U.S. May Need France-Like Lockdowns to Beat Covid

an acute health crisis maybe even greater. He knows what he's talking about. Some Felias, senior pharmaceuticals analyst for Bloomberg Intelligence and director of research for e A. Some what do you mean by an acute health crisis? Yeah, Hi, Bonny. So Um, You know, nobody likes to write these things because it depresses me just as well as anybody else who reads it. But when I look at the detail that's coming through, and when I see what's going on here in Europe, UM, there are a few signals that

that really worry me. So clearly everybody can see that that UM positive cases are rising rapidly. But then when you look at the data and a lot of you know, people to look at their hospitalizations, they go, well, that doesn't seem to happen as much, and deaths appeared to

be a bit lower now, which are absolutely true. What I'm worried about is that that that that there is that that gives us a full sense of security in that you the reason hospitalizations are lower is that there's a lot more people who are catching it, who are younger, who tend to get not sick, but then don't forget they go and then pass it on to their elders, which takes time. Then we've also got a lot more stringent about who we hospitalize, so that means that whatever

hospitalization you see is probably pretty severe patients. So you have to take account of that, and then of course we can't treat them better, but but we haven't necessarily increased the number of beds available. And then on top of that, the virus is going into a trajectory that's that's likely to be many times higher than it was in the spring summer months. In this eventually is likely to be just like other common cold, a seasonal virus.

So although the cases were that high in the summer, they're going to be much higher now, So that's what worries me. A combination of all this together. Sam, You're based in France right now and you've got a lot of experience around the continent. Um, what do you think has been the key driver in the resurgence of the cases in Europe? Has it simply been the seasonality or is it just fatigue? What? What are you seeing there? I wouldn't be surprised Paul if if it's a combination

of all that. But certainly in the colder environments we do two things happen to us. One is, at least two things happen. One is that we tend to be more indoors, which is where the virus has a great time of passing from person to person. And secondly, our lungs reduced their ability to be able to clear stuff out. So you'm sure you've heard of viral load. If you've got ten viral party as ni lung and it was very good at getting rid of it quickly in the

summer where humidity is a bit higher, that's great. But if that think can go in and you don't get rid of it as much, that's essentially equivalent to having a higher viral load giving you a risk of worth disease. So that's what the risk in the winter is. And of course if you start off at a higher base already in terms of the virus circulating in people who are infected, then you're setting yourself up for a pretty tragic exponential growth, which is what I think has surprised

the UK, the French and the German authorities. That's an excellent explanation of what happens. I hadn't heard it really explained that plainly before, but it definitely would cause you to be a lot more careful having heard that, And that's just what I was going to ask Angela Merkel saying that in Germany they don't know where seventy five percent of the infections are coming from. I mean, where

are they coming from? Remember the money there. A lot of people get this disease, especially the young again who ray symptomatic. And if you listen to some of the topic epidemiologists in the world, you have to think about this virus. It's most infectious in terms of it passing on to others during the pre symptomatic and the early infection in me whether symptomatic or not symptomatic. So that's when it's so few days and then and then we look at all the data that's coming out of all

these antibody trials. The viral load, the amount of viral virus in your body back up your throats and all that declines really quickly by day ten, ten eleven, day eleven, we get test results four or five days after we've been tested. What are those people doing in that time? Are they as careful as they should be? So, Sam, in your day job, you are one of the top farmer analysts in the city of London. What are the companies that you talked to, and you've talked to for decades?

What are they tell you about therapeutics, not vaccines, but just the ability to treat this better as we go into a second or here in the United States maybe in a third way. Yeah, so there's a lot of activity going on unfortunately clinical development. Drug development is a little bit of a game of snakes and ladders. You go up, you seem to be doing really well, and you just fallen a ladder or a snake hunter image wry because I think it's the snakes, and you go

all the way back to square one. So you know, just today we had a bit of news from Regenera on saying that their antibody didn't seem to work in very severe patients in hospitals. So these folks are all doing what they can with what science tells them is likely to work, and then testing it out in a virus and a medical condition that we're learning on the hoof about. So we are getting progress, but it's a little bit like two steps forward, one step back, um.

And and you know that we're getting progressed because the the the death rates are lower, the mortality rate is lower. Unfortunately, we're learning more about how awful the viruses and people who catch it in terms of long COVID and and who knows what long term issues we're cooking up with this virus once we've been infected some you know, it's it's a tough, tough conversation, but the companies sort of want their employees to come back to work in the

office space. I mean not all of them, and there's extraordinary leniency when it comes to that, but some employees do want to go back. I mean, what's the advice for those employees? Yeah, I mean, look in in France, we just had our lockdown and last night or two nights ago. Yeah, it was two nights ago. Um um as of midnight last night. So basically, people who can work from home have to work from home. It's not

a choice anymore. Um. They're taking their time to figure out what to actually tell people in terms of guidance. I if the UK trajector continues the way it is with all the various tier one, tier two, tier three, if they don't work out, Remember frant tried the same thing. They tried curfews and and early closure of restaurants andthing. It just didn't help. Um. So this is why I'm

what I'm saying and what I wrote. Maybe the only solution a little bit like when you have a wildfire, the only way to manage it is to cut the whole bunch of forest out so that the fire can jump over to the next side. And maybe that's the only way. It's a horrible thing to say, and I really wish I didn't feel that this could be the only way, but it seems like that's the only way. Sam. Just our schools open are closed. There in France, schools

are open. Schools are open, but they've become a lot more clever about him to manage the groups of students and all that. And also the data appears to suggest that there's less transmission among school children and then bringing it home than there is at universities. So the short university is right interesting. Hey, Sam, thanks so much for

joining us. Sam Fazeli, he's a senior pharmaceutical analysts and he also runs the European research business for Bloomberg Intelligence, one of the leaders of that great business for Bloomberg and UH he's also writing for Bloomberg Opinion right now

sharing some of his expertise on the healthcare business. He joins us on the phone from UH France, where again, UH, the lockdowns are beginning, And the question, Vonnie is you know, I guess for the folks in the UK is that kind of the next step for the UK is lockdowns? And again here that doesn't seem to be much appetite for that in the States, but we will monitor closely. We had a bunch of the big tech and tech media names reporting last night, let's break it all down.

There was absolutely nobody better to do that with, UH than Lauren Martin. Lauren Martin, she's a senior media analysts that need him in company because her research coverage it's really a convergence of where the media and technology spaces. She covers the big tech names like Ammal, Apple, Amazon, Google, the traditional media names like Discovery and This and Disney and those types of things, and even some of the technical players, the rokus of the world, the uh and

the snaps. Brings it all together with a really good overview look of the space. Lard, thanks so much for joining us here. Let's start off with Apple stocks trading off about five percent. I thought the numbers were good. This is just a stock price to perfect giving a little bit back, you know, maybe I think it's a regularly over emphasis on iPhones. iPhone sales were week and

China was down yere every year in the quarter. You know, we would say we would sort of counter that by saying what we liked the most about Apple's earnings was they hit an all time high installed base of active devices with um iPad and Max sales up forty and

thirty percent, respectively, so they're installed bases growing seconds. They added thirty five million subscribers in the last ninety days, so they're out five hundred and eighty five UH million paid subscribers, which is an annuity stream type of revenue, which is fantastic. And then services hit a record almost fifteen billion dollars at a gross margin of sixty seven percent,

So they're there. I was quickly approaching the growth mosic contribution of the entire hardware sector of Apple, even though hardware apples known as a hardware company. So all of those things are really positive to us. Laura, how concern to be about the drop of in China? Is it a one time thing? Is it due to added competition? And willis impact Apple going in the future. So I think China is predominantly a new phone market and that

you might recall that they're um. They actually announced the new iPhones UM three weeks later this year, so they're in a different quarter than last year. So last year you had two weeks of the new iPhones UM, and so the Chinese are very active in that. We expect the new iPhone twelves and there's four different models of those, which started two weeks into the October quarter to be a major seller in China. That we would expect China

to rebound in this quarter and going forward. Hey Loo, how about the services business for Apple, I know speaking to you in the past, that's really a growing part of their business. Is a business that investors are really focused on. How's that progressing? Um really fantastic. So one of the things they're doing is very clever, and in fact, I think they're getting sued by one of their competitors

for this is there bundling things. So rather than just paying for music separately for Apple TV, separate from Apple Fitness, Apple from Apple News, they're introducing I think on Monday, actually a really big bundle where you're you know, you can subscribe for twenty dollars a monthly your whole family to like nearly every service they have, and if you really really want everything they offer, including like Arcade the video game streaming space, you can pay thirty dollars for

your entire family. So I don't know about you, but I'm paying like ten dollars for Cloud, or my kids paying ten dollars or something. You know, if we wrap it all up, we can have like twice as many services for half the money. I think that's really smart because that should at drive services growth higher, which is

fantastic for margins. Yeah, I mean, I can definitely see many many households paying that pretty genius, Laura, what should we when we consider Amazon, what should we be concentrating on because obviously it grew its revenue by some again though, I mean, you can annoy people if you don't deliver, And for example, Amazon Prime hasn't been able to be as quick as it used to be because there's so many people on the system. You know, there are things that are sold out and so on. Kind of Amazon

hold onto the market share that it's gained. So um, I really think Amazon is the best physician stock sort of regardless of whether COVID is short or long. I think it's the most hedged because if we're going to go into lockdowns again, that means e commerce is going to be you know, more in demand, especially for the holiday season. And I think one of the things that people are saying is that the holiday season may really

tax the logistics capabilities. Well, Amazon sort of got trial by fire at the early days of the pandemic and then on Prime Day when the Prime Day was up sixty year over year, So it keeps testing it's logistics change. So I expect it's actually ability to deliver during holidays to be better than anybody else's about getting things to you on time in a in a you know, um safe manner. So I actually really like Amazon for either the of the economy opening or COVID lockdowns going longer.

I think Amazon is the best most hedge, best positioned in that they win either way. Hey, Lauren, how about the cloud business for Amazon? That's been such a great story there and really a profit story, you know, relative to the core e commerce business. Um, it's getting more competitive, the Microsoft's making big gains, alphabets making big big gains. How do you view the Amazon web services business? Yeah,

really excellent. Like we just got from Google last night that they're going to start breaking out their cloud businesses because these are such great profitable businesses. So yeah, And the quarter Amazon reported three and a half billion dollars of profit on eleven billion dollars of revenue in their cloud business. I would expect it to be equally as profitable for Microsoft and for Google. Um. And I do

think they're making inroads. But I also think Paul that this whole this this has been accelerated, that COVID has accelerated the move to the cloud by all businesses. So I think the pie just got bigger by the brought forward for two years because of COVID. Everybody's moving to the cloud faster businesses, So there's just sort of a bigger pie for everybody. And Apple is the dominant provider, but if there's room for other people now thanks to COVID to also, like Google was talking, they do a

lot of states. They do this state of Virginia, they do countries. They're doing more sales like government contracts for their cloud business. And Amazon, as you know, really specializes in small businesses moving to the cloud. Laura, we're nearly out of time, but how do you feel the executives did this week in front of Congress. I'm sorry, executives are in front of talk about Google, Facebook, and Twitter. Um. Lots of criticism about Twitter, but I'll stand aside there

because I don't cover Twitter. You know, I think there's a because I am very worried about Facebook. I think it has the highest regulatory risks in because I think both sides of the aisle think that Facebook has become a referee for news and it basically as a gate keep information that scares conservative and more. But really even Democrats feel that they're actually livelihood is at risk with Facebook actually making the prioritizations of what people see in

their news feed. So I sort of feel like Facebook is as the highest risk of getting fined or broken up or having some kind of negative regulatory consequence in one both by EU and by the US. So I'm scared about that for Facebook. Let's so for Google and Apple and Amazon. Alright, Laura, we have to leave it there, but very much appreciate your time, so fun speaking with you. You cover some of the really companies that we just are talking about daily at this point. That is Laura

need him joining us there on Google and Facebook. Uh sorry, Laura Martin from need him always say that Laura Martin need him analysts and talking to us about Apple, Amazon, Facebook, and Google. So Paul, we'll do it all again next week. It should be an interesting week next week. I think there's a little event maybe on Tuesday, but two day and so the build up and then the days after are gonna be very interesting. We're just going in Dominic Nolan,

Senior looking director at Pacific Assets and Management. Dominic, You've got various scenarios laid out and what would happen to the bond market say, for example, in the event of a change of presidency and a vaccine success. Let's start there, what happens to bonds if that happens, I can hear me, okay, Bunny, Sure I can, Okay, great. I think it really depends

on which way the Senate goes. Assuming the potust goes to Biden in that particular, and let's assume the House stays blue, then you have in theory it would be a blue waves that the Senate also goes blue. You most likely have extreme stimulus in there, and that will be some extent offset which is good for the economy, probably offset a little bit by increase in taxes. But as it relates to rates, I would expect rates probably

start to move up a little bit. I mean we've been we've been had a huge pressure on rates from a downward side. If you have a thought of massive stimulus, then you have the inflation longer start to end of the market, and I would expect a bit of a a steepener on here, so the long end starts to move up with the expectations of massive, massive fiscal spending. If, however, the Senate stays red, they will probably be a block

two extreme stimulus. I think if Biden wins in the Senate says red, they'll be a blocked anything he wants to do. So I would envision a scenario where horse training takes place, where you want stimulus to come into the system at the same time, you know, the Senate would be blocking, trying to block that or mute that, or in exchange, we want lower taxes and that particularly, that's it's much more uncertain. And that's the combo that

I think. Um, yeah, it would be uncertain. And I would say if they couldn't get stimulus passed in a time where the COVID space, the COVID cases are spiking like they are, you might have a situation where rates continue to drop with the expectation there's not enough stimulus to support the economy. So those are the It really depends to me on which way the Senate goes dominic.

You know, obviously we do have those electoral uncertainties, but if you listen to central bankers around the world, um, and it just feels like an environment where rates are lower for longer in general. So how do you know fixed income investors like you good folks, a specific asset management? How do you think about, you know, the kind of the one to two to three year pull here, where do you make money? It's a great question. I think

from the standpoint of return, profiles are going to be duted. Honestly, you're sitting in an environment where most most of the short term paper is or a lot of it's yielding below one. So if you can somehow return one two in that range, I think that's actually pretty attractive given the status of short term rates across the glow. And when we look at it, the central banks are a massive support for the system for liquidity, So we do feel that you're downside is is backstopped to a large

extent by what people have called the FED put. And you go in, you know, and there's there's room for total from probably some spread products, certainly a little bit of compression on the corporate side. You probably have some elements in structure products. We're not mortgage folks, but I think the global the global demand for yield will continue to grind spreads tighter. That's our that's our medium term view,

given the central bank support. So if you can get basis points of of spread on top of clipping a coupon that's how you get to your one and a half to two percent yield for short duration for one to three part of the curve. That's what I adventure. What happens to the higher yield elements of the market, and even the junk bond market, I mean how tied

and those spreads go. We talked about that a lot on the floor and US high yield sitting with a with a five handle on it, and I feel is that you cannot go much lower until you look across it. You know, European high yield, which is sitting at two and a half. So on one hand, I'd say, from from a compensation for wrisk standpoint, I feel as though HILD shouldn't even be at this level. But I think I'm just living in a world that is dated, in a new central bank monetary our quey world. It can

certainly go tighter. And you think about again, Europe European hi yield at two and a half, that's an economy. It's not growing as fast as the United States. Investors are willing to take sub three on leverage finance over there, So there is certainly an argument in the United States. You could grind inside a thought so Dominic, just real quick, thirty seconds, give me a sense of credit quality that you're seeing in your portfolio right here. It's a bit bifurcated.

I think our approach we've taken more you know, tilt to the more performing companies and being very very selective as it relates to what we call the COVID sectors and our COVID sectors, the class, your hospitality, your gaming, travel, entertainment. Those are areas where if we go through another wave, there are many of these leverage finance structures that just won't make it and you'll see another wave of bankruptcy. So from our side, we're tilting certainly the more liquid

side of the market, better better credits. But it's really about, you know, it's the business model. Right now, there's so many business models that were quote recession proof, but not pandemic proof, and I think you've had to adjust that right So that for us, that's our approach. All right, Donnic, thanks very much. We really appreciate your thoughts as always, Dominic Nolan, Senior Managing Director of Pacific Asset Management. Right now,

let's head down to Washington. Did you see our Washington studios get World and Nash on the News. We can do that with Nathan Hagar. Nathan Well our next guest right this year hardly needs the ghosts and ghouls of Halloween to make it scary for investors. Sarah Ponzac is with us in studio. She is going as a bear for this Halloween, right, Sarah, Well, I'll start it off by saying, this is an annual tradition that we do

every year ahead of Halloween. We ask money managers across Wall Street to send us the charts that scare them the most. So it's our annual tradition out today ahead of Halloween tomorrow, of course. Uh. And it was quite the compilation. Sure, we could say has been haunting enough. The amount that we have all gone through in markets, just in life, to dealing with COVID nineteen and whatever

else might be within financial markets. There's plenty toorry about, as these money managers did point out all highlight a few of them. Steeve Chevrone, he's a portfolio manager and equity strategists over at Federated Hermes. He brings it really close to home with the election coming up in just a couple of days. Election Night on Tuesday, he points out the fact that mail and voting voting is obviously very high, hitting upwards of forty of the vote this year.

Given historical patterns, that means that we could see over one million Belts rejected in the upcoming election. He says, So if this is the case, I know we all hope that we will have a result on Tuesday evening, we know that that might not be the case. And for markets, if we do have a contested election, and if we have this drawn out process, that would just introduce more of volatility, more uncertainty. On top of that, some other themes that were introduced, Jason Thomas over at

the Carlisle Group pointed out corporate debt rising. Our corporate debt to GDP is rising above, which is full above the prior records, so plenty of spending and companies have been forced to spend more if they can and borrow even more um during the COVID crisis. One that I really enjoyed and really was just telling this week because

when we had that large sell off on Tuesday. Although we are seeing a sell off again in markets today, not to quite the same extent a Tuesday, it was interesting because hedges didn't work, and one of those hedges being gold. Gold actually fell in tandem with equity markets too. So what Evan Brown Over at u BSS Management points out is that the rolling sixty three day correlation between gold and the SMP five hundred has been positive for

a majority of this year. So what that means that gold may no longer be He calls it a reliable ballast to portfolios during risk off period, So especially from multi asset investors, those who are looking for protection hedges, that's a concern. Hey, sir, what did you make of the or what we're seeing today in terms of the nastac the nastack one on the heels of those tech earnings last night. I you know, I've kind of looked at the tech earnings broadly defined as uh, pretty darn good.

Yet you know, the markets not seen it that way. They were David Bonson over at the Bonson Group I I received this excerpt from him this morning and I thought it put it together very nicely. He said, none of Thursday's tech earnings results were bad and some more spec tacular, But the market is reacting negatively because when something is priced for better than perfection, it becomes pretty hard to live up to those expectations. And that's the

world that we're living in right now. Not only were these companies priced for perfection, they are priced for better than perfection. And you see the tiniest little flub take Apple for example, missing iPhone estimates, not providing guidance. At the same time, a theme that I have heard highlighted is the fact that almost every single one of these companies highlighted uncertainty around COVID nineteen and tech is supposed to be the area of the market that can kind

of withstand this. We saw earlier in the week with SAP over in Germany that they really had to pull back on guidance because they are concerned that lockdowns over in Europe are going to hit them headed into one. In the beginning of the year, when we think about the rally that we saw, investors kept saying look beyond

look into one. Well, now, if we are seeing COVID cases rising, and if these companies that are supposed to be the beneficiary areas or at least your safe havens being the big tech companies are still expressing doubt or uncertainty surrounding it, you have to wonder if one is really going to provide the boost that is right now built into markets. Also, though the Apple news, the China sales were down the border, I mean that sort of should reverberate through markets, right, I mean this was not

just an Apple story, but generally a China consumption story. Right. Well, it's interesting because we have seen such a strong economic balance back in China. So to see that China sales for the iPhone we are we're very depleted down. It

causes some concern. Now that does make me wonder though, is this more so a competition issue for Apple in China with other phone makers smartphone makers in the area, or is it more so a true economic macro consumption picture and reflective of that, especially ahead of the holiday season. But it is interesting to see that discrepancy considering that we have seen this strong economic come down come back

over in Asia. That's what I still look at the VIX here, uh, you know, at thirty eight, the market is still you know, I think the investors are still very concerned here as we look into Look, they certainly are the VIX at Uh. If you try to extrapolate that to mean what is the VIX predicting in terms of percent changes a day. I mean that is that's a gain or a loss of more than two percent a day that it's predicting. Right now, we see the SMP off a little bit more than one percent, but

you consider what is upcoming right now. We have an election, we have COVID nineteen case counts on the rise. We have restrictions over in Europe and concerns about we could see restrictions in the US. We don't have a fiscal package. So the amount of risks that are out there right now are just very large, and they're also front of mine for investors. And the reality is we're going to be dealing with volatility. Yeah. I think you're absolutely right there,

and I think that's what the market is telling us. Sarah, thanks so much for joining us. Sarah Ponza, cross asset reporter for Bloomberg News, giving us her thoughts on the markets here again, you know, we had those tech numbers last night, generally very solid, but the market is clear the underwhelmed with the NASTAC to tech heavy NASTAC trading off two percent here. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts

or whatever 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