Surveillance: JPM's Kelly Sees Rough Road Ahead

look getting brighter. How do you navigate those two things at the moment. One of the advantages of being a bear is you can always hybridate. I think a lot a lot of people would like to hibernate through the next few months because it is going to be pretty rough. Um. You know, there's you can look at those case cans.

You know how this is going to play out. It's going to be difficult for the economy, it's gonna be very difficult for people's lives, and I could we think that growth in the US has to show down to about three growth if that, over the next quarter or two. But beyond that, you know, the vaccine news is good news, um, And we do if we're passed. I think the election, uncertainty in reality or whatever, you know, maybe going on

to Washington right now. Um, And I do think the vaccine is going to make a big difference, because the difference between a you know, a vaccine that six effective and nine percent effective is is it's a big difference because a meaning revenge you would be able to squash this thing. Um. So we do think the growth will pick up a lot in the second half of the next year as people get back to normal and people start doing all the things they haven't been able to

do for a year and a half. So we do see a certain today, but we do have to go through a pretty rough time for the economy and for society between now and then. David, David help us with the application of when strategies shift and go bullish. We saw there some Golden Sex David, you may be familiar with them as a small bank downtown. And also JP Morgan again shifting to a or more bullish tact as well. How does your world change when it's team at JP

Morgan gets quote unquote more bullish? Likely, sa Bramo wits, well, we obviously we're trying to do the research ourselves. We're trying not to be influenced by by other teams. But there's a there is a logic to this thing. I mean, if you know stocks, you know even long term bonds are very long term investments. So you've got to look past the next six months, and very often the best way to make money in the long run is to basically to fade whatever emotion is in the market at

the time. So, yes, we've got this rising case content. It's it's dreadful from from many perspectives, but you've just got to look beyond that. I think the other thing that that's very important for for world markets in general is with the new administration, I think you're gonna have more certainty on trade. I think that's one of the reasons the dollar is going down um. But also a folding dollar is advantageous for a lot of reasons. I

think it will help out emerging markets. I think it will help US investors with UM with you foreign investments, it will, it should help SMP pipeund that, and then a divided government means you don't necessarily get an increase in corporate taxes. To put all this together, there's plenty of reasons to be optimistic once you can get past this pandemic. David, you said fade the emotion in markets, A fascinating turn of phrase at a time when the motion that we have seen, at least so far this

week until today has been borderline euphoric. So are you fading the hope that they are having next year or do you think that we still have some pessimists and baked into markets where they are now. I don't. I don't mean that. I mean they fade the emotion that that's bubbling up in society and will bubble up over the next week ahead. I you know, these case cants

are rising very very rapidly. So you know, if if if it keeps on the same trajectory, within a week, people are going to be talking about nothing but the you know, the misery that COVID is inflicting upon us, and talking about shutdowns and lockdowns and businesses in trouble. So the I'm not necessarily talking about the emotion of the last week and sort of the weirdness after the election. I'm talking about what's just ahead of us here. I

think people should not overplay that. I think they should recognize that there is light at the end of the tunnel, even though the tunnel itself right now is getting darker. Whatever. It keeps coming back to the same question we've asked repeatedly in the last couple of days about this how much bad news is this market willing to ignore? Just how much? Well? The problem? The problem is it's it's we've got this, this market which is being supported by

these very easy central banks. Um, there is nowhere else to go. There's a lot of liquidity, and that's really what's supporting this market. I think the market can probably look through a fair amount of that. I mean, it's it's until there's something that's going to pull money away from upper income individuals and institutions that can that can put this money to work. There's money that needs to go to work. Where is it going to go to work? Um?

I would say that, you know, longer term, as uncertainty fades, you want to really look at valuations more than momentum. So we've got a lot of momentum and megacap growth stocks.

That's kind of been the continuing trade of But I think as uncertainty diminishes, as you get back to more normal economy and particularly if you get a correction at some stage, then people are going to focus more on valuations, and valuations look a lot better in US value stocks and in e M and developed country international stocks than they do in the S and P five handed overall,

and particularly in megacap growth stocks, Mega Camp growth. Right now bit NaSTA film at David Grants to catch up with you, David Kelly, that of JP Mulgan Asset Management, thank you, And right now Albert co of Yale University to say he is a professor of epidemiology barely describes his focus on the heart of the matter right now, which is transmission dynamics. He is world class in this

and we're thrilled he could join us this morning. Dr Co, Are you smarter about the transmission dynamics of this virus than you were in April? So so, Tom, thank you very much for the invitation. And uh and with respect with whether we're smarter, I'm not sure if that's the best way to describe it. Were we learned more much more about how this virus transmits, who it transmits, and

where it transmits. I think what we're not necessarily smarter is is learning the lessons and translating that that knowledge of evidence to policy. Well, okay, in the policy, but we have a policy void. Can we wait until January or please call it from the urgency of policy right now in the final days of the Trump administration. Yeah. So, so Tom, we're at a critical moment right now. Uh, and we can't wait until the January for effective action.

We're on the ex meddential curve of growth of cases, not only in new places where the viruses has spread in the United States, but also old places. For example here in the northeast of Connecticut, northeast of the country.

We were hit hard in the early part of the epidemic, and now we're having a resurgence at this moment, I felt that to find exponential for us if you can with the numbers that you're sink currently, and whether what you're saying is once you reach that kind of right of change, the inevitably the only way to handle this is to lock back down. Again, is that what you're implying. So so I'll take the first part and what we were doing in by expensional curve. So, this is a

virus that propagates by person or person in contact. So if you have one person in it it um transmits to two people, those two people transmit to four people, those four people up to sixteen people. And that's that

what we call the exponential curve. When there's that uncontrolled transmission and people are are we're undergoing doubling rates um the whether what the response to that is is actually to do several things, and we know the evidence and we've learned this in the last ten months of this epidemic. What is face matchs, you know, what we call barrier reduction or barrier interventions to prevent people from from being exposed to the virus. The other is to decrease the

social contact rate. Now that doesn't necessarily need lockdown, but when the cats out of the bag or when we have a wildfire, this extensional growth lockdown as we've seen back in the early stages of the epidemic is a is one, you know, one of the effective interventions dr CO. When we talk about what types of interventions are necessary, I feel like we have to revisit how contagious the

disease is and the main methods of transmission. There are some questions about whether it's effective to close bars and restaurants at ten pm whether that actually does anything, whether the surface transmission mechanism is a substantial one or not. What do we know so far about the main modes of transmission other than people looking at each other for more than fifteen minutes and speaking and singing at each other. Right, so we know that person or person contact is essential

and it drives this uh, drives transmission. I think you can break it down into three parts. One is the transmission through respiratory droplets. These are larger droplets that travel roughly six ft um uh and and really that type of transmissions fueled by close contact physical contact. The second is through what we call famites or person coughing or sneezing onto our surface. Uh. And then the third is the aerosols. Uh. These are smaller droplets that travel much further.

But but what we know now we don't actually have the exact figures, but the large majority of transmission is actually fueled by the kind of close contact through through respiratory droplets within six ft. And that's good news in the sense that we know how to kind of we know how to address that. It's use of face masks and to maintaining physical physical distance distancing in that scenario. Dr Coe solid Or Brazil is a thousand miles or so north of Rio. You've had a huge commitment there

to their medicine, their micro biology. I say this with great respect and nothing to demean the Brazilian government. Do you trust the statistics out of Brazil, out of South America and out of Mexico. Yeah, so, I think you know. The key issue with surveillance and the numbers and getting reliable numbers. And this is an issue here in the

United States is round powder round public testing. Being able to test people who are symptomatic with the disease and to test the vulnerable populations and those UH in those settings. This is purely a challenge here in the United States, even in our own vulnerable communities, but this is a challenge throughout poorer countries and developing countries and even richer countries among that group, such as such as Brazil. UH.

Certainly there are two key issues. One is you know, which is key, and is the government uh investment in the response. And we've seen the of the foiables and the problems that Brazil that had due to political concerns in the last uh you know, last ten eight to ten months. Uh. The other is is that you know, there are places in Brazil which we're doing extensive testing, places like some polo in uh In, many of the state's buildings, Auch City, or build Auch in the city

that I work in Salvador. They're doing quite a bit of testing. So numbers are going to change based on where you are within a country. But the numbers, actually, I think what's more important than the absolute number is the trends and where they're going through. Many of these places are either going up or they're staying the same. Don't to appreciate your time this morning, Thanks for being

with us, Come back soon. Why don't you don't to wrap a cord that of university right, albeit a kur joints us to Bernstein maybe Bernstein Co. Ahead of investment strategies. Do we sort of laid out the present land here? How do you write for March of two thousand twenty

one or investment out all through two thousand twenty one. Well, we think about a continuation of the same forces that the market has been reckoning with this calendar year, which is of course the challenge of COVID, which is ongoing and escalating. As you've been discussing. But the offsetting force is the fiscal support and monetary support that's providing tremendous

momentum and liquidity to the market. And I think what you've seen over the course of the last week is really a recognition that so many people were waiting for event risk around the election and have re engaged with the market as there is more clarity around that policy. So I think we have to wrestle with those two forces, Peter.

I think a lot of people also thinking about whether we would have some regime change on the policy side, away from a monthy policy regime towards a fiscal policy regime.

And understand we've had a mix of both, but I do wonder for you WHI you're sitting right now what regime are we in at the moment on the policy from We're in a regime that's been coordinated, and what we saw in the first quarter was an incredible response, both in terms of speed and magnitude, and that is ultimately what gave markets the comfort to start that steady

march upward and then over the summer. It's been frustrating to not see that second round of fiscal stimulus be passed, we really think the economy and ultimately the markets will be looking for direction around fiscal stimulus, a much smaller stimulus package than what would have occurred under the consensus

views going into the election of a blue wave. But nonetheless, we do think you'll see in the numbers today that there's still a tremendous number of people looking for work out of work that need help, and especially as COVID nineteen ramps up pretty relentlessly, we think that fiscal stimulus

is going to be critical. While the numbers are ugally in the United States and the prospect of they see doing more as diminished considerably out of the aus compliments as you've described, What are the capital aizication consequences of that for you right now as you look into your rend Yeah, well, I'm coming to you here from Chicago, Illinois, where we're the one state in the Union right now that doesn't even allow indoor dining, to give you a

sense of the escalation and the potential for ongoing shutdowns and lockdowns. So we do see the vulnerability of the economy to ongoing stress from lockdowns. That being said, we are long term bullish, and in fact, we went into

September and the election, slightly overweight equities. That has been the right call, and we have trimmed that back of a little bit, but ultimately maintaining that position because we see vaccine optimism and earnings recoveries that are substantial in two thousand and twenty one, so be able let's build on that. Is there an idea then that the virus counts and all of the high frequency data that people were pouring over earlier this year, but none of that

matters right now. If you've got a longer term you well, we don't think none of it matters. If you think about what happened in the spring, the market was really focused on a national healthcare crisis and the inability of the system to manage the virus. And what we've learned today and you've had a prior guests this morning actually addressing this is better treatment, ultimately lower fatality rates, and more targeted economic impact from more localized shutdowns. And I

think that's what the market is effectively expecting. But again we come back to the fact that we do think fiscal stimulus is necessary in some form. The sooner the better, but the odds of it happening this year are being reduced as we speak. He always fought a lot of math into this, and I love your phrase, the mathiness of the phrase. The idiosyncretic drivers discussed that what's the new idiosyncratic driver. Well, in our opinion, as active investment

managers for over fifty years, it burns. What it means is that being an index investor or simply investing in sectors today is not enough. There are a lot of underlying company fundamentals that you have to look at very specifically. We know that we're in a year where growth has led in an extraordinary way, but even within the growth style um there's growth at a reasonable price, and then there's simply momentum growth. And the valuation differences are huge.

And you could say the same thing about value in terms of cyclicals and financials versus energy. So you have to look at the company, it's balance sheet, it's management team. Ultimately, we're focused on buying enduring businesses and in the end we think that focus on stock selection will prevail. Well, let's talk about that and let's finish there. Just give us an idea of how you do that. Early this week, when the positive news around the vaccine came out the

likes of AMC get bits up aggressively. I want to understand the difference between a company that just places the catch up write on a bit of opium on a Monday morning into Tuesday, and something more durable through the recovery that you anticipate. Well, I leave that hard work to our research analysts and our portfolio managers, who are responsible for ultimately kicking the tires with the management teams.

But I can tell you that what our pms have been doing over the last couple of weeks is picking up a little bit more in the cyclical space. But to give you an example, even within technology, for example, focused on semiconductors, an area that we think will continue to benefit from the stay at home economy, but ultimately support that reversal to going back to normal, picking up a little bit more in the transportation sector, as well as some of the most beaten down names in consumer

discretionary and travel and leisure. So uh, that is how we're thinking about positioning today. A bit of case. Thank you always, great to catch up. Thank you very much. If I b Bernstein there on this market. I have anticipated this interview since I spoke to James Travitas a number of days ago. General Mark Kimmitt is the rarest of rare, someone with a distinguished military career who's dovetailed it was State Department experience. We're thrilled at General Mark

Kimmitt could join us right now. General Kimmitt, the name Bler right now is off the chart. We have a general here, We've got a colonel there. We've got a list of slot can out of Michigan with their Defense Department experience and all of its name in this cacophony comes down to one thing. How is the Pentagon doing? What is your feeling of how the Pentagon is doing in this immediate turmoil. Look, I think the uniform services

are doing just fine. As Admiral Steverta said, you can be sure that Mark Milly has got the rudder in the boat, moving them straight, uh and in the right direction. I am all concerned about what's going on in my old policy shop in the Pentagon and the intel shop and the Secretary Defense. Something doesn't click here. What is the price or the good or the negative of an Afghanistan exit? Clearly the zeitgeist, as the President desires that we hear a silence from the military. Give us the

calculus if we were to exit Afghanistan. Well, on that particular itch with Afghanistan, Zal Holizade is doing some great negotiations, but he's negotiated with the Taliban. The fact remains, as we are coming to an agreement where the Taliban say you leave, will take care of al Qaeda. We know that's not going to happen in the United States of saying if you take care of al Qaeda, will leave, and that's not going to happen. I mean, if there is an al Qaeda threat or any other isis thread

inside of Afghanistan, we will come back in. It may be from the air, it maybe with like special operations units. But the fact remains is we are not going to allow Afghanistan to remain and become again a safe haven for terrorists. So this kabuki about pulling all the American troops out, We'll pull the ones that are sitting around the base is not doing much. But the ones that we need to have there to work with the Afghan national security forces and in counter terrorist operations. I'm not

worried about that. Under the revolution that was Goldwater Nickels really the last act of Senator Goldwater to create a real structure and separation of our military. How confident are you that the military can operate over the next sixty nine days. I'm not the slightest that worried about that. I mean, Goldwater Nichols was a result of the clown college that we called Grenada, where you had every service

doing their own thing. Since then, since eighties six and Goldwater Nickels, it's a very smooth running military set up, going from the President to the Secretary Defense down to the combatant commanders. Uh, that's not where I'm worried about right now. It's from the combatant commanders through the Secretary Defense and up where I have some concerns. All right, can you elaborate, General on your concerns with the practical implications of some of the turnover. Maybe, well, I'm not

concerned about the practical implications. I'm concerned about the people. I think. You take a look at the record of Tony Tayta, Doug McGregor, Ezra Cohen Watkins, Stephen Miller. I don't know the Secretary Defense, but these are guys that have a great military background, but it seems their greatest qualification for joining the policy shop is that they appeared on Fox News on a repeated basis, probably echoing back

to President Trump what he wanted to hear. Does this have I media implications or long term implications in terms of a greater politicist as its politicization of the entire military forces. That's not going to happen. I mean, Mark Milly and the team will resign before they have become political bozos. What I am concerned is I have and

this is purely speculative. I've got this sneaking suspicion that something's going on here in terms of why these people were brought in, and I think it's far more than just Afghanistan. These are people with a deep loyalty to a president, a president who has sixty days left in unfinished business, and I'm just hoping that the Secretary of Defense is not going to give actions in orders to the military in the next sixty days that are going to haunt us for a while. You have a great

experience with Colonel McGregor. If you mentioned Fox TV, he has of course been a contributor there as well. Can you describe if Colonel McGregor enters the Pentagon is a citizen. How he will relate to the Joint Jesus staff. Again, what I'm concerned about with Doug is not relating to the staff as a and I mean there's a great respect for X military among the Joint staff. Uh, it's what is being planned and why he was brought in. Doug McGregor is brilliant, but he's got some very strong views.

I worked side by side with him over the years. I worked for him in one job. He is creative, He thinks outside the box, and I just wonder what he's thinking outside the box right now for the next see General Kimmon, thank you so much for joining us today under sum drest. We're thrilled we could find the time to speak to market Kimmon. 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