Latest / Bloomberg Intelligence / Lowering S&P Target to 3,100 By December: Stifel's Bannister

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Lowering S&P Target to 3,100 By December: Stifel's Bannister · Bloomberg Intelligence

• 0:01
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
• 0:04
  Speaker 1: with my co host of Bonnie Quinn. Every business day
• 0:06
  Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
• 0:10
  Speaker 1: along with essential market moving news. Find 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. So I mentioned yesterday that
• 0:23
  Speaker 1: we saw the Dow sell off six point nine percent,
• 0:25
  Speaker 1: the SMP down five point nine percent, then as Jack
• 0:27
  Speaker 1: down five percent. John authors Bloomberg opinion piece earlier on
• 0:31
  Speaker 1: the President being at least partially responsible. He says this
• 0:34
  Speaker 1: the chief culprit isn't Powell or fear of a second wave.
• 0:37
  Speaker 1: The best single narrative is that Trump's growing political problems
• 0:40
  Speaker 1: and the prospect of a democratic majority's ability to enact
• 0:43
  Speaker 1: market unfriendly policy reached a critical mass. Let's get to
• 0:47
  Speaker 1: somebody now who also shares at least some of this opinion.
• 0:50
  Speaker 1: Barry Banisters, head of Institutional equity Strategy at Stevel Nicholas.
• 0:54
  Speaker 1: He's lowering his target on the SMB five hundred to
• 0:58
  Speaker 1: December precisely because of election risk. Very great to chat
• 1:02
  Speaker 1: with you this morning. Now, you are lowering your target.
• 1:05
  Speaker 1: But is it too early for the market to be
• 1:07
  Speaker 1: positioning this way. No, not really. I mean a lot
• 1:11
  Speaker 1: can change in five months until the election. But we
• 1:14
  Speaker 1: had a amazing rally off the bottom in March. I
• 1:20
  Speaker 1: mean we were up on NASDAC and SMP five. If
• 1:24
  Speaker 1: you annualized those seventy seven days, it was four hundred
• 1:27
  Speaker 1: and sevent annual gain. Um. I would say yesterday felt
• 1:31
  Speaker 1: like a fever breaking in this case of speculative fever
• 1:35
  Speaker 1: and our view as the market consolidates recent gains, awaiting
• 1:40
  Speaker 1: more clarity on second half growth prospects. So Barry, give
• 1:44
  Speaker 1: us your sense. I mean that the last twenty four
• 1:46
  Speaker 1: hours in the market, it's just been extraordinary again as
• 1:48
  Speaker 1: Vanney was describing as exceptional declines yesterday in the markets.
• 1:52
  Speaker 1: Now we bouncing back and I don't see any material
• 1:55
  Speaker 1: news out there. How do you think about the volatility
• 1:58
  Speaker 1: just over the past couple of days, Well, it is
• 2:01
  Speaker 1: a little disturbing. Um. I've been doing this a long time.
• 2:04
  Speaker 1: I remember, for example, just in the last two major tops,
• 2:09
  Speaker 1: we had large swings in the NASDAC in March of
• 2:12
  Speaker 1: two thousand as it was topping at five thousand before
• 2:15
  Speaker 1: falling something like seventy In the next two years, I
• 2:19
  Speaker 1: believe we were up and down four hundred points day
• 2:22
  Speaker 1: day on day back to back, which at the time
• 2:24
  Speaker 1: was more than five six seven percent days um. Also
• 2:28
  Speaker 1: in the two thousand seven eight nine financial crisis, as
• 2:32
  Speaker 1: we topped out in oh seven, you would see financial
• 2:35
  Speaker 1: stocks up and down thirty and in a day back
• 2:39
  Speaker 1: to back. So when I see this kind of volatility
• 2:42
  Speaker 1: at the top and the speculative fever like Hurts, which
• 2:45
  Speaker 1: is bankrupt considering a one billion dollar equity offering because
• 2:49
  Speaker 1: of the speculative buying that's going on. Or Chesapeake on
• 2:53
  Speaker 1: the weekend of the sixth and seventh of June rising
• 2:56
  Speaker 1: a hundred eighty two percent despite being nearly bank up.
• 3:00
  Speaker 1: I think it's just too much money chasing too few
• 3:04
  Speaker 1: good ideas. Venture J. Powell was asked that towards the
• 3:08
  Speaker 1: end of the news conference the other day, asked if
• 3:11
  Speaker 1: the FED was worried about a bubble or at least,
• 3:14
  Speaker 1: you know, severe fraltiness. He didn't really answer the question
• 3:17
  Speaker 1: in great detail. Is the FED worried about it? Well,
• 3:21
  Speaker 1: the FED has to be somewhat political. They you know,
• 3:24
  Speaker 1: they can't say things that are not socially correct, but
• 3:29
  Speaker 1: the reality is uh and we analyzed it in a
• 3:31
  Speaker 1: report that came out last night. There's a concept in
• 3:34
  Speaker 1: bonds called convexity. It's abnormally strong bond price changes as
• 3:39
  Speaker 1: you reach lower and lower levels of yield. The same
• 3:43
  Speaker 1: applies to equities. We have what's called a negative real yield,
• 3:47
  Speaker 1: meaning the ten year yield minus inflation is a negative number.
• 3:52
  Speaker 1: Imagine that's a starting point for a discount rate for
• 3:55
  Speaker 1: earnings that gives you an enormous valuation. So what we
• 3:58
  Speaker 1: have seen through convey City in the equity market with
• 4:01
  Speaker 1: negative real yields is a huge spike in the price
• 4:05
  Speaker 1: to earnings ratio in just the last few months. And
• 4:09
  Speaker 1: that's well in front of the growth and earnings and
• 4:13
  Speaker 1: so I I think it would be wise to step
• 4:16
  Speaker 1: back a minute and just wait for the growth signs
• 4:19
  Speaker 1: in the back half. We did a lot of damage
• 4:21
  Speaker 1: to the economy with the shutdowns, and we'll see what
• 4:23
  Speaker 1: the damages as we try to grow in the second half.
• 4:27
  Speaker 1: Al Right, Barry, So, as you know concerns amount in
• 4:29
  Speaker 1: the marketplace, here are we kind of going back to
• 4:32
  Speaker 1: that strategy where let's get out of some of these
• 4:35
  Speaker 1: cyclical sectors and maybe into more defensive sectors such as
• 4:39
  Speaker 1: utilities and so on. Mm hmmm, Well, growth is its
• 4:42
  Speaker 1: own defense. But then the growth relative to value which
• 4:46
  Speaker 1: you think about is like high price to book relative
• 4:49
  Speaker 1: to low price to book stocks or technology relative to financials.
• 4:53
  Speaker 1: For example, growth relative to value is that one of
• 4:56
  Speaker 1: only three levels of overbought seen in one hundred years
• 5:01
  Speaker 1: of monthly data that we have going back to the
• 5:03
  Speaker 1: early nine twenties. So growth is its own defense. Yes,
• 5:08
  Speaker 1: you can grow, and you deserve a high multiple for it,
• 5:11
  Speaker 1: but you're paying an awful lot for that relative to
• 5:13
  Speaker 1: these sort of cyclical industrial value names. On the defenses
• 5:18
  Speaker 1: which you mentioned, like utilities or healthcare or food companies
• 5:24
  Speaker 1: and so forth. We have seen cyclicals vastly outperform these
• 5:29
  Speaker 1: defensive stocks since the top of defensives in March nineteenth,
• 5:34
  Speaker 1: which was only two days before the market bottomed, two
• 5:38
  Speaker 1: trading days. And so in effect, I do think we're
• 5:41
  Speaker 1: over bought on cyclical and oversold on defensive. And I
• 5:45
  Speaker 1: do look for, uh, some disappointing news to cause the
• 5:50
  Speaker 1: market to pull back within a range, but not a
• 5:52
  Speaker 1: big one. So we're saying around a five percent trading
• 5:55
  Speaker 1: range of yesterday's close is what we had expect into
• 5:58
  Speaker 1: the summer. Hey, Barry, thanks so much for joining us.
• 6:01
  Speaker 1: We always appreciate your thoughts and insight. Barry Banister, he's
• 6:05
  Speaker 1: had a uh institutional equity strategy at Steeple based in
• 6:09
  Speaker 1: Charmed City, that's Baltimore, Maryland. Vannie, I look at the
• 6:12
  Speaker 1: volatility here and I'm just not sure. You know, we've
• 6:14
  Speaker 1: had that just extraordinary sell off yesterday that really felt significant,
• 6:20
  Speaker 1: um and you know, not just a normal saut but
• 6:22
  Speaker 1: something different. Yet we bounced back today and I'm not
• 6:25
  Speaker 1: sure on what news per se, but it's just interesting
• 6:28
  Speaker 1: to note, if nothing else, the volatility definitely is shaking
• 6:31
  Speaker 1: out of positions. You heard Barry, though, there's going to
• 6:34
  Speaker 1: be a trading range of five percent, so we may
• 6:37
  Speaker 1: see many many more days like this through the summer.
• 6:39
  Speaker 1: And interestingly, Barry, while he's lowering his target, he's still
• 6:42
  Speaker 1: looking for thirty one by December, which we should note
• 6:45
  Speaker 1: is above where we are right now on the SMP exactly.
• 6:47
  Speaker 1: We're thirty sixty eight on the SMP. We're up two
• 6:50
  Speaker 1: point two percent today on the SMP. This is Bloomberg.
• 6:56
  Speaker 1: So let's get to our next guest, now, somebody who
• 6:58
  Speaker 1: knows a lot about what's going on around the country
• 7:00
  Speaker 1: in terms of the virus. Lawrence Hour is JOHNS Hopkins University,
• 7:04
  Speaker 1: a system professor of emergency medicine doctors. Our thanks for
• 7:08
  Speaker 1: joining us once again, always thrilled to get your updates.
• 7:11
  Speaker 1: Talk to us about how reopenings and even the protests
• 7:16
  Speaker 1: may have impacted the spread of COVID. Absolutely so, we
• 7:20
  Speaker 1: are seeing states moving UM towards reopening broadly across the
• 7:24
  Speaker 1: country UM, all the while still seeing hotspots continuing. The
• 7:28
  Speaker 1: hot spots seemed to be moving from major cities UM
• 7:31
  Speaker 1: in some circumstances to more rural areas. But we're seeing
• 7:36
  Speaker 1: I think as many as fourteen states across the country
• 7:39
  Speaker 1: having their highest seven day average in new cases, which
• 7:42
  Speaker 1: is concerning since many of those are the same states
• 7:44
  Speaker 1: that are you know, broadly reopening. The protests will definitely
• 7:49
  Speaker 1: continue to to be a factor in driving spread and
• 7:52
  Speaker 1: transmission UM, although we've heard reports that processors are working
• 7:56
  Speaker 1: very hard to ensure that they're doing the best they
• 7:59
  Speaker 1: can to social distance in the protest to continue to
• 8:01
  Speaker 1: wear face coverings UM but we do know that these
• 8:04
  Speaker 1: events will be drivers of transmission. Is there anything that
• 8:07
  Speaker 1: we've learned about some of these newer cases. Are they
• 8:11
  Speaker 1: any different from the original wave or is it just
• 8:14
  Speaker 1: that same old virus UM. The virus we've heard is
• 8:17
  Speaker 1: not actually mutating that much from from the recent research UM,
• 8:22
  Speaker 1: so it is the same virus. I think what we're
• 8:24
  Speaker 1: learning is how to care for these patients better. We're
• 8:26
  Speaker 1: learning a lot more about how the virus acts in
• 8:29
  Speaker 1: the body and then how to manage patients UM. We
• 8:32
  Speaker 1: also are seeing that the social distancing and masking and
• 8:35
  Speaker 1: other public health interventions are working. So that's really important
• 8:38
  Speaker 1: to driving down that UM spread and flattening the curve,
• 8:42
  Speaker 1: which we are still working to do. We have to
• 8:44
  Speaker 1: continue to protect hospitals and health systems in the second wave.
• 8:48
  Speaker 1: Should lockdowns be continuing? Dr Saur, I mean if if
• 8:52
  Speaker 1: if it was only a question of public health, would
• 8:54
  Speaker 1: you suggest that that should be the case. I think
• 8:58
  Speaker 1: we need to be very careful when we think about reopening.
• 9:01
  Speaker 1: We don't have a ton of new tools in our
• 9:03
  Speaker 1: tool kit right. We don't have a vaccine yet, we
• 9:05
  Speaker 1: don't have a lot of new therapeutics that we know
• 9:07
  Speaker 1: work very well, um, and we do have a very
• 9:10
  Speaker 1: susceptible population still, so a lot of people across the
• 9:14
  Speaker 1: country still have not gotten COVID. So we have to
• 9:18
  Speaker 1: consider the fact that as lockdowns are relaxed, that we
• 9:23
  Speaker 1: will see another increase. Now it may be that we
• 9:26
  Speaker 1: see in warmer weather less spread. We we don't know
• 9:28
  Speaker 1: a lot about, um how the seasonality will affect this virus.
• 9:32
  Speaker 1: But given the fact that so many people in our
• 9:34
  Speaker 1: population are are still susceptible, we have to be really
• 9:37
  Speaker 1: careful with how we consider reducing lockdown. So, Lauren, I
• 9:41
  Speaker 1: think you know, most Americans are at this point now,
• 9:43
  Speaker 1: and maybe many government officials are at the point where
• 9:46
  Speaker 1: we have to weigh, you know, the economic impact of
• 9:48
  Speaker 1: complete lockdowns versus um you know, the health risk of
• 9:52
  Speaker 1: reopening here is it is it the belief within the
• 9:55
  Speaker 1: medical community that you know, our reopening can occur, but
• 9:59
  Speaker 1: it's has to be following the protocols of mass of
• 10:02
  Speaker 1: social distancing, of you know, tracing, tracking and tracing. Is
• 10:06
  Speaker 1: that probably the preferred way to go? Yeah, I think
• 10:10
  Speaker 1: no one, you know, especially us in the health field
• 10:13
  Speaker 1: and in the public health field. We we understand the
• 10:16
  Speaker 1: impact that these lockdowns can create on on many other
• 10:19
  Speaker 1: aspects of health and public health to not just the economy.
• 10:22
  Speaker 1: So we understand that the lockdowns have to stop. I
• 10:25
  Speaker 1: think the challenge is that we have to make sure
• 10:28
  Speaker 1: that people are willing to reverse course if necessary if
• 10:32
  Speaker 1: we start to see massive amounts of new spread UM
• 10:35
  Speaker 1: and our health systems get bogged down. And I think
• 10:37
  Speaker 1: people have to take these other activities seriously. Social distancing
• 10:41
  Speaker 1: wherever you can, UM not you know, not leaving your
• 10:46
  Speaker 1: mask at home and running to the store anyway, or
• 10:48
  Speaker 1: UM making sure that you're using those good hygiene practices.
• 10:52
  Speaker 1: So those have two people have to be really diligent
• 10:54
  Speaker 1: about that if we're going to safely and carefully reopen talk.
• 10:58
  Speaker 1: So I'm not sure if you had a chance to
• 10:59
  Speaker 1: have a look at the Wold Street Journal reward that
• 11:02
  Speaker 1: New York's response to the coronavirus actually made the pandemic.
• 11:04
  Speaker 1: Worris studied that the Wolstreet Journal conducted, And would you
• 11:08
  Speaker 1: have any insight into whether that's now changing, whether responses
• 11:12
  Speaker 1: will be different in future to pandemics. I haven't seen
• 11:16
  Speaker 1: that um that Wall Street Journal article yet, but I
• 11:19
  Speaker 1: caution against sort of armchair quarterback in the New York response,
• 11:23
  Speaker 1: I mean, I think it was one of the earliest,
• 11:25
  Speaker 1: you know, largest hits on a major city, and UM,
• 11:29
  Speaker 1: many people in New York did a ton of work
• 11:32
  Speaker 1: to ensure that we save the most lives, that people
• 11:35
  Speaker 1: were protected, and that rapidly issued guidance was implemented effectively.
• 11:40
  Speaker 1: I think we're going to learn a lot of lessons
• 11:42
  Speaker 1: from the New York response, and I think people are
• 11:44
  Speaker 1: already making changes based on what we saw working and
• 11:47
  Speaker 1: not working. UM, But I hesitate to say that that
• 11:51
  Speaker 1: it made things work. So Lauren, just give us an
• 11:55
  Speaker 1: update on kind of where what you're hearing within the
• 11:58
  Speaker 1: medical community, the HEALTHCARECUM energy about kind of where we
• 12:01
  Speaker 1: are with some treatments UH and maybe even some vaccines. Yeah,
• 12:06
  Speaker 1: there's a lot of work being done in both areas. UM.
• 12:10
  Speaker 1: You may have seen the recent news that the rem
• 12:12
  Speaker 1: doze vere drug that has was um on in multiple
• 12:15
  Speaker 1: clinical trials UM early in the pandemic UM has some
• 12:19
  Speaker 1: really promising UH data and that it that it may
• 12:24
  Speaker 1: reduce UM morbid immortality and may UH improve hospital stays,
• 12:29
  Speaker 1: which is great. UM. I think that's it is preliminary data,
• 12:33
  Speaker 1: and I think we have a lot of lessons to
• 12:34
  Speaker 1: learn about or sorry, a lot of research to do
• 12:37
  Speaker 1: on um Rem does a vie, but it is a
• 12:39
  Speaker 1: promising drug that we now have under emergency use authorization
• 12:42
  Speaker 1: in our toolkit UM. There's a lot of other drugs
• 12:45
  Speaker 1: being studied in clinical trial. We're looking at convalescent plasma
• 12:49
  Speaker 1: as a possible option UM and those studies are running
• 12:52
  Speaker 1: broadly across the country and across the globe. And people
• 12:55
  Speaker 1: are doing a ton of work on various vaccine options,
• 12:58
  Speaker 1: different platforms, testing vaccines that may be further down in
• 13:02
  Speaker 1: the pipeline, and developing new models for vaccine development and distribution.
• 13:06
  Speaker 1: A ton of work left to do, but some promising option.
• 13:10
  Speaker 1: Briefly dr antibody testing. Is it to the point yet
• 13:13
  Speaker 1: where we can trust results? I think there's still too
• 13:16
  Speaker 1: many questions of antibody testing UM, particularly in what it
• 13:19
  Speaker 1: means for lasting immunity and so what what do you
• 13:23
  Speaker 1: do with that information that you get from an antibody
• 13:26
  Speaker 1: test UM. I think it's it's very early in what
• 13:29
  Speaker 1: antibody tests can and can't be used for and how
• 13:32
  Speaker 1: UM reliable and valid the results are. And there's so
• 13:35
  Speaker 1: many different types of antibody tests out there, Um, it's
• 13:38
  Speaker 1: really hard to message what that information means for the
• 13:41
  Speaker 1: person receiving it. Lauren Sour, thanks so much for joining us.
• 13:45
  Speaker 1: We appreciate it as always. Lauren Sour, Assistant Professor of
• 13:48
  Speaker 1: Emergency Medicine at Johns Hopkins University. We are so fortunate
• 13:53
  Speaker 1: to have the smart folks at Johns Hopkins and others
• 13:55
  Speaker 1: join us to give us the medical perspective. The Bloomberg
• 13:57
  Speaker 1: School of Public Health is supported by Michael Bloomberg, founder
• 14:00
  Speaker 1: of Bloomberg LP and Bloomberg Philanthropies. It is time for
• 14:06
  Speaker 1: Bloomberg Opinion. We're joined by Bloomberg Opinion Comms Jim Bianco.
• 14:10
  Speaker 1: He has a president and founder of Bianco Research. Jim,
• 14:13
  Speaker 1: thanks so much for joining us here. I want to
• 14:16
  Speaker 1: get a sense, you know, you've been a very cautious
• 14:20
  Speaker 1: outlook on the economy and on the markets. Here. I
• 14:23
  Speaker 1: want to get a sense of kind of what your
• 14:26
  Speaker 1: takeaway is from, you know, the equity market trading we've
• 14:29
  Speaker 1: seen over the past couple of days yesterday seemed to
• 14:31
  Speaker 1: really signal uh and awakening by the market of the
• 14:35
  Speaker 1: risk too that are really out there in terms of
• 14:37
  Speaker 1: the economy yet today we kind of bounced back. What
• 14:39
  Speaker 1: do you what do you make of what's going on
• 14:40
  Speaker 1: in the market. Yeah, yeah, I have been a bit
• 14:43
  Speaker 1: cautious on the economy, and I think that has been
• 14:47
  Speaker 1: more correct than not, and that has translated into a
• 14:51
  Speaker 1: cautiousness in the in the equity markets, and that has
• 14:53
  Speaker 1: not been more correct than not until yesterday. I do
• 14:58
  Speaker 1: think what you've seen happened in the stock market in
• 15:02
  Speaker 1: bigger picture has been a federal reserve and a federal government,
• 15:07
  Speaker 1: let's not leave them out of the equation, the Treasury
• 15:09
  Speaker 1: Department promising bailouts, promising support, basically telling everybody that we
• 15:15
  Speaker 1: need the markets to go back up. Chairman Paul underscored
• 15:19
  Speaker 1: that at his press conference earlier this week when he
• 15:22
  Speaker 1: refused to even answer Mike mckie's question about the stock
• 15:25
  Speaker 1: market being overvalued, suggesting that they don't care. They're more
• 15:28
  Speaker 1: interested in getting markets up in order to give confidence
• 15:33
  Speaker 1: and financing to keep the economy going, and they fled
• 15:37
  Speaker 1: to a big speculative rush in the markets, which I
• 15:40
  Speaker 1: think reversed yesterday. Down six percent in a day. Doesn't
• 15:43
  Speaker 1: happen because you had you had bad news about a
• 15:46
  Speaker 1: second wave. It also happens because you had a lot
• 15:50
  Speaker 1: of speculative fever in the market that rushed out yesterday
• 15:54
  Speaker 1: as well too. But Jim, if markets carred that much
• 15:57
  Speaker 1: about trying to tell the Feds on things, to give
• 16:00
  Speaker 1: the FED a message, would they really be back up
• 16:02
  Speaker 1: two percents already today, unless, of course, you know, we'll
• 16:07
  Speaker 1: thinking of markets as a monolith with that question, and
• 16:09
  Speaker 1: they are not a monolith right now. There is a
• 16:12
  Speaker 1: certain aspect of the market that is, and that is
• 16:16
  Speaker 1: that small retail trader that is really rushed into the
• 16:19
  Speaker 1: market in the last couple of months, maybe even in
• 16:22
  Speaker 1: the last year or so. Yes, they matter. They're big
• 16:25
  Speaker 1: in total, even though their trades individually are small, and
• 16:30
  Speaker 1: prices are set at the margin, and they are the
• 16:33
  Speaker 1: player at the margin, so they are in the market.
• 16:36
  Speaker 1: So I wouldn't necessarily look at the market day to
• 16:39
  Speaker 1: day machinations, even when it's followl like this and suggest
• 16:43
  Speaker 1: that there's a big economic meaning to it. Jim. You know,
• 16:46
  Speaker 1: we seen, as you have noted, you know, the FED
• 16:50
  Speaker 1: kind of being early, being aggressive and kind of quote
• 16:54
  Speaker 1: unquote backstopping this market. And we've actually also seen some
• 16:57
  Speaker 1: decent federal stimulus at three trillion dollar stimulus bill was
• 17:01
  Speaker 1: just historic. Does the market need to have another federal
• 17:06
  Speaker 1: stimulus bill um coming out of Washington. I think it's
• 17:11
  Speaker 1: gonna need to see either signs that the economy is
• 17:15
  Speaker 1: seriously rebounding or it's going to need more stimulus. In
• 17:19
  Speaker 1: other words, if if it gets that rebound, it won't
• 17:22
  Speaker 1: need it. Now, let me be clear on what I'm
• 17:23
  Speaker 1: talking about. I'll give you a statistic. One statistic. At
• 17:27
  Speaker 1: the bottom of the two thousand eight recovery, output in
• 17:31
  Speaker 1: the economy was of what it was at the two
• 17:35
  Speaker 1: thousand seven high. We only dropped four That was enough
• 17:38
  Speaker 1: to have the stock market and produce a ten percent
• 17:40
  Speaker 1: unemployment rate. This time around, we're thinking that the economy
• 17:45
  Speaker 1: dropped at its worst point. Maybe it's getting better, but
• 17:51
  Speaker 1: if it doesn't get back to ent of output, uh,
• 17:56
  Speaker 1: it will be a very bad recession. Mar de Blasio
• 18:00
  Speaker 1: said that, Uh, this writership on the New York City
• 18:03
  Speaker 1: subway was up in the last week. It's still off
• 18:07
  Speaker 1: of its high. It's got to get back to in
• 18:10
  Speaker 1: order for there to be some kind of semblance of
• 18:13
  Speaker 1: normal returning. If you get that, you don't need the stimulus.
• 18:16
  Speaker 1: Short of that, I do think that the market and
• 18:19
  Speaker 1: the economy will be disappointed if there is a not
• 18:23
  Speaker 1: any more stimulus coming now, Jim, Treasury yields of un
• 18:28
  Speaker 1: run this movement in stocks right, was this also response
• 18:31
  Speaker 1: to the FED chair? Uh? Yeah, I think treasury yields
• 18:36
  Speaker 1: have two things going for them. Are are bigger picture
• 18:39
  Speaker 1: going for them, and that is there's gonna be a
• 18:41
  Speaker 1: tremendous amount of issuance three trillion dollars just this quarter,
• 18:45
  Speaker 1: which we're working through right now. What has happened over
• 18:49
  Speaker 1: the last eight ten weeks is the Fed had been
• 18:52
  Speaker 1: buying more than had been being issued. So this bond
• 18:56
  Speaker 1: market was in an unusual situation that it was actually
• 18:58
  Speaker 1: shrinking in size when you remove the Fed out of
• 19:01
  Speaker 1: the equation, and that had been holding prices very steady.
• 19:05
  Speaker 1: It was in the last two weeks or so that
• 19:08
  Speaker 1: issue its started to overtake what the Fed was doing
• 19:11
  Speaker 1: in yield started up. But Wednesday, Chairman Paul said that
• 19:15
  Speaker 1: their bond buying has probably found the floor and around
• 19:19
  Speaker 1: a hundred and twenty billion dollars a month, so it's
• 19:22
  Speaker 1: not going to get any lower than that. A trillion
• 19:24
  Speaker 1: dollars a year is what that works out to. You know,
• 19:26
  Speaker 1: it's a hard number to understand, a trillion a year,
• 19:28
  Speaker 1: and that I think gave the market some support, which
• 19:31
  Speaker 1: is why you saw the rally and bonds right after that. Oh,
• 19:34
  Speaker 1: we just found for sure we've got at least a
• 19:37
  Speaker 1: trillion dollar buyer of bonds as we move forward, helping
• 19:41
  Speaker 1: to alleviate some of that crush of supply that's coming.
• 19:44
  Speaker 1: And that's what I think was the positive news for
• 19:47
  Speaker 1: the bond market this week. Jim, it is always fascinating
• 19:50
  Speaker 1: to speak with you. Thank you for that. Jim Bianco
• 19:52
  Speaker 1: is president and founder of Bianco Research, of course also
• 19:55
  Speaker 1: Bloomberg opinion columnist and Paul. It is fascinating because the
• 19:59
  Speaker 1: worst of the corporate spreads have seen a retracement this
• 20:02
  Speaker 1: week of almost fifty percent, so they've been big moves
• 20:05
  Speaker 1: underneath the hood of the bond markets. Also, what Jim
• 20:09
  Speaker 1: was talking about their the retail Trader. We have a
• 20:11
  Speaker 1: fascinating story on the Bloomberg today about the bar Stool
• 20:14
  Speaker 1: Sports founder who's find him on Twitter. It's kind of fun, yeah,
• 20:19
  Speaker 1: I mean it's it's just a strange story. Apparently, you know,
• 20:22
  Speaker 1: he's he's bringing huge numbers of people into the retail
• 20:25
  Speaker 1: day trading side of things. But he's now decided that
• 20:29
  Speaker 1: he's going to be a buy and hold kind of guy.
• 20:30
  Speaker 1: So we'll we'll see what Dave Portnoy does next. Well.
• 20:36
  Speaker 1: One of the most key fallouts from an economic perspective
• 20:40
  Speaker 1: of this pandemic has been the job loss is just
• 20:42
  Speaker 1: extraordinary job losses across the US and across the globe.
• 20:47
  Speaker 1: One of the questions for investors and economists is how
• 20:50
  Speaker 1: much are those or how many of those jobs are
• 20:52
  Speaker 1: temporarily lost and they'll come back as the pandemic wains,
• 20:56
  Speaker 1: and how much of those are structurally lost at i e.
• 20:59
  Speaker 1: They will not come back. To answer that question, we
• 21:01
  Speaker 1: welcome you Van Roya. He's a senior global economist for
• 21:04
  Speaker 1: Bloomberg Economics. He's based in Frankfurt, Germany. Ifan, thanks so
• 21:08
  Speaker 1: much for joining us here. I know you guys have
• 21:10
  Speaker 1: done some work here on kind of taking a look
• 21:12
  Speaker 1: at the unemployment and you know it's kind of the
• 21:15
  Speaker 1: structure of that unemployment. How much is temporary and how
• 21:17
  Speaker 1: much is permanent? What did you guys find? Yeah, many
• 21:22
  Speaker 1: thanks for having me up all um. Yes, indeed, we
• 21:25
  Speaker 1: have looked at at unemployment increases in advanced economies, and
• 21:29
  Speaker 1: as a as an example, we took the United States
• 21:32
  Speaker 1: and we have found busily that the probability of about
• 21:37
  Speaker 1: certain percent of workers to have a lot of their
• 21:39
  Speaker 1: jobs is very high that they will remain an unemployment
• 21:42
  Speaker 1: while certainly percent of the workers that have lots of
• 21:45
  Speaker 1: their jobs are likely to get im back to employment
• 21:48
  Speaker 1: very soon. We would that result in in terms of
• 21:51
  Speaker 1: the overall numbers, It wouldn't be obviously a thirty resented
• 21:54
  Speaker 1: employment rate, would it. No, No, it's the absolute numbers
• 21:59
  Speaker 1: of the people who love their jobs. So we're talking
• 22:02
  Speaker 1: to in the COVID nineteen crisis in the United States,
• 22:05
  Speaker 1: for example, about nineteen million people, so as third of
• 22:08
  Speaker 1: it basically, which would translate into six million people where
• 22:12
  Speaker 1: the probability in getting back to employment will be elevated
• 22:16
  Speaker 1: to remain an unemployment. So pre what are we going
• 22:19
  Speaker 1: to get a sense of kind of how this plays out.
• 22:22
  Speaker 1: I know you guys are again kind of forecasting here,
• 22:24
  Speaker 1: but is this something that we're just gonna have to
• 22:26
  Speaker 1: wait for the numbers to come in and to see
• 22:28
  Speaker 1: whether you know, those furloughed workers are brought back or
• 22:33
  Speaker 1: you know some of the service sector employees are brought back.
• 22:36
  Speaker 1: Is it just something that we have to wait and
• 22:38
  Speaker 1: look at the data. We're not hearing much from the companies,
• 22:40
  Speaker 1: are we Yeah, So how we think about it, we
• 22:44
  Speaker 1: can decompose basically the job losses that we have observed
• 22:49
  Speaker 1: into three factors. The first factor, basically we are demanded
• 22:53
  Speaker 1: lie factors. When you think about shops just closing and
• 22:56
  Speaker 1: people are not able to buy in these jobs, the
• 22:58
  Speaker 1: workers will lose their job. At the moment when the
• 23:01
  Speaker 1: shops open again and uh and people gain more confidence
• 23:05
  Speaker 1: and uncertainty is reduced of their future income for example,
• 23:08
  Speaker 1: people will start buying again and these jobs are likely
• 23:12
  Speaker 1: to come back very quickly. The second one is what
• 23:16
  Speaker 1: we think about is outside option of undeployed workers. You
• 23:20
  Speaker 1: you think about the Cares Act, which is quite quite
• 23:23
  Speaker 1: generous in the United States, so a lot of workers
• 23:26
  Speaker 1: do not really have the search efforts for employment at
• 23:30
  Speaker 1: the moment. Once this is being reduced, the search efforts
• 23:34
  Speaker 1: to get a new job are also increasing. So this
• 23:37
  Speaker 1: is another another thing where where we think that employment
• 23:40
  Speaker 1: can resume very quickly. The problem is that the third
• 23:44
  Speaker 1: source of unemployment, which is we call a reallocation of
• 23:48
  Speaker 1: workers and perms. So when you think about now the
• 23:52
  Speaker 1: behavior of people not going to restaurants anymore, um ordering
• 23:58
  Speaker 1: via e commerce, we have seen a lot of job
• 24:01
  Speaker 1: creation actually in these uh these companies. Amazon has hired
• 24:05
  Speaker 1: a lot of workers because they face higher amount At
• 24:08
  Speaker 1: the same time, the mortar and bricks retailers have have
• 24:12
  Speaker 1: lost substantially their job there. So if this will will persist,
• 24:19
  Speaker 1: it's very difficult for for people who who lost their
• 24:23
  Speaker 1: job due to this reallocation shark to get back into
• 24:26
  Speaker 1: a ployment because they simply lack the skills to get
• 24:29
  Speaker 1: to get a new employment. So this is how we
• 24:32
  Speaker 1: think about it. Iftent is due to this reallocation shark,
• 24:35
  Speaker 1: it will be a painful re restructuring of the economy
• 24:39
  Speaker 1: and it's very likely that this will firstist with the
• 24:42
  Speaker 1: second half of the year. Beyond those six million people
• 24:45
  Speaker 1: that you say won't go immediately back to work, which
• 24:47
  Speaker 1: is a phenomenal number of people. What about wages do
• 24:51
  Speaker 1: they hold up at a time when companies and small
• 24:54
  Speaker 1: businesses in particular are under a little bit of pressure.
• 24:59
  Speaker 1: That's a very good question, and how how wages will
• 25:02
  Speaker 1: evolve on the on the one hand, you have the
• 25:04
  Speaker 1: wage pressure going going down because of the increased pool
• 25:08
  Speaker 1: and unemployed people. This naturally give downward pressure on wages.
• 25:12
  Speaker 1: On the other hand, you have you highest in more
• 25:16
  Speaker 1: productive industries. So this is also due to the reallocation
• 25:18
  Speaker 1: shock I just mentioned. So in Amazon, basically wages are
• 25:23
  Speaker 1: usually higher than in the in the unproductive factors that
• 25:26
  Speaker 1: now recently are are being exposed. So the overall, if
• 25:30
  Speaker 1: you look at hourly wages for example, on the employed
• 25:33
  Speaker 1: work for it. At the moment, they have significantly increased
• 25:36
  Speaker 1: in in April in the United States because simply productivity
• 25:40
  Speaker 1: in these new new uh new jobs created are higher.
• 25:45
  Speaker 1: So in the short term I would say, um that
• 25:48
  Speaker 1: the average wages are increasing. In the medium term, it
• 25:52
  Speaker 1: remains to be seen what we see in the numbers,
• 25:54
  Speaker 1: which which factor basically is dominating and how quickly people
• 25:58
  Speaker 1: can go back to work. If puran what's this mean
• 26:01
  Speaker 1: for policymakers as we come out on the other side
• 26:04
  Speaker 1: of the pandemic, what do you guys expect to see. Yeah,
• 26:09
  Speaker 1: it's a very challenging situation for policy, economic policy, both
• 26:13
  Speaker 1: for monetary as as well as fiscal policy. So in
• 26:17
  Speaker 1: the in the first hit of the shock on to
• 26:21
  Speaker 1: the shutdown, to the lockdown measures. UM. Monetary policy has
• 26:26
  Speaker 1: provide a lot of liquidity, which was the right thing
• 26:28
  Speaker 1: to do to try to keep the economy above water.
• 26:33
  Speaker 1: As well as fiscal stimulus. We have seen a lot
• 26:35
  Speaker 1: of a lot of very large fiscal spending programs UH
• 26:40
  Speaker 1: and and this is very very appropriate to UH to
• 26:43
  Speaker 1: fill the gap of the short falls from the demand
• 26:46
  Speaker 1: and the supply shock. So the first type of shock
• 26:49
  Speaker 1: that we have seen, for the real location shock, you
• 26:53
  Speaker 1: want to have a policy mix UM that says, Okay,
• 26:57
  Speaker 1: we have to keep the economy above the water, but
• 27:00
  Speaker 1: in the same time we have don't have to provide
• 27:02
  Speaker 1: a structural change when it's happening in the economy. So
• 27:05
  Speaker 1: you don't want to keep firms alive that have a
• 27:07
  Speaker 1: business model which is UH pre pre pandemic style. So
• 27:13
  Speaker 1: so there there's a mix of a balance that that
• 27:16
  Speaker 1: economic policy has to address going forward. To strike a
• 27:21
  Speaker 1: balance between okay, we have we will have to see
• 27:23
  Speaker 1: some bankruptcies and a new structure of the economy, while
• 27:27
  Speaker 1: at the same time not losing too many jobs and
• 27:30
  Speaker 1: UH and and have a high structural unemployment al Right, Well,
• 27:34
  Speaker 1: we will be watching the data very very closely, and
• 27:37
  Speaker 1: luckily we get weekly initiatables claims as well as obviously
• 27:39
  Speaker 1: the monthly payrolls report, and we're waiting on each with
• 27:43
  Speaker 1: beated breath, as will you. Born van Wyre, Senior Global
• 27:46
  Speaker 1: economist at Bloomberg Economics, SEE is based in Frankfort. And
• 27:49
  Speaker 1: of course problems with employment in Europe as well post pandemic,
• 27:53
  Speaker 1: and indeed we don't even know for a post pandemic
• 27:55
  Speaker 1: or when we will be a post pandemic, so all
• 27:57
  Speaker 1: of those questions yet to be answered. That said, we
• 28:02
  Speaker 1: can say that there was a little bit of good
• 28:04
  Speaker 1: news in the initial jobless claims in the sense that
• 28:06
  Speaker 1: continuing claims came down just ever so gradually. Paul, Yeah,
• 28:09
  Speaker 1: exactly right. I mean, I think the for the tenth
• 28:12
  Speaker 1: week in a row we had a lower job was
• 28:14
  Speaker 1: claims number. Still million a half is a million and
• 28:17
  Speaker 1: a half too many, but again kind of this, you know,
• 28:20
  Speaker 1: slowing growth in the job's claims, and that's kind of
• 28:23
  Speaker 1: the silver lining. Yeah. And obviously, you know, at a
• 28:25
  Speaker 1: time when worker safety is important, we do need to
• 28:28
  Speaker 1: keep an eye on wages too, because there shouldn't be
• 28:30
  Speaker 1: a trade off one for the other. Indeed, thanks for
• 28:33
  Speaker 1: listening to Bloomberg Markets podcast. You can subscribe and listen
• 28:37
  Speaker 1: to interviews at Apple Podcasts or whatever a podcast platform
• 28:41
  Speaker 1: you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn.
• 28:44
  Speaker 1: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.
• 28:47
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 28:49
  Speaker 1: Bloomberg Radio.