Surveillance: Post-Trump Future With Munson

To enjoy a ten year per year return of fifteen percent plus the doll mandate, you gotta be in the markets to play described to play this morning, Bob Doll. Why should I be in the equity markets? Because the economy and earnings this year are going to be off the charts. We're gonna have the strongest economic growth this year and at least twenty could be as many as the strongest growth in thirty six years. That will carry things long. This will be a great year for the

economy and earnings. I think it's just a good year for the stock market. In other words, I think multiples are held back a bit, Tom, because of modestly rising interest rates and inflation. Behind you is the logo of the Esteem Novine of Chicago, owned by T I a a craft. You know the retirement combine. Good morning, Roger Ferguson, Bob Dole. Do you need to raise your actuarial assumption with double digit returns? Democratic President? How Senate do you

begin to lift up our actuary return? Oh? Maybe for the next few months, Tom, But longer term, I don't think so. Stocks and bonds are both expensive relative to their history. Therefore, the next five and ten years, the return is probably going to be a lot lower than it was for the last five or ten years. That's the law of averages. So it's gonna be a harder to make a buck going forward. How much? How much harder? In other words, are we look at a future? Are

we're looking at a three or four percent future? It makes a difference when you know somebilities agreed. So if stocks were fifteen for the last ten years, I'll guess half that for the next ten years seven on a good day, eight bonds are gonna be a lot lower because their coupon. You can't take rates lower than where we were. And therefore, if rates climb higher, we're gonna road the coupon. So return on and treasury bonds are going to be close to zero. Meanwhile we have the

US continuing to borrow money. And Tom and I were just talking about how the Hawks have been defeated, have disappeared. However you want to frame it, Are we moving towards a modern, modern monetary theory world and what does that mean for markets? I suspect we are in that world, and whether we've called it that or not, look that. I think the question I get from financial advisors most of the last five years is what about the debt and the deficits? And my response was, and still is,

it doesn't matter yet. You see, interest rates have fallen faster than the debt has gone up, so interest expense is a percentage of our economy has actually gone nowhere, and therefore it's not been an issue. If we pile up the debt, interest rates star climbing higher, then we're gonna have a day of reckoning. Bob Dolan, time Keene reading a Hio Runner and Bernstein this was a few years ago. And the debt and the deficit which was a gospel, and the confusion of cash in actual royal accounting.

Bob Dol, I want to get back to the markets. You know, the acclaimed Ibbotson chart out of Yale University. But within that lower left to the upper right there is rotation. How do you play the rotation of two thousand twenty one after a decade where economic growth globally has been so so at best, which has favored the US, our economy, our markets, and our currency. Because we are the most defensive economy in the world, we have fewer cyclicals.

We are now reflating, thank central banks all over the world, We're gonna have some stronger growth and therefore batons are getting passed from growth to value, from big too small, from US to non US. What about the battle of active in index NVENE really takes both parts of that equation, But there's just a general feeling out there about stock picking or sector picking, or the value of buying indexes

or sub indexes. Which is it so in a year like last year when the big five stocks outperformed by massive amounts, that's a year for the index. If this is a year when those have dozen stocks don't perform as well as the averages, which is our guests, then the average stock begins to do better and active managers have a better chance. I think the average active manager

will outperform well. Everyone wants to be an active manager, at least if you take a look at the robin Hood accounts and people sitting home getting their stimulus checks and putting them into to individual equity. I was, I was looking at one statistic yesterday that a handful of penny stocks accounted for a fifth of all US equity trading on Monday. How much do you think about that? Increased retail presence in equity trading? When you think about

acid allocation is definitely a force out there. It's a narrower group of stocks as you hinted at, and therefore you have to know kind of where are they playing now. Some of those rebinating investors actually did very well. They bought into the decline last March and they bought high beta stocks, so they've done reasonably well. We got to watch them carefully them. That group, along with the algorithms, create the issues for buying and selling stocks all day.

You gotta you gotta be really careful, all right. In meantime, you have these I p o s. The tech I PO is coming out. We were talking about a firm earlier with incredible valuation, some people saying they're worth it, other saying signs of froth, including Jeff Gunlock of Double

Line Capital. Where do you weigh in? I mean, how are you playing in some of these I p o s At least I think that there is merit to the fact that the size of them, the number of them, the premium that that they're selling at means we've got some speculation. Now it's easy to compare it to where we were at the tech dot com bubble. Were nowhere near that level in terms of valuations. Remember there were no earnings then, there were a few sales. It was

priced the clicks, priced the eyeballs. Now we can at least touch the revenues of these companies. So I don't want to sound the alarm like we could have or should have or did sound back Man, Bob Dole, you've been such a sane voice for participating in the markets over the years. Richard Edelman joined us an hour and a half ago as well with his famed Edelman Trust Barometer, and it's about media distrust, distrust of politicians, distrust wrapped

around vaccination. I want you to talk about your world in the Friday onset of gloom that's out there, you know, there's a rule every day the gloom crew comes out to beat up Bob Dole. How do we get back the trust of Wall Street strategists who have enjoyed this blue market? How do we get a belief in that optimism. I think it's gonna take some time, Tom and and some returns that are good. Look, last March February March destroyed a lot of people's faith in all the things

you just mentioned. All they had to do is hang around or blink. I mean, if you were Van Winkle, you thought last year was a good, calm, quiet year because nothing really happened from from beginning year to end of the year. But of course the the in between, volatility kills people's confidence. But volatility is when you can make a buck. Bob do I have to leave it there, Robert Dole, thank you so much. With nlvin just wonderful to kick what we're really good at, Lisa Bram, It's John,

Jonathan Faraoh and myself. We right to get out front and we've got a team that puts together guests and then we know when the news changes, when the facts change,

we tell the guests to change. We can do that with Lester Monthson would be gr group with a distinguished career in Washington in foreign policy Lester months and we learned moments ago from what I think is the most important signal from the nascent Biden administration that they will take John Fitzgerald Kennedy's US AID program, which has been a political football for fifty sixty years, and they will restructure it and elevate it to a White House position.

With Samantha Power, what is President elect Biden signaling Well, for the for folks who follow foreign assistance issues and soft power and uh and these kind of more obscure aspects of American diplomacy, it's terrific news. Samantha Power is is a force. She's an intellectual powerhouse. I'm not, and she's right about every single issue. But she's dynamic, she's interesting. She's going to bring a lot of energy and verve to what has been, frankly a sleepy agency in the

US government. I think it's a It's a huge opportunity for President Biden to make a difference around the world, particularly the developing world, a place where we haven't really been present for the last four years. If we assume, whatever our politics, that we are restructuring U s A, I d are we going to restructure state? And do you look for the same drama from a new State Department? Uh?

You know, that's a great question. One of the things that President Biden appears to be doing is really strengthening the NSC, which means he's he's pulling power into the White House. That's not great for the State Department. Tony Blincoln is a trusted advisor. If he's confirmed as secretaries, I expect he will be. That will be a plus for the department, But there there could be rocky times

ahead for the State Department. Lester as a never Trump Republican yourself who still considers himself a republic In who worked in the Bush administration. How does the the Republican Party without Trump distinguish itself from the Democratic Party of today. Well, I think there's plenty of issues where that can happen. Uh, economic issues, social issues, Uh, foreign policy. Republicans are a hawkish national security party. We need to find that voice again.

It's been modulated and muddied up during the Trump years. Liz Cheney is as good a carrier of that message is anyone. Adam Kinzinger who's going to be supporting her in voting for impeachment of the president is another excellent voice in that regard. So I see some of these younger,

more dynamic Republicans are emerging from this chaos. Do you think that those younger and more dynamic Republicans will vote in tandem with Democrats to get some sort of fiscal stimulus through, to get some of other aspects of Joe Biden's administration through, even if it's sort of muddies this line as they try to re establish their identity. I think that's going to be on a case by case basis. Republicans are occasionally fiscal conservatives, not so for the last

four years. They seem to be rediscovering that, as they often do when they're not in the White House. So there's a little bit of cynicism there. But I expect that Republicans will be more skeptical of massive payments UH in response to the pandemic. But but they'll be places where Republicans, never Trumpers, and even some pro Trump Republicans will find a way to vote with the Biden administration.

I expect there to be more bipartisanship than people think in the next few months, let's do I don't want you to game what we see after five pm is today, But can the Senate find seventeen Republican votes to convict the President of the United States. I know that's an unfair question to you, but that is the question of the moment. It is the question is what everyone's reading between the lines for It's it's a very difficult goal.

It's a high bar to get over. The fact that Mitch McConnell is out there signaling that he might embrace this process is very telling. He does not do things on a whim. He would only be sending that signal if it looked like there was progress towards that goal. Now there's there's plenty of road to go down here. Even though it's just a few days. Uh, there's there's a lot of work to be done. There's a lot of voices we need to hear from. But it does

seem like things are trending in that direction. I still think it's it's probably too difficult to quite get there. But we're on the way, you know. I look, we're on the way, and you know we're on to do changes. I want to circle back luster two. Our foreign policy. What again, is there going to be a strategy or a theme that you can glean now from Biden foreign

policy or not. Uh, It's it's hard to say. You know, during the campaign and during the transition, the Biden people would put out a kind of boilerplate statements saying they wanted to restore US leadership in the world. And I think those of us who are in the swamp are a little more cynical kind of dismissed that. But that's a very real thing right now. Given the events of last week, the President Biden is going to have to take active steps to restore the image, the posture, and

the leadership of the US. And you're just gonna have to do that. It's gonna take one time. Lester, thank you so much. Particularly on that breaking news of a new U. S a I D program for President elect Biden. Lister Munson would be gr group. It is time for a reset. We're doing this within the huge distractions of Washington, of course, his agony of a pandemic. Michelle Meyer joins

from Bank of America Securities, Head of US Economics. Michelle, and you're a claimed spreadsheet out to June and dare I say, out to the end of two thousand twenty one, what numbers have you tweaked? What are you changing at

the margin? Given the just to the outrage of this January earth So um he sam hi suka to be here this morning, And you know, I think on the upside, certainly, it's what you all have been very focused on, which is the news coming out of Washington around the prospects of additional stimulus UM and the extent to which that is passed quickly in the year UM with you know, additional quote unquote transfer patments either through unemployd insurance or

another round of checks or agency and local governments that can provide a real big uh you know jold to the economy UM in the spring. So that's certainly the upside story, and it's an important one. UM. On the downside, UH, we have to continue to pay attention to the virus. The virus cases are rising, restrictions are ongoing. We did pretty clear moderation of growth at the end of UM. So it's these these offsetting factors UM, which I think

are extremely important as we love in few months. I want to go back to your first acclaim, which is analysis of the American housing market. Is the housing boom right now only about the halves removed from this pandemic. Yeah, so, you know, I do think part of what's happened in the housing market reflects the quote unquote case shaped recovery UM.

The fact that those folks that have been able to keep their jobs through this UM horrific time have done so with pretty stable wage growth UM and a lot of you know, unintentional savings as a result of restrictions and the inability to spend on certain services. And that clearly has led to greater investment in housing and housing gleted items. Whereas those that you know have have had a harder time accessing the housing market have been more

inclined to be renters, have seen greater stress. So I do think that's part of the story that said, Um, there's been a broad, you know pick up in in in housing activity. You know, it's not just the very high end of the market. You have seen the movement as well on the lower end of the housing market.

And just looks this morning, mortgage applications uh nearly seventeen percent increased week over a week, purchase applications of eight percent week over a week, So you know, it looks like we're going to be maybe heading into that spring selling season with a bit more momentum as well for

how things given where we are with mortgage rates. So, Michelle, when you talk about the K shaped recovery and the halves and the have nots, as Tom said very well, there's a question of how important the rally and asset prices, which really is a feature of the halves is for the broader economy for both the halves and the have nots. How crucial is it the asset prices continue to go up or at least stay high for the economy to

gain steam. So that's one of the transmission mechanisms I guess you may say of monetary policy is that by keeping interest rates extraordinarily low, um, they're yes, lowering the cross of capital, making it easy to bar, but they're also helping to inflate asset prices and build wealth and that wells ultimately should be spent to some expense um

and support the broad economy. UM. So elevated asset prices, I would say, is you know, comes with easy or financial conditions, which is one of the very important mechanisms

by which monetary policies supports the economy. Well, I guess the reason why I asked this is in light of the inflation data that we were just talking about c p I, which rends and housing prices are a part of There's this feeling that the inflation that we've seen, the money that's been printed has gone almost entirely into the financial markets and hasn't been able to really trickle out into the right into the real economy that much, just because so much of it's been shut down. How

much is it important? I mean, how what's the risk here that if we do get a disinflation or a deflation of asset prices sell off a bust that could really disable the economy in a massive way. So I would say there's there's there's yes. Looking at asset prices is one important, you know, channel, but also think about the money supply that's more kind of the real economy, and that reflects the fiscal policies have been put inflation.

There's been a dramatic increase in the money supplies. None of that asset price inflation or the money suffy gain has yet to filter in to underlying inflation, but it can over time. If it works to support higher economic growth and an increase in GDP growth, which ultimately leads that browning of labor market um growth and and and prompt the higher inflation. But that's not the story for today.

You know, we saw from today's CPI report underlying measures of inflation are still extremely teams given that we have this lack in the economy. And to your point, what if we have, you know, a big kind of sell off in the market or this kind of cool quote deflation and asset markets. I think it highly depends on you know what that looks like. A short term correction is fine from an economics perspective. You know, yes, we get a little bit hit to confidence, but the link

in to the economy is fairly limited. But a sustained one obviously would be problematic. Bushell Meyer's secretary of and we'll have to deal with what seemed to be big fiscal packages. Does a marginal hundred billion matter? I mean, Ethan Harrison, you are wonderful at this. I mean, we talked about trillions in the drama of what we say, But do you nuance a hundred billion here, a hundred billion there? Yeah? Um, you know, the uh the support

to the economy from fiscal stimula. Right now, Obviously it's been extreme the dollars I've been pumped into the into the economy, but we would argue that it was necessary and probably will continue the necess very. Ultimately that leads to a higher deficit, which at some point in time

the road will be problematic. But I don't think it's it's an issue that policymakers are paying too much attention to right now, and I would think that that that sentiment will be continued as Treasury and the said for the next years until the economy has fully deals. Thanks so so, I thanks so much, Michelle, greatly greatly appreciate that. Right now, folks, this is the most conversation, the most important conversation of the day on the mental foundation of

the market. And let's not mince words, it's founded on one stock. We speak to Daniel Ives on what was wrought in Cupertino. He's with web Bush. Dan Ives, you've left it up two hundred and sixty dollars a share an Apple, and I want you to talk about your core belief that they will innovate, and Dan Ives, I want to go to the latest incarnation the M one chip, and folks, I'm not because the time, I'm not going to go into this. The M one chip is getting

rave reviews and the technology zeitgeist. Dan ives, how do they do that? That's where the magic happens. And if you look at what they've done from the innovation, I think M one is a good example. That's a shot across about Intel and the semiconductor industry in terms of

Apple controlling more and more of their ecosystem. And I think what you've seen in the stock and you're seeing in the innovation really across the whole food chain Apples continuing to flex their muscles and expanded more and more, especially with the supercycle now a reality playing out. But the great great miscall of the Apple gloom crew, Dan Eyes,

has been the innovation is going to end. And the fact is the M one it appears, I'm speaking as an amateur, looks like a ball over the wall, over the turnpike, over the cask and flagon as well, Dan Eyes, that's red Sox talking case you know it. The bottom line is, Dan is what is in the pixie dust that gives you confidence that they can continue to innovate? Well, do a step back into golden and scaled. These the

best consumed products company in the world. That penetration, we've seen it with AirPods, weaving AirPods over nine this year you're seeing with the M one ship, and then ultimately the next few years we see them partnering on e V with the likes of a Volkswagen or hun they

potentially at Tessa. It just speaks to why our opinion a year from now we're looking at a three trillion dollar stock for Apple as this all plays out, Remember what the haters will hate, but they continue to innovatag think evil will see over the next month as they continued execute China, that continues to be the win of the growth. You have, guys, have no idea. When the haters hate, what it means they're danny. Is the garbage

you get some people anti Apple is well? Is you model out a hundred and sixty target and then you extrapolate out. I mean three trillion is unimaginable to those of two trillion or way back at one trillion as well. What are your linear functions look out five years, ten years out for Coupertino. Yeah, first to services business. I think over the next three to four years. That could

be worth upwards of two trillions. That services piece of loon you know, with which of you, with that trajector that continues to be a big part of the rereading. Then you look at the golden iPhone hardware ecosystem, I think that could be worth you know upwards down your heard another's two trillions of three trillion. That's why I look, this is a company right now still in the middle innings of a renaissance of growth and the supercycle that continues to be in fifth gears we're seeing play out.

What is the impact? I mean, you mentioned the iPhone and folks full disclosure, another white bag went through the damn door yesterday at home. I mean somebody in the house is buying another piece of apple to keep dan I's live going. But Dan, what happens if they redo and innovate iMac or other products? I mean is that

in your Excel spreadsheet? I think that's all incremental And ultimately, if you look, especially what we see with m one ship and some of the other innovation happening in the hall of the Croupertino, you further further monetize that that just adds to the overall ecosystem for Apple. And that's why right now, that is just further monization of that install base. Do you agree they should do an automobile? Mean, why should they do an automobile if it ain't broke,

don't fix the model. Well, for e v S we'll talk about a trillion dollar market. They're not going to be making the automobiles themselves. We believe they partner. We talked about b W Hundai, Castle Potentiary, Domler. That's the opportunity. You can have the biggest consumer products company looking to E d from the outside looking in. It's very simple what we've seen with bay Do in China. A golden age for e v S. Apples going to dive into

the deep end of the bowl. Danna, if you played by the rules as the securities analyst after the joy, you've got that paragraph special risks. What's the risk for Mr Cook? The risk for Cook it's China and us that cold tech board there the poster child. If you don't see a ratching down with Biden administration, that would be a risk to Apple both supply chain as well as the man and of course regulatory I mean that's going to continue be a big tech battle, just real

quick here, Dan Eyes. Then if we get troubles with China, what does that do as a percent basis on free caslow growth or revenue growth? How do you quantify that effect of trouble with China? iPhone demands China and that, and you start to play with the map there, you could start to see anywhere from three to five percent downside to bowl case numbers. And of course supply chain. Remember they bet the horse in terms of the fox

comes without supply chain disruptions. That's why Apple is so keenough, the poster child for US China cold tech war. What are we gonna see when they report? I mean, they come out of the holiday season absolutely unique. I mean the pandemics made it original. What's your guestimate of that earnings called? I mean, I think this is going to be a blockbuster, the Bonde Smith type quarter, and I think you're gonna see more and more numbers continue to

move up. And that's when the streets continuing to underestimate. In my opinion, Dan, I'm gonna leave it there because I've got a reset for an impeachment. Daniel ives with some terrific work from wed Bush This on Apple Computer. 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