TCW's Landmann: Good Time To Get Exposure If 10Yr UST Hits 2%,

the ten year yield here one point seven one. There's a lot of folks out there saying, hey, by year endy, you need to be thinking about a two percent ten uere, maybe even at two and a quarter percent tenure. Uh in you know, the question is, you know, in the space, in the face of what we're seeing is there's tremendous physical stimulus looks like it's coming down the pipe with President Biden's plan. Really, where do rates go? Let's check

in with Laird Landman. He's a co director for fixed income at tc W. Little firm out in Los Angeles for about two thirty five billion with a B and assets under management. Laird, thanks so much for joining us here. Love to get your your thoughts here. We had a few weeks ago the tenure spiked one point six percent. That got people's attention. We've drifted higher here. What's your view of kind of where you think, uh, these treasury

rates go. Well, certainly we seem to be biased to going higher here, but I do think we're reaching levels as we approach two percent, where it's probably a reasonable point you're thinking about getting exposure uh to rates if you think about the amount of debt that we're going to be issuing, which is I think pretty topical today as we talked about, you know, how this plan will

be financed, the Biden spending plan. Um, there certainly will be I think a desire to keep rates low uh in the US because you're gonna have to pay for this over many many years. So if there's that demand out there, what's been happening in the seven year auctions this month and last month, Well, I don't think there's a demand for the rates. You're seeing foreign investors pulled back. I think the demand right now is being filled by

the central banks. What I was suggesting was that I do think that rates will hit a point around two percent, maybe a little bit above that, where you're gonna be want to want to get exposure to them because over the long term. If you believe our central bank, if you believe they're not going to overreact to short term spikes uh in inflation numbers uh. And that's an I UM, then I think you probably look at the long term and those will be pretty good long term value. Do

you believe them? Do I believe them? Uh? I think that they're going to have a real, real difficult time reversing this policy. I mean, we're living today in a world that is the mirror image of there's excessive access reserves around, and we're seeing that reflected in repo rates and short term rates. I think a hundred and five billion dollars roughly was parked today in the FEDS reverse repo program at earning a whopping zero percent um. And you might remember when they tried to taper, what you

had was the exact opposite. You had excess reserves going down, you had repro rate spiking in the marketplace. So I think they have a great deal of difficulty, despite their rhetoric, in reversing this policy. So I do tend to believe that they're gonna They're gonna keep QUI going uh, and they're probably going to keep rates low even if you do see, uh, these supply um channel issues which are going to be exacerbated by the Biden plan most likely

raise CPI numbers in the short term. All right, Larry, Larry, if you do think, um, the Fed wants to keep rates lower for longer, where are you and your teams at TCW spending your time now looking for opportunities? Well, we've been short on the duration side in terms of our interest rate exposure for quite a while. Um, we've been gradually as rates have gone up, cost averaging our durations higher, which is part of our our fundamental value

based philosophy. So uh, if you if you if you don't like something at one cent, when it gets to two percent, you might like it a little bit more. Um. Likewise, Uh, the Federal Reserve is generating what I would describe as a bit of a free lunch in the forward market for mortgages, the t b A market h so TCW has found great value there. You're picking up anywhere from seventy to a hundred basis points of additional yield by rolling keb as right now. And that's really generated by

that arbitrage is generated by the Federal reserves. Desire to continue to buy mortgages over time. So we saw this in q E one, we saw it in QUE two, UH, and so why not in QUI wherever we are today, UH, continue to take that free lunch that they're providing. Does QUI continue on forever? Well? I don't think it continues on forever, But I think that the Central Bank, as I said, is going to have a great deal of trouble. Uh. You know, I think about the ship in this US

canal in terms of trying to turn around. I think you have a lot of trouble freeing this barge uh from the sand uh in turning it around. So I think that this is going to exist for quite a while. The FED believes that the lessons that they learned from the past programs is they didn't go big enough for long enough. So I think, you know, if you believe that that was their conclusion, um, you have to believe

that this is going to continue into next year. So I think for the foreseeable future, this is one of the most attractive trades out there. He learn Let me about thirty seconds here, love to get your thoughts on credit quality as you look out across the vast portfolio Trust Company of the West. Are we seeing cracks in

credit quality? It doesn't appear to be. No. I think in this environment where the markets are wide open and you can bring as many spacks as you want an issue equity, um, I think it's hard to see the cracks developing. There's certainly the foundation for those cracks to develop is occurring with the over leveraging that's that's going on. But you know, our our our our corporate team is describing this is right now. We're in the dash for

trash phase. So everyone's just trying to buy as much oldest, say Kennon, and ignore credit quality. And so this is a time when prudent investors want to start being becoming a little bit a little bit careful. All right, great insight from you, Laird, and I hope we can get you back on the program again because it's been wonderful talking to you. Laird Landman is the co director for Fixed Income at the Trust Company of the West. At tc W A I would say, a famed name in

terms of fixed income. So it's great to hear from impol. Yeah, when you go at to Los Angeles to visit investors, as I did, for close to thirty years. Capital Group and tc W are your anchor meetings. Those are the ones you got to see. Absolutely cool then that we get to talk to him, and I was bringing Nathan chet He is the chief economist and head of macro research for PGIM fixed Income. They have basically a trillion

dollars under management. But he also served as the Under Secretary of the U. S. Treasury for International Affairs under President Obama. So basically, um, he has the chops to talk. Uh. This Iiden's spending plan. Nathan, thanks so much for joining us. What do you think about the two point to five trillion dollar plan? Is it enough? Well? I think it

is a significant step forward. What's clear is that the country has a very substantial infrastructure by deficit that over uh the last let's say ten or fifteen years, there's been broad agreement amongst Republicans and Democrats that we needed to do more on infrastructure, but they just weren't able

to find a formula to get it done. And it looks like that the Joe Biden, notwithstanding is very narrow majorities in Congress, is finding a formula and uh putting forward a significant package, whether it goes all the way to addressing our infrastructure needs. I doubt it, but it's

certainly a significant step forward. So two point two five trillion, We've we've heard numbers that were even higher than that, but again, this seems to be a number that maybe you can get some support here, Nathan, What is this a fiscal stimulus of this magnitude? What does it mean for your economic outlook? So? I think an important point to bear in mind is that, unlike the stimulus that was passed earlier this year at one point nine trillion, this two and a quarter trillion is likely to be

phased quite evenly over a number of years. The estimates I've heard is UH up to up to eight years. So it's a more gradual kind of effect on the demand side. Now, if a program like this works, it will have a little bit of lift on demand, but it should also help make the supply side of the economy more efficient and could UH could have UH some imprint in terms of raising potential growth and UH the economy's capacity to be able to produce. So it is

an eight year plan. Six and twenty billion goes to transportation, SID fifty billion for clean water, high speed broadband, things that make your life easier at home or safer acceptedly safe billion for American manufacturing, of which a hundred eighty billion UH is said to be the biggest non defense research and development program on record, and four hundred billion to go for more care to the elderly and the disabled.

What's next, what's left to do? Nathan? Well, my sense is that there will be likely another package that the administration is going to put forward that is going to be more focused on uh, domestic spending, more social kind of Paul, let's see, and I think there were likely to see a focus on education, on childcare, and other other kinds of spending, perhaps healthcare as well, that the administration will view as important steps in investing in people

and helping to make the population more productive. So I think that that is that's the next the next chapter in what Biden is likely to be announcing. All Right, Nathan, somebody's got to pay for all these spending programs, as Matches laid out. Talk to us about the the tax policy of the tax potential changes in tax policy of the Biden administration. Well, I think the tax side of

this is likely to be extremely controversial. First of all, Mitch McConnell and the Republicans have made clear that they will not vote for any tax increases. So to the extent that the tax increases are included, and I think they will be, it means that Democrats are going to have to do it on their own and via reconciliation. Now, I think within the Democratic Party, a increase in the

corporate tax rate from twenty one percent. Maybe they won't get all the way to twenty eight percent, but maybe twenty is something that Democrats will will sign on to. Nathan later, Nathan, as someone who worked in government, why can't they just try to shut loopholes and get rid of deductions? I mean, everybody says the answer is lawyers and lobbyists. Why not go after that and try and get more money out of you know, what we already

should be paying. I think that there are broadly speaking, two ways to do that, and I think that uh various proposals from the Biden administration are likely to pursue both of them. One is to improve the quality of enforcement of our existing tax laws. So are people dodging the expectations of what's already on the books, and they're allocating they will allocate likely substantial sums UH to support the I R S in its in its enforcement efforts.

The second is to address some of these loopholes that are perceived as unfair, and I think that we will see them take those steps. And those are also measures that will be quite popular amongst Democrats and frankly amongst some Republicans as well. Right, hey, Nathan, thanks so much

for joining us here. We really appreciate your thoughts. Nathan Sheets, chief economists at Teaching Fixed Income based in Newark, New Jersey, giving us his thoughts on what's likely to be a two point two five trillion dollar fiscal stimulus plan to be announced today. Probably President uh Biden focusing on infrastructure is going to be the big issue. Matt. It's not just simply cash into individual's pockets to deal with a pandemic. This is something that is a longer term, forward thinking

pandemic or fiscal stimulus aimed at infrastructure. I this morning in our Bloomberg pantry here in the office, I picked up a package of shocks bio Cannabis Power brand granola bars. Now, yeah, I haven't eaten them yet, but they don't have actual THC and them. I love to go back, and they're not. Really it's not amsterdamn You're in Berlin, not amer That's right, I'm in Berlin. It's not legal here. I mean, cops turn the other way if you're smoking a joint in

the park, I've heard. But in New York soon you will be able to, I guess, smoke a joint in the park and get cannabis power granola bars that really have th HC in them. Kisha Clukey joins us New York correspondent for Bloomberg Government out of Albany because the govern in her has just signed the weed bill. Keisha, Yes, yes, it's a it's official. Uh is coming to New York State. We're going to be the second largest market in the nation for legal marijuana. Alright, Keisha, what's the I'm sure

there was an economic argument. We're Bloomberg here, we think money, we think markets. What's the economic argument for legalizing marijuana at the state level. Yeah, and and of course the argument is is intertwined with a whole bunch of things,

you know, criminal justice issues as well. Um, but this is looking to bring in about three fifty million dollars a year once it's fully rolled out in just packed revenue for the state, and then on top of that, UM the total amount of four point two billion dollars in sales is the projection once it's fully fully rolled out, as well as tens of thousands of jobs. So I was recently chatting with a credit trader here on the Bloomberg terminal who estimates about of his adult friends smoke

weed or you know, eat gummies or whatever. Do you really think, Keisha, that that many people use THHC products? Yeah, yes, I think so. I mean, we already have medical marijuana in the state, and this legislation expands the medical marijuana program, and it also allows for home grow UM. And then it has this other side to it, which is the recreational side. And I think there's been a lot of study showing people from New York State going to the

states surrounding us. Uh, you know, Massachusetts is very popular to get these products. So now we're keeping the money for ourselves, or we will once it's rolled out. So what's the sense of time in Kisha. I'm here in New Jersey and the New Jersey legalized UM marijuana months ago, but I don't think it's even available yet. I'm just not sure the timing here. Do we have any sense of when we're gonna see you know, smoke shops and edible cafes, you know on Broadway on. I mean a

lot is gonna depend on the regulations. They still have to set up the Office of Cannabis and a Cannabis Board to talk about licensing and figure out how many dispensaries will be allowed, where they would be located. UM. The lawmakers, of course New York is very competitive, especially with New Jersey, and they're saying, we can walk and chew gum at the same time. Let's have it up

by next year. So they're hoping to have the first licenses out by at some point in two although, of course again that depends on on how fast they get these regulations in place. So what about farming, I mean, I assume that we're not getting all this stuff from Humble County on the other side of the country. UM, it's not being flown in from Jamaica. Are they gonna Are there gonna be big weed farms um in western

New York. UM that could be a potential UM. The legislation provides for um AID to help farmers, start up businesses I suppose to be canvas growers and station in the state. They're really excited. A lot of farms already have hence farming and produce DBD products, so they're already in a position to not only plant these uh, these weed plants, but also you know, get them out the door and get them to processing plants or processing them

themselves so that they can get them to distributors. Kisha, how much what kind of support did this have up in Albany? Was a bipartisan support? Was it? You know, along party lines? How broad is the support for this? Well, it's been a long time in the making. Um, I think one lawmaker isn't pushing it for eight years. So um,

over the years, it's it's gained some support. And the final deal did end up passing in the state legislature very late last night, a largely along party lines, although there were some Democrats who sided um with the Republicans

against the bill. UM. And then their concerns were, you know, operating machinery under the influence that work UM issues really it into driving and traffic stacy and there's a lot that still need yeah, yeah, exactly, And also you know, how can you tell whether or not someone is under the influence um immediately while driving? Did they smoke you know, days before, was it right before? Was it while they were driving? Um? So there's gonna be a lot of

these details that will work out. This is just the basic framework for the legislation. All right, Keisha, thank you so much. We appreciate that, Kisha Kluky for Bloomberg giving us her sense here of the law that just signed into or signed into law legalizing marijuana in the state of New York. That's big for the industry. I saw a story cross the Terminal earlier about Fiser's vaccine Paul, which says that teens who take it and I guess twelve to fifteen is the age range here, it was

a hundred percent effective in a final stage trial. That's a big number. This is huge, Uh, you know, Matt, because I've been saying, you know, I'm all, I'm all psite. I got my first shot last weekend. I'm gonna get my second one in a few weeks, and you know, and and vaccinations here thankfully are ramping up with The big big issue for me is getting kids fully back into school next fall. Full after school activities, full athletics

back to you. Enough of those kids, you want them gone from seven o'clock in the morning exact, coming home until nine exactly right, and none of this virtual, none of this. You know, I understand why we're doing it. Obviously in many districts have done a great job. But let's get the kids back to school. And then it appears when you start to see some of this data coming out from some of these pharmaceutical companies, Matt that um, you know, it's more and more likely every day that

we're going to get there. You know, it would be great is if you could get your kids into the Goldman Sachs Analyst training program exactly, you'd never see him again, you know, yeah, exactly what you know, I did that back in the day, and U you know what was different there, you know I was doing weeks uh. And but what was different then is we were all together in the office. We had that sense of camaraderie. Um. And but it's really I can see how could be

really difficult here, uh, with this whole virtual thing. You're stuck in your apartment somewhere and you're grinding it out and you don't have the support of your fellows, you know, analysts that are also going through it, so I can see what's going on there for those folks. That's a that's a good point I want to get, just to get back to the vaccines. I'm getting more and more

terrified about astra zeneca. I know, we talked about it a lot, and we've decided, you know, we'll take any shot they give us because we're good citizens, because you know, we want to be yep uh, participants in in the healthy global economy. But Germany yesterday said, all right, you know what, no one under sixty gets the astros enneca shot. Previously they said no one over sixty five, So the

window is getting smaller and smaller. They found thirty one cases of blood clots in nine cases leading to day fs UM, and some were people who were only twenty years old. You don't want to walk into you know, a doctor's office in your twenties to get a vaccine that you think is gonna you know, make you not get COVID and then die of an embolism. That's like, that's very very Let's go to the expert. Let's bring in an expert. Matt Sam Fazelli. He's a senior pharmaceutical analysts.

He's also a head of a research for Bloomberg Intelligence in Europe. And Sam knows all about this stuff. He's got a PhD in something that I think is somewhat related. Sam, let's start with the astro Zeneca. What do we know. There's so much misinformation or just I guess cross currents of information out there. What's your sense of this astro Zeneca vaccination. Yeah, Hi, Paul, So I think I would call it cross currents some was a good phrase they

use their misinformation or confusing information. So what I'd like to do is to run with the one country that has been very clear about the numbers, etcetera. Come out with, and that's the pool Earlier institute in Germany. They're now talking about thirty one cases temporarily associated with the vaccination dose. And then when you start looking at those numbers, now thirty one cases over about two months of vaccinating out

of two point seven million doses. That calculates to something in the region of a sixty eight or seventy roughly um cases per annum per million, And that is higher than any other estimate that I've seen for the natural number of cases here. So so we're now in the realms that that that a serious institution has talked about numbers that they have adjudicated and they think I might

be related. I think everyone needs to seriously Look. I get what you're saying, and I don't play the Loto because I don't think there's any chance that I would win. But at the same time, if I'm in my twenties, I want my chances of dying from a blood class temporarily related to a vaccine to be zero, you know, to be none. I don't. I don't care if two point seven million people got it and we're fine. I don't want to be the one person that gets a blood clot and dies. And if there's any causation, I

think it's a hard cell. Sam, You're right. Unfortunately, people don't get vaccinated just for themselves. Um. The reason vaccines work is that it creates a community of vaccinated people, which then makes it very difficult for the virus to to to pass around, which is what some people talk about. This wall of immunity that we put up against the virus. That's when you see much more than the some of

the individuals who are protected. Now. I understand that you can't go and sell that to a twenty year old, but frankly, if the only vaccine available, which is not the case, but if the only vaccine available with aster zeneca, I would say they absolutely have to get it because there's just no other option. And and in fact the case counts. You know, some of them are likely to have been people who would have had it anyway, So really still need to be studied and understood why it's related.

Um And I mean, let me give you another thing, Matt. What if in a four months time, few months time, as Johnson and Johnson's rolled out, you get the same signal there, then what do you do? Or what if find a BioNTech in three months time or two months time you see a rare case of stuff going on in there. I mean, I'm not expecting anything, but I'm saying, what if we have to make choices and this has to be one of them. Sam stepping back, and I

know you're you're based in France. I spend a lot of time in the UK, our audience here in the US. A sense of why has the vaccination rollout been so challenging In the European Union in particular. Yes, so it's all so far, it's all about not having had the doses to do the job. And I mean, let's not forget that France has got about to have present of its population now vaccinated with at least one though or something. That that's now it's starting to become respectable, right, Okay.

The point is though, that when you did your deals late, when he spent and this is the European Union that I am blaming nobody else, right, not the countries they kind of abdicated to the U, because that's what they're supposed to be the the points of the European Union. When they did their deals and negotiated for every single cent and did the deals extra number of months later, when they did not invest in manufacturing like the UK government did, like the US government did, and gave these

companies billions of dollars, then you pay a price. And unfortunately this is the price. All right, Sam, thank you so much for joining us. We always appreciate getting your perspective here. San Fazeli he's a senior pharmaceutical analyst, folks. He's one of the best in the city of London, covering the European big pharmaceutical companies. Also, he manages the research department in Europe for Bloomberg Intelligence. He's got a

lot of experience in this stuff. He's been very helpful to us over these past twelve months as you try to get a sense of what this pandemic is about, what this virus is about, and now over the last several months, about these vaccines and the rollout of these vaccines and the efficacy of these vaccines. So good numbers out of the UK, good numbers out of the US, and some improving numbers out of the European Union as they try to catch up. Thanks for listening to the

Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on false Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.