Surveillance: Market Reality Check With Emanuel (Podcast)

week we've just had and just pause for a moment. Monday, positive vaccine news, this cyclical rotation that everyone was looking for. We all want to live in the back half of one. It sounds so good that we're confronted with the reality of the next few days. Can you walk me through how you're navigating it. I've asked every single guest we've had in this spot that question every single day. What's

your response. It's incredibly challenging, no doubt, And you know, I think, to an outside observer or someone who landed from Mars, the idea that you could have profoundly great news on Monday and have the top in the market that looks to us like you know, it could be the high for the year. UM is very counterintuitive, but

again that's the world of the financial world. But the reality is is that is that you have to get through this transition period from you know, the hope of the vaccine whenever that is with the reality of the fact that you know, honestly the virus is really raking out of control and that's the challenge UM and the markets are just trying to digest it, and for now it's it's really a standoff, which is not a bad result to be perfectly frank, given the way the cases

are spiking. I mean, I look at this, Julian and I think of the great Luisia Mata, who would talk about distribution. We've been distributing within this noise or September in October, what's wrong going going flat for a while, And nothing's wrong with it actually, and from our point of view, you know, Bullmark gets correct in various ways.

You can have they correct in time, they correct in price, you know, literally if you look at it, the NASDAC topped on September two, although the other industries made new all time highs on Monday. This consolidation process has gone on for a couple of months, and from our point of view again sideways really given the news would not be a bad thing at all, because we do think the setup for one is quite positive. Okay, Julian cause

a short term, long term quite positive. What does that mean as an investor more cash now looking for an

entry point? I know, I think what it means is that if you first of all, we do believe in the cyclical rotation, so we think you should be reducing some of your exposure to high multiple, high growth, you know, technology centric, the work from home names, because honestly, when you get to a point where the vaccine becomes closer to reality, that will cause an acceleration in the cyclical theme.

Rotate into financials. We think healthcare is an exceptionally interesting proposition here, having been battered because of politics at trading at an extreme discount um if you've got gains, we think optionality is is very inexpensive downside protection but in general patients is what's required. Well, let's talk about the optionality Judy, and I just wonder if a different strategy is the best approach here. It seems to me we've had a series of head fakes over the last six

to nine months. What you needed going into Monday was the optionality on a cyclical move and then cash out of it and go back to tech again. And it seems to me that that's worked repeatedly, not just over the last six to nine months, but over the last several years. Every time we've had the rotation head fake, the people that have really benefited from that were the people that had to position going gone into the head fight and I used everyone asked to fight out of it.

I caught up with Mike Collins a page Jim yesterday.

He was doing exactly that in credit. He had a stick could expose you got into this week used to write to sell it down, Judy and wants that not the better approach because again from our point of view, the psychology factually began to change at the you know, the really the the parabolic high in the NASDAC on September two, And we think that the market is giving you information when you look back to Monday with the NASDAK being the only major UH index that didn't make

a new all time high, and when you look toward next year, the hope of a Washington that's going to be centrist, that's likely going to get stimulus over the line, even if it unfortunately does have to wait till a new session of Congress that might engage in infrastructure spending

and really taking down the temperature of Washington. All of these things are going to backstop confidence, and we think you get this cyclical recovery that not not only is in the US, but as we've seen, the monetary authorities in Europe for one, are going to be as aggressive, if not more than the US, And so you get the cyclical theme playing out in markets like Europe and Japan. It's just a change of psychology. And we've seen a massive momentum shift in the last week that we don't

think investors should be ignoring. Julian, how do you price in economic scarring? And it stems from what we're experiencing right now with the pandemic. So so that is really the challenge of the concept. And I think part of what that means is that and and this is typical coming out of recessions into recoveries, but it may be more exaggerated this time, is that you get a degree of multiple compression. Because if you get to a point where the next three to six months you have permanent

business closures, and increase in in permanent job losses. That means your long run potential shifts in and the the you know, the long run what used to be called NEHRU shifts higher um and and that's a different mindset given the fact that there's an expectation that that people think unemployment will eventually go back to three and a half or four percent, and that's not going to be

the reality if we get economic scarring. Julian's thom has been far too quiet for the past compliments for my liking, Can we wind him up just a little bit and can you give me your of you on Judy shout

to potentially being confirmed to the Federal Reserve. Well, John, I think it really just points to the fact that, uh, you know, Washington has been a bit too political and a bit too backward looking these last several months, We like j Powell, have been adamant in the need for more stimulus, simply because I think backward looking into the

nineteenth century? Is there where your head? And Julian, well, you know, Williams Jennings Bryan didn't want to uh parish on the cross of gold, but you know, frankly, the gold windows shut with Richard Nixon, and and you know to look forward, and we need to get stimulus, and we need to talk about the issues that not John, I could tell that Julian's dresser behind him there with a b T. I g just sign on it. He's got a stack of Kruger Rans in that thing. It's

great to get any money about that. I thank you said, he's one of our most acute voices on conservative more long term investment, and he has been right right right in this bullmarket. James Bevan, can you maintain your optimism with the change pandemic? I certainly, Canton what I think about fiscal policy. The big question is you have correctly articulated, is whether or not we would see more spending to get aside to the other side of the current economic downturn.

And I believe interestingly, the government will now be prepared to spend more, precisely because the vaccine gives them confidence that there really will be an end of the COVID nineteen crisis in due course. That to me suggests that we will see genuine economic recovery. We will see corporate earnings growth, we will see investors had a more because if I am correct, that the Central Bank will continue to buy bonds, yields will stay low, well below the

race of inflation. That's great for the mathematics for equities, it's excellent for company balance sheets and quick clearly, it's very supportive consumers that in due course will want to be able to spend a lot more money. James, Well, you describe is working here in the United Kingdom, that beautiful choreography between the Treasury at the Bank of England.

Can you say the same thing about the US right now? Well, you know, very interestingly, I think there was a broader expectation that had there been a Blue sweep, we would have seen Mr Biden asking and getting perhaps to two and a half trillion dollars to spend on new fiscal sures. And I d equally anticipate that the Biden presidency, coupled with a Republican Senate, would have been far more tricky in terms of what could be spent, and perhaps no

more than half a trillion dollars. However, now that we have clarity that there is a vaccine and therefore and then I think that Mr Biden will get an extra trillion dollars and that will make all the difference a trillion, James, what gives you the confidence? Well, I would say two things, John. I would say, first off, there is I think a broad cross party acceptance in the States that the States the government has to do more to end the challenge.

And I don't believe that the Republicans will wish to kill the US economy because it will play very badly for their future chances of election. I think the second issue is that there is a subtle change in the conversations that Jerome Piles having by federal Reserve policy. He's made it clear that he supports a grace your quality with the new US economy, and he's been very targeted

in terms of his support of the bond markets. This is quantity of easing that is focused, that is challenging that absolutely, I think is going to be providing the base plate for continued low yields and therefore low cost fiscal expansion. How much do your market calls hinge on this expectation of fiscal support. I believe you're calling for the SMP to reach thirty eight hundred by mid two

twenty one and four thousand by the end of the year. Yeah, I'm not overly dependent on fiscal support to get there because the sorts of companies that I think that we should be investing in our high quality companies. I mean, you were talking prior to the break about the prospects for Disney. Disney for me is a world class company, and I would take the recent share price weakness there's

an excellent entry opportunity for the long haul. Equally, if I were to think about some of the great companies in medical medical technology, I'm still a fan of Metronic and Striker because these are companies that I think rise from the ashes of share price markt. Dan's just positive, James, this is an incredibly important inside folks. We haven't discussed this ms A ten or fifteen days because of election and the healthcare play. Everybody's simple by Johnson and Johnson,

and there's like three other names down, Components, etcetera. Take us beneath that tell us about not the specifics of Metronic or Striker, but the thematic play of those stacks. Given Abiden administration, the first key issue is that as people get older, so medical CAB becomes more complex. Were into issues like parts replacement for hits, operations, were into dialysis that the people who have challenges with their kidneys. These are all issues where we will see an increasing

spend in the years ahead. In the wake of the COVID nineteen crisis, it's called elect active operations, those where people can choose if and when they have Such operations were essentially shelved, and inevitably there was a big hit short term earnings of people providing parts and facilities that could be described as elective. If I am correct, the vaccine leads the gradual reopening of elective surgery and medicinal state. So I think will benefits Actually, James, will there be

a roll up of the industry. There's been roll ups in other industries. What are we waiting for in the health cares? In the health space, I certainly think there will be mergers and acquisitions activity because cash is cheap. I'm very very interesting. People talk about the extraordinary performance

of Alphabet, for example, and the Fangs. Actually in recent years, Domino's Pizza that came to the market at the same time in two thousand and four has thoroughly outperformed Alphabet, and the reason it has done so is it has a spent cash and issue debt to buy back its own share, so it has magnified as earning. The market has been pleased. If Alphabet had played the same game and get its parent sheet, it would really be reporting

earning twice at the current level. And I think this issue of using cheap debt to fund them and a to fund financial engineering is getting a continuous as long as we have ample credit and lou cost debt. Jens are gonna jump in quickly because you sound so constructive. Just a final question for me on where you're playing things right now. You sound optimistic, yet you're not playing it through the European banks. Earlier this week when the

optimism return, where did people go the European banks? Why aren't you doing the same thing. I think that European banks remain an accident waiting to happen. Negative interest rates mean that we have higher savings rates rather than more spending. It's extraordinarily difficult for a bank to make money and a climates negative interest rates, and I see no expectation of the European Central Bank will come to the rescue.

James Bevan of c c l A just laying it into the European banks at the end that James thank you got to catch up new and virol on Twitter. John W. Hopium the other day. Peter Hotez of Baylor College of Medicine is the push of get back against Hopium. He's in the reality of finding a vaccine. We'll look at that in a minute. Peter Hotez, Can we have any vaccine for anybody in America within the vicinity of January? Yeah? I think so. Uh, we certainly won't have all seniors

vaccinated by January. You know what's gonna happen now is, first of all, the face to be trial has to be completed for that VISOR vaccine or other vaccines. Following the VISOR one will get the full spectrum of safety data and also the level of protection. Right now, we haven't seen whether the vaccine protects against serious and infection

or not. I hope that's the case. And also we haven't seen the protection level in different groups, so we don't even know if it protects seniors yet, so we'll have to All that information will come out towards the end of the year. The likely refriser will likely request in emergency use authorization with the f d A. The FDA will take a couple of weeks to review it and and UH certify that everything looks good, and then starting in January, if everything looks good, they could start

potentially releasing vaccine. Friser says they'll have fifty million doses

by the end of the year. But remember in the US it's only half of that's for the US, that's twenty five million doses, and you require two doses of the vaccine, So in theory, you could start vaccinating around twelve million Americans starting around Peter you Hotez and Botazi what eight months ago, a year ago was talking up low cost vaccines that don't need to be frozen to negative ninety four degrees fahreneit we use fahrenheit John in America. Thank you, Dr Hotez. Where are we on a low

cost vaccine? Well, thanks for asking. So we're hopefully we'll announce for starting clinical trials UH in in India and five sites and then we can move pretty quickly on that UH And then right now biologically BIOE and Hyderabad as producing one billion doses, so that's extraordinary. We've never made a billion of anything before, so we're very excited. This is a simple technology that's been around for almost

forty years. It uses the same technology used to make the recombinant hepatitis B vaccine made locally in many countries, and hopefully it could be made for around a dollar a dose or less. So so we're very excited about it. It's looking really good and and hopefully that can fill up the areas where it's going to be hard to get that VISOR vaccine out because it does require that deep deep freeze, which limits our ability to use that to vaccinate around the world, and also some of the

production issues. So we're going to see is a pretty complex ecosystem of at least half a dozen different vaccines used all around the world. And there definitely is a lot more hope as some of these vaccines are shown to be effective, and yet we are seeing the pandemic worsen dramatically in some places in the United States, and

timing really matters. What is the time frame for you, if it's not January for all seniors in the US, as alex Azar says, what's the time frame for us to get a critical mass of people in the United States vaccinated? I hope by Q two will have will really move in that direction. So by certainly by the

summer will be in much better shape than we are now. UH. And and it assumes that there's no bumps in the road, but of course there are always bumps in the road, and and there's another there are other vaccines coming behind it. So by the middle of next year, we're going to be in a much better position. And that's why I've been telling people UH to do everything you can to be careful now for the next few months, because things

are going to get better. We're not asking UH for UH for social distancing and mass and perpetuity will eventually get to a better place, but just hang on and don't do things that are reckless. To be careful and look after your loved ones for the next few months.

Many people shan't have you. Many people also who watch and listen to this program followed a panel yesterday with ECP President Christine the Guard, the Chairman of the Federal Reserve J. Pale, and also the Governor of the Bank of England, Mr Bailey, And at the end of that panel they were asked what they think are the biggest risks right now. President the Guard brought up the mink mutation in Denmark. Can you walk us through what you've learned from that in the past week or so, doctor,

and how concerned we should be or shouldn't for that matter. Well, remember our RNA viruses. This is an RNA virus, the mutate and so far those mutate we've not seen any evidence of those mutations are affecting transmissibility or severity of illness, or the ability for those vaccines to cross protect. So

you know, this is a fast moving train. Things could change, and things I'm saying today may look very different three or four months for now, But right now, I would say that the mutations that these virus undergoes on a regular basis are not my top flight concern. I'm more concerned that we can get some vaccine out to the population because you know, in the US, we haven't really had a national control program, so there's a complete reliance

on biotechnology solutions. Uh, let's get the US population vaccinated. We have the virologists working on constantly looking at the evolution of the virus. Hopefully those vaccines will still be effective. You know, one of the things that we're working on have been trying to get funding on for more than a decade, but the world has not been interested is creating a universal coronavirus vaccine. So you know, just like

there's work towards a universal flu vaccine. We've seen now stars one in two thousand three, We've seen mayors in two thousand twelve. Now we're seeing COVID nineteen. But guess what we're gonna see COVID twenty five. We're gonna see COVID twenty eight. We're gonna see COVID thirty four. This is a new normal. So if we don't have to uh rush like a little kids soccer game towards the ball every time a new coronaviru our submerges, that would

be great to develop a universal coronavirus vaccine. And we're putting a lot of energy now into that goal. So bring word to the end that Delta. I appreciate your time this morning. Thank you to pay to how it says that of Bayla College of Medicine, we go Washington policy on d But we can't do that with Henry had a trade. She's not up a speed on bitcoin, but she is with Veta Partners on the path forward.

You know, I look Henrietta where we are now. Everybody wants to hear from their president of supporters is not supporters, et cetera. Is there any optimism of policy towards this pandemic and towards a government shutdown December twelve? I see very small pockets of optimism. Unfortunately, we have to keep talking about elections, namely the two Senate races in Georgia that could be a driver for conversations around a very

small package of stimulus in the lame duck session. And you just pointed out the continuing Resolution to fund the government needs to pass by December eleventh, and the two senators in Georgia are going to need to show that they're making some sort of progress on the coronavirus, especially as everybody heads home or tries to engage with their family members and Thanksgiving and the cases continue to skyrocket.

I wonder. And I've heard directly from some folks in the various senators offices in Georgia that they'd like to take some votes on particularly extending the PPP program and potentially providing airline aid, given that Atlanta obviously is a huge airline. Okay, so they gotta win. They got to win the vote in Hartsfield. I get it. What are we going to do about which is clearly the negotiated stumbling block, which is the big cities, the big towns

across this nation. Nothing until the first quarter of next year. I don't see a state local aid package happening. I don't see aid to mass transit or public rail or anything like that. Um, I think that's the first quarter event. I think it needs to be done before mark. We saw the two thousand nine Recovery Act get passed. I think it was February. That's exactly the kind of momentum that President Biden will need to bring to the table in order to get sixty votes out of the Senate

in the first quarter next year. But no big aid package is passing before the next Congress is sworn in. So that's the side in the domestic sphere. When we talk about the fiscal backdrop for the United States. Let's talk international. Let's talk China coming out and congratulating Joe Biden for being the next president of the United States. They had actually restrained themselves from doing so. How coincidental is it that this comes right after President Trump announces

some further restrictions on investments in Chinese entities. Not at all I mean, you guys nailed it in your last segment. I don't think it's remotely coincidental that the acknowledgement of President like Biden having won the election came and coincided

almost exactly in the same process. You know, twelve and or twenty four hours later, from every phase in the US China trade war, whether it was tariffs or announcements around quawe or export control restrictions, every time the President did anything, there about twelve hours later we get a response from China. And that's exactly what we got last night. UM. I think the most important cabinet official to watch in You know, people are concentrating on Treasury and Commerce and State,

and I respect that, I get it. I think the most exciting is who's going to be the ut next US trade representative. UM, that person is going to inherit. You know, over three hundred billion dollars worth the tariffs on China, and that's gonna be as soon as we get past the stimulus conversation. I think probably the only jofiic in DC, aside from regulatory changes that we have for the next three and a half years. That's where

I wanted to go. How does Joe Biden respond to this, because frankly, there's bipartisan agreement on taking a harder line with China. Does he embrace this or does he push back and try to indicate that he's going to take

a similarly hard line as President Trump. There was a line that I heard from the Chief of Staff in the Ways of Means Committee on the Trade Subcommittee a couple of months back, and effectively she said, you know, when we see the President imposing tariffs on China, we think, well, great, he's doing the hard work for us. Now when President Biden comes in, he is in a position to offer the carrots and not necessarily need to impose more sticks.

So as China and the US engage and start to talk about real fundamental forms, not you know, buying more soybeans or more pork bellies, but actually instituting um um intellectual property theft changes um and forced tech transfer, they can walk down the tariffs eventually. We've heard from the Biden transition team repeatedly now that they're going to first focus on domestic priorities, so stimulus all day in the

first quarter. But as we get beyond that and we start to you know, re engage with China or the EU, or Japan or the UK and hash out these trade agreements. There needs to be a substantive discussion that I think will dominate the next three years. Henrietta, thank you so much to Tray as a policy briefing. She's with the Data Partners. 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 Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio