The Coronavirus and Inequality

us too on YouTube by searching Bloomberg Global News. You're listening to Bloomberg Business Week Carol Masser along with Kaylee Lines. And we do want to get into the latest on the virus because we've had a bunch of headlines. Certainly today we know Europe is seeing more cases and getting into another shutdown, if you will. Astro Zenica saying it's vaccine candidate produced a robust immune response and elderly people, Jane Jay saying the first batches of its shot could

be available in January. So there's a lot going on. So back with us for our daily check on COVID nineteen and with his perspective, Dr Sandra Galaia he's Dina Professor at Boston University School of Public Health. He's author of Pained Uncomfortable Conversations about the Public's health, and he joins us once again on the phone from Boston. Dr Galay and nice to have you here with Kayley and myself. How are you, um well, Thank you Carol, Thank you Kayley for having me again. I am doing as well

as can be adjusted for coronavirus times, I know. Tell me, tell us what Boston is like right now. Well, I think Boston right now is a little bit anxious. I think I feel like we are and everybody is on the edge of their seat. We're seeing cases slowly creep up. They're going up, they go down, but the general slow increase in trend. And I think the mayor and the governor have been appropriately increasingly cautious, and the and the urging all citizens to be careful, and I think businesses

have been doing the same. So I think it's a little bit of a balancing act between knowing that cases are slowly trending up, but taking precautions to double down on the on the things that we are all doing, wearing masks and being careful with test thing with contact racing to avoid these cases from becoming another surge. And that's in the greater city of Boston. Dr GLA. But what about at Boston University. How is the university, How

are your students, how are you handling this? Yeah, it's actually quite quite remarkable how well we are doing in the university. And obviously the university is it's vulnerable to changes in the city around it. But we have had a fairly low case positivity in tool right now, which about point two percent, which is two per thousand, while in Brookline around it we're about two percents, almost tenfold more.

And I think the reason for that is that within the university we have a very big university, but you're able to control things a little bit more. We test all our students twice a week or once a week, depending on their contact. We have very sophisticated and robust contact racing that if somebody tests positive, we talk to them right away, we isolate them, we isolate their contact. So in some respects, the universe like a city within a city, but one where you have a lot more control.

So we have been so far touched with doing well. I think there is a lot of anxiety I have and a lot of us have about whether the larger city will end up affecting the university, and obviously, if it does, will have to change course as to what we're doing. But so far, the university, frankly, it's a safer place to be than the than the city around. Yeah.

It's kind of interesting, right, I think, you know, center that as we've opened up all kinds of educational systems, um, you know, from K through you know, of course going into colleges and universities, I think we've had some success stories and then we've had certainly some problem areas, especially when it comes to college sports reopening. I mean, do you still feel like it's important that we continue to reopen educational areas and keep them open. Yeah, And I

think the answer is yes. But it's a it's a qualified yes. It's a it's qualified by two things. Number one is that I don't think opening some that means opening and sort of going to back to business as usual like it was October. Opening means having a lot

of precautions in place. Everybody wearing masks, people are being careful not to go into work if they're sick, self attestation, everyday systems of testing, simple systems of isolating people who have positive tests, isolating their contact, and the entire really the entire range of efforts to mitigate the virus. So I think yes, with those measures in place, I think the second caveat to the yes is that we simply need to have the humility to say today on October

the answer should be yes. But I don't know what the answer should be tomorrow October, which is a bit unnerving, of course, as as you can both appreciate. But I think simply if the data change, we should change. And I think we as a university, I think we as a city, as a state, as a country, should have the humility to realize that that the virus may become bigger than us, and we we need to change what we're doing. Well, I have to look ahead then further

into to fall into the winter. Dr Elia. I mean it's pretty bad right now, we're seeing record cases, and then when it is dark and cold, no one wants to be outside. Everyone is forced inside. Are you bracing yourself for that? M hm, yeah, I am man. I suppose the big question for the winter is as people are all forced inside, will they continue to congregate inside, which is which we know is what's driving most of

the cases. And here in Massachusetts, analyzes show very clearly that a lot of the case spread comes from indoor house parties and gatherings where people are not being careful with protective equipment. So the question is are people going to go inside and in the congregate, which is then going to result in viral spread. The truth is, Carol and Kyley, if if each of us stayed inside, just on our couch, without contacting anybody, then there will be

no spread of coronavirus. So it really depends on what we do by being inside. If we are inside, taking precautions, will be fine. But if being inside means congregation broadly what we saw happen in the Southern States in the summer, right, So happened in Southern states in the summer as things got hot, people went inside where there's air conditioning, and there was all sorts of congregation which resulted in the spread of the virus. So I think it really depends.

But but the answer to your question, am I looking at aggrehensively is unqualifiedly yes, Dr Galiah. You know, Charlie Pellett was just talking about we also check in with the folks and the teams over at Johns Hopkins. You know, we've often seen people come out and say, well, there's more cases of COVID nineteen because we're doing more testing. Um, is that true or that's not the case. No, it's

not the case. I heard non Professor Sharpstein talk about this and the clip and he's still is right, it's not the case. I mean, there's no question we're doing more testing and as a result, you do find more cases. But there's plenty of evidence that this is a real rise in cases. Is not just do the testing. We're seeing a rise in all age groups. And the professor Sharstein noted, we are seeing a rise in hospitalizations. If it was simply due to testing and do the testing

of healthier people, there would not be a rise in hospitalizations. Well, and that's a really smart point, right, And I also think about the cases that do end up in the hospital. Are they how severe are they and how are we or what we have we learned about treating those cases because we have been fighting the virus now for six or seven months, well we've learned quite a bit actually, And when you look at mortality you'll see that mortality

per person is quite a bit down. In fact, we're about one quarter of the case mortality um that we had in the first way, which was in March and April. Largely that because we've gotten better at treating the disease in hospital. We've learned how it manifests, we've learned when to oxygenate went to north so we are getting much better at dealing with an hospital mother doesn't change the fact that if there is a really big surge, it may overwhelm hospitals and I see, which is what one

always worries about. But on a case by case basis, COVID is now much less fatal than it was when we first learned about that six seven months ago. So we're making progress on the therapy portion of this dr calia. But of course we are still all eyes looking on the race for a vaccine, astra Zenica, seeming to have good news out overnight finding it worked for older population specifically, which we know are the most vulnerable in this. But it's not just about getting a vaccine that works and

gets approved. You have to scale it, you have to distribute it. How far away are we from me actually being able to get a shot in my arm. Yeah, well, I think that's the question we all want to know. I think most people who have following this carefully are expecting announcements from several of the of the Phase three trials in the next month. I think we'll have announcement the next month or two that that some of these Phase three trials are ready to move forward and then

go to market. But of course the scale up and the manufacture and getting it to the people who need it in some way that first gets it to people who are at higher risk is going to be the biggest question. And I think, you know, Carol, for you and me to get it in the arms, how much, sure, but probably we are. We should not be first in line. The people should the first in line are people who are elderly, people who hire the risk people, the groups

that have been suffering disproportionately from this virus. So it's going to require a real logistical effort, and I think and hope that we will do this in such a way that is done equitably that the people who have borne the greatest burden of COVID niting are the wants to get vaccinated first. Well, and that's what I mean, this is so much of the work you've done, um Dr Galleia, you know, and I think about the people.

You know, one of the things the virus laid there right is the inequities out there in um certain populations, a lot of minority population, certainly blacks within the United States. Are you hopeful that we will make sure that that gets distributed to those people who are the most vulnerable, you know, who might not be closest to the health care facilities or you know, we've seen the stories you

know already before. Are you hopeful? Are you do you have any kind of certainty that the vaccine will get to those people? Well, hope in certainty are different matters. I am, I am, I am, I am. I am hopeful simply because I think there's been so much attention, so much conversation, including through shows like yours, to this issue, that I think it has risen in our consciousness and it has become clear to everybody it is important that we do this right. It is fair that we do

this right. There have been reports. National Academy Medicine recently had a report of a commission that articulated some very clear principles about how we should distribute vaccines. So I'm hopeful that the administration will be sensitive to and responsive to these guidelines and implement the distribution in a way that is fair and bright and reasonable. And I do not think, by the way, that that has to come necessarily at the expense of getting the vaccine out quickly.

It is simply a matter of how we treage and how we create algorithms for vaccine delivery. It's not just about the vaccine though, Dr Galia, right. I mean, there's a reason that all of these communities have been more, it's hit them harder. You've done a lot of work on health inequality. You think we do a better job of this coming out of this and just quickly just

going back to hope. I hope so because if if we if we don't have learn from this moment about how torow some some of thecent equities, truly, twenty will have been a year wasted. Yeah, gosh, um, I always love when we get some time with you, as Sandra, Thank you so much. Dr Sandra Glea din at the Boston University School of Public Health. Check out his book Paining Uncomfortable Conversations about the public's Health. This is Bloomberg

Business Week with Carol Messer from Bloomberg Radio. Michael, you're with us. I'm hoping on the phone from Miami. That's okay, Hey listen, it's our New World Order. Um, good to have you here with us. As Kaylee said, uh, this is a store. It's just bananas. So tell us a little bit about how this came to your attention. Well, we were investigating the whole issue of chemicals that go into making narcotics um and we wanted to find out where they were coming from because these are chemicals that

are in the global market. They are used for many legal things, but they're also critical for making narcotics. And one leave that we had to investigate the chemists going into Columbia via Ecuador. Ecuador sort of a transit point for the supplies that are needed to make cocaine and also transit point to get cocaine out to the world from Columbia because of its strategic location. So that's kind

of how it started. And I basically went there and began to interview police and people in the in the industry, in the government, and that's how I came upon this story. It's fascinating. Jill, come on in on us. I think we've got your line nice and clear. Now this is just a wild story. Yeah, And and just major prompts to UH, to Mike and Cam Simpson for the reporting on the story. Cam had a very similar story, um,

just a couple of weeks ago. And and this is almost a continuation of it because what we're really looking at here are US companies that are caught up in the international drug trade effectively. And it's not in the same ways that you would think of of like you know, distributing cocaine or anything like that. It's really about the raw ingredients, and in this case it's this Texas company, Tetra, and and Mike give us a sense how big of a portfolio does Tetra have in terms of all the

various chemicals that makes yeah well. Tetra specializes in supplying the chemicals that go into sort of the liquids that you need to drill an oil well or to do fracking. And this particular ingredient, which is called calcium chloride, is one of the one of the things that goes into these fluids that are really critical for finishing oil wells. They also sell it to all kinds of crazy stuff like de icing roads, UH, keeping dust down on tennis courts,

processing cheese, drying out cheese astistic. It's an agent that drives stuff out. So they're among the biggest producers in the world in this particular chemical, and they started to sort of expand sales around the world into other markets because the oil industry was sort of getting weaker for them over the last several years, and they started shipping and selling some of this stuff into South America and that's how it got diverted um into the hands of

the of the cocaine labs. UH should know that the I'm sorry one thing, you know, they haven't been accused of any crime, but their product has been just flooding into this market somehow um for for years and they haven't really been able to stop it or even known about it. So bring that bring us up to speed in terms of what we know about how this unfolds in South America. Well, so the chemicals actually manufactured in Finland and sold to Tucher sells it to a single

supplier distributor in Lima, Peru. So once it gets to Lima, it goes out into the local market there and they that supplier does what they want with it, they resell it wherever they want and we don't really know exactly how, but basically buyers working on behalf of the cocaine traffickers in Colombia are just buying this stuff up who bring it up by the ton by the truckload and finding

ways to smuggle it all the way up to Columbia. Uh. There are laws in place that are supposed to stop this, but it just doesn't work and there's just too much and you know it keeps getting through. Michael, I have to hop in here first. I have to commend you on this story. It had me at the edge of my seat, and the kicker of it, I think is one of the best parts. You say, this is a US company who knows you informed them that it's booming.

Exports to Peru are being used for cocaine production. They wouldn't tell you anything any action that they plan to take. How much of the onus is on them and how much is it on these governments? Well, they say they're

complying with all the laws. They're using license their customer and Peru that's buying it all is licensed to do business in Peru, which is true technically, UM they say their customers, says Sweares, they're not going to break any laws, which means they're not going to sell it to Cernarco's UM.

But the point is massive volunce that this has been going into that market at the same time that the United Nations and other UH international organizations have been warning that this product is being diverted in Peru UH to agents for cocaine traffickers. UH. So there's been plenty of

warnings out there. We found it without having to look too hard, and all, you know, all I had to do was go to actually go to Ecuador and start interviewing the police because they have a special unit it does nothing but but sees illicit chemicals coming through the country to try to keep them from getting to the traffickers. And the more I talked to the more this this brand name kept coming up, and you know, they and

so it just became an endemic thing. So this company when I when I asked them about that, that's basically what they said, we comply with the laws. And I said, well, now that I've told you, UM, what are you gonna do about it? And they just they would, they declined to comment any further interesting And so calcium chloride is ultimately the chemical that we're talking about in in this application, Mike. And that's also pretty basic chemical that know, lots of

people make other than tetra. Uh. And what's happened when when the narcos get their hands on products other than tetras. Well, yes, I was a curious part of this reporting. Uh. One of the police officers in Ecuador I interviewed about this. He's a he's an expert, he's a chemical engineer, and he told me that UH, Tetra makes the purest and

best quality calcium chlorid that does its job best. And he said he knows this because they arrested some of the smugglers and interrogated them and they said, yeah, this is sort of a brand of choice. And the fact once I bought a truckload of of calcium florid made in China and the my client, the narcotics lab, said I don't we want this stuff, it's horrible. Bring us Tetra. So they even, you know, it's sort of has become the brand of choice for all these uh, these labs

because of its quality. Well, this is a great story and I highly recommend that every and check it out at Bloomberg dot com. I'll put it out on Twitter and and as Joel mentioned, UH they have done a bunch of coverage in the magazine. They did another story on heroin UH and the US companies that are making kind of the hidden agreement ingredient in heroin. So there's some great, great coverage on the drug trade and US companies that are caught up in this story. Though. Check

it out by Mike Michael Smith. He's Bloomberg News uh P and I reporter and he joined us on the phone from Miami along with Bloomberg Business Week editor Joel Webber. You're listening to Bloomberg Business Week Carol Master along with kay Ley Lines. This is Bloomberg Business Week with Carol Master on Bloomberg Radio. All right, you are listening to Bloomberg Business Week Carol Master along with Kaylee Lines on

this Monday. One of our top stories today about President g opening up a meeting in Beijing this week to map out the next phase of economic development. It's the country's fourteenth five year plan. It's expected to include a focus around technological innovation and economic self for lines, and that includes China having access to the latest and greatest when it comes to semi conductors. As our Bloomberg New Economy Editorial director Andy Brown writes in his weekly column,

this is China's economic choke point. I love this story. Andy joins us from our Bloomberg Interactive Broker studio along with Kayley, who's also back there. Uh Andy, Um, you know, we've been talking a lot about the semi conductor area, and I think this is just an interesting way when we look at kind of what China needs, certainly going forward as it tries to be a mite when it comes to the world of technology. Exactly right. You talked about the five year Plan, the fourteen five year plan.

We're expecting something like one point four trillion dollars to be devoted to technology, of which quite a bit is going to be an effort to develop semi conductors. Don't think that they've already spent about two hundred billion dollars already trying to make advanced chips and they haven't actually mastered it yet. And that in real terms, by the way, to a billion dollars is actually more than the United States spent on the Moon shot, the Apollo moon shot.

It's quite a lot of money. I have to feel bad for semis and semi companies here, right, They've just been pawns in this battle between the US and China when it comes to trade, when it comes to everything, they are just so uh. They go with the fluctuations and geopolitics. I mean, how can we feasibly get out of the circle. How do you diversify the supply chain so that either one of these countries can operate and use chips without needing to interfere with the other. It's

a real problem, not just for the chip companies. As you know, UM China is the biggest market. Their output goes to China. It's a problem for them because if they lose the China market, they lose the revenue that they need to develop new chips. And as I said in the in my newsletter, you know um uh Moore's law states that you know, every couple of years you double the number of transistors on a chip. The investment

required to do this, uh is enormous. So if you actually choke US semiconductors off from the largest customers, you're going to severely limit their ability to innovate. And that's as an implication not just for those companies, but for the entire U S economy we do with all those five G I phones, right, So, you know, Andy, we talked so much about how the US needs China, China needs the US. I mean, this is really um a great example of it in many ways. Correct. It is um.

You know, China is the largest supplier of electronic goods and the United States has um the best technology. UM it it is, you know, it's it's it's a technological problem for the Chinese leadership. I mean, here you are right on the edge of a huge revolution UH in technology powered by five G by you know, quantum computing UM uh and and the precondition of this is that you have semi conductors. China actually imports its Its biggest import item is semi conductors, not oil. Um and and

the most advanced use US technology. It's it's a political problem to China wants to say, you know, we are independent, we we ah, we we control our own destiny. We're not going to get pushed around by anybody. But actually, when it comes to semi conductors, they are getting pushed around. The United States is pretty much crippled Huawei, which is China's technology leader. Right, So what about though, what Andy, what China can do? Because I think about you write

about this, you know, the supply of rare earth's. You know, will China use that as kind of a weapon or a leverage to get the US to do what it wants to do or you know what, how do you see that playing out? It's very difficult for them to pull that lever. They really need foreign investment right now in the economy. Uh, and you know, taking a hardline against for instance, a you know, an apple would send entirely the wrong signal to the entire foreign investment community.

So they're really reluctant to do that. Um, you know, they don't really have much option except to keep plugging away and trying to catch up. And the problem there is that it's not just a question of money. Money actually doesn't get you there. China has spent way more money than South Korea and in subsidies in Taiwan has and of course the industry is concentrated in those two places. Um, it's really about experience in the end, and that's something

that you can't buy. Right. Well, so then how quickly can China make this happen and hold their own in this? I mean, the story of China is one of just a rapid growth trajectory, both in terms of economic growth but also in their technological capacity. Um So, I feel like we've come to have a lot of faith in just the speed in which China can get things. Is done. Not the case for this specifically, Well, it's not because

it it isn't. I mean, if if you could poach talent, if you could spend money and you know, build the capability, it would be one thing. But you can't. I mean, it's cumulative and and and experience can't be bought. For the for the foreseeable future, we're talking about ten twenty years, China is going to be highly dependent on US technology for a core part um of its of its of its development in semiconductors. And and that's the that's the

hard truth that Chinese leaders now face. And I do think you know, longer term, and you write about this as well, and we've talked about this is decoupling where we have kind of two you know technology world, right, one aligned with China and the other aligned with the US. Yeah, people now talk about two supply chains, the blue supply chain, the American one, the red supply chain, the Chinese one. And of course, you know, if if that's the way it's going to work out, the whole world is going

to be a loser. I mean, it's gonna it's gonna raise costs, it's gonna undermine innovation. Um, and it will cripple the ability, will undermine, will limit the ability of US companies, semi conducted companies to innovate. Yeah, it's really raining in globalization and the benefits of that. UM. Andy, thank you as always always love to check in with you. Of course, are Bloomberg New Economy Editorial Director Andy Brown in his weekly column check it out at Bloomberg dot com.

But certainly one of the big stories is we continue to watch China and doing its longer term planning uh and what it will focus on in the next decade. This is Bloomberg Business Week with Carol Messer from Bloomberg Radio. Well, it is Kaylee Lines about to be the biggest I p O ever. I mean, this is just kind of wild. Are Andy Brown, who we just talked to about China

in the semi area. He um, We've had him on and he's talked about how this company is kind of a cross between jpmorget and pay Power talking about Jack mas Ant Group. It's expected to raise about thirty four point five billion dollars through an I p O right in Shanghai and Hong Kong. Uh And here's a little perspective for you. That's about the same valuation as JP

Morgan Chase, four times larger than Goldman Sachs. How about that. Um, let's get more on this company and why it's cornering so much attention and its role in the global financial landscape. Blueberg News Deals reporter Crystal sees with us. She's on the phone in New York City. Crystal, good to have you here with us. I mean, this is a blockbuster. Yeah, it is the biggest IPO ever. We expected, you know, a Ramco last year to be the biggest. It turned out to be a twenty nine billion view and then

here we come sevy five billion. So this really would be the biggest deal. It would be a monster deal. Why do people want to invest in it? Where's the appetite coming from? So this this, this is the story of a very much more player in the fintech space and not only is it a fintech player, it is a complition like you said, and it's a paper plus the Venmore plus the JP Morgan. So really it has a lot of influence in China because there's somehow take

over the ships market. Ships of traditional blanks path Um E Wallace is super popular in China, and Ali paid, which is the product that and operate, is where it's probably the biggest player in China. So I mean that's on its own. Just to share volume that they process gives them this valuation in this race that they can justify. So Chrystal, is it a company that will continue to dominate in China and in Asia specifically, or is it something a company that we're going to see spread throughout

the globe. Ultimately, interestingly, forty of the use of proceeds is actually going to be used for um overseas payment extensions. And although that's that sounds like they're expanding out of China,

it's still very much focused on Neese customers. What it really means is that they will try to expand into merchants in in in places where Chinese tourists like to visit, Like you know, when you go to I guess like the Hudson Yards when you would a pair as you would see you would see the luxury stores with an Alipay QR code. So um, that is that is what there is what that's what their expansion is focusing on. But it's very much so a China specific play, and

not even within Asia. It's very much a China pel player. Well in Crystal, it's also a Chinese listing. I feel like it's not lost on any of us, any of us that this wasn't a US listing. They're not on the NICE either, They're not on the Nasdaq. The I p oed in Hong Kong and Shanghai. I'm assuming in large part that's because of the scrutiny Chinese listed firms are under here in the US. But how significant is it that this thing did not price in New York City. Yeah,

the biggest deal ever is not a US listing. Is also is a Chinese company that is listing in China and Hong Kong. That the concurrent listing is interesting. This has not been on before. Some companies have tried to do a simultaneous listening, but and will be the first thing to pull it off. But more importantly, and Ali Pay and we Chad Pay we're under White House scrutiny. Just last months, White House was trying to ban both

products in the US. So I think that just that also explains why US is not a friendly environment for this IPA. Yeah, are we expected to see an a d R at any point? It could happen, but with thirty five billion, I don't think that is the immediate next step for them. So what what should we take this as a signal? We have this massive company that is going to have a market valuation bigger than JPMorgan not listed in the United States. Is this going to

be the future of Chinese technology companies? Are really Asian technology to be companies avoiding US listings. There hasn't a lot of talks about Chinese businesses going to you know, focus on their domestic market, domestic capital markets going forward. And we saw this last year or earlier this year with Ali baba Uh doing this homecoming list thing, doing a second listing in Hong Kong instead, although they were

already listed in the US. So we will continue to see more of that um trying to capture Chinese customers. After all, the products are only available in China almost exclusively and having that consumer base and the investor base that understand the product really does help with the valuation. So what does a company like and Financial mean for some of the established players, global banking players, whether it's a JP Morgan, whether it's a Goldman, you know, whether

it's a European global banking giant. What does it mean potentially the impact on them? It does look like a threat, but it really isn't because I mean, for Stata, we we don't really see and Financial or Alie pay or we chap pay even being a popular, you know product globally. First of all, it's very much the marketing is very much focused on China. You have to have a Chinese bank account to open UH, to open a ali pay

to ALP service. But also those JP Morgan's proto bus this aren't going into China anytime soon because there's a very strict um regulation regarding banking licenses and all all sorts of thin tag uh regulations that you need to get permits from the Chinese government. So, I mean, it's

two very different worlds. Just looking at the evaluation and the scale, it looks like we can we can say that there would be some sort of competition, but at the stage, like with the very segregated business environment in both countries, like we don't. I don't really think that's like the top of mind competition, right, but you have to go. But you have to think that those big banks are certainly watching because the financial landscape is evolving

and disrupting pretty quickly. Um, thank you so much, Crystal. See she's one of News deals reporters. She's joining us on the phone in New York City. Um, what is expected to be the largest I p O. It feels like we talked so much about a Ramco when it was I p O and this one like just kind of crypt behind us, and it's like significantly bigger. Six billion dollars, Carol, that's quite a chunk of change. Yeah, it is, and it is interesting that it's not it's

a listing over in China, that dual listing exclusively. I'm brother journal. Yeah, but you let me drive, no, no, no, no, drive home, honey, please, I'll do the riding drivel. I want to drive, just drive, baby, it's the questions trying. This is the drive to the globe. Give me thanks. We'll drying up down on Bloomberg Radio. It is time for the drive to the clothes right here on Bloomberg Business Week, Carol Master along with Kaylee Lines. We've just

got about eleven minutes left in today's trading session. Back with us, and great to have back with us. As Randy Watty's chief Investments strogist at O'Neil Global Advice Isiser's. He's with us on the phone in Washington, d C. Randy, how are you. I'm good. I hope you and Kayleie are are are healthy and safe in New York and everybody's all right up there, Yeah, doing okay, thank you, thank you. Um. We're watching the markets though, investors. Definitely,

it's a risk off trade kind of day. I think disappointments, safe to say, concerns about those rising virus numbers that you just mentioned, Randy, and then concerns that we haven't gotten some kind of aid package through. Again. How do you see the current trade right now? I mean I would agree with the first two things you said what you said. I would add a third, which we've talked about previously, which is the election. The election is going to be close. There's a lot of uncertainty about about

what's going to happen. I think people again are nervous that when we wake up on November four, we may not know who who won the presidential election, and then there's a question of how long is it going to take to figure that out. Markets don't like uncertainty. Fiscal stimulus uncertain election uncertain and COVID ramping up again another uncertainty. I think all of that really gives investors a reason to take profits after a heck of a run for

flows in March, Randy, what makes you most nervous? Is it the prospect of a contested election or is it the ultimate result? How do you think about a blue wave or a second Trump presidency? Um? I mean historically, mathematically, the market does a little bit better, uh, in the in the first year of a second term president than in the first year of a first term president. So I think a lot of that is because normally if an incumbent president loses, he or she loses because the

economy is weak, right, uh. I think what makes me nervous is not the result of the election. It's the idea that we could have an extended period of time of uncertainty, not knowing who one I know there's been some speculation from states like Michigan that it could take him a week to to to to count all the votes, and I think the market would not like that. Well, well, so how do you or what are you thinking about in terms of positioning ahead of the election because of that?

Or are you Randy, Well, well, you know, normally the market, the market is actually following the script today. What's funny is it hasn't been following the script up to this point for the month. Normally, the market is down in September, October, going into the election. After the election, starts to rally in November and has a strong December. So what's really unusual is the fact that the NASDAC and the SMP are both up month to date and actually still are

going into today. Normal action is for investors to take some profits off the table before the election occurs. Right, And of course, in addition to the election, in addition to stimulus, in addition to a pandemic, it is also earning season. It's the biggest week of earnings. UH this week, Randy fifteen trillion dollars in market cap reporting. Do we care or is it all about those first three things? I just mentioned we we do care. Earning season has

gone pretty well. The SMP has reported so far of come in positive so ahead of x bigtations, thirteen have coming below in one percent in line, I would say, of note, forward estimates are not moving a great deal right now. I think the thing that is most important with earnings is that Q one and Q two of next year are supposed to see a very large celeration in earnings, especially Q two and next year, which is projected to be by Wall Street analysts in earnings for

the S and P five hundred. And I think the fear is are those numbers too high because this economy is going to stall, because there is no fiscal stimulus yet, and because the virus is ramping up again. Personally, the thing I'm most troubled by, and you see it all the time if you walk around Manhattan, is the hitlet small business is taking and the number of small businesses that are closing. We still have about eight percent of the country out of work. You know, I think that

that's still a problem. Well, right, because as much as we focus on the large cap and publicly held companies Randy that ultimately the backbone is those small companies, and ultimately if they come undone, which we have already seen a lot come undone, if that continues and the trends get worse, ultimately that will impact the big cap guys also, absolutely, because it will affect consumers ability to spend, and that that's one of the reasons we need a stimulus package

out of Washington. I think you know they owe it too small small and mid sized businesses, and I think the market and investors are frustrated that they haven't been able to to come to some kind of agreement. So talk to me about small caps. As looking crunching the numbers, the Russell is down about four percent so far this year. You've got the S and P up about five percent this year. You've got the Nastack up about this year Russell. Though the small cap names have had quite a rally,

up about six from that March low. Um, what's your take on this group? What are you seeing is their opportunity here? We think there is opportunity. Normally, small caps are are more cyclical than some of than some of the larger companies because they get a bigger portion of their revenues from the US versus overseas. The fact that small cap has started to pick up is actually quite positive. It's actually quite positive sign for the market usually means

good things further ahead. I think investors, you know, are starting to get more optimistic that there is going to be a stronger economic recovery next year. I would note small cap is greatly underperformed large cap the last couple of years. Small cap used to trade out a premium to large cap and now trades a kind of parody to a discount. So on a relative valuation basis, right now,

small caps actually pretty cheap. So if you feel that the economy is going to pick up next year, you would want to start allocating some money going forward as a small cap versus large Do you think the economy is going to pick up next year? I think I think it is going to pick up next year. My question is when I am nervous that it's going to be a tough winner, and I'm pretty nervous about Q one earnings to be blunt. So then Randy call a value rotation for me? When does it happen? I think

it's the second half of next year. For value to get going, you really need two things to occur. You need you need basic materials and energy to do better, and you need you need financials, particularly banks to do better. Now the curve has has steepened a little bit recently, but you know, rates are still very very low. So I think you've got to feel better about banks and about energy prices to get to get more bullish on on value because there's such a big part of the

of the of the index. Until we start to see those signs, we still want to stick with growth. And frankly, we still like technology, all right. I know it's hard. It's hard not to. I mean not just because it just keeps trending high and higher, but even the stories, the fundamental stories behind it, Randy, makes sense, right. I think the key on technology is do you feel more comfortable that technology companies next year are going to hit their earnings estimates? Or let the overall S and P

is going to hit its earnings estimates. Right now, technology as a group is forecast to have the same earnings growth as the S and P. I think it has a better chance of making those numbers. All right, good stuff as always, Randy, Thank you so much for while Randy Watt's chief investment strategies at O'Neil Global Advisors, joining us on the phone from Washington, d C. Thanks so

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