Surveillance: Data Deluge With Citi's Mann

The discontent in the economy may not necessarily mean discontent in the markets. I mean, as you know, markets trade differently from the economy, and look, we are looking at a slowdown for sure, as the case counts rise, potential lockdowns and all that good stuff. Look, there's a there's a while. The SMP five hundred is basically flat since early September. There's a raging bowl market going on under

the surface. This is the point we've been really trying to emphasize that as the if we look forward to next year, there's still a lot of undervalued assets within the equity market that hadn't hadn't participated yet, and that's what that's the big story that's really going on in the equity market. Is it absolutely relative? Do you unload your tech to go over to material cyclicals, banks and the rest or do they participate as well? Well, we did that. I mean that that that was the strategy.

I mean, you guys are talking about, you know, stepping into the fray back in March being difficult. I think it was even more difficult to kind of move away from the former leaders to the laggards, right that. That's that's that's real career risk for hunted people. And I think folks have fought that as long as they can, and now it's becoming apparent that they need to consider that move. And that's what that's what the last three

weeks is really all about. The combination of an election result plus the vaccine news is now forcing people to consider the possibility that this leadership change is not temporary, that it's actually more sustainable, and positions and portfolios are just not ready for that capitulation. We've got two time frames here, Mike, you and I've talked about him so many times, the net um and the medium term as well. You've had this trading range that you've developed and it's

evolved slightly as the year has progressed. Mike, can you walk us through that range right now? And why you think we might be in protest at the lower rent of that range? Yeah, I mean, trying to call you know, corrections in a bull market is sometimes a fools game,

but sometimes it makes sense. So obviously, as you know, we were extremely bullish from March through basically August, and we we then thought the market would go through some consolidation and we throughout this range of fifty which was technically driven now that worked really really well from you know, basically August through the end of October. We made a trading by call at the low end of that range

right before the election that worked out really well. And now we're up at the upper end of that band again. Actually through it, we're at thirty thirty five. So you know, we're just we're gonna be objective about this. We're not gonna get dogmatic about some training range. But look, at the end of the day, John, five, you've baked in pretty much as much upset as you can legitimately, uh,

you know, sort of confirmed with fundamentals. Okay, the technicals are one thing, but but also on a fundamental basis, it's hard for us to stretch it much beyond that you have liquidity, you know, maybe surging in the market that's taking things higher. But our job is to tell our clients when the risk reward is attractive, and right now the risk reward is much less attractive than the west three weeks ago. It doesn't change our view about

the bowl market extending into next year. And and once again the main message we want to leave with clients is don't focus so much on the index. Let's find the opportunities that are clearly in a bowl market. And as you were talking earlier in the show, I mean the Russell two thousands of this month and it's just starting to have relative outperformance. That's Those are the types of things that we want to focus on for clients.

Some notes that I was reading research notes after Jannet Yellowin was nominated to be the next Sury secretary said this would turbo charge the euphoria for a longer period of time because the idea of a Treasury working more closely with the Federal Reserve willing to run the economy hot is good for inflation. Isn't only going to fuel the trades that you're talking about, Russell two thousand Financials.

Do you agree that Janet Yellen at the Treasury is, if not a game changer, at least really adds momentum to what we're seeing in the market. Well. Absolutely. I mean that one of our themes this year has been that we're moving out of a what I would call monetary policy dominant regime to a fiscal policy dominant regime.

In fact, Jenny Ellen and Ben Bernanke as well as been writing op eds for the last six months of imploring Congress to do more fiscal j Paul Is also signaled that in every press conference, and so the Fed is almost been imploring, you know, the government to say, look, we need your help this time. We need to get more fiscal cooperation, to use the chief money to finally pull us out of this sort of low gro environment.

And putting Jenny Yellen as U S Treasury Secretary can only help uh that effort in my view, because you know, it does come down to a negotiation with Congress. And obviously Jenny Ellen has tremendous street credibility, and you know, we know who she is. She's and she also has a pension for some of these programs that are more favorable to the lower income cohort, which is exactly what has been working this year, right getting money to the folks who need it and who will spend it. Mike

Wilson International Investment. Now what your inning are we in? Is it just beginning or has it been a nice pop and that's it? Well, this is another one that you know, sort of has been a bit of a widow maker for the last you know, six or seven years, in the sense that every time it tries to make a move, it just gives up. It's like the value versus growth phenomena. It's the same trade Tom, you know.

And I think that we are at at an inflection point right now for the more cyclical parts of the market to work better because there's you know, economic growth acceleration, not just here but globally, and some of that inflationary too. So there's no doubt that those markets that we're right about our fundamental economic view, then those markets should have better performance over the course of the next twelve months.

Best month ever on the stocksic Sundrid for in Europe this month unreal up around about Mike tremendous work with the team this year. Fantastic to follow some of the research. Have a wonderful thanksgiving, Sir Mike Wilson that of more Coin Stanley right now and this comes up on the economic data that we're gonna see in what John has talked about happening in the House of Commons right now with a Britain in recession that is a compare and

contrast to Queen Anne three years ago. Tobias Adrian is one skill to put perspective on this with the International Monetary Fund and Director of Monetary and Capital Markets Dr Adrian out of the Massachusetts Institute of Technology, and I should say the New York Fellow Reserve, Tobias, I love your essay which links in the path forward one year, two year, let's say the path four it up to two thousand twenty three, and you link it directly in

to the financial stability that the Chancellor of the Exchequer desires. Can we have it both? Can we have our Turkey and need it too? Well? Good morning, thanks for having me. Yes, Center banks, including the Bank of England, but also the Federal Reserve and the e c B have deployed extraordinary measures this year in order to fight this terrible pandemic, and that has been tremendously helpful in easing financial conditions, getting financial markets to work, allowing firms and governments to

borrow from markets. So that's a very very good outcome. But of course, an intended consequence of this monitor policy easing is for risk taking to return in financial markets. And indeed we see that high risk for us can get loans, but you have to make sure that there's not excessive risk taking, do you This is really important, folks, and this goes to the blue book, the Brown Book, and in the Green Book of the International Monetary Fund.

Have you guys calculated the percent of g d P that we're going to have to spend on this pandemic? Progressive and liberal economist would say it's a much higher percent of g d P. Do you have a statistic tobias, Well, yes, we have looked at the fiscal expenditures this year and there were about twelve trillion globally twelve trillion, so that's

uh depending on the economies. In advanced economies, it's up to fIF of GP that has been spent in two thousand twenty alone on fiscal expenditures in order to cushion the economy from this terrible pandemic. And yet still people say that monetary policy is doing the heavy lifting tobias. So even though you do that have that incredible fiscal expansion, still it is the idea of incredibly low interest rates

and bond purchases and beyond by central banks. What are the financial stability risks of this disconnect that we keep talking about With markets flying higher records even as we look at a pretty bleak winter, So for the moment, things am pretty good shape. Banks have entered this crisis with much more capital than they enter the two thousand eight crisis, and um of course markets have come back and that has been very helpful in terms of sustaining

the rescovery and sustaining the economy. We worry about the next three to four years. If monetary accommodation is still needed, financial conditions remain easy, that could fuel risk taking going forward. And so it's really in the medium term that we worry that there could be some degree of excessive risk taking in some corners of the vices you pointed out. Though this was the objective of policy to divorce financial

conditions from underlying fundamentals. Use the word excessive. Can you define the word excessive and who gets to the side, whether it's successive. Absolutely, it's a balance. It's a balance. So you do want lending, you do want to support the economy, but you wanted to be measured and so getting the balance right is really what is on the

table here. So in all of your uh, supportive monetary policy is going to be appropriate for some time in many countries, for many years, but that has to be combined with regulatory measures that make sure that there isn't excessive risk taking in terms of risky lending or the build up of leverage. Are you thinking right the macropodential tools around the housing markets that we've seen before and for instance the UK, those kind of things deparces that

way your heads at the moment. Yeah, it would cover of course the banks, the non banks, as well as the household sector and the corporate sector. So you really have to look at the economic system as a whole. To us come back saying I love to continue the conversation to Adrian that I'm as director of Monetary and Capital Markets. Your man joins out from City Group, Doctor Man out of Thanksgiving. We're supposed to take a bigger

broader view with you. Somebody mentioned there are another major bank looking for zero, looking for slow down, looking for recession. Can you be so grim as to tell us we're gonna begin to an approach in nb ER recession. Well, of course, the n b E R recession is the two consecutive quarters of negative growth. That's the official word. Um, I don't think we're going to be looking at that. That doesn't imply that we aren't going to be looking at a very difficult situation for a lot of people

in the market. I think that you have said that you've you have this to to to uh stage recovery. One is manufacturing doing quite well. Um, you know, having a trade deficit and endurable and turable aplodes or capital goods is actually a good sign for business investment going forward. But of course, the labor market, the weakness, the continued weakness of the labor market is something that is going to drag the whole economy down. So you know, you've

got two speeds. One is extremely slow actually in reverse, I mean that's what the initial claims is telling us. That's in reverse, that the capital goods trade deficit is actually positive, um, but that's going to keep us from being in um uh, you know, an official recession, but it's going to be very grim. I think we can't. Can you give us the nits medium term outlook than a city for you guys right now, just your base

case and terms of the outlook. The contrast between the two well, as I say, i've you know, sort of outlined the fact that the continuing claims UM and the initial claims are pointing to a very difficult period of time over the next you know, a few months, possibly into the second quarter of next year. UM Our official forecast is that the US economy will have returned to the pre COVID level of GDP in Q two of

next year. But I think that that has to be um considered in light of you know, this this burgeon in cases caseload in around around the country that's clearly going to weigh on that on that forecast, Katherine, we keep talking about how markets are ignoring the near term looking to a brighter period of time with a vaccine and traveling and more jobs, and the question that we keep coming back to on surveillance every morning is what is the damage, the longer term damage being done by

the virus that is spreading at an exponential rate, and we're seeing that that's affecting the employment picture dramatically, with worse than expected uh jobless claims coming in. What is the scarring? How do you measure that? Well, there's you know, there are different ways of measuring it in the in the labor market data, but um, you know, the different US and so forth. But I really think that it's

it's it's the labor market. It is um the small businesses that are disappearing, and it will take time to bring that back. But I also think that there are some other potential changes in the way the economy works that is a consequence of this divergence between what's happening to to companies um, sort of in terms of the real side, and what's happening to companies in terms of

the financial side. So one of the things that we are seeing is that the companies that are flush have done well are buying their competitors, so that you know, M and A. So we're seeing more M and A. We're kind of we're looking at more of that coming forward over the next six months anyway, and so when we come out the other side, the structure of the

economy looks very different, or potentially quite different with more concentration. UM. That of course is not good for labor market people in the labor market being able to get their wages and that sort of thing once they get employed. UM. And so consolidation is great for markets, it's great for stock prices, but it is really bad for both UM

innovation and for workers. So longer term, the type of m and A concentration that we might end up with six months from now is not something that we're happy about in the longer term. Captain Man, a fancy question here on foreign exchange and your excellence at international economics. What happens is you end up having dollar dynamics which harm countries. They complain, and you get an abrupt reversal as well with a week dollar. I guess their currencies

get stronger. We had one house today go to a yen nine, which is a shockingly strong yen. Is that what's in store for us next year are strong currencies? Where other nations scream at President Biden, you know, I think that, UM, there's a general view in the market that dollar depreciation is UH is sort of in the cards baked in almost UM. But I think we have to look at a lot of variation in how economies

are going to be performing over the next year. We do see a lot of differences in UM potential improvement in the economies over the course of the year based on policy differences, based on virus vaccine acceptance differences. So I think it's it's UH. I think it's premature to say that, you know, we're looking at a claus a louver situation where UM, the dollar gets too weak and then everybody has to go in and try to reverse course.

I think there's a lot more choppy waters, and it depends on whether you're looking at Latin America, are looking at Asia in terms of emerging markets UM, and even differences between Europe and Japan against the against the dollar. I think we've got a lot of different factors at play. Getting somebody action to the data dump of the last

eleven minutes. Kathy Jones, a good friend of this program of Charles Swab playing against saying jobless claims up to seven seventy eight not a good sign, but jurable goods, artist rights more than expected. Same old story manufacturing good,

but job market not so good. And Katherine, you touched on this a little bit earlier, your thoughts on how long that kind of dynamic can persist these two different economies that seem to be persisting at the moment, at least not just in the United States, but in Europe too well. Manufacturing is really being supported by UM both the policies that were put into place to replace worker incomes at a time when they couldn't spend it on

anything else. So that's why we're seeing manufacturing goods looking so good, retail sales are looking so good, or well, we're good looking so good in terms of in terms of the bounce off the bottom UM and and then the fur allowing schemes in Europe. These are all sort of designed to replace worker incomes, but of course they have limited things to spend it on, and retail sales is one of the ways they're spending it durable goods, So there's that UM. Then of course there's the replacing

the inventories associated with the lockdown periods. Both of those, at least in the United States are coming to an end, especially the support programs designed to support people's income without any kind of kind of move towards a either replacement of those incomes or move towards another strategy of spending tax changes and regulatory changes that are going to promote

business investment to promote employment. Um then then we do have this situation where ultimately the lack of consumption, as Michael Vickey mentioned earlier, the lack of consumption is going to drag down the business side as well. So you can't go out too far on the limb with manufacturing doing well and employment doing poorly. Ultimately, you know, you fall off cancer and always wonderful to get your perspective cancer man that a city group. Thank you for this

Wednesday before Thanksgiving, a time normally of immense travel. I call it the fourth Wednesday of November. It's just simple. The college kids come home, there's all the things we've done over the years, and then there's a pandemic. It has hit no one harder than the hospitality industry and particularly how we transport in our business and hospitality, and that would be travel. So it would be good not to speak to a CEO talking their book and boy we've done a great job on that. Thank you, guy

Johnson for leading that coverage at worldwide. But how about talking to somebody who's single handedly changed how we traveled. His name is Brian Kelly. He's never gotten the credit from a straight business community about what the Points guy has done. It was a website, it was a joke. Everybody laughed at him until they realized JP Morgan was listening and Mr Diamond was taking notes when Brian Kelly opened his mouth. Brian, you were unprepared for this. What

are your thoughts into two thousand tw one? Well, Tom, just first off, thanks for giving me that intro instead of just saying I'm an influencer. And next I'm kidding. No. This year has been absolutely wild for for consumers traveling um. But I do see hope on the horizon, you know, just in talking to our millions of readers and looking on social media, I do feel this bubble of revenge travel that's that's gonna come up, I think. In so, I do see good things on the horizon when we

look at things like quantas setting up rules. Do you feel your world will be the rule makers that force use of vaccination? You know, I traveled to Ghana quite a bit and I have to show my yellow fever vaccination. So yeah, I wouldn't be surprised if countries you know this virus. It's crazy how quickly it can spread once you think you get it under control. All it takes is a couple of quick mistakes and it can spread

like wildfire. So yeah, I do see more countries putting in a virus passport, you know, once these billions of doses are out there and we can actually track who got it. Bryan, I hope that I can join the wave of revenge travel. I think a lot of people are looking forward to get back, getting back on planes and seeing the world. I am wondering, though, if it's going to be more expensive. The hospitality industry, as Tom

was saying, has gotten hit very hard. How willing do you think, based anecdotally on what you've seen so far, will they be to continue some of these points and loyalty programs when they need cash they need the money. Well, it's funny because these points and loyalty programs bring in billions of dollars in upfront cash. You know, we saw Hilton and Marryott sell billions this year for future use to the credit card companies. So you know, the loyalty

programs need people to use those points. So we've been seeing incredible promotions. Even this Black Friday, Virgin Atlantic is selling their miles at a half off. You can fly New York or l A to London for basically a thousand, undred dollars when you back during these promotions. So it's

a great time for con sumers. And I don't foresee you know, prices going up for a long time because simply, you know, supply and demand, and there's still so many people sitting it out until they can get a vaccine, which may not be till the end of next year. So it's a good time for deals, all right. But but something's got to give, Brian, right, I mean, we're

looking at a market that's been decimated. If you look at the losses in the airline industry that's projected that we're projected in this week billions and billions of dollars. How are they going to recoup that? And if they don't, does that mean no soda charging for your luggage? I mean, I'm just talking about the practical implications of the quality of life aspects of these hospitality industries. Well, it's funny because the airlines have actually made it better for consumers

in waving most change fees. You can now book the cheapest flight and change it for free. They say that's going to be forever, but I agree with you something a shoe is going to drop at some point. But the way they're doing that is by managing capacity, by you know, retiring old and efficient jets. You know, their real industry has been right size. Um. But I don't first see any punitive changes to consumers anytime soon, even Brian.

We talked to k l M CEO this week and he that k l M and Air France are talking to the Dutch government about a bailout. And there's a dance in the United States Southwest Air making headlines in the last twenty four hours. From where you sit, Brian Kelly, do you just assume that we're going to see more government aid to the industry to get them to the other side of the points, Guy Bridge, I don't see it. You know, we saw Norwegian Air got the big notes

from their government. The US has since you know, not really been willing to extend, although the US CEOs are in Washington every other day begging for it. You know, I think you know, these publicly traded companies. You know, I learned a lesson that you should probably stuck up a little bit more on cash. I don't foresee another big bailout. I think they just have to right size things and so the demand returns. I mean this this summer,

just because of the pandemic. Lisa was going through the Adirondacks. I don't Brian, if you know the Adirondacks are mountains north of New York City, and she was doing, yeah, canoeing and portage and all that. She's trying to use her point miles off a major bank to help her pay for the portage between the links. What is seriously, what are the bank's gonna do here? You mean you changes, Brian, What is the next step for the banks? You get

two hundred thousand points? You know, it's funny you say that the banks this summer really took a break from big promotions, you know, because the credit risk was just so unknown. You know, are people gonna be defaulting left and right? It appears that's not the case, although we're not quite sure how many consumers are defaulting because people have been given so much forgiveness. But the banks came

back with huge offers. This fall. We saw big sign up bonuses, and I have seen a shift towards more flexible points instead of credit cards that offer you know, airline miles. Now you know, even Chase is offering to use your points on groceries at a really rich rate. So I foresee the credit card companies allowing those points to be more flexible for use on things like merchandise. I'll tell you, Brian, through the pandemic, thanks for keeping

the spirit up. It's really wonderful during a pandemic to see Mr Kelly in the mall dives and he got there for a hundred and forty two dollars and six jillion points that I'm going to Rwanda this credit course. Why did I? Why did I? Why? Am I surprised? Right? Kelly go away? The points guy traveling all the places Lisa and I Tom, I just want to make a Bloomberg surveillance correction. Okay, you cannot use your points to portage.

I learned this the hard way. I tried because get the truck out and put the canoe drop of the jeep. So yeah, you need your points to portage. 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