Surveillance: Building Vaccine Capacity With CureVac CEO

what's left to allocay? There's actually still quite a lot left. John. Actually, um, if we look at assets and money market funds, they had an increase um after the pandemic hit of about one point two trillion dollars. Now really since the middle of the year that started to get deployed slowly, but you still have seven hundred billion dollars extra on the

sidelines waiting to get deployed. So I think that means that any sort of pullbacks that we have in the market, when you see days with more bad news, it gets absorbed by this cash being deployed. And it's especially your hardest hit sectors. You're more cyclically economically oriented sectors and regions that are going to see the biggest bump from

this cash being deployed. And on the fixed income side, your higher risk credit things like high yield an emerging market dat as well, and that's generally where we're tilting as well. Gabriella back to two thousand seven, thirteen years ago, I believe the math is the e M index c M s c I e M index really hasn't broken out. Is now the time? I think there are so many

stars aligning here for emerging markets. First, you do have this visibility of a cyclical upturn forming next year and beyond with these vaccine news, emerging markets are still cyclically oriented over fift and that is cyclical sectors. Number two, you have the result of the US election in which we have a president elect Biden. That to US and two investors represents a return to more orthodox, clear foreign policy.

That's huge for your very trade oriented em And then number three, you have central banks whose reaction functions have changed so much so in which case you can have good news and interest rates still stays well low. That's great set up for emerging markets, not just the ones that have led this year, which is North Asia and technology, but a broader set of emerging markets. And we're extremely bullish on the UM equities, on the M debt, and

on fact Gabriella, we take a step back. The optimism that you have as you talk about this is increasingly consensus. You've got Bank of America's Fund manager survey coming out and saying we're getting close to full bull here with respect to cash holdings and the outlook on equities. And you've got Howard Marks of oak Tree Capital yesterday coming out with this quote in an interview with Bloomberg News. When the level of optimism is high, there is usually

more room for disappointment. Can you square those two narratives, the optimism with the reality on the ground of a pandemic that's only getting worse right now. So I do think in the very short term we're very much due for a tough time. We see cases rising significantly across the United States, very higher cases in Europe. That is going to restrain the recovery here in the fourth quarter

and the first quarter. But I think the vaccine news is good news because it gives investors the freedom to think less month to month and more twelve months out and beyond, which is what we should be doing. We shouldn't be thinking about the here and now so much. We should be investing for the future. And that's why I think you can have a difference where cases do pick up than uses that in the short term. But the market is able to absorb a it better looking

out into the future now. It doesn't mean there will be pulled back right um, And as you mentioned, there is more bullish outlook now, but a much more normal pullback of five to ten percent instead of the bear market we had last time cases were rising. Thomas Lisa being rude to our guest, calling our guest consensus. Hold on, No, I'm not being I'm not being rude. Hold on a second, Gabriella. I'm sorry to ring up the script. Gabriella. Was that rude?

I think John is starting to start stuff. I don't think it was really What do you think of that? Maybe that is what John? Maybe that is what John is doing this morning. I want to turn to the ex market China. That's really good. It looks better than I grew up at this. I've lifted before. I'm used to it. Women unhappy with me. There's nothing new about dollar China. Can I go there and you're in the

middle of the year, Gabby, what's left to squeeze? So we're actually we think the Chinese land has plenty of room actually to appreciate over the next few years. Um. That's due to cyclical factors, as you get an upturn in the global economy, as you have uh this more friendly outlook of the U S election. But beyond that, you have the Chinese one getting more and more added into investors portfolios. You have a lot more investors also

wanting to invest directly in Chinese equities and bombs. So that's also a structural support for the Chinese one to be one of the currencies that appreciates the most over the next decade. This is one of your best things and you can work off Farolean Kasmin. Here let's talk about the Brazilian scream, and that's not you angry at Pharaoh. The Brazilian scream is when you get strong Brazilian real, strong Taiwanese dollar and they start screaming about week. US

dollar is a general tendency. Are we closer to that or do we have patients out to two thousand twenty two on US dollar? So I think from the Brazilian perspective, it's the second worst performing currency this year. UM, it's depreciate it close to There's actually a much more concern about the depreciation than there is for any sort of nascent appreciation. Right. There's still the concern about the weakness of the currency feeding into higher goods prices, higher inflation,

and a vicious cycle with higher interest rates. So I think there's plenty of room for the reality to appreciate a little bit further. UM. And Brazil, of course is a very cyclical currency, very cyclical market. UM. So it is part and parcel of the cyclical recovery that we're seeing in global markets. And so in that sense, it's very much welcome. Gotta be great to catch up, appreciate your time as always. Gabrella stances there from JP Morgan Asset Management on this market and a little bit more.

Michael kush muf brings prodigious academic chops to Morgan Stanley where he is Global fixed income. Uh see, I oh, Michael, thrilled to have you on. You know, I think of the multidisciplinary economics of your Columbia University is maybe a good place to start. I want to start with the monetary mystery of December in January, is it just simply Chairman Powell to the rescue. I think that's a lot

of it. I think the FED has been clear about its intentions to support, provide accommodation, more combination if necessary, to get us to a stronger economy down the road. And they obviously can't put money directly in people's pockets, but they can do every possible measure to ensure the cost of putting money in people's pockets through borrowing is at very low levels, whether it's the household of corporate

sector or the US government. I think Michael of Rick Michigan at Columbia and of course has has melding of policy into economics. Right now, what is the most efficacious policy to get us out to where these VEC scenes click in of this balance of fiscal, monetary, budgetary and just outright policy, what's the best mix forward? Well, the best mixes A is a combination. Again, the FED cannot

provide direct income support for individuals. The federal government can provide that direct support, and the FED can help them along the way by buying the debt that the US government produces In order to put money into people's pockets along the way. So it is a joint effort, combined effort, and it could it could flounder or temporarily go sideways when one of the three elements is also healthcare policy

of force on the side as well. One of the three areas, you know, flounder or stop making progress along the way. So the FED has been quite clear that they expect the federal government to hopefully provide more income support to the to the economy as a whole during this transition period to a vaccine. So I'm wondering, Michael, given the fact that there is incredible FED support, there aren't a lot of bargains out there, given how high asset prices are, what do you do. It's it's it's

you have to think longer term. So it's it's like a growth stock or something which is discounting a lot of good news into the future. There's no doubt a lot of good news into the future. People can start seeing the endgame assuming these vaccines are able to be distributed in a widespread manner. In the next call, it's called six to nine months in a in a very

widespread manner. So in terms of the opportunities. You really have to think, where are we gonna be twelve months from now, six to twelve months from now if we think we will be on a stronger economic trajectory. There's no doubt, given the monitory and fiscal support being provided and unlikely to withdrawn through two thousand twenty two, that interest rates credit spreads, interest rates should be um at very low levels. You know, high yield bonds should be expensive,

investment grade bonds should be expensive. Equity should probably be high because of low interest rates are around the world and particularly in the United States. So again you look farther out. It's not that bonds are a fair value and that doesn't make them attractive. Is that should they us to be at fair value or should be again

in the future be well below historical fair value. If you look at into investment grade credit spreads, even high yield spreads, they don't spend a lot of time around average. These either above average or below average. Because fundamentals are good,

fundamentals are bad relative to average. There's cycling, and we think that saying it's the business cycle will improve dramatically next year, and that will cause spreads to be below average by the end of next year or by some time between the set middle of next year and the

end of next year. Michael, that's credit. How difficult will it be to push that view through the yield curve and looking for a steeper one at that I understand we've had a one way move since the end of February when we were down by ten eleven basis points, were steeping down aggressively over the last seven eight months. But just over the last week we had some game changing news. Seventy basis points, two s tens all around again round trip Michael. Why. I think there's there's two

two elements. One insert is technical. This idea of a steeping yelker has been in place for a while. A lot of investors around the world have been putting on so called steepening trade and selling long data bonds buying short of data bonds. It worked, now it's stopped to work. The rise of the pandemic, the rise of infection rates, I think is unnerved on people. In terms of the

near term FED actions. It could be easily true that in in December, the FED announces an adjustment to their quantitative you know easy program that they actually tilt buying to long long under the yelkurve. So there's some issues in the short term. Into the end of this year, the FED will adjust their policies because one fiscal policy

is now inactive. Secondly, the pandemic has gotten worse. They may feel compelled to do something, and what they're likely to do is increased bonding of long term bonds, which again reduces the pressure for steepening in the short term. Michael, this conversation belongs in the future. Many parts of this market living in the future. One. I want to turn to the here and now and cross sidever to Berlin, Germany.

What we started to see more restrictions in Europe. What we noticed this time around was pushed back, more pushed back and more resilience and Tom that's what you see on the streets of Berlin today. Back in spring, it was widely accepted to go through a lockdown, to go through restrictions to ultimately at some point we ended up

wearing masks. What we've noticed across Europe and many other places around the world as well this time when the government has tried to lock things down, the pushback has been so much greater than what we saw six months ago.

And that's what's difficult about living too far in the future and ignoring where we are right now in Berlin, Germany, where there are protests on the streets and a German police a firing of water cannon at the demonstrators tom because they will not adhere to social distancing, they do not want to wear masks, and they do not want to be locked down. How do you live in a better future in one if we're still grappling with a difficulty, not just in Europe but in the United States as well.

In the here and now. It's called a pandemic, and they're all the same every time. When back, you know, I think about John Elliott Gardner's one volume on Joan Sebastian Bach and the plague that was across Germany. You know, I'm gonna guess six thirty if my brain that reminds me and John, I'm just gonna say, it's simple. You read Camu and the Plague and we're on about chapter

eighteen of the plague. I mean, it's that simple. Where there is societal protests norther way to put it here, we have water cannons being used moments ago in Berlin. It's a little bit more testy, John than it was

two hours ago. Place a right get on the straits of Europe, trying to deal with these demonstrators, and Michael, I just wonder, as we go through this moment around the world, a difficult moment through the back end of this year, how much the market can live in the back end of one given the difficulty this playing down right in front of us. It's a good, good question. I think it's all about the length of period of time.

So if you think about evaluating a longer data asset, whether it's an equity or fixed income security, we're talking about five, ten, twenty years of cash flows. If cash flows are damaged for a short period of time and not too disastrously, then you look through it. It's not that big a deal. And we see all the time with corporations make announcements of restructurings and big big losses and big losses and book value and the stock price goes up. Well, the same thing is happening happening now.

If you have a company or a situation where this is not that bad, they can get through this and the longer term prospects are bright you look through it. The longer this last, the more damaging it does to the economy, which is clearly what the FED is concerned with. The longer damage, which mean the worst cash flows are hammered, that has a bigger impact on the long terminal present

value of these assets. And that is that is the challenge, is getting people remaining confident, keeping the economy running at a reasonable pace, keeping money in people's pockets so that even if they're not spending it today, when the gates are lifted, when the lockdowns are lifted, there is money in people's pockets. Where it's the corporate sector of the

household sector, they can go out and bend. And that was what's you have a very strong pop down the road and compensates in theory at least for the weakness we're seeing now. Michael Grant to catch out with you, sir. We appreciate its time. Thank you, Michael Investment Management. Right now, it's good to speak to the current of macro risk advisors.

We do that because boy has he been right with a vix of forty one and down we come with better stock markets, but currently pointing out the election uncertainty, and that would clear, and we see that at twenty one point nine eight right now on the VIX Dan, have we cleared all of the election uncertainty? Well, for the most part, I think you still got that jan fifth date. And if you stare at um the SMP option prices by expiration, you can actually see something pretty granular.

You can look at December thirty one as an expert, so right at the end of the year, and that's typically a very quiet week right between Christmas and New Year's so that implies fall autilities pretty low. But you can go out to January eight and you see there's actually a bump up. So that date between those two expirations, January FI, that Georgia runoff date actually does have some consequence at least in terms of how ball markets are pricing. So Jean to we just zoom out a little bit.

We've been talking about full bull is John highlighted from the Bank of America survey that came out yesterday. We're hearing about how people are expecting some sort of disturbances over the next couple of weeks and months as people calibrate themselves and their outlooks to the near term reality of a pandemic that's worsening. What do you foresee based on the bullish trends in the markets that you track, the technical factors, how much of a pullback could we get? Well,

it's anyone's guests. I think, um, you know, really it comes down to the response from the government. I think that the thing we have to worry about is whether the you know, the Congress pulls off pulls off a

stimulus are not. I think that's really you know, the weak spot for the market is is the politics of it dean current with us right now, John, fer I do want to point out housing statistics out and they are a better the halves of the economy, certainly repositioning h in a housing let me get that up right

now with a constructive revision as well. And housing I'm not gonna give you too much of the data than the same month over month, it's a very strong be down housing starts and critically the previous the previous month was a huge revision upward as well. Not so much moving the bond market, John, But again they're two part America and America struggling and also a booming housing economy. It's a really good upside surprise four point nine percent

month on month, the median estimate three points say. The revision tell me talk of a revision the previous month one point nine percent, the upward revision six point three. That's housing staffs. And this has been a really really solid part of this economy, Dean. The housing sector that's just done terrifically well, low rates, people bending on their houses. I'm deepo to the moon. That's been a really great

story day the small caps. Let's talk about the story that hasn't worked and is starting to work, the cyclical positis market the small caps. Can you walk me through the trend there and whether that is durable. That's been a big debate over the last week. How durable some of these catch up moves have been. I think that's that's obviously on people's minds, and certainly a question that we fielded um you know quite frequently last week was just this epic move in the fact the rotations right.

People are calling it a fifteen standardy viation move from um you know, from growth to value and people are asking, is that just an indication of how crowded the space you know has been in terms of positioning and things like growth and the under positioning and value. I think there's something to that. I think the other part is, look, we you know, we've got pricing in the market that

reflects the truly unusual and unprecedented consequence. We sort of knew in this vaccine announcement all and only came we were going to have this, you know, this big rotation. I think, Um, you know, the question around value and just the sort of more old economy type of stocks, I think an important one. Um. Look, I think we have a permanently changed economy in a lot of ways,

but we are slowly coming back. And when I step back and I just look at the broad picture of risk, I see option prices that you know, Tom was saying we were expecting normalization post the election, But I still see them as something you can utilize in your portfolio, and more on the short side than on the long side. So these option premiums are sort of the last war for the FED to push lower. UM. You know, they

they crushed fx ball, they crushed rate ball. UM. You know that that is was a major part of how they had to restore market functioning back in in in the March lows. But you still have very high option prices as we start, and I just think you can use them as an income generating part of your portfolio. You well, then I want to pick up on that word you used. Normal pretty pandemic. There was nothing really normal about the low folatility regime we were in for

so many years with a vixed down towards ten. Right now, one stath of twenty two, Just Dane, what is normal and what do you think is the normal that we need to get used to? You know, I'm thinking a lot about the post crisis period that the GFC and you know, we had the aftershocks of the flash crash, then we had the Eurozone crisis eleven, and then we had this long, long period where the economy was clearly normalizing, but um behind the push towards trying to you know,

get the labor market back on its seat. Said policy stood in town, stayed in town much longer than you would have thought, and that normalization in the vix from call it twenty twelve to you had an average VIX of about fifteen for that period. And I think that's just my playbook is that you have a crisis, you have an ascid price shock, you have a massive policy response.

Each time it gets bigger and bigger. And then even as people argue, well, maybe we don't need as much FED, you know, of the FED guardrails as we have, as

we had during the crisis, the guardrails stay up. And ultimately those guardrails they work a little bit on the real economy, but really what they impact is asset prices, and I think they've they've impacted f X volve, They've taken interest rate volatility to the lows, and it's just this equity volatility that I think still stands out as something that's you know, it's got some normalization into I've been struck by the recent volatility and how it upended

a lot of quant funds in particular that have posted some pretty stark returns based on the fact that you cannot plan for a vaccine, you cannot plan for some sort of fiscal bill that is or isn't past, and you can't necessarily plan for a FED response based on that news. Has the old model just been completely upended? I think you could make that argument that the the notion of the carry trade is a very difficult one to um, you know, to keep pursuing in the sense

that we know there's risk premium in markets. There are these sources of return that some of the quant funds and some of the more volatility oriented strategies have targeted. But when you get these very unusual factors, UM. You know this again this year being so unusual, it just makes the sharp ratio of a lot of these strategies, UM, compromise and all those equal less attractive. Very quickly, images

from Berlin of water cannons. I mean this started out peaceful with Francline Liquire earlier this morning, and with that image there. You don't see it on Bloomberg Radio right now. It's just crowds assembled in autumnal Berlin, and moments ago there was substantial use of water cannons. We don't see that right now, but there it is. I'm gonna call it a more distressing situation. Didn't current your world seem so removed from pandemic agony? Are you surprised by that?

I think that you know, this is a very UM I think is going to be challenging in the sense that the social aspects of you know, this pandemic are unrelenting and they're so significant. UM. You know, the policy response in some ways creates additional UM dislocations in terms of um, you know, the haves and have nots um. So it's going to be very tricky, especially as we transition to a new administration and one that wants to re embrace globalism. Um, there's a lot of those uncertainties

you know out there. I think geopolitics have been typically more barked than bite. But we always have to just keep an eye on the types of things that markets tend to forget over time. You know, we cross different things off our worry list, but um, you know, oftentimes there's just things that we can't predict. So you know, even as we say use volatility, use options on the short side to try to generate some premium, we have to be on guard for the types of things that

can go wrong. And then what do we learn. We learned that over time, during especially during the good times, we underestimate to jump to the liquid conditions right the speed with which markets can turn very liquid very quickly. I think that's a key lesson from and something that as we talked to our clients at the back end

of an incredible year. In so many ways, it's just to be prepared, you know, for the unexpected, a record high to stop market in February, a month before we locked things down in America, and a record high in the stock market as things are locking down again, not in the same way, but it's similar to ding writes to catch up. So as always think on a macro risk,

advised the CEO. Right now, I'm temperature because of physics, the thermodynamics of all this vaccine talk is about temperature, keeping vaccines safe for transport, making them efficacious up to the point of an injection. Friends were hostjoins us right now with CURVAC of Germany to talk of this temperature fronts. How do you, Fronds Warner, how do you react to one vaccine in an unimaginable ninety degrees fahrenheit and another

one being refrigerated. How does that occur? Well, it depends most probably on how you're working with the mRNA, how you're stabilizing the RNA, and how you're manufacturing the RNA. Um This is more or less the the the only

points where it really could make a difference. And as we are holding on the RNA for all our vaccines, we have got a Rabius vaccine which is already in the clinics for a while that we have seen that the property is that you can have ourn a Brittish stable and then certainly on the product by product or target by target, you have to reevaluate again. And with the COVID nineteen vaccine candidate, we have gotten the clinic. We see the three months, well you see it within

three months. But the mystery, I think to all of our viewers and listeners is almost back to the nineteen fifties and I remember the liquid nitrogen and doctor's offices as well. Is that what we're heading back to is we're going to have those metal containers with the smoke coming out of them when I was a kid. No,

I don't think so. As we have got a stability of the COVID nineteen vaccine Canada already at three months, and this is up to three months minimums, so it will be extended because all what we do is real time and you have to see that now the RNA vaccines not only in our hands but also in the hands of the others. This is brand you. We can make it different and then certainly the development of the stability will increase as well and will will get better

and better over time. This is what we see and you know, this is really something we have to work on and we will. So given the fact that you're on the front line, so there's actually manufacturing potential vaccines, can you give us a sense of your timeline of how quickly you think that manufacturing could get ramped up and distribution channels could get solidified so that we get

a critical mass of people immunized against the virus. Well, you know, we are MR and A manufacturers, not only developers on the one side for the molecule, but to have it as products, but also manufacturing, because this is what you need since two thousand and six, and it is certainly the scale up you always do according to

what you've got in the pipeline. What is the need you really to to have the capacity for When we started two years ago with our fourth product line, which is an industrial scale, and nobody really us believing in that you need this big scale. Certainly nobody knew at the time that we're talking about COVID nineteen. But since the beginning of this year, all this capacity which is going to be built up, and as we are actually building this up, not only we are at CREVAC also others.

This is m rn A capacity which stays even beyond COVID nineteen. It will be a part of the preparedness thought because there will be other viruses coming and RNA can make a difference obviously, and and for that the capacity is there. But you can't get from zero to a hundred within a minute. But all what is at the moment what we see as scaled up worldwide globally beyond KUVAC even there will be enough capacity to really vaccinate the world, well, let's say until the end of

next year, so fronts order. When you talk about m R and A and the potential differences in between the vaccines, Tom Keene's ears light up. Are his eyes it up and his ears perk up as he tries to imagine the sequencing here. Most people's eyes blaze over. They don't know the difference from one vaccine to another. People talk about how it's important to have multiple vaccines, but does it complicate the issue? I mean, who gets what and

why is that important? What we will see as as this is what we are doing, is all in real time. If you compare it with other vaccine developing UH strategy in the past or whatever was the real world in the past. This really has been accelerated without doing any concession to the safety and tolerability of the vaccine. But you have to see it target by target, and this is COVID nineteen and what it does to the immune system, how long the protection will be, this is all to

be seen. At the moment. There are you know, had runners not only m RNA but also on protein based on viral vector based technologies, and we will have to see how long is really the protection level, the memory effect and what does it do to the different immune systems of people with indications, respiratory indications, elderly people, And

this is all what we will find out. What we see is that most probably most of the vaccines differently have different properties and then certainly for the different needs, and therefore it is good to have more than just one vaccine in order to see this later what is most appropriate for which kind of target population. So thank you so much for joining us today. Friends, owner host with CREVAC of Germany greatly greatly appreciate that. Thanks for

listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane Before the podcast. You can always catch us worldwide. I'm Bloomberg Radio