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Get Ready For Another Round Of Toilet Paper Panic · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEO, market prows and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:16
Speaker 1: and on Bloomberg dot com. Let's bringing the amount of
0:20
Speaker 1: the hour. He is birth looking to your managing director
0:22
Speaker 1: of Strategic Resource Group Birt's great to welcome your eight
0:26
Speaker 1: months into this pandemic. Now, we got disappointing data for
0:30
Speaker 1: Halloween in terms of retail sales. What's the one thing
0:33
Speaker 1: that really jumps out at you at the moment as
0:35
Speaker 1: to where we are where the consumer is consumer? Based
0:40
Speaker 1: on the US Department of Commerce reports today, VANNI disappointing
0:44
Speaker 1: retail numbers, especially clothing and department stores. What really stands
0:49
Speaker 1: out is the big box retailer's Walmart, Costco, BJ's Target
0:54
Speaker 1: all doing really well. And the other key thing for
0:58
Speaker 1: Bloomberg team members and listeners is stopped at the store
1:02
Speaker 1: today this week, this weekend to load up on COVID supplies.
1:07
Speaker 1: We're seeing the worst levels of inventory even worse than March,
1:10
Speaker 1: April and COVID in terms of paper supplies, paper towels,
1:14
Speaker 1: bathroom tissue, disinfectant liquids, soaps, disinfectant, sprays, and wipes. It's
1:21
Speaker 1: a real panic situations because the brand suppliers are doing
1:25
Speaker 1: a pathetic job supplying the retailers, and the out of
1:28
Speaker 1: stocks are reaching unprecedented proportions. So what are the retailers
1:33
Speaker 1: telling you about how bad that aspect of their business
1:36
Speaker 1: could get? Uh, Paul, it's it's it's gonna get really
1:42
Speaker 1: bad because companies like Clorox had moved to single site
1:46
Speaker 1: manufacturing for the total US. My alma mater Proctor Gamble
1:51
Speaker 1: UH called the number of plants with Booz Allen and
1:54
Speaker 1: Mackensey studies they have insufficient UH plants too far away
1:58
Speaker 1: from population center. So as bad as it is, it's
2:02
Speaker 1: going to get worse, and especially going to get worse, Paul.
2:04
Speaker 1: And urban areas where you have smaller stores often supplied
2:08
Speaker 1: by voluntary wholesalers. So the big change have the procurement
2:11
Speaker 1: power to get what little inventory there is, and then
2:15
Speaker 1: they're smart retailers Walmart, Lowe's, BJ's Costle are investing extra
2:22
Speaker 1: working capital and inventory. But for the big change that
2:26
Speaker 1: ernests well capitalized that can't buy extra inventory up froad,
2:30
Speaker 1: it's gonna be a real crisis for consumers as well
2:33
Speaker 1: as and then they've retype change. But Birds, we've had
2:35
Speaker 1: eight months to solve this. How is it going wrong
2:38
Speaker 1: all of a sudden or how is it continuing to
2:40
Speaker 1: go wrong? Why can't Clarok solve this supply chain problem?
2:45
Speaker 1: And and Bonny it's it's it's Clorox, It's P and G,
2:49
Speaker 1: It's Kimberly Clark, it's Coldgate, it's uh Record, ben Kaiser, etcetera.
2:55
Speaker 1: Because they went to the Asian system of justin time deliberate.
3:01
Speaker 1: So when COVID started, they didn't have the raw materials,
3:04
Speaker 1: they didn't have the bottles, they didn't have the cases,
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Speaker 1: they didn't have the truck drivers, they didn't have the warehouses,
3:09
Speaker 1: they didn't have extra inventory. Sort of put put it
3:12
Speaker 1: out mathematically. Walmart has a hundred and fifty six major
3:17
Speaker 1: distribution centers, including six crisis distribution centers. Corox, to proct
3:22
Speaker 1: and Gamble only have one a few to five on
3:26
Speaker 1: the supply apply the US. That's completely inexcusable and as
3:31
Speaker 1: one of my mentors, Phil Robinson, who was director manufacturing
3:34
Speaker 1: for P and G, cautioned the company about doing this,
3:38
Speaker 1: but it really got got to be greed. And by
3:41
Speaker 1: cutting working capital and uh cutting cutting capex for manufacturing
3:48
Speaker 1: and distribution, they created a crisis which exacerbates public safety
3:54
Speaker 1: crisis too because in New York City literally some of
3:57
Speaker 1: the retailers are telling me that, uh see years they
4:00
Speaker 1: have to go to five to ten chains a day
4:02
Speaker 1: to try to get safe safety related disinfectants and paper products,
4:08
Speaker 1: and no matter what store they go to, it's double
4:11
Speaker 1: os or out of stock. All right, so we'll certainly
4:15
Speaker 1: monitor that situation. Burt. We've had a lot of the
4:17
Speaker 1: big retailers report this week and today. What are some
4:20
Speaker 1: of the takeaways here? The big takeaway is when when
4:27
Speaker 1: you pay more, you get more productivity per person, you
4:31
Speaker 1: get higher shop of satisfaction. There's uh the old adage
4:35
Speaker 1: from my uncle Dave, you pay peanuts, uh and uh
4:40
Speaker 1: you don't get good results. Costco which pays very well. Walmart,
4:44
Speaker 1: which went from being the worst in terms of pay
4:48
Speaker 1: to the one of the better ones ahead of Target.
4:52
Speaker 1: They have higher retention and so uh Walmart is able
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Speaker 1: to deliver the ninety of the US Internet sales up
4:59
Speaker 1: seventy and percent same stores stacked between the Walmart stores
5:04
Speaker 1: and Stam's Club up approximately seven percent, and a lot
5:08
Speaker 1: of that retention, A lot of that's investing in working
5:11
Speaker 1: capital and trying to evolve. From a Bloomberg cover story
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Speaker 1: co authored by Shannon Petty Peace and David vorriez UH
5:20
Speaker 1: saying UH Walt Walmart had an out of control of
5:24
Speaker 1: crime problem. There was a nightmare for the police departments
5:28
Speaker 1: across America, and Walmart didn't have sufficient security, hence UH
5:34
Speaker 1: the El Paso tragic loss of life where dozens of
5:38
Speaker 1: people were gunned down UH in the Walmart store in
5:42
Speaker 1: El Paso, and Shannon and David reported UH throughout two
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Speaker 1: hundred violent crimes a year. So Walmart's taking corrective action
5:51
Speaker 1: to correct the mistakes that the family made from security
5:55
Speaker 1: et cetera, UH to professional management and Walmart's checked aiding
6:00
Speaker 1: and gaining on Amazon, and from our field work and
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Speaker 1: Vonnie's homeland in Ireland, UH Small, Scotland and England. Walmart's
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Speaker 1: learning from the mistakes it made in in UM, the
6:13
Speaker 1: EU and in the UK with ASDA and UH divested,
6:19
Speaker 1: say you this week divested someone's Latin American operations, concentrating
6:24
Speaker 1: online UH and UH concentrating on flip card in Asia
6:29
Speaker 1: and doing things right. So it's investing. It's investing in
6:33
Speaker 1: growth drives UH, profitable market share growth and profitable sales
6:40
Speaker 1: growth versus the other retailers who are cutting expenses and
6:44
Speaker 1: cutting expenses at the time at Covid as an r
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Speaker 1: X with disaster, many bankruptcies to be seen for the
6:50
Speaker 1: rest of the year. I'm sorry, Vonnie one more time,
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Speaker 1: please sorry, I have a mask on bankrupt sees. How
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Speaker 1: many do we see between now at the end of
6:59
Speaker 1: the year bankruptcy's We've we've had fifty in the last
7:03
Speaker 1: twenty months, with Francesco's hopefully not but but UH sadly probable,
7:11
Speaker 1: we'll probably see another five by the end of the
7:13
Speaker 1: year and another fifteen to twenty in the upcoming calendar year.
7:18
Speaker 1: And with the bankruptcys and with with Covid and the shutdowns,
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Speaker 1: the big box operators like Walmart, Costco, BJ's target as
7:27
Speaker 1: well as Amazon and the hard discounts like all the
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Speaker 1: illegal really capitalized, while the independence and their suppliers are
7:35
Speaker 1: still getting squeezed Birt, thanks so much for joining us.
7:38
Speaker 1: As always, we appreciate your thoughts and insight into the
7:42
Speaker 1: retail space. Bert Flickinger, Managing Director, Strategic Resource a Group,
7:47
Speaker 1: joining us again to kind of give us an update,
7:49
Speaker 1: and it is Vanni. It's just frustrating to see some
7:51
Speaker 1: of those supply chain problems where you can't get some
7:53
Speaker 1: of the basic products again eight months after we started this. Yeah,
7:56
Speaker 1: I mean I personally haven't seen it, but I believe
7:58
Speaker 1: Bert when he says that he's always turning around to
8:01
Speaker 1: you know what. I think that they would have built
8:03
Speaker 1: up inventories throughout the supply chain and anticipation of the
8:06
Speaker 1: second wave, which everyone certainly has been expecting. But we'll
8:11
Speaker 1: have to see how this plays out. You're listening to
8:14
Speaker 1: Bloomberg Markets with Bonnie Quinn and Paul Sweeney on Bloomberg Radio. Well.
8:19
Speaker 1: One of the fastest growing areas in the investment world
8:22
Speaker 1: over the last couple of years have been exchange traded
8:25
Speaker 1: funds or e t fs. Ben Slaven, global head of
8:28
Speaker 1: et F s and Assets Servicing at B and Y Melon,
8:30
Speaker 1: joins us here. B and Y Melon has eight hundred
8:32
Speaker 1: and sixty billion dollars in assets, through across t fs globally,
8:37
Speaker 1: and they work with fifty three issuers, so they know
8:40
Speaker 1: what they're talking about when it comes to e t s. Ben,
8:42
Speaker 1: thanks so much for joining us here. How have e
8:45
Speaker 1: t s in general performed over this craziness that we've
8:49
Speaker 1: all been experiencing over the last eight or so months.
8:53
Speaker 1: Good morning, and thanks for having me on the show. UM.
8:56
Speaker 1: E t s have shown remarkable resiliency this year. Investor
9:00
Speaker 1: appetite for e t s keeps growing. US e t
9:04
Speaker 1: F inflow past four hundred billion dollars this year year
9:08
Speaker 1: to date, which would put us on the second all
9:11
Speaker 1: time pace for the industry, with an outside shot of
9:14
Speaker 1: hitting the all time record. So really, ets have emerged
9:18
Speaker 1: stronger on the other side of the volatility we saw
9:21
Speaker 1: this spring, and the e t F ecosystem to support
9:24
Speaker 1: that growth has also shown remarkable resiliency. Where are they
9:30
Speaker 1: going for the most part, these assets, well, we've seen
9:34
Speaker 1: strong flows across the board UM this year. Specifically, we've
9:39
Speaker 1: seen an increase in fixed income e t F flow,
9:43
Speaker 1: which are having a very strong year, especially in the
9:47
Speaker 1: run up to the election. UM. In fact, if the
9:50
Speaker 1: mix of assets hold, we will see the first time
9:54
Speaker 1: where fixed income e t F assets have outpaced equities.
9:59
Speaker 1: Commodity specifically gold are also having a very strong year UM.
10:04
Speaker 1: We also saw some you know buying and inflow into
10:08
Speaker 1: those products, especially as the price of gold increased earlier
10:11
Speaker 1: in the year. So ben what's generally speaking the main
10:17
Speaker 1: attractive point or selling point for an e t F
10:20
Speaker 1: in general, Well, there are several things that are driving
10:25
Speaker 1: the adoption of ets Certainly fees, et f s are
10:31
Speaker 1: lower cost across the board compared to other structures. Tax efficiency, transparency,
10:37
Speaker 1: and liquidity are all key drivers of investor adoption of
10:41
Speaker 1: e t s. We are also seeing a significant growth
10:46
Speaker 1: in the amount of products that are coming to market
10:50
Speaker 1: UM due to investor appetite UM also due to regulatory
10:55
Speaker 1: changes that are making it easier for issuers to launch.
10:58
Speaker 1: So what you're seeing is an experience into toolkit. And
11:01
Speaker 1: as the adoption of e t s grow UM and
11:04
Speaker 1: specifically around the liquidity of e t fs have increased,
11:09
Speaker 1: especially over the last few years, you are seeing investors
11:13
Speaker 1: all the way from retail investors all the way up
11:17
Speaker 1: to large institutional players using ETFs to express their views
11:23
Speaker 1: in the market, whether they be strategic or tactical. Then
11:27
Speaker 1: just on a slightly separate note, it's been a very
11:29
Speaker 1: strange time for custodian banks. Explained to us why why
11:33
Speaker 1: that is why custodian banks have been maybe suffering more
11:35
Speaker 1: than others. Well, I think from a you know, from
11:39
Speaker 1: a custody standpoint, UM, we are a service provider to
11:43
Speaker 1: the E t F industry and you know, again we've
11:47
Speaker 1: seen significant volume on our platform UM based on this
11:52
Speaker 1: increase in e t F adoption, but certainly earlier this
11:55
Speaker 1: year around some of the market volatility where we were
11:58
Speaker 1: seeing very high amount of UH transaction volume come through
12:02
Speaker 1: our platform. All of that business UM has really UM
12:08
Speaker 1: really been processed in an automated environment UM, which you know,
12:13
Speaker 1: really is kind of demonstrate some of the resiliency we
12:16
Speaker 1: saw UM to be able to handle all that volume,
12:20
Speaker 1: especially in a work from home environment. So it certainly
12:23
Speaker 1: has put some some strain on the industry to be
12:26
Speaker 1: able to shift their operating models UM and also adopt
12:31
Speaker 1: the technology necessary to really support UH the industry you know,
12:36
Speaker 1: as it's as it's growing UM, and also serve investors
12:39
Speaker 1: UM you know, who are again increasingly looking to use
12:42
Speaker 1: these products to to express their views on the market
12:45
Speaker 1: so been. You know what I like about the et
12:47
Speaker 1: F space, and when we have an in house expert
12:49
Speaker 1: here at Bloomberg, Eric Beltunas, who keeps us up the
12:53
Speaker 1: speed here, there's so many cool sectors and and really
12:58
Speaker 1: interesting et F structures get put in place to follow
13:01
Speaker 1: specific parts of the market. What are some of the
13:03
Speaker 1: et F sectors that you think you're gonna see some
13:05
Speaker 1: of the most interest uh in the next you know,
13:08
Speaker 1: year or so well. I think there are several trends
13:11
Speaker 1: we're going to see into Certainly, I mentioned fixed income
13:15
Speaker 1: ETFs which had a great and I expect that trend
13:19
Speaker 1: to continue into especially in a low rate environment where
13:24
Speaker 1: the thirst for yield will certainly continue by investors. I
13:27
Speaker 1: also expect to see an uptick in actively managed ETFs,
13:33
Speaker 1: both transparent active and non transparent active. We're seeing a
13:37
Speaker 1: significant amount of our clients at b N Y Melon
13:41
Speaker 1: express interest in launching these kinds of products, and we
13:44
Speaker 1: expect to see quite a bit of new launches coming
13:48
Speaker 1: to market, both equities and fixed income. Also, I think
13:52
Speaker 1: it's worth noting we do see a trend um as
13:56
Speaker 1: we've seen this year in the adoption and interest in
13:59
Speaker 1: thematic ets, specifically retail investors which have been driving flow
14:04
Speaker 1: and DiPT thematic ets this year and they've become quite
14:07
Speaker 1: popular playing several different types of trends. And also again
14:11
Speaker 1: maybe finally M E. S. G Um, we've seen a
14:15
Speaker 1: record high trend this year, and you know, we think
14:18
Speaker 1: investors are increasingly looking for adding risk factors like climate change, government,
14:24
Speaker 1: socially responsible stewardship as part of their et F portfolio. Ben,
14:28
Speaker 1: thank you so much for joining. You say Evan Slaven
14:30
Speaker 1: his global head of ETF SO noasa's servicing at b
14:32
Speaker 1: n Y Melon and b n Y is abouts globally.
14:38
Speaker 1: This is Bloomberg Markets with All Sweeney and Bunny Quinn
14:42
Speaker 1: on Bloomberg Radio. All right, we'll we continue our wonderful
14:46
Speaker 1: lineup on them by radio this morning with it as
14:47
Speaker 1: a coupler who is head of global payments for eBay. Elissa,
14:52
Speaker 1: thanks for joining and welcome. How difficult has it been
14:55
Speaker 1: to do your job during coronavirus? Good morning, Thank you.
14:59
Speaker 1: I'm you know, it's definitely led to a tremendous amount
15:03
Speaker 1: of adaptation. Um. You know, we launched managed payments virtually,
15:07
Speaker 1: which was not how we planned and not how we
15:10
Speaker 1: did our first pilots in the US and in Germany.
15:14
Speaker 1: But UM, you know, we operate a little bit like
15:16
Speaker 1: a startup inside a large our company of eBay, and
15:19
Speaker 1: the team has been incredibly adaptive and UM we've successfully
15:23
Speaker 1: launched and continue to grow. So it's been it's been
15:25
Speaker 1: a good experience, albeit a little bit different than we expected.
15:29
Speaker 1: Earlier this morning we heard Anna Boutine, the executive chairman
15:32
Speaker 1: of Banco sant and there she had an extraordinary statistic
15:36
Speaker 1: about eighty percent of their transactions in the month of
15:39
Speaker 1: October were digital. Just extraordinary. So for somebody at eBay
15:45
Speaker 1: and you think about your managed payments business, first, just
15:49
Speaker 1: tell us what your managed payments business is and where
15:53
Speaker 1: you see the growth going forward. Sure. So in Januaren,
15:59
Speaker 1: UM we shared our engined to intermediat or manage payments
16:02
Speaker 1: UM and simply that's driven by creating the best experience
16:06
Speaker 1: for our buyers and sellers UM. Historically, obviously eBay and
16:09
Speaker 1: PayPal we're part of the same company, UM, and we
16:12
Speaker 1: we basically outsourced all payment activities to PayPal, and every
16:18
Speaker 1: seller that came on to list and sell on eBay
16:21
Speaker 1: needed to establish a relationship with PayPal as well. By
16:24
Speaker 1: managing payments, we bring that all in house and our
16:28
Speaker 1: sellers register with us inclusive of payments and get on
16:31
Speaker 1: their way with selling, and allows us to offer a
16:35
Speaker 1: multitude of forms of payments to our buyers all over
16:38
Speaker 1: the world. And as you noted during COVID, so much
16:42
Speaker 1: has moved online and digital um. So the convergence of
16:46
Speaker 1: timing for us has been tremendous as we're able to
16:49
Speaker 1: now control the experience end and for our buyers and
16:52
Speaker 1: sellers and ensure that our buyers all over the world
16:56
Speaker 1: are increasingly having the forms of payments that they demand
16:59
Speaker 1: to shop with. So I'll give us more detail on that.
17:02
Speaker 1: What exactly are the platforms that you use and a
17:04
Speaker 1: lot of buyers seem to prefer these days. Yeah, So
17:08
Speaker 1: historically we were limited by whatever forms of payment were
17:12
Speaker 1: inside the PayPal wallets, and as we move volume into
17:17
Speaker 1: US at EVA managing payments, are buyers have access to
17:21
Speaker 1: not only cards and of course pay Pal as as
17:23
Speaker 1: a form of payment um, but digital wallets like Apple
17:28
Speaker 1: Pay and Google Pay, which is we've seen explosive demand
17:31
Speaker 1: for as more and more not only moves online but
17:35
Speaker 1: through through mobile applications, particularly with with younger generations, and
17:40
Speaker 1: as we've launched into Germany, for example, there's a lot
17:43
Speaker 1: more bank based UH payments that are out there, and
17:46
Speaker 1: so we've been able to introduce those UM after pay
17:50
Speaker 1: in Australia, a growing trend UH of folks wanting to
17:55
Speaker 1: pay over over time, and as we continue to launch
17:59
Speaker 1: around the world, will be able to introduce those local
18:01
Speaker 1: forms of payments that UH the shoppers expect to use
18:04
Speaker 1: anywhere they might be in stage Japan or France or Canada.
18:08
Speaker 1: We want our buyers to find those local forms of
18:11
Speaker 1: payments that they are familiar with UH locally across our
18:15
Speaker 1: platform as well. A Lissa, how big is your managed
18:18
Speaker 1: payment business within eBay and kind of what are the
18:21
Speaker 1: growth rates you guys are experiencing. Yes, so we have
18:25
Speaker 1: been limited by an operating agreement from the separation with
18:28
Speaker 1: PayPal for the past five years that just expired in
18:32
Speaker 1: mid July this past summer, as we are limited to
18:36
Speaker 1: just ten into markets US and Germany. As we crossed
18:40
Speaker 1: UH that transom in July, we launched across five markets
18:44
Speaker 1: and we've been feeling very very rapidly. We're over three
18:49
Speaker 1: and forty thousand sellers as we wrapped to three UM
18:52
Speaker 1: and we are now processing a little over of our
18:56
Speaker 1: global on platform gm g m V on the PLAT form,
19:00
Speaker 1: and we're continuing to add more sellers and more volume
19:03
Speaker 1: every single day. We will expand into France, Italy and
19:06
Speaker 1: Spain at the beginning of next year and continue to
19:09
Speaker 1: roll around the world throughout. We expect to be largely
19:14
Speaker 1: complete UH at the beginning of two where we will
19:18
Speaker 1: then represent UM two billion in revenue for the company
19:22
Speaker 1: and five million and operating income. So UM we are
19:26
Speaker 1: continuing to charge along very very rapidly, and we're really
19:29
Speaker 1: pleased with our results. That's pretty phenomenal. What are the
19:32
Speaker 1: greatest challenges that you see ahead? What are the challenges
19:35
Speaker 1: to your business? So there's We're we're in a very
19:39
Speaker 1: dynamic world right now with with COVID and a lot
19:42
Speaker 1: of uncertainty. We are squarely focused on serving our customers.
19:46
Speaker 1: When our customers win, we win. We want to continue
19:49
Speaker 1: to provide them great experiences. Managing payments is a key
19:54
Speaker 1: pillar UM in a modern manage marketplace, and then our
19:58
Speaker 1: tech lad reimagination sense to continue to innovate on behalf
20:02
Speaker 1: of our buyers and sellers and ensure that our our
20:05
Speaker 1: sellers are having velocity, our buyers are finding what they're
20:09
Speaker 1: looking for, that great deal, that unique find, and they're
20:12
Speaker 1: zipping through checkout and getting on with their day. Hey, listen,
20:15
Speaker 1: thank you so much for joining us. Just a fascinating
20:18
Speaker 1: story there for eBay unlessa cut right head of Global
20:21
Speaker 1: Payments for eBay. They're based in San Jose, California, And
20:26
Speaker 1: you know, Vanni, just I mean, just extraordinarily good timing,
20:28
Speaker 1: you could argue for really launching a digital fintech business
20:31
Speaker 1: at a time when people are spending more and more
20:34
Speaker 1: time online, transacting more and more online and doing it digitally. Yeah,
20:39
Speaker 1: you'd love to know about the you know, the cutting
20:42
Speaker 1: up of the pie. So what percentage or portion of
20:45
Speaker 1: percentage per payment does does this business get? And you
20:49
Speaker 1: know how much of a middleman is it? Is it
20:51
Speaker 1: also the middleman where a stripe is a middleman? You know? Yeah, yeah,
20:55
Speaker 1: it's There are different platforms out there, for sure, but
20:58
Speaker 1: I think the eBay straight at you here. It's obviously
21:01
Speaker 1: to tie in the activity on the eBay platform um
21:04
Speaker 1: with the payments business as well, cut out that third person,
21:08
Speaker 1: get more that revenue let's bring in our professional, Ira
21:14
Speaker 1: Josey Teeth, interest rate strategist for Bloomberg Intelligence. I really
21:17
Speaker 1: let's begin with this morning's retail sales and the impact
21:20
Speaker 1: it's going to have on the economy. Disappointing Halloween sales. Yeah,
21:24
Speaker 1: so the retail sales numbers certainly weren't good, and in
21:27
Speaker 1: particular what we call the control group, So that's the uh,
21:31
Speaker 1: those are the sectors that actually go directly into GDP.
21:34
Speaker 1: So the fact that, um that that missed pretty big
21:38
Speaker 1: by by four tenths and uh and was also revised
21:41
Speaker 1: down for September, I think just shows you that some
21:43
Speaker 1: of the optimism and some of the you know, initial
21:47
Speaker 1: sorts of any kind of V shape recovery have to
21:49
Speaker 1: go out the window. Hey, I you know, looking at
21:53
Speaker 1: the tenure treasury here, you know, eighty six basis points
21:56
Speaker 1: roughly seems if you've been in this pretty tight trading
21:59
Speaker 1: range in and around ninety basis points. Any reason to
22:02
Speaker 1: think that that changes in the maybe near to intermediate term.
22:06
Speaker 1: So I think in a near term, if you get
22:08
Speaker 1: continued risk off move so we get equities moving lower,
22:11
Speaker 1: and um, you know, things like you know, maybe gold
22:14
Speaker 1: prices going up in oil prices, falling that that you
22:16
Speaker 1: might actually see a return down toward the UM down
22:21
Speaker 1: towards the sixty five kind of handle on on tenure yield.
22:25
Speaker 1: So so another twenty basis points. But but basically, broadly,
22:27
Speaker 1: I think we're gonna stay in this range UM for
22:30
Speaker 1: quite a while. It's what's going to break us. I
22:33
Speaker 1: think above h that ish basis points where where we
22:36
Speaker 1: tested a couple of times last week. UM, I think
22:39
Speaker 1: it has to be a vaccine. I think it has
22:41
Speaker 1: to be that, Hey, we're rolling out of vaccine. Here's
22:43
Speaker 1: the pace and three growth looks like it might be
22:47
Speaker 1: more um. You know, I don't want to say normal,
22:50
Speaker 1: but but certainly better than we're currently the market is
22:53
Speaker 1: currently anticipating so um. And And the other way is is,
22:57
Speaker 1: you know, we don't get a vaccine right, and we
22:59
Speaker 1: continue to have rolling shutdowns and reopenings, which makes for
23:02
Speaker 1: very uneven economy uh continued you know, very slow um
23:07
Speaker 1: uh slow wage growth, causing inflation expectations to remain very tame.
23:12
Speaker 1: So so I think I think basically the push and
23:14
Speaker 1: pull that that we've had the last couple of months
23:17
Speaker 1: persists at least into the new year. Um, you know
23:20
Speaker 1: a couple of other things that Paul could break us
23:21
Speaker 1: out of it. For example, if the if the government
23:24
Speaker 1: does get together and and Congress and whoever, the new
23:27
Speaker 1: president is pass a reasonably big fiscal stimulus, I think
23:31
Speaker 1: then there is the possibility that even with without a vaccine,
23:35
Speaker 1: you can wind up seeing yields break break one again
23:38
Speaker 1: on the tenure. I just want to point out some
23:40
Speaker 1: news coming in the Republican Senator to Grassly says he's
23:43
Speaker 1: going to quarantine. He's waiting test results after being exposed
23:46
Speaker 1: to COVID nineteen. But of course this has implications for
23:48
Speaker 1: the Shelton nomination, which might have happened today. But it
23:52
Speaker 1: looks like now with Grasslely sort of by the wayside,
23:56
Speaker 1: her nomination, which would likely fail, won't happen today. A
24:00
Speaker 1: spokesman has confirmed, and Glassy will not vote today. What's
24:03
Speaker 1: you're thinking on Judy Shelton, IRA and how much of
24:06
Speaker 1: an impact you'll have at the FED? It does It's
24:08
Speaker 1: likely that she will still get nominated at some point,
24:11
Speaker 1: but it'll probably be in a few weeks time instead. Yeah, so,
24:14
Speaker 1: so you know, obviously, as a member of the FED
24:16
Speaker 1: will have some some say and some input. I you know,
24:20
Speaker 1: one thing that tends to happen is when when a
24:23
Speaker 1: lot of people who seem to be ideologues one way
24:25
Speaker 1: or the other, they get appointed to the Supreme Court
24:27
Speaker 1: or the Federal Reserve, where you don't have to report
24:31
Speaker 1: to the political establishment, they tend to moderate their views
24:34
Speaker 1: quite a lot. And and also I think you know,
24:36
Speaker 1: given that that shall be part of a committee, right,
24:38
Speaker 1: that it shall be part of both the Board of
24:40
Speaker 1: Governors as well as the UM the Federal Open Market Committee. UM.
24:44
Speaker 1: You know, she has a voice, and maybe she'll be
24:45
Speaker 1: a loud voice, and perhaps she'll dissent occasionally depending on
24:49
Speaker 1: what policies are suggested by the by the majority of
24:53
Speaker 1: the committee. But but she is just one member of
24:54
Speaker 1: the committee. And it's it's not dissimilar to you know,
24:59
Speaker 1: a chair going in and you might think that the
25:01
Speaker 1: chair was going to be particularly dubish or hawk ish,
25:03
Speaker 1: and you realize that all of a sudden that they're not.
25:05
Speaker 1: And a big part of that is because of the
25:08
Speaker 1: committee aspect of of the Federal Reserve. And I don't
25:11
Speaker 1: think that one member in the Board of Governors is
25:13
Speaker 1: going to change that meaningfully. So there's some talk here
25:18
Speaker 1: of the Fed expending its bond purchases. What are your
25:22
Speaker 1: thoughts there. So when you say extending it, I take
25:25
Speaker 1: it you mean that they're going to but not buy
25:27
Speaker 1: as much in the front end and buy more, buy
25:29
Speaker 1: more longer term securities. Yeah. So, so that's something that
25:33
Speaker 1: we looked at a couple of a couple of weeks ago,
25:35
Speaker 1: and I think that in the first half of next year,
25:37
Speaker 1: in the first quarter, maybe the Federal Reserve may considered
25:40
Speaker 1: doing that. And in particular, they might do that if
25:43
Speaker 1: um under two circumstances. One is, if bond yields do
25:47
Speaker 1: go up because you get a big fiscal stimulus, the
25:49
Speaker 1: Federal Reserve won't won't like the fact that you have
25:52
Speaker 1: tenure yells up one and a half percent. They'll be
25:54
Speaker 1: happy that the market is pricing for a rebound in
25:57
Speaker 1: the economy, but they'll be worried that such a large
26:00
Speaker 1: move in bond yields might hamper that growth in the future.
26:04
Speaker 1: So so they could extend out the maturities um. The
26:07
Speaker 1: the other reason why they might do that is just
26:09
Speaker 1: because they don't want to buy a whole lot more
26:11
Speaker 1: of of security. So right now they're buying eighty billion
26:14
Speaker 1: dollars of treasuries and forty billion dollars months of mortgage
26:18
Speaker 1: backed securities. You know that that's quite a lot. And
26:21
Speaker 1: and I think that they're worried that, you know, they
26:23
Speaker 1: they worry about their impact a market function, how big
26:27
Speaker 1: their balance sheet gets, they become, you know, worry for
26:30
Speaker 1: some some people in the political establishment, you know, do
26:33
Speaker 1: they do they have such a large balance sheet that
26:35
Speaker 1: they can never ever um, you know, get rid of
26:37
Speaker 1: it and unwind it. So so I do think that
26:40
Speaker 1: there are limits and and the easiest thing for them
26:42
Speaker 1: to do is just buy more market risk, which means
26:44
Speaker 1: buying more longer term securities. Um so. So my colleague
26:48
Speaker 1: Angela Manolados put out a piece a couple of weeks
26:51
Speaker 1: ago noting that even without any new bonds coming into
26:54
Speaker 1: the market, um that the Fed right now could buy
26:57
Speaker 1: another trillion dollars of long term securities. Hey, Eira, thanks
27:01
Speaker 1: so much for joining us. Really appreciate our Jersey chief
27:04
Speaker 1: he was interest rate strategist for Bloomberg. Can tell just
27:08
Speaker 1: thanks for listening to Bloomberg Markets podcast. You can subscribe
27:11
Speaker 1: and listen to interviews at Apple Podcasts or whatever. Podcast
27:15
Speaker 1: platform you prefer. I'm Bonnie Quinn, I'm on Twitter at
27:18
Speaker 1: Bonnie Quinn. And I'm Paul Sweeney. I'm on Twitter at
27:21
Speaker 1: pt Sweeney. Before the podcast, you can always catch us
27:24
Speaker 1: worldwide at Bloomberg Radio