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Gorman's Model Reaps Rewards for Morgan Stanley: Whalen · 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 pros and Bloomberg experts,
• 0:10
  Speaker 1: along with essential market moving news. Kind the 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. Let's bring somebody in who
• 0:21
  Speaker 1: knows a lot about Morgan Stanley and can be construct
• 0:23
  Speaker 1: a little bit of what's going on with the big
• 0:24
  Speaker 1: banks right now, and that is Chris Whelan. Chris thrilled
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  Speaker 1: to have you. And you heard what some of Mr
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  Speaker 1: Pruzan said. You know, obviously there's going to be a
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  Speaker 1: good face put forward, but what are the problems that
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  Speaker 1: you see being stored up in the banks for down
• 0:41
  Speaker 1: the road when some of all of this gets sorted out.
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  Speaker 1: Well for Morgan Stanley, you know, it's a great quarter, Bunny,
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  Speaker 1: and I think they are one of the few franchises
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  Speaker 1: this quarter that are reporting up revenues across the board.
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  Speaker 1: Um As John was just saying, he doesn't have a
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  Speaker 1: lot of credit risk and interesting he didn't talk about it,
• 1:01
  Speaker 1: but one of his great strengths is that bank holding
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  Speaker 1: company doesn't have to go out into the market and
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  Speaker 1: raise net funds. They have such a big deposit base
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  Speaker 1: now that they are actually a net provider of funds
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  Speaker 1: among banks. So totally different from Goldman Sacks, which has
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  Speaker 1: a very high dependence on the money markets to fund themselves.
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  Speaker 1: So asset management, the strong investment bank. Plus they have
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  Speaker 1: liquidity in the background, which is great. Is that part
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  Speaker 1: of the reason why they bought eating Vance though, Chris,
• 1:32
  Speaker 1: is that to make sure that that stays the case. Well,
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  Speaker 1: he Advance gives you two things. Funny, it gives you
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  Speaker 1: the a u M assets under management, which generates fees.
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  Speaker 1: That's a very stable leg for the stool, you know,
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  Speaker 1: think about it. He has cash, he has the asset
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  Speaker 1: management business which pays you every quarter, and then the
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  Speaker 1: sc investment bank, which can fluctuate. Right, So they get
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  Speaker 1: the assets under management. But with that a u M
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  Speaker 1: comes deposits from those high network customers. And remember Morgan
• 2:02
  Speaker 1: Stanley has got a very broad wealth management business. They
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  Speaker 1: don't just have very rich people. They have all sorts
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  Speaker 1: of people different from Goldman. You know, a trillion in
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  Speaker 1: a u M at Goldman and over a trillion now
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  Speaker 1: in a um at Morgan Stanley are two different businesses,
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  Speaker 1: very different profile. The bank that had always been the
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  Speaker 1: bank of you know, the Vault if you like, the
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  Speaker 1: Fortress bounce Sheet, had been JP Morgan is Morgan Stanley
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  Speaker 1: is sort of giving them a run for their money
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  Speaker 1: at this point. No, no, no, Jamie Diamond's got well
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  Speaker 1: over two trillion dollars in court deposits. Morgan Stanley is
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  Speaker 1: a little shy of a trillion until lass it's funny,
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  Speaker 1: and it's about forty funded by bank deposits. So in
• 2:42
  Speaker 1: other words, their banks inside Morgan Stanley can lend to
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  Speaker 1: the broker dealer on an arms length basis. You know,
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  Speaker 1: they have to be priced like the market, um, but
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  Speaker 1: that's a huge advantage. It's huge. Now Jamie Diamond is
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  Speaker 1: like a country. He has so much going on inside
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  Speaker 1: of his bank. Oftentimes the payments don't leave the bank,
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  Speaker 1: it just goes from one customer to another. So he's
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  Speaker 1: an island of liquidity like all of the top four.
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  Speaker 1: But Goldman and Mortgage Stanley are more broker deal are
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  Speaker 1: still than they are bank. That's the key thing to remember.
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  Speaker 1: So we'll get to well as far ago maybe at
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  Speaker 1: the end, because it's a slightly separate case. But what
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  Speaker 1: about Golden Sacks this year? Is Goldman feeling a little
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  Speaker 1: bit of pressure even though they also had you know,
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  Speaker 1: a great quarter of course, you know, it's great to
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  Speaker 1: see them hit one out of the park like this,
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  Speaker 1: but they are the last dinosaur in the line. You know,
• 3:30
  Speaker 1: if you ever watch the Animal Planet, the one at
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  Speaker 1: the end is the one the t rex seats. So
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  Speaker 1: in terms of funding, in terms of volatility of the business,
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  Speaker 1: I think Goldman is still very vulnerable as his city.
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  Speaker 1: Those are the two at the back. The rest of
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  Speaker 1: the group is doing better, and I think, you know,
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  Speaker 1: God bless Jim Gorman. He had a lot of people
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  Speaker 1: criticizing him, but he's ended up creating a business that
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  Speaker 1: kind of looks like the U B S is any
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  Speaker 1: other big European asset managers. But he's got a world
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  Speaker 1: class investment back. So it's a much more balanced model,
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  Speaker 1: I think than a lot of his competitors. So talk
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  Speaker 1: to us then about City. It's been a decade at
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  Speaker 1: this point, Chris, and it looks like it's going to
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  Speaker 1: have to need some kind of i don't know more,
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  Speaker 1: if not restructuring, massaging. There's going to be a new
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  Speaker 1: CEO to try and do this. She was present the
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  Speaker 1: last time there was a restructuring, so she knows exactly
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  Speaker 1: what's going on inside the bad bank and the big
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  Speaker 1: good bank and in the units that have spun off
• 4:24
  Speaker 1: and so on. We would your prescription for cityv Well.
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  Speaker 1: City suffers from the h of sandy while you know,
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  Speaker 1: uh my core back has done a great job of
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  Speaker 1: turning things around, but he was the first competent CEO
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  Speaker 1: of that bank had had in fifteen years. And again
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  Speaker 1: Jane Fraser, great operator. She's touched all the relevant parts
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  Speaker 1: of the bank, and I think she's got to just
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  Speaker 1: try and work with her board to fashion a business
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  Speaker 1: that makes sense. You know, they're not really much of
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  Speaker 1: a U S bank well that you only have about
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  Speaker 1: core deposits inside City. The rest of it is funded
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  Speaker 1: like Goldman Sachs in the markets. Their cost of funds
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  Speaker 1: is higher and the thing that saves them is the
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  Speaker 1: big consumer book because their credit card book has you know,
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  Speaker 1: a gross yield in the teens, so that makes up
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  Speaker 1: for a lot of sins. But she's got to figure
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  Speaker 1: out a way, I think, to get back or buy
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  Speaker 1: an asset manager um, so she can compete with the
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  Speaker 1: rest of these universal banks. Right, They're not just monolithic
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  Speaker 1: commercial banks with a broker dealer anymore. Funny, everybody wants
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  Speaker 1: to have a trillion trillion and a half two trillion
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  Speaker 1: in a u M, so they can compete with black Rock,
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  Speaker 1: which is much bigger than all of them. So that
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  Speaker 1: to me is the competitive landscape. She's got a decent
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  Speaker 1: capital markets investment bank. It's not as good as Morgan Stanley.
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  Speaker 1: And she's got a great, great advantage in that consumer
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  Speaker 1: book because it throws off a lot of income in
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  Speaker 1: good times. So that to me is a challenge with
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  Speaker 1: City What do they want to be when they grow up? Okay,
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  Speaker 1: because look, you know we've had systems and control issues
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  Speaker 1: so you and I were kids. Funny, we've been watching
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  Speaker 1: this movie for twenty five years. This goes back to
• 6:04
  Speaker 1: John Reid and when Sandy Wild started buying those non
• 6:07
  Speaker 1: bank businesses, that's where they got into trouble. When you
• 6:10
  Speaker 1: started turning you know, sales offices of Associates Corp. Into
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  Speaker 1: branches of City Bank, that was that was not a
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  Speaker 1: good idea. Yeah, I mean, and and so many of
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  Speaker 1: the places where these banks were able to make a
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  Speaker 1: little extra cat on the side. They just don't exist anymore, right, Chris,
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  Speaker 1: You know, currency trading and so on, Like it's just
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  Speaker 1: become such a different kind of experience to run a bank.
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  Speaker 1: But tell me this. You look at the banks and
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  Speaker 1: the quarters that they've had, and yes, a lot of
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  Speaker 1: it has come from the capital markets, but you would
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  Speaker 1: also imagine by looking at them that the consumer is
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  Speaker 1: extraordinarily comfortable right now. But that's not the case. We
• 6:45
  Speaker 1: just got more initial jobless claims that don't even reflect
• 6:48
  Speaker 1: the problems in California nine hundred thousand initial jobless claims
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  Speaker 1: just for last week. Empire Manufacturing is down to ten
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  Speaker 1: point five. We had obviously a better Philly fired business
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  Speaker 1: outlook and so on, and you know, there's definitely mixed data.
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  Speaker 1: But how are the banks going to whether out what's
• 7:09
  Speaker 1: obviously coming to the consumer if we don't get more stimulus. Well,
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  Speaker 1: it's it's kind of a tale of two countries, Bonnie.
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  Speaker 1: We have a lot of people who are unemployed now
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  Speaker 1: who may or may not have been particularly bankable. If
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  Speaker 1: you think of the bomb Americans, they're not big users
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  Speaker 1: of credit because either they don't have credit at all
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  Speaker 1: or their scores are quite low. And so in this
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  Speaker 1: bullmarket you've seen for mortgages, for example, other areas, even
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  Speaker 1: auto autos is doing fine. Um. You know, it's the
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  Speaker 1: middle to the upper third of the market and the
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  Speaker 1: credit terms. So will the banks feel that, Yes, the
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  Speaker 1: ones with big consumer exposure, City Capital One, some of
• 7:51
  Speaker 1: the others. But look at American Express. American Express is
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  Speaker 1: almost back up the four times book. Um. So you know,
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  Speaker 1: you have to think of it in terms of the
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  Speaker 1: segmentation of society, and unfortunately, the lowest income Americans are
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  Speaker 1: the biggest losers. And then you think about the cost
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  Speaker 1: that we've put on top of the banks for dealing
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  Speaker 1: with consumer issues over the past ten years. Kamala Harris,
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  Speaker 1: that's not helpful either, because there's no incentive for those
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  Speaker 1: banks to stretch and lend. They could do good loans
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  Speaker 1: all day long. You know, if there's anything that's a
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  Speaker 1: reflection of a shaped recovery, it's that, Chris. I mean,
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  Speaker 1: it's it's really something to say when you say, well,
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  Speaker 1: banks aren't seeing it among their consumers because their consumers
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  Speaker 1: are fine. The ones that are suffering can't even get
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  Speaker 1: banked in this country and in many other countries too, Chris,
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  Speaker 1: I have one more and Funny Freddy. You know, if
• 8:40
  Speaker 1: we get a different administration or just you know, a
• 8:43
  Speaker 1: continuation of the same, what happens next for Fanny Freddy. Nothing,
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  Speaker 1: nothing can happen anyway. But it's just problematic. You cannot
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  Speaker 1: detach these things from government support, direct sovereign credit support
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  Speaker 1: and expect them to survive. You know, it's just not
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  Speaker 1: going to happen. Um. But one thing I do want
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  Speaker 1: to leave you with, Funny, is the reason the banks,
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  Speaker 1: especially JP, we're able to pause in terms of putting
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  Speaker 1: aside more cash for future losses is because of the
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  Speaker 1: Forbearance and the Cares Act. The FED has said, well,
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  Speaker 1: those are not delinquent loans. Until those are considered delinquent loans,
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  Speaker 1: the banks don't have to put more cash aside for them.
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  Speaker 1: So we're pausing. Can that pause be forever? Pause? And well,
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  Speaker 1: ohly if we want to become Europeans. I mean, that's
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  Speaker 1: what they did in Europe. They used to just ignore
• 9:31
  Speaker 1: nonperforming loans and it was a horrible, horrible mistake on
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  Speaker 1: the part of the Meracle government. So you know, that's
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  Speaker 1: that's kind of where we are. I think US banks
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  Speaker 1: are in much better shape. They're going to clean up
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  Speaker 1: the mess. Fourth quarter will be taking a lot of
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  Speaker 1: stuff to the curb, Bunny, Chris. It's one of more
• 9:47
  Speaker 1: sanglent interviews that I've had with you. You seem actually
• 9:50
  Speaker 1: quite positive, which is he I work in a mortgage business.
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  Speaker 1: We're going to do four and a half trillion dollars
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  Speaker 1: worth the mortgages this year. That's the higher, almost higher
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  Speaker 1: than two thousand war, which is a little scary, but
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  Speaker 1: at least we have part of the economy that is
• 10:04
  Speaker 1: going to help pull us out. And housing, I think
• 10:07
  Speaker 1: there's accumulated demand. You have a lot of demographic factors,
• 10:11
  Speaker 1: younger people, one of you know, five families, and you're
• 10:13
  Speaker 1: going outside of the big cities, which I think is great.
• 10:16
  Speaker 1: This is a very good point. Maybe it's karma, the
• 10:18
  Speaker 1: mortgage industry finally getting a bit jp. The banks aren't
• 10:23
  Speaker 1: buying a third party production right now. But Jamie did
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  Speaker 1: enough new mortgages so he had almost no net change
• 10:29
  Speaker 1: in the value of his servicing. I'll guarantee you his
• 10:32
  Speaker 1: servicing book is pre paying a year. Well, that's good,
• 10:37
  Speaker 1: it's it's good given what the mortgage industry went through
• 10:39
  Speaker 1: ten years ago, right, and some of it brought We
• 10:43
  Speaker 1: can have a longer conversation about that some other time,
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  Speaker 1: and Chris, we have to let you go, but thank
• 10:47
  Speaker 1: you so much. That is Chris Whalen, chairman of Whalen
• 10:50
  Speaker 1: Global Adviser, is always a pleasure to speak with. Chris.
• 10:57
  Speaker 1: Let's get some more market reaction out of Sapons, who
• 11:00
  Speaker 1: covers all of the assets for us. She is cost
• 11:02
  Speaker 1: asset reporter here at Bloomberg News, and she's been obviously
• 11:05
  Speaker 1: keeping an eye on equities today because that's you know,
• 11:08
  Speaker 1: what's really sort of moving the most to the naked
• 11:11
  Speaker 1: eye at least. But there's a lot going on, Sarah.
• 11:14
  Speaker 1: In Europe and in the United States with those jobless claims,
• 11:17
  Speaker 1: there is a lot going on and not necessarily what
• 11:20
  Speaker 1: you want to see to bring optimism to this market.
• 11:24
  Speaker 1: So in the United States, jobless claims did come in
• 11:26
  Speaker 1: at eight hundred ninety thousand. The estimate was for eight
• 11:30
  Speaker 1: d twenty five thousand, and the prior week was also
• 11:33
  Speaker 1: revised hire to eight hundred forty five thousand, So not
• 11:36
  Speaker 1: only just a miss of that estimate, but also an
• 11:39
  Speaker 1: unexpected increase in jobless claims now. As Chris Lowe over
• 11:44
  Speaker 1: at FHN Financial put it, he said, the ongoing decline
• 11:47
  Speaker 1: and claims paid stretching from late April to two weeks
• 11:50
  Speaker 1: ago is encouraging. There he is referring to those continuing claims.
• 11:54
  Speaker 1: But then he said the increase in initial claims is disturbing.
• 11:57
  Speaker 1: It is difficult to see it and not think there
• 11:59
  Speaker 1: are cocovery is vulnerable, and that really just epitomizes where
• 12:03
  Speaker 1: we currently stand. Yes, we have gotten through the rebound.
• 12:07
  Speaker 1: We have gotten through that initial stage of the v
• 12:10
  Speaker 1: shaped recovery, if you want to call it that. However,
• 12:12
  Speaker 1: the question is now what is next, especially since it
• 12:16
  Speaker 1: looks like we may not be getting fiscal stimulus. We
• 12:18
  Speaker 1: do see COVID cases rising, particularly you look at Europe
• 12:21
  Speaker 1: right now, where we see record cases in particular countries
• 12:25
  Speaker 1: like Germany, Italy, Australia, the Czech Republic at the same time,
• 12:29
  Speaker 1: or hearing about restrictions in London, curfews in Paris, so
• 12:33
  Speaker 1: not what you want to see. Globally, when COVID cases
• 12:36
  Speaker 1: are rising, there's fears of another wave ahead of the
• 12:38
  Speaker 1: winter and a labor market recovery. In the United States,
• 12:41
  Speaker 1: seems to be stalling. And with all that said, we
• 12:45
  Speaker 1: still have in disease not far from records. I mean, yes,
• 12:48
  Speaker 1: we're down one percent today and the sack down wanted
• 12:50
  Speaker 1: a half percent and so on, but I mean that's
• 12:52
  Speaker 1: not even that much of a self. Well, that's why
• 12:54
  Speaker 1: it's so important to keep this all in perspective. I mean,
• 12:57
  Speaker 1: I think about the earning season that we are in
• 12:58
  Speaker 1: the middle of. Shirt is very very very early on.
• 13:01
  Speaker 1: But to this point, the beat rate for US companies
• 13:04
  Speaker 1: that have reported earning so far is about that would
• 13:09
  Speaker 1: be a record beat rate. However, if you look at
• 13:12
  Speaker 1: the average move for a stock that has reported earnings
• 13:15
  Speaker 1: in the twenty four hours post reporting, that average move
• 13:18
  Speaker 1: has actually been about a two percent decline. So even
• 13:21
  Speaker 1: though companies are beating, companies are delivering, it's not showing
• 13:25
  Speaker 1: up in the stock market. And part of the reason
• 13:27
  Speaker 1: for that is, yes, the fact that many of these
• 13:30
  Speaker 1: estimates analysts had no clue what was going to happen.
• 13:34
  Speaker 1: We had gotten no guidance. It was almost as though
• 13:36
  Speaker 1: we were living in a vacuum, and an information vacuum.
• 13:39
  Speaker 1: And you see that sparity between the estimates and the
• 13:43
  Speaker 1: actual numbers that are coming out. But when you have
• 13:45
  Speaker 1: markets that are trading at record highs, it is such
• 13:48
  Speaker 1: a different setup than the beginning of the second quarter
• 13:50
  Speaker 1: or first quarter earning season, when even though we got
• 13:53
  Speaker 1: such negative numbers, we saw an unbelievable rally in the
• 13:56
  Speaker 1: stock market of older notes that you read ol day,
• 13:59
  Speaker 1: and I know you so many how many people are pessimistic, Sarah,
• 14:04
  Speaker 1: because of the ones I read, It really doesn't seem
• 14:06
  Speaker 1: short of a couple of mornings here and there, that
• 14:08
  Speaker 1: people out on wool Street sending out research are that pessimistic.
• 14:12
  Speaker 1: I would say that my read is very similar to yours.
• 14:14
  Speaker 1: It seems at this point in time, more and more
• 14:16
  Speaker 1: strategists are actually highlighting breadth measures, for example of the
• 14:20
  Speaker 1: market saying that this is a market that has been
• 14:22
  Speaker 1: broadening out that Davis reach Arch, for example, had highlighted
• 14:26
  Speaker 1: this the other day, changing their stance on US equities
• 14:28
  Speaker 1: to become a bit more optimistic, saying that one of
• 14:31
  Speaker 1: their breadth measures had actually flagged and was now positive
• 14:34
  Speaker 1: and pointing to the fact that we are in the
• 14:36
  Speaker 1: early stages of a true bowl market and that does
• 14:39
  Speaker 1: seem to be what the majority of those notes that
• 14:42
  Speaker 1: I am reading are saying. People are saying, yes, of
• 14:44
  Speaker 1: course there are risks out there. You have an election,
• 14:46
  Speaker 1: you have COVID nineteen. You need to see what happens
• 14:49
  Speaker 1: with the labor market, not just in the United States,
• 14:51
  Speaker 1: but the economy around the world. However, at the same time,
• 14:53
  Speaker 1: if you look at the internals of the market, many
• 14:56
  Speaker 1: strategists are starting to say this is resembling a true
• 14:59
  Speaker 1: early stage bowl market. I suppose the next catalyst will
• 15:02
  Speaker 1: be the actual election itself. At this point, I mean, yes,
• 15:05
  Speaker 1: we might get something between now and then on breaks
• 15:08
  Speaker 1: it all. Well, it's not likely. We might get some
• 15:10
  Speaker 1: better news on the virus, but you might also get
• 15:12
  Speaker 1: some worse news. So I suppose is that what people
• 15:15
  Speaker 1: are focused on the election coming up, especially considering the
• 15:18
  Speaker 1: fact that nineteen days away as the U S election,
• 15:21
  Speaker 1: that is thirteen training sessions, so it's going to be
• 15:23
  Speaker 1: here before we know it. It's pretty unbelievable, but I
• 15:26
  Speaker 1: would say still top of mind, and you really can't
• 15:28
  Speaker 1: get away from it. It's just COVID nineteen, especially when
• 15:31
  Speaker 1: you see headlines of what is happening in Europe currently,
• 15:34
  Speaker 1: and also when we see headlines dropping about officials or
• 15:37
  Speaker 1: people involved in the White House or campaigns testing positive
• 15:41
  Speaker 1: as well. That brings it into it too, And it
• 15:44
  Speaker 1: is really what's dictating our lives, businesses, and the economy
• 15:48
  Speaker 1: at the moment. And I'm sure everyone has seen by now.
• 15:50
  Speaker 1: But obviously Kamala Harris has to stop traveling because AIDS
• 15:53
  Speaker 1: in her front office tested positive as well. So the
• 15:57
  Speaker 1: effecting both sides. We're going to get to tell holes
• 16:00
  Speaker 1: to competing town holds nights. We'll see if we hear
• 16:02
  Speaker 1: anything that might change the narrative, but it doesn't feel
• 16:06
  Speaker 1: like we will at this point. The other quick things
• 16:09
  Speaker 1: Sarah that I'm watching, and it hearkens back to everybody
• 16:12
  Speaker 1: buying outdoor patio furniture and heaters and so on, is
• 16:16
  Speaker 1: energy prices. They might go up a little, right. It's
• 16:19
  Speaker 1: interesting because when you think about the COVID nineteen pandemic.
• 16:22
  Speaker 1: Originally this was seen as a deflationary force. Now some
• 16:25
  Speaker 1: are wondering if we are going to see pockets of
• 16:27
  Speaker 1: inflation pick up. We saw that in the last CPI
• 16:30
  Speaker 1: report with used cars, for example. There are certain pockets
• 16:33
  Speaker 1: of the economy that may benefit. Now we will see
• 16:37
  Speaker 1: what happens as we start getting into the winter. Like
• 16:39
  Speaker 1: you said, it would be imaginable that many restaurants, uh,
• 16:43
  Speaker 1: people maybe in their homes are trying to get heaters
• 16:46
  Speaker 1: to use outside. In particular, I have heard that there
• 16:49
  Speaker 1: are extreme backlogs to achieve these because they're in such
• 16:53
  Speaker 1: hot demand currently. But yes, you have to think about
• 16:56
  Speaker 1: the derivative effects. I bought some p Paine from local
• 17:00
  Speaker 1: hardware store and they're why and I felt like saying, well,
• 17:03
  Speaker 1: it's it's for heating. What else is complaine used for
• 17:07
  Speaker 1: these days? Leave out to your imagination. Sarah Ponzac, thank you,
• 17:12
  Speaker 1: cross Usset reporter here at Bloomberg News and general just genius.
• 17:18
  Speaker 1: Carl Weinberg joins US now founder in chief, international economist
• 17:22
  Speaker 1: of High Frequency Economics. Carl, Let's get straight to the point.
• 17:26
  Speaker 1: How awful is it out there? What are we going
• 17:29
  Speaker 1: to see in terms of recession in layers or not
• 17:33
  Speaker 1: in layers for the US this year and next year?
• 17:35
  Speaker 1: Most importantly? Okay, well, thank you for having me on vannie.
• 17:40
  Speaker 1: You know we're looking at a second wave of the virus,
• 17:42
  Speaker 1: and we've maintained the high economics that you can forecast
• 17:46
  Speaker 1: the future of the economy until you know where the
• 17:48
  Speaker 1: virus is going to go, and we don't know there
• 17:51
  Speaker 1: can possibly be a real recovery until we see a
• 17:54
  Speaker 1: cure for the virus or at least a good treatment
• 17:57
  Speaker 1: for the virus, and none of that is at hand.
• 18:00
  Speaker 1: As the virus spread increases, we're getting increasingly pessimistic in
• 18:04
  Speaker 1: our outlook for the U. S. Economy, especially when you
• 18:06
  Speaker 1: see Europe right now, right, Carl, because so many countries
• 18:09
  Speaker 1: in Europe did do at least partially the right thing,
• 18:12
  Speaker 1: and France in particular just can't keep it under control
• 18:15
  Speaker 1: right now, that's right, Varney. Also in the United States
• 18:18
  Speaker 1: from seeing outbreaks in the heartland of America at an
• 18:21
  Speaker 1: accelerating pace. The issue is with the virus now and
• 18:25
  Speaker 1: why this is different from what we saw West Springs.
• 18:27
  Speaker 1: West Spring, we closed the economy down, and then we
• 18:30
  Speaker 1: use the same power that we invoke to close it
• 18:33
  Speaker 1: down to open it up again. Right now, the virus
• 18:35
  Speaker 1: is in charge, and the virus shuts down the economy
• 18:38
  Speaker 1: by infection. One worker missing from a factory, sick at
• 18:42
  Speaker 1: a factory closes an assembly line if what that factory
• 18:45
  Speaker 1: makes is used to make something else. Saying in the
• 18:47
  Speaker 1: auto industry, one part for the assembly line missing shuts
• 18:51
  Speaker 1: down the whole assembly line. And similarly, one students sick
• 18:54
  Speaker 1: at the school closes a whole university or a whole
• 18:57
  Speaker 1: school and keeps kids at home, or one office work
• 19:00
  Speaker 1: they're ill, shuts down the whole office. Right now, the
• 19:02
  Speaker 1: virus is in charge, and we don't know how soon
• 19:07
  Speaker 1: this is going to be brought under control and what
• 19:09
  Speaker 1: kind of economic activity it's going to take out along
• 19:12
  Speaker 1: the way. Just a quick update for people. COVID is
• 19:15
  Speaker 1: in forties six states right now detectively and that we
• 19:18
  Speaker 1: know of, and deaths around the world have topped one
• 19:22
  Speaker 1: million there at one point zero nine million. New York
• 19:26
  Speaker 1: hotspots are leveling off, but Houston, I see use intensive
• 19:30
  Speaker 1: care units are seeing a surge. Carl. Let's talk about then,
• 19:34
  Speaker 1: what we do know. We got economic data this morning
• 19:36
  Speaker 1: that showed in a jobless claims are just not getting
• 19:39
  Speaker 1: any better. And that's pretty distorted data right now, and
• 19:42
  Speaker 1: there's lots to not not like out there, including the
• 19:45
  Speaker 1: fact that the stimulus talks are just going nowhere. Yeah,
• 19:48
  Speaker 1: I mean, there's a lot not to like. In this
• 19:50
  Speaker 1: morning's employment claims number claims are are not going down
• 19:55
  Speaker 1: as we like them too. And more importantly, the number
• 19:58
  Speaker 1: of people who are on benefits are going down for
• 20:00
  Speaker 1: the wrong reason. Probably people want it's losting the benefits
• 20:03
  Speaker 1: that they have. They've lost their all supporter. They're going
• 20:06
  Speaker 1: to lose that all supports from any number of programs.
• 20:09
  Speaker 1: And what this means is that the income hit that
• 20:11
  Speaker 1: we've avoided so far has now started to catch up
• 20:15
  Speaker 1: with us, and it's probably started in July, but it's
• 20:17
  Speaker 1: going to get a lot worse in the next month
• 20:19
  Speaker 1: or two. The next detail sales number that we're going
• 20:22
  Speaker 1: to see is probably not going to be too terrible. However,
• 20:25
  Speaker 1: we're very grim about what's coming up in the months
• 20:28
  Speaker 1: ahead as people lose their support unemployment insurance and jobs
• 20:33
  Speaker 1: do not need materialize to put them back to work.
• 20:36
  Speaker 1: I mean, we haven't even had a chance to talk
• 20:38
  Speaker 1: to you recently about China, which was the only topic
• 20:40
  Speaker 1: we were talking about for a long time. But China
• 20:42
  Speaker 1: is really receded into the background now in terms of
• 20:45
  Speaker 1: trade negotiations and so on. Given what's actually happening right
• 20:48
  Speaker 1: around us. What what do you think about at night, Carl,
• 20:51
  Speaker 1: when you're thinking about the economy and the stock market
• 20:54
  Speaker 1: close to highs and the election coming off and so on.
• 20:56
  Speaker 1: What's the most important question for you right now? Any
• 21:00
  Speaker 1: funny you should ask. I was just writing about China
• 21:02
  Speaker 1: for our Notes on the Global Ecountry tomorrow. China's going
• 21:05
  Speaker 1: to print a GDP number next week that's going to
• 21:07
  Speaker 1: sail about three and a half percent growth. That's not
• 21:10
  Speaker 1: a particularly good number from an historical perspective, but from
• 21:13
  Speaker 1: the perspective of the world at large, that's a pretty
• 21:16
  Speaker 1: darned good result, giving what's going on with this pandemic
• 21:19
  Speaker 1: in other countries. China right now is exploiting its advantage
• 21:23
  Speaker 1: having also with the pandemic, albeit harshly from a social
• 21:28
  Speaker 1: um um, from a political pressure point of view, all right,
• 21:32
  Speaker 1: but nonetheless they contained it, and now they're using their
• 21:35
  Speaker 1: windfall from having contained the virus to exploit openings in
• 21:39
  Speaker 1: the world economy to step up to the plate, if
• 21:42
  Speaker 1: you will, say, in relationships with Iran and defiance of
• 21:45
  Speaker 1: the US sanctions, with relationships of Africa and other countries,
• 21:49
  Speaker 1: spreading AID and so forth. China is benefiting from this
• 21:52
  Speaker 1: pandemic and multiple dimensions and so far for whatever reasons
• 21:57
  Speaker 1: that we may not approve of politically or socially they're
• 22:00
  Speaker 1: managing to keep the pandemic under control. Yeah, I mean
• 22:04
  Speaker 1: it sounds pretty malignant. How much hay can bad actors
• 22:08
  Speaker 1: make from the situation that we're in right now, including
• 22:11
  Speaker 1: the fact that we have an election coming up, and
• 22:14
  Speaker 1: you know that's what people are concentrating on. We just
• 22:15
  Speaker 1: have a few seconds left. By the way, Carl, Well,
• 22:18
  Speaker 1: I agree with you about that money, but measures, some
• 22:20
  Speaker 1: of the measures have been extreme. Then again, if you
• 22:22
  Speaker 1: were living in China right now, commonly would be growing,
• 22:26
  Speaker 1: you would have a job, you wouldn't be worried about
• 22:28
  Speaker 1: losing it, and you wouldn't be worried about getting the
• 22:31
  Speaker 1: disease um. You know, So there are obviously a lot
• 22:34
  Speaker 1: of costs associated with this. There also true benefits as well. Carl,
• 22:41
  Speaker 1: is always an absolute pleasure to speak with you, and
• 22:44
  Speaker 1: Carl again, we did get to talk a little bit
• 22:46
  Speaker 1: about China, So that's good. Carl Weinberg of High Frequency
• 22:49
  Speaker 1: Economics covering the gownma there from this morning's economic data
• 22:53
  Speaker 1: to the stock market to what's happening in China. Speaking
• 22:56
  Speaker 1: of the stock market, re seeing just a little relief
• 22:59
  Speaker 1: the dow down only quote unquote just more than a
• 23:02
  Speaker 1: half percent right now, or undred and fifty eight points,
• 23:04
  Speaker 1: the SMP down twenty five points, seven tenths of percent,
• 23:07
  Speaker 1: and then as DEAC down one percent. It probably bears
• 23:10
  Speaker 1: repeating that we saw initial jobless claims for last week
• 23:14
  Speaker 1: coming in today higher than economists were anticipating, just below
• 23:18
  Speaker 1: nine hundred thousand claims, and we know that there are
• 23:21
  Speaker 1: some problems with California data which is skewing the data
• 23:24
  Speaker 1: continuing claims staying over that one million mark. We do
• 23:27
  Speaker 1: not like to see continuing claims staying over a million
• 23:30
  Speaker 1: for many weeks in a row, but that's what we have.
• 23:35
  Speaker 1: Nice guest, Christian mcgoon, CEO of Amplify e t F
• 23:39
  Speaker 1: joins us. He's also portfolio of the Amplify online retail
• 23:44
  Speaker 1: et F I buy and for anybody who's looking it up,
• 23:47
  Speaker 1: it's I b U I And that is obviously something
• 23:53
  Speaker 1: that has been involved with Amazon and is involved with Amazon.
• 23:56
  Speaker 1: So let's start off right there, Christian. We've just had
• 23:59
  Speaker 1: primed days this year, an extra prime day. Amazon hasn't
• 24:04
  Speaker 1: released a lot of data, but it definitely released third
• 24:07
  Speaker 1: party or fulfilleries data which was higher. Talked to us
• 24:10
  Speaker 1: about what you've seen. Yeah, so Prime Day concluded, and
• 24:15
  Speaker 1: you know, once again it was a record Prime Day.
• 24:17
  Speaker 1: This was the sixth annual Amazon Prime Day. Last year,
• 24:21
  Speaker 1: Amazon found about a seven billion dollar kind of sales
• 24:26
  Speaker 1: um UH to two day period. This year, UM, early
• 24:30
  Speaker 1: projections look like it's going to be closer to ten
• 24:32
  Speaker 1: billion dollars about nine point nine billion, with about six
• 24:35
  Speaker 1: billion coming from US versus about four billion coming from
• 24:39
  Speaker 1: outside the US. The average order is up about forty
• 24:42
  Speaker 1: five dollars per order. The average household spend looks to
• 24:45
  Speaker 1: be about seventy six dollars. Thirties percent of customers surveyed
• 24:50
  Speaker 1: by one data provider show that they're buying holiday gifts. Remember,
• 24:54
  Speaker 1: Prime Day has traditionally been in July. This year it's
• 24:56
  Speaker 1: in October. So um Amazon is able to front run
• 25:00
  Speaker 1: a little bit this holiday shopping trend in the age
• 25:02
  Speaker 1: of COVID, which UM many people believed would make this
• 25:06
  Speaker 1: the record Prime Day, and sure enough, it looks like
• 25:08
  Speaker 1: it's going to be a record. By about your I
• 25:13
  Speaker 1: Buy E t F generates what at of its revenue
• 25:16
  Speaker 1: from online purchases in normal times? What about right now
• 25:20
  Speaker 1: during the pandemic? What do you imagine that percentage is question. Yeah, yeah,
• 25:25
  Speaker 1: it's definitely increased. So I buy only looks at companies
• 25:28
  Speaker 1: that have se or more of their revenue coming from
• 25:30
  Speaker 1: online retail sales. And you know, online retail still in
• 25:34
  Speaker 1: the US from a market share standpoint, is only six
• 25:38
  Speaker 1: of overall retail sales based off the last US Census
• 25:41
  Speaker 1: Bureau report that happened this past quarter. That's up from
• 25:46
  Speaker 1: eleven percent. Now, during holiday shopping, we typically see like
• 25:49
  Speaker 1: last year saw a little over twenty of market share
• 25:53
  Speaker 1: going online. This year, early survey results show that it
• 25:56
  Speaker 1: could be an excess of fifty market share. So it's
• 26:00
  Speaker 1: a bang up year for online retail and online retail stocks.
• 26:04
  Speaker 1: I buys get eighty nine percent this year, as in
• 26:07
  Speaker 1: it's as it's focused on online retail, believe it or not.
• 26:10
  Speaker 1: Amazon is only up eighty two percent, so it's actually trailed.
• 26:14
  Speaker 1: The average online retail stock I buy is actually equally weighted,
• 26:18
  Speaker 1: so it doesn't have this massive waiting to Amazon, which
• 26:21
  Speaker 1: is actually benefited it this year. Absolutely, and you have
• 26:24
  Speaker 1: two billion dollars in US it's across the sweeten e
• 26:27
  Speaker 1: t F that amplifies. So that's really interesting that this
• 26:30
  Speaker 1: is the particular one that you play pobly most close
• 26:33
  Speaker 1: attention to. I want to ask you a little bit
• 26:35
  Speaker 1: about Colorado Springs if I can. That's your location. I mean,
• 26:38
  Speaker 1: is that in an area that's seen an influx of
• 26:41
  Speaker 1: people during the coronavirus pandemic or just tell us a
• 26:43
  Speaker 1: little bit about what it's like in Colorado Springs right now. Yeah,
• 26:47
  Speaker 1: So we've definitely seen um people migrate down from the
• 26:51
  Speaker 1: larger city in the state, Denver to have a little
• 26:54
  Speaker 1: bit more of quality life in Colorado Springs. We've also
• 26:57
  Speaker 1: seen an influx of California uns. Frankly, in fact, in
• 27:01
  Speaker 1: the next few months we'll see the first opening of
• 27:04
  Speaker 1: In and Out Burger, which, if you're from California is
• 27:07
  Speaker 1: kind of a staple food there. So um, Colorado is
• 27:10
  Speaker 1: definitely attracting people who now can work in a place
• 27:15
  Speaker 1: that has some great um uh, natural beauty, a lot
• 27:19
  Speaker 1: of different activities all all year for seasons, and um
• 27:23
  Speaker 1: we're definitely seeing a nice population increase, probably due to
• 27:27
  Speaker 1: not only COVID restrictions, but also kind of this work
• 27:30
  Speaker 1: from home trend. So um definitely part of maybe one
• 27:34
  Speaker 1: of the areas that is a benefactor of of kind
• 27:37
  Speaker 1: of this changing landscape, uh, in terms of kind of
• 27:40
  Speaker 1: physical locating yourself based off your work. Sure, I mean
• 27:44
  Speaker 1: I want to say congratulations, I guess on in an
• 27:46
  Speaker 1: out burger, but there's definitely a question mark at the
• 27:48
  Speaker 1: end of that congratulations. Talk to us a little bit
• 27:51
  Speaker 1: about what the retail environment is like there though, because
• 27:54
  Speaker 1: you must see small businesses, medium sized businesses in town
• 27:58
  Speaker 1: and in surrounding town. Are they suffering right now or
• 28:02
  Speaker 1: or you know, will they actually almost in some weird way,
• 28:05
  Speaker 1: benefit from this too. Yeah. So you know, there is
• 28:10
  Speaker 1: a larger population kind of trend happening in Colorado, So
• 28:14
  Speaker 1: that is good. But to your point, there's still um
• 28:17
  Speaker 1: some physical restrictions here. We certainly have our mask mandate
• 28:21
  Speaker 1: that just got extended by Governor polis Um. I know
• 28:25
  Speaker 1: that many of the restaurants, particularly in the Denver area,
• 28:28
  Speaker 1: are in limited capacity about capacity, which is uh, you know,
• 28:32
  Speaker 1: stressing their ability to you know, stay open. Um And
• 28:37
  Speaker 1: overall though it seems like you know, people are adjusting, uh,
• 28:41
  Speaker 1: and you know the economy has um you know, slowed
• 28:44
  Speaker 1: down in some areas, but you know, speaking to a
• 28:47
  Speaker 1: lot of home improvement type businesses, whether that be people
• 28:51
  Speaker 1: building decks, are doing remodeling, etcetera. They're having record years.
• 28:56
  Speaker 1: Just spoke to several contractors UM who are seeing you know,
• 29:01
  Speaker 1: unbelievable backup. One for example, who's builds decks. UM has
• 29:06
  Speaker 1: now a five month wait for all the new decks
• 29:09
  Speaker 1: they're building out here in Colorado. Uh their previous high
• 29:13
  Speaker 1: was to two months. So um they're operating at more
• 29:16
  Speaker 1: than double their capacity. There's more work than they can handle.
• 29:19
  Speaker 1: So I think a lot of the kind of home
• 29:21
  Speaker 1: depot um you know type retailers are doing quite well
• 29:25
  Speaker 1: out here. Restaurants are are struggling. But again, you know,
• 29:28
  Speaker 1: we're hoping to get through this, and you know, restrictions
• 29:31
  Speaker 1: have been a little bit more um um, less intense,
• 29:36
  Speaker 1: I guess since the kind of the peak in Corona.
• 29:39
  Speaker 1: But definitely there's going to be some more challenges to
• 29:42
  Speaker 1: overcome here as we think we get into cold winter. Well, Christian,
• 29:45
  Speaker 1: congratulations on lots of things, honestly, but also on the
• 29:48
  Speaker 1: performance of I Buy Your E T F. Christian Magoon,
• 29:51
  Speaker 1: CEO of Amplify E t S, joining us right there
• 29:55
  Speaker 1: from beautiful Colorado Springs. Thanks for listening to Bloomberg Markets
• 30:01
  Speaker 1: podcast You can subscribe and listen to interviews at Apple
• 30:05
  Speaker 1: Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn,
• 30:09
  Speaker 1: I'm on Twitter at Bonnie Quinn. And I'm Paul Sweeney.
• 30:11
  Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
• 30:14
  Speaker 1: can always catch us worldwide at Bloomberg Radio