Surveillance: Investors Eye U.S. Stimulus

thanks for having me on. Um. Look, it's it's a pretty strong set of results. UM. At this point we're really accustomed to Goldman are generally doing quite well relative to expectations and to do it again, UM, you know, really strong numbers and equities, investment, banking and UM and also on the efficiency front. So as I think all in, um, all in, a really strong set of results is on in.

When it comes to Goldman Sachs, people talk about strategy. Yes, they did beat on trading overall that was driven by equities. They had a miss in debt trading. What are you looking for in terms of how they're guiding their strategy going forward as they try to shift from just investment banking centric place to something that includes more lending. Yeah, so I think you have to understand the strategy in

the broader context. They've been growing the banking business, if you like the traditional banking business for quite a while. It's almost a ticcade now UM, and you see really strong growth in in in the net interest income and in the loan in the loan book. But but I think as we go forward that will play an increasingly important part in the story UM in terms of building

out you know, far more predictable revenue sources. So lending will be one, but the asset management business, the private wealth business, alternative asset management business, and even in the traditional UM you know, core investment banking M and A M, A d C M type businesses. I think these are the businesses they have to grow. They are focused on growing and will ultimately drive the voluation of the company

going forward. Christian and your research, you know, you always do a great job if you compare even put a slash market at the g s MS combine. I'm fascinated by what you think we see Frazier at City Group trying to do a Gorman and increase wealth management. We've got others as well. What is the Pixie does that James Gorman has in wealth management that everybody else in asset management, that everybody else wants to copy. Yeah, it's it's a great point. Look, I think James Gorman's daughter

and absolutely unelievable job. But Morgan Stanley, UM, you know, you know this one time because you've been here for a long time and you know Morgan Stanley was more or less basket case UM a decade ago, and they've turned out really to be I think UM almost op posted a child of how you do a a a

corporate restructure in UM. Look, I think they've really done a good job in in focusing the wealth management business around efficiency over the last decade and lending, which is boosted pretax margins almost double with pretext margins UM since they are quired UM Smith Bonney from City. I think going forward the key for that business will be growth.

UM growth has been sowhat slower as you see the migration of advisors away from the white Houses to the likes of a Schwab and the regional broken like a Raymond James. I think going forward for Morgan Stanley, a key part of the growth has to be pivoting that wealth business to growth UM and I think the eater acquisition and ultimately eating vents um will be will be

very helpful in achieving that. If you're just joining us on Bloomberg Radio, Bloomberg Television worldwide, Christian Blue with this autonomous research after years with Bernstein and Credit SUAE, as we look at the state of global Well Street, Christian, we've seen enough come in. I love your broker centric view, but we've seen enough coming in from these banks. How do they prosper five years out? Everybody can't win at the same thing, So what is the sense of prosperity

you see for major bank American Wall Street? Yeah, look, look at look It's it's a good question. Ultimately, um. Look, I think that the health of banks will will depend on the health of economies over time. So so I do think like economic prospects are a really big driver of of of of bank outlook. But also the reality is today's there's a lot of innovation out there, and you know, some of the smaller FinTechs have a lot of capital and the market is willing to give them

even more capital to go innovate. So I think your ability to invest in technology, you ability to be nimble around how you um service customer focused on customer service, that's going to be very very important going forward, you know. But ultimately, you know, the banking business is really about you know, economic prospects and and and sort of like responsible lending. So those two were probably play a bigger

path of parts. This whole digital thing, underscored by the eight thousand shares of a firm you've got on your sabbatical, I mean, John, to me, the great January issue of two thousand twenty one is the slash fintech digital banking thing and how all these companies are dept to it. Yeah, I'm did so well. I considered not coming back, and that's why I've had the last four weeks after and

enjoying myself on those mega gains in Finns. Christian build on that for a seriously, the conversation going forward and how much some of these names have got to spend. Yeah, look, look, look, you know the dollars you spend is one thing. How you spend it is another. Right, Clearly, if it was just about dollars, the biggest and best, the biggest banks would would would stream away so how you spend it, what you spend it on. UM, you know, your technology stack.

All these things matter. But but look, make no mistake about it. UM. You know, banks are have a lot of complation on their hand with some of these very nimble and forward thinking fin techs. And it's no surprise that, UM, you hear on the banks focus a lot on the tech spending need to put in place to to be able to compete. Christian, we're getting bank earnings on a

changing of the guard kind of day. We're going to get the last day of President Trump's presidency, and we have Janet Yellen testifying to the Senate Banking Committee, to Finance Committee to talk about her nomination as Treasury Secretary. She has in the past expressed some desire to regulate banks. This will be something that will follow under her purview. What are you looking forward to hear from her today in terms of how she will approach the banking sector

in her tenure if she is confirmed. Yeah, Look, it's a good question. Look, I think the broader picture around UM, the regulatory and political climate around banks, I think is important context. I think coming into this crisis, for the most part part, banks have been part of the solution,

quite frankly, and not the problem UM. So from the latest capital UH sort of seeker results that banks were able to get back to returning capital and it speaks to really the strength of um of of of the capital basis, and quite frankly, I think regularly should pack themselves on the back they did. They did a very good job post the financial crisis to show banks capital improve their um their risk management. And I think it's showed very well in the COVID crisis how resilientos banks are.

And I think that's the broader context in terms of how um UM not just scaled, but I think how generally um the political climate will will deal with banks. They've been more of the solution than than part of the problem um And and you know, for the most part, you do need a strong bank to to sustain recoveries. Christiane, thank you. Always great to catch up, so come back. So in Christian Baldy, there of autonomous research. I don't think I want off check changes that I think it

needs something else I want to check. Won't do it for branch shooting. He's Northwestern Mutual and of course they're looking at actual assumptions they're looking at long term investment is he provides investment guidance as their chief investment strategies. Brent, what is your line right now on investing for five years? I don't care about the here and now. I care about a more long term northwestern view. Is it a single digit return or can we do better? Yeah? I

think it's a single digit return. But you mentioned something really important, because I think people get caught up phenomenal returns. It's only real returns that matter. And so within that real return being in the single digits is assumed to

be in the lower inflation rate of inflation is higher. Certainly, um there is a revisiting of those estmates that you have, But in general I think people should just focus on real returns, and if returns on the single digits, it is likely that inflation will be low and so all

in all, consumers and citizens will still be fine. Brent, you don't want to find amazing looking at markets right now and just going through a long list of research notes that reflect don valuations and say, you can only really develop an argument on valuations by looking at where valuations are relative to interest rates and returns. Therefore, are going to be great for the next several years because

rates are going to stay so low. My difficulty with that brand is that we've all seen the last ten years in Europe in Japan where rates have been ultra low for a very long time and markets just have not returned big gains over the last several years. In Europe, low rates don't always get it done. Brand, Why is

the United States any different? I just think because of the minetary policy that we've had and promising to do more in the fact that our long term growth rate is above those places that you mentioned because of demographics, because of productivity, so there is a little bit better of an outwork here in the US based upon that.

I think one of the commentaries that you guys kind of missed in the beginning is that productivity is actually rising in the US and so perhaps our long term growth rate is inching up if you think about productivity finally coming back after being dormant for some time with the technology boom that we've had in the US, and so I would focus more on that. I think you're a correct. I mean that the risk to me is still and this probably combines into your earlier talk about

there being no fiscal hawks. I mean to me, right now, the central banks around the globe, especially in the US, are going to do more until one of three things happens. Either the dollar falls too much, inflation rises too high, or perhaps people start demanding a real return on their fixed income because the stock market is built on the

bond market. And so until those three things occur, and actually two of the three are considered positive right now, until they occur, then I think we continually have the market moving higher because right now the cost for policy makers on the other side is zero. There's nothing for them to contemplate. Um. They're actually trying to get a

couple of those things to happen. And so until that changes, until this debt comes due, I think the market moved higher, all right, So, Brent, Implicit in John's question, and it's an important one, is this idea that perhaps there is a fundamental inconsistency between rates remaining so low and growth being sufficient and to justify equity valuations where they are. At what point does one of them have to give?

Do we have to either get higher rates in the heels of more inflation, or stock valuations have to go down because people have been pricing in just too much growth. I think it's probably a combination of both. Right, So if people lose hope in the future, then certainly I think, or our growth rate dramatically slows, then I think the first part that you mentioned is certainly true and so um.

The other side, which I still think is the bigger risk, is that rates do rise and you actually have the stock market having to reprice because now bonds are more attractive because I do view valuation, and this is where I think people miss the boat. Valuation to me as a relative tool, not an absolute tool. Money has to go somewhere. When our advisors sit down with the clients, they decide stocks or bonds, not not not not neither of each. This is so so important, folks, bred it's brand.

It's right where I wanted to go, which is the idea of absolute and relative. The Nastaic one twelve months trailing t m T s up, the Russell two thousand out of nowhere is up twenty is well. I mean to polarities, if you will, in terms of factor analysis. In such do you sell those to get an absolute return on the other stuff, or do you do it on a relative basis and use new cash to go

someplace else. Well, for the past six to nine months, have been coming on this show and others and talking about moving into cyclic glass, that's moving into small caps, things that are more leveraged to global growth or even just broadening US growth. And so if I take you back to a lot of these charts went completely off the rails um so tech started out performing everything else. Growth did better than value, small cap dramatically underformed large cap.

And if you think back then, we were first introduced the trade war, which was designed to knock out levers of growth around the globe, and it had a pullback in the US also, it knocked our cyclical side out. The US pushed higher because we do have that big tech sector, especially in large cap stocks. And now you're starting to see the economy broadened back out. Even before COVID hopefully releases its grip, you're seeing manufacturing do well.

We think that continues into and that broader inclusive growth means that the stock market will be broader and more inclusive, and so it is branching out into things like value. M is branching out into things like small caps, even emerging markets, and we think that continues in Brent conash you with philosophical question. Just to wrap things up, We've had so many times on programs like this people lining up to say they think we're in a bubble by definition?

Can we be in a bubble if a majority of people that come on programs like this and think valuations are close to bubble territory? Look, I think there are there are parts of the market that are expensive, that are built upon dreams that may not come to fruition. I think there's a whole lot of parts of the

market that will do well in the coming environment. And if I take you back, yes, there were parts of the market done that were expensive, and people talked about a lost decade, but the decade was really only lost in those expensive parts of the market. Things that hadn't done so well in the small caps, like value stocks, actually did well up until two seven and when the world fell apart of the seams, but they actually had a good run during the two thousands, and I suspect

this time will be very similar. Things other than the things that have done well because of the narrowness of the market will actually perform into the future. And I guess that's the good news. By diverse locations, that you will have parts of your portfolio that will pull along the rest of the parts that may underperform. And I think they've kind of switched from what they were to what they will be. Branching of Northwestern brand Grites to catch up said thank you. This is without question my

China conversation of the day. Leland Miller is different. Besides being exceptionally competent on Asia and on China for years, he's taken a different tact of looking at China data. No one I know digs deeper on China than Mr Miller. He joins us right now, Leland, your note is very strong.

You speak of deceptive data out of China. What is deceptive? Well, I think if you focus only on headline gross numbers, we're gonna get a very cheery story coming out of China right now, because their recovery is better than any other major economy in the world. But the true question, for Mark it should not be whether China can nail a certain GDP number in a particular quarter or a year.

It should be how healthy is the growth? What is the composition of the growth, is its sustainable going forward, and when you look at the consumption economy, it's by far the weakest part of this recovery. And you see it in the retail data, you see it in the services data, and it's it's the real question mark looking forward, both in our data and in government data. You and I have talked for years about this about deceptive data

in China. Do you look at the vector of which way they're moving or is it so messed up now even the vector the trend is deceptive. Well, you know, it's it's funny because during this recovery from a COVID virtual standstill last you know, last winter, we have seen very much the same thing as official data. We just haven't seen as intensive recovery. So we saw the beginning

of the recovery. It was manufactured driven, then it was property driven, based basically the industrial economy, the supply elements of the economy driving driving China back to growth, but lagging behind consumption. Households are much more tame in their behavior. Retail services again, those those parts of the economy have not bounced back as much. So it's not that we're

seeing a different picture. Sometimes we do. Sometimes we're totally diametric to to what to what the government's reporting right now, we're seeing a similar picture. We're just not seeing the intensity of the recovery that the Beijing is claiming. So, Leland, can you put this in the context of the U S GDP, Because a lot of people have said that the faster than expected growth in China puts it on

track to exceed the US economy much sooner. Do you think that that's been overstated based on what you're seeing on the ground. Yeah, I know people care about this, but but the question I think is is not what we should be focusing on. If China wants to beat the U S and GDP, it could simply by building

a endless bridge from from Beijing to Californi. In you the bridge would fall in the water, but by along the way you get enough aggregate growth, not productive growth, but aggregate growth to to to ramp up GDP levels into stratosphere. When you're looking at this, much more important would be p GDP per capita. I think the US GDP per capita six times or so greater than China.

Household income, household wealth is more important. These are the things that make a country great and and it's it's I think a complete distraction to be looking just at the GDP number, which can be manufactured the short term but lead to serious long term problems if you do that,

perhaps leland. At the same time, you see an increasing amount of foreign investment into China, people saying that the government will support the economy, that will support asset prices going forward, and will continue to do so as they try to give the appearance at least of faster than expected growth. Are you making an argument against those investments or perhaps against some of the enthusiasm that we're seeing

somewhat on bridles from across the world. Not really, because look, if you're if you're investing in China right now, you're doing it probably for two major reasons. The first diversification purposes. You want to put more money into a growing economy. The second thing is you look around the world and a lot of things look really bad right now. China has had the top COVID recovery, and so there's a lot of reason to put to put more money into

China with all the opportunities there. I think where people fall short in their analysis is they look at China and they say Wow, there's this gross story. You've got one point three billion consumers. They must be buying a lot of things. There's gonna be this linear growth pattern. Let's let's just go in blind and and and you know you can see right now in the consumption data there's a lot of problems with what's happening in China right now. It just happens to look a lot better

than a lot of other places. Leland. The other issue that we've seen this year has been the divergence in exports and imports, and we've seen a real increase in exports from China to the US and around the world. Do you expect the stronger un to really hamper that? I mean, how much do you expect that to become a headwind for the nation? I think Beijing is in a

a bit of a pickle. They've allowed the REM and B to appreciate this year because they don't have much of a choice with the trade surplus hitting record highs recently. But they don't want to see a skyrocketing you want. What they want to do is they want to keep it relatively stable with a slight appreciation towards strength against the U. S dollar. So I think what they like

is just this beautiful stability. But because China is a more attractive destination right now because of the COVID recovery being so being so well done. Uh you know, you've got these you've got these real pressures. So they're not

in a danger area right now. But I guarantee you it's causing a lot of sleepless nights thinking where this could go if the US keeps going in the other direction and they're forced to keep making this currency go up, or face the political problems with not doing that beautiful stability. That's what we all want. Lan great and catch up

lean the mid of that of the China basebook. Grastly is it the Packard Hospital of Stanford University, their school of medicine, I should say, and the Stanford Children's Hospital after tour of duty at the acclaimed Boston Children's Hospital and out of Pennsylvania medicine. And we're thrilled that she could join us right now. Dr Lee, Those of us of a certain age have the giving of a vaccine as being a doctor's office with a cold thing in the corner, or maybe not, or maybe it was drops

of polio. How do you envision the vaccination of those younger in the coming months. Well, we're really looking forward to having the ability to have information around the safety and efficacy of at least are our teenagers, you know, twelve and older. UM. Currently we're able to vaccinate those who are sixteen and older when those phays has become available to us to be able to vaccinate at a

local level. UM, but imagine that we're going to need to continue to push for vaccine clinical trials in the younger age group. UM. It's going to be really important for us to be able to uh, you know, uh protect all of our all of our kids and adults and our older adult population as effectively as possible. Do you assume that we will be using these new modern vaccines, the m r NA vaccines or do we await something more conventional, something more traditional, I mean much like the

development to date. UM. My perspective is that we need to have a diverse portfolio to ensure that we have candidates that are potentially viable to be able to protect the younger population. So, you know, having testing the m r and A vaccines and those are anticipated to go into hopefully trials down to age six months M, but I also anticipate the other vaccine candidates we hope will

continue to be in development for that population. We're gonna we're gonna need as many vaccine candidates as possible in order to get anything in a timely way. Dr Lee, can we get to hurt immunity without children being vaccinated well, so children are known to UM be able to be infected and also potentially asymptomatically be infected. So I think that is continuing to be a challenge UM in general.

Although children are less likely to have hospitalization or severe disease, you know, we do see severe disease happen number one, but number two, I think it is going to be important. While we can also employ all of our other mitigation strategies specifically specifically for the younger population elementary school, we're still going to need options UH in order to be

able to get back to a new normal UM. We are going to be wearing masks and doing social distancing and coverting for a long time until we have those tools available. There's also a question going forward about and rolling enough kids in some of these studies in order to get the data necessary to roll out the vaccine. Are you concerned about the safety considering the fact the younger individuals don't get as six from the virus and perhaps are a little more reticent as a result to

go and get jabbed by a new vaccine. Safety is always going to be the number one priority, especially in the younger age group. UM agree that the benefit risk balance will be UM different for younger kids than it is for older But you know, we not only get vaccinated to protect ourselves, but also to protect our family members and loved ones. UM. I do think that the trials will emphasize for sure the safety profile these vaccines

and younger children. I anticipate that UM it will be more challenging to evaluate to the same degree efficacy UM as quickly as we were able to do in the older adult population. But there are you know, immu and abridging studies that are anticipated to be able to understand whether or not the immune responding young children israelbust and can be as effective as we've seen in the older

adult population. Ejectively are John Lawerman and Jason Gale did a terrific summary a day ago on the global set of mall shocks with big effect where they really damage

people etcetera. For our audience on radio and TV. Now, how would you describe the risk of shock and what we need to look for in the minutes following a vaccine Regarding anaphylaxis, you know, all of our vaccination clinics have protocols in place to monitor everybody for fifteen minutes, so everyone should anticipate that after a vaccine, but thirty minutes for those who have a prior history of a severe allergic reaction. UM and individuals who for example, carry

an EpiPen, you know, are our number one. We do screening before they come to make sure that they are

eligible and can receive the vaccine safely. UM. There are still individuals who we want to make sure we provide access to vaccine because there are many people with food allergies or environmental allergies and so UM we will continue to monitor those individuals more closely per our protocol, and all clinics are prepared, are asked to be prepared at any vaccination clinic providing COVID vaccines to be able to manage UM, monitor, manage and then effectively be able to

get those individuals to care as quickly as possible. It is a challenge with this particular vaccine grace ly. Thank you so much, Dr Lee with Stanford of course here their Children's hospital on the path forward with the vaccination. 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.