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Not Confident on the U.S. Recovery or Dollar: BBH's Thin · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Swiney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
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Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
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Speaker 1: along with essential market moving news. Find the Bloomberg Markets
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Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. Prior to the pandemic, I
0:21
Speaker 1: think we were kind of used to seeing dollar strength
0:24
Speaker 1: here talking about the d X Y index trading at
0:26
Speaker 1: or near that level. Since over the last several months,
0:30
Speaker 1: pulled back to get a sense of where currencies are
0:33
Speaker 1: headed going forward. We love to chat with Dr Win Thin,
0:36
Speaker 1: global head currency strategy for Blown Brothers Harriman, based in
0:40
Speaker 1: New York City. Uh. Dr Thin, thanks so much for
0:43
Speaker 1: joining us here. Give us your sense of kind of
0:44
Speaker 1: the green back here versus some of the major trading
0:47
Speaker 1: currencies here as we think about lower interest rates for longer,
0:51
Speaker 1: the pandemic impact slower economic growth, How are you kind
0:54
Speaker 1: of positioning currencies right here? Sure? Well, first of all,
0:57
Speaker 1: thank you very much for having me if it's always
0:59
Speaker 1: a pleasure. Um, so, you know, if you do a
1:02
Speaker 1: uh look at the chart, weekly chart going back to
1:05
Speaker 1: about two thousand and fifteen, you'll see the dollars pretty
1:09
Speaker 1: much within those ranges. UM, you know, just as recently
1:12
Speaker 1: as uh, you know, March April, we're at you know,
1:16
Speaker 1: pretty much at the top of that range. So the
1:18
Speaker 1: speed of its decline has been has been noteworthy. UM.
1:21
Speaker 1: To me, it reflects two things. One is the aggressive
1:25
Speaker 1: FED easing zero rates and incredibly um fast expansion of
1:30
Speaker 1: balance year date, the balance she has expanded, uh, and
1:34
Speaker 1: now we've got some worries about reopening UM here in
1:38
Speaker 1: two three with the virus numbers still so bad. So
1:40
Speaker 1: those two things have really worked against dollar. To me, though,
1:43
Speaker 1: and I think I've mentioned this on on UM several
1:46
Speaker 1: times before, I still view this as a cyclical downturn,
1:48
Speaker 1: that is, UM, you know, between the monetary policy cycle
1:52
Speaker 1: and economic cycle. The cycle, the cyclical factors are against
1:57
Speaker 1: the dollar. And of course you have a lot of
1:58
Speaker 1: experts out there saying that that little decline, but I
2:01
Speaker 1: think it's way too only to say that right now.
2:03
Speaker 1: I I like, UM, I think the dollar will weaken
2:06
Speaker 1: into going into two four, but we quick bottom and
2:08
Speaker 1: two fourth the virus numbers start to get better. Well,
2:16
Speaker 1: I was just gonna say, what does that mean for
2:17
Speaker 1: the other currencies? Is there going to be debasement around
2:20
Speaker 1: the globe or you know what happens? Well, a couple
2:25
Speaker 1: of things. I think, Um, you know, you can't have
2:29
Speaker 1: everyone have a weaker currency, right so on the other
2:31
Speaker 1: step side of the coin with your dollar needs strong
2:33
Speaker 1: currency elsewhere. Now right now it's being expressed a lot
2:36
Speaker 1: in the currencies in Europe, Sterling in the euro as
2:40
Speaker 1: well as emerging markets. So at this point, um, the
2:45
Speaker 1: officials in Europe aren't really complaining about the strong currency.
2:48
Speaker 1: At this point, Um, they're seeing you know, they're remember
2:51
Speaker 1: there are there are a couple months ahead of us.
2:52
Speaker 1: They've been able to reopen albeit it uh, you know,
2:54
Speaker 1: it's body and they know having reverse from time to time.
2:57
Speaker 1: But they're a little bit further along in the economic cycles,
2:59
Speaker 1: so I think they can have a bit of a
3:00
Speaker 1: stronger currency. So you know, long run the dollar, weaker
3:05
Speaker 1: dollar could help the the U s econmy But really
3:07
Speaker 1: what I've been focusing on is with the loss of
3:10
Speaker 1: fiscal stillness. You know, I've seen studies that say that
3:12
Speaker 1: you know, the the enhanced the employment benefits was pumping
3:15
Speaker 1: somewhere anywhere between two and fifty billion to a trillion
3:18
Speaker 1: dollars where the steam was in the economy, and that's
3:20
Speaker 1: being a fell off a cliff. Um. The sooner we
3:23
Speaker 1: get that started, the better. But that's why I'm a
3:25
Speaker 1: bit negative on the dollar in the US economy. Two three,
3:27
Speaker 1: we have massive headwinds really between the virus and the
3:31
Speaker 1: loss of fiscal stimulus. So are you not particularly optimistic
3:35
Speaker 1: that Congress will deliver a fourth round of stimulus? Well, okay,
3:41
Speaker 1: I was confident a couple of weeks going on because
3:43
Speaker 1: I thought, okay, look, we don election coming out. Who
3:45
Speaker 1: wants to play these games? But both sides of dug
3:47
Speaker 1: in much longer I expected. So at this point, Um,
3:51
Speaker 1: I think we'll know more with the weekend. I'm not
3:53
Speaker 1: sure if you've following it, but the House was called
3:55
Speaker 1: back for emergency stat sessions to vote on postal UH
4:00
Speaker 1: service aid and protections. And I know that some of
4:03
Speaker 1: the in some of the people in um speaker closest
4:06
Speaker 1: caucus been pushing her to use this opportunity to restart
4:09
Speaker 1: the talks. So you know, it's it's a fluid situation,
4:13
Speaker 1: but you know that's feeling that they'll eventually get something past,
4:16
Speaker 1: probably something watered down. Um, so again another reason to
4:20
Speaker 1: be a little bit cautious about the U. S. Economy.
4:22
Speaker 1: But um, you know this is not the time we're
4:24
Speaker 1: playing politics right now. When I've been curious for several
4:27
Speaker 1: weeks now about something slightly you know, it's definitely not
4:32
Speaker 1: completely dull or related. And you used to cover emergin
4:34
Speaker 1: markets and frontier markets and so on, so I know
4:36
Speaker 1: you know all about currencies in for example, the Middle East,
4:40
Speaker 1: where we already had a bit of a diary situation
4:43
Speaker 1: before the very route explosion. I'm curious, how are all
4:47
Speaker 1: these countries managing given that there is things to do
4:51
Speaker 1: with each one that's making life more difficult, and coronavirus
4:55
Speaker 1: acause all of them. Yes, so it's funny you used
4:59
Speaker 1: to I just part out a piece yesterday basically pointing
5:03
Speaker 1: out that look, with zero rates everywhere, you know, no
5:06
Speaker 1: one has any cover. You know, I used to have
5:07
Speaker 1: no If you know, Brazili had rates around towel percent
5:09
Speaker 1: that would give you a litit of cover, you know, say, okay,
5:11
Speaker 1: well I'm not crazy what's going on in Brazil, but
5:13
Speaker 1: I get twelve percent yield That I'll go Now, we're
5:16
Speaker 1: almost all at zero or near zero rates, so we
5:18
Speaker 1: could go back to the square one where we're all
5:20
Speaker 1: focusing on the fundamentals. Um. And so I think when
5:22
Speaker 1: he continued differentiation across e m uh, you know, Brazil,
5:25
Speaker 1: South Africa, Turkey though, those are all the high heels
5:27
Speaker 1: that used to sort of benefit and risk on and
5:29
Speaker 1: they just have it. Um. So my advice to emergent
5:32
Speaker 1: market investors is just due to homework. Um. You know,
5:35
Speaker 1: I think we're we're past the worst, but you know
5:37
Speaker 1: we're not. We're past the stage where everyone's buying em
5:40
Speaker 1: Willy NAILI right, it's very differentiated, and I think that's
5:43
Speaker 1: virgency can continue. But if you don't mind, though, just
5:46
Speaker 1: commenting on how these countries will survive this. So, yes,
5:50
Speaker 1: the opportunities for investors maybe, but what are these countries
5:55
Speaker 1: all going to sort of experience founding an extreme poverty
5:57
Speaker 1: at this point? Well that yeah, that's the big question. Um.
6:03
Speaker 1: You know, I think that the obviously the more developed
6:05
Speaker 1: economies are are will be okay. You know, I'm not
6:07
Speaker 1: worried about what's going on in Eastern Europe. Obviously Asia
6:11
Speaker 1: much more, much better position. But yes, South, you know,
6:15
Speaker 1: I think Africa and parts of um, you know, parts
6:19
Speaker 1: of South America are are are really struggling. I think
6:21
Speaker 1: that's why the I m F and World Bank of
6:23
Speaker 1: have really been much open up the floodgates. So look,
6:25
Speaker 1: forget about you know, conditionality, forget about you know, reformers.
6:28
Speaker 1: We're just giving you money to to sort of get
6:30
Speaker 1: through this. Um. You know, for a lot of these countries,
6:33
Speaker 1: you know, especially the Middle least higher oil crisis would
6:35
Speaker 1: be a big plus. UM and you know, they stabilized.
6:38
Speaker 1: But you know, I think there's still some concerns about
6:40
Speaker 1: the global economy. You know, I think China's doing okay,
6:42
Speaker 1: but um, you know, there's still it's it's pretty clear
6:45
Speaker 1: that this is not gonna be that the Class D
6:47
Speaker 1: shape of cover. We you you know, we're gonna take like
6:48
Speaker 1: sort of it's more like two steps forward, one step back. UM.
6:52
Speaker 1: And that's that's that's gonna be tough. And I think, uh,
6:54
Speaker 1: you know, the weaker links in the E M are
6:56
Speaker 1: certainly gonna stuffer. Dr Win real quick thirty skins Japan,
7:01
Speaker 1: how do you feel about the end right here? Well,
7:04
Speaker 1: Japan economy wises it's been one of the LAGOD that's
7:07
Speaker 1: it's actually even underploying the US that's been very, very disappointing.
7:10
Speaker 1: In two three you have to reimpos some lockdown, but
7:12
Speaker 1: even before that the recovery has been very spotty. So
7:15
Speaker 1: I look for another umlug of stimulus. You know, obvious
7:18
Speaker 1: popular areas has been plummeting, so I think we've got
7:21
Speaker 1: another slug of fiscal stimus. Banks Japan hold given this
7:25
Speaker 1: um sort of you know, risk on, risk off, and
7:27
Speaker 1: I think Doligans having trouble really breaking about one those six,
7:30
Speaker 1: So it's gonna be pi stetins one or four, one
7:32
Speaker 1: or six rangs for a while. Dr Winton, thank you
7:34
Speaker 1: so much for joining us. Dr Winton, global head of
7:37
Speaker 1: Currency Strategy at Brown Brothers Harriman UH based in New
7:40
Speaker 1: York City, which appreciate on getting his thoughts on currency.
7:45
Speaker 1: Chris Lou served as Deputy Secretary of Labor during the
7:48
Speaker 1: Alhama administration. He was a delegate to this week's Democratic Convention.
7:52
Speaker 1: He is now Senior Fellow at the University of Virginia
7:55
Speaker 1: Miller Center. Chris, thanks for joining. So it was a
7:59
Speaker 1: very emotive speech. It was a very calm and I
8:03
Speaker 1: guess an effort being uplifting type of speech. But what
8:07
Speaker 1: about policy? When do we hear what Joe Biden's policies
8:10
Speaker 1: are on everything from healthcare to schools to coronavirus. Well,
8:16
Speaker 1: I think you heard a lot last night about how
8:19
Speaker 1: he would deal with a coronavirus pandemic. And I think
8:22
Speaker 1: over the last a couple of weeks he's been doing
8:25
Speaker 1: a series of policy addresses, not just on healthcare, but
8:28
Speaker 1: I saw the economy as well. You know, last night speech,
8:30
Speaker 1: in my mind, was last about policy than about values. Uh,
8:34
Speaker 1: you know, his goal was the vice president's goal was
8:37
Speaker 1: to convey a positive message, a unifying message. You know.
8:40
Speaker 1: I thought he did a nice job of weaving in
8:43
Speaker 1: his own biography and how his biography shapes the way
8:47
Speaker 1: that he looks at the country and he looks at government.
8:49
Speaker 1: So I do think you'll see more of those policy rollouts.
8:52
Speaker 1: But I candidly, you know, I don't know that this
8:54
Speaker 1: election is really going to turn on policy one way
8:57
Speaker 1: or another. All right, Chris, So if it's not necessarily
9:00
Speaker 1: going to turn on policy, what message do you think
9:03
Speaker 1: or what strate did you expect the Democrats not just
9:06
Speaker 1: for the presidency but up and down ticket to really
9:09
Speaker 1: focus on this election season. Well, look, I mean, and
9:12
Speaker 1: this is not surprising when you've got an incumbent on
9:14
Speaker 1: the ballot. It really is a referendum on Donald Trump.
9:17
Speaker 1: And where Democrats are aiming is using the coronavirus crisis
9:23
Speaker 1: as an example of the failed leadership of this administration.
9:26
Speaker 1: And you know, obviously there's a lot of other things
9:28
Speaker 1: they can point to, both domestically and h and overseas,
9:32
Speaker 1: but that that's sort of what they're holding up as
9:34
Speaker 1: the prime example. You know. Look, they will obviously have
9:37
Speaker 1: opportunities to contrast on things like healthcare, where Democrats have
9:42
Speaker 1: a big political advantage, particularly with the Supreme Court considering
9:45
Speaker 1: the fate of the Affordable Care Act. But really they're
9:48
Speaker 1: pointing the straight up Donald Trump and asking voters do
9:51
Speaker 1: you want four more years of him? How do you
9:54
Speaker 1: think that he did last night in the sense of
9:57
Speaker 1: appearing fully with those young vital you know, on somebody
10:01
Speaker 1: that you could debate. You know, I look, I I've
10:05
Speaker 1: known the Vice President for over ten years. I worked
10:08
Speaker 1: closely with him in the White House, and I've seen
10:10
Speaker 1: him give a lot of speeches. You know, this was
10:12
Speaker 1: hands down the best speech I've seen him give. Um,
10:15
Speaker 1: it was a different Joe Biden than I think people
10:18
Speaker 1: remember from ten years ago. Uh, he's more mature, he's
10:22
Speaker 1: more calm, he's more of a statesman. Like you know,
10:26
Speaker 1: earlier in his tenure, the Vice President did have a
10:29
Speaker 1: you know, a tendency to kind of go off track
10:31
Speaker 1: a little bit. Obviously, you know, in a prepared speech
10:34
Speaker 1: like this, Um, it's easier to sort of stay focused.
10:37
Speaker 1: But Yeah, obviously a huge challenge is going to be
10:40
Speaker 1: in the debates coming up starting in September. Hey, how
10:43
Speaker 1: about christ As we think about down tickets, think about
10:47
Speaker 1: the Senate. What's the expectation, um about the Senate? Can
10:52
Speaker 1: the Democrats? They did? The Democrats feel that they can
10:55
Speaker 1: really take back the Senate. You know, I think they
10:58
Speaker 1: really do. And I think that was one of the
11:00
Speaker 1: overum writing themes of the convention is to have really
11:04
Speaker 1: kind of a big ticket, a big tent, which is
11:06
Speaker 1: why you saw everyone from you know, John Kasik to
11:09
Speaker 1: Bernie Sanders and everyone in between coming together. And I
11:12
Speaker 1: think when you look at the kind of races that
11:14
Speaker 1: are being run in places like Colorado, Arizona, North Carolina, UM,
11:19
Speaker 1: they're really kind of focused on the bread and butter
11:21
Speaker 1: issues and not just healthcare, but you know the economy
11:24
Speaker 1: as well. And again so I think, you know, having
11:27
Speaker 1: this big ticket approach at the top, I think helps
11:29
Speaker 1: a lot of these um down ticket races, especially when
11:33
Speaker 1: you start to get into places like Iowa, potentially Georgia, Montana,
11:39
Speaker 1: which are reddish states. And I think having that big
11:42
Speaker 1: tent approach is going to be helpful to those Democratic
11:45
Speaker 1: candidates that said Ms McConnell will do everything in his
11:49
Speaker 1: power and I mean everything and his power to have
11:53
Speaker 1: that not happen. Will he be able to stop, as
11:56
Speaker 1: you know, using any kind of stratagy? Do you do
12:00
Speaker 1: you think, Chris Well, look, I mean we all should
12:03
Speaker 1: be concerned about what's happening with the Post Office right
12:06
Speaker 1: now and their hearings going on today and Monday. To
12:08
Speaker 1: look at what all of that means. You know, people
12:10
Speaker 1: need to come up with the strategy of how they're
12:12
Speaker 1: going to vote. Think broadly in terms of where MITTI
12:14
Speaker 1: connell is. Yeah, I obviously he will try to do
12:16
Speaker 1: anything as well Democrats, but ultimately these kind of elections
12:20
Speaker 1: tend to kind of go in waves and and ultimately
12:23
Speaker 1: it's where the president's approval rating is and what people's
12:27
Speaker 1: perceptions of him are that I think will not only
12:29
Speaker 1: affect his race, but also the battle for that Senate
12:32
Speaker 1: and House as well. So, Chris Kamala Harris, what's your
12:36
Speaker 1: take on the selection of the senator from California. Well,
12:40
Speaker 1: I think, first of all, she's supremely qualified. She has
12:43
Speaker 1: held you know, not only sederal, state and local offices.
12:46
Speaker 1: But I think it's importantly the bidens. You provide jolt
12:50
Speaker 1: of enthusiasm, and you've seen that of the past ten
12:52
Speaker 1: days with the Democratic base. Now, probably it doesn't ultimately
12:56
Speaker 1: translate into anywhere votes for the Biden Harris ticket, but
13:00
Speaker 1: what it does do is get people were like, you
13:02
Speaker 1: know what, I'll vote for Buyden, but I may not
13:04
Speaker 1: you know, write a check. I may not go out
13:06
Speaker 1: and uh um and help, you know, phone bank or
13:08
Speaker 1: text bank. And I think it will get a lot
13:11
Speaker 1: of people more energized. And I think that's the one
13:13
Speaker 1: area demographically where you saw Biden's UH numbers kind of lagging.
13:18
Speaker 1: It's among people of colors and younger voters. I think
13:21
Speaker 1: that her selection really helps them on both of those fronts. Chris,
13:25
Speaker 1: Right now, the president is obviously lagging in the polls,
13:27
Speaker 1: but as I mean, as soon as we start to
13:29
Speaker 1: hear Biden speaking a lot again, you know, do you
13:32
Speaker 1: imagine that that gap will stay as wide? You know,
13:38
Speaker 1: it's hard to say. Um, you know, I don't think
13:40
Speaker 1: this is going to be a traditional campaign season. I mean,
13:43
Speaker 1: I think what we've seen over the last couple of
13:46
Speaker 1: months I think is what we're going to see over
13:47
Speaker 1: the next couple of months. And I think that, certainly,
13:50
Speaker 1: you know, makes it challenging for both of us to
13:52
Speaker 1: get their message out. I also think we're operating and
13:56
Speaker 1: I'm such a polarized electorate right now. They're really aren't
14:00
Speaker 1: that many undecided voters, and you know, look at the margins.
14:03
Speaker 1: You know, what happens to the Republican Convention, probably what
14:06
Speaker 1: happens in the debates will have some difference. But people forget,
14:09
Speaker 1: voting really starts pretty soon. You know. I live in
14:11
Speaker 1: the state of Virginia, and our voting starts on September eighteenth,
14:15
Speaker 1: and so a lot of these late developing um UM
14:18
Speaker 1: issues or or or events may not have an effect
14:21
Speaker 1: on a lot of people. Chris Leu, thanks so much
14:24
Speaker 1: for joining us. We always appreciate getting your thoughts in perspective.
14:27
Speaker 1: Chris lu Senior fellow at the University of Virginia Miller Center,
14:33
Speaker 1: also a former member of former Deputy Secretary of Labor
14:37
Speaker 1: during the Obama administration as well. It was also a
14:40
Speaker 1: delegate to this week's Democratic conventioned so obviously has just
14:44
Speaker 1: really deep knowledge there of what's going on within the
14:47
Speaker 1: Democratic Party Vanni. But I think most Democrats feel like
14:50
Speaker 1: they did a pretty good job this week. Absolutely, and
14:54
Speaker 1: it'll be interesting to see the r n Z next
14:56
Speaker 1: week after the virtual extravaganza that we saw this week,
14:59
Speaker 1: and it was really pretty well done. I mean, I
15:01
Speaker 1: think after a couple of small hiccups on Monday night, Tuesday,
15:05
Speaker 1: Wednesday and Thursday, when pretty smoothly, and it must have
15:07
Speaker 1: been a huge technical exercise. Yeah, and it's I was
15:11
Speaker 1: kind of amazing, you know, having you know how it
15:13
Speaker 1: went off so well from a technical perspective. So give
15:15
Speaker 1: them credit to the text traders. What keeps them up
15:20
Speaker 1: at night? What keeps them wondering about this market? Well,
15:23
Speaker 1: let's ask somebody who studies them and is able to
15:26
Speaker 1: tell us with absolute scientific accuracy what exactly it is
15:30
Speaker 1: that motivates traders day by day these days. Randy Frederick
15:33
Speaker 1: is VP of Trading and Derivatives at the Schwab Center
15:36
Speaker 1: for Financial Research, more than twenty five years experienced in
15:39
Speaker 1: equity markets. But also there's there's a Trader Pulse survey
15:44
Speaker 1: that the Center puts out, and I'm very curious, Randy,
15:48
Speaker 1: what is it saying these days? The markets keep going
15:51
Speaker 1: up and yet you know, everything is crumbling all around us. Well,
15:55
Speaker 1: the most recent survey data, which we just got back
15:57
Speaker 1: a couple of days ago, follows the survey we do
16:00
Speaker 1: it back in in March, and turns out that people
16:02
Speaker 1: have become more bullish, which to some extent isn't terribly surprising.
16:06
Speaker 1: I mean, the SPS rebounded since it bottomed on March then,
16:11
Speaker 1: ASDEX is obviously doing even better than that. So what
16:14
Speaker 1: we find is that momentum in the market oftentimes does
16:17
Speaker 1: make people feel a little bit better, even though there
16:19
Speaker 1: may be a better buying opportunity when it's at the bottom.
16:21
Speaker 1: No one really knows that we're at the bottom until
16:24
Speaker 1: we're already past it. So, Randy, one of the things
16:26
Speaker 1: that you know, investors are asking themselves these days, and
16:29
Speaker 1: we hear a lot from fund managers, is you know,
16:31
Speaker 1: for the remainder of this year, perhaps going into if
16:34
Speaker 1: you can kind of figure on some kind of the
16:38
Speaker 1: other side of this pandemic is how to play it.
16:41
Speaker 1: Do I stick with the growth stocks that have worked
16:43
Speaker 1: for me, or do I maybe rotate into value? What's
16:46
Speaker 1: your survey suggest Well, sometimes people do that. I mean,
16:51
Speaker 1: the thing that's important to keep in mind is that
16:53
Speaker 1: we don't really know when or if we're going to
16:56
Speaker 1: get fully out of this. We we open, we have
16:58
Speaker 1: plenty of reason to believe that will probably have a
17:01
Speaker 1: vaccine at some point, maybe not until the beginning of
17:04
Speaker 1: next year. UM, and if that happens, of course, what
17:07
Speaker 1: has been the leader in the last bull market, which
17:10
Speaker 1: lasted over eleven years, as you know, UM will likely
17:13
Speaker 1: continue to be the leaders going forward. The one sector
17:16
Speaker 1: that is difficult are the one area that I think
17:19
Speaker 1: people need to be a little cautious about if they're
17:21
Speaker 1: trying to position themselves for when we come out of
17:24
Speaker 1: the virus is those stocks that have benefited primarily because
17:28
Speaker 1: of it. UM. Obviously, most people are staying at home,
17:31
Speaker 1: many people are working at home. Our leisure activities have
17:35
Speaker 1: been curtailed dramatically, if not completely eliminated, and there are
17:38
Speaker 1: a number of stocks that have been benefited from that
17:42
Speaker 1: particular trend. While I do think that more people will
17:46
Speaker 1: probably work at home after the virus than they ever
17:48
Speaker 1: did previous to that, it's going to be nowhere near
17:50
Speaker 1: what we see right now. So some of those that
17:52
Speaker 1: have benefited greatly are likely to find a little bit
17:55
Speaker 1: of softness, But the ones that have been the leaders
17:57
Speaker 1: all along throughout the cyclical periods will likely continue to
18:01
Speaker 1: be the leaders going forward once we get out of this.
18:06
Speaker 1: What sectors will be the most volatile, do traders think? Well?
18:11
Speaker 1: Traders have told us that they believe the volatility is
18:14
Speaker 1: likely UM to get to be the most, probably in financials,
18:18
Speaker 1: which is interesting and part of the reason I think. Obviously,
18:21
Speaker 1: financials have been UM the second worse performer year to date,
18:25
Speaker 1: and part of the reason for that is the fact
18:27
Speaker 1: that UH interest rates are at zero, and as you recall,
18:30
Speaker 1: j Palell said, not only UM are we not raising rates,
18:33
Speaker 1: we're not even thinking about thinking about raising rates, And
18:36
Speaker 1: of course that means not only are rates going to
18:38
Speaker 1: be zero by the end of this year, they're likely
18:40
Speaker 1: to be zero by the end of next year and
18:42
Speaker 1: perhaps even time after that. Financials, for the most part,
18:46
Speaker 1: make a large portion of their revenue from the interest
18:48
Speaker 1: rate spread, and as the spread as the race go
18:50
Speaker 1: down and stay at or near zero, that spread between
18:54
Speaker 1: what they pay on balances and what they charge on
18:58
Speaker 1: loans gets compressed, and so it is just simply not
19:00
Speaker 1: the opportunity there. On the positive side, though, for financials,
19:04
Speaker 1: when markets are volatile, trade volumes tend to go up,
19:06
Speaker 1: and we have seen that here and recently so. But
19:09
Speaker 1: the interest rate spreads a bigger piece of it, and
19:11
Speaker 1: it affects a larger number of them. So that's the
19:13
Speaker 1: one they're most concerned about. In the second one, um
19:15
Speaker 1: is health care. Health Care has been a has been
19:18
Speaker 1: the third best performer year to date, but healthcare always
19:23
Speaker 1: has uncertainty when we have an election. You saw a
19:25
Speaker 1: similar trend in healthcare prior to the two thousand and
19:28
Speaker 1: sixteen election. There's a lot of discussion on both sides,
19:32
Speaker 1: both from both candidates about how they would like to
19:35
Speaker 1: change health care, and so it creates a level of uncertainty.
19:40
Speaker 1: It's not so much that they're sure it's going to
19:41
Speaker 1: go down. It's that they're not sure what's going to happen,
19:44
Speaker 1: and that is actually the exact definition of volatility. We
19:47
Speaker 1: know it's going to move, we just don't know which direction. So, Randy,
19:50
Speaker 1: from your survey work, what's the economic backdrop that most
19:53
Speaker 1: traders are kind of thinking about right now? Well, I mean,
19:57
Speaker 1: we ask traders what they think the shape the recovery
20:00
Speaker 1: will be. But sometimes that one's a little difficult to decipher.
20:03
Speaker 1: And the reason I say that is that people have
20:06
Speaker 1: a tendency to to equate the market with the economy,
20:09
Speaker 1: and the two aren't the exact same thing. Even people
20:11
Speaker 1: at the high levels of government do that on a
20:13
Speaker 1: regular basis. I often remind people that the economy tends
20:18
Speaker 1: to run about six to eighteen months behind the markets,
20:21
Speaker 1: and you can see that regularly when you think about
20:24
Speaker 1: back on March, most of the economic data was terrible.
20:27
Speaker 1: In fact, much of it hasn't even hadn't even bottomed yet,
20:30
Speaker 1: and yet the market had turned around and began to
20:32
Speaker 1: move higher, and we're up, like I said, more than
20:35
Speaker 1: you can go back to two thousand and nine, and
20:37
Speaker 1: it was the same thing in March of two thousand
20:39
Speaker 1: and nine. The market began to rebound. By the end
20:41
Speaker 1: of the year, it was up, but the economic data
20:44
Speaker 1: didn't recover until many months later, some of it even
20:47
Speaker 1: a couple of years later. We didn't see a bottom
20:49
Speaker 1: in the housing market until two thousand and eleven. So
20:52
Speaker 1: it's a similar thing. So oftentimes, when you ask people
20:54
Speaker 1: what they think about the economy, they actually give you
20:57
Speaker 1: their response of what they think about the markets. And
21:00
Speaker 1: that's partly because I can look at a chart of
21:02
Speaker 1: the sp see a very distinctive v bottom on March
21:05
Speaker 1: twenty three, but I can't see that in economic data.
21:09
Speaker 1: I can see it in an individual economic report, but
21:11
Speaker 1: there's so many of them. Right, But think about the
21:14
Speaker 1: housing market, think about the labor market. We know the
21:17
Speaker 1: labor market on on a weekly basis has bottomed, but
21:21
Speaker 1: it's nowhere near where it was prior to the virus.
21:23
Speaker 1: And the unemployment rates, on the other hand, which are
21:25
Speaker 1: very lagging indicators, we won't see a bottom on those
21:28
Speaker 1: for at least another month. Right. Hey, Randy, thanks so
21:30
Speaker 1: much for joinings. We always appreciate getting this information. Randy Frederick,
21:34
Speaker 1: vice president of Trading and Derivatives for the Schwab Center
21:37
Speaker 1: for Financial Research, calling in from Austin, Texas. With that
21:41
Speaker 1: survey work on what traders are looking for both in
21:45
Speaker 1: terms of the economic outlook and markets. It is time
21:50
Speaker 1: for Bloomberg Opinion. We welcome Timothy O'Brien, senior columnists for
21:54
Speaker 1: Bloomberg Opinion. Tim, you're out with a fantastic come this morning,
21:58
Speaker 1: which I read it first thing this morning. To any
22:00
Speaker 1: three questions for the Postmaster General, I'd love for you
22:03
Speaker 1: to kind of share with us kind of the real
22:05
Speaker 1: important ones that you think need to be asked at
22:07
Speaker 1: some point today. Uh. Well, I mean, I think the
22:09
Speaker 1: most crucial thing to voters right now is is did
22:13
Speaker 1: anyone in the federal government direct the Postmaster General Louis
22:17
Speaker 1: de Joy to take steps that would have slowed down
22:20
Speaker 1: mail delivery? Um? By intent? Um? Now. DeJoy has said
22:25
Speaker 1: already in his testimony this morning that um, nothing he
22:30
Speaker 1: did was designed to slow down mail delivery. It was
22:34
Speaker 1: just part of his efforts to streamline the post office,
22:36
Speaker 1: which he is said all along. But there's been a
22:39
Speaker 1: lot of contradictory statements. Also in his testimony he said that, um,
22:44
Speaker 1: you know, he promised midweek that he would roll back
22:46
Speaker 1: some of these changes. Um. Uh. One of the most
22:50
Speaker 1: significant is the removal or dismantling of big mail sorting machines.
22:54
Speaker 1: But then he said in his testimony this morning that
22:56
Speaker 1: he had no intention of putting those back, and yet
22:59
Speaker 1: later his testimony he said he actually had no idea
23:02
Speaker 1: how maintenance operations and those machines work anyways. It's handled regionally.
23:06
Speaker 1: So um, you know, there's a House hearing today, are
23:11
Speaker 1: Senate hearing today and a House hearing on Monday. I
23:13
Speaker 1: would hope members of Congress in the House will take
23:16
Speaker 1: some cues from the proceedings today to sharpen their questions
23:20
Speaker 1: on Monday. Yes, you write him, the legitimacy of mail
23:23
Speaker 1: and voting and the outcome of the presidential election hang
23:26
Speaker 1: in the balance. The thing is, you have this man,
23:30
Speaker 1: this Postmaster General, a generous political donor, not just a
23:33
Speaker 1: president rum but also to other Republicans like Mitch McConnell,
23:36
Speaker 1: for example. How motivated will Republicans in the Senate Committee
23:40
Speaker 1: and the House Oversight Committee b to actually figuring out
23:43
Speaker 1: what the truth is? Well, I mean that's always the
23:46
Speaker 1: question in the hearing. Vanny, you know it's a Senate
23:49
Speaker 1: led committee today, I mean, rather a Republican led Senate
23:53
Speaker 1: Committee today, and they agreed to have the hearings, and
23:55
Speaker 1: it's a bipartisan hearing and and there are robots questions
23:58
Speaker 1: being asked. Um. But the main problem with these hearings
24:02
Speaker 1: is sometimes legislators would rather grandstand than just actually prosecute
24:06
Speaker 1: a case and ask a rapid fire round of yes
24:09
Speaker 1: or no questions. I think for our business listeners, you know,
24:13
Speaker 1: for our listeners who care about the vote. I mentioned
24:16
Speaker 1: that asking about mail and bounting is an important question.
24:19
Speaker 1: I think for our business listeners. Uh. There's been another
24:22
Speaker 1: issue hanging over the Postal Service since the spring, is
24:25
Speaker 1: to whether or not Trump is attacking the Post Office
24:28
Speaker 1: and what it charges for package deliveries, specifically to target
24:32
Speaker 1: companies like Amazon and other e commerce companies that rely
24:35
Speaker 1: on the Postal Service to deliver packages. Um. There is
24:39
Speaker 1: no proof that that package delill be the money loser
24:43
Speaker 1: for the USPS. In fact, it's one of their bright spots.
24:46
Speaker 1: It's a revenue builder and uh and and and it's profitable.
24:50
Speaker 1: So they should just ask to Joy about that and
24:53
Speaker 1: put that issue to rest because the wrong issues are
24:56
Speaker 1: being put into play about what needs to be done
24:58
Speaker 1: to fix the Post Office and tim there's probably I'm
25:01
Speaker 1: not sure if it's a misperception, but a belief that
25:04
Speaker 1: the postal service is a kind of similar to a
25:07
Speaker 1: company a corporation, that it should in fact generate a profit.
25:10
Speaker 1: But like other government services, the military, for example, it
25:14
Speaker 1: doesn't necessarily generate a profit, nor is it necessarily supposed to.
25:17
Speaker 1: How do we how should we think about that? Well?
25:20
Speaker 1: I suggested that, um, the legislators ask the Postmaster General,
25:26
Speaker 1: Louis de joy um if it also is problematic that
25:31
Speaker 1: the military, public schools, police and fired apartment, fire departments,
25:37
Speaker 1: and the White House itself aren't profitable. Because it gets
25:40
Speaker 1: to some of the absurdity of this. We have institutions
25:42
Speaker 1: in our society that exists to provide a service that
25:46
Speaker 1: we support with taxpayer dollars, and in fact, the post
25:50
Speaker 1: Office isn't even supported by taxpayer dollars itself, sustaining through
25:54
Speaker 1: the post postage charges it it levies. It's running a deficit,
25:59
Speaker 1: a massive one in that needs to be fixed. But um,
26:02
Speaker 1: you know, we we have these things considered common goods
26:05
Speaker 1: that we all share in, and it's a service that
26:07
Speaker 1: we all benefit from, including the postal service and holding
26:10
Speaker 1: the operations of the military or the Postal Service, you know,
26:14
Speaker 1: to the same accounting standards as a private entity is
26:17
Speaker 1: is can be very absurd. So Tim, you know, you
26:22
Speaker 1: mentioned how package deliveries are actually profitable. It looks like
26:25
Speaker 1: although we don't really have, I suppose a full idea
26:28
Speaker 1: of the accounts, but people like Treasury secretari Student Milution,
26:32
Speaker 1: I mean, they must have a better idea than anybody.
26:35
Speaker 1: What's going on at the Postal Service. Do you think
26:38
Speaker 1: they're in contact with the Postmaster General? Well, I mean
26:41
Speaker 1: that's a real issue because the body, because the Postal
26:44
Speaker 1: Service is supposed to be independent. It exists within the
26:46
Speaker 1: executive branch, but it is overseen by a board of
26:49
Speaker 1: bipartisan board of governors, and it's meant to be independent
26:53
Speaker 1: from political influence, very much in the same way as
26:56
Speaker 1: the Federal Reserve operates, and Minutution shouldn't be in touch
27:01
Speaker 1: with them. But we're in a moment right now. Manuchan
27:03
Speaker 1: controls the purse springs. The Cares Act allocated um uh
27:10
Speaker 1: ten billion dollars in the spring for the Postal Service
27:14
Speaker 1: that Manuchan and Trump have refused release to the Postal
27:17
Speaker 1: Service to shore up its operations in the midst of
27:21
Speaker 1: the damage from the pandemic that many institutions are facing,
27:24
Speaker 1: and so Manutian and Trump have leverage over this institution
27:27
Speaker 1: financially right now in an unusual way. And the argument
27:31
Speaker 1: is then, is that they're they're using it to play politics.
27:33
Speaker 1: That's an argument I happen to agree with. All right,
27:36
Speaker 1: we will follow the hearing today. Nathan Hager is listening
27:39
Speaker 1: to it as we speak, and of course we'll be
27:41
Speaker 1: back on top of it on Monday as well. But
27:43
Speaker 1: this isn't over for sure. Tim O'Brien, thanks for joining us.
27:46
Speaker 1: Would love to have got your thoughts on the DNC
27:48
Speaker 1: this week, the RNC next week and so on, but
27:50
Speaker 1: we have more time to do that. That That is timbo
27:52
Speaker 1: the O'Brien, senior columnist for Bloomberg Opinion and once again
27:56
Speaker 1: the Postmaster General, appearing before I send it Homeland Security
27:59
Speaker 1: Committee hearing today. You'll say, or has said already, that
28:03
Speaker 1: Congress is at bold for the agency's dire financial situation
28:06
Speaker 1: because lawmakers hadn't enacted changes that would allow the agency
28:10
Speaker 1: to get on a sustainable path. But of course that's
28:13
Speaker 1: just really the beginning of what's going to be spoken of.
28:17
Speaker 1: Thanks for listening to Bloomberg Markets podcast. You can subscribe
28:20
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
28:24
Speaker 1: platform you prefer. I'm Bonnie Quinn, I'm on Twitter at
28:27
Speaker 1: Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at
28:30
Speaker 1: pt Sweeney. Before the podcast, you can always catch us
28:33
Speaker 1: worldwide at Bloomberg Radio