Fed Leaves Rates Near Zero

Business Week on iTunes, SoundCloud, blo Bloomberg dot com. You can also listen to our radio show at two pm Eastern on Bloomberg Radio every weekday, or watch us on YouTube by searching Bloomberg Global News Live from New York. It is FED day. Let's get into it. The FED coming out with its monthly meeting, FED extending Central Bank dollar ripo and swap lanes to March one, holds rates near zero. This is the headline you want, says virus

poses considerable risk. Those are the red heads on the Bloomberg. We're gonna dig into it in death with our team. Look at the equity reaction, the fixing, income reaction, everything you need to know about the underlying economy. And we're gonna hear from j Powell in just about half an hour, the FED Chair taking questions about where the FED goes from here. It has been heroic in many people's eyes in fighting the effects of this coronavirus. All right, let's

break it down. Got the perfect experts to give us all the context you need. Kathleen Hayes Gluble, Economics and Policy editor for Bloomberg. She's in our Bloomberg Interactive Broker Studio home base. Dave Wilson, Stocks editor for Bloomberg. He joins us from New Jersey, k h. I want to start with you, Uh, what'd you see here? We see a feder reserve that is signaling what we expected, Jason, because look, there's a considerable risk to the economy from

the virus. The Fed also saying again that they're gonna keep rates very low until they're confidence that the recovery is under way. I think another more specific thing that is highlighted. In fact, it's even of our famous red hot stickies. The FED is extending uh their dollar repo

and swaplinds to March thirty one. This These are the the dollar borrowing lines that the FED sets up for overseas central banks, right, so if you're leading liquidity in Japan, the UK, wherever, you can reach out to the FED. So again, I think it underscores that the FED is saying what we think. The virus unfortunately has not really lightened up its impact on the US economy, for example, that much. In some cases, it's gotten worse in the

States where things are resurgent. New York of course doing a bit better. I like to always remind people of that, but uh, overall the impact is negative. I think what markets are wanting to know is what did the FED

discuss about cementing, narrowing down, formalizing forward guidance. All the reports are that they're talking about it now, they've been talking about this, and what it would allow them to do is underscore that they've got an easy policy and so that will keep bond yields low and you know, the whole, the whole, the you know, the businesses will be reassured, maybe even people want to get a mortgage will be assured. Uh, and they can do that by

with their forward guidance. I think we're not going to get anything specific on that until the press conference with J. Powell, because every reporter who's asking questions is going to ask about that. But so far on the headlines and probably in the policy statement that was released, which is where we get these headlines, there's there's not too much. There's not enough to be flashing it yet, right, all right, So about twenty six minutes we expect to hear from J. Powell.

Uh So much more to dig into Kathleen Hayes, But first let's get to Dave Wilson. Dave talked to me about the equity reaction here. There was a nice run in the equity market ahead of this, some anticipation, and

then it popped. What did you see, right? I mean you saw, you know, in the first few moments after the headlines came out, the SMP five hundred hits high the day, and then it's sort of backed off a bit, really and keeping with what it had been doing in the last half hour or so before uh the announcement.

And so what you're left with is a market that's solidly higher, and as much as anything, the other big event of the day is not really roiling stocks, and that would be the testimony of the four big tech c e O S before the Half Judiciary Committee. Uh, you know, Jeff Bezos said Amazon, Tim Cook at Apple, Mark Zuckerberg at Facebook, and Sindar Pecai at Alphabet, the owner of Google. All those shares are higher at the moment, and they're helping stocks move up as they have for

some time now. So it's not like what we saw the FED really changed that equation. Interesting, and we're gonna talk a lot more about tech as we go throughout the afternoon, and uh this program, we're gonna hear from Tom Giles later in the show about what he heard on Capitol Hill. Getting back to the Fed, Kathleen, what I want to go back to that second redhead that you talked about, because if it's a redhead at Bloomberg,

I've been here long enough to know it's important. It's important to the broader world, is what I heard you say. Help us understand from the an investor's perspective, why this is important, what this signals to the world and and maybe more importantly, the markets. Well, one thing I'd like to point out and remind us is yesterday was day one of the FEDS to day meeting. What did they announce yesterday that they were extending until the end of

the year. Seven of their nine emergency lending programs and the only two they didn't extend or weren't on the list was that they were already going to go to the end of the year or beyond. So basically it shows I think it shows us that the feder Reserve is ready to do whatever he needs. And importantly, though there remember back in June, you know, April was a terrible month, but a lot of people really thought maybe we'd be in a more of a recovery terrible second

quarter rebound in the third quarter. That that has faded a bit, hasn't it. Maybe we'll get the three throw quarter rebound. But it doesn't feel like we're ready to, for example, not need more stimulus from the Fed, or for that matter, not to need more fiscal stimulus. That's something else that J. Powell probably asked a lot about at the press conference. And when we look overseas, even in countries that supposedly did better than United States, everything's fine, Well,

there they have cases popping up. The virus isn't vanquished yet, and uh, it's probably not going to be vanquished for a while. And so you never know what is going to happen again in one of the countries that has access to the FEDS swap lines. It's it's like extending credit to other to foreign countries. Uh. I think it also shows this sense, well, let's extended to to March,

because we don't know what's going to happen. We're not in that position now where we think, oh, we're on the verge of you know, a lot better situation for the economy, or past the worst of the virus. We're at a point where everybody is still responding to it, locking down in some cases, reopening a bit in other cases. But consumers more than ever, of course, even though they spending a lot. I want to just segue a little bit to this fiscal question, because she's gonna get pounded

with that. Uh. I was speaking to Patricia Mosster this morning. She was at the New York Fed for many years. She's at Columbia University Seepa now, but she's been there, done that, you know, really hands on with the whole bond market side of it and all. She says that the reason why, and I think a lot of people say this one of the reasons the stimulus is so important and giving people the unemployment checks is so they'll keep spending money, because that's one of the things that

has responded better. And without that extra money, a lot of people are likely to say, well, I got some Now I better hold onto whatever I have, especially if the unemployment benefits I've been getting are going to get cut. So and again, same thing is gonna be playing out overseas.

So to come back to your original question, I just think broadly this shows the FED is still in defensive mode in the sense of waiting to see what the virus does to us, but also an offensive mode saying, well, I'm going to keep certain players on the field right to perform certain tasks because you know this game isn't

over yet. Yeah. Absolutely, And so Dave Wilson, I mean I turned to you and ask how much is the market I'm glad you pointed out that the market is looking and investors looking to Capitol Hill for the tech stars, the tech CEOs. How much is the market now looking to Capitol Hill for exactly what Kathleen was talking about,

which is some new fiscal stimulus. Well that really does become front center, because I mean it's Kathleen's pointing out you know, monetary policy is sort of on a track at this point, so you know, it's a matter of what's going to change, and we know that there are going to be changes in the unemployment benefits at the

end of this week. Uh, even potentially if Congress and you know, the Trump administration can get together on a plan moving forward, so that becomes more of an issue, just because you know, you have the potential to see more of an effect from whatever they managed to agree on. Right, most important question, I think I know the answer, Kathleen has most important question for j pow. Wow. Oh, it's got to be for a guidance. I mean, that's gonna guess that in so many ways, and I think that

might be part of the broader question. Look, there are people right now who are very concerned that we again we make it a three quarter rebound because the numbers are gonna be so beaten up in the second quarter. What are Bloomer consensus for tomorrow for the second quarter GDPs down? Some people have bigger numbers, some smaller, but they're all terrible, right, So it's not too hard to you know, to get out of the deepest pit you

could possibly be in. But I think the question will be if things get worse instead of better, what can you do? You've done everything? And in that context, how much of a difference can forward guidance make? Uh? And of course the but but every Republican is gonna want to know is have we done? We have to make do more? But don't we have to worry about that?

But budget deficit every day? Democrats gonna want to know why you know, no, we barely are going to get do enough we get our three and a half trillion dollar bill passed. But again I think uh. And in fact, you know reporters may ask versions of that as well. I think the most important one is are you guys done? Is there anything more you can do? And is the

ball in somebody else's court like Congress? And how prescriptive do you think he will be in terms of the fiscal side, because I feel like he's pushed it a little bit. Maybe then we might have expected in terms of saying what at least he needed action obviously from Capitol Hill. Do you think he will be so forward as to be prescriptive or no, he won't be prescriptive, but you know you make I'm glad you mentioned that

because it's very important. People who haven't watched the Federal Reserve as long as I have, or you have, or Dave, you know, think back, we back early for you got Bill Paul Volker, but think of Alan Greensman. He went out of his way not even to say the word, you know, fiscal or budget uh. And Jay Powell. I think people were stunned, some a little bit precautiously and some people gladly that he has been more willing to say, maybe not exactly what you need to do, but you

do have to spend more money. Congress has to do something. This is the worst crisis is economy has seen, at least since the Great Depression, and that is where he has he has stood out again. I don't know what he'll be ready to say tomorrow, but I suspect that will be. Whatever you do, just do it and do it fast. People can't wait, all right, Kathleen his Global

economics policyiator for Bloomberg. Great to get the instant context from you back to the FED back in anticipation of hearing from FED Chair J Powell in roughly fourteen minutes.

We will take you there live. But in the meantime let's dig in a little further understand what we have heard from the FED so far and what it means, especially in the context of everything going on, all these negotiations on Capitol Hill, the role that FED has played, the world that Congress will play, and the administration, and what investors make of it. Delighted to have Ira Jersey,

chief US interest rate strategist for Bloomberg Intelligence. He joins me from New Jersey and Dr Steven Skanky back with the chief economic advisor for Keel point of course, former U. S. Treasury and White House National Security Council staff member, just the guy that we want to talk to for all the context. This is a very holistic approach we're going to take to this, Ira. I want to start with you, um, from your perspective, from what you watch when it comes

to interest rates and the reaction of the market. What's the most important thing to read here? So so, I think that there's two things that the FED continues to be, you know, hyper focused on the level of the coronavirus cases, so that they even added an entire sentence, which for for the FED to do that, uh and make their only significant change something to do with the coronavirus, I

think is very telling. And the second thing that I think is generally important to the market is the fact that the Fed has extended their swap lines and their UH dollar repo facilities with other central banks through the end of March. And this is important because if you remember, at the beginning of this crisis in March, you had a lot of volatility with in the treasury market because um, there was not enough dollars overseas. So this will keep

plenty of dollars overseas. So things like Lieboard, the London Interbrank Orford rate, as well as treasuries that are held overseas are going to be easier to fund because of that for a long time. So that that gets rid of a potential worry that maybe some of the markets would have had come September when these facilities were supposed to we're supposed to end, right, all right, Steven Skanky,

come on in here. Um, let's take a step back if we can, because you have said, I think among a number of people, this seems to be the consensus that j Pal and his friends at the Federal Reserve, they've done a pretty good job. They have been on the front foot. They've been pretty active, they have made a lot of moves, and yet they come into this latest meeting. They came into this late, this meeting with the backdrop that they probably didn't anticipate or certainly didn't

want to anticipate. It is not an optimistic view of the world right now. Tell me about them. Well, the fan as you, as you point out Jason, has been preemptive, proactive, aggressive. They they really are satisfied with all the things that they've done. There are certainly not satisfied with what's going on in the world, in the US economy, and so their bewilderment is is obviously something of interest. They got

things going in a good way. They promised that they would do all that needed to be done, and with their two point six trillion dollars in emergency credit facilities are ready to go. Uh, they found that they didn't even have to use all that much of it because once they said that they were there, and then they extended credit a few times. Good example is the money market mutual fun liquidity facility. Some money was extended, it was paid back, the market understands the fet is standing by.

All of that settled down Uh. And we were on a good trajectory from the end of April right up until pretty much the end of June when the reopenings and almost a disregard for the virus in some locations caught people by surprise. And all of the whole the virus is back and people are sick, hospitals are filling up. Uh. And that old concern comes back again. And even though we don't expect and no one expected that state and local governments were gonna shut down the way they had

in March. UH, people self shutter, self, shelter in place as a result of they're concerned about being in the marketplace or the workplace. So the FETE is out there doing what it can. You know, the fact that it's added three threeion dollars would balance sheets since January. Uh, And, as you rightly point out, is committed to using its full range of tools doing all that it needs to do to support the economy in this challenging time there

there and after ready. But as you also mentioned, uh, Pow, unlike his predecessors, has been pretty straight, pretty straightforward about their needing to be fiscal stimulus to do things that monetary policy cannot Uh. And that also is a source of disappointment that you know that here we are with a an immediate need for um extending some of the fiscal stimulus programs that have been previously enacted, and uh,

Congress is not encouraging that it's going to happen anytime soon. No, And that certainly is the viber getting in and and let's talk if we can ira a little bit about that disconnect that and there are a number of disconnects I feel like we're looking at, especially when we look through the eyes of investors or look at investors actions here.

Help me understand kind of what you see in the numbers and in the data and as you talk to your colleagues and folks on Wall Street about how the market broadly defined is reacting to this current situation, because as Steven just pointed out, it's not looking great out there, and yet here we are in a fairly optimistic dare I say enthusiastic uh investment environment? Well we lost Ara, So Steven Skanky, I'm gonna turn to you and turn

back to you. Let's talk more about that. You talk to me about that disconnected if we can, because I'm I continue to be sort of bufuddled by it, do you? Or is this just how kind of markets work? That the the gap, the chasm between the kind of real life and what investors seem to be uh investing against it doesn't add up to me. It is certainly perplexing, and there's a lot of good reason to be skeptical

and doubtful in all this. But but as we continue to watch it and look how the market reacts to any particular news, it's mostly driven by an expectation of getting the virus under control. Vaccines therapeutics. We saw good news announced late yesterday about some vaccine results that all the market was off a little yesterday. It's it's vow rebounding positively again today. The other thing that's been a bit of a surprise is the smp OR earnings so far.

They're they're beating estimates, uh self identified estimates, guidance from the companies, and bottom up calculations of earning estimates, and they're beating them at a rate that's greater than usual that we usually see in the second quarter. So so

the the rebound seems to be greater than believed. Part of it is this this peculiar bifurcation that we have going on, where the hardest hit companies are the smaller non publicly traded companies that don't have access to the credit markets that larger publicly traded companies do and UH and and some of those companies are are naturally benefiting from smaller competitives competitors just not being able to UH to continue and to hold on UM even even in

the earnings outlook it I mean, we're still expecting the thirty decline and earnings for the second quarter, which is significant, extraordinary, what is better than forecast that was UM. There's been trending out there. So the chasm, the gap, what do you do and something is to frightening really to spend

much time looking at it. You look beyond and sure enough, sure enough, they're they're looking to the other side and the third quarter economic rebound and some rebound in earnings in the third in court quarters and then on into well, I think there's this is I think there's a couple

of things. I think one is that when you look at the bond market, right the market that I focus on, it's still telling you that there's going to be very weak economic activity and relatively low inflation for years to come. So you know, the bond market's not necessarily telling you the same thing that maybe the stock market might be

on first blush. But I think one of the things that's happening with risk asset's generally everywhere is the reaction function that that the Federal Reserve and other monetary authorities globally are going to keep monetary policy easy even after the whole COVID crisis has gone right, So that's one of the things that that the Fed reiterated today at certain what you've seen in the dots back in June is the Federals are basically committing that they're going to

hold rates where they are now basically zero until at least and then the markets even thinking that if they hike, it's going to be like once every six months. So you're not talking about monetary policy getting restrictive anytime in the next four or five years. So um, you know, so it does make sense that valuations, maybe based on

current earnings, are you know, relatively high. But but like you're the other guest said, maybe over the next three years, earnings wind up getting back to some level that they were, say prior to uh, to the whole COVID issue. So so I think that's that that you're having this this whole um, you know, systemic difference in what you're seeing between different markets. Yeah, absolutely so, Steven Skanky taking this from a policy perspective, because you know all the levers

in Washington that canon can't be pulled. Many have been, but some are slower to to act, as you alluded to with the fiscal side, and maybe the frustration even if he's not showing it on the part of j. Powell and his colleagues, what needs to happen here and why isn't it happening? It seems that there's still a certain amount of denial about the seriousness of the virus. If you even just look at the trend in and

whether the presidents wearing a face mask or not. You know, for for three days in a row or three press announcements in a row, he's patting the benefits of face mask wearing, social distancing, washing your hands, uh. And then we and then we get a turn where that doesn't

seem to be a priority anymore. I think there's an internal conflict in the in the White House is to the policy that they want the fact that it's the White House and the Treasury Secretary and really the White House Chief and Staff Mark Meadows and Treasury Secretary Stephen Nuton, who are negotiating with Congressional Democrats and not even including

UH Senate Republican leadership. So it seems whatever they might be doing to keep them informed, they're they're certainly not part of the negotiations, and they just they just have a different view on this. They have a different perspective as to how they want to treat it, and whether that's driven by information they think to be true that

others take issue with is not clear. I think the other thing is that is they had originally resisted the extra six hundred dollars a week in the unemployment insurance assistance for people unemployed because of the COVID situation and the shutdown, and because they thought it was it would be a dis incentive for people to return to work

and lo and behold. Some consensus is or round fifty eight percent of those receiving that benefit or receiving more and unemployment insurance benefits than they were when they were working. UH and employers have complained, mostly anecdotally, but still low with lot enough voices that they've had probably getting people back to work, and so there was that there was a season upon that issue and how do they fix it?

And regrettably, the way our unemployment insurance system has built up and jerry rigged over the years as firstly impossible to fax it in the short term. So they're trying to thread through that UH and address and obvious and obvious concern but in a way that maybe it is not really recognizing the urgency of extending those on insurance employment benefits. Yeah, it is complicated and it is very political. As you say, Dr Steven Skanky, what a treat Thank

you so much. Chief Economic Advisor keel Point and former U. S. Treasury and White House National Security Council staff member joining me from d c our Jersey. Chief US interest rate strategist for Bloomberg Intelligence joining me on the phone from New Jersey. Both those guys, I know are gonna be tuned into Washington, as are we. So we just heard

from j Pal down in Washington. Let's understand what he said, because, as Charlie said, the equity markets at least and specifically the SMP, they are close to their highs of the day, the major indices. Why is that so? What are we seeing in the broader economy that is continuing to give investors a lot of confidence? Yelena Scholecheva, she is with us, She is working hard today. I've heard her on our era a number of times. Sior U s economists for

Bloomberg Economics. She joins on the phone as to Steve Let's chief US economists for T. S. Lombard. He's on the phone from New York City, Steve. I want to start with you. What's the most important thing, j Pal said beyond what we heard in the statement, Well, um, I think the most to me, the most interesting take um was actually the question about loans, and he he implied that the reason why there hasn't been much take up in the loans is because the markets have done

well and he's got it backwards. Uh. The reason why he hasn't had a take up in the main street lending program, and that's really the lending program I'm focused on here, is because firms don't feel confident in the outlook because of the virus and and the and the curves that it can throw in terms of having any sort of a plan about business activity going forward, and small firms don't want to take on debt in that uncertainty.

And I juxtaposed that against the fact that the market continues to go up, so it's wall streets moving in one direction. But the fact that there's no take up in these loans tells you that on the ground level, there is too much uncertainty about the outlook for people to be willing to take on get even in a very very favorable terms. So you lena that data. What is j Powell looking at, UH, because it's a lot of the same stuff you're looking at. How uncertain is

the economy right now? Well, they have been talking about uncertainty for quite some time now, you know, Leo brainer that the Fed Governor mentioned that the outlook is UH in the middle of the fog, the fog of uncertainty right now. So that's why they haven't taken any action at this meeting. They're using this time to UH discuss what they would like to do with the policy framework UH and what they would like to do with forward guidance.

I think what really happened at this meeting because there's actually nothing much they can do at this point in terms of immediate policy action, although there are some things they can improve in terms of the main street lending facility and so on. But they're using this time to kind of to come up to terms in UM in a sense of how they would like to improve forth guidance. Should they tie to UH calendar based UH kind of

a statement, or should they tie to economic outcomes? So in our of you, what is happening is that they're gearing up to publish something later on this year, along with the results of the review of the framework UH, something that states, Okay, we're gonna keep rates low until an employment rate reaches five and until inflation and show

significant progress towards the two goal. Right, they will put a lot of emphasis on what actually will happen, and not only on expectations that inflation will at some point reach there in send targets. So, Steve, the FED is obviously a very important input for anyone who's trying to understand the economy. UH, But it is just one thing.

And I think about what's going on just up the street from where j Pal was on Capitol Hill, not just with the tech executives testifying, but also with a fight which j Pal alluded to between the two main political parties over fiscal stimulus. He spoke more, maybe than even we expected him to, about the need for that and some of the atmospherics around that. There's also a political calculus that economists are taking into account, which is

an upcoming presidential election. How do you synthesize all that? How do you find the signal in the noise here? Well, I think that what he told you, uh and the way I look at policy both have fed as well as um Fiscal policy is this way. He talked about

the two phases, the lockdown and the reopening. In the lockdown phase, transferring income and supporting markets is paramount, and the fiscal policy and what he alluded to about the virus determining and looking at the outcome and looking at what's going on across the sun Belt and how that is slowed the pace of economic activity. We're not really fully into that reopening phase. And what does that mean

from a policy standpoint? It means that policy still has to transfer income and if you and if those in government and the fiscal side, I want to say that, well, we don't have to do that because it cons reopening and all that Okay, that's a that's a political view. It's not really backed by an economic reality, and they risk the economy slowing down by undercutting that transfer of income.

Um of course, all of this is extraordinarily uncertain. If everybody gets better in Texas and Florida starting tomorrow, everything reopens and and everything takes off, or vice versa. Other states. New York is doing well, it goes in the other direction in the fall. So we're still we're not locked down like we were, but the economy still doesn't have the traction. We're pure stimulus works, and the feat is really out of bullets here in terms of transferring income.

You as if the market goes down again or whatever, they he'll buy more treasuries though, expand the balance sheet. They'll do what they can. But the market was even more liquidity to help put a floor on the equity market. But that's still an income transfer program in effect, as opposed to a program that's going to stimulate and grow

the economy. And the one thing I heard because is that on the policy framework and looking at it from the perspective of the minority employment and the fact and you're landed right well right, But I agree with in the U in the framework of letting inflation run a lot. Hot Hotter, I'll tell you what he's really saying, and in the order he's giving things. Employment is the lead dog here, and employment is going to be the lead

dog for a long time. And just because you know, with the high class problem of unemployment being down to four at some point, looking at and already unemployment, looking at all these fraud things, they're not going to be quick to start tightening in anticipation that that four percent unemployment rate is going to create an inflation problem. They are going to let this employment go until they actually see an inflation problem, and then they'll react to it.

And that's really the framework. Yeah. Interesting, interesting, really interesting breakdown. You'll in a final word to you, what's the most important data point we need to be thinking about next. I think I was actually wanted to reiterate and the FED put it in the statement, and that was quite surprised they did. The path of the economy will depend significantly on the course of the virus. They wanted to

reiterate that. And at the end of the day, Uh, yeah, Well, fiscal measures aim to provide the necessary breach to whether economic turmoil. The fit is keeping interest rate flow. At the end of the day, the strength of the recovery will largely be and on containing the spread of the virus, and at that point we will need further policy support, whether from the FED or from the fiscal authority. Yeah,

it is. It's I'm really glad you brought that up, because it is interesting to hear a policymaker essentially say this is a health crisis, folks. At its core, it is a health crisis, and I think sometimes we lose sight of that. All right, thank you so much for that reaction, Elena Shall Let you have a senior US economists for Bloomberg Economics and Steeplitz Chief US Economists fort T. S.

Lombard a journal Now, but you let me drive. Oh no, no, no, no home, honey, please, I'll do the right revel I want to drive, just drive the questions trying drive to the close. Thanks well US Bloomberg Radio. All right, it's time for the drive to close. Already here we are at the close of trading on a very green day.

As you heard Charlie Pellett mentioned. Let's get into it with Chuck Lieberman, co founder, chief investment officer of Advisor's Capital Management, twining us on the phone from Lovely Ridgewood, New Jersey, Chuck, how the heck are you? I'm doing well. Thanks, Yeah, easy to do well. I feel like when the market is I was just saying to Dave Wilson, I don't know if you heard me, uh SMP in the green. It looks like we're going to finish up in this way that it is in the green for the year.

That's got to feel a little bit surprising, right, Uh. Well, you know, it's really a mixed story because obviously the tech sector things are related to UH, healthcare all or recorded levels, but there are lots of parts of the market, you know, everything related to transportation, lee sure, um, vacations, entertainment, all that stuff is still down. So it's really a tale of two cities. Yeah, it's such a good point.

And you know, speaking with Steven Skanky earlier on in the show ahead of UH hearing from j Pale, and notably j Pal himself mentioned some of those travel in hospitality stocks as you said, and you know, Skanky made the really interesting point that you know, the stock market really is driven, as you say, by not just a small number of names, but also publicly traded companies that probably are able to weather this a little bit better uh than certainly some of the small businesses who have

just gotten really really crushed, to say the least, amid all of this. So what do you do as an investor, knowing that bifurcation and that chasm that we talked so much about between the real economy that we're all sort of experiencing and a pretty enthusiastic stock market. Well, you gott have you gotta break it down. So in the case, for example of technology stocks, the Amazons and Netflix, uh, they have experienced a surge in the band and you've got to adjust for that rise in demand and make

a judgment do the stocks today represent value? Right? And there there's a more difficult case to make because obviously demand is accelerated by a couple of years, and a case can be made that, you know, maybe Netflix is now expensive. You have a much easier time on the other side of the coin, where you look at companies that have been hurt by the pandemic and you can see when some of those companies might start to see improvement. Uh, They're all not gonna come back at the same time.

Some will come back in the early phases, some will come back in the later phases. We're not terribly interested in, for example, getting into some of the airline stocks quite yet. That will probably come back a little later. But there are plenty of other parts of the market, the parts of the economy, that will come back sooner, and that's where we want to play, all right. Well, when it welcome into the mix. My partner, Scarlet Food hustling over

from TV. She was watching the FED literally and talking about it. Um, So scar bring it all together for us, you like me and like Chuck. Here, we were listening pretty closely to J. Powe. We're listening pretty closely, and J. Powill sounded a little more downbeat certainly than he was in June. Given how the COVID situation has worsened in the United States, one thing that's come up a lot is how debbish the FED is, And of course that's what spurring stocks higher right now and bon yields lower.

The vet's been buying treasuries and all sorts of other securities to ensure smooth market functioning. I wonder Chuck has all this intervention led us to a point where we have some kind of market dysfunction, to market still serve an important purpose in signaling anything about the economy. When the central mike is all in and providing tons and tons of liquidity to push prices higher, well, you know, their objective is not to push prices higher. The objective

is to make the economy recover. And as J. Powell himself said, you know, they have to hope for the best, but they have to plan for the worst. So that's why he sounds, you know, kind of downbeat um and you know, given that he's FED chairman, it makes perfectly

good sense when you think about it. You've got to think about where the opportunity is for recovery as an investor, and from our standpoint, we see, you know, the whole sectors of the economy that have been hurt pretty badly by the virus, by the pandemic, and their price for a horrible environment. But we think that some parts of them are really cheap and very attractive because, unlike the FED chairman, we can look ahead and think about the

possibility of a vaccine coming this fall. He refuses to do that because again he's planning for the worst. We can think about what's more likely, and there is a good chance that the uh that a vaccine is coming probably this year. Certainly by next year, it's doubtful we'll have enough doses to really help the economy on our broad basis in but by early next year wouldn't surprise me if we have quite a bit of it. And so you know, we're thinking ahead, not about how bad

things can possibly get. So chalk love talking names, as you know. So let's talk about some banks, because you know, financials, it's been a little bit of a different crisis this time around for them. Where do you find value and what do you like when it comes to the big banks? Yeah, so again, as Powell said, our banks are in really good financial shape. Uh. They've got a lot of capital.

The FED change the stress tests at the last minute because of the pandemic to stress them even more, uh, and even under those circumstances, our banks are in pretty good shape. So we like the big money center banks pretty much, all of them. Uh. Even even yes, I do like wells Argo because Will's Fargo is badly Wills Fargo got hit by the pandemic and their own personal uh problems, and one coming on top of the other really depressed the stock price. I do think Wills Fargo

is not only going to survive, they'll overcome it. Uh. They obviously are going to engage in a major cost reduction effort. Their costs are relatively high. They've got to earn their place back with the regulators. They're working on that. They replaced the senior management. New senior management has that as a very primary mission. UH. And so if you're patient, I think Wills Fargo is a very cheap stock that will come back very nicely. What else you like as

you look across the financials, maybe mortgages. Well, in the mortgage space, you can pick up different types of exposure. For example, the fet is going out and buying mortgages Fanning May Jenny May mortgagees. Those mortgages are very safe. They sold off during the pandemic the market's panic. People were dumping securities left and right, including government guaranteed mortgages. But with a FED coming back in that space has not only stabilized, it's gone back to very healthy levels.

Mortgage rates are now very low. People are refinancing a company like American Capital Agency. UH. His trading at a discount to book about book with a yield over ten in this environment where you know yet sixty basis points on a ten year treasury to be able to pick up ten on a company that owns government guaranteed mortgages is very attractive. Absolutely, absolutely, we're going to leave it there. Unfortunately,

Chuck to get to the clothes. We really appreciate you joining us, Chuck Lieberman, co founder, chief investment officer of Advisor's Capital Management. Johnny's on the phone from Ridgewood. Thanks so much for listening to Blueberg Business Week. Download podcast on iTunes, Southcloud, Bloomberg dot com, or wherever you get your podcasts. And of course you can always listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube by searching Bloomberg Global News