"We're Halfway There" to 10-15% Correction: Jim Bianco

introduce our first guest. Also, somebody who has been around for some time and will remember very very vividly eleven and that's Jim bianco founder and president of Bianco Research based in Chicago. And I'm sure Jim, you know it would have been a fearsome size to be watching that on the floor, on the trading floor in Chicago. Yeah, in a lot of ways, like it was yesterday, and it was you know, I've been in the markets for thirty three years and it still remains one of the

seminal days of my career. Jim, you know, it's been a difficult time recently, and you know today obviously is it's extra difficult for a lot of people. But the difficulty that we've seen in the last few months, does it persist through the end of the year. And into the next year in terms of economic fundamentals, in terms of just general suffering out there. We'll get to the

markets in a moment. Yeah, you're You're right to point out that there's the economy and what's happening with the economy. And I do think that what we've seen is a series of stumbles. The economic recovery off the COVID low and may seem to have stalled around July. The need for stimulus, because remember the government shut down the economy and a lot of people lost their jobs because of that, seems to be dead now since to at least past the election, and that's going to also kind of drag

on the economy as well too. So I don't think the economy is going backwards. I just think that the recovery to something that was a pre COVID normal has stalled, and we've got more AVID instead, it's going to be even harder to get back there. So the economy itself, um seems to have just slottened out at a lower level, and net net, that's not the best place to be, so Jim. And given that backdrop, and given the fact that Congress looks like I will be unable to deliver

at least a near term fiscal stimulus. What are investors to do? Are they just simply leaning back on that backstop, which is a federal reserve and ECB just you know, providing tremendous liquidity in the market, And is that all we need? Well, that's what we have. Let's put it

that way, because we talked about with the economy. Let's add in then that if you look at valuations and you look at the forward pe ratios, even if you take out the Fang stocks, you're near the two thousand bubble peaks in terms of how overvalued this market is by a lot of metrics. Others aren't, but a lot are. So this is by no stretches as a cheap market. So if you're an investor, you're saying, look, the economy is stalling, the market's overvalued. Boy, let's sound like a

really that mixed. Why am I in this market? Well, you've got the federal reserve and you've got the government that's been promising to build out the airline industry and the cruise ship industry, and they're not going to go down without a fight. To at least protect investors, we could debate whether or not that's you know, eth a color or proper for them to do it, but that's what they are doing, and that's a big support for

the market. And I think I don't know if there's enough to push the market up, but if you it's enough to really temper being very barished at this point. So that's why I think we're gonna have a ten to fifteent correction. We've already got eight of it done, so we're already halfway there and probably continue to grind sideways for the next several months. Jim being a fixed in common voultility expert, what do you do in a market like this? Do you traders? Do you stay on

the sidelines? Yeah? The bond market has been a real tough one for traders because there's nothing to trade. It doesn't do anything. We're now down to watching three basis point moves which are not very significant, and pre COVID world as something meaningful, but they're really not um I think the way you want to look at the bond market is the big basic question is does all of the stimulus and all of the Federal Reserve action and everything worldwide, Let's put all the central banks in there

lead to inflation sometime next year. I think the answer is yes, and I think that's going to put upward pressure on interest rates at least in a year or so, not immediately. Uh. And that would be my bias towards trading the market. But your basic question is right, it's a tough market to trade because it doesn't do much of anything right now. It's been one of the narrowest ranges we've seen in the history of the bond market

over the last three or four months. Alright, So Jim sticking with the bond market, Where in terms are we seeing credit quality issues creeping into this market in a meaningful way? We had early on in the pandemic to you know, some of the retailers, you know, file and kind of talk and you know, disclose the financial hardship they are having. Are we seeing more of that in other sectors? Yeah? You know, credit quality you can look

at it one of two ways. You can look at just the fundamentals of the companies that are issuing debt and saying how court worthy are they? And the answer there is yeah, you can see some definite signs of credit quality issues. The only way you can look at it is. How about investors are they demanding more uh, you know, tougher standards in order to ballrow or let companies follow. And the answers now, they've just been head over heels and grabbing anything that they can get their

hands on because we've been setting issuance records. Um, we've already broke the the yearly record and it's only September right now. So yeah, companies, shake your companies are allowed to trade thatt and investors are stepping up on it. Why our investors buying to shake your debt? Hate to come back to the same issue again. The photow Reserve is buying the stuff too, and that there's a perception that they're backdropped in there. And the battle cry on

Wall Street has been called invest with the Fed. If they're going to buy corporate bonds in corporate et bond e t F tied to corporate bonds, you should too. Don't get blong up on the credit quality issues. And that seems to be what has driven this absolute need by corporate investors to buy corporate bonds even no matter what the credit quality is. Is it wise for companies to continue to issue Jim, I mean I suppose the obvious answer is yes, right, issue as much as you

can until this era is over. But at the same time, well, companies have a headache after all of this. Well, it depends on why the company is issuing. You know, if you take a company like six Flags or Carnival Crews, Uh, they issued a tremendous amount of debt early on in April and May, so that they had enough cash that if they if they never opened use six Flags, if they never opened their theme parks, they're still going to

be in business next year. And so that made sense that they were looking over the ravine and trying to get to the other side. But if you're a company like Apple or one of the things, you don't need the money, Should I just go out and ball it just because I can? That could be a situation where down the road you could say, why did I do this? You know, it just puts an extra burden on me. I didn't need the money, but now I gotta pay it back as well. So it's not always a good

thing to ball unless there's a specific reason. Carnival and six Flags had a specific reason. Some of these other companies don't. So Jim if investors are searching for yield, and maybe they're willing to go down the credit chain a little bit potentially having that FED reserve backstop About emerging markets, is that too far out or there's some areas there that you're seeing some opportunities. You know, that might be a little too far out because there is

no backstop there. For one two, they are really allvered play on the emerging markets are an allovered play on the global recovery. If you think the economy, the global economy is going to recover from the pandemic, they should do better because they will benefit from it. Uh I see it even if you take China out of the equation, because there's such a big player in it. But really you've got to look at that a little bit differently. I look at that more fundamentally and answer that basic question,

are you expecting a global recovery? Well, we flattened out in the U S in the case, cons in Europe are back to their April peaks. Sounds like a recovery continuing again, not necessarily going backwards, but continuing is going to be difficult, at least for the next several weeks or a few months. And I think that emerging markets are gonna you know, stall in that mix until we see some clarity on whether or not we're back on the road to getting to something to what we call

pre COVID normal. Jimm, are you spending more time looking at Europe these days? There's definitely a little more action in Europe. Yeah, there's uh, yeah, exactly. I have been spending more time, you know, with the strength in the euro and with the uh the higher case counts of COVID and the lack of of their markets not being as overvalued as the US markets are. They're not back to their highs. Europe has presented itself as some interesting opportunities with a lot of cross currents. It's a mix

to try and figure it out. Yep, Hm, text so much. Jim Bianco founder, president Bianco Research. I'm going to talk about something that is really emblematic of this really hot market we're in, and that is the blank check companies. We used to call them spack special purpose uh issues. Um, they're all the rates here, you know, and they're getting some big name financiers going out with blank check companies to get more details on that. We're fortunate, Crystal say

she's a Bloomberg News reporter. Crystal tell us just first, what is a blank check company and why is it the rate today? Yeah? Um, blank check companies. They are called special purpose acquisition vehicles UM all blank check or SPACs. We these are companies that go through the ip A process raise a pool of money from investors without knowing a target, without having an operating business, and further down the line, usually twenty four months later, they identify a

target and they acquire usually a minority state. And we are really in this moment in time where we're seeing a huge boom of these deals in the market. Like I think there's been thirty five billion of deal has been raised this year and that's like more than ninety SPAC deals so far, and and we're seeing all these big names coming. Yeah, Crystal, how does the SPAC sponsor decide what kind of size of SPAK he wants to

go to market with? Because technically, if they don't know in advance what they're target is, right, what company they're targeting to to reverse merge with and and go public with, then they could literally sort of you know, look at any kind of size of company. And yet you have like Cliff Robbins raising sey million, but you like a black man raising four billion. Yeah, the strategy used to be you raise a very small spack in the beginning, and then you add on with a pipe investment to

finance the deal at the end. So it gives you a little bit of flexibility because in the beginning, like you said, you have no idea what you're gonna buy. But I think in reality a lot of responsors have a little bit of an idea what they want, at least in the size of what they want. For instance, when Bill Aggon raises four billion dollars back, he said in the perspectives that he's looking for a mature you unicon that has a market cap or market value of

like ten billions. So they do have a site, they do have a size. If you have a target, they most likely have a sector in mine as well. A lot of the target. A lot of the time they tell you in the perspectives that they target either like consumer companies, tech is a very hot one, and then they're obviously general at SPACs, but like sector focus back a lot more common. So Crystal can any I mean, you have to be a bill actman to really kind

of get these special purpose entities done. I mean it just you can't just be some hotshot trader, can you. So our and in our research we found that sixty percent of the issuers that race back this year has never done at before. So the the the entry barrier seems to have seems to be a little you know lower these days. But but does it mean that investor will give anybody money? I don't think that's the case. UM. Spack is a very much of a charismatic driven product.

It's very much up to how much the investor trust that the sponsor has the ability to find a good target. So UM, at the end of it, like, it's always helps having some celebrity investors or even someone who just has who just is a household name to be on the spectboard or a spec director UM to be able

to get a deal done. It's for sure feels like if you are the company getting acquired that it might be nicer to go with somebody who is going to be accountable to the public markets rather than say private equity for example. But is that the only reason these companies are choosing SPACs isn't that they can't go public on their own? I feel like there is an element

of it. Like some companies on its own, they don't have a story, they don't have an easy story to tell in an I p O process, or they really need the capital that therefore they can't go for the direct listening process. By the way, that is changing because

direct listening now allow companies to raise capital. But but I think everything combined and if you if you're a company and you look at the sponsor team, you look at the bill Acman, and you think this team is going to help you with your business, and it's going to raise the profile of your company, then going with the fact does come with that UM expertise and they

do come with that stamp of approval UM. But but other benefits of going with a private equity there's still are because there's still private and you know, accountable the public market. UM. But I do think there is increasingly UM. Increasingly tech companies or like high profile companies are more accepted, are more receptive to this idea of selling to a spect so Crystal, there are those in the market that

are saying, boy, these things are really speculed off. They are perhaps a signal of frothiness or top in the market. What did you hear when you're doing your reporting, if history is any guide the laws broom that we see or this this size and scope, it's in two thousand and seven, two thousand and eight, and we oh know what happened after that. UM. So so there is a little bit of vindicator that this is roughly and there's

a lot of money in the market. There's you know, the interest rates low people looking for for alpha spects seems to be the product to be UM. But we are also seeing sort of different different signs that that even even the sack market is showing the slowdown. UM. But but I guess we will see. But but it's this frothy I think definitely. So you know, what's the typical length of time, because yes, you do have two years,

and of course you can extend the two years. But I feel like these days a lot of this money has been raised with the notion of taking advantage of pandemic era valuations. Yeah, so twenty four months is UM. Legally, when they how long they have UM, they can apply for usually a three month extension. But what is interesting

is that we are seeing UM these facts closing deal sooner. UM. They used to close deal probably like a year out of a year ahead of the closing of the I p O. But for instance, the deal that we reported yesterday um Social Capital Um they found a target after three months of of listing, and that is backed by Schamaz which took Virgin Galactic public right. So that's the high profile viewser Yeah, the high profile is a closing spooner.

But we we haven't seen much of the sort of second tier mid market one Crystal, thank you so much for joining us, Crystal, say, Bloomberg IPO reporter on a fascinating story about these these SPACs, if you will, the blank check companies. Uh, they're certainly popularly this year as Crystals reporting just billions of dollars raised, uh, and then kind of getting mergers done and getting into the public markets.

That way, fascinating story in this market. Right here, it is time for Bloomberg Opinion and the latest column from Tim O'Brien is entitled of Course Trump couldn't resist Bob Woodward subtitled once again he was takenly trusted in his own ability to steer the story. We welcome now Timothy O'Brien, a senior columns to for Bloomberg Opinion. So obviously the story has sort of gotten out of it in Trump's hands. Is there any way that he didn't know this is

going to happen? I mean, it's Bob woodword after all, And this isn't the first time, even in the Trump presidency that this has happened to him. Well, Bonnie, yes, there is a possibility actually didn't foresee this spinning out the way it has because he doesn't think strategically or think ahead in that regard. But the other so that's a weakness. The other thing is he doesn't usually care about the fallout from a lot of this stuff anyway.

In in in an odd way, it's a strange strength because this is what has allowed him to spend decades plowing through adverse media coverage and and um and and some of it does authentically get to him. But by and large he's very unusual because the things that make him um apathetic and sort of lacking in compassion for other people's struggles are the very things that makes some of

the stuff roll off of his act like water. Uh. The problem is every it's different when you're president, quite obviously, and and the things that he was used to doing as a private businessman or as a celebrity. Um had far, you know, less significant implications than things he's doing now that he fessed up too in the Woodward interview, including uh, you know, irresponsibly and I think horrifyingly knowing that the pandemic was far more dangerous than he was letting on publicly. Tim,

I'm so glad that you. I was actually fully expecting a column something like this to him, because you're unique history with President Trump, having written a book about him and then have been litigation with him. Is this just a case where, like with you, he craves this type of exposure and he's just not worried about the downside per se. I think that's a big part of it, Paul. I think that's spot on. I think the other thing

is he regards it as a challenge. He he has this belief that he has this magic wand extending from his index finger that he can wave across the media landscape and around the heads of reporters and uh, they will suddenly have the same sense of high regard for Trump that he has for himself. And even if the fact pattern suggests otherwise. And when I you know, when I wrote the book about him. I had spent the previous decade episodically covering him. I had interviewed him for

another book I had done in the mid nineties on gambling. Um. And then I was at The New York Times in the early two thousands, where I was covering him in the news pages very critically. Uh. And then we did the book together, and he wanted to do the book with me, and we spent a ton of time together. I think I've spent more time with him than any other reporter. It was dozens of interviewer interviews and you know,

scores of hours together. And UM, he just didn't have, I think, a sense that maybe he needed to be more uh judicious about what he was saying or how we were engaging. And I'm not unique in that regard. It's it's that's probably informed every interaction he's had with reporters over the years. Tim, how do you feel about the question of whether Bob Woodward really had an ethical or moral duty to release some of the content of

these tapes before the book actually got written. Well, you know, Margaret Stulti in the media the media columnists for the Washington Post did a lengthy or you know, an interview with with Bob about that. His response was, when um, he began reporting this, you know, the first conversation they had, it was in February earlier this year. No one really knew at that point what a full blown public health

crisis the epidemic of the pandemic would become. And um uh, and he wanted to spend more time coming to understand the administration view on all this and didn't and had an evolving understanding of it himself. Um. You know, I think that that's that's all fine and good, and say the first three months of it, but certainly by April, you know, lockdowns began in mid March. By April, we all certainly knew there was a crisis of foot, and I think it would have been useful for for him

to disclose some of that. I do think by April we knew there was already public information that the White House knew the pandemic was far more serious than they were letting on and had known that earlier. So that had come out from other sources at that point too.

But I think that's a good question to be asked of of any book writer who holds onto important information, especially in the midst of a crisis like this, Tim, do you think the contents of this book, you know, and and the heels of all the other books that have been written just recently let have any impact on this election? Or will it be like it seems like all the other noise and information out there, it just won't stick or turn the needle, um, you know, move

the needle, you know. I here's the thing. I partisans who don't like Trumps and partisans who love Trump aren't usually gonna get swayed by any of this. But the reality is what's going to happen to that middle range of swing voters independence in six or seven states, We're going to determine the outcome of the election. And one thing that this book has done is it as radically turned the focus back to Trump's management of the pandemic,

which is his biggest liability in this election. And coming off the Republican National Convention, UH, the GOP has been has been mightily trying to make this salaon order issue and there's protests in the street and Trump is better than Biden in that regard, and they've been spending tons of their time messaging around that and in one fell swoop, Trump's um injudicious interviews with Bob Woodward, UH and the publication of this book have put the pandemic front and center. Again.

That's a campaign liability. There's no question about that. Whether or not that will turn the elections. Another thing, Tim, what's the strategy behind no More Stimulus? I mean, is the president going to unilatterally sign an executive order at some point right before the election in order to try to to to beef up sentiments, positive sentiment towards him,

because otherwise people are literally going to starve. No. Well, I think, you know, I you know, I'm of the view that the federal government needs to have a new Deal esque thought about bringing the private sector in the public sector again to solve the problems we're facing right now, and that that requires, um, a fiscal effort and a federal effort, and UM, they're clearly not up to that. And I think this is decades of sort of anti

government mentality catching up to us. I think it's a knee jerk views of the business community is not being created and responsible, which they can often often be. And I think both sides need to come together to resolve that this again isn't something Trump can simply waives away with an executive order. You really need Congress in the

American public to get behind it. And I think you know the fact that Mitch McConnell couldn't get even a skinny um you know, Cares Act three through to the Senate floor for a vote, really shows how behind the eight ball we are right now on this in Congress. So, Tim, what do you think President trump strategy will be between now and an election day? Well, I think he laid

it out Paul last night in Michigan. He's going to say that, um, Democrats want to populate the suburbs with people of color, and Democrats aren't friends of law enforcement, and Democrats are socialists, and they're gonna let terrorists come over the border. In some I think he's going to use scare tactics to condidates people that everything will implode if if Biden becomes president. However, Trump, in saying that has to confront the reality that the economy and public

health have gone completely off the rails during his presidency. Yeah, and the pandemic making it worse. I mean, honest, somebody does something. People are just don't going to start running out of their medications. They're going to start I mean, tim, we know already the tens of thousands of more people are going to die between now in January inauguration day. Right, what kind of legacy will the next president have, whether

it's President Trump or Biden? If if, if nothing more is done, I mean, it feels like they're they're finished, right except for the vaccine race. You know, even if people don't have a compassion on those issues. Seventy of GDP is consumer spending. In order to keep the economy vibrant, you need to empower average people to be able to shop at the most basic level. And we've now run

out of that. Extra extended benefits for unemployment, insurance and payments to families that I think helped keep both the markets and the economy be more buoyant than they would otherwise, has been between March and now, and now we're starting to see slippage in the markets, and I think you're gonna start to see earnings problems at the corporate level and and in in a GDP effect in addition to

raw human misery. But if if human misery won't sway the needle for folks, then they should really look at what the economic and macroeconomic and market impacts of the stuff will be. Hey, Tim, thanks so much for joining us. We really appreciate you taking the time this morning. Tim O'Brien, senior columnist for Bloomberg Opinion, joining us on his column about the Bob Woodward book of some fascinating perspective that

Tim has Vanny given that. Again, Tim did work with then Donald Trump on an authorized biography and then was in some litigation with Mr Trump about that person whatever went a lawsuit on in that regard, right, Yeah, absolutely right. So it's very interesting to see here whether there will be any political fallout for President Trump as it relates to this book and others. Uh, but certainly this one as it relates to putting the pandemic, as Tim said,

back on the front burner for this election. Well, we're very lucky right now to have Laurence Sour with us, Lauren Jackson with us regularity. She's from Johns Hompkins University. She's the assistant for emergency medicine there, and it's been quite the six months for Laurence Our and our colleagues. Lauren, you know, as we head towards full and as we get the announcement that a court at a quarter capacity New York City restaurants can open, and you know, state

restaurants already open at half capacity for indoor dining. How concerned are you that will we'll see a resurgence of coronavirus in New York and that that will couple with flu season. I think we have to watch the numbers very carefully as these reopening activities happen, um, particularly since it's going to be happening right around the same time that people are less likely to be spending time outside, that they're less likely to take advantage of the outdoor

seating as the temperature school down. Um, So there is going to be these other pieces that sort of tip the scale towards the indoor activities. And so when all that comes together, we have to watch for the upticking COVID cases, but also our ability to manage the COVID cases and identify the COVID cases as flu season is Overlaid on top of that, so you know, similar symptoms

people also needing to come to hospitals potentially. Um, it's a great time to advocate to get that flu vaccine, so that you reduce your likelihood of getting flu or getting as sick from the flu um. All of those sort of come together to to make an opportunity for the COVID cases the search. So Professor Astro Zeneca had some news where they're a little bit of a pause in their vaccine trial. How unusual is that. How much of a setback is that? Is that part of the

normal course of testing? How should we think about that? The This is part of the normal procedure for UM, the process of creating um UH and testing a vaccine. So we while we never want to see adverse events in any of themselves, we do want to see the

process is happening appropriately. So when you have a pause like this to investigate and evaluate an event, you know, an illness possibly associated with the vaccine, it should be somewhat reassuring to the public that the process is working as it should that UM we are seeing the process play out the way we wanted to to ensure both the safety and the efficacy of the vaccine. Lauren. We also saw the news today that China has injected you know,

thousands of its citizens with potential vaccines. On the one hand, you know, you think this might be a great thing. We might find that all of these work. On the other hand, sort of wondered, did these people volunteer? How does how does the doctor feel about reading an article like that? You know, I think that what's happening in China, Uh, we need a lot more information about the process that

the vaccine went through. UM about there, if if it has gone through phase three data phase three, and what their data look like. UM. I think things like this always worrying me when UM, you know, if the US is stepping out of being a global contributor to the vaccine process, Um, other countries will step in and that process will happen without US, And so we we want the US to be involved in this process so that there is not a gap and subpar vaccines are filled

in that gap. And UM, you know, I don't know if the consent process that we would use here was used in China. I haven't seen sort of the granular information about what happened there. But I think you always worry if a vaccine is being pushed on citizens without the process of either informed consent or the you know, full licensure of a safe and effective product. UM that that leads to problems, and it is an is an

ethical problem in and of itself. So, Lauren at the Johns Hopkins, you know, versually one of the leading medical facilities in the world. As we think about the potential for a second phase in the fall or the winter time, how much do you think the healthcare community at large has learned? Is it better prepared, does it know what works what doesn't work? Is there a sense that we won't see those terrible scenes of hospitals being overrun. I think that's definitely the hope. We do not want to

see that in the fall. UM We have learned so much both about the virus and how to manage it when it infects people, UM, how to better take care of patients to fall ill um and and how to move them to the hospital system more safely and more effectively to ensure that we maintain that capacity. We're still struggling with the testing piece. We still need a strategic and systematic approach to testing across this country, which can

only help um our ability to manage patients. And we do have some concerns that our ppe used of just going to go back up and that you know, respiratory iris season, and we have to get a hold on how we're going to restock and um box fill our PPE usage if we if that need creeps back up. That is a number one priorities we enter into this well respiratory virus Briefly, Lauren, does the country still have shortages of things like respirators and PPE equipment? Um? I

think that we are. I've heard anecdotal reports of shortages. I think we have a disparate sort of of PPE um and respirators and things like that. So UM, we have to keep we have to have a national level view of this so that we can have resources around to where they're needed at any given time. And it should be leveraging the Defense Production Act to improve PPE access in places where there are shortages. Lauren Soer, thank you so much for joining us. As always, we appreciate

your time, You appreciate your insights. Laurence Soer Sistant Professor of Emergency Medicine at Johns Hopkins UH University. We should also note that the Bloomberg School of Public Health at Johns Hopkins is supported by Michael Bloomberg, founder at Bloomberg LP and Bloomberg philanthropies. Um, you just hope, Bonnie, that as from a healthcare facility perspective, we're in a better spot than we were in back in March. Yeah, and

very definitely. I mean, we've spoken to the CEOs of hospital systems and they've said that it's true that they know more now, they can triage better, and that they are in a better way. But you just hope they're not taxed even at half the level they were taxed at. 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