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Pfizer's Robust Vaccine Data Comes With Caveats: Nisen · 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 CEOs, market pros, and Bloomberg experts,
• 0:10
  Speaker 1: along with essential market moving news kind of Bloomberg Markets
• 0:13
  Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
• 0:17
  Speaker 1: and on Bloomberg dot com. So we have a lot
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  Speaker 1: of coronavirus news today. Most of it is positive. Well
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  Speaker 1: maybe I shouldn't say most of it, but some of
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  Speaker 1: it is positive. Let's say the vaccine being developed by
• 0:29
  Speaker 1: Fiser and Bioontech is preventing more than of symptomatic infections
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  Speaker 1: in a study of tens of thousands of volunteers. We
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  Speaker 1: also know Maderna is getting closer. However, on the other
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  Speaker 1: side of things, we know that more than a hundred
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  Speaker 1: thousand US citizens will be diagnosed today, and we just
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  Speaker 1: have Mayor Bill de Blasio in New York saying New
• 0:49
  Speaker 1: York City is coming dangerously close to a second wave
• 0:53
  Speaker 1: with an all rate now that is above two. Let's
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  Speaker 1: bring in Max Nisson, who can synthesize all this for
• 0:58
  Speaker 1: us and tell us exactly where we are here. Farm
• 1:00
  Speaker 1: analyst for Bloomberg Intelligence and Bloomberg News. Max talks us
• 1:05
  Speaker 1: about this vaccine. The market is is rallying big on it.
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  Speaker 1: Is it enough to save us? Uh? Not on its own?
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  Speaker 1: So this is what i'd call really good news that
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  Speaker 1: that needs a lot of context, so that that result, UM,
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  Speaker 1: he's a really strong indication that this is going to
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  Speaker 1: be an effective vaccine. UM could fade over time as
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  Speaker 1: you get more data to be a little bit lower,
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  Speaker 1: but it really does suggest that this is something that
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  Speaker 1: that's going to work and and be useful. The caveat
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  Speaker 1: is that it's not going to be immediately available, and
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  Speaker 1: it's not going to be broadly available for a longer time. UM.
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  Speaker 1: I think the company's guided to fifty million doses worldwide
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  Speaker 1: by the end of the year. That's enough for only
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  Speaker 1: twenty five million people. Manufacturing is going to ramp up
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  Speaker 1: over time, but you know, it takes time, and you
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  Speaker 1: will still need other seems to be successful likely in
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  Speaker 1: order to get a significant part of the population. Does um,
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  Speaker 1: you know, with any sort of any sort of reasonable
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  Speaker 1: time frame. And the other thing to keep in mind
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  Speaker 1: is that it's not going to be ready, particularly in
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  Speaker 1: sufficient quantities to do anything about the current sort of
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  Speaker 1: rampant outbreaks that's going to take um, you know, your
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  Speaker 1: more traditional type of public health action, UM and then
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  Speaker 1: preferably with some urgency given the really disturbing rate of
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  Speaker 1: growth that you're seeing lately. So Max, that rate of
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  Speaker 1: growth that we are seeing, you know, as you speak
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  Speaker 1: to the experts, is that something that's within the bounds
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  Speaker 1: of expectations given what we know about the virus and
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  Speaker 1: colder temperatures and people not being outdoors as much. UM,
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  Speaker 1: Or is this even a higher rate? I I wouldn't
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  Speaker 1: really blame this on the seasonal effect, although you know,
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  Speaker 1: I may be a little biased by effect them in
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  Speaker 1: New York and it's beautiful right now, but UM, you
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  Speaker 1: know that we haven't really hit the the sort of
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  Speaker 1: worst period for that. The growth that's coming right now
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  Speaker 1: is the fact that there just hasn't been in many
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  Speaker 1: parts of the country. UM. You know, a robust or
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  Speaker 1: sufficient response to rapidly growing cases. The seasonal effect is
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  Speaker 1: something that's going to take what's happening now and make
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  Speaker 1: it worse. It's not the cause of how bad things
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  Speaker 1: are right now. We're exponential, aren't we, Max. I mean,
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  Speaker 1: we're above two for an ol rage in New York
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  Speaker 1: City alone, but we're above one and all all states. Yeah,
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  Speaker 1: it's it's incredibly concerning. Um. I you know, I with
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  Speaker 1: there's some hope you can point to in the fact that, um,
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  Speaker 1: the Biden administration, you know, a panel of really well
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  Speaker 1: regarded experts, But you do also have to keep in
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  Speaker 1: mind that you won't actually take power until late January. UM,
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  Speaker 1: so we do have the status quo on a national level.
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  Speaker 1: You just have to hope that the the States will
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  Speaker 1: finally sort of react and in the way that you should,
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  Speaker 1: because you know, if if you leave things the way
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  Speaker 1: they are, you're just going to see continued growth. Max.
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  Speaker 1: What do we know about in the second wave here
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  Speaker 1: the hospitalization rate number one and number two, the fatality rates,
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  Speaker 1: or any reason to believe that those rates won't mirror
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  Speaker 1: what we saw in the first wave? Uh, there there
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  Speaker 1: is some reason. Yes, So there there are a bunch
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  Speaker 1: of the number of things that are different now. UM,
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  Speaker 1: you know, it's a different situation. The wars in the
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  Speaker 1: spring you had sort of completely uncontained, spread a lot
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  Speaker 1: of it into really vulnerable populations. Now, even though you
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  Speaker 1: know obviously containment is failing, still efforts to protect those
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  Speaker 1: that are more vulnerable, better treatments, better, better know how
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  Speaker 1: about managing the virus. But the thing that you do
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  Speaker 1: have to keep in mind is, you know, a reduction
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  Speaker 1: in the hospitalization rate or death rate UM. All of
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  Speaker 1: that would have eventually breaks down in the face of
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  Speaker 1: large enough numbers UM. You start to get hospitals that
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  Speaker 1: get overwhelmed, you start to get enough community transmission that
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  Speaker 1: all of those efforts to protect the more more vulnerable
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  Speaker 1: population begin to break down. So it's not something that
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  Speaker 1: you can take for granted. It's something that is an
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  Speaker 1: advantage if you you manage a relatively good degree of
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  Speaker 1: containment and caution, but one you know, it's it's a
• 5:27
  Speaker 1: benefit that you can lose. Max tell us a little
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  Speaker 1: bit more about this Fiser vaccine. So it's preventing of
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  Speaker 1: COVID cases in a study. Why is that good? You know,
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  Speaker 1: relative to other types of vaccines. Shouldn't have been more
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  Speaker 1: like and how many people are we really talking about here?
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  Speaker 1: So is actually excellent, especially for a vaccine that has
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  Speaker 1: been developed so rapidly. So what it's preventing in this
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  Speaker 1: case is the thing that they're measuring is mild symptomatic
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  Speaker 1: confirmed cases of COVID, and the number that they're looking
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  Speaker 1: at is is ninety four confirmed cases so far, less
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  Speaker 1: than ten people in that group UM that got the
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  Speaker 1: fact of the virus um that that got, that had
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  Speaker 1: a confirmed case in the trial, or or had been vaccinated.
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  Speaker 1: That's a rate of efficacy that that's comparable to you know,
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  Speaker 1: really effective vaccines, much better than you know, your annual
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  Speaker 1: flu vaccine, which you know can hover around the fifty
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  Speaker 1: percent range, and better than the f d a's bar
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  Speaker 1: for approval, which was only efficacy. So there are a
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  Speaker 1: lot of unknown still, you don't know how well the
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  Speaker 1: vaccine works at preventing severe disease UM, whether it can
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  Speaker 1: actually prevent asymptomatic infection or transmission. But the protection rates
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  Speaker 1: suggest that it really is active. It does have some
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  Speaker 1: degree of protection um and a better one than what
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  Speaker 1: many people were actually hoping for. So um a good
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  Speaker 1: and meaningful results. Though that we do still need more
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  Speaker 1: and more context and information a max. About thirty seconds
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  Speaker 1: or so. There's still other entities out there working towards
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  Speaker 1: a vaccine. Is the expectation that you know, as we
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  Speaker 1: get into one will have two, three, maybe four vaccines
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  Speaker 1: in the marketplace at the same time, and it'll simply
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  Speaker 1: be a choice or that doctors will forge out which
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  Speaker 1: is the best for which population. Um. That's the hope, though,
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  Speaker 1: I do think that only Madurana's vaccine is likely to
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  Speaker 1: provide data really soon, and there's some concern that having
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  Speaker 1: another option or a good data may slow trial enrollment.
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  Speaker 1: I very much hope that doesn't happen, because we really
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  Speaker 1: need multiple vaccines given the manufacturing and supply constraints on visors. Max,
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  Speaker 1: thank you so much. We appreciate it as always a
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  Speaker 1: very very important day here as we move towards a vaccine.
• 7:47
  Speaker 1: Max Neeson, Bloomberg Opinion, Biotech and healthcare columnists. You can
• 7:51
  Speaker 1: read all of max work and the work of our
• 7:53
  Speaker 1: other opinion columnists at Bloomberg dot com, slash Opinion or
• 7:57
  Speaker 1: by typing O P I N go on the terminal.
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  Speaker 1: It's interesting, Vonny, it's you know, I guess as Max
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  Speaker 1: was suggesting the hope that you know, you get multiple
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  Speaker 1: vaccines out there in the market, because this thing has
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  Speaker 1: to scale just on an incredible level. Yes, absolutely, and
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  Speaker 1: you know, obviously we know that it will be done
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  Speaker 1: in layers. But then what about the rest of the world,
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  Speaker 1: you know, and then how close to other countries come
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  Speaker 1: to getting a vaccine and how does it all get distributed.
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  Speaker 1: It's it's going to be a fascinating matrix to watch.
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  Speaker 1: Right now, the KBW Bank Index is eleven and a
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  Speaker 1: half percent. Now, Zion's Bank Corps, M and T America
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  Speaker 1: they're all leading the charge, up around twenty apiece. But
• 8:34
  Speaker 1: the majors like City Group, Bank of America, JP, Morgan,
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  Speaker 1: they're all up nine and ten percent. Let's bring in
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  Speaker 1: somebody who knows a lot about US banks, the goliath
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  Speaker 1: of the global capital markets, as he calls them. Mike
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  Speaker 1: Mayo is senior analyst at Wells Fargo Securities. Mike, I
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  Speaker 1: can understand why banks might be up because the entire
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  Speaker 1: market is up, But what else is behind this extra
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  Speaker 1: exuberant trade for the banks. Well, I'd say this is
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  Speaker 1: not only a good day for banks, a great day
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  Speaker 1: for banks relative to the market's the best performance for
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  Speaker 1: bank stock and over six months if this holds, and
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  Speaker 1: so number one, you have the hope for a COVID vaccine.
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  Speaker 1: And what we say is that bank stocks have among
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  Speaker 1: the highest COVID stock data so as COVID got worse,
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  Speaker 1: bank stocks went down. If there's a vaccine, banks to
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  Speaker 1: get much better. And the concern there is because of
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  Speaker 1: the exposure banks have in lending to corporations and individuals. Uh.
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  Speaker 1: The second factor happening today is this an enormous move
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  Speaker 1: in the treasury market with the steepening yield curve, So
• 9:40
  Speaker 1: banks like Bank of America certainly benefit from that steepening um.
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  Speaker 1: And then third, I'd say the idea of a Abiden
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  Speaker 1: presidency with the divided government means that it's the absence
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  Speaker 1: of a potential more harsher regulat regime than what's mostly
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  Speaker 1: currently in place. So, Mike, let's talk about that steepening
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  Speaker 1: Yeel curve that you were talking about here, and it
• 10:08
  Speaker 1: goes to the obviously in the net interest margin that
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  Speaker 1: these banks can earn on their deposits. Give us a
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  Speaker 1: sense of kind of where we are today in terms
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  Speaker 1: of that part of their business. And does it have
• 10:20
  Speaker 1: you know, how much more do we need improvement steepening
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  Speaker 1: in the Yeel curve for to make a meaningful difference
• 10:25
  Speaker 1: for these companies. Well, we estimate that the banking industry
• 10:29
  Speaker 1: will have a piece dividend once the war on COVID
• 10:34
  Speaker 1: is one of about a hundred billion dollars, and that
• 10:38
  Speaker 1: does not even assume much change and interest rate. So
• 10:41
  Speaker 1: if interest rates improved, that number would go a lot higher.
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  Speaker 1: I think what's interesting is one of the biggest implicit
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  Speaker 1: taxes on the banking industry in history has been this
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  Speaker 1: period of lower interest rate. The federalies are balance sheet
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  Speaker 1: has ballooned this year from four trillion the seven billion dollars,
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  Speaker 1: and that's kept rates lower for longer. Uh and the
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  Speaker 1: cost to banks has been fifty billion dollars annually. If
• 11:09
  Speaker 1: you compare year every year so to an extent that
• 11:12
  Speaker 1: that reverses some bit, then you could have expectations going
• 11:16
  Speaker 1: higher across the bank group. That's impacts on this every bank,
• 11:20
  Speaker 1: especially some more of the smaller banks, but the larger
• 11:24
  Speaker 1: Golias banks which we've we've been favoring for a while,
• 11:27
  Speaker 1: like j Jake Morigan Bank America. Mike does this assume
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  Speaker 1: that once we have a coronavirus vaccine that works and
• 11:35
  Speaker 1: that is getting widely distributed, and once cases are going
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  Speaker 1: down and blattening and so on, that suddenly everything will
• 11:41
  Speaker 1: be okay for the banks that you know, those those
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  Speaker 1: on the brink of bankruptcy suddenly won't go bankrupt, that
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  Speaker 1: those loans will get repaid, and so on. You know,
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  Speaker 1: what I find amazing is just how much recency bias
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  Speaker 1: there is to the global financial crisis from over a
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  Speaker 1: decade ago, and this idea that banks are in the
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  Speaker 1: rink of bankruptcy and they're going to fail, or even
• 12:03
  Speaker 1: that they'll have to issue more equity. Now that might
• 12:05
  Speaker 1: be the case for some smaller banks. No, no no, I
• 12:07
  Speaker 1: meant those companies that banks are lending to that are
• 12:10
  Speaker 1: on the verge of bankruptcy. Oh well, look, these are
• 12:14
  Speaker 1: still sobering times, make no mistake about it. I mean,
• 12:17
  Speaker 1: so from the banking industry standpoint, the banks have already
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  Speaker 1: reserved for the problem loans they expect over the next
• 12:24
  Speaker 1: couple of years. And the peak and these problems probably
• 12:27
  Speaker 1: doesn't happen until the second half and next year. So
• 12:31
  Speaker 1: you're still going to have bankruptcies individuals, corporations. These are
• 12:36
  Speaker 1: still hard times. You know, even with the vaccine, I
• 12:40
  Speaker 1: would not expect banks to start saying, well, you know,
• 12:43
  Speaker 1: credit is just fine as far as all these loans.
• 12:45
  Speaker 1: It just helps ease the pressure and the risk of
• 12:50
  Speaker 1: a tail risk scenario, you know, in terms of a
• 12:54
  Speaker 1: you know, we have different shape recoveries. Maybe it's not
• 12:56
  Speaker 1: a V shape recovery, which is the best case, but
• 12:59
  Speaker 1: maybe softs are not in an L shape either or
• 13:02
  Speaker 1: what people say like a Nike swoosh. Maybe it's more
• 13:05
  Speaker 1: like a you that doesn't last as long as otherwise expected.
• 13:10
  Speaker 1: So bank, Mike, where how well are the banks reserved
• 13:13
  Speaker 1: right now? I know they're pretty aggressive in the early
• 13:15
  Speaker 1: part of are how are they positioned in your perspective?
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  Speaker 1: You know what's amazing recent comments from the largest banks
• 13:23
  Speaker 1: say they are reserved. They don't need to build any
• 13:27
  Speaker 1: more reserves than what they did the first part of
• 13:30
  Speaker 1: this year. What they did the first part of this year,
• 13:32
  Speaker 1: and this is due to an accounting change that encouraged this.
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  Speaker 1: They said, reserved for all the problems you think you'll
• 13:38
  Speaker 1: have from now into infinity for the loans. So they
• 13:42
  Speaker 1: took more reserves at the start of re recession at
• 13:46
  Speaker 1: any time in banking history. So as a result, banks
• 13:49
  Speaker 1: are in better shape to whether the storm um the
• 13:52
  Speaker 1: losses that are to come um than any time before.
• 13:56
  Speaker 1: So that means that you know, they front loaded the
• 13:59
  Speaker 1: pain and now when the losses come, Uh, it doesn't
• 14:03
  Speaker 1: hurt the earnings like otherwise would. Real quick, Mic, we're
• 14:06
  Speaker 1: out of time. But who will the banks be looking
• 14:08
  Speaker 1: to Joe Biden to pick for some of those important
• 14:12
  Speaker 1: Treasury and you know, Labor secretary and so on positions. Well,
• 14:17
  Speaker 1: I think what they can do, what they will do
• 14:21
  Speaker 1: is they look for somebody that has the part of
• 14:24
  Speaker 1: Main Street and the head of Wall Street. And what
• 14:28
  Speaker 1: that means is, um, you really have to look after
• 14:31
  Speaker 1: the transparency and consumers and make sure they're getting a
• 14:35
  Speaker 1: fair deal while at the same time being savvy enough
• 14:38
  Speaker 1: to recognize that, you know, good good politics is good economics. Hey, Mike,
• 14:43
  Speaker 1: thanks so much for joining us. We appreciate it. As always,
• 14:45
  Speaker 1: Mike Mayo, senior banking analyst at Wells Fargo Security, is
• 14:49
  Speaker 1: giving his thoughts into banks they are rallying today. This
• 14:55
  Speaker 1: is Bloomberg Markets with Ball Sweeney and Bunny Quinn on
• 14:58
  Speaker 1: Bloomberg Radio. Well with the election for the most part
• 15:03
  Speaker 1: in our rear view year rear of view mirror, it's
• 15:05
  Speaker 1: a great time to check in with Michael Jasas. He's
• 15:07
  Speaker 1: a chief US public policy and municipal strategist for Mortgage
• 15:11
  Speaker 1: Stanley Michael, thanks so much for joining us here. So
• 15:15
  Speaker 1: all right, we've got the presidential election, and with the
• 15:18
  Speaker 1: exception of Georgia, the Senate and Congress kind of all
• 15:22
  Speaker 1: mapped out here. What did you take away from this
• 15:25
  Speaker 1: latest election cycle? Yeah, I think you sort framed it right.
• 15:31
  Speaker 1: There's a couple of loose ends here with regard to
• 15:34
  Speaker 1: send a control and that's where Georgia comes in. But
• 15:36
  Speaker 1: if you take a step back, you know, we went
• 15:38
  Speaker 1: into election day and consider a very wide variety of
• 15:42
  Speaker 1: possible policy outcomes, because you have to consider a very
• 15:46
  Speaker 1: wide variety of election outcomes, including a much uh sort
• 15:51
  Speaker 1: of much more substantial uh Senate control outcome for the
• 15:55
  Speaker 1: Democrats um, as well as obviously a potential we've in
• 15:59
  Speaker 1: the other direction for the Republicans. But I now what
• 16:01
  Speaker 1: you're looking at is basically either going to get fifty
• 16:04
  Speaker 1: seats in the Senate for the Democrats or they're gonna
• 16:06
  Speaker 1: fall short. Uh. And most of the policy concerns that
• 16:10
  Speaker 1: a lot of investors told us in our survey were
• 16:14
  Speaker 1: animating their behavior become you know, less variables and more
• 16:18
  Speaker 1: fixed things like tech regulation, potential for taxes to go up.
• 16:23
  Speaker 1: I think there's still some potential for some tax increases
• 16:25
  Speaker 1: in the fifty scenario, but probably are less of versus
• 16:28
  Speaker 1: what a lot of investors were expressing concern on. And
• 16:31
  Speaker 1: so it's not that we don't need to pay attention
• 16:33
  Speaker 1: to this January fifth runoff. We we there's probably actually
• 16:36
  Speaker 1: a big difference for the path for COVID relief stimulus,
• 16:40
  Speaker 1: but a lot of the kind of medium term policy
• 16:44
  Speaker 1: concerns that investors had the possibilities have been narrowed down substantially,
• 16:48
  Speaker 1: and so politics in general is becoming a little more
• 16:51
  Speaker 1: like a constant than a variable, at least in the
• 16:53
  Speaker 1: very short term. What does it mean for your projection
• 16:57
  Speaker 1: for economics and metals? So here because the right way
• 17:03
  Speaker 1: to frame it, uh, if the Democrats were to take
• 17:06
  Speaker 1: control of the Senate, even with that very slim fifty
• 17:09
  Speaker 1: fifty majority that they've had for a long time, the
• 17:12
  Speaker 1: motive to spend a lot on COVID release stimulus was
• 17:15
  Speaker 1: evidenced by the Heroes Act being above three trillion dollars um.
• 17:19
  Speaker 1: If they got fifty seats in the Senate, they'd obviously
• 17:21
  Speaker 1: have the opportunity to execute on that. So I think
• 17:24
  Speaker 1: the way you would frame that is, the half to
• 17:27
  Speaker 1: stimulus would be fairly wide and not filled with too
• 17:32
  Speaker 1: much drama, and you would probably get a pretty big package.
• 17:35
  Speaker 1: Um in a divided government outcome right where the Republicans
• 17:39
  Speaker 1: keep the Senate, it's not that you could never get stimulus,
• 17:42
  Speaker 1: but that it would probably be smaller and the path
• 17:44
  Speaker 1: to get there would be less. Certain Republicans haven't necessarily
• 17:47
  Speaker 1: sent and the Senate changed their view about the idea
• 17:51
  Speaker 1: that they're still concerned about spending driven deficits and are
• 17:55
  Speaker 1: not convinced that the economy needs more stimulus. And so
• 17:59
  Speaker 1: it might be that you need a demonstration from weaker
• 18:02
  Speaker 1: economic data, we can market weaker market data to move
• 18:06
  Speaker 1: them off of that position. So the difference is a
• 18:09
  Speaker 1: democratic Uh, Democrats getting fifty seats gets you a kind
• 18:12
  Speaker 1: of proactive and easy stimulus. Republicans keeping the Senate probably
• 18:16
  Speaker 1: a bumpy, kind of windy path to ultimately a smaller stimulus. So, Michael,
• 18:22
  Speaker 1: we're starting to see the COVID cases, uh, you know,
• 18:24
  Speaker 1: really go the wrong way here. How does that impact
• 18:27
  Speaker 1: kind of your outlook for what kind of public policy
• 18:30
  Speaker 1: we may see out of a Biden administration in terms
• 18:33
  Speaker 1: of maybe you know, locking down the country for some
• 18:36
  Speaker 1: period of time and any potential economic fallout. Yeah. I mean,
• 18:40
  Speaker 1: what's interesting here is that, you know, the Biden team
• 18:43
  Speaker 1: doesn't take power until January twentieth, and there's a lot
• 18:47
  Speaker 1: that happens between now in January twenties, and obviously, you know,
• 18:51
  Speaker 1: the news breaking this morning about vaccine is sort of
• 18:54
  Speaker 1: puts that completely on display. And so what you know,
• 18:58
  Speaker 1: what our biotech team, led by Matthew Harrison um I
• 19:04
  Speaker 1: believe is that once you get to January twenties, you
• 19:07
  Speaker 1: will have effectively banked a lot of positive information on vaccination.
• 19:12
  Speaker 1: UM that the sort of the modeling of the virus
• 19:15
  Speaker 1: trajectory would suggest that you could be in kind of
• 19:19
  Speaker 1: more of a plateau territory at that point. So by
• 19:22
  Speaker 1: the time the Biden team kind of comes to UM
• 19:25
  Speaker 1: take executive authority. UM that the question of whether or
• 19:30
  Speaker 1: not they would try and pursue a kind of more
• 19:33
  Speaker 1: sort of return to March April style lockdown could be
• 19:36
  Speaker 1: kind of a moot one, because you'd have all this
• 19:38
  Speaker 1: positive new information behind you, and at the same time,
• 19:41
  Speaker 1: if you are getting a pretty negative trajectory on COVID
• 19:45
  Speaker 1: and you've had some weaker economic data coincident with that,
• 19:48
  Speaker 1: it's far less likely that you would sort of face
• 19:52
  Speaker 1: a difficult scenario of, you know, the Biden team considering
• 19:56
  Speaker 1: returning to March April style restrictions at the same time
• 19:59
  Speaker 1: they didn't have of a relief package or a stimulus package.
• 20:02
  Speaker 1: It would be very difficult for those two negative things
• 20:05
  Speaker 1: to co exist at the same time. So, you know,
• 20:08
  Speaker 1: so long story, sure, I think that it's we should
• 20:11
  Speaker 1: be asking these questions, but there doesn't seem to be
• 20:14
  Speaker 1: a lot of paths to that kind of very negative
• 20:16
  Speaker 1: policy outcome where we end up in both heavily restricted
• 20:20
  Speaker 1: economy and one without stimulus. Michael, we're almost at a time,
• 20:24
  Speaker 1: but the tenure yield is at nine basis points. Now,
• 20:28
  Speaker 1: who are very close to that one percent mark? Do
• 20:30
  Speaker 1: we get above it? And what sense us there? Uh? Yeah,
• 20:34
  Speaker 1: I mean, I know, certainly the view of our interest
• 20:37
  Speaker 1: rates team is that you should still be short on
• 20:40
  Speaker 1: duration here and expect a higher bias and yields going forward.
• 20:45
  Speaker 1: Uh And at this point, because we haven't or sort
• 20:50
  Speaker 1: of we kept open the pathway to a bigger stimulus package.
• 20:54
  Speaker 1: As we talked about, the Democrats get those fifty seats.
• 20:57
  Speaker 1: It's it's meaningful that the difference between in an easy
• 21:00
  Speaker 1: path to a couple of trillion dollars of stimulus and
• 21:03
  Speaker 1: bumpy paths or something smaller, it suggests that you have
• 21:05
  Speaker 1: to price in some degree on the probability way the
• 21:08
  Speaker 1: basis of a lot more treasury supply. So um H
• 21:12
  Speaker 1: think the market sort of behaving very rationally around that. Michael,
• 21:15
  Speaker 1: looking forward to another conversation with you where we can
• 21:18
  Speaker 1: talk a little bit more about the individual states and
• 21:20
  Speaker 1: and newnees and so on. Michael Jesus is chief you
• 21:23
  Speaker 1: as public policy and municipal strategist at Morgan Stanley, and
• 21:26
  Speaker 1: we sank him redhead. Ben Carson has now been tested
• 21:30
  Speaker 1: positive for coronavirus well, and indeed we are continuing to
• 21:37
  Speaker 1: watch this market. With a ten year yield at ninety
• 21:40
  Speaker 1: five plus basis points is quite a change just from
• 21:42
  Speaker 1: last week alone. And obviously we have equities doing their
• 21:45
  Speaker 1: thing as well, but let's concentrate on fixed income now
• 21:48
  Speaker 1: and bringing Thomas McLaughlin ahead of America's fixed income at
• 21:50
  Speaker 1: UBS Global Wealth Management. So Tom, we you know, we
• 21:54
  Speaker 1: had treasuries rallying last week and suddenly now they're they're
• 21:57
  Speaker 1: they're dropping like a stone with a tenure yield bass
• 22:00
  Speaker 1: points and going higher. How much more room is there
• 22:04
  Speaker 1: in this self? Well, you know, Vonnie, this morning, uh
• 22:09
  Speaker 1: if and this morning has proven anything, it's proven the
• 22:11
  Speaker 1: fact that it's all about COVID and the prospects of
• 22:13
  Speaker 1: the vaccine. We've kind of left the election behind us.
• 22:17
  Speaker 1: We've been added for about eighteen months, but the election
• 22:20
  Speaker 1: looks like it's been decided, and now we're all looking
• 22:22
  Speaker 1: forward to the prospects of vaccine. And what you're seeing
• 22:26
  Speaker 1: in the equity market rally, what you're seeing effectively in
• 22:28
  Speaker 1: the yells jumping is the optimism that's uh, that's taking
• 22:32
  Speaker 1: over the market this morning. And so Tom, let's put
• 22:35
  Speaker 1: a coda, if if we will on the election here, Well,
• 22:39
  Speaker 1: was ebs out saying to its clients, given that it
• 22:42
  Speaker 1: looks like president elected, that Joe Biden will in fact
• 22:44
  Speaker 1: be in the White House, a little bit of uncertainty
• 22:47
  Speaker 1: as it relates to the Senate and what's the UBS message. Yeah,
• 22:50
  Speaker 1: so it's gonna be a little more constrained the ability
• 22:52
  Speaker 1: of the Democrats, regardless of what happens in Georgia, even
• 22:56
  Speaker 1: if they take both seats, and they have the narrow
• 22:57
  Speaker 1: majority in the Senate, there ability and discretion to go
• 23:01
  Speaker 1: ahead and make big changes to the UH. The tax
• 23:05
  Speaker 1: regime is going to be much much more limited. So
• 23:09
  Speaker 1: we think that there's gonna be a smaller fiscal stimulus,
• 23:12
  Speaker 1: but we do expect one. We don't think there's going
• 23:14
  Speaker 1: to be a massive tax bill or at tax a
• 23:17
  Speaker 1: change in the tax regime. UH. And that's actually also
• 23:20
  Speaker 1: probably helping some of the the high yield market for example,
• 23:24
  Speaker 1: which is that tights that are certainly pre COVID. Yeah,
• 23:28
  Speaker 1: why this reaction though, I mean, you know, we're looking
• 23:30
  Speaker 1: at one percent of the tenure again, we're seeing what
• 23:32
  Speaker 1: we're seeing with high yield. All is not well in
• 23:35
  Speaker 1: the world. To suddenly just because there's a change in leadership, No,
• 23:40
  Speaker 1: it's not really the change of leaders That's why I
• 23:41
  Speaker 1: keep coming back to the notion that UM as we
• 23:44
  Speaker 1: got closer to the election in October and certainly will
• 23:46
  Speaker 1: be seen in the wake of the election, is everybody's
• 23:48
  Speaker 1: turned their attention to the prospects of the vaccine. And
• 23:51
  Speaker 1: of course, you know, there was just note on the
• 23:54
  Speaker 1: program about the fact that Americle Lazio came out um
• 23:57
  Speaker 1: and said he's concerned about the spread of the virus.
• 24:00
  Speaker 1: Governor Herbert and Utah's did the same thing last night.
• 24:02
  Speaker 1: So there's a lot of concern about the virus. But
• 24:04
  Speaker 1: the prospects of a vaccine, which we've expected to be
• 24:08
  Speaker 1: kind of rolled out in April and May, it looks
• 24:10
  Speaker 1: actually like that's gonna happen. So I think that enthusiasm,
• 24:14
  Speaker 1: the animal spirits in the market have taken over again
• 24:16
  Speaker 1: just on the on the prospects that, UM, we'll be
• 24:19
  Speaker 1: able to relieve ourselves from social distancing sometime next year. Tom,
• 24:23
  Speaker 1: What do you sing in the corporate credit market, um,
• 24:26
  Speaker 1: in terms of credit quality? Um, are you starting to
• 24:29
  Speaker 1: see cracks or is that something that's still going to
• 24:31
  Speaker 1: be event? It's still gonna be Uh. If we see
• 24:36
  Speaker 1: the cracks, it's gonna be one event we've seen. You know,
• 24:39
  Speaker 1: we expect senior loans actually to do well, uh, as
• 24:42
  Speaker 1: we've seen incremental increases and yields. Uh. The high yield
• 24:46
  Speaker 1: you know again, is that that was pretty COVID heights. UH.
• 24:49
  Speaker 1: And I think that's probably a function of the fact
• 24:52
  Speaker 1: that HYO bonds tend to basically be more or less
• 24:54
  Speaker 1: correlated with the equity market. Um. But the again, the
• 24:58
  Speaker 1: prospects that you'll probably have of if there are already
• 25:01
  Speaker 1: changes in the tax regime in two twenty two, it
• 25:05
  Speaker 1: will be far more limited that might have been the
• 25:07
  Speaker 1: case if we had a massive blue wave. So again,
• 25:10
  Speaker 1: incrementally positive for for that market as well. So what
• 25:14
  Speaker 1: are you wealthy clients calling up and saying, I mean,
• 25:17
  Speaker 1: are they concerned about changes in tax policy? Are they
• 25:19
  Speaker 1: concerned about changes in inheritance policy and so on? And
• 25:22
  Speaker 1: are they trying to do something with their money right now?
• 25:25
  Speaker 1: You know, beyond just swapping out of different areas of
• 25:29
  Speaker 1: fixed income. Going into the election, there was a lot
• 25:33
  Speaker 1: of concern about the prospects of taxes, and what we
• 25:36
  Speaker 1: had said then before the election was that we didn't
• 25:38
  Speaker 1: think it was going to be rolled out in the
• 25:40
  Speaker 1: UH in the first six months, that it would probably
• 25:42
  Speaker 1: be later in the year. Now that we've actually had
• 25:46
  Speaker 1: the election and the Democratic majority in the House is
• 25:49
  Speaker 1: going to be smaller, uh the Senate. Um, we don't
• 25:51
  Speaker 1: know what the outcome is going to be based on Georgia,
• 25:53
  Speaker 1: but they'll certainly be constrained. You the way Um, there's
• 25:57
  Speaker 1: been there's a little bit less anxiety going in the
• 26:00
  Speaker 1: election of Vanni. You're right, there was a lot of
• 26:01
  Speaker 1: concern about state taxes uh, and whether or not those
• 26:04
  Speaker 1: were going to change. Um, I wouldn't. We're not at
• 26:07
  Speaker 1: the point out we consider completely off the table, but
• 26:09
  Speaker 1: we think they're certainly much less less less likely. Alright, So, Tom,
• 26:14
  Speaker 1: given what we know now from the political front, given
• 26:17
  Speaker 1: what we know now about the pandemic h I E.
• 26:19
  Speaker 1: The numbers are not trending well, but we do have
• 26:22
  Speaker 1: some uh, some vaccine information that's certainly positive. Where are
• 26:26
  Speaker 1: you finding the best of value in the fixed income
• 26:29
  Speaker 1: world for your clients? Well, actually it's interesting, UM, A
• 26:34
  Speaker 1: lot of there's a lot of concerned about municipal bonds UH.
• 26:36
  Speaker 1: And I think one of the things we've told our
• 26:39
  Speaker 1: clients is you have to start with the presumption that
• 26:42
  Speaker 1: in terms of municipal credit, it's a very very idios
• 26:45
  Speaker 1: and cratic market. So while you've got some credits that
• 26:48
  Speaker 1: are certainly experiencing stress, New Jersey and Illinois, of course
• 26:51
  Speaker 1: there at least half the states will be able to
• 26:53
  Speaker 1: basically accommodate whatever stress the stress they're going to experience.
• 26:58
  Speaker 1: So here credit selection is exceptionally important. UM beyond municiples. Again,
• 27:03
  Speaker 1: we think senior alone should actually benefit from the from
• 27:06
  Speaker 1: the prospect of incrementally higher UM yields, but also the
• 27:11
  Speaker 1: expectation that credit conditions may actually improve next year. Yeah.
• 27:16
  Speaker 1: It is really fascinating when you look around the junk
• 27:19
  Speaker 1: space and you know, the lower quality corporates and so on,
• 27:22
  Speaker 1: what interests you because it seems like one day, when
• 27:25
  Speaker 1: there's you know, optimism over a vaccine, it's all the
• 27:28
  Speaker 1: going out stocks, the travel stocks that are rallying, and
• 27:32
  Speaker 1: the next day, when you know there's a setback, then
• 27:34
  Speaker 1: it's the exact opposite. And we're talking about major moves
• 27:38
  Speaker 1: here and not just you know, incremental moves. Yeah, and
• 27:41
  Speaker 1: industrials and financials probably jump off the page. Industrials obviously
• 27:46
  Speaker 1: because if we do get some sort of vaccine next year,
• 27:49
  Speaker 1: and again we're probably exceptionally optimistic this morning because of
• 27:54
  Speaker 1: the annoucement Provisor UM, but industrial activity UM should improve. Uh,
• 28:00
  Speaker 1: the industrials will probably benefit from this as we begin
• 28:03
  Speaker 1: to travel again sometime in the latter part next year.
• 28:06
  Speaker 1: Financials have been cheap um, you know, obviously, Uh, you
• 28:10
  Speaker 1: may see some yell curve control by the Feds either
• 28:13
  Speaker 1: in December or sometimes sometimes in the first court of
• 28:16
  Speaker 1: next year. But by large financials UM, you know, have
• 28:19
  Speaker 1: been a sector which are relatively under undervalued at this point.
• 28:22
  Speaker 1: So to the extent you get any sort of a
• 28:24
  Speaker 1: steeper you occurred, UM, it's probably going to be beneficial.
• 28:28
  Speaker 1: And Tom on the municipal bond front, you're just chatting
• 28:30
  Speaker 1: about how critical is it for the muisipal bond market
• 28:33
  Speaker 1: and certainly the states in in big need for this
• 28:36
  Speaker 1: fiscal stimulus to in fact include some type of aid
• 28:40
  Speaker 1: for states and municipalities. Well, this has been one of
• 28:43
  Speaker 1: the obviously UH points of argument between the Republicans and
• 28:47
  Speaker 1: the Democrats run in the run up to the election. UH,
• 28:50
  Speaker 1: the GOP has been reluctant to go ahead and allocate
• 28:52
  Speaker 1: a large amount of that stimulus to state local government
• 28:55
  Speaker 1: ad Uh. Democrats have been pushing forward for a hard UM.
• 28:59
  Speaker 1: I think in some cases federal aid to state governments
• 29:04
  Speaker 1: that are in our are in a world of hurt
• 29:06
  Speaker 1: at this point. Some of them, UM would be very beneficial.
• 29:09
  Speaker 1: But again let me emphasize this, there are at least
• 29:11
  Speaker 1: half the states out there that are able to accommodate
• 29:14
  Speaker 1: whatever decline in revenue experience in the last year and
• 29:17
  Speaker 1: probably will experience over the course of the next six
• 29:19
  Speaker 1: to nine months, because there's always a lag effect in
• 29:22
  Speaker 1: this was where the decline in revenue tends not to
• 29:25
  Speaker 1: take effect immediately, attends to basically build over time. UM
• 29:29
  Speaker 1: So the current fiscal year into the next fiscal year
• 29:32
  Speaker 1: UM through let's say, through the end of the calendar
• 29:34
  Speaker 1: year two thousand and twenty one will probably be the
• 29:36
  Speaker 1: toughest part. I guess I'm bouncing around the question litle
• 29:40
  Speaker 1: bit only because it's really difficult to go ahead and
• 29:42
  Speaker 1: suggest that there's a a specific UM need in every
• 29:47
  Speaker 1: single state. It's certainly more necessary and states again like
• 29:50
  Speaker 1: with Illinois, Kentucky, New Jersey, it's probably even though they
• 29:53
  Speaker 1: wouldn't turn down the money, it's probably certainly less necessary
• 29:56
  Speaker 1: in states like Utah, Idaho, Tennessee, uh and, And therefore
• 30:01
  Speaker 1: it's really on a case case, a case by case basis.
• 30:04
  Speaker 1: So are there anything in terms of projects that you're
• 30:08
  Speaker 1: looking at that will get funded either way? Uh? Well,
• 30:13
  Speaker 1: I think enhanced on employment benefits are certainly on the table.
• 30:17
  Speaker 1: I think there's there's a fair amount of bipartisan support
• 30:19
  Speaker 1: for that. UM I expect the the the amount may
• 30:24
  Speaker 1: have declined in terms of the discussions with the annostment
• 30:27
  Speaker 1: of the virus vaccine. It's possible we were talking about
• 30:31
  Speaker 1: seven billion to a trilia, which was higher than where
• 30:34
  Speaker 1: the Republicans started, certainly for our less than the Democrats
• 30:37
  Speaker 1: wanted prior to the election. UM. Speaker Pelosi may have
• 30:41
  Speaker 1: less leverage at this point going into post election phase
• 30:44
  Speaker 1: of negotiations with McConnell. So this may be somewhere in
• 30:47
  Speaker 1: the range of up to seven UH. And and therefore
• 30:52
  Speaker 1: they're gonna be some somewhat constrained about how much money
• 30:54
  Speaker 1: they can provide to stay local governments. UM, but I
• 30:57
  Speaker 1: think it's a it's primarily an employment enhance benefits. It's
• 31:01
  Speaker 1: probably where they're going to spend most of the time.
• 31:03
  Speaker 1: And probably as as I'm thinking about it, Crawl Wholy
• 31:06
  Speaker 1: some additional aid to UH. Some of the industrial companies
• 31:09
  Speaker 1: like the airlines that will probably write some assistance. Hey, Tom,
• 31:13
  Speaker 1: thanks so much for joining us. We really appreciate it.
• 31:15
  Speaker 1: Thomas McLaughlin, head of America's Fixed income UBS Global Wealth Management,
• 31:22
  Speaker 1: Thanks for listening to Bloomberg Markets podcast. You can subscribe
• 31:25
  Speaker 1: and listen to interviews at Apple Podcasts or whatever a
• 31:28
  Speaker 1: podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter
• 31:32
  Speaker 1: at Bonnie Quinn. And I'm Paul Sweeney. I'm on Twitter
• 31:34
  Speaker 1: at pt Sweeney. Before the podcast, you can always catch
• 31:37
  Speaker 1: us worldwide at Bloomberg Radio