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Low-Rated Junk Bonds Not Properly Pricing Risk: TCW's Rivelle · 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. And Lisa bram Boyd's filling
• 0:21
  Speaker 1: in for Vonnie Queen alongside Paul Sweeney. Yesterday was an
• 0:24
  Speaker 1: extraordinary day in markets. Stocks dropped about three and a
• 0:29
  Speaker 1: half percent, but gold was down and so were treasuries.
• 0:32
  Speaker 1: Treasury yields rose priced down, which was unusual and it's
• 0:36
  Speaker 1: only happened twice since March eleventh and March eighteen. This
• 0:41
  Speaker 1: according to Bank of America Global Analysts, the question is
• 0:45
  Speaker 1: our treasury is no longer a hedge against equity volatility.
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  Speaker 1: Joining us to answer that question, Tad Revel, chief Investment
• 0:52
  Speaker 1: Officer for Fixing come at TCW with two five billion
• 0:56
  Speaker 1: dollars of assets under management. Tad, what's your view on that? Well,
• 1:01
  Speaker 1: there's a lot of incoherence in the capital markets, and
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  Speaker 1: I think pointing out the anomaly of gold and bonds
• 1:08
  Speaker 1: versus equity, and the breakdown of some of the traditional
• 1:12
  Speaker 1: relationships between those asset classes is one of the manifestations
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  Speaker 1: of this, Uh, how do I call it? Let's call
• 1:19
  Speaker 1: it a massic economy in the sense that there's a
• 1:22
  Speaker 1: massive policy response that's still working its way through the
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  Speaker 1: underlying economy and getting price into the capital markets, and
• 1:30
  Speaker 1: that's very much at odds with the actual reality that
• 1:34
  Speaker 1: we're facing in front of us. There is so much
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  Speaker 1: opacity as it relates to the ongoing withdrawal of stimulus
• 1:41
  Speaker 1: that's taking place over time. The question that overhangs will
• 1:44
  Speaker 1: some of this be renewed or potentially enhanced with the elections.
• 1:48
  Speaker 1: There's issues related to the vaccines. So I don't know
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  Speaker 1: that there's much that you can judge on the basis
• 1:53
  Speaker 1: of historical relationships in order to make judgments about how
• 1:57
  Speaker 1: assets are going to be correlating with one. In other
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  Speaker 1: that said, there is so much suppression of rates and
• 2:04
  Speaker 1: volatility on the part of the FED um the FED
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  Speaker 1: is not in a in a sense allowing the capital
• 2:10
  Speaker 1: markets to speak up and express what they perceive to
• 2:14
  Speaker 1: be this underlying level of uncertainty, and so it does
• 2:17
  Speaker 1: call into question whether owning treasuries at these very low,
• 2:21
  Speaker 1: historically low, galactically low interest rates actually is going to
• 2:25
  Speaker 1: correlate or provide any hedge against anything on an ongoing basis.
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  Speaker 1: All right, So tad obvious. It seems clear, particularly after
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  Speaker 1: hearing from Madame Leguard this morning of the e c B,
• 2:36
  Speaker 1: that we are in a world of lower rates for longer.
• 2:40
  Speaker 1: What is a person like you, I manage your fund
• 2:42
  Speaker 1: manager like you, what do you do in terms of
• 2:45
  Speaker 1: perhaps looking for some incremental yield in a in a
• 2:49
  Speaker 1: world where it's lower for longer. Yeah. So, in a sense,
• 2:52
  Speaker 1: you have to take the gift that's being offered by
• 2:54
  Speaker 1: the central banks to the extent to which they're so
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  Speaker 1: to speak, allowing you to rely on borrowed funds in
• 3:01
  Speaker 1: order to make your bones um. One of the ways
• 3:04
  Speaker 1: you can do that is by accessing the t B
• 3:07
  Speaker 1: a agency mortgage back market. There are exceedingly low um rates,
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  Speaker 1: lower than the rates that you can earn by being
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  Speaker 1: long the agency mortgage that are implied in the financing
• 3:20
  Speaker 1: and so relying essentially on the gift that's being given
• 3:25
  Speaker 1: by the by the agency mortgage market courtesy of the
• 3:28
  Speaker 1: central banks is one thing that can be done. The
• 3:31
  Speaker 1: other thing that I think that can be done is
• 3:33
  Speaker 1: to remind yourself that we ain't through this yet. I mean,
• 3:37
  Speaker 1: there is a uh it's it's rather clear, at least
• 3:40
  Speaker 1: from our vantage point, that there's an ongoing economic transformation.
• 3:44
  Speaker 1: It's a bit glib to put it this way, but
• 3:46
  Speaker 1: the economy of so to speak, is being fast forwarded
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  Speaker 1: practically into the present day. And what that means, of course,
• 3:53
  Speaker 1: is that there are a lot of business models and
• 3:55
  Speaker 1: a lot of assets that are going to be rendered
• 3:58
  Speaker 1: obsolete or unprofitable. So wait, you can see this being
• 4:02
  Speaker 1: expressed through delinquency rates on commercial loans in the hotel space.
• 4:06
  Speaker 1: We don't need to talk a whole lot about what's
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  Speaker 1: been happening, the devastation in so much of the industries
• 4:12
  Speaker 1: that are vulnerable to social distancing. And we have this
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  Speaker 1: huge question. We ran this amazing experiment in which we
• 4:20
  Speaker 1: took many millions of professional working professionals and move them
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  Speaker 1: out of the office environment and put them in a
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  Speaker 1: work from home type situation. So big question I guess
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  Speaker 1: that overhangs is how much commercial real estate do we
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  Speaker 1: need going forward? If you hold back, I suspect that
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  Speaker 1: there's going to be lots of opportunities as these asset
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  Speaker 1: classes were priced right now, we're living in a world
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  Speaker 1: where the sellers in general in so many of these
• 4:46
  Speaker 1: related asset classes are looking for last year's prices, and
• 4:50
  Speaker 1: the buyers obviously aren't stepping up to to validate that,
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  Speaker 1: which is the reason Tad why there's been paralysis in
• 4:55
  Speaker 1: certain commercial real estate markets, because there just hasn't been
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  Speaker 1: a meeting of minds in terms of what of value
• 5:00
  Speaker 1: is I want to go to a more liquid market
• 5:03
  Speaker 1: just to gauge the appetite for risk and to get
• 5:07
  Speaker 1: your sense of whether people are perhaps getting a little
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  Speaker 1: ahead of themselves in terms of how much of a
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  Speaker 1: backstop the FED is going to provide. I'm looking at
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  Speaker 1: triple C rated junk bonds. This is the lowest rated
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  Speaker 1: debt that is the closest to default. And yes, yields
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  Speaker 1: recently have ticked up a little bit, prices down, but
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  Speaker 1: still the yields are now sub ten percent versus a
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  Speaker 1: high this year of nearly twenty at the peak of
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  Speaker 1: the disruption in March. Are people pricing in the type
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  Speaker 1: of insolvencies or struggles that you're talking about that are inevitable,
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  Speaker 1: regardless of all of the FED support and regardless of
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  Speaker 1: any fist glade. I mean, the short answer is that
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  Speaker 1: as we localize the conversation to that part of the
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  Speaker 1: high yield market, that the triple C area, the highly
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  Speaker 1: leveraged and in many cases high operating leverage married to
• 5:57
  Speaker 1: high financial leverage, there are there is not a sufficient
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  Speaker 1: degree of of appreciation for the defaults that are going
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  Speaker 1: to be coming in those in those sectors, and nor,
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  Speaker 1: as you alluded to, I think, is there sufficient appreciation
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  Speaker 1: of the defaults that are going to be coming into
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  Speaker 1: the commercial real estate market as well. So it's it's
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  Speaker 1: very interesting. I mean, the FED can liquefy markets, but
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  Speaker 1: at the end of the day, are they going to
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  Speaker 1: make good operating losses to the bondholders or to essentially
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  Speaker 1: allow obsolete businesses to sustain themselves in a zombified way
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  Speaker 1: on an ongoing basis. So it creates this huge tiering
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  Speaker 1: in which double B spreads or I don't know about
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  Speaker 1: three hundred and fifty basis points over treasuries and triple
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  Speaker 1: C s, which, as you pointed out, they have actually
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  Speaker 1: been an outstanding performer um from the point of view
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  Speaker 1: of where we were in March, and yet the level
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  Speaker 1: of credit risk associated with that part of the market
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  Speaker 1: is probably not properly priced at all in many cases
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  Speaker 1: ataches real quickly seconds in the corporate credit market. Any
• 6:59
  Speaker 1: areas of opportun a new for you right here, There's
• 7:02
  Speaker 1: been a number of them. Actually, um the but but
• 7:05
  Speaker 1: the short take on it essentially is that you want
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  Speaker 1: to stick with the sectors that are most that are
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  Speaker 1: least at risk of disruption by the the ongoing changes
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  Speaker 1: transformations that are occurring in the underlying economy. So basically, uh,
• 7:23
  Speaker 1: in some cases, just we're really sticking with mostly higher
• 7:26
  Speaker 1: quality investment grade type type issuers. Tad, thanks as always
• 7:32
  Speaker 1: for joining us. We always appreciate getting your thoughts on
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  Speaker 1: all things fixed income. Tad Revel, chief investment officer of TCW.
• 7:39
  Speaker 1: That's Trust Company of the West, one of the big
• 7:42
  Speaker 1: big money managers out there, two thirty five billion dollars
• 7:45
  Speaker 1: firm wide. It was a must stop for me back
• 7:47
  Speaker 1: in my analyst days while on the West Coast. You
• 7:49
  Speaker 1: had to go see the good folks at TCW. Getting
• 7:52
  Speaker 1: his thoughts on the credit markets. Fixed income markets here
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  Speaker 1: really an issue here as we kind of go into
• 7:59
  Speaker 1: another love of this pandemic. Well, we got a sloom
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  Speaker 1: of economic data this morning. GDP number thirty three percent
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  Speaker 1: increase in the quarter, off setting the prior quarter thirty
• 8:13
  Speaker 1: or partially offsetting the prior quarters declined jobs claims came
• 8:19
  Speaker 1: in a little bit better than expected, but still stubbornly high.
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  Speaker 1: Let's dig into some of the meat of those numbers.
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  Speaker 1: We can do that with Constance Hunter, chief economists for
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  Speaker 1: KPMG based in New York City. Constants, thanks so much
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  Speaker 1: for joining us here. Let's start with the GDP number.
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  Speaker 1: Obviously a big print, but we're no, we're not back
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  Speaker 1: to where we were pre pandemic by any stretch, are we. Yeah, Paul,
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  Speaker 1: that's a great point. We are two thirds below the
• 8:44
  Speaker 1: pre pandemic level of GDP. And and just to put
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  Speaker 1: this in contact, on a per capita GDP basis, we're
• 8:51
  Speaker 1: back at Q four levels, right. So I think it's
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  Speaker 1: important when you see such a bifurcation and the impact
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  Speaker 1: of who the impacts to think about not just the
• 9:02
  Speaker 1: GDP level, but the per capita GDP. And then of
• 9:06
  Speaker 1: course on a year of a year basis, we're still
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  Speaker 1: down two point nine percent. So Um, we're not back.
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  Speaker 1: And more importantly, what this data says about the future
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  Speaker 1: growth rate is very interesting. When we look at that
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  Speaker 1: bifurcation between goods consumption and services consumption constants built up
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  Speaker 1: on that place, What does that say about the future
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  Speaker 1: of goods versus services. Well, so, first of all, normally
• 9:32
  Speaker 1: in a recession, we don't see services consumption fall that much.
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  Speaker 1: And the reason is because people still go to the
• 9:38
  Speaker 1: dentist and they still get their hair cut even during
• 9:41
  Speaker 1: a recession. Right. So um, that fell dramatically um services
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  Speaker 1: as a percentage GDP in part because of lockdowns and
• 9:50
  Speaker 1: in part because of reduced capacity. Um nobody bought World
• 9:54
  Speaker 1: Series tickets, for example, So um, there was a lot
• 9:57
  Speaker 1: of services consumption that just didn't occur. And then when
• 10:01
  Speaker 1: we compound this with people spending more time at home,
• 10:05
  Speaker 1: people are buying goods right there. They're buying fire pits,
• 10:08
  Speaker 1: they're buying you know, outdoors, uh, you know, like Lawan furniture,
• 10:13
  Speaker 1: and they're buying pelotons and things like that, right And
• 10:17
  Speaker 1: and there's only so many pelotons you're going to buy. Right,
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  Speaker 1: So that goods consumption while it rose dramatically, and it's
• 10:24
  Speaker 1: up five point five per cent Q over q UM.
• 10:28
  Speaker 1: It is not going to continue at that pace right now.
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  Speaker 1: The and so the hope is that services continues to rise.
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  Speaker 1: It only rose at two point eight percent q over
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  Speaker 1: q and and and that as we continue to reopen
• 10:43
  Speaker 1: services consumption is going to resume. The concern, of course,
• 10:47
  Speaker 1: is that the virus is surging in a number of
• 10:50
  Speaker 1: parts of the country and and actually growing in some
• 10:53
  Speaker 1: parts of the country where it was not growing previously.
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  Speaker 1: And the concern here is this is going to hold
• 10:58
  Speaker 1: back conservices comes option. So we're not going to see
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  Speaker 1: a repeat of the goods consumption. And unless services consumptions grow,
• 11:05
  Speaker 1: we're conservices consumption grows, we're going to see a pull
• 11:08
  Speaker 1: back in the pace of growth of GDP pretty significantly.
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  Speaker 1: Cons Where are you were you kind of coming out
• 11:14
  Speaker 1: at KPMG in terms of your GDP look for the
• 11:17
  Speaker 1: remainder this year. But more importantly, yeah, so in UM,
• 11:23
  Speaker 1: we're so our base forecast at the moment does not
• 11:26
  Speaker 1: have additional stimulus. And and let me just say that
• 11:30
  Speaker 1: I think that's going to end up well, yes, and no,
• 11:34
  Speaker 1: I was gonna say I think that's going to end
• 11:35
  Speaker 1: up being incorrect because, um, if the president wins reelection,
• 11:40
  Speaker 1: he will try to put forth a stimulus plan. If
• 11:43
  Speaker 1: Biden wins, he will try to put forth a stimulus plan.
• 11:46
  Speaker 1: And the sign of that stimulus plan depends in large
• 11:49
  Speaker 1: part on whether the same party that holds the White
• 11:52
  Speaker 1: House holds the Senate. Right, So if you have a
• 11:55
  Speaker 1: different party holding the White House and holding the Senate,
• 11:57
  Speaker 1: the stimulus who is going to be smaller. If you
• 11:59
  Speaker 1: have the same party, the stimulus is going to be bigger.
• 12:02
  Speaker 1: And it honestly, both the Republicans and the Democrats, if
• 12:05
  Speaker 1: they are in control, are going to put forth similar
• 12:07
  Speaker 1: sizes of stimulus. The focus on where those stimulus stellars goes,
• 12:11
  Speaker 1: of course, will be very very different, depending upon whether
• 12:14
  Speaker 1: it is a Republican or Democratic resident constants. Just give
• 12:17
  Speaker 1: us a sense of how big the spread is in
• 12:19
  Speaker 1: your estimates for the economy if we get a fiscal
• 12:22
  Speaker 1: support bill or if we don't. Yeah, so it's it's
• 12:26
  Speaker 1: pretty significant, I mean um, and where where it really
• 12:29
  Speaker 1: comes down as in personal income, So we'll see personal
• 12:31
  Speaker 1: income decline um in one. If we don't get stimulus, um,
• 12:37
  Speaker 1: we will see it rise. And this sort of this
• 12:39
  Speaker 1: sort of makes the difference between like a five percent
• 12:42
  Speaker 1: rebound in GDP and like a six and a half
• 12:45
  Speaker 1: percent rebound in GDP. Wow, that's huge, Constance Hunter, thank
• 12:49
  Speaker 1: you so much for being with us and for all
• 12:51
  Speaker 1: of your research. Constance Hunter as chief economistic KPMG joining
• 12:55
  Speaker 1: us on those GDP figures. We didn't even get to
• 12:57
  Speaker 1: the jobless claims figures that we got today, which were
• 13:01
  Speaker 1: better than expected, but still a very hefty amount nearly
• 13:04
  Speaker 1: eight hundred thousand new claims coming in and a number
• 13:07
  Speaker 1: of people shifting to permanent unemployment. This is the sticking
• 13:11
  Speaker 1: point to meet at. Paul and I think about this
• 13:13
  Speaker 1: all the time. What is the structural scarring that we
• 13:17
  Speaker 1: are experiencing at this point? People who are not going
• 13:20
  Speaker 1: to get back into the workforce for years. That's exactly right.
• 13:24
  Speaker 1: And you know, the longer this goes on, at least
• 13:26
  Speaker 1: the expectation is, you know, the more permanent some of
• 13:29
  Speaker 1: those job losses will in fact become. And we saw
• 13:31
  Speaker 1: that with the financial crisis in two thousand and eight
• 13:34
  Speaker 1: and two thousand nine. You know, many of those jobs
• 13:36
  Speaker 1: took several years uh to kind of get refilled and
• 13:40
  Speaker 1: get back to a stronger employment situation, and the concern
• 13:44
  Speaker 1: is we may have something like that this time around. Yeah,
• 13:47
  Speaker 1: with the added emphasis and this idea that there's an
• 13:50
  Speaker 1: increasing focus on tech. So what jobs are going to
• 13:53
  Speaker 1: be required. I don't know whose idea this was to
• 13:57
  Speaker 1: have Alphabet, Amazon, Apple, on Facebook, and Twitter all reporting
• 14:02
  Speaker 1: earnings after the bow on October twenty nine. But here
• 14:06
  Speaker 1: we are, and we are going to be trying to
• 14:08
  Speaker 1: pass through all of these earnings reports today, even though
• 14:12
  Speaker 1: they account for a significant chunk of the entire equity
• 14:15
  Speaker 1: market of the United States, not to mention the world economy,
• 14:18
  Speaker 1: joining us to help us focus on what the most
• 14:21
  Speaker 1: important aspects of these earnings reports will be. As David Garretty,
• 14:24
  Speaker 1: chief market strategist for laid Law and Company and partner
• 14:28
  Speaker 1: at bat Block, David, what were they thinking all coming
• 14:32
  Speaker 1: out in the same day? I gotta start there, well, Lisa,
• 14:36
  Speaker 1: it reminds me a lot of UH. I used to
• 14:38
  Speaker 1: work from the more of the Japanese bank back around
• 14:42
  Speaker 1: two thousand and it used to be the Japanese companies,
• 14:45
  Speaker 1: all the banks would all schedule the release date for
• 14:47
  Speaker 1: the same day. So I don't really want to say
• 14:50
  Speaker 1: it here, but you know, the tech Big Five. Are
• 14:52
  Speaker 1: they turning Japanese? Uh? Very good. I saw what you
• 14:56
  Speaker 1: did there, all right, David, So let's step back here.
• 14:58
  Speaker 1: We've gotta you know, some real bell weathers for the
• 15:02
  Speaker 1: technology economy, for the consumer economy, um, for the advertising economy.
• 15:08
  Speaker 1: What are you going to be looking for as you
• 15:09
  Speaker 1: kind of read across some of these big names the
• 15:12
  Speaker 1: section in Yeah, certainly, I mean probably starting off at
• 15:16
  Speaker 1: the top with Apple, I mean, clearly, what's gonna be
• 15:18
  Speaker 1: happening in terms of sell through or at least three
• 15:21
  Speaker 1: orders for the latest iPhone is going to be most significant. Also,
• 15:25
  Speaker 1: at the same time, looking at what continued demand there
• 15:28
  Speaker 1: is for hardware. We've certainly seen from data sources such
• 15:31
  Speaker 1: as mp D that you know, laptop shipments are up
• 15:34
  Speaker 1: substantially year over year, seeing some of their strongest years
• 15:37
  Speaker 1: in decades. Uh So, certainly we expect Apple to be
• 15:40
  Speaker 1: participating in that, um, you know, clearly looking for Amazon, um,
• 15:45
  Speaker 1: you know, people continue to be staying home. Obviously Amazon
• 15:50
  Speaker 1: is feeling more and more of their needs. Amazon also,
• 15:52
  Speaker 1: at the same time, the movements of the cloud. We
• 15:55
  Speaker 1: saw the strength and Microsoft's numbers earlier this week, Amazon's
• 15:58
  Speaker 1: leader in that sector. We would also say that Amazon
• 16:00
  Speaker 1: has been moving more in terms of online advertising. So clearly,
• 16:04
  Speaker 1: you know, Amazon has a lot of weapons to work
• 16:07
  Speaker 1: with and we expect to see them deploy them all. Uh,
• 16:10
  Speaker 1: if we're looking at Alphabet, you know, even though you
• 16:13
  Speaker 1: had a lot of heat being put on the CEO
• 16:15
  Speaker 1: last week from yesterday from the Senate Commerce Committee, Uh,
• 16:19
  Speaker 1: we do expect online advertising continues to do well. Uh.
• 16:22
  Speaker 1: There may be some drags that we see in terms
• 16:24
  Speaker 1: of some of their startup ventures, but you know, from
• 16:27
  Speaker 1: that standpoint, we still think that their market to remain
• 16:29
  Speaker 1: strong and they are clearly a significant player. Even though
• 16:33
  Speaker 1: Apple has been looking at moving off Google as being
• 16:37
  Speaker 1: the main search engine on its bones. But still we
• 16:40
  Speaker 1: think Google's alphabet's position remains quite strong looking. You know,
• 16:45
  Speaker 1: Facebook also the subject of the Commerce here in Commerce
• 16:49
  Speaker 1: Committee hearings yesterday in the Senate UM. You know, certainly
• 16:52
  Speaker 1: Facebook also benefiting as well also with the run up
• 16:55
  Speaker 1: into the election next week. All the social media companies Facebook, Twitter,
• 17:00
  Speaker 1: Snap to some extent have all been beneficiaries of influx
• 17:04
  Speaker 1: in terms of more campaign driven spending. But that's something
• 17:09
  Speaker 1: that's cyclical phenomenon. But elections look have only become more
• 17:12
  Speaker 1: expensive over time, So we're seeing a nice uptick here
• 17:15
  Speaker 1: from two thousand and sixteen levels as far as spending
• 17:18
  Speaker 1: is concerned. And then you know, uh, let's see. I
• 17:21
  Speaker 1: think that I think we got to you got through
• 17:25
  Speaker 1: a lot of it. I don't know, just home in
• 17:26
  Speaker 1: on one. In particular, Amazon, I'm particularly curious about the
• 17:30
  Speaker 1: costs that they have incurred to operate in this environment,
• 17:34
  Speaker 1: to pay their employees enough to keep them coming back
• 17:36
  Speaker 1: to work, to provide the right pps and whatever else
• 17:39
  Speaker 1: to keep their workers from getting sick. Do you think
• 17:43
  Speaker 1: that they will be able to deliver the margins that
• 17:45
  Speaker 1: are being priced into their share prices after the run
• 17:48
  Speaker 1: up that we've seen this year. I think that while
• 17:51
  Speaker 1: you may have costs in their online e commerce business,
• 17:56
  Speaker 1: specifically related to worker protection, you know, remain high as
• 18:00
  Speaker 1: they were back during the second quarter, I think that
• 18:03
  Speaker 1: the uptick that you see in terms of profitability on
• 18:05
  Speaker 1: the cloud as well on online advertising could help to
• 18:09
  Speaker 1: offset some of that margin pressure. So I think the
• 18:12
  Speaker 1: mix of Amazon continues to improve favorably. And I think
• 18:16
  Speaker 1: obviously we're sitting here in front of the year end
• 18:19
  Speaker 1: holiday shopping season, which given all the news about COVID.
• 18:22
  Speaker 1: People are not gonna be going at the stores to
• 18:24
  Speaker 1: do shopping. So where are they going to go? I
• 18:26
  Speaker 1: guess it's Amazon? So you know, you don't want to
• 18:28
  Speaker 1: sell the stock here in front of the strongest seasonal
• 18:31
  Speaker 1: quarter of the year, David. Uh. That hearing we had
• 18:35
  Speaker 1: yesterday were some of the you know, the Microsoft Uh.
• 18:39
  Speaker 1: You know, we had some of the big CEO s
• 18:41
  Speaker 1: there is that. What do you make of that? Is
• 18:43
  Speaker 1: that important risk for some of the big tech companies? UM?
• 18:47
  Speaker 1: I mean what's been interesting to look at here, Paul,
• 18:50
  Speaker 1: is the fact that you know, the tech companies have
• 18:52
  Speaker 1: been ramping up their lobbying spending. Actually the tech company's
• 18:55
  Speaker 1: Amazon being one, and are actually spending more on lobbying
• 18:58
  Speaker 1: than Boeing or a lock Keed Martin, who you would
• 19:01
  Speaker 1: think of as the DC lobbying giants. Historically. Clearly, these
• 19:05
  Speaker 1: spending levels are indications of what kind of regulatory risk
• 19:09
  Speaker 1: these companies perceive around their businesses. And all we really
• 19:12
  Speaker 1: saw last yesterday, I hate to say it was the
• 19:16
  Speaker 1: fact that just a lot of grandstanding, you know, the
• 19:18
  Speaker 1: GOP coming down in these companies because of where their
• 19:21
  Speaker 1: headquarters are geographically or what kind of contributions from a
• 19:24
  Speaker 1: political standpoint their employees make. I mean, good, Lord Paul,
• 19:28
  Speaker 1: I mean the next thing you're gonna hear is that
• 19:30
  Speaker 1: they're gonna start criticizing these companies because of the religions
• 19:32
  Speaker 1: of their employees or the color of their skin. Come on,
• 19:36
  Speaker 1: this is ridiculous. I think that Maria Senator Cantwell from
• 19:40
  Speaker 1: Washington I basically did the right thing and basically stepped
• 19:44
  Speaker 1: in on the democratic side and said, look, there's a
• 19:46
  Speaker 1: freedom of speech in this country that needs to be protected.
• 19:49
  Speaker 1: And these companies in the testimony came out and talked
• 19:52
  Speaker 1: about what they're doing to try and safeguard social media
• 19:56
  Speaker 1: as difficult as it is is from being manipulated by
• 19:58
  Speaker 1: outside sources. Right, we'll have to say that's going to
• 20:01
  Speaker 1: play out over the long term, certainly. David Garretty, Chief
• 20:03
  Speaker 1: Market strategis, thanks so much for joining us. He's a
• 20:05
  Speaker 1: laid long company also a partner at bt block giving
• 20:08
  Speaker 1: his tech rundown. Well as companies and governments around the
• 20:14
  Speaker 1: world race forward in look in search of therapeutics and
• 20:18
  Speaker 1: vaccines for this virus. That's probably we're taking a look
• 20:21
  Speaker 1: at Operation warp Speed. That's the US government's effort to
• 20:24
  Speaker 1: accelerate development of a vaccine. We can do that with
• 20:28
  Speaker 1: Stephanie Baker, financial investigation senior writer for Bloomberg News. She
• 20:32
  Speaker 1: joins us on the phone from London and she has
• 20:35
  Speaker 1: a Bloomberg Business Week story. I think it's just fascinating here.
• 20:38
  Speaker 1: Operation Warp Speed could shape up to be an eighteen
• 20:41
  Speaker 1: billion dollar bargain. Stephanie, thanks so much for joining us here.
• 20:45
  Speaker 1: What's your key takeaway with the status of Operation Warp Speed. Wait? UM,
• 20:52
  Speaker 1: you know, given that Trump has not UM pursuit a
• 20:57
  Speaker 1: strategy of trying to contain virus in the US, Warp
• 21:02
  Speaker 1: Speed is really the most visible tangible response of the
• 21:08
  Speaker 1: Trump administration to the COVID pandemic, and it's it is
• 21:12
  Speaker 1: a unique initiative public private partnership where they've given out
• 21:17
  Speaker 1: billions of dollars to pharmaceutical companies to try to fast
• 21:20
  Speaker 1: track a COVID vaccine and UM utilize the expertise, the
• 21:25
  Speaker 1: logistics expertise of the Department of Defense to try to
• 21:29
  Speaker 1: help on the manufacturing side, to try to help, you know,
• 21:34
  Speaker 1: fast track everything from you know, the manufacturing of you know,
• 21:38
  Speaker 1: syringes to vials. UM and other uh parts of the
• 21:44
  Speaker 1: vaccine manufacturing process to make sure that once a vaccine
• 21:48
  Speaker 1: is approved, there are doses ready. So obviously there's no
• 21:52
  Speaker 1: point in having an approved vaccine unless there are doses
• 21:55
  Speaker 1: um waiting and ready to go into people's arms. So
• 21:59
  Speaker 1: we're just to set it to take a closer look.
• 22:01
  Speaker 1: Is it working? You know, how are these companies interacting
• 22:04
  Speaker 1: with the federal government, What help exactly are they getting
• 22:07
  Speaker 1: from the U. S. Military? And it was kind of
• 22:08
  Speaker 1: a fascinating look behind scenes to try to figure out
• 22:12
  Speaker 1: exactly what is happening. It does seem like it is
• 22:15
  Speaker 1: moving forward. It's still an open question of course, is
• 22:18
  Speaker 1: to you know, will we get enough doses, will there
• 22:21
  Speaker 1: be a vaccine that will be approved, and if so
• 22:24
  Speaker 1: when they're quite bullish in terms of when we might
• 22:26
  Speaker 1: get one that operation work speed Um folks are saying
• 22:30
  Speaker 1: that they think they'll have more than a hundred million
• 22:32
  Speaker 1: doses by the end of the year. So do you
• 22:35
  Speaker 1: get a sense that the government is paying the appropriate
• 22:38
  Speaker 1: amount for the development of these items, that they're overpaying,
• 22:42
  Speaker 1: that they're getting a bargain. You know, I went into
• 22:46
  Speaker 1: this thinking, actually is this you know, there are a
• 22:49
  Speaker 1: lot of questions about lack of transparency UM. And you
• 22:53
  Speaker 1: know whether or not the pharmaceutical companies were profiting off this,
• 22:56
  Speaker 1: And there's no doubt that there's some pharmacutical pharmaceutical bodies
• 23:00
  Speaker 1: that are doing quite well off of this, and their
• 23:03
  Speaker 1: stock prices have rallied on the back of these government contracts.
• 23:07
  Speaker 1: But if you step back and look at it, and
• 23:09
  Speaker 1: you look at the cost to the economy, trillions of dollars,
• 23:13
  Speaker 1: I mean huge economic fallout, eighteen billion is nothing, and
• 23:19
  Speaker 1: you could argue that they should be throwing even more
• 23:21
  Speaker 1: money at this UM given the scale of the economic fallout.
• 23:26
  Speaker 1: So Stephanie, is you know at this stage it might
• 23:29
  Speaker 1: be too early. Do most people within the industry, the
• 23:32
  Speaker 1: healthcare industry, the pharmaceutical industry, did they feel like Operation
• 23:35
  Speaker 1: warp Speed is, for lack of a better term, working
• 23:38
  Speaker 1: helping the process? I think they are. I mean, you
• 23:42
  Speaker 1: know there are Operation warp speed is back to six
• 23:47
  Speaker 1: companies developing vaccines, at least publicly. There are a couple
• 23:50
  Speaker 1: of others that they are looking at backing UM and
• 23:55
  Speaker 1: five of those are basically using Operation warp Speed how
• 24:00
  Speaker 1: either to run trials or to help on on the
• 24:03
  Speaker 1: manufacturing side. Um Fizer, which is developing a vaccine together
• 24:08
  Speaker 1: with Germany's BioNTech UM decided to go different route and
• 24:11
  Speaker 1: they are paying for the cost of the clinical trials
• 24:16
  Speaker 1: and manufacturing will recoup its investment UM when it sells
• 24:20
  Speaker 1: and and approved vaccine to the government. UM. You know,
• 24:24
  Speaker 1: so I think it would be hard for these companies
• 24:29
  Speaker 1: to be able to do this completely on their own
• 24:31
  Speaker 1: without the government stepping in. And for instance, that used
• 24:35
  Speaker 1: the Defense Production Act pretty extensively actually to prioritize um
• 24:42
  Speaker 1: UH suppliers. Who are you know, providing key materials to
• 24:48
  Speaker 1: either the vaccine manufacturing process or you know Corning, which
• 24:52
  Speaker 1: is another big company that is making glass files and
• 24:55
  Speaker 1: what have you. And I think that as that has helped,
• 24:58
  Speaker 1: I think there would be delayed if that had not happened. Stephanie,
• 25:02
  Speaker 1: just twenty seconds here. How much do you expect us
• 25:04
  Speaker 1: to be talking about government funded medical infrastructure the way
• 25:09
  Speaker 1: that we had in this extraordinary setting in a more
• 25:11
  Speaker 1: ordinary setting. You know, it's a really interesting question. How
• 25:16
  Speaker 1: will this change the way the government UH interacts, you know,
• 25:21
  Speaker 1: with healthcare provision going forward? I mean, I think the
• 25:25
  Speaker 1: expectation is down the line um that the government will
• 25:29
  Speaker 1: step out once we have in a vaccine and we
• 25:31
  Speaker 1: have it and you know, in sufficient supply, that the
• 25:35
  Speaker 1: government will no longer be involved. But I think it
• 25:37
  Speaker 1: does raise the question of we need to be investing
• 25:39
  Speaker 1: more in things like vaccine and rapid technology technology to
• 25:44
  Speaker 1: rapidly make vaccines to emerging pathogens. Stephanie Baker, thank you
• 25:49
  Speaker 1: so much for being with us and for the tremendous story.
• 25:51
  Speaker 1: Stephanie Baker, senior writer for Bloomberg. Talking about that story,
• 25:55
  Speaker 1: Operation Warp Speed could shape up to be an eighteen
• 25:58
  Speaker 1: billion dollar bargain. I mean, I'll just want to bring
• 26:00
  Speaker 1: you this headline crossing the Bloomberg terminal x on mobile
• 26:04
  Speaker 1: is going to cut nine hundred jobs, mostly at US
• 26:08
  Speaker 1: management offices. Has comes, of course, as the price of
• 26:10
  Speaker 1: crude SAgs to the lowest since May. Uh. This is
• 26:14
  Speaker 1: going to be through voluntary and involuntary programs, and they
• 26:18
  Speaker 1: have kept their dividend despite the oil route trying to
• 26:22
  Speaker 1: attract investors and Lisa bram Boyd's filling in for Vonnie
• 26:25
  Speaker 1: Quinn alongside Paul Sweeney. This is Bloomberg. Thanks for listening
• 26:30
  Speaker 1: to Bloomberg Markets podcast. You can subscribe and listen to
• 26:34
  Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
• 26:38
  Speaker 1: I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn. And
• 26:41
  Speaker 1: Paul Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
• 26:44
  Speaker 1: you can always catch us worldwide at Bloomberg Radio