But longer term,
• 12:07
  Speaker 1: we're not going to come out of this doing things
• 12:09
  Speaker 1: exactly as we've done before. Some things we realize or
• 12:12
  Speaker 1: should realize, are more valuable to us than we realized before.
• 12:17
  Speaker 1: What we really care about, food supplies, system that actually works,
• 12:21
  Speaker 1: the health care obviously matters more than we probably valued
• 12:24
  Speaker 1: it before. And other things flying on holidays you may
• 12:28
  Speaker 1: not enjoy. Really we should do much less of that
• 12:31
  Speaker 1: in future. So what are just some things as we
• 12:34
  Speaker 1: think about, you know, on the other Sideay's pandemic, What
• 12:37
  Speaker 1: do you think what might speed up while other things
• 12:39
  Speaker 1: slow down a little bit? In in in our daily lives,
• 12:43
  Speaker 1: you know, well, are working more from home, all those
• 12:46
  Speaker 1: types of things of work, leisure, balance. How do you
• 12:49
  Speaker 1: think those things are going to play out? Yet? You so,
• 12:53
  Speaker 1: all the things that I measure, almost all of them,
• 12:55
  Speaker 1: apart from calm, pollution and temperature and so on, was
• 12:58
  Speaker 1: slowing down. But it isn't that we're sort of heading
• 13:01
  Speaker 1: towards the end of history were nothing changes very much.
• 13:04
  Speaker 1: Things that we don't measure will be speeding up things
• 13:06
  Speaker 1: that all measure in future. Our social relations, how how
• 13:09
  Speaker 1: liberal we are over how we tolerate other people. That
• 13:13
  Speaker 1: is that I suspect is likely th Wise, if you
• 13:15
  Speaker 1: look at the social apetudes of young people versus older people,
• 13:20
  Speaker 1: you can see a big distance, and I think we
• 13:23
  Speaker 1: should expect that's an increase in the future, hopefully Finally
• 13:27
  Speaker 1: what we were promised in decades, in decades working fewer hours,
• 13:31
  Speaker 1: not for changing values. You know, you have to actually
• 13:35
  Speaker 1: say it is prescious to be allowed to only have
• 13:38
  Speaker 1: to work from forty the week they or first five,
• 13:41
  Speaker 1: which is the normal from European country. It is that
• 13:44
  Speaker 1: you know what that is worth to you having that
• 13:47
  Speaker 1: amount of free time, and you do not have to work,
• 13:50
  Speaker 1: and that would be a cultural change. And it's cultural
• 13:52
  Speaker 1: changes like that. Well, I expect to see a speeding
• 13:56
  Speaker 1: up of people being distance to their parents who just
• 13:59
  Speaker 1: said you must egstimes as you can works necessary. Those
• 14:03
  Speaker 1: kind of attitudes I suspect will disappear and be seen
• 14:06
  Speaker 1: as more obsolete in future. One game you can play
• 14:11
  Speaker 1: with yourself is you can think, what things did your
• 14:14
  Speaker 1: parents say that now you couldn't like company? And then what,
• 14:18
  Speaker 1: of course do me and you to pay to each other?
• 14:20
  Speaker 1: That we think is perfectly exemptible, But our cland children
• 14:23
  Speaker 1: will say, you won't believe what they said, and that's
• 14:27
  Speaker 1: where the speed up will be, right, I think it
• 14:29
  Speaker 1: could be. We think, yeah, exactly. Danny's appreciatory Danny Dorling,
• 14:35
  Speaker 1: Professor of geography at the University of Oxford, really fascinating.
• 14:39
  Speaker 1: He is the author of a book slow Down, the
• 14:41
  Speaker 1: End of the Great Acceleration, arguing that life had actually
• 14:45
  Speaker 1: started to slow down across a number of metrics even
• 14:48
  Speaker 1: before this pandemic. How will this pandemic affect lots of
• 14:52
  Speaker 1: our lives going forward? This is bloom Bird Markets with
• 14:58
  Speaker 1: Lisa Rama Weds and Paul Sweeney on Bloomberg Radio. You know,
• 15:02
  Speaker 1: when the Fed looked for bond buying help in this
• 15:05
  Speaker 1: pandemic crisis, it turned to black Rock, the giant money manager.
• 15:09
  Speaker 1: Some folks think that black Mark black Rocks role in
• 15:12
  Speaker 1: the economy might be a little bit too big as
• 15:14
  Speaker 1: it relates to its its efforts with the government. In fact,
• 15:17
  Speaker 1: Will Embert, this old professor at the Chicago Kent College
• 15:21
  Speaker 1: of Law who studies the fund industry, said it's impossible
• 15:24
  Speaker 1: to think of black Rock without thinking of them as
• 15:26
  Speaker 1: the fourth branch of government. To get a sense of
• 15:29
  Speaker 1: kind of how worried we should be, we welcome Annie
• 15:32
  Speaker 1: massa investing reporter for Bloomberg News, as well as Eric
• 15:36
  Speaker 1: Balcunas he's a senior et F analyst for Bloomberg Intelligence. So,
• 15:39
  Speaker 1: and I just want to start with you as we
• 15:42
  Speaker 1: think about that. I mean, when you think black Rock
• 15:44
  Speaker 1: is so huge they're doing a lot of business with
• 15:47
  Speaker 1: the government, is the reason to be concerned. So black
• 15:51
  Speaker 1: Rock is indeed the world's biggest asset manager, and it's
• 15:55
  Speaker 1: a huge kind of force of nature in Washington, d C.
• 15:59
  Speaker 1: And so when the Federal Reserve launched some of its
• 16:02
  Speaker 1: unprecedented UH plans, to kind of shore up the bond market. UM.
• 16:08
  Speaker 1: You know, for three of its UH separate plans it
• 16:11
  Speaker 1: went to black Rock, and so black Rock is managing
• 16:15
  Speaker 1: UM its efforts to buy UH debt directly from companies
• 16:20
  Speaker 1: UH secondary market, you know, debt on the secondary market,
• 16:23
  Speaker 1: and then also UM mortage commercial mortgage backed securities UM.
• 16:28
  Speaker 1: So I mean it's really taken an expansive role in
• 16:32
  Speaker 1: the fed's clean up from this crisis, and that's what's
• 16:35
  Speaker 1: had UM certain individuals looking at it and wondering if UM,
• 16:40
  Speaker 1: you know that relationship is okay or whether we should
• 16:44
  Speaker 1: be worried. So, Eric, I know you spend a lot
• 16:47
  Speaker 1: of time looking at black Rock. You cover the e
• 16:50
  Speaker 1: t F space and they are obviously a dominant, dominant
• 16:52
  Speaker 1: player in et F space. What's your sense of kind
• 16:54
  Speaker 1: of their role in the marketplace based on your experience,
• 17:00
  Speaker 1: So I think it makes sense to ask questions about
• 17:03
  Speaker 1: this is definitely UM, you know, I get it the
• 17:07
  Speaker 1: the some of it's overblown though. I think the E
• 17:09
  Speaker 1: t F buying is a little overblown. The amount of
• 17:11
  Speaker 1: money they're going to use to buy black Rock ETFs
• 17:14
  Speaker 1: isn't that much. A and B they're going to not
• 17:18
  Speaker 1: miss with the market share, so they're going to buy
• 17:19
  Speaker 1: Vanguarden State Street too. That way, they don't pick winners
• 17:22
  Speaker 1: in the E t F market. So they're taking great
• 17:24
  Speaker 1: care to make sure that there's a lot of safeguards
• 17:27
  Speaker 1: in place so that uh, they're not getting extra aid
• 17:30
  Speaker 1: from the government. That said, um, you know, it is
• 17:33
  Speaker 1: pretty it's unprecedented. I think this shows the rise of
• 17:36
  Speaker 1: the by side. Vanguard and black Rock are the big
• 17:39
  Speaker 1: fish now on Wall Street. Um, and this really, you know,
• 17:43
  Speaker 1: shows that that happening. The big question people have to
• 17:46
  Speaker 1: ask is what should the Fed have done? Should it
• 17:48
  Speaker 1: have let the bond market remain in what I call illiquidity?
• 17:53
  Speaker 1: Hell on Marche, we were seeing outflows from mutual funds
• 17:56
  Speaker 1: that were just scary. I mean, regular investors were going
• 18:00
  Speaker 1: have funds probably halt redemptions. And so there's the bigger questions,
• 18:03
  Speaker 1: should the study even step in if they did step in,
• 18:06
  Speaker 1: when they want to work with somebody who knows the
• 18:08
  Speaker 1: bond market better than anybody. So those are some questions
• 18:10
  Speaker 1: that you had pulled a threat all the way to
• 18:12
  Speaker 1: should any should should the Fed of help the market
• 18:15
  Speaker 1: at all? Exactly? So, Anny, what do you is your
• 18:18
  Speaker 1: sense that the the FEDS buying in the marketplace is effective.
• 18:23
  Speaker 1: Are they doing it well? Is it disruptive? How would
• 18:26
  Speaker 1: you characterize kind of FEDS efforts in trying to ensure
• 18:30
  Speaker 1: liquid it in the marketplace by going in and actually
• 18:32
  Speaker 1: buying securities and ETFs. Well, it's important to remember that
• 18:37
  Speaker 1: we're only in the very beginning phases of this last week. Um,
• 18:40
  Speaker 1: you know, the first phases of black rocks. Um kind
• 18:44
  Speaker 1: of role here got underway as it started buying ets.
• 18:48
  Speaker 1: But um, the the additional pieces of this program are
• 18:52
  Speaker 1: yet to come. But it's it's definitely clear that just
• 18:57
  Speaker 1: the fact that the FED announced is bond buying facilities
• 19:02
  Speaker 1: has calmed the market down, and just the knowledge that
• 19:07
  Speaker 1: the seed won't be there to buy corporate debts has
• 19:10
  Speaker 1: helped comm investors down. So that there's definitely a signaling
• 19:14
  Speaker 1: aspect that has that has helped the markets. Um, you know,
• 19:19
  Speaker 1: beyond even getting the efforts underway, y'all, don't fight. The
• 19:24
  Speaker 1: FED is alive and well as always, Eric, has there
• 19:28
  Speaker 1: been some gamemanship in the E t F market? I mean,
• 19:30
  Speaker 1: when the FED makes this announcement about coming into the market,
• 19:33
  Speaker 1: did did you sense when you're looking at volume or
• 19:36
  Speaker 1: price that you know, some members of some traders in
• 19:38
  Speaker 1: the market said, I'm gonna go buy some of the
• 19:40
  Speaker 1: you know, investment grade et F or maybe some of
• 19:43
  Speaker 1: the high DTF to kind of front run the FED. Absolutely. Um,
• 19:48
  Speaker 1: you know. You look at l q, D, H, y G,
• 19:50
  Speaker 1: they're leading the flows since March, which I call kitchen
• 19:54
  Speaker 1: sink Day, which is when the and and he is right.
• 19:57
  Speaker 1: All they had to do is say they're going to
• 19:58
  Speaker 1: be there, and that was enough, uh for the market
• 20:02
  Speaker 1: I think, to start acting like it used to. Um.
• 20:05
  Speaker 1: You know, it's almost as if they reverse time because
• 20:07
  Speaker 1: it looks a lot like it did at the beginning
• 20:10
  Speaker 1: of the year. Um. If you look at l q D, H,
• 20:13
  Speaker 1: y G, and then they're probably gonna buy be SIT,
• 20:15
  Speaker 1: which is a vanguard, b C s H which is
• 20:17
  Speaker 1: a short term intermediate, and then also J and K.
• 20:20
  Speaker 1: Those five I think are what we're looking for. But
• 20:22
  Speaker 1: they're not going to buy a lot where we call
• 20:24
  Speaker 1: it nibbling, and so we can't really see in the
• 20:26
  Speaker 1: data much going on. We saw a little bump in
• 20:29
  Speaker 1: volume one day in l q D, we thought, oh,
• 20:30
  Speaker 1: that could be the said but this is like trying
• 20:32
  Speaker 1: to find footprints in the forest. It's very difficult to
• 20:35
  Speaker 1: know who's who um, but especially with the amount of
• 20:39
  Speaker 1: money I think it was like three million they bought.
• 20:41
  Speaker 1: That would be one per cent of the total flows
• 20:43
  Speaker 1: that those bond ETFs took in since Mark. So they
• 20:47
  Speaker 1: are a tiny player. Their word, to me is more impactful.
• 20:50
  Speaker 1: I think they just decided to do this to buy
• 20:52
  Speaker 1: them so that people knew it what they wasn't just
• 20:55
  Speaker 1: talk that they were going to do it, but they
• 20:57
  Speaker 1: didn't actually need to do it. It doesn't seem like so,
• 20:59
  Speaker 1: but they definitely there and looking to act on this
• 21:03
  Speaker 1: to make the market I feel come more confident. So
• 21:06
  Speaker 1: and he'd given that, you know, the FED is, as
• 21:08
  Speaker 1: Eric was saying, is just kind of sending a signal there.
• 21:09
  Speaker 1: I mean, is do you expect the FED told be
• 21:12
  Speaker 1: any more or less aggressive or just kind of status
• 21:15
  Speaker 1: quo here? Knowing that, I guess, for lack of a
• 21:18
  Speaker 1: better word, they're a backstop here. Yes, I think that's
• 21:23
  Speaker 1: definitely the right word to use. There are a backstop
• 21:26
  Speaker 1: for these markets, and I think that we have to
• 21:29
  Speaker 1: wait and see a bit how much longer these lockdowns
• 21:34
  Speaker 1: continue on and how much additional pain companies feel as
• 21:38
  Speaker 1: results of them um to really see the full scope
• 21:42
  Speaker 1: of what will be needed in the FEDS bond buying
• 21:45
  Speaker 1: program here and he thanks so much for joining us.
• 21:47
  Speaker 1: We appreciate it. Any Massa. She's an investing reporter for
• 21:50
  Speaker 1: Bloomberg News as well as Eric Valcunis, senior e t
• 21:54
  Speaker 1: F analysts for Bloomberg Intelligence. Love getting their thoughts on
• 21:58
  Speaker 1: black Rock. You know, it's such a giant, giant firm,
• 22:01
  Speaker 1: you know, and like how they were Annie and Eric was,
• 22:03
  Speaker 1: you know, suggesting that these are the new giants of
• 22:05
  Speaker 1: Wall Street. You think about Vanguard and uh uh you
• 22:09
  Speaker 1: know black Rock, the uh asset allocators to et F funds,
• 22:12
  Speaker 1: the you know, the passive investors really really uh taking
• 22:17
  Speaker 1: a tremendous amount of liquidity in the market, huge positions.
• 22:20
  Speaker 1: And so when the federal government comes in to say, hey,
• 22:23
  Speaker 1: we need to step in in terms of the FED
• 22:24
  Speaker 1: in terms of step in and supporting this market with
• 22:27
  Speaker 1: some liquidity in terms of buying securities in the marketplace,
• 22:29
  Speaker 1: who do they turn to? Not Goldman Sachs, not Morgan Stanley,
• 22:33
  Speaker 1: but Black Rocks. The Larry Fink and black Rock really
• 22:36
  Speaker 1: really have established just extraordinary position in the marketplace. UH.
• 22:41
  Speaker 1: So we'll have to see how that plays out over time,
• 22:43
  Speaker 1: but clearly, UH investors are paying close attention to how
• 22:47
  Speaker 1: the markets react. We will keep on top of that
• 22:50
  Speaker 1: for certain you're listening to Bloomberg Markets with Lisa Abrama,
• 22:56
  Speaker 1: Eds and Paul Sweeney on Bloomberg Radio. Well, the economic
• 23:00
  Speaker 1: impacts from COVID nineteen started to mount uh in March.
• 23:05
  Speaker 1: What we saw from the US feder Reserve was very
• 23:08
  Speaker 1: quick response, very decisive response in terms of really trying
• 23:12
  Speaker 1: to manage liquidity in the markets, and I think by
• 23:15
  Speaker 1: by and large, the Fed has received very positive marks
• 23:19
  Speaker 1: for its movement there. To get a sense of kind
• 23:21
  Speaker 1: of where we go from here and how we think
• 23:23
  Speaker 1: about the COVID nineteen and the impact on the economy
• 23:27
  Speaker 1: and investing, were really fortunate to have Jeff Flagger, Chairman
• 23:30
  Speaker 1: and CEO of McKay Shields. McKay Shields has over twenty
• 23:34
  Speaker 1: billion dollars in equity and fixed income assets under management,
• 23:37
  Speaker 1: based in New York City. Jeff, thanks so much for
• 23:39
  Speaker 1: joining us here. So it's interesting here. The feeds policy
• 23:43
  Speaker 1: response to COVID nineteen, I think generally is receiving some
• 23:46
  Speaker 1: pretty good marks. How do you view what the Fed
• 23:49
  Speaker 1: has done to date? I think we'd echo, uh, you know,
• 23:54
  Speaker 1: many of the responses thus thus far, we think that
• 23:57
  Speaker 1: the decisiveness that the said Treasury have both acted that
• 24:01
  Speaker 1: acted in has been applauded well by the by the market.
• 24:06
  Speaker 1: And you just sort of think back to that mid
• 24:08
  Speaker 1: March ladder, part of part of March, before that amulance
• 24:12
  Speaker 1: bill got up and up and running and markets were
• 24:15
  Speaker 1: very much in disarray. Yet we look at the investment
• 24:18
  Speaker 1: grade credit market and even the high yield market, and
• 24:21
  Speaker 1: these markets are not only functioning, but in many instances
• 24:25
  Speaker 1: they're actually flourishing as well. And the issuance has been
• 24:28
  Speaker 1: has been tremendous. It's been a good response. So, you know,
• 24:32
  Speaker 1: one of the concerns Jeff coming into the marketplaces, we
• 24:35
  Speaker 1: see about this, you know, retracement. We've had this partial
• 24:38
  Speaker 1: retracement of the declines from the peak to trough that
• 24:40
  Speaker 1: we've enjoyed over the last it's called it five six
• 24:43
  Speaker 1: weeks in the markets. The rebound, if if you will,
• 24:45
  Speaker 1: is that it's perhaps a little bit too far ahead
• 24:48
  Speaker 1: of where the economics are, and that boy that you know,
• 24:51
  Speaker 1: you see a job was claimed number like today, you
• 24:53
  Speaker 1: see some economic data points that were likely to see
• 24:55
  Speaker 1: for the next quarter or two. Perhaps the markets too
• 24:59
  Speaker 1: far ahead of its How do you come out on
• 25:01
  Speaker 1: that argument? There's no question markets have run dramatically, and
• 25:07
  Speaker 1: the support that the FED has has brought, we would argue,
• 25:11
  Speaker 1: is definitely a critical part of the part of the equation. UM.
• 25:15
  Speaker 1: I wouldn't call it a pure backstop, but I think
• 25:19
  Speaker 1: market participants are viewing UM much of the much of
• 25:23
  Speaker 1: the programs that are now starting to get up and
• 25:26
  Speaker 1: running as in essence a backstop. The FED has been
• 25:30
  Speaker 1: pretty clear fault if it's been clear, Treasury has been
• 25:33
  Speaker 1: clear that they're going to do what it takes to
• 25:35
  Speaker 1: keep this thing going. That doesn't mean we're not going
• 25:38
  Speaker 1: to see defaults, but what we are going to see
• 25:41
  Speaker 1: is we're going to see functioning markets. And functioning markets
• 25:44
  Speaker 1: is what market participants careing awful lot about. Jeff, how
• 25:49
  Speaker 1: what's kind of been your view we've had you know,
• 25:51
  Speaker 1: we had that big round of fiscal stimulus, uh several
• 25:54
  Speaker 1: weeks ago. UM. You know, what's your sense is that
• 25:58
  Speaker 1: how it is how effective that's been in terms of
• 26:00
  Speaker 1: getting money into the hands of consumers as well as
• 26:04
  Speaker 1: in to support smaller midsized businesses. Yeah, I think there's
• 26:08
  Speaker 1: a lot more to be done in terms of the
• 26:10
  Speaker 1: small and midsize mid sized businesses. And I also think
• 26:14
  Speaker 1: that you know, the help that the consumer has gotten
• 26:16
  Speaker 1: has been helped, has it solved the problem? No? I mean,
• 26:21
  Speaker 1: I think if you look towards the Fed's minutes just
• 26:23
  Speaker 1: the just the other day, they still see a significant
• 26:26
  Speaker 1: amount of downside risk that's that's out there. And while
• 26:30
  Speaker 1: we are anticipating a rebound in the second half of
• 26:33
  Speaker 1: this uh this year, we're gonna be looking very closely
• 26:36
  Speaker 1: at the at the consumer and how does the consumer reacting?
• 26:40
  Speaker 1: Can the consumer continue to pay their pay their bills?
• 26:43
  Speaker 1: And I think you hit the nail on the head
• 26:45
  Speaker 1: ball and we've got twenty five million people that are
• 26:48
  Speaker 1: out of out of work and those folks are going
• 26:52
  Speaker 1: to going to struggle, There's no question question about it.
• 26:56
  Speaker 1: So I think Chairman and Powell said it well within
• 27:00
  Speaker 1: within his remarks. We're gonna need some more fiscal support
• 27:03
  Speaker 1: as as well. Monitor policy is doing it's its job.
• 27:07
  Speaker 1: And I think the other critical point is that a
• 27:10
  Speaker 1: lot of these programs that are now up and up
• 27:13
  Speaker 1: and running. While they may not be critical today, they're
• 27:17
  Speaker 1: there for the next out of volatility, should it in
• 27:21
  Speaker 1: fact come. All right, Jeff, so again, I you know,
• 27:25
  Speaker 1: the Fed has done its part. We've had some good
• 27:28
  Speaker 1: fiscal stimulus coming out of Washington. There's another three trillion
• 27:32
  Speaker 1: dollars UH that the House has passed, and that's focusing
• 27:36
  Speaker 1: again a little bit more on state and local municipalities.
• 27:40
  Speaker 1: Doesn't seem to be much Republican support for the How
• 27:43
  Speaker 1: critical do you think that next round of fiscal stimulus
• 27:45
  Speaker 1: is to the market. Well, the state and local municipalities
• 27:49
  Speaker 1: are definitely gonna need, gonna need an assist and I
• 27:52
  Speaker 1: think policymakers are you know, pretty well and well in
• 27:55
  Speaker 1: touch with that sort of Also, look at some of
• 27:59
  Speaker 1: the power that the Fed and the Treasury have have gotten,
• 28:02
  Speaker 1: and arguably if there was one criticism that they were
• 28:05
  Speaker 1: they were getting was where they utilizing all of the
• 28:09
  Speaker 1: powers and all of the capacity that they that they
• 28:12
  Speaker 1: now now have. So I think we'll wait and wait
• 28:14
  Speaker 1: and see, and we'll wait, wait and watch, but there's
• 28:17
  Speaker 1: a lot that they can do. And do we need
• 28:20
  Speaker 1: a three trillion dollar stimulus still? I'm not. I'm not sure,
• 28:23
  Speaker 1: but I'm I am sure that we're going to need more,
• 28:26
  Speaker 1: and that more is going to need to be targeted
• 28:29
  Speaker 1: towards not only state in the local municipalities, but it's
• 28:32
  Speaker 1: also going to need to be targeted towards the towards
• 28:35
  Speaker 1: the consumer. Again, as we said, million people are out
• 28:39
  Speaker 1: of out of work. They're gonna need an assist. Hey, Jeff,
• 28:42
  Speaker 1: thanks so much for joining us. We really appreciate your thoughts.
• 28:44
  Speaker 1: Jeff Lager, he's a chairman and CEO of McKay Shields
• 28:47
  Speaker 1: giving us his thoughts on the markets and on fiscal
• 28:51
  Speaker 1: stimulus and on the FED. Again, the FED generally getting
• 28:54
  Speaker 1: some pretty good marks, I would suggest from the marketplace
• 28:58
  Speaker 1: as it relates to their uh firts in terms of
• 29:00
  Speaker 1: kind of trying to make sure there is enough liquidity
• 29:04
  Speaker 1: in the market places, both in the short end and
• 29:06
  Speaker 1: on the longer term basis. And now the question is
• 29:08
  Speaker 1: of what else can Washington do in terms of fiscal stimulus. Again,
• 29:14
  Speaker 1: if you listen to governors such as Governor Cuomo of
• 29:16
  Speaker 1: New York, UH, there is a dire need for support
• 29:20
  Speaker 1: for state and local governments will continue to cover that this.
• 29:25
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 29:28
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 29:30
  Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney. I'm
• 29:33
  Speaker 1: on Twitter at pt Sweeney. I'm Lisa Abramoy. It's I'm
• 29:36
  Speaker 1: on Twitter at Lisa abramoits one before the podcast. You
• 29:39
  Speaker 1: can always catch us worldwide. I'm Bloomberg Radio