Surveillance: No Safe Havens, Gallo Says

are overwhelmed with newsflow. If you were to write today on the election, what would be your lead paragraph? I think the lead paragraph has got to be the extraordinary turnout that we're seeing. If you across the board early voting in person by mail Um, I guess you know it's a specially interesting in Texas to see that we're just about hitting all ready the number of voters that

actually voted in total in Texas in twenties sixteen. Word about of that number so early early voting turned out across the country, but especially in certain states is really remarkable. Briefest on your reading of the character of that voting In the assumption by Mr Trump that Republicans and mass will show up the first Tuesday of November. Is that

a correct theme? Are we off the mark? Well? I think a lot of people believe that that are watching this very carefully, that Democrats are more inclined, especially in some of those battleground states, especially in the northern battleground states where COVID has been very bad, that Democrats are more inclined to vote by mail. Of course, we know at this point anybody who's voting by mail has to carry their ballot in. It's too late to send it

in through the postal service. The postal service is simply not moving quickly enough. But we do expect more Republicans turning out on the day on Tuesday. But I think as people are hearing this message, they cannot actually put their votes from today in the in the in the mailbox. And assuming we'll get there on time, we might see some turnaround in that. UM. But yes, I think, and if that's right, of course, you know what we're led

to believe. Unless we see a Democratic victory in Florida North Carolina, UM that this race could then go on for quite some time because it might look like a Republican lead at Trump lead early on and then it might begin to change over the next several days. But tom, you know, there are a lot of people that think it's it's very hard to predict how Florida is going to go. It's up for Biden right now, but if it if it goes the other way, then of course

it will take some time potentially to to know what's happening. Leslie. In eight minutes time, we're gonna get the latest read on us jobless claims the last before the election. Typically during election seasons, the economy dominates in this one not as much. And actually President Trump from much of the race dominated and was considered to do better when it comes to the economy among voters. Has that changed, you know, it's really complicated right now. Um, Donald Trump's number, his

ratings on the economy have come down. They're still stronger um than than certainly by far than this handling of the pandemic or any other number of issues. But I think right now, you know the pandemic, people are seeing the pandemic through to lent two different lenses. They're seeing it either as a health crisis or they're seeing the pandemic as an economic crisis. So I'm not entirely sure that the polling is actually telling us what we need

to know. For a lot of people on the Republican side, certainly amongst Donald Trump's base, they see the pandemic as being a problem of the Democrats trying to shut down the economy. UM. So it's slightly different, difficult calculation to handle. But of course the fact that the economy is not doing well, that the stock market didn't do well yesterday, that people are concerned about their jobs, UM, this can't

help the president. It most especially amongst those voters who are in minority categories, amongst younger voters UM and amongst old voters. The first two categories, younger voters minority voters are losing their economic opportunities is at a much higher rate than others UM, and so that really affects how

they feel about the current at the current leadership. Let's think right to catch up as alwise, Lendy Benjamari that of Channam House, thank you very much, But right now we will digress and move to David Leebovitz of JP Morgan Asset Management. Of course, trying to bring in a strategy to adapt and adjust to a little bit of a lift in the market in the last ten minutes. David, I've got to go to the arch question. I mentioned

this early this morning. So many of the pullbacks have been truly stochastic, pointing down, we go and we cover right back up, straight, straight, straight. Does this have a stochastic feel to you or is there something different about this pullback? So I think that there there are three issues that have really driven the pull back, and there are three somewhat familiar issues. So if we get resolution there, I do think things could bounce back quickly. Unfortunately, I

do believe resolution is going to take time. The first thing that's going on is that the virus. Virus growth is re accelerating. You're seeing it in Europe. I think that this is much more about the lockdowns that have been imposed in Germany and France, and a little bit of you know, wait, will this happen to me too, than it is necessarily about the impact of the virus on the health of the population. The second thing, and I think we talked about this a few weeks when

I was on with you all um. Policy, you know, policy in the United States on the fiscal side continues to come up short and Essentially, that is the bridge that needs to continue being built to get us to the other side of this pandemic more broadly. And then I think the third thing that's gone on here is that there's a lot of good news priced into the market.

You know, when we look at the way that stocks have responded to better than expected earnings reports, I mean, they haven't really done all that much, and so there was a lot of good news. There was an assumption on the part of a lot of investors that we weren't going to have another hiccup with the economy, we weren't going to have another hiccup with the virus. And what we're seeing is that that's not necessarily the case.

And so I do think that we will bounce back, but but it may be a little bit more challenging than than we've seen over the course of the year thus far. David, what do you make of the move in treasuries or the lack thereof the fact that yields have been so resilient and actually moved higher even in

the face of equity volatility. So I think a big part of it is when you decompose what's moving treasury yields, um it's really more about an increase in the term premium than there is about an increase in inflation expectations. And what that represents to us is a little bit greater uncertainty around the direction of travel broadly. And you know, if we were seeing yields back up on higher inflation expectations, that would be a signal to us that investors are

pricing in better economic growth. UM. I think that this backup and yields that we've seen, in the firmness and yields that we've seen, represents a fairly wide distribution of outcomes that could material lies over the course of the coming months, UM. And obviously that's feeding through into the performance of FX and then more recently the equity markets more broadly. When you read your economics, JP Morgan, do you filter in a disinflationary trend? Are you people on

board a true inflation to come? So I think it's it's a good question, And what I would say is that for everybody within the walls of Morrigan with my opinion, there's somebody with with the opposite opinion. UM. In the short run, we don't view inflation as a risk. We think output gaps are wide unemployment rates are elevated, and we would be surprised to see inflation and pick up here in the very short term um long term, and

there's a lot of debate on this. We do think that inflation will remain in check, and I am more in the disinflationary camp. We obviously have seen this massive debt build over the course of the past couple of savidly, but it's there if JP Morgan as a management forgive me, David, just some cracks in the line there as you would complaining that last line. For Give me, David, I'm sorry.

Right now, we want to speak with Alberto Gallo with real money at RISKUED Algebras investments has been wonderful for us on opportunities out there in fixed income. Alberto, there must be great comfort right now in cash. For Alberto Gallo, is cash an asset? It is, and if interest rates are really so low, the opportunity cost of holding a bit more in liquidity is much lower because you're giving up very low yields. Many government bonds are negative yields.

So we don't want to be invested all the time. We want to be invested when there's an opportunity, and you know, the sell off that we're seeing in over the past few days is starting to become an opportunity in some areas because the back stop by central banks and governments is very strong. There's a lot of discussion about what d CP will do. They can, obviously, they can increase quantity division. They can also increase the t LT are also the loans that d CP gives to

banks in size or maturity. But also Germany very important. They announced a support for small businesses for up to the revenue so the government will pay anything up to revenue loss during the lockdown. So these things are very powerful. And we've got phisical policy as well, not just central what's so interesting here in Alberta. I think we can take it right over to other central banks, including Mr Powell.

The headline December forecast will allow recalibration of stimulus. Are you investing and putting capital at risk understanding that Madame Legarde may change the rules of the game in December. So we're we're having a virus resurgence today and it's gonna come across Europe and probably also in the US. But the reaction function policymakers will be pretty strong in December with more quantity vision from d CP, potentially also

from the Fed, and then we have the vaccine. So you know, short term the situation is varish, but medium term, if you just look two months away, you have these very strong backstops to guarantee the survival of the economy. So it is a very positive environment for selling puts on the economy, so for buying credit. Sovereign bonds don't have a lot of value here, so we don't really want to buy what the ECB will buy because boones

are already very negative. Bdps offer in Italy offer very little yield, and you know, if governments continue to spend at some point some you could see some widening yesterday and the day before US treasuries were actually widening as the SMP was falling. So we don't have safe aivans anymore. We either have cash and then we have risky assets that may or may not become attractive, and we prefer credit here over over star. You prefer credit. There's a

lot to unpack here. The idea that the e c B is pushing investors out of these safe assets because they offer is no value and no hedge At the same time, credit instruments don't provide a hedge either, because companies can go bankrupt and these uh these investments can

get wiped out. What's the bet here that the e c B is going to delve deeper into credit for their purchases, or just that the economy will eventually revive and that you will get at least some of your money back versus equity, So there is no hedge, that's the short answers. Instead of building a portfolio with stocks and government debt as in the traditionally sixty forty portfolio, what we are doing is to have a bit more cash instead of instead of sovereign debt, and instead of stocks,

were going higher in the copital structure. So rather than having you know, equity, which puts you as the most junior stakeholder in a company, we're going to be higher up in bonds, especially bonds that give you some largeral two assets of a company, maybe ships in the case of a cruise company, airlines, airplanes in case of an airline, and so on, and you can get paid very high

yields with some protection in those instruments. So the rational here is governments are issuing that at very low levels, negative rates in case of Germany, and they're giving this money to companies to help them to survive. So you're there is no safe aivan, but you have a physical policy backstop for the largest firms and in the case of Germany, even for the smaller ones. So we're not worried about, you know, a massive increase in the faults

in Europe. There may be some sectors that are weak, but you know, we know governments are behind and the economy will survive, and it makes more sense to lend money to these companies than to lend money to the state at negative rates. Alberto, when you talk about holding some cash, you're sort of underscoring this connuntry. We're not getting a lot of returns from the risk your assets, and you want to have something on hand if there

is an entry point of things to sell off. What is the appropriate amount of cash now relative to the past. They can give you that flexibility while not dragging on your turns too much UM in our funds. We have

been holding over half before the sell off. We had um in the in the fund they run in January February and currently we have around Generally we don't want to be below ten percent, but we can compensate with investments that make more money in the in the part that he's invested, rather than buying, for example, in the bonds at two, where you can make two and you can lose tend if you're wrong. Abo, thank you so much after this important you seeb announcement with Algebras Investments.

Greatly appreciate that this morning right now the statement and the religion of the market, which is Apple. James Suva joins us with City Group. He wrote up a big note the other day and I said, let us find their senior tech analysts, who is in San Francisco, Jim Suva. We could talk all day about Apple, whether our our listeners own it or not. Everybody's curious about the juggernaut. How's Tim Cook doing is an opening question. What's he want to get out of this earnings call? Is he

gets ready for a Tim Cook two thousand? Well, Tom, it's great to hear from you again, my friend. I'll tell you Tim Cook. A lot of people always focus on Steve Jobs and what he did, which was great of launching the iPhone. Many are now starting to see that Apple is much more than simply a phonemaker. When you think about the Apple Watch and the ear pods and the air pods that are doing so much better with the audio connectivity, and the Apple Watch with healthcare,

it is really changing the way we do things. You know you think about. It can detect when somebody falls down. It can help you with your heart rate, your oxygen levels. These are things that are really game changing and they're just at the early ending. So we think he's doing a very good job at what we call diversifying their product portfolio. Even more important, Jim Suva radio producers can have it on the risks of the gentleman from Sparta can email me at three am, Tom, are you awake?

Thank you? Apple Watch. What I'm looking at your Jim Suvan and Paul and I want to talk financials and less concept is capital expenditures are relatively flat compared to the ginormous growth. Does that surprise you? Do you model CAPEX to increase? Well, that's a very important thing to look at because CAPEX you typically think about building out new factories and new production lines support your future growth.

What people forget is Apple down the street from where I live put up a brand new, huge mega headquarters that's shape like a circle. It almost looks like a spaceship. Is very beautiful. So when you look at the year over year what we call comparisons or the rate of change you're here, it looks kind of flatished, and you're like, huh, that seems odd, But you've got to realize they just

finished this mega, mega, mega headquarters. So with that in mind, it actually doesn't surprise us that they're kind of flat. And if you exclude that one time, you don't build a new headquarters every year, you know, flat is actually pretty good. And where they're spending the money is a lot on data centers. So when you say, you know, hey Siri, or you need things with your apps, they simply work. Hey Jim, you know one of the big themes around Apple these days is it's back to the phone.

It's back to five G. Do you think of five G as a quote unquote supercycle that we used to refer to with Apple or is it something different? I

think it is something different. I think you're The terminology we use a supercycles is for those who of us who are older who realize supercycles used to be a very big thing in the past, you walk into a cell phone store and all the promotions are centered on one item, and everybody's got to have that phone, like the Motorola razor Um or certain BlackBerry phone, or we think about you know, the initial iPhone or two. Those

are gotta have phones. Now with the iPhone five G connectivity, there's not a lot of apps right now, there's not a lot of business case uses for why you've got

to have a five G phone. Now that being said, I'm not negative at all because people working from home, running their children to different events or school or things like that, are working only want a battery that lasts all day, and they simply want faster download speeds, and the apps are getting more power hungry, and so I think it will be a positive sales cycle, but short of a supercycle, I think what the next thing is is a diversified Apple portfolio where max iPads and watches

do a lot better by old cell where are you, Jim Suva than we gotta run? I'm sorry, what was that? By old cell? Where are you? Right now? Um? I am in a bye rating with a hundred and twenty five dollars for Apple, and I've had a bye rating on it for years. Yeah, I remember, you know, it was like Lisa was out, Lisa was going down in flames. I'm here, I'm listening to just be careful carry No. I meant no, Lisa a computer. I mean, did you see that, Jim, the disrespect I get from A Bramowitz.

I'm talking about Lisa the computer. Lisa wasn't even born when the Lisa computer. Maybe Lisa you were named after the Lisa computer. Jim Suva, thank you so much for breaking up the Thanksgiving discussion here with Lisa Brama's passa potatoes. 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