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U.S. May Need France-Like Lockdowns to Beat Covid · 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 Bonny 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 the Bloomberg Market
0:13
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. Our columnist today, right this,
0:21
Speaker 1: hospitalization rates haven't yet reached the levels we saw in
0:24
Speaker 1: the spring in the United States, but the danger of
0:26
Speaker 1: an acute health crisis maybe even greater. He knows what
0:29
Speaker 1: he's talking about. Some Felias, senior pharmaceuticals analyst for Bloomberg
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Speaker 1: Intelligence and director of research for e A. Some what
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Speaker 1: do you mean by an acute health crisis? Yeah, Hi, Bonny.
0:41
Speaker 1: So Um, You know, nobody likes to write these things
0:44
Speaker 1: because it depresses me just as well as anybody else
0:47
Speaker 1: who reads it. But when I look at the detail
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Speaker 1: that's coming through, and when I see what's going on
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Speaker 1: here in Europe, UM, there are a few signals that
0:55
Speaker 1: that really worry me. So clearly everybody can see that
0:58
Speaker 1: that UM positive cases are rising rapidly. But then when
1:02
Speaker 1: you look at the data and a lot of you know,
1:04
Speaker 1: people to look at their hospitalizations, they go, well, that
1:07
Speaker 1: doesn't seem to happen as much, and deaths appeared to
1:10
Speaker 1: be a bit lower now, which are absolutely true. What
1:14
Speaker 1: I'm worried about is that that that that there is
1:16
Speaker 1: that that gives us a full sense of security in
1:19
Speaker 1: that you the reason hospitalizations are lower is that there's
1:23
Speaker 1: a lot more people who are catching it, who are younger,
1:25
Speaker 1: who tend to get not sick, but then don't forget
1:28
Speaker 1: they go and then pass it on to their elders,
1:30
Speaker 1: which takes time. Then we've also got a lot more
1:34
Speaker 1: stringent about who we hospitalize, so that means that whatever
1:38
Speaker 1: hospitalization you see is probably pretty severe patients. So you
1:42
Speaker 1: have to take account of that, and then of course
1:45
Speaker 1: we can't treat them better, but but we haven't necessarily
1:48
Speaker 1: increased the number of beds available. And then on top
1:51
Speaker 1: of that, the virus is going into a trajectory that's
1:53
Speaker 1: that's likely to be many times higher than it was
1:57
Speaker 1: in the spring summer months. In this eventually is likely
2:01
Speaker 1: to be just like other common cold, a seasonal virus.
2:05
Speaker 1: So although the cases were that high in the summer,
2:08
Speaker 1: they're going to be much higher now, So that's what
2:11
Speaker 1: worries me. A combination of all this together. Sam, You're
2:15
Speaker 1: based in France right now and you've got a lot
2:17
Speaker 1: of experience around the continent. Um, what do you think
2:21
Speaker 1: has been the key driver in the resurgence of the
2:25
Speaker 1: cases in Europe? Has it simply been the seasonality or
2:29
Speaker 1: is it just fatigue? What? What are you seeing there?
2:33
Speaker 1: I wouldn't be surprised Paul if if it's a combination
2:36
Speaker 1: of all that. But certainly in the colder environments we
2:39
Speaker 1: do two things happen to us. One is, at least
2:43
Speaker 1: two things happen. One is that we tend to be
2:45
Speaker 1: more indoors, which is where the virus has a great
2:47
Speaker 1: time of passing from person to person. And secondly, our
2:50
Speaker 1: lungs reduced their ability to be able to clear stuff out.
2:56
Speaker 1: So you'm sure you've heard of viral load. If you've
2:58
Speaker 1: got ten viral party as ni lung and it was
3:01
Speaker 1: very good at getting rid of it quickly in the
3:03
Speaker 1: summer where humidity is a bit higher, that's great. But
3:06
Speaker 1: if that think can go in and you don't get
3:08
Speaker 1: rid of it as much, that's essentially equivalent to having
3:10
Speaker 1: a higher viral load giving you a risk of worth disease.
3:14
Speaker 1: So that's what the risk in the winter is. And
3:16
Speaker 1: of course if you start off at a higher base
3:18
Speaker 1: already in terms of the virus circulating in people who
3:22
Speaker 1: are infected, then you're setting yourself up for a pretty
3:25
Speaker 1: tragic exponential growth, which is what I think has surprised
3:29
Speaker 1: the UK, the French and the German authorities. That's an
3:33
Speaker 1: excellent explanation of what happens. I hadn't heard it really
3:36
Speaker 1: explained that plainly before, but it definitely would cause you
3:40
Speaker 1: to be a lot more careful having heard that, And
3:42
Speaker 1: that's just what I was going to ask Angela Merkel
3:44
Speaker 1: saying that in Germany they don't know where seventy five
3:47
Speaker 1: percent of the infections are coming from. I mean, where
3:51
Speaker 1: are they coming from? Remember the money there. A lot
3:54
Speaker 1: of people get this disease, especially the young again who
3:57
Speaker 1: ray symptomatic. And if you listen to some of the
4:00
Speaker 1: topic epidemiologists in the world, you have to think about
4:03
Speaker 1: this virus. It's most infectious in terms of it passing
4:08
Speaker 1: on to others during the pre symptomatic and the early
4:12
Speaker 1: infection in me whether symptomatic or not symptomatic. So that's
4:17
Speaker 1: when it's so few days and then and then we
4:19
Speaker 1: look at all the data that's coming out of all
4:21
Speaker 1: these antibody trials. The viral load, the amount of viral
4:24
Speaker 1: virus in your body back up your throats and all
4:26
Speaker 1: that declines really quickly by day ten, ten eleven, day eleven,
4:30
Speaker 1: we get test results four or five days after we've
4:34
Speaker 1: been tested. What are those people doing in that time?
4:37
Speaker 1: Are they as careful as they should be? So, Sam,
4:41
Speaker 1: in your day job, you are one of the top
4:44
Speaker 1: farmer analysts in the city of London. What are the
4:46
Speaker 1: companies that you talked to, and you've talked to for decades?
4:50
Speaker 1: What are they tell you about therapeutics, not vaccines, but
4:53
Speaker 1: just the ability to treat this better as we go
4:56
Speaker 1: into a second or here in the United States maybe
4:59
Speaker 1: in a third way. Yeah, so there's a lot of
5:03
Speaker 1: activity going on unfortunately clinical development. Drug development is a
5:06
Speaker 1: little bit of a game of snakes and ladders. You
5:09
Speaker 1: go up, you seem to be doing really well, and
5:11
Speaker 1: you just fallen a ladder or a snake hunter image
5:14
Speaker 1: wry because I think it's the snakes, and you go
5:16
Speaker 1: all the way back to square one. So you know,
5:19
Speaker 1: just today we had a bit of news from Regenera
5:21
Speaker 1: on saying that their antibody didn't seem to work in
5:24
Speaker 1: very severe patients in hospitals. So these folks are all
5:27
Speaker 1: doing what they can with what science tells them is
5:30
Speaker 1: likely to work, and then testing it out in a
5:32
Speaker 1: virus and a medical condition that we're learning on the
5:36
Speaker 1: hoof about. So we are getting progress, but it's a
5:40
Speaker 1: little bit like two steps forward, one step back, um.
5:43
Speaker 1: And and you know that we're getting progressed because the
5:46
Speaker 1: the the death rates are lower, the mortality rate is lower. Unfortunately,
5:51
Speaker 1: we're learning more about how awful the viruses and people
5:54
Speaker 1: who catch it in terms of long COVID and and
5:57
Speaker 1: who knows what long term issues we're cooking up with
6:00
Speaker 1: this virus once we've been infected some you know, it's
6:04
Speaker 1: it's a tough, tough conversation, but the companies sort of
6:08
Speaker 1: want their employees to come back to work in the
6:10
Speaker 1: office space. I mean not all of them, and there's
6:13
Speaker 1: extraordinary leniency when it comes to that, but some employees
6:18
Speaker 1: do want to go back. I mean, what's the advice
6:21
Speaker 1: for those employees? Yeah, I mean, look in in France,
6:26
Speaker 1: we just had our lockdown and last night or two
6:29
Speaker 1: nights ago. Yeah, it was two nights ago. Um um
6:32
Speaker 1: as of midnight last night. So basically, people who can
6:36
Speaker 1: work from home have to work from home. It's not
6:38
Speaker 1: a choice anymore. Um. They're taking their time to figure
6:43
Speaker 1: out what to actually tell people in terms of guidance.
6:46
Speaker 1: I if the UK trajector continues the way it is
6:49
Speaker 1: with all the various tier one, tier two, tier three,
6:52
Speaker 1: if they don't work out, Remember frant tried the same thing.
6:54
Speaker 1: They tried curfews and and early closure of restaurants andthing.
6:59
Speaker 1: It just didn't help. Um. So this is why I'm
7:03
Speaker 1: what I'm saying and what I wrote. Maybe the only
7:06
Speaker 1: solution a little bit like when you have a wildfire,
7:08
Speaker 1: the only way to manage it is to cut the
7:10
Speaker 1: whole bunch of forest out so that the fire can
7:12
Speaker 1: jump over to the next side. And maybe that's the
7:15
Speaker 1: only way. It's a horrible thing to say, and I
7:17
Speaker 1: really wish I didn't feel that this could be the
7:20
Speaker 1: only way, but it seems like that's the only way. Sam.
7:23
Speaker 1: Just our schools open are closed. There in France, schools
7:26
Speaker 1: are open. Schools are open, but they've become a lot
7:29
Speaker 1: more clever about him to manage the groups of students
7:32
Speaker 1: and all that. And also the data appears to suggest
7:34
Speaker 1: that there's less transmission among school children and then bringing
7:38
Speaker 1: it home than there is at universities. So the short
7:40
Speaker 1: university is right interesting. Hey, Sam, thanks so much for
7:43
Speaker 1: joining us. Sam Fazeli, he's a senior pharmaceutical analysts and
7:46
Speaker 1: he also runs the European research business for Bloomberg Intelligence,
7:49
Speaker 1: one of the leaders of that great business for Bloomberg
7:52
Speaker 1: and UH he's also writing for Bloomberg Opinion right now
7:55
Speaker 1: sharing some of his expertise on the healthcare business. He
7:59
Speaker 1: joins us on the phone from UH France, where again, UH,
8:02
Speaker 1: the lockdowns are beginning, And the question, Vonnie is you know,
8:06
Speaker 1: I guess for the folks in the UK is that
8:07
Speaker 1: kind of the next step for the UK is lockdowns?
8:11
Speaker 1: And again here that doesn't seem to be much appetite
8:13
Speaker 1: for that in the States, but we will monitor closely.
8:18
Speaker 1: We had a bunch of the big tech and tech
8:20
Speaker 1: media names reporting last night, let's break it all down.
8:23
Speaker 1: There was absolutely nobody better to do that with, UH
8:26
Speaker 1: than Lauren Martin. Lauren Martin, she's a senior media analysts
8:29
Speaker 1: that need him in company because her research coverage it's
8:31
Speaker 1: really a convergence of where the media and technology spaces.
8:34
Speaker 1: She covers the big tech names like Ammal, Apple, Amazon, Google,
8:38
Speaker 1: the traditional media names like Discovery and This and Disney
8:42
Speaker 1: and those types of things, and even some of the
8:43
Speaker 1: technical players, the rokus of the world, the uh and
8:47
Speaker 1: the snaps. Brings it all together with a really good
8:50
Speaker 1: overview look of the space. Lard, thanks so much for
8:52
Speaker 1: joining us here. Let's start off with Apple stocks trading
8:55
Speaker 1: off about five percent. I thought the numbers were good.
8:58
Speaker 1: This is just a stock price to perfect giving a
9:00
Speaker 1: little bit back, you know, maybe I think it's a
9:03
Speaker 1: regularly over emphasis on iPhones. iPhone sales were week and
9:07
Speaker 1: China was down yere every year in the quarter. You know,
9:11
Speaker 1: we would say we would sort of counter that by
9:13
Speaker 1: saying what we liked the most about Apple's earnings was
9:16
Speaker 1: they hit an all time high installed base of active
9:18
Speaker 1: devices with um iPad and Max sales up forty and
9:24
Speaker 1: thirty percent, respectively, so they're installed bases growing seconds. They
9:28
Speaker 1: added thirty five million subscribers in the last ninety days,
9:33
Speaker 1: so they're out five hundred and eighty five UH million
9:36
Speaker 1: paid subscribers, which is an annuity stream type of revenue,
9:39
Speaker 1: which is fantastic. And then services hit a record almost
9:42
Speaker 1: fifteen billion dollars at a gross margin of sixty seven percent,
9:45
Speaker 1: So they're there. I was quickly approaching the growth mosic
9:48
Speaker 1: contribution of the entire hardware sector of Apple, even though
9:51
Speaker 1: hardware apples known as a hardware company. So all of
9:54
Speaker 1: those things are really positive to us. Laura, how concern
9:57
Speaker 1: to be about the drop of in China? Is it
10:00
Speaker 1: a one time thing? Is it due to added competition?
10:03
Speaker 1: And willis impact Apple going in the future. So I
10:07
Speaker 1: think China is predominantly a new phone market and that
10:10
Speaker 1: you might recall that they're um. They actually announced the
10:14
Speaker 1: new iPhones UM three weeks later this year, so they're
10:17
Speaker 1: in a different quarter than last year. So last year
10:21
Speaker 1: you had two weeks of the new iPhones UM, and
10:24
Speaker 1: so the Chinese are very active in that. We expect
10:26
Speaker 1: the new iPhone twelves and there's four different models of those,
10:29
Speaker 1: which started two weeks into the October quarter to be
10:32
Speaker 1: a major seller in China. That we would expect China
10:34
Speaker 1: to rebound in this quarter and going forward. Hey Loo,
10:38
Speaker 1: how about the services business for Apple, I know speaking
10:41
Speaker 1: to you in the past, that's really a growing part
10:43
Speaker 1: of their business. Is a business that investors are really
10:45
Speaker 1: focused on. How's that progressing? Um really fantastic. So one
10:51
Speaker 1: of the things they're doing is very clever, and in fact,
10:53
Speaker 1: I think they're getting sued by one of their competitors
10:55
Speaker 1: for this is there bundling things. So rather than just
10:58
Speaker 1: paying for music separately for Apple TV, separate from Apple Fitness,
11:02
Speaker 1: Apple from Apple News, they're introducing I think on Monday,
11:05
Speaker 1: actually a really big bundle where you're you know, you
11:08
Speaker 1: can subscribe for twenty dollars a monthly your whole family
11:11
Speaker 1: to like nearly every service they have, and if you
11:13
Speaker 1: really really want everything they offer, including like Arcade the
11:16
Speaker 1: video game streaming space, you can pay thirty dollars for
11:19
Speaker 1: your entire family. So I don't know about you, but
11:22
Speaker 1: I'm paying like ten dollars for Cloud, or my kids
11:24
Speaker 1: paying ten dollars or something. You know, if we wrap
11:26
Speaker 1: it all up, we can have like twice as many
11:28
Speaker 1: services for half the money. I think that's really smart
11:31
Speaker 1: because that should at drive services growth higher, which is
11:34
Speaker 1: fantastic for margins. Yeah, I mean, I can definitely see
11:38
Speaker 1: many many households paying that pretty genius, Laura, what should
11:44
Speaker 1: we when we consider Amazon, what should we be concentrating
11:47
Speaker 1: on because obviously it grew its revenue by some again though,
11:52
Speaker 1: I mean, you can annoy people if you don't deliver,
11:57
Speaker 1: And for example, Amazon Prime hasn't been able to be
12:00
Speaker 1: as quick as it used to be because there's so
12:02
Speaker 1: many people on the system. You know, there are things
12:05
Speaker 1: that are sold out and so on. Kind of Amazon
12:07
Speaker 1: hold onto the market share that it's gained. So um,
12:11
Speaker 1: I really think Amazon is the best physician stock sort
12:15
Speaker 1: of regardless of whether COVID is short or long. I
12:18
Speaker 1: think it's the most hedged because if we're going to
12:20
Speaker 1: go into lockdowns again, that means e commerce is going
12:23
Speaker 1: to be you know, more in demand, especially for the
12:26
Speaker 1: holiday season. And I think one of the things that
12:28
Speaker 1: people are saying is that the holiday season may really
12:30
Speaker 1: tax the logistics capabilities. Well, Amazon sort of got trial
12:35
Speaker 1: by fire at the early days of the pandemic and
12:37
Speaker 1: then on Prime Day when the Prime Day was up
12:39
Speaker 1: sixty year over year, So it keeps testing it's logistics change.
12:44
Speaker 1: So I expect it's actually ability to deliver during holidays
12:48
Speaker 1: to be better than anybody else's about getting things to
12:51
Speaker 1: you on time in a in a you know, um
12:53
Speaker 1: safe manner. So I actually really like Amazon for either
12:57
Speaker 1: the of the economy opening or COVID lockdowns going longer.
13:02
Speaker 1: I think Amazon is the best most hedge, best positioned
13:04
Speaker 1: in that they win either way. Hey, Lauren, how about
13:07
Speaker 1: the cloud business for Amazon? That's been such a great
13:11
Speaker 1: story there and really a profit story, you know, relative
13:14
Speaker 1: to the core e commerce business. Um, it's getting more competitive,
13:18
Speaker 1: the Microsoft's making big gains, alphabets making big big gains.
13:21
Speaker 1: How do you view the Amazon web services business? Yeah,
13:26
Speaker 1: really excellent. Like we just got from Google last night
13:29
Speaker 1: that they're going to start breaking out their cloud businesses
13:31
Speaker 1: because these are such great profitable businesses. So yeah, And
13:34
Speaker 1: the quarter Amazon reported three and a half billion dollars
13:37
Speaker 1: of profit on eleven billion dollars of revenue in their
13:41
Speaker 1: cloud business. I would expect it to be equally as
13:43
Speaker 1: profitable for Microsoft and for Google. Um. And I do
13:47
Speaker 1: think they're making inroads. But I also think Paul that
13:50
Speaker 1: this whole this this has been accelerated, that COVID has
13:54
Speaker 1: accelerated the move to the cloud by all businesses. So
13:57
Speaker 1: I think the pie just got bigger by the brought
14:00
Speaker 1: forward for two years because of COVID. Everybody's moving to
14:03
Speaker 1: the cloud faster businesses, So there's just sort of a
14:06
Speaker 1: bigger pie for everybody. And Apple is the dominant provider,
14:10
Speaker 1: but if there's room for other people now thanks to
14:13
Speaker 1: COVID to also, like Google was talking, they do a
14:16
Speaker 1: lot of states. They do this state of Virginia, they
14:18
Speaker 1: do countries. They're doing more sales like government contracts for
14:22
Speaker 1: their cloud business. And Amazon, as you know, really specializes
14:25
Speaker 1: in small businesses moving to the cloud. Laura, we're nearly
14:28
Speaker 1: out of time, but how do you feel the executives
14:31
Speaker 1: did this week in front of Congress. I'm sorry, executives
14:36
Speaker 1: are in front of talk about Google, Facebook, and Twitter. Um.
14:41
Speaker 1: Lots of criticism about Twitter, but I'll stand aside there
14:44
Speaker 1: because I don't cover Twitter. You know, I think there's
14:46
Speaker 1: a because I am very worried about Facebook. I think
14:48
Speaker 1: it has the highest regulatory risks in because I think
14:52
Speaker 1: both sides of the aisle think that Facebook has become
14:56
Speaker 1: a referee for news and it basically as a gate
14:59
Speaker 1: keep information that scares conservative and more. But really even
15:03
Speaker 1: Democrats feel that they're actually livelihood is at risk with
15:07
Speaker 1: Facebook actually making the prioritizations of what people see in
15:10
Speaker 1: their news feed. So I sort of feel like Facebook
15:13
Speaker 1: is as the highest risk of getting fined or broken
15:16
Speaker 1: up or having some kind of negative regulatory consequence in
15:21
Speaker 1: one both by EU and by the US. So I'm
15:24
Speaker 1: scared about that for Facebook. Let's so for Google and
15:27
Speaker 1: Apple and Amazon. Alright, Laura, we have to leave it there,
15:31
Speaker 1: but very much appreciate your time, so fun speaking with you.
15:34
Speaker 1: You cover some of the really companies that we just
15:38
Speaker 1: are talking about daily at this point. That is Laura
15:41
Speaker 1: need him joining us there on Google and Facebook. Uh sorry,
15:45
Speaker 1: Laura Martin from need him always say that Laura Martin
15:49
Speaker 1: need him analysts and talking to us about Apple, Amazon, Facebook,
15:52
Speaker 1: and Google. So Paul, we'll do it all again next week.
15:55
Speaker 1: It should be an interesting week next week. I think
15:57
Speaker 1: there's a little event maybe on Tuesday, but two day
16:00
Speaker 1: and so the build up and then the days after
16:02
Speaker 1: are gonna be very interesting. We're just going in Dominic Nolan,
16:06
Speaker 1: Senior looking director at Pacific Assets and Management. Dominic, You've
16:11
Speaker 1: got various scenarios laid out and what would happen to
16:15
Speaker 1: the bond market say, for example, in the event of
16:18
Speaker 1: a change of presidency and a vaccine success. Let's start there,
16:23
Speaker 1: what happens to bonds if that happens, I can hear me, okay, Bunny,
16:29
Speaker 1: Sure I can, Okay, great. I think it really depends
16:33
Speaker 1: on which way the Senate goes. Assuming the potust goes
16:37
Speaker 1: to Biden in that particular, and let's assume the House
16:40
Speaker 1: stays blue, then you have in theory it would be
16:44
Speaker 1: a blue waves that the Senate also goes blue. You
16:47
Speaker 1: most likely have extreme stimulus in there, and that will
16:50
Speaker 1: be some extent offset which is good for the economy,
16:53
Speaker 1: probably offset a little bit by increase in taxes. But
16:56
Speaker 1: as it relates to rates, I would expect rates probably
17:00
Speaker 1: start to move up a little bit. I mean we've
17:02
Speaker 1: been we've been had a huge pressure on rates from
17:05
Speaker 1: a downward side. If you have a thought of massive stimulus,
17:09
Speaker 1: then you have the inflation longer start to end of
17:11
Speaker 1: the market, and I would expect a bit of a
17:13
Speaker 1: a steepener on here, so the long end starts to
17:16
Speaker 1: move up with the expectations of massive, massive fiscal spending. If, however,
17:21
Speaker 1: the Senate stays red, they will probably be a block
17:25
Speaker 1: two extreme stimulus. I think if Biden wins in the
17:29
Speaker 1: Senate says red, they'll be a blocked anything he wants
17:31
Speaker 1: to do. So I would envision a scenario where horse
17:36
Speaker 1: training takes place, where you want stimulus to come into
17:39
Speaker 1: the system at the same time, you know, the Senate
17:42
Speaker 1: would be blocking, trying to block that or mute that,
17:44
Speaker 1: or in exchange, we want lower taxes and that particularly,
17:48
Speaker 1: that's it's much more uncertain. And that's the combo that
17:52
Speaker 1: I think. Um, yeah, it would be uncertain. And I
17:55
Speaker 1: would say if they couldn't get stimulus passed in a
17:57
Speaker 1: time where the COVID space, the COVID cases are spiking
18:00
Speaker 1: like they are, you might have a situation where rates
18:03
Speaker 1: continue to drop with the expectation there's not enough stimulus
18:05
Speaker 1: to support the economy. So those are the It really
18:09
Speaker 1: depends to me on which way the Senate goes dominic.
18:12
Speaker 1: You know, obviously we do have those electoral uncertainties, but
18:17
Speaker 1: if you listen to central bankers around the world, um,
18:20
Speaker 1: and it just feels like an environment where rates are
18:22
Speaker 1: lower for longer in general. So how do you know
18:26
Speaker 1: fixed income investors like you good folks, a specific asset management?
18:30
Speaker 1: How do you think about, you know, the kind of
18:32
Speaker 1: the one to two to three year pull here, where
18:35
Speaker 1: do you make money? It's a great question. I think
18:39
Speaker 1: from the standpoint of return, profiles are going to be duted. Honestly,
18:44
Speaker 1: you're sitting in an environment where most most of the
18:47
Speaker 1: short term paper is or a lot of it's yielding
18:49
Speaker 1: below one. So if you can somehow return one two
18:53
Speaker 1: in that range, I think that's actually pretty attractive given
18:57
Speaker 1: the status of short term rates across the glow. And
19:00
Speaker 1: when we look at it, the central banks are a
19:03
Speaker 1: massive support for the system for liquidity, So we do
19:06
Speaker 1: feel that you're downside is is backstopped to a large
19:10
Speaker 1: extent by what people have called the FED put. And
19:13
Speaker 1: you go in, you know, and there's there's room for
19:15
Speaker 1: total from probably some spread products, certainly a little bit
19:18
Speaker 1: of compression on the corporate side. You probably have some
19:20
Speaker 1: elements in structure products. We're not mortgage folks, but I
19:26
Speaker 1: think the global the global demand for yield will continue
19:30
Speaker 1: to grind spreads tighter. That's our that's our medium term view,
19:35
Speaker 1: given the central bank support. So if you can get
19:40
Speaker 1: basis points of of spread on top of clipping a
19:45
Speaker 1: coupon that's how you get to your one and a
19:47
Speaker 1: half to two percent yield for short duration for one
19:50
Speaker 1: to three part of the curve. That's what I adventure.
19:53
Speaker 1: What happens to the higher yield elements of the market,
19:57
Speaker 1: and even the junk bond market, I mean how tied
20:00
Speaker 1: and those spreads go. We talked about that a lot
20:05
Speaker 1: on the floor and US high yield sitting with a
20:08
Speaker 1: with a five handle on it, and I feel is
20:11
Speaker 1: that you cannot go much lower until you look across it.
20:15
Speaker 1: You know, European high yield, which is sitting at two
20:17
Speaker 1: and a half. So on one hand, I'd say, from
20:21
Speaker 1: from a compensation for wrisk standpoint, I feel as though
20:25
Speaker 1: HILD shouldn't even be at this level. But I think
20:28
Speaker 1: I'm just living in a world that is dated, in
20:31
Speaker 1: a new central bank monetary our quey world. It can
20:36
Speaker 1: certainly go tighter. And you think about again, Europe European
20:41
Speaker 1: hi yield at two and a half, that's an economy.
20:43
Speaker 1: It's not growing as fast as the United States. Investors
20:46
Speaker 1: are willing to take sub three on leverage finance over there,
20:50
Speaker 1: So there is certainly an argument in the United States.
20:52
Speaker 1: You could grind inside a thought so Dominic, just real quick,
20:56
Speaker 1: thirty seconds, give me a sense of credit quality that
20:58
Speaker 1: you're seeing in your portfolio right here. It's a bit bifurcated.
21:04
Speaker 1: I think our approach we've taken more you know, tilt
21:08
Speaker 1: to the more performing companies and being very very selective
21:13
Speaker 1: as it relates to what we call the COVID sectors
21:15
Speaker 1: and our COVID sectors, the class, your hospitality, your gaming, travel, entertainment.
21:22
Speaker 1: Those are areas where if we go through another wave,
21:25
Speaker 1: there are many of these leverage finance structures that just
21:27
Speaker 1: won't make it and you'll see another wave of bankruptcy.
21:30
Speaker 1: So from our side, we're tilting certainly the more liquid
21:34
Speaker 1: side of the market, better better credits. But it's really about,
21:38
Speaker 1: you know, it's the business model. Right now, there's so
21:41
Speaker 1: many business models that were quote recession proof, but not
21:43
Speaker 1: pandemic proof, and I think you've had to adjust that
21:46
Speaker 1: right So that for us, that's our approach. All right, Donnic,
21:49
Speaker 1: thanks very much. We really appreciate your thoughts as always,
21:52
Speaker 1: Dominic Nolan, Senior Managing Director of Pacific Asset Management. Right now,
21:55
Speaker 1: let's head down to Washington. Did you see our Washington
21:58
Speaker 1: studios get World and Nash on the News. We can
22:00
Speaker 1: do that with Nathan Hagar. Nathan Well our next guest
22:04
Speaker 1: right this year hardly needs the ghosts and ghouls of
22:07
Speaker 1: Halloween to make it scary for investors. Sarah Ponzac is
22:10
Speaker 1: with us in studio. She is going as a bear
22:12
Speaker 1: for this Halloween, right, Sarah, Well, I'll start it off
22:15
Speaker 1: by saying, this is an annual tradition that we do
22:17
Speaker 1: every year ahead of Halloween. We ask money managers across
22:21
Speaker 1: Wall Street to send us the charts that scare them
22:24
Speaker 1: the most. So it's our annual tradition out today ahead
22:27
Speaker 1: of Halloween tomorrow, of course. Uh. And it was quite
22:31
Speaker 1: the compilation. Sure, we could say has been haunting enough.
22:34
Speaker 1: The amount that we have all gone through in markets,
22:38
Speaker 1: just in life, to dealing with COVID nineteen and whatever
22:41
Speaker 1: else might be within financial markets. There's plenty toorry about,
22:45
Speaker 1: as these money managers did point out all highlight a
22:48
Speaker 1: few of them. Steeve Chevrone, he's a portfolio manager and
22:51
Speaker 1: equity strategists over at Federated Hermes. He brings it really
22:54
Speaker 1: close to home with the election coming up in just
22:56
Speaker 1: a couple of days. Election Night on Tuesday, he points
23:00
Speaker 1: out the fact that mail and voting voting is obviously
23:03
Speaker 1: very high, hitting upwards of forty of the vote this year.
23:07
Speaker 1: Given historical patterns, that means that we could see over
23:09
Speaker 1: one million Belts rejected in the upcoming election. He says,
23:12
Speaker 1: So if this is the case, I know we all
23:14
Speaker 1: hope that we will have a result on Tuesday evening,
23:17
Speaker 1: we know that that might not be the case. And
23:20
Speaker 1: for markets, if we do have a contested election, and
23:22
Speaker 1: if we have this drawn out process, that would just
23:25
Speaker 1: introduce more of volatility, more uncertainty. On top of that,
23:28
Speaker 1: some other themes that were introduced, Jason Thomas over at
23:31
Speaker 1: the Carlisle Group pointed out corporate debt rising. Our corporate
23:35
Speaker 1: debt to GDP is rising above, which is full above
23:40
Speaker 1: the prior records, so plenty of spending and companies have
23:43
Speaker 1: been forced to spend more if they can and borrow
23:46
Speaker 1: even more um during the COVID crisis. One that I
23:49
Speaker 1: really enjoyed and really was just telling this week because
23:53
Speaker 1: when we had that large sell off on Tuesday. Although
23:56
Speaker 1: we are seeing a sell off again in markets today,
23:58
Speaker 1: not to quite the same extent a Tuesday, it was
24:00
Speaker 1: interesting because hedges didn't work, and one of those hedges
24:03
Speaker 1: being gold. Gold actually fell in tandem with equity markets too.
24:08
Speaker 1: So what Evan Brown Over at u BSS Management points
24:10
Speaker 1: out is that the rolling sixty three day correlation between
24:14
Speaker 1: gold and the SMP five hundred has been positive for
24:17
Speaker 1: a majority of this year. So what that means that
24:19
Speaker 1: gold may no longer be He calls it a reliable
24:22
Speaker 1: ballast to portfolios during risk off period, So especially from
24:26
Speaker 1: multi asset investors, those who are looking for protection hedges,
24:30
Speaker 1: that's a concern. Hey, sir, what did you make of
24:33
Speaker 1: the or what we're seeing today in terms of the
24:36
Speaker 1: nastac the nastack one on the heels of those tech
24:39
Speaker 1: earnings last night. I you know, I've kind of looked
24:41
Speaker 1: at the tech earnings broadly defined as uh, pretty darn good.
24:45
Speaker 1: Yet you know, the markets not seen it that way.
24:48
Speaker 1: They were David Bonson over at the Bonson Group I
24:51
Speaker 1: I received this excerpt from him this morning and I
24:53
Speaker 1: thought it put it together very nicely. He said, none
24:56
Speaker 1: of Thursday's tech earnings results were bad and some more
24:59
Speaker 1: spec tacular, But the market is reacting negatively because when
25:03
Speaker 1: something is priced for better than perfection, it becomes pretty
25:06
Speaker 1: hard to live up to those expectations. And that's the
25:08
Speaker 1: world that we're living in right now. Not only were
25:10
Speaker 1: these companies priced for perfection, they are priced for better
25:13
Speaker 1: than perfection. And you see the tiniest little flub take
25:17
Speaker 1: Apple for example, missing iPhone estimates, not providing guidance. At
25:22
Speaker 1: the same time, a theme that I have heard highlighted
25:25
Speaker 1: is the fact that almost every single one of these
25:28
Speaker 1: companies highlighted uncertainty around COVID nineteen and tech is supposed
25:32
Speaker 1: to be the area of the market that can kind
25:34
Speaker 1: of withstand this. We saw earlier in the week with
25:37
Speaker 1: SAP over in Germany that they really had to pull
25:40
Speaker 1: back on guidance because they are concerned that lockdowns over
25:44
Speaker 1: in Europe are going to hit them headed into one.
25:47
Speaker 1: In the beginning of the year, when we think about
25:48
Speaker 1: the rally that we saw, investors kept saying look beyond
25:52
Speaker 1: look into one. Well, now, if we are seeing COVID
25:56
Speaker 1: cases rising, and if these companies that are supposed to
25:58
Speaker 1: be the beneficiary areas or at least your safe havens
26:01
Speaker 1: being the big tech companies are still expressing doubt or
26:04
Speaker 1: uncertainty surrounding it, you have to wonder if one is
26:08
Speaker 1: really going to provide the boost that is right now
26:10
Speaker 1: built into markets. Also, though the Apple news, the China
26:14
Speaker 1: sales were down the border, I mean that sort of
26:17
Speaker 1: should reverberate through markets, right, I mean this was not
26:19
Speaker 1: just an Apple story, but generally a China consumption story. Right. Well,
26:23
Speaker 1: it's interesting because we have seen such a strong economic
26:25
Speaker 1: balance back in China. So to see that China sales
26:29
Speaker 1: for the iPhone we are we're very depleted down. It
26:33
Speaker 1: causes some concern. Now that does make me wonder though,
26:37
Speaker 1: is this more so a competition issue for Apple in
26:39
Speaker 1: China with other phone makers smartphone makers in the area,
26:45
Speaker 1: or is it more so a true economic macro consumption
26:48
Speaker 1: picture and reflective of that, especially ahead of the holiday season.
26:51
Speaker 1: But it is interesting to see that discrepancy considering that
26:54
Speaker 1: we have seen this strong economic come down come back
26:58
Speaker 1: over in Asia. That's what I still look at the
27:00
Speaker 1: VIX here, uh, you know, at thirty eight, the market
27:04
Speaker 1: is still you know, I think the investors are still
27:06
Speaker 1: very concerned here as we look into Look, they certainly
27:09
Speaker 1: are the VIX at Uh. If you try to extrapolate
27:13
Speaker 1: that to mean what is the VIX predicting in terms
27:16
Speaker 1: of percent changes a day. I mean that is that's
27:19
Speaker 1: a gain or a loss of more than two percent
27:20
Speaker 1: a day that it's predicting. Right now, we see the
27:22
Speaker 1: SMP off a little bit more than one percent, but
27:25
Speaker 1: you consider what is upcoming right now. We have an election,
27:28
Speaker 1: we have COVID nineteen case counts on the rise. We
27:30
Speaker 1: have restrictions over in Europe and concerns about we could
27:33
Speaker 1: see restrictions in the US. We don't have a fiscal package.
27:36
Speaker 1: So the amount of risks that are out there right
27:38
Speaker 1: now are just very large, and they're also front of
27:41
Speaker 1: mine for investors. And the reality is we're going to
27:44
Speaker 1: be dealing with volatility. Yeah. I think you're absolutely right there,
27:47
Speaker 1: and I think that's what the market is telling us. Sarah,
27:49
Speaker 1: thanks so much for joining us. Sarah Ponza, cross asset
27:51
Speaker 1: reporter for Bloomberg News, giving us her thoughts on the
27:54
Speaker 1: markets here again, you know, we had those tech numbers
27:57
Speaker 1: last night, generally very solid, but the market is clear
28:00
Speaker 1: the underwhelmed with the NASTAC to tech heavy NASTAC trading
28:03
Speaker 1: off two percent here. Thanks for listening to Bloomberg Markets podcast.
28:08
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
28:12
Speaker 1: or whatever podcast platform you prefer. I'm Bonnie Quinn, I'm
28:15
Speaker 1: on Twitter at Bonnie Quinn. And I'm Paul Sweeney. I'm
28:18
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can
28:20
Speaker 1: always catch us worldwide at Bloomberg Radio