Surveillance: Stimulus Bets With BofA's Meyer

To help you prepare for that you aren't. In the equity market, Gregg Bottle joins US with BMP Perry, Head of Equity and Derivative Strategy, Greg what does the derivative markets say the Greek letters? What does it say about developing confidence towards two thousand twenty one. Well, I think it's an interesting story in the In the volatility market, we've seen the VIX come down considerably and twins, as you point out, has been a bit of a low for the last six months. All of you as though

it's likely to go lower into the new year. We've seen a huge amount of money and be put to work in the equity market, but we haven't seen the same type of return to short volatility strategies that we saw pre COVID, So we think that could be a big story for Q one next year. We get some notes whenever a guest comes on the program, and the guest quite kindly sends over their thoughts. And I'm looking at these notes right now. Jonathan Farrow laughed at me the last time I was on for my quote, more

virus and sellers are likely to drive the market. Since then, we have seen massive inflows into US equities. Wasn't doubting you, Greg, wasn't doubting you. Just thought the line was a bit cliche. You've expected more inflows, Greg, Well, we think the rate of piece of inflows is going to slow considerably now. So importantly, we don't think we're going to see outflows from the US equity markets, but we do think we've seen a huge amount of money be put to work.

We've seen big inflows in the CFTC data for the future, We've seen multi year highs in terms of the inflows into the E t F universe, and importantly, some of the quantitative strategies that we tracked have really re levered. So we think that massive pace of inflows we've seen over the last six weeks is going to slow considerably, But we don't think we're going to move into an environment where we're seeing net outflows, so we think that could just be supportive of a slower pace of equity

gains going forward. Greg, this is actually out of consensus a little bit in terms of people saying that the retail investor is now actually getting more confident to put cash into equities and that you hadn't seen that full rotation until very recently and that will gain steam. Is that your sense as well that other people kind of have too much faith in this cash coming off the sidelines. I put in quotes because I know that that's a contentious phrase. Yeah, I don't necessarily think so. I do

think more money can potentially be put to work. I just don't really think it can continue in the pace that it has over the last six weeks. A lot of these indicators we see are really at the highs that we've seen over a multi year period, and normally these things mean revert So you know, as I mentioned, I don't think that means you necessarily see a reversal in those flows, but it's just much slower rate of pace. And the interesting thing it's almost every indicator we look

at core positioning is extremely stretched. E t F flows are extremely stretched. Futures positioning is very stretched, quantity of strategies are very stretched. So really I think that there's not as much of a wall of money on the sidelines to step in as maybe there was six weeks ago.

I got this really strange dynamic at the moment, though, Greg where By, typically in the future there's always something to worry about, but at the moment in the future, there's something to be hopeful about, and in the near term there's something to worry about. Brick walk me through how unusual that might be for you, and how the

markets capturing that story. Yeah, I think equity strategists often talk about it in terms of climbing the wall of worry, and that you know, one of the reasons to be optimistic about equities is when everybody else is worried, and when you can get past those events, potentially that can

drive a bullish catalyst for markets. I think when we look to next year, one of the things that we are probably a little bit concerned about is that argue that we're going to see a cyclical reopening in the economy, me the market will perform well. Value outperformed growth is probably something of a consensus call now, So that's probably one of the key risks. But I do think those drivers are very strong, and I do think that can

that can play out next year. There's gamma, acceleration, convexity, whatever word you want to use for it. It's at acceleration folks within markets. The ambiguity of gamma Is it good for our viewers and listeners are not? If we get an acceleration of good news or a continued acceleration, is that good? Does it matter about gamma right now? Well?

I think when we look at the options market, the thing that we see is that VIX is often used as a barometer of fit, and one of the things that we haven't seen is a return to the pre

pre February, pre March levels of volatility. We think we could see a new volatility regime in Q one next year, whether VIX breaks through twenty doesn't go back to low teens levels, but does trade in the mid teens high teens levels, and that could see some of the short volatility strategies really start to put money to work again. What that typically does is have a self reinforcing impact of depressing volatility and equity markets, and that's generally a

positive thing for risky assets. So Greg, just to sort of tie this all together, you see with consensus in terms of the positivity, but perhaps uh not with some of your colleagues who anticipate some pretty big gains next year. What are you looking for in terms of the potential returns on the SMP and where you expect the biggest gains. So we think that there could be single digit gains on the SMP. I think we're going to see really strong earnings growth that's going to be offset somewhat by

some multiple compression. So I think we can get mid to high single digit gains from the broader equity market in terms of rotation. I already said that, you know, we like the value versus growth story, but we do think it's a somewhat kind of consensus view. Where we differentiate ourselves on that view is we think the value sectors that have led lead lead the value urgents in the last six weeks, energy and financials, we don't think are going to be the sectors that are going to

drive the value resurgence next week. I think the banks in particular at risk of being a valued trap next year given the rate environment that we still find ourselves in greg great final thought to leave it on. Thanks for anathing this year. Enjoy the sparring great battle of being preparable. Thank you, sir, Thank you very much. Jeremy Stretch joining now with c IBC on this historic moment. Jeremy,

there has always been a distinctive feel to Switzerland. There has always been the pressure of the gnomes of Zurich in their nation that they have to protect themselves from the wall of money coming in that would form outright deflation. Is this an unfair statement of manipulation to Zurich and

the people of Switzerland. Well, of course, this particular issue has been brewing for some time, and coleardly the Swiss of very mindful of that, and indeed the SNB have increased their visibility visa VI their intervention in order to try and pocate the U s treasury. So in a sense they were kind of anticipating this risk would come, and unusually correctly say the Swiss are often recipients of a wall of money when there are periods in episodes

of uncertainty. What the SMB have been attempting to achieve is to maintain currency competitiveness with their primary trading partner, and that is a FURS Germany, and also to limit disinflationary deflationary tendencies um. And it is very much the case that they've been utilizing the policy of the currency as a means or a mechanism to do that, other than perhaps following some of the other benchmarks we've seen

from other global centiment in terms of asset purchases. So it's it's it's it's in a sense the SMB have been pursuing a very different policy which has ended up with them getting into the crossheads of the U. S. Treasury. I'm not sure necessarily it's you know, the treasury sort of doctrine is going to really sort of change the dynamic for the SMB. And of course it's very interesting that the reporters come out today when the SMB will

been making their latest policy decision tomorrow. Is if one would expect them to continue to argue that was frank is still highly valued and they will continue to intervene. So it's it's very much the case of the two sides are I think highlighting the sort of differential positions, But I'm not sure necessari is going to change the game that much. The SMB says it doesn't engage in currency manipulation. They also say they're willing to intervene more

strongly in the FX market. These two words are important, Jeremy, manipulation and intervention, and I want to sit on that just for a moment. I was lucky enough to spend a lot of time in Switzerland to visit the Swiss National Bank. I was in the meetings. I would sit there and talk to President Jordad after the meetings as well, and he would often talk about intervening in the EFFECTS market. He wasn't shy about it. But manipulation is a different word, Jeremy.

Is that just the technicality or is that important? I think it is important because, of course, manipulation implies a degree of sort of almost malevolence. I trying to gain an implicit advantage at the expense of your competitor over your counterpart um, and that is always seen as a very retrograde step. But I think in the context of the SMB and other parties who are aiming to intervene to try and maintain economic stability or to maintain, as

I say, a competitive degree of competitiveness. V. Two B trading partners, then there is a different interpretation. So I think there is a material difference between the intervention and manipulation, and I think the question is whether the U. S. Treasury are prepared to extep that differential when it comes to those negotiations going forward. But clearly the the SMB do meet the criteria as laid out by the U. S.

Treasury in terms of being labeled a manipulator. But as I said, I think it's not a malevolent process that the Swiss are embarking upon. And I think about an important distinction, Jeremy, other than name calling, does this have any significance for actual trading action? I think probably not. I mean we, I mean this report is one that we've often wait off, wait for and get excited about, but then when it comes, we debated and discussed it for a few minutes, and then we move on to

other issues. And I think of the context what you've been discussing in the course of the last half an hour, I think there are much bigger fish to fry in terms of the tortuous discussions regarding the stimulus process in the US and other broader dynamics. In terms of the COVID response mechanisms, So I'm not sure necessarily this report in itself really adds too much to the to the narrative. As I say, the timing is interesting in view of the SMB decisions tomorrow, but I think it's one which

we will we will move on from relatively quickly. And of course, you know, the U. S. Treasury sectory is, you know, task with this negotiating with the counterparts. But of course that U. S. Treasury Secretary will be also changing relatively quickly. So I think the you know, the moon music or the you know, the the nate of the news cycle will move on very quickly. The other issue, of course, is that the Swiss just haven't been that successful at this since early addressing the FX market. Jeremy.

Great to catch up, sir, Jeremy Stretch of C I B C patients this morning. Roshall Meyer, Bank of America, Michelle, thank you so much for waiting for this moment. Are we in recession? I look at the e CEO screen and McKee tells me to bring up negative revision and retail grim retail. Can you call any BR recess n B E R recession? Certainly not um I think what we're seeing is a bit of a payback after exceptionally strong growth in retail spend and in good spending in

general the last several months. And remember also in November, this is going to get a little wonky. But the seasonal factors tend to be very large. When you're looking at month ever month changes um for retail sales on a seasonally adjusted basis, do you have to account for the fact that you typically have these really large seasonal adjustments in November in sto stem as a result of the holiday season, and there's this is not a normal environment,

far from it. So the way people are spending, the timing of the spend has really shifted, which is probably making these these these kind of month over month comparisons that much more difficult right now, that much more difficult, meaning that perhaps it paints a worse picture than is

actually the case. Is that what you're in saying here, Michelle, Well, potentially, I mean if you look at more high frequency data, so that gets spending on a daily basis from a variety of different sources, what you see is that you know, typically Black Friday, UM Cyber Monday, there's a big increase in spending really Thanksgiving and Black Friday with doorbuster sales,

people go to stores and they buy. That didn't happen this year as a result of COVID, so you don't have that in person UM thrust of sales around a two to three day period UM, which historically when you seasonal adjust the data, you're looking for that type of increase, particularly things like clothing and department stores. Is Mike just mentioned um, So yes, I think it's eight that that that there was a weakening this month relative particularly to

what you typically see in a holiday season. But again, part of that reflects these seasonal adjustments, and part of it reflects the fact that there was so much momentum heading into this period that some softening, you know, isn't that surprising. Are you ready to pencil in a negative print for pyrolls for December, Michelle, I don't think the data is quite pointing that yet. UM. We have to

continue to monitor claims. I mean, the claim status looked weaker, realizing again the noise and the weekly data, but there has been some concerning signs for claims UM. Some of the other high frequency data points that we monitor, so survey data, UM, monitor data on small businesses from home base and the like. Um, it's so some softening, but certainly not a collapse. So I think it's it's very likely that relative to even the November weakening for jobs,

we will see further softening in December. But it's not obvious yet that will be a negative current. We have to just wait and see what the rest of the data shows up. Well, let's think about lessons learned over the last couple of months the Michelle and trying to apply them to Q on Q two next year. The tail winds is obvious, the vaccinations have started. The head winds are obvious. New York could be locked down within weeks. We're seeing the same thing in California and elsewhere across

the United States. It's kind of got a case study on how this economy responds going into lockdown and coming back out. Michelle, what have you learned about that and how are you applying that thinking to wordly next year? Sure, so it's a big deal. I mean we shunt over

a look the near term challenges for the economies. Was again, the data is showing um and and and I think a lot of it does reflect the fact that the rising corby CAS has has been significant and the responses from governments have been significant in terms of the restrictions. And that's playing and it's making you know, an impact in the data. But it's very very different than in the spring. In the spring when we had lockdowns, there was an extreme collapse of economic activity. This time around,

it there's a greater ability to navigate these restrictions. People can move back to more virtual workforce, they could shift back to buying more online. Um. There's a more dynamic economy, which I think is helping to buffer some of the pain. Doesn't stop it. There still is a softening and we're only looking for one percent GDP growth in Q one,

so we're forecasting this moderation and growth. Um. But but it's very different this time around in terms of those restrictions than it was back in the spring, given how the economy has been able to navigate it. If you're just joining us on Bloomberg Radio, on Bloomberg Television Michelle Meyer of Bank of America Securities, Head of all of US Economics, you'll continue where this. We're following not three, but now four stories. Let me get to the quick

one Bitcoin over twenty dollars extraordinary. It has been a moonshot. We'll have some more on that through the day as well. We have stimulus in Washington. We're gonna have that on in a moment. Here we're looking at retail sales with Michelle Myers, and of course currency manipulation by Vietnam and Switzerland. What you need to know is yields our set high or here uh this morning with futures up six down,

futures up a fractional fourteen Michelle Meyer. The oddity here are these huge swings of March, the huge recovery bounce, and some of the vectors here right now are a little bit uncertain. How does stimulus presumed affect your world? How does stimulus affect retail sales? Well, it has a strictly direct leak through the consumer um. When you think about the ability and the willingness of the consumers spend the extent that they're getting more money in through stimulus,

they have a greater ability to spend. Now, of course, with restrictions, with lockdowns, that limits how much they can engage in the economy, how much they can spend. You can't go to stores as much, they can't go to restaurants as much they can buy a lot online. Um, So it changes the composition of spent. But if stimulus is coming in, if funds are coming in, as of

course the purchasing power of the consumer. And that was extremely clear back in the middle of April, when stimulus funds first start to be distributed, even with the economy still largely in lockdown, we saw consumer spending turnaround as people went out and started to spend those stimulus funds.

And then once the economy reopened, it unleashed quite a lot of spending, so so so the it was much more extreme turns back in the spring, from you know, economy that was essentially shut down to one that was you know, brought back to life very very quickly and very very abruptly in some ways because of that stimulus and because of the reopening. UM, the turnaround this time is gonna be much much more more modest, despite restrictions

being put in place as a result of the COVID rise. UM. It's the economy has been able to really kind of work around that in a way that is much much different than the spring. So you're not going to see those big swings this time around. And our review Michelle, there is this question though, especially if this nine billion dollar plan as reported by political goes through that would include direct payments to individuals that's considered by some to

be more inflationary. How much could that increase your inflation expectation for next year? Should it be a past as

we seem to be seeing the parameters? Sure? So, I mean if you think about just looking at cash held on hand in banks or you know, just money suply measures or the savings rate, there's a lot of cash floating out there already um and with the stimulus likely to be enacted and potentially with direct payments to consumers, that's going to just add to those cash piles um over time it's spent that creates a nice, healthy response through the real economy, and if that really builds on

itself and gains a lot momentum, than sure it is inflationary. But it really important link is that the real economy has to pick up. People have to use that money and push it into the economy. It's not just inflationary because it's been created and and this is so important John Farroll. In terms of the inflation dynamics, we see Switzerland battling deflation, their arch fear for folks pushing five

years with their currency. Interview mentioned that we have seen and johnet goes to the disinflation worry and the heritage of United Kingdom real wage declines that were seen across much of the twentieth century. John Ferroll, what's the inflation wins in the United Kingdom? Given what Ms Meyers says about inflation dynamics in the US? What a lot of what we've seen over the last several years has been

currency driven. I think in the near term now we're just trying to work out what on earth is going on in this labor market, which is basically levitating at the moment, suspended from the forces of gravity. Lastly, because of what has been going on the fiscal side, Michelle has been really difficult to get a read on these labor markets because they've been so well supported by fiscal policy.

How's that going to change through twenty one? So I think for the you know, the labor market hasn't received the same degree of support as the consumer. For example, right when you think about how the stingles was designed in the US, there is much more around direct payments to make sure that consumers have money to spend and that they can help to lubricate the economy. But in terms of the labor markets, there were extreme losses. You know, um,

over twenty million people lost their jobs. Were more than halfway back in terms of recovery UM. And a lot of sectors are fully recovered, but there's a lot that aren't. A lot of the services leave your hospitality workers that were employee prior to COVID are still out of work going on almost a year um that they will have not had employment. So um. You know, there's still a lot of healing that has to be done from the

labor market. And I think where stimulus plays a role is actually it creates a bit of a gap between income which is elevated and job creation which is still at levels that are pretty low and pretty recessionary UM. So the stimulus is really bridging that gap and hoping that it can help generate and buy enough time for the labor market to fully heal itself and then you get income creation naturally through the labor market. But that hasn't fully happened yet. Michelle always fantastic to catch up

with you. What a morning for it right now, I'm the pandemic and we've really taken pride of a cross section globally of physicians and surgeons looking at the medicine, and of course the medicine now is to deploy the vaccine. Catherine Baumgarten is a the Oxener of Louisiana, Director of Infection Control and Prevention, and joins us about the real

world of getting the vaccine out. Dr Baumgarten, I know you and Dr Emery down there on speaking terms, but there's got to be a lot of stresses about actually getting the vaccine out. What have you learned? What is the critical stress of moving the vaccine forward? Is it nothing more than the temperature of the shots? Well, there's a lot that goes involved into getting the vaccine from the shipper back to a patient's or a person's arm, honestly,

so there's lots of steps. We've been working on this for months. Actually. We have a multi disciplinary group UM consisting of pharmacy, communications, are on earthing, staff, administration, UM, all of us working to get this vaccine from point A to point B, which is to get it into people so that we can start to have some helpe

and some relief from this pandemic. Um. The cold storage is quite a challenge and that has been amazing to watch in terms of getting the freezers, getting the case from Viser, from the shipping company, and then unloading it properly and making sure that then it is thought properly for the person to receive the vaccine. So all those steps are critical, all of them are important, and so every single one of them is not taken lightly. We

prepared um. We actually have done a trial with Viser, so had some trial runs on how to do this, how to do it, but making it large scale was a challenge as well. Okay, so you're unloaded the dock and then you get the vaccine up seven flights of stairs, etcetera, etcetera. Do you just assume over the hours, the days and the weeks that all of us by definition are going to have to go to hospitals. We're not going to

do this in the doctor's office. Well, um, we have basically set it up in hubs, so we have freezers stationed throughout our health system and then we are able to transport the vaccine safely um to our other site so it is given currently at our facilities. We have clinics and hospitals in which we have stationed hubs to

basically give the vaccine um. The good news though, is the MADERNA does not require such as as precise cold storage criteria, So in Louisiana at least, they are talking about distributing the Maderna to places where might not have these cold storage capabilities or these freezers. So there is a plan in place. If that vaccine does get FDA approval later this week, then that would be an option for maybe those areas that don't have the deep freezers

that we do. Dr. Baumgarten, the new is great. We're all so excited to think about the bridge to the other side and getting to the other side where we don't have to wear masks, etcetera. Just on a qualitative level, based on how it's being rolled out right now, based on the willingness of the people you work with and perhaps even your patients to get inoculated. What is your sense of how this is going and the speed of

which we will reach some sort of critical mass immunization. Well, if if our institution is any indication of what's happening, it has been incredible. All of our health care workers are prioritized, especially those that are working with COVID patients on our COVID units we have dedicated COVID units here um and those that are working in the front line um such as in our emergency rooms and urgent cares, and everybody has really been so excited about this vaccine.

It really gives us a sense of help. You know, twenty has been a little bit tough for us, and we've had a lot of stresses on our health care. We've done great, we've been prepared, we've taken care of patients, but we've also seen our colleagues ill. We've also seen our patients become ill and die, and so to have this hope, to have this science, to have this resource so quickly has been incredible and there's just a sense

of relief around our institution from Monday. We started vaccinating on Monday, and you could just feel that sense of relief. The other good news was how great the vaccine is in terms of its efficacy, and so that was also a hopeful moment when we found out how the vaccine is nine set effective and it has minimal side effects really when we talk about vaccines, so we were just thrilled we cannot wait to get it out to the

other healthcare providers and then the community. In terms of when that might happen, we're talking about the spring, the summer. We need people to take this vaccine. That's going to be the key here. If we're talking about we need to continue to wear masks at this point, but if we're talking about having a Christmas that may be a little more normal, that you may have a little bit larger the moralogy is at next year. It is critical that people get the vaccine, and that's what our focus

is on at this point. Dr thank you and thank you for all the hard work being done in your industry right now. We're incredibly grateful all of us. Thank you, Dr Catherine bomp Goden. That on the latest with the vaccination effort. 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