Surveillance: Trump’s Protest Crisis With Stavridis

equity belief after up? So, you know, I think what's what's most interesting from our vantage point is that we haven't really changed things too much. Um. From the beginning, from you know, the start of April, we were really of the view that we wanted to center portfolios in higher quality assets like technology, like healthcare, but we didn't want to completely abandon cyclicality because if markets came back quickly,

we wanted to participate. UM. We obviously haven't been fully positioned with a cyclical tilt, so we have been under performing a bit over the past couple of days. But some of our more value cyclical exposure to things like financials has been helping. And so I think that you know, when we look at where the market is today, Clearly things have moved very far, very fast. Um there there is room for markets to continue climbing higher, But I think now is probably the wrong time to materially change

your asset allocation. Right, maybe a month and a half ago this was the conversation to have. But I think that the risk reward has continued to deteriorate here and that makes me a little bit nervous about the direction of travel for markets in the coming weeks. And it's sometimes you've just got to take a step back and

look at the position we're in right now. If I teld you twelve months ago that in twenty twenty we would have a job sprint of negative two points seven six million, and on the same day people would call it a big bait and the SMP five hundred would go through, there is no way that you would believe me that that is what would happen. That's what happened in the last twenty four as daven, How do you

explain that to clients? You know, I think that it's important to recognize that there's there's a real technical nature to everything that's going on here, and market structure is just very different today than it has been historically, and part of what we think has driven this big rebound. You know, when we look at get cash balances of non bank investors and things like that, they they still

look underweight equities. But where we've really seen money come back into the market is through the more systematic strategies. And so we had this enormous spike in volatility back in the middle of March, and as volatility has trended lower over the past couple of weeks, you've seen signals triggered that bring the c t A s and the momentum traders, and the risk parity funds and the ball

control funds back into the market. So I think that, you know, as quickly as we went down, it actually, with some hindsight doesn't necessarily surprise me the speed at which things have bounced back. But I do think that this is a function of the way that markets are structured today, um, and that's created a pretty significant disconnect, John, to your point between what we're seeing in the economic data and the performance of equity markets, particularly US equity markets,

which have really led the charge here. All right, David, So how long can these technical factors overwhelm the fundamental factors, which are an increasing bankruptcy rate and increasing unemployment rate, and concern that we could get some sort of W shaped recovery or some sort of a second wave of

the virus. I'm just thinking, for example, high yield bond yields right now are within one and a half percentage points from the all time low at a time when the bankruptcy to rate is climbing beyond what we saw in two thousand and nine, How does this make sense to So, you know, I think the market is very much focused on on direction rather than level, and with things reopening, that does seem to be overwhelming the market's ability to look forward. You know, I acknowledge everything you said.

We've seen commercial mortgage back, UH security delinquency rates begin to pick up. I mean, there there's a lot of evidence of the stress in the economy, but the market really seems much more focused on the direction of travel of the virus itself and the ability of the economy to reopen. So, you know, to my mind, there there are really two big risks here that investors need to monitor.

The first is a potential for a second wave, and I think it's an unfortunate reality given the the protests over the past couple of days here in the US that you know, to my mind, that risk has increased as social distancing seems to have been put off to the side temporarily. But the other thing that I think we need to pay attention to, and you guys were alluding to it a bit earlier, is simply the the amount of stimulus that's been pumped into the economy, and

more importantly, the expectation that there's more stimulus coming. You know, we have the e c B later today. The ECB historically has tended to to pull out the bazuka when things aren't looking good, not when we're in the midst of a rally, and so it'll be really interesting to see what happens in just under an hour here and whether they go through and increase the size of the of the emergency programs or whether they hold off of it. But I think that there's an inherent expectation on the

part of the market that there's more stimulus coming. It's a fantastic to catch up with you as always, David. Believe it's the of JP Morgan Asset Management joining us right now, getting right to it. On this busy, busy morning, the Lieutenant Governor of the Empire State, Kathy Hockl, joins us UH this morning. Kathy, what are you going to work on today to move the trend of forward? We've gone from rioting and louding to what was called relative

calm to an even calmer Wednesday night. What is next for you and the governor? Well, the next step is to really address the concerns of the community that have finally come into a forefront. And it's a it's a tragedy that it took a the leurder of an unarmed African American and the streets of Minneapolis to get the national tension. But if that's what it took, it's where

we are today. We're talking about how we can address the inherent criminal justice injustice system, and we now have that that African Americans are subjected to and white Americans are not, and so we have an agenda of national reforms that we believe should occur. I believe that when we start taking concrete action that will address many of the concerns of the protesters, they will feel that they've been heard. And this conversation has to begin in earnest

starting today, we get the banned success. Of course, we have to have independent investigations of police abuse and disclosing disciplinary erected. These are things that the Governor and I have proposed in the state of New York and they

should be national. So that's what we did. We start cleaning up the streets, we start giving people hope that we're going to go forward and uh, and we also have to make some major systemic changes in order to take this national moment that has focused the world on what's happening in our country and come out and better for it. Lieutenant Governor, it is an ageless tension between governors and mayors. It goes back in New York State, at least to Governor Clinton in the three day trip

up the Hudson to Albany. That doesn't happen now now it's a media give us an update on the tension between your offices and Mayor de Blasio of New York City.

There's certainly issue by issuing. Literally just a few days ago, Mayor de Blasio did a joint press conference with the Governor to talk about how far we've come in in eradicating the virus and how we're ready to open New York City the first phase starting literally on Monday, which is just so such such good news for New Yorkers that are desperate to start getting back to some semas

the normal. So they truly do have a working relationship. Uh. They can disagree with each other, everybody can disagree, but when it comes down to getting the job done to the people of New York, Uh, they're able to get it done. And I think the evidence is what we've what we've been able to do with eradicating working on the coronavirus together. That was intensive teamwork from the states and city officials, and our teams have worked together for the last three months on a day to day basis.

So it's really a case by case, Lieutenant Governor. Let's talk more about the reopening that is supposed to happen on Monday. There's a question of if you reopen, will they come? And a big, big part of that question is the m t A, the subway system. Will it be prepared to take an increased number of writers with respect to hygiene as well as service. How close are we to that? Yes, And you're absolutely right that we knew that we could not reopen society, reopen economy without

the ability to get people safely to their jobs. And yes, we've had the scale down service and we've had the subway closed from from the middle of the night down to five am in order to do unpresented cleaning. You know, you thought there are subways need to be cleaned, that they have been uh sanitized top to bottom by individuals that have just been working slowly through the night. So we're going to continue those processes. We're going to add

more trains. We know that they'll be increased capacity. But people are going to be anxious. You're absolutely right. Uh, we we want they cannot get on unless they're wearing a mask. We hope that people be using hand sanitizers and you know, to the extent possible social distinct. But if you have the mask on you, it's it's we now know that that will protect you. Again, there's more information out there than we didn't even have three months ago.

And three months ago we did not know that mask was the primary way that you can stop to spread. You know, people said, is all on surfaces. Well, we're learning a lot and we're cleaning the surfaces requiring masks, and we will get people to their jobs in New York because when we start opening, it's going to be in phased, a phased approach where it's manufacturing, construction, some very limited retail at first, so people start getting afflimated to the new system. Then Phase two, which most of

upstate New York or is in right now. I'm in Western New York and we just started Phase two this week. That's all retails, shopping, it's office spaces. I think you're gonna see a lot more of that. But but truthfully, we've talked about this on this show before. There's going to be a different mindset when people have the ability to continue working from home, at least perhaps for a couple more months. I think it's going to be a more gradual opening that people won't all of a sudden

descend on the subway system and overloaded. But if that becomes the case, we're prepared, Lieutenant Governor. I just wanted to wrap up the conversation by talking about lessons learned with you. I'm a guest in this country, but New York City is my home, and I, like many people, were shocked to see the looting that took place on Fifth Avenue a place that you cannot walk down without usually bumping into a police officer. What happened the other

night and what have we learned from it? Well, the governor addressed this, and he said that, you know, reminding everyone that New York City does have the finest police force in the nation. They are well trained. There's thirty

eight thousand of them. And the question became most efficient number of individuals from the police force deployed on these early nights when when there was looting going on, and you know, again separating out the legitimate right of individuals to protest that in our country was founded on a protest that I don't want to remind anyone about the Boston Tea Party, but you know, we we we by nature are going to stand up to oppression and stand

with each other when others are opposed, are pressed, and that's that's in our DNA as Americans. So the right to protest is something that's enshrined in our constitution. And we told very dear, but that does not give anyone the right to commit criminal acts, and they must be stopped and we need to regain order to ensure that the safety of people's lives, people's communities and their businesses.

So we've now regained that control. It's important, but it sends a message to the rest of the world that we also support legitimate protests. People have the right to bring their grievances to their government, to society, and we in government have a responsibility to address them. Lieutenant Governor of New York, Kathy Cathy, fantastic to catchup with you. Thank you very much for j woanting. Guess John, As you know, there's something about the first chart you look

at every morning. This morning's chart was a standard in force made up of a few stocks. I can't remember their names right now, but there's four or five stocks that make up the stocks, and everybody else is trailing behind. I'm kidding, but we're seven percent under where we were Valentine's Day. An extraordinary bull market off the march bottom. Greg Bottle of BMP perry By, he knows the mathematics of this, He knows the derivative dynamics of this equity surge. Greg,

let me begin with first principles. Is it the renewance of a bull market? I didn't think so. This is a very large bear market rally. But I also think we need to think about this in terms of a two speed recovery. You touched on it there. I think some of these mega caps, just these oligobalistic tech companies, could potentially be in the start of a new bull market, while the rest of the market could still potentially have a much more difficult time ahead of it. Greg, I

want to talk about moral hazard. We were speaking yesterday with Bill Dudley, formerly of the New York FED, saying that the Fed's actions do increase the risk of moral hazard. You could say the same thing about the ECB. As an equity strategist, How concerned are you that this moral hazard will lead to an overshooting and a crash? Well, I think in some ways there are echoes of the

late nineties. We had this policy response to LTCM where the FED came in and cut rates, and really that drove the last legs of the bubble that resulted in the in the in the tech bubble in the late nineties and the subsequent bear markets No. One oh two.

And clearly we have a situation where we've had real policies shock and awe, and some of the reasons that people are giving to invest now is that there is no alternative, and you can't fight the FED even though fundamentals look terrible, and I think there's a real risk of moral hazard for equty markets. Greg. Something that Jim Bianca Bianca Research said recently I thought was really interesting. It's about good hearts law that once a measure becomes

a target, it ceases to be a good measure. This whole market has become a target. What's it a measure of anymore? Yeah. I think there's definitely a big disconnect in between the outlook for the U S economy and

the outlook for the equity market. Tom touched there the lack of breadth in the rally that we have a handful of stocks now, these megacap stocks that are driving the market directionally, and it's become increasingly devolved from the economy, Whereas I think when you look at some of the smaller mitcaps for example, or some of those even second tier large cap stocks, I think they're going to be much more wedded to the cyclical um direction of the U S economy and the outcome that we get there.

Good battle of BMP, panaback RAG fantastic to catch up with you, SA now without question, our interview of the day. Admiral James Trevitis, of course, an author of any number of books and leaders, including The Leader's Bookshelf and Former Service to this Nation, among other things. As Supreme NATO Commander James Trevitas, the forty eight hours here have been extraordinary. I wrote a script about Lieutenant Colonel Asper, about General Miley, about General uh Maddis, and I wrote a script about

Admiral Mullen. They're all on board. Do the soldiers and the sailors of the military, do they have their back? Yes? I think so. Um. As I look out across the force today, tom Um, we have one point two million active duty military and they didn't sign up to uh dominate protesters, peaceful protesters in a battle space. Um. We've got plenty of law enforcement officers, plenty of National Guard troops who can do the kind of attention to prevent

looting that is so important. But I think the military recognizes his duty as to the Constitution of the United States. They were ordered to stand on the steps of the Lincoln Memorial as they did. What were your thoughts when Martha Radditt's of ABC showed that image of our military, of whichever flavor lined up like Game of Thrones on the steps of the Lincoln Memorial. You know, Tom, I

don't think it's important what I think. Let's think about what Abraham Lincoln must have thought about that as he was looking down from that great Republic in the sky. I think he would have been stunned to think that we'd hit this point over the exact issues that he had worked so hard to keep our country together, to overcome the kind of racism at its absolute peak, and slavery. He must have felt as though he had had that occur through the Civil War, and all that work must

have felt so undone to him. To see armed troops standing there. I find it saddening to think what Abraham Lincoln would think of that moment. Admiral, just if you could just give us a sense of how you think maybe the most senior military commanders in this country, how do they feel like they need to react to President trumpall think about the joint chiefs when he issues an edict about, you know, maybe deploying troops to the Lincoln Memorial.

I mean, is it simply he's my commander in chief, and therefore I fulfill the order first, Any senior military officer is gonna begin by saying, here's my advice on this situation. Secretary of Defense and Mr President, Well, we will never know because of the professionalism of our senior military what the exact advice they gave the President, but I would guess that they advised him not to do it, that it would be the wrong thing, the wrong signal,

the wrong step forward. Um once the President then over rise, then you have a very tough decision to make as a senior military leader. If it is a lawful order, and it is a lawful order, it's not a smart order, but it's a lawful order, then you can either execute

it or you have to presign. I think what we've seen in the last twenty four hours, both from Secretary Esper and from General Millie, is them taking a step back and effectively saying to the President through their public pronouncements, Okay, we don't agree with this, and now we're going to see what unfolds in the next four to forty eight hours. Join us on Bloombert Radio across this nation. James Trevidus, former admiral with the United States Navy and of course

Supreme Commander NATO. James trevinas the lieutenant colonel earned a bronze star moving to the left on the road to Baghdad. He's in a difficult position right now. What does the Secretary Defense do? Is it constructive to resign or does he carry forward waiting to be terminated as is the

speculation overnight. Certainly these are intensely personal decisions, and I'm sure, for example, Secretary Maddison White House Chief of Staff Kelly must have wrestled with these kind of thoughts after Charlotteesville, when I think there were a lot of storm clouds gathering and red flags flying about where this was all going. So I am hopeful that Secretary Esper will convince the President as is his job, to do the right thing here, which is to let law enforcement, National Guard take care

of these kind of missions. We do not want to turn this into a active duty military role in tank down Pennsylvania Avenue or flying helicopters. We actually saw this flying combat helicopters low over protesters. Hey, that's the stuff we do in Afghanistan and Iracut war. We don't do that in the United States of America. Edmon, I've had some history today. What you are expert on and folks, I can't say enough about The Leader's Bookshelf by James

stravit As it's really an important book. Douglas MacArthur didn't he have a helicopter when he and a young Eisenhower and Major Patton had to take on the bonus boys of World War One, starving in in the depression. MacArthur had a challenging career after that. Within his acclaim and his bravery and leadership as well. Is that the kind of person the president wants? Is he really in search

of the Douglas MacArthur that my grandfather worshiped. I think all presidents reached for active engage, forceful leaders, and sometimes the leader you inherit in a situation, let's say Lincoln, we're talking about him earlier, gets McClellan, General McClellan, who's a pretty boy soldier, but he has to go through a lot of general still he gets to Grant and so what we what we see I think is the

president reaching for active engaged generals. But what he really wants is a general who will stand up to him and tell him what he cannot do, what he should not do. I think that's the General that that President Trump needs desperately in this moment. James de Vita, thank you so much. With illusions are of course to Mr Grant as well, General Grant as well, almost to Vitas. I would look forward to the next essays from you on this historic moment in Washington. 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