Surveillance: Consumer Is Strong, Sadove Says

I just want to start with the basic one. Seems to me that nobody really wants to sell down risk before the first vaccination. Do you share that view, sir, M morning, Um, Yeah, it's true. I mean I think that at the moment um, you know, all the good news is basically being put into the price, but most of it anyway, and you know, we're not in kindly

show how is it going to play out? And we've we've had lots of questions, I think, particularly regarding the Apresentica situation, but as you said, markets just not willing to sell off. Um, you know, at the moment I think we're in a bit of a holding pattern. Obviously, the holiday disrupted um period has has probably forced investors onto the back put a little bit. We're being a little bit circumspect now and we still have a couple of weeks I guess of trading in this year to come. Um,

you know, normally you'd expecting to start winding down. But I think there are just so many things, so many moving parts out there, that I think we can expect a very very interesting two weeks. I think the my view is that we should be positive. I think we'd probably ender you a little bit higher than we are now. But um, you know, there's there's many a slip between coup lip as you say, and you know there are there are lots of downside risks. Well, let's talk about

the slips that we've had already. Jobless claims moving the wrong way last week, jobless claims moving the wrong way this week. Peter, I've kept asking a question, how big will our tolerance be? How high will our tolerance be? As we work our way through some negative data in the United States of America. We've shaken off two weeks of it. Can we shake off three? Can we shake off four? Or five? Six? Um? To fair point? You know, when how many how many dat points do you need

to see a pattern or a trender moving here. UM. I mean I think the markets are looking a bit further ahead than it. I mean, obviously the labor market in the States has taken a massive hit, doesn't need has been the casing no other markets around the world. But we get more to the data in the US, and I think we just put it under the magnifined class a little bit more. UM. But it is true that it's still some importanment anyway, it's still some tenderly

shorter where we were back in February. UM. And as you said, it's running in the wrong direction. Um. If we get to the end of the year we've had any major problems, I think markets can can wear that. You know, a couple of a couple of small ups and a couple of small downs. Broadly ciders and claims will be happy. But if if the claims numbers started moving the wrong direction of fact to pay, that's the point in which I think markets was not to get worried.

And of course, given the mounting number of COVID cases everywhere, but obviously in the United States, I think that certainly is a major with Peter, great to have you with us. I'm interested by not all markets are made the same. At the moment, I'm looking at a board with the Russell two thousand. Yes it's only done by tenth of a percent, but it's down while the NASDAC outperforms once again, this so called rotation trade, which we turn a phrase we use too much at the moment, but it's on hold.

Can we move higher without big tech in leading charge? Or do you expect that big tech will once again become a game plan for investors? Um? Well, I think there would remember this used there all interesting ones. I mean in terms of the big picture. Um, you know, I do think that the tech universe will move higher, but I think we'll have to different chips in those parts of the text that we like or would have a um you know opposed COVID future and those which

perhaps have gone well, you know, thanks the lockdown. So you know, do you want to stick with Netflix in a world in which we're were getting back to some Ford normality? Whereas there has been a game change in terms of Amazon's revolution of the online trading platform. So I think there is there's definitely still value there, but whether it will be the same trade that we saw prior to the lockdowns, I would question in terms of the non tech sector, Um, you know, it is really

dependent on good news on the vaccines front. I mean, um, as I said, I think much of the good news was price being very quickly. We need more part of the market higher. Um you know, that could happen, But at the moment, there's nothing out there which is really going to uh, which is been flogging my bolt floating around.

I mean, the moves have been sensational. The Russell two thousand up twenty on the month, a record month, at record highs, the Dow at that sacred number thirty thou Meanwhile, bonds remain completely ranged and making the US Treasury, which never really get above one percential points peter folding the yield differentiation here and how much at what point we might see people back away from these valuations if the yield does just pick up that much higher in the

US well, I mean, the most question you have to ask yourself is is what those central part is going to do? And the w belihood is that they will stay active for a long time to come. So I think we're talking, you know, another six months or there about at least before we have to start thinking about um significant moves in years. Yes, there might be a bit of a pickup UM if we stop UM more good vaccine news, I mean much better news we're seeing now that that could you know, send you us a

little bit higher. But I genuinely don't think that years are going to go anywhere any time fast. So whatever they pick up in the first half of next year, they're probably losing. Let's talk about why we want to jump in just quickly and get to the bond market. At the moment, two's tense thirties yields lower on tens were down to bay points to zero point eight six. This market is rallied. As Caroline pointed out, we've had that great rotation over the last month. This bond market

yields just haven't come with it. We've been asking a question, why do you think it's technical because people believe the FED steps in and put a lid on it, or do you think it's fundamental. There's some doubts in this bond market about that object free for growth, for inflation for the years to come. If you ask me to, I would expectations of what the ES central banks are going to do and said, you know, maybe, um, it's fundamentals.

I mean, there are some people out there who say, well, actually, if the recovery does go at pace over the course of the next there's been such damage to the supply side of the economy that you might actually see inflation start to pick up. I mean, that's not my view, but it's out there, so you know, there are some

modest side this. But I ain generally speaking, I would see you know, rate to go in ciders and U the Caroline's point, why is the great rotation that happened simply because investors we don't see muny violent bonds that they continue to pol into Aroviu. Do not think that's going to be the theme, certainly for you in a month one, Peter Greater, catch up. Appreciate your time this morning, Sir Pil Dixon there of Commerce Bank. Camilla Yanaschowski joins

us now of CFR, a equity research Commilla. I'm trying to understand this. Did he increases in COVID positive testing rates in the United States of America across the country, including hospitalizations? Do they lead to people shopping less or just changing how they shop? Shopping less? For sure? Thanks for having me fantastic to have you. Let's build on that, then, Comilla, where do they shop less in store? I mean, today is Black Friday here in the US, and COVID nineteen

is completely challenging the traditional holiday calendar. I think we're going to be seeing very few shoppoholics trending on Twitter, uh camping outside a wal Mart, Target or bust by today and that very muted outlook we have on Black Friday, which traditionally has been one of the biggest holiday shopping days of the year, has to do a fear of

COVID nineteen and daily cases reaching new daily highs. In fact, the survey in October found that a little over ten percent of consumers said that they were very likely to shop in stores on Black Friday. So Committa, the medium and the medium of which people choose the shop is clearly shifting away from bricks and mortar towards e commerce. That's been clear for years and accelerated through this pandemic.

When I say where will they shop less? I'm trying to understand what will people spend money on home depot in the home improvement channel that has just been absolutely massive through this year. Is that what you see continue strength into one even with a vaccine. Resolutely, when we look at the survey data, we've seen elevated interest for home decker and home furnishings, which doesn't come to us as a surprise given that with COVID nineteen cocooning, people

are taking on more at home living projects. But also the data that we've looked at has shown that gift cards, the clothing and accessories will continue to be popular categories this holiday season. Wow clothing. Finally, because everyone seems to have been pretty doom and gloom on that one coming. I'm I'm a sucker for an experiential present, you know, and you name it a cook re calls some sort

of cocktail making thing. Are people doing that? I mean we've seen a B and B managed to pivot into that sort of element of things, but I feel that experiential is going to be foot coming off the gas.

What what is seeing and this is specifically with the higher income demographic and why we have a forecast for the holiday season of a K shaped economic recovery, is that higher income individuals, which have seen after restoration of jobs and higher income growth, they're actually shifting spend away from pandemic reliance services like travel like entertainment like experiences, and that spend is actually shifting into retail this holiday season.

So our holiday outlook, which is that retail sales for the months of November and December will be flat year every year, coming in at one point five trillion dollars. It's really reliant on how much these higher income individuals splurgd this holiday season. This K shaped economy is so important to us and the unequal nature of which this

rebound is occurring. Who benefits by the fact that they're unfortunately middle high income brackets who were able to spend on a on a piece of jewelry rather than a high end luxury travel and who doesn't. Who loses out by the fact that those on the who can't manage to get back to work at the moment are unable to buy for their children in the way that they usually would on the retailer. And we did a digital traffic analysis. It's an analysis that we run every year

to forecast or winners and losers. And the reason why we look at digital traffic is because we see a direct positive correlation between digital traffic and in store traffic. And we saw growing momentum of luxury brands like Tiffany's entering this holiday season. And then one name that we called out in terms of our top five winners was Williams Sonoma, which is a digital first home furnishing retailer

specifically targeted to a higher income demographic. And then in terms of losers, I think it comes more on the lower income consumer end because we think that this group of people are very likely to embrace frugality this holiday season as fiscal stimulus starts to run low. There are estimates that approximately twelve million workers are facing a jobless benefit cliff. On December twenty text, commit to appreciate your time this morning. Ready to hope you had a wonderful Thanksgiving.

Kimilianischewsky there of cf R A, let's bring in our guests this morning during Materics MetLife Investment Management, Chief market Strategist during Fantastic to catch up with you, mate. Let's just talk about the bond market to begin with. We've talked through the last ten years in the last cycle, and our inability to get yield higher, much higher, our inability in Europe to generate any kind of recovery that actually lead to higher interest rates. In fact, they kept

going lower through the cycle. Why is this recovery going to be any different route, Well, what I talked to people, I think what's different about this recovery is that everyone's talking about the risk of inflation going forward. Um. And it's actually surprised me because I think when we do the math, you know, we come up with kind of

inflation normalizing post that, post this crisis. UM. But I think a lot of people have it in their in their minds at the is an inflationary event longer term, uh, And that the period we're living in, you know, more closely resembles kind of the Vietnam ra and the United States that seventies era that led to uh, you know, inflation picking up. You have a FED that's very aggressive.

You have government stimulus, which uh, you know, we already had rounds of and we'll probably have more rounds of UM. And then of course you have you have a big amount of dislocation and things like the labor market um. And so you know, you combine those factors and people are beginning to worry a little bit more about inflation than they used to. Drew got into the eighties at the end of the seventies, the tenure yield was about

right now, it's eighty five basis points. That's a nomenal yield, granted, but through where's the concern around inflation? Why is it not being priced into this bond market? I know, it's part of the conversation. I'm having them daily as well. It's not in the market right now, you know, I think because people have have kind of you know, this is the boy who cried Wolf scenario. People like myself have talked about inflation risks coming out of two thousand

and eight. We were wrong. Um, you know, other people you know, talked about it as well, and so people have kind of got it into their heads that inflation is this thing that you know, the old people in Wall Street talk about, but that that doesn't really exist. Uh. And I you know, you hate to say, well, this time is going to be different, but I do think that there are some reasons to believe inflation might tick higher.

But let's just normalize it, you know, the idea that this movement and yields is not part of kind of the movement yields we saw for the last couple of decades, right, this is this is an aberration across the trend. Uh. And it means that most likely, the most likely scenario in my mind, is that inflation moves higher, yields move higher. We probably don't go above the pre COVID highs. Right.

Remember at the end of two thousand nineteen ten uar US treasure yields were just below two percent, So you know, even just a normalization is a basis points um or so uh. And I think that's something that's more realistic or more reasonable to consider. Um. I'm not worried about a four percent ten year yield anytime soon. If you want to call that being worried, I think i'd be. I'd be moving money at that point one inflation rate, though, do you see on the high side, how hot does

it run. I'm looking for a normalization of inflation, so two percent or so. Uh. You know it's um and you know it could go a little higher for a temporary period of time. But I think the question people have is if we see two percent inflation, is the FED going to react? And I think pretty clearly the answers no, They've told us no. UM. And what worries me?

And I think what worries other people about that. Is this idea that an organization that really couldn't orchestrate an inflationary push or you know, has has had more difficulty pulling down inflation, moving inflation around the way that they want, has the ability to kind of maneuver inflation, you know, with that fine degree of precision. And I think you know, think it run hot for a while sounds great. How

do you know when you're supposed to pull back? And how do you know what the lag is in terms of people believing that you're finally serious about inflation this time? So all of those factors are combining to you know, the things that are trying to make us feel good about the current environment and and keeping policy easy are the ones that are making people more concerned about the longer term outlook for the inflation move. Where is this

inflation coming from? There? Drew? Are we importing it? Are we fiscal stimulating it? I think people, I think people are going back to the idea that it's a monetary phenomenon. Uh, you know, the FED has created a gigantic balance sheet. But unlike in two thousand and eight, where there were regulatory changes that made banks, you know, hold more in the way of bank reserves and kind of more of that liquid cash. Um, there's nothing on the other side

of it this time. Uh, there are no regulatory changes I've taken place to kind of make people want to hold more cash. Uh. You know, people are holding more cash because of COVID, because of the risk around the econom Me. If you take that away and all that money is still sitting out there, people wonder where it's going to go. I also think, you know, from a psychological perspective, there are you know, the savings rates very high. People are kind of tired of being in their homes,

tired of being locked up. Um, you know, where are they going to go spend that money when the all clearer is given? Uh? And is there enough capacity in the places that they're gonna want to spend that money to actually allow them to spend it? And I think the answer is no. Right, There's going to be you know a lot of demand for a lot of experiences and things like that that are just gonna you know,

it's gonna be whoever wins the bit. The turn of the year is a really important time for bookings for airlines. Going into a study east of holiday going into spring going into the summer, Andrew, you can imagine the competition for flights to go on vacations if the vaccinations have actually started. I want to check it on the price action just quickly through just excuse me for a moment. Equally,

futures are near session high. So if about ten points on five hundred had a brief move on the VIX just for a moment sub twenty for the first time, I believe, going all the way back to February sub twenty just briefly right now twenty eight. Do you just returned to the story of rates. You said something really

important and really quite compelling. The most important question right now through one, if we do get anywhere near two percent inflation twenty one into twenty two, is how the FED response And they've sat up there reaction function really really clearly on rates now, Drew, I'm trying to work things out and just extrapolate it out a year, two years, three,

maybe five. So forgive me, but do you think we could face a europe style issue where we go through a full cycle, a full recovery without ever putting rates up. I mean, I think it's possible. I mean, I you know it depends on a recovery from what I mean. One of the things that you know, I think it's easy to lose sight of is most forecasts, including our own. You know, I had a recession in one, that's when

we were expecting a recession. So we were preparing for a recession, uh, in the later stages of nine, because we saw one coming a year year and a half out. Not because of a virus obviously, but you know, if you looked at margins, if you looked at the way the labor market was behaving, it all suggested that something was going to begin to kind of fall apart in the in the later half of we'd be staring a recession in the face. UM. You know, I don't think this is a cycle. This is this is a shock

the cycle that we're in. UM, you know, probably reset actually a little bit right we we've you know, had the recession, having the recession, seeing the labor market do what's gonna do? UM? I actually think the next economic cycle could be something like the um you're seeing. You know that there's going to be improvements in productivity, you know. UM, think of this as I think of all the technological

advancements that happened during World War Two. Right, This is not obviously World War two, but this is a big shock to the global system that required big movements and technology that required big changes. We're experimenting with things, we're figuring out how things work, and we're doing at a very rapid pace. Um. And when we come out of this, a lot of the changes that take place are going

to be ones that are actually productivity boosting. I think we need to really think about the positive sometimes put my money to work. Then drew in your focus as chief market strategist wearing portfolio, are you adding, well, I mean, look, uh, you know, don't fight the Fed. The good adage, um, you know, I think you know, if you look across um, you know, we are a fixed income oriented portfolio. So we're you know, we're we're taking our cues from from

from the Fed. We're taking our cues from kind of uh where we think that things you know, should be going. But we're also not losing suite of the fact that you know, some of the you know, I think some of the ideas that are being put forward are or maybe getting a little ahead of themselves. Right, people are going to go back to offices right. You know, there

is an efficiency there of people going to offices. There's some lack of efficiency there, but there's also I think more benefits than not going into an office and interacting with people on a daily basis and seeing those interactions and what they turn into. UM. Once again part of that experimentation process. UM. And I think you know, for a long time people are like, why do we need

to go into offices? What value does it add? I think everyone who's more working from home for the last eight months and can give you a good idea of what actually value is added by going into the office. And I'm still some of those stories are very personal too. Drew appreciated times dreamatice of Mattlife, thank you. Who are the haves and the have nots? When it comes to the retail sector, let's dig into that now, Jonathan, ahead of your important nine am open show, we're going to

be talking retail still. Steve say it was with us most Card senior advisor and of course former SAX CEO, and we heard it from Peter Navarro there. We heard it across the aisle, this need for fiscal stimulus. If you were still heading up sacks right here, right now, how important would some more fiscal stimulus be to you? Oh, I think another fiscal stimulus is critical, especially for main

street retailers. If you're one of the big box Walmart targets that were in the needs versus the wants, they're doing extremely well. The numbers that they posted during the third quarter were pretty stunning. I think the issue is for the travel related the restaurants, the small retailers that aren't able to play in at the scale and be able to do things like buy online, pickup and store. Those retailers are really struggling and the stimulus checks for

the lower income consumers are important. So the bridge that you talk about between now and the post vaccine period that are really required. Now being said that, the consumer overall is really quite strong right now, and we can talk about some of the MasterCard spending pulse numbers, but the vibrancy of the consumer, especially the high end consumer, is really quite remarkable. I talked about the house and have knots and nuts. It isn't it. It's the fact

it's the middle class. The upper class of people who have maintained their white color jobs working from home, is still able to splash the cash. What are they splashing it on at the moment? Steve, Well, the reality is what they're not spending on. They're not commuting, they're saying home, they're not traveling, so they're not going out to eat

in restaurants as much. So they're spending on things related to their home and uh it could be hardware, home electronics, uh, everything to spruce up their house and make it more comfortable at home, or just thriving. And they've continued to

thrive during the pandemic. But I think it's important to step back from it and look at where is overall consumption Because when we went into the depths of this uh sort of pandemic, in let's call it the March time frame, overall retail consumption was down minus about twelve and I thought, boy, we're really going to have a very long recovery. And by May June it was down to about a minus five. During the Midsummer it went to a flat and over the last two and a

half months we've been positive. And importantly the month and this is all spending post day of the month of October was up four and then the first half of November was up five point eight percent. So we're on a trend where overall consumption is healthy and that's even with the stimulus checks having stopped in the last period of time. So what you're seeing is an acceleration of

earlier Thanksgiving promotions. You're seeing pulling it forward. You're you're seeing that higher end consumer coming back, and you are seeing this kind of home related electronics, uh phenomena, grocery, home delivery, things like that are just doing extremely well. According to your data that you have, the spending pulse data. All those that are able to spend, those fortunate few have been well fortunate, many have been able to be

on the upward trajection of the K shaped economy. Are they spending more thoughtfully at the moment, Steve, You know, I think there's some qualitative research that's been done by MasterCard. In addition to the actual spending pulse, which shows you what categories they're buying, it's also showing attitude Lee that they they see the pain that's out there. They're shopping a lot more locally, or they're looking to shop more locally.

They're looking to support their communities. You're seeing the less travel. You're also seeing seeing a very big uptick and what I call socially conscious uh shopping. That's about whether sustainability, social responsibility. A lot of this started with the gen Z customer. It's expanded more broadly and people are looking to do good while they shop as well. And that's I think a phenomena that's going to be increasingly important as we go into next year. With your must card

hat on, but also with your experience from Sacks. Do you think the likes of Sacks, the likes of the big department stores, luxury high end department stores, are pivoting to that realization that people want to spend more consciously and more responsibly. Oh absolutely, I see it especially well. First. I see it in a lot of the smaller direct to consumer brands that each have a story to tell. I see it in the bigger companies. It's harder if

you're a large department store carrying thousands of items. I see it in the philanthropic work that these companies are doing. I see it in what they're promoting. Uh So there is an effort being made. It's a little bit, uh you know. I think it's on a case by case, company by company perspective, but I do see it as being an underlying trend that's hitting all of the re

tailor is not just the individual DTC brands. Steve Moscot has such a wonderfully global perspective and what I find fascinating, having come from the UK, when I first moved to New York, I was as standard that I wasn't able to use touchless payment as as freely as I had in London. I would never walk without without, never take a wallet, I'll just take my phone. And then suddenly here I keep having to run back to the office to get my salad because I walked out and my

phone didn't work to pay. Is that happening more? Are we seeing that digital divide between say the UK and the US in terms of payments shrink. I think you've seen a massive change going on over the last let's call it eight months, and it's driven by the consumer desire for convenience and safety. So anything that relates to safety, touchless becoming contactless, becoming one of those elements by online pick up, curb side shopping online or having exponential growth.

You've seen overall internet commerce going from twelve percent of commerce to of commerce even today over high base growing in the fifty six growth range contactless meaning of to let's call it a touchless UH credit card experience that's growing exponentially. It's nowhere near the levels that you're seeing in let's say in London, and I think that's going

to be the opportunity. So these trends have been accelerated by probably let's call it eight years and change in eight months or six years of change in six months, and I think that you're the consumers getting comfortable with the experience and it's that's the direction it's going. So you say it off one of all, have time with the Moscott Senior advisor from a sax CEO. 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 a