Pfizer's Robust Vaccine Data Comes With Caveats: Nisen

it is positive. Let's say the vaccine being developed by Fiser and Bioontech is preventing more than of symptomatic infections in a study of tens of thousands of volunteers. We also know Maderna is getting closer. However, on the other side of things, we know that more than a hundred thousand US citizens will be diagnosed today, and we just have Mayor Bill de Blasio in New York saying New York City is coming dangerously close to a second wave

with an all rate now that is above two. Let's bring in Max Nisson, who can synthesize all this for us and tell us exactly where we are here. Farm analyst for Bloomberg Intelligence and Bloomberg News. Max talks us about this vaccine. The market is is rallying big on it. Is it enough to save us? Uh? Not on its own? So this is what i'd call really good news that that needs a lot of context, so that that result, UM, he's a really strong indication that this is going to

be an effective vaccine. UM could fade over time as you get more data to be a little bit lower, but it really does suggest that this is something that that's going to work and and be useful. The caveat is that it's not going to be immediately available, and it's not going to be broadly available for a longer time. UM. I think the company's guided to fifty million doses worldwide by the end of the year. That's enough for only

twenty five million people. Manufacturing is going to ramp up over time, but you know, it takes time, and you will still need other seems to be successful likely in order to get a significant part of the population. Does um, you know, with any sort of any sort of reasonable

time frame. And the other thing to keep in mind is that it's not going to be ready, particularly in sufficient quantities to do anything about the current sort of rampant outbreaks that's going to take um, you know, your more traditional type of public health action, UM and then preferably with some urgency given the really disturbing rate of

growth that you're seeing lately. So Max, that rate of growth that we are seeing, you know, as you speak to the experts, is that something that's within the bounds of expectations given what we know about the virus and colder temperatures and people not being outdoors as much. UM,

Or is this even a higher rate? I I wouldn't really blame this on the seasonal effect, although you know, I may be a little biased by effect them in New York and it's beautiful right now, but UM, you know that we haven't really hit the the sort of worst period for that. The growth that's coming right now is the fact that there just hasn't been in many parts of the country. UM. You know, a robust or

sufficient response to rapidly growing cases. The seasonal effect is something that's going to take what's happening now and make it worse. It's not the cause of how bad things are right now. We're exponential, aren't we, Max. I mean, we're above two for an ol rage in New York City alone, but we're above one and all all states. Yeah,

it's it's incredibly concerning. Um. I you know, I with there's some hope you can point to in the fact that, um, the Biden administration, you know, a panel of really well regarded experts, But you do also have to keep in mind that you won't actually take power until late January. UM, so we do have the status quo on a national level. You just have to hope that the the States will finally sort of react and in the way that you should, because you know, if if you leave things the way

they are, you're just going to see continued growth. Max. What do we know about in the second wave here the hospitalization rate number one and number two, the fatality rates, or any reason to believe that those rates won't mirror what we saw in the first wave? Uh, there there is some reason. Yes, So there there are a bunch of the number of things that are different now. UM, you know, it's a different situation. The wars in the spring you had sort of completely uncontained, spread a lot

of it into really vulnerable populations. Now, even though you know obviously containment is failing, still efforts to protect those that are more vulnerable, better treatments, better, better know how about managing the virus. But the thing that you do have to keep in mind is, you know, a reduction in the hospitalization rate or death rate UM. All of that would have eventually breaks down in the face of

large enough numbers UM. You start to get hospitals that get overwhelmed, you start to get enough community transmission that all of those efforts to protect the more more vulnerable population begin to break down. So it's not something that you can take for granted. It's something that is an advantage if you you manage a relatively good degree of containment and caution, but one you know, it's it's a benefit that you can lose. Max tell us a little

bit more about this Fiser vaccine. So it's preventing of COVID cases in a study. Why is that good? You know, relative to other types of vaccines. Shouldn't have been more like and how many people are we really talking about here? So is actually excellent, especially for a vaccine that has

been developed so rapidly. So what it's preventing in this case is the thing that they're measuring is mild symptomatic confirmed cases of COVID, and the number that they're looking at is is ninety four confirmed cases so far, less than ten people in that group UM that got the fact of the virus um that that got, that had a confirmed case in the trial, or or had been vaccinated.

That's a rate of efficacy that that's comparable to you know, really effective vaccines, much better than you know, your annual flu vaccine, which you know can hover around the fifty percent range, and better than the f d a's bar for approval, which was only efficacy. So there are a lot of unknown still, you don't know how well the vaccine works at preventing severe disease UM, whether it can actually prevent asymptomatic infection or transmission. But the protection rates

suggest that it really is active. It does have some degree of protection um and a better one than what many people were actually hoping for. So um a good and meaningful results. Though that we do still need more and more context and information a max. About thirty seconds or so. There's still other entities out there working towards

a vaccine. Is the expectation that you know, as we get into one will have two, three, maybe four vaccines in the marketplace at the same time, and it'll simply be a choice or that doctors will forge out which is the best for which population. Um. That's the hope, though, I do think that only Madurana's vaccine is likely to provide data really soon, and there's some concern that having another option or a good data may slow trial enrollment. I very much hope that doesn't happen, because we really

need multiple vaccines given the manufacturing and supply constraints on visors. Max, thank you so much. We appreciate it as always a very very important day here as we move towards a vaccine. Max Neeson, Bloomberg Opinion, Biotech and healthcare columnists. You can read all of max work and the work of our other opinion columnists at Bloomberg dot com, slash Opinion or by typing O P I N go on the terminal.

It's interesting, Vonny, it's you know, I guess as Max was suggesting the hope that you know, you get multiple vaccines out there in the market, because this thing has to scale just on an incredible level. Yes, absolutely, and you know, obviously we know that it will be done in layers. But then what about the rest of the world, you know, and then how close to other countries come to getting a vaccine and how does it all get distributed. It's it's going to be a fascinating matrix to watch.

Right now, the KBW Bank Index is eleven and a half percent. Now, Zion's Bank Corps, M and T America they're all leading the charge, up around twenty apiece. But the majors like City Group, Bank of America, JP, Morgan, they're all up nine and ten percent. Let's bring in somebody who knows a lot about US banks, the goliath of the global capital markets, as he calls them. Mike

Mayo is senior analyst at Wells Fargo Securities. Mike, I can understand why banks might be up because the entire market is up, But what else is behind this extra exuberant trade for the banks. Well, I'd say this is not only a good day for banks, a great day for banks relative to the market's the best performance for bank stock and over six months if this holds, and so number one, you have the hope for a COVID vaccine.

And what we say is that bank stocks have among the highest COVID stock data so as COVID got worse, bank stocks went down. If there's a vaccine, banks to get much better. And the concern there is because of the exposure banks have in lending to corporations and individuals. Uh. The second factor happening today is this an enormous move in the treasury market with the steepening yield curve, So banks like Bank of America certainly benefit from that steepening um.

And then third, I'd say the idea of a Abiden presidency with the divided government means that it's the absence of a potential more harsher regulat regime than what's mostly currently in place. So, Mike, let's talk about that steepening Yeel curve that you were talking about here, and it goes to the obviously in the net interest margin that these banks can earn on their deposits. Give us a sense of kind of where we are today in terms

of that part of their business. And does it have you know, how much more do we need improvement steepening in the Yeel curve for to make a meaningful difference for these companies. Well, we estimate that the banking industry will have a piece dividend once the war on COVID is one of about a hundred billion dollars, and that does not even assume much change and interest rate. So if interest rates improved, that number would go a lot higher.

I think what's interesting is one of the biggest implicit taxes on the banking industry in history has been this period of lower interest rate. The federalies are balance sheet has ballooned this year from four trillion the seven billion dollars, and that's kept rates lower for longer. Uh and the cost to banks has been fifty billion dollars annually. If you compare year every year so to an extent that that reverses some bit, then you could have expectations going

higher across the bank group. That's impacts on this every bank, especially some more of the smaller banks, but the larger Golias banks which we've we've been favoring for a while,

like j Jake Morigan Bank America. Mike does this assume that once we have a coronavirus vaccine that works and that is getting widely distributed, and once cases are going down and blattening and so on, that suddenly everything will be okay for the banks that you know, those those on the brink of bankruptcy suddenly won't go bankrupt, that

those loans will get repaid, and so on. You know, what I find amazing is just how much recency bias there is to the global financial crisis from over a decade ago, and this idea that banks are in the rink of bankruptcy and they're going to fail, or even that they'll have to issue more equity. Now that might be the case for some smaller banks. No, no no, I meant those companies that banks are lending to that are on the verge of bankruptcy. Oh well, look, these are

still sobering times, make no mistake about it. I mean, so from the banking industry standpoint, the banks have already reserved for the problem loans they expect over the next couple of years. And the peak and these problems probably doesn't happen until the second half and next year. So you're still going to have bankruptcies individuals, corporations. These are

still hard times. You know, even with the vaccine, I would not expect banks to start saying, well, you know, credit is just fine as far as all these loans. It just helps ease the pressure and the risk of a tail risk scenario, you know, in terms of a you know, we have different shape recoveries. Maybe it's not a V shape recovery, which is the best case, but maybe softs are not in an L shape either or

what people say like a Nike swoosh. Maybe it's more like a you that doesn't last as long as otherwise expected. So bank, Mike, where how well are the banks reserved right now? I know they're pretty aggressive in the early part of are how are they positioned in your perspective? You know what's amazing recent comments from the largest banks say they are reserved. They don't need to build any more reserves than what they did the first part of

this year. What they did the first part of this year, and this is due to an accounting change that encouraged this. They said, reserved for all the problems you think you'll have from now into infinity for the loans. So they took more reserves at the start of re recession at any time in banking history. So as a result, banks are in better shape to whether the storm um the losses that are to come um than any time before.

So that means that you know, they front loaded the pain and now when the losses come, Uh, it doesn't hurt the earnings like otherwise would. Real quick, Mic, we're out of time. But who will the banks be looking to Joe Biden to pick for some of those important Treasury and you know, Labor secretary and so on positions. Well, I think what they can do, what they will do is they look for somebody that has the part of

Main Street and the head of Wall Street. And what that means is, um, you really have to look after the transparency and consumers and make sure they're getting a fair deal while at the same time being savvy enough to recognize that, you know, good good politics is good economics. Hey, Mike, thanks so much for joining us. We appreciate it. As always, Mike Mayo, senior banking analyst at Wells Fargo Security, is

giving his thoughts into banks they are rallying today. This is Bloomberg Markets with Ball Sweeney and Bunny Quinn on Bloomberg Radio. Well with the election for the most part in our rear view year rear of view mirror, it's a great time to check in with Michael Jasas. He's a chief US public policy and municipal strategist for Mortgage

Stanley Michael, thanks so much for joining us here. So all right, we've got the presidential election, and with the exception of Georgia, the Senate and Congress kind of all mapped out here. What did you take away from this latest election cycle? Yeah, I think you sort framed it right. There's a couple of loose ends here with regard to

send a control and that's where Georgia comes in. But if you take a step back, you know, we went into election day and consider a very wide variety of possible policy outcomes, because you have to consider a very wide variety of election outcomes, including a much uh sort of much more substantial uh Senate control outcome for the Democrats um, as well as obviously a potential we've in

the other direction for the Republicans. But I now what you're looking at is basically either going to get fifty seats in the Senate for the Democrats or they're gonna fall short. Uh. And most of the policy concerns that a lot of investors told us in our survey were animating their behavior become you know, less variables and more fixed things like tech regulation, potential for taxes to go up.

I think there's still some potential for some tax increases in the fifty scenario, but probably are less of versus what a lot of investors were expressing concern on. And so it's not that we don't need to pay attention

to this January fifth runoff. We we there's probably actually a big difference for the path for COVID relief stimulus, but a lot of the kind of medium term policy concerns that investors had the possibilities have been narrowed down substantially, and so politics in general is becoming a little more like a constant than a variable, at least in the very short term. What does it mean for your projection

for economics and metals? So here because the right way to frame it, uh, if the Democrats were to take control of the Senate, even with that very slim fifty fifty majority that they've had for a long time, the motive to spend a lot on COVID release stimulus was evidenced by the Heroes Act being above three trillion dollars um. If they got fifty seats in the Senate, they'd obviously

have the opportunity to execute on that. So I think the way you would frame that is, the half to stimulus would be fairly wide and not filled with too much drama, and you would probably get a pretty big package. Um in a divided government outcome right where the Republicans keep the Senate, it's not that you could never get stimulus, but that it would probably be smaller and the path

to get there would be less. Certain Republicans haven't necessarily sent and the Senate changed their view about the idea that they're still concerned about spending driven deficits and are not convinced that the economy needs more stimulus. And so it might be that you need a demonstration from weaker economic data, we can market weaker market data to move them off of that position. So the difference is a democratic Uh, Democrats getting fifty seats gets you a kind

of proactive and easy stimulus. Republicans keeping the Senate probably a bumpy, kind of windy path to ultimately a smaller stimulus. So, Michael, we're starting to see the COVID cases, uh, you know, really go the wrong way here. How does that impact kind of your outlook for what kind of public policy we may see out of a Biden administration in terms of maybe you know, locking down the country for some

period of time and any potential economic fallout. Yeah. I mean, what's interesting here is that, you know, the Biden team doesn't take power until January twentieth, and there's a lot that happens between now in January twenties, and obviously, you know, the news breaking this morning about vaccine is sort of

puts that completely on display. And so what you know, what our biotech team, led by Matthew Harrison um I believe is that once you get to January twenties, you will have effectively banked a lot of positive information on vaccination. UM that the sort of the modeling of the virus trajectory would suggest that you could be in kind of more of a plateau territory at that point. So by the time the Biden team kind of comes to UM

take executive authority. UM that the question of whether or not they would try and pursue a kind of more sort of return to March April style lockdown could be kind of a moot one, because you'd have all this positive new information behind you, and at the same time, if you are getting a pretty negative trajectory on COVID and you've had some weaker economic data coincident with that, it's far less likely that you would sort of face a difficult scenario of, you know, the Biden team considering

returning to March April style restrictions at the same time they didn't have of a relief package or a stimulus package. It would be very difficult for those two negative things to co exist at the same time. So, you know, so long story, sure, I think that it's we should be asking these questions, but there doesn't seem to be a lot of paths to that kind of very negative policy outcome where we end up in both heavily restricted economy and one without stimulus. Michael, we're almost at a time,

but the tenure yield is at nine basis points. Now, who are very close to that one percent mark? Do we get above it? And what sense us there? Uh? Yeah, I mean, I know, certainly the view of our interest rates team is that you should still be short on duration here and expect a higher bias and yields going forward. Uh And at this point, because we haven't or sort of we kept open the pathway to a bigger stimulus package. As we talked about, the Democrats get those fifty seats.

It's it's meaningful that the difference between in an easy path to a couple of trillion dollars of stimulus and bumpy paths or something smaller, it suggests that you have to price in some degree on the probability way the basis of a lot more treasury supply. So um H think the market sort of behaving very rationally around that. Michael, looking forward to another conversation with you where we can talk a little bit more about the individual states and

and newnees and so on. Michael Jesus is chief you as public policy and municipal strategist at Morgan Stanley, and we sank him redhead. Ben Carson has now been tested positive for coronavirus well, and indeed we are continuing to watch this market. With a ten year yield at ninety five plus basis points is quite a change just from

last week alone. And obviously we have equities doing their thing as well, but let's concentrate on fixed income now and bringing Thomas McLaughlin ahead of America's fixed income at UBS Global Wealth Management. So Tom, we you know, we had treasuries rallying last week and suddenly now they're they're they're dropping like a stone with a tenure yield bass points and going higher. How much more room is there

in this self? Well, you know, Vonnie, this morning, uh if and this morning has proven anything, it's proven the fact that it's all about COVID and the prospects of the vaccine. We've kind of left the election behind us. We've been added for about eighteen months, but the election looks like it's been decided, and now we're all looking

forward to the prospects of vaccine. And what you're seeing in the equity market rally, what you're seeing effectively in the yells jumping is the optimism that's uh, that's taking over the market this morning. And so Tom, let's put a coda, if if we will on the election here, Well, was ebs out saying to its clients, given that it looks like president elected, that Joe Biden will in fact be in the White House, a little bit of uncertainty

as it relates to the Senate and what's the UBS message. Yeah, so it's gonna be a little more constrained the ability of the Democrats, regardless of what happens in Georgia, even if they take both seats, and they have the narrow majority in the Senate, there ability and discretion to go ahead and make big changes to the UH. The tax regime is going to be much much more limited. So we think that there's gonna be a smaller fiscal stimulus,

but we do expect one. We don't think there's going to be a massive tax bill or at tax a change in the tax regime. UH. And that's actually also probably helping some of the the high yield market for example, which is that tights that are certainly pre COVID. Yeah, why this reaction though, I mean, you know, we're looking at one percent of the tenure again, we're seeing what we're seeing with high yield. All is not well in

the world. To suddenly just because there's a change in leadership, No, it's not really the change of leaders That's why I keep coming back to the notion that UM as we got closer to the election in October and certainly will be seen in the wake of the election, is everybody's turned their attention to the prospects of the vaccine. And of course, you know, there was just note on the program about the fact that Americle Lazio came out um and said he's concerned about the spread of the virus.

Governor Herbert and Utah's did the same thing last night. So there's a lot of concern about the virus. But the prospects of a vaccine, which we've expected to be kind of rolled out in April and May, it looks actually like that's gonna happen. So I think that enthusiasm, the animal spirits in the market have taken over again just on the on the prospects that, UM, we'll be

able to relieve ourselves from social distancing sometime next year. Tom, What do you sing in the corporate credit market, um, in terms of credit quality? Um, are you starting to see cracks or is that something that's still going to be event? It's still gonna be Uh. If we see the cracks, it's gonna be one event we've seen. You know, we expect senior loans actually to do well, uh, as we've seen incremental increases and yields. Uh. The high yield

you know again, is that that was pretty COVID heights. UH. And I think that's probably a function of the fact that HYO bonds tend to basically be more or less correlated with the equity market. Um. But the again, the prospects that you'll probably have of if there are already changes in the tax regime in two twenty two, it will be far more limited that might have been the case if we had a massive blue wave. So again,

incrementally positive for for that market as well. So what are you wealthy clients calling up and saying, I mean, are they concerned about changes in tax policy? Are they concerned about changes in inheritance policy and so on? And are they trying to do something with their money right now? You know, beyond just swapping out of different areas of

fixed income. Going into the election, there was a lot of concern about the prospects of taxes, and what we had said then before the election was that we didn't think it was going to be rolled out in the UH in the first six months, that it would probably be later in the year. Now that we've actually had the election and the Democratic majority in the House is going to be smaller, uh the Senate. Um, we don't know what the outcome is going to be based on Georgia,

but they'll certainly be constrained. You the way Um, there's been there's a little bit less anxiety going in the election of Vanni. You're right, there was a lot of concern about state taxes uh, and whether or not those were going to change. Um, I wouldn't. We're not at the point out we consider completely off the table, but

we think they're certainly much less less less likely. Alright, So, Tom, given what we know now from the political front, given what we know now about the pandemic h I E. The numbers are not trending well, but we do have some uh, some vaccine information that's certainly positive. Where are you finding the best of value in the fixed income world for your clients? Well, actually it's interesting, UM, A lot of there's a lot of concerned about municipal bonds UH.

And I think one of the things we've told our clients is you have to start with the presumption that in terms of municipal credit, it's a very very idios and cratic market. So while you've got some credits that are certainly experiencing stress, New Jersey and Illinois, of course there at least half the states will be able to basically accommodate whatever stress the stress they're going to experience.

So here credit selection is exceptionally important. UM beyond municiples. Again, we think senior alone should actually benefit from the from the prospect of incrementally higher UM yields, but also the expectation that credit conditions may actually improve next year. Yeah.

It is really fascinating when you look around the junk space and you know, the lower quality corporates and so on, what interests you because it seems like one day, when there's you know, optimism over a vaccine, it's all the going out stocks, the travel stocks that are rallying, and the next day, when you know there's a setback, then it's the exact opposite. And we're talking about major moves here and not just you know, incremental moves. Yeah, and

industrials and financials probably jump off the page. Industrials obviously because if we do get some sort of vaccine next year, and again we're probably exceptionally optimistic this morning because of the annoucement Provisor UM, but industrial activity UM should improve. Uh, the industrials will probably benefit from this as we begin to travel again sometime in the latter part next year.

Financials have been cheap um, you know, obviously, Uh, you may see some yell curve control by the Feds either in December or sometimes sometimes in the first court of next year. But by large financials UM, you know, have been a sector which are relatively under undervalued at this point. So to the extent you get any sort of a steeper you occurred, UM, it's probably going to be beneficial.

And Tom on the municipal bond front, you're just chatting about how critical is it for the muisipal bond market and certainly the states in in big need for this fiscal stimulus to in fact include some type of aid for states and municipalities. Well, this has been one of the obviously UH points of argument between the Republicans and the Democrats run in the run up to the election. UH, the GOP has been reluctant to go ahead and allocate a large amount of that stimulus to state local government

ad Uh. Democrats have been pushing forward for a hard UM. I think in some cases federal aid to state governments that are in our are in a world of hurt at this point. Some of them, UM would be very beneficial.

But again let me emphasize this, there are at least half the states out there that are able to accommodate whatever decline in revenue experience in the last year and probably will experience over the course of the next six to nine months, because there's always a lag effect in this was where the decline in revenue tends not to

take effect immediately, attends to basically build over time. UM So the current fiscal year into the next fiscal year UM through let's say, through the end of the calendar year two thousand and twenty one will probably be the toughest part. I guess I'm bouncing around the question litle bit only because it's really difficult to go ahead and suggest that there's a a specific UM need in every

single state. It's certainly more necessary and states again like with Illinois, Kentucky, New Jersey, it's probably even though they wouldn't turn down the money, it's probably certainly less necessary in states like Utah, Idaho, Tennessee, uh and, And therefore it's really on a case case, a case by case basis. So are there anything in terms of projects that you're looking at that will get funded either way? Uh? Well, I think enhanced on employment benefits are certainly on the table.

I think there's there's a fair amount of bipartisan support for that. UM I expect the the the amount may have declined in terms of the discussions with the annostment of the virus vaccine. It's possible we were talking about seven billion to a trilia, which was higher than where the Republicans started, certainly for our less than the Democrats wanted prior to the election. UM. Speaker Pelosi may have less leverage at this point going into post election phase

of negotiations with McConnell. So this may be somewhere in the range of up to seven UH. And and therefore they're gonna be some somewhat constrained about how much money they can provide to stay local governments. UM, but I think it's a it's primarily an employment enhance benefits. It's probably where they're going to spend most of the time. And probably as as I'm thinking about it, Crawl Wholy some additional aid to UH. Some of the industrial companies

like the airlines that will probably write some assistance. Hey, Tom, thanks so much for joining us. We really appreciate it. Thomas McLaughlin, head of America's Fixed income UBS Global Wealth Management, Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn. And I'm Paul Sweeney. I'm on Twitter

at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio