Surveillance: Vaccine Optimism With Hornbach

condition in the market. Matt, let's go back to Vasser economics where you had to define a jump condition. Is this a jump condition? Tom, Thanks for having me on. This is clearly an important day for the world. Um, you know, it's we still have some way to job right. I mean, we still have to get the vaccine further tested. It has to be distributed around the world. Uh, And so it's that we're still not out of the woods yet,

but certainly a bright day for the globe. And I think you can see this playing out very clearly in markets that you've just discussed. So, um, you know, we think that there is also an important underlying backdrop to all of this time, which is the amount of central bank liquidity that is being pumped into the system on a monthly basis, and we expect to continue throughout the entirety of next year. So a tremendous day for the world, and I think next year looks looks to be a

bright one. Matt. What does a bond market look like with a vaccine? Are we looking at a one percent tenure more? Lisa? We you know, we do think that that yields are going to be angled higher over the course of the coming year. Uh. You know, we have recently been very barished on the treasury market. It's a rare, rare day for me to be barished on the treasury market,

but we have been barished up until this point. You do think that there is good scope for the curve to steep in further, and clearly today as a day in which you'll see the treasury curve continue to move steeper. So, um, we think a treasury market with a vaccine is one where the Fed is going to slow play it for sure. That's going to prevent intermediate yields from rising too much. But the back end of the yield curve should be

lifted higher, especially as great even inflation rates continue to expand. So, Matt,

here's the story for me. We know what the world looks like with a vaccine because we know what the world looks like without COVID nineteen, and treasury yields didn't exactly get away from them south back then either, And most people might make the argument this morning, the looking gut over the next several years, in with COVID nineteen under control, trend growth could while still be lower, inflation could while still below, and rates we might not see

a recovery in Europe once again, that justifies a right hike. So Matt, what would your response to that be? Why would a cycle recover free with a vaccine be any difference to what we saw in the previous ten years when we didn't even have COVID night see John. I think the answer here ultimately comes down to central bank monetary policy strategy, and what we've seen from these central banks is that they're willing to keep interest rates much

lower for longer. I mean, we've been using that phrase for over a decade now, so why not continue to use it. But we do think that these new monetary policy strategies are going to end up weighing on the equilibrium level of long term interest rates, the equilibrium level of the yield current um. I mean everything is going to be lower and flatter for longer. That doesn't mean that yields are going to stay low in perpetuity, but

it does mean that the equilibrium levels are coming down. John, do you assume that, Matt, that the previous peake on a tenure yield of the previous psycho just won't be

achieved again. I think it's going to be a long time before we see a three and a quarter percent tenure deal, which bear in mind, occurred really on the back of a communication FOCA, which is in general terms, you know, when you ever you see interest rates move higher very quickly to really unsustainable levels, it typically occurs on the back of a communications or right. We saw that in two thousand and thirteen, We saw that at

the end of two thousand and eighteen. So, you know, we think that central bankers have have learned this less than time and time again. They may have to learn it again, John, but I think for the time being, these new monetary policy frameworks are going to really try to anchor those rate expectations much lower than ever before. Man, I want you to channel one, Michael Wilson. You talk about frameworks. Does this equity market frame the forecast or

the expectation for revenue growth and earnings growth? Well, Tom, we we've been long term bowls here on on the

equity market. Mike Wilson, I'm sure would would be the first to admit that, you know, when you come to these recent corrections, which he's called absolutely correctly, Um, you know, it does suggest that you know, his longer term view, which is very bullish, is very very likely going to play out, especially in a world where consumer activity is going to get back on track, hopefully sooner rather than later. That the economic data in the US and around the world,

safe for Europe of course, has been robust. Uh. And so yes, this long term bullishness that Mike Wilson talks about, Uh, we we're going to continue to to to aim in that direction and we think that we will hit those targets next year. Right now, a lot of people are looking at credit versus stock, some people saying stocks hold the most potential for possible upside. Others I believe Morgan Stanley seeing credit is a possible brighter spot going forward.

What does the vaccine that excuse me? The vaccino news, it's so exciting, I can't get my words out. Due to the prospect of credit outperforming given the fact that the FED will have less impetus to keep rates very low, well, I mean, you know, so it's not clear to me just yet that the impetus from the FED is going to change anytime soon. Right. We just went through the November fo MC meeting. We're going to have very shortly the December FOMC, meaning the FED is going to update

its DOT. POD's going to include a couple of more charts in its in its materials. UM. I highly doubt that the media in two thousand and twenty three DOT is going to move up. The Fed is going to keep policy at zero four probably the entirety of the SEP DOT pot at least an expectation. UM. And so I don't really think that there's less impetus necessarily, which is why the vaccine has the power to really drive risk assets higher, credit spreads tighter, the equity market higher,

emerging market currencies stronger. This is one of our key calls right now is that we do think that emerging market currencies are going to perform extremely well against the dollar. We've beenmbarished on the dollar a yel year and we continue to be barished on the dollar. We think this liquidity has to find a home in higher yielding assets. US corporate credit is obviously going to be one of

those thesis. So when you talk about emerging markets credit, let's go there emerging markets in general, because they are flying with stocks and currencies at near record highs, currencies

at the strongest versus the dollar. Since how much of this story is China and how much of this story is commodity producing nations Latin America that have been really beaten up and underperforming up until now, well, you know, we we think we think that this uh you know, change in leadership in the United States has the potential to help a wide variety of of emerging markets Mexico for example, Russia, um and we're also looking at China. We we do think that the currency there has further

scope for appreciation. We like to pare the yuan against the Japanese gyain. We think high are you on against the end is really the way to play it. But in general, we see this loquidity going to a wide variety of emerging markets, both in Latin as well as

in Asia. Uh and and again you know this uh, this environment that we're going into hopefully next year with the vaccine as soon as is practically in safely possible, that's going to have I think a really positive impact on a variety of emerging market currencies, credits and rates. Matt grant to catch up as otherwise, what am wanting for mars at it? Say, Matt home back of Morgan Stanni, thank you, sir. Part of it is math. The math

of medicine. The statistics of medicine is profound. Mercedes Carnathon con front of this and the dreaded Stanford statistics program a few years ago, and she moved on to an esteemed academic career and epidemiology at Northwestern University of Chicago. This morning, I should say Evanston, I miss speak. Of course, it's not Chicago, it's Evans and professor, wonderful to have you with us. If we talk about an efficacy and Dr Fauci and others say, hey, if we can only

get efficacy, is it mission accomplished? You know? Um, I am very heartened by the news, particularly since we know that these trials were well designed, they were monitored very well, and they involved a large number of people. And yes,

isn't that you'd like to hear. However, that is about as effective as any vaccine, and perhaps slightly higher than what we see for effectiveness of the flu vaccine, so that the majority, the vast majority of cases of people who happened to be exposed were reduced when they have this vaccine. So I'm I'm feeling very pleased about that. So can we fast forward how quickly Dr Carnathon will we end up stopping this pandemic base in the data that we got today, Well, let's flow our breaks on

that one. Unfortunately, this isn't going to be a magic shot that's going to reverse course from what we need to do to slow the spread, because there's going to be a phased rollout of this vaccine. It's availability, even with the claims of Operation Warp speed and involving the army to help distribute it. We have to have a priority list of those who are protecting us, those who are helping us get along in society, and those who

are educating us. So those are the essential worker categories who need to receive the vaccine first before it goes to the broader population, Professor, is the distribution that I'm really interested in. Let's assume and let's hope this goes forward and it is conclusive. Then let's talk about distribution and the transition peered between two governments that is set to take place over the next three months. How closely will find a have to work with the government to

make sure the people who need this get this and quickly. Yes, you know, I'm very pleased that what I've heard from President elect Joe Biden is that he has already appointed a coronavirus task Force filled with professionals, with medical experts, with public health experts, and so I do believe he

will be ready to launch this distribution plan. There is already a priority list of essential workers, nursing home residents, other people in um congregate settings, including prisons, who are at the highest risk for capturing this, and so I do believe that there is a plan in place. There have been national academies who have contributed to this plan, and so I do think that the government is going to be ready to roll this out right away. Professor.

When I look at immunological memory. It reminds me of the dreaded booster shots of my youth. John and Lisa, I have no idea what I'm talking about, But folks, you'd have to go back and back and back to get booster shots on tetanus, on the Bacterium de theoria. But what about on vexi on viruses. Do you just assume we're all going to have booster shots until the tots win. We may end up we may end up

needing to have repeated shots. One thing that's not clear, because we're so early on in this pandemic, is how long one maintains those antibodies that you either get from contracting the illness or that you develop from a vaccine. We don't know how long those antibodies will last. We also don't know whether the coronavirus will adapt itself so that it can continue to be inspectious. Now, that's one of the reasons why we have a flu vaccine every year,

because it mutates, it changes year to year. We may be in that position, but at least where the strong starting point with the great vaccine. For right now, I will say Tom, we've learned this morning that you are very scared of shots because first you're talking about holding your hand and then you're talking about the dredg which for the record, we still get Professor carnadon us to

wrap this up in the near term. Coming in this morning, before this COVID vaccine news was announced, the discussion really was around the worsening wave of COVID around the world and the potential for hundreds of thousands of potential additional deaths given where we are, given the fact that the

vaccine news does not change the near term. As John has been talking about, what kind of winter months are we looking at right now, we're looking at a winter that's going to look very similar to our last spring

here in America. Worldwide, they had their peaks earlier. I think we're gonna see governments meeting to step up and have rolling shut down, particularly of those businesses and industries where we see rapids spread and it happens to be the types of places that you would frequent where you can't wear a mask, so when you're inside, eating and drinking, and we're going to have to adhere to those policies. What I'm hopeful we can maintain this time is availability

of our hospital systems. I'm hopeful that we won't become overwhelmed. However, with the rate that these cases are going up, our hospitalizations here in Illinois are matching what they were last spring. And that's a very scary prospect because we still have cardiovasca to these cancers, respiratory illnesses that we would need to still treat. Professor, what a time the interview. Thank

you Tom this morning, Thank you very much. Right now, to sort out some of the policy drive forward, Jared Sieberg joins us with Cowen and their acclaimed Washington policy and Analysis team. Jared, so many different flows, so many different smaller elections, smaller issues as well, sort of the debris. Who won the election. Oh, I think this is a clear victory for the moderate side of the Democratic Party. Uh. You had coalition really get behind Joe Biden. Uh, you know.

I I think you had losses in the House that over time are going to be attributed to some of the socialist labeling that's associated with some of the more radical members of the Democratic Party. And I think as we dissect this election, it's going to show that the path to national power is still through the more waterrate side of the party. And not through the most progressive side. Jerry, You're gonna have a lot of Monday morning quarterbacking for

a very long time with respect to this race. Right now that we are moving forward and looking toward a pandemic that is worsening, what will the transition between the Trump administration and the Biden administration look like? And will it be different than what we have seen in the past. Is going to be different because we have a g s A, which is an obscure government agency that normally nobody ever hears of, but g s A gets to

officially start the transition. It's run by a Trump appointee, and at least as of earlier this morning, they still have not signaled that the transition is ready to start, and it may very well be until mid December until that transition starts. So at a time when we are perhaps in the greatest part of the COVID nineteen crisis, with with cases spiking each day, sitting in a new record, this transition maybe four to five weeks behind where it should be. Jo It talked to me about the transition

in a little bit more detail. Michael lewis a fifth risk. He wrote beautifully in that in a very short pace about how important it is. Can you can communicate to our audience who might not be familiar with how much work goes into that transition exactly what happens over the next three months. Well, you know what's so interesting is when you think about the transition from four years ago, there almost was no transition. It wasn't that Obama's people

were unwilling to engage. It's that Trump didn't embrace the transition, and they were very late in getting people in. And what you saw was it took almost a full year before work Team Trump really got control of the regulatory agencies. Biden's people understand that you can't waste a year, and they're gonna want to get on this much more quickly. Uh. The fact that Gary Gensler, who is a former Goldman Park partner but also ironically well respected by the progressive

side of the Democratic parties. Uh, he looks like he's going to lead the financial side of the transition, and I think that should be widely embraced. You know, he could have been Treasury secretary of Hillary Clinton won. He's somebody who understands the markets, and as we always say, it's better to have people who understand our business leading the charge than people who don't geared. Do you see the obligatory Republican cabinet appointing? I think of William Cohen

of years ago. Do you see something along that line? So, you know, I wish I could be that optimistic and to say that, you know, Joe Biden is going to go back to the way it was where you're initial cabinet appointees always included one person from the other party. Uh, you know, we're not We're not that hopeful. I think there's still so much animosity, uh, that it would be difficult.

You know. The only are a few names that could even come to mind, like a Mitt Romney, and I'm not sure he really would want to come inside and administration. In addition, you know, there's a lot of Democrats who are looking h to come back to Washington, and I think they're gonna have a hard time giving up a prominent enough job to a Republican. Jack right to catch

up book The count. Senior policy analyst Daniel Alford is someone we can talk to about the American labor economy, but we can also talk about his classic book, The Age of Oversupply, and dan Alford very simply here it is two nations. We learned that on election day an election week, but it is one age of oversupply. How

does the president elect adapt to your age of oversupply? So, I think the first thing is that he has to recognize he was elected by a shift in what was effectively a bipolar group of voters that you know, elected Trump UM the first time. Uh, and these are voters who have uh future prospects still. Then, job quality has come down again during the Trump administration in terms of and I'm talking about prior to COVID, in terms of the number of low wage, low hour jobs compared to

higher wage jobs or higher income jobs. The the up shot there, of course, is that families still are looking for stable financial futures, for the ability to save for retirement, to do all of the things that are that are needed. In those voters, some of some more of them voted for by then Trump this time. But they're on both sides. They're both Republicans and Democratic were breaking news along with FISER. Now add another vaccine to it, novavax, and their COVID

vaccine candidate. It gets f D a fast track designation. It seems to be a different stream of headlines and what we saw from Fiser. But nevertheless, there it is, and we see an immediate lift in the market SPX up a hundred and fifty nine points and the dial I can now go on thirty thousand, Watch in the down thousand, eight forty four. Daniel Upford, you and I have lived jump conditions. Is this a jump condition? Well, you know, here's a here's an interesting thing, Dow thirty thousand,

and they wrote a column on it. Um before the crisis, well before the crisis is very interesting because right now we're seeing industries get to a level of multiples that are of course historic, but also um are you know, really only forecast on a restoration of the status quo? Right? So the question is, let's going to happen after we recognize the fact that this crisis has pushed us off trend?

Uh And you know that will and in and of itself, be a big question mark for the equity markets going forward. There's also a question, Dan, of how the CFOs, the CEOs of the world plan their strategy around the world. That is influx. I mean that the number of headlines this morning, we can't over emphasize we came in thinking it was the election, and now it's very much the vaccine and possibly early next year we're gonna be talking

about fiscal support and maybe higher taxes for corporations. What's the main narrative you would tell corporate executives to pay attention to in terms of how to plan their strategy come the beginning of Yeah, aggregate demand. Aggregate demand. That's really the bottom line here. And you know, the jobs picture last week was very interesting what was announced on Friday.

We picked up nine hundred thousand private sector jobs, but six hundred thousand of those were low wage, lower jobs who people were being restored for their work um and then off remaining better quality. We lost a hundred thirty thousand state local jobs and of course all those census workers.

So the question is how does that translate into demanding the economy it You know, keep in mind that a lot of those workers returning to their low wage, low hour jobs are actually making less than they were on the federal unemployment benefit supplement um, and so that actually translate you have to actually look forward and calculate what this means in terms of restoration of aggregate demand. Because

that's what drives the business. And against that you have to look at the seven hundred fifty or eight hundred thousand weekly unemployment claims. There must be massive rotation going on of employer employees in and out of work in this economy. We won't know for several more weeks or months, but the at the end of the day, the only thing that's important is how much demand there is, how

much consumption there is in this economy. Well, when I a suite individual, the CEO, the CFO, the CEO will get around the table and talk about the labor market. The outlook for twenty one, demand, which you describe quite rightly, is the crucial issue here. As they anticipate demand. Do you think the vaccine news of this morning makes them a little bit more constructive about twenty one and maybe pushes them to hold off on additional firing and maybe

encourages them to do a little bit high ring. I think it's fabulous news. I think the faster the vaccine can be brought to bear, the better off everyone is. In terms of making forward projections. Um, you know there are certain sectors in this economy that are going to take a long time to come back hospitality, particularly obviously the restaurant industry and everybody else associated with leasuring hospitality sector.

You know, people are still going to be cautious. Companies, corporations are going to be very cautious about putting the people back on the road for travel, vacation. Travel is still going to be impacted. And of course I note the huge rally in airlines and cruise stocks and sorts of stuff, and that's natural, right, um. But but at the end of the day, you know this is going to play out over a long period of Time's going

to take a while to your people vaccinated. But this news today and hopefully more good news going forward, is going to be a huge uh impetus to to, as you say, hold off on additional uh expense control. I think that's the biggest challenge right now down for a lot of people. You look at the price action this morning, and of course we discount about the future. It looks like we might have a vaccine coming on the horizon.

Not there yet, but it's encouraging news. But in the here and now, COVID case is still north of a hundred thousand daily in the United States. Restrictions from Massachusetts than Utah and maybe New Jersey a little bit later. Today, Dan, how much damage do you think we could do between now and then then being that optimistic point that we

get that vaccine. I actually think you mapped it very very well, because what we need right now is we need sufficient relieve from Congress to ensure that we don't get a second real deep deep um, And there is everything You're actually right, there's everything out there that points

to a potential for another recessionary quarter. Um. However, with with some sanity we introduced to Washington after this election, and obviously the market rallying in part not just on the vaccine, but on the stability of perceives will come from uh, from from the Biden administration. Um. Not. You know a lot of people say that government that that markets are rallying on divided government. I don't really think that. I think I think markets are really rallying on stable government.

Um and uh. And I think the the belicocity from from folks in the Republican Party that was obviously naturally associated with an election season will subside and people do the right thing in terms of relief. So I'm hoping that what we need to do which is exactly what you're what you're going after here is we have a period of uncertainty and probably weakness because of the spike and COVID. Can we actually plug that gap? And I think the prospects now are probably better than they working

for Dan. Just to tie this all together, we have a lot more certainty with respect to what the administration may look like come the beginning of next year, as well as when we may have a vaccine. Given all of that, and given your background, your vast background with restructurings, have we avoided the bankruptcy cycle that many people had expected. I doubt that. I mean only in comparison with the Great Recession. Obviously there we had a lot of bailouts.

We had very very few bankruptcies relatively speaking. But look at the large sector, you know, big, big, big companies that have been forced to file and retail in other areas. I'm seeing more of that going forward. There's going to be uh, you know, significant impetus for restructure and hopefully, look the thing about the bankruptcy laws that you can restructure businesses and keep them alive and have them be

there when this is all behind us. And that's really The bottom line here is that we absolutely must make sure that employers are still they're able to employ people at the end of this crisis, or at least when the vaccine controls the virus um and and so if we you know that bankruptcy works very very well for large businesses that are capable of restructuring. My concern is

what are we doing with the SME sector. Were we're doing a small and medium sized businesses um that that really can't go into Chapter eleven uh, And I think that's going to require additional attention. As I wrote in a column a couple of weeks ago, bail ends, not bail outs, are probably the answer. Smart ohway smart, and tried to catch up with you this morning. Done out of that of Westwood Capital. Thank you. Thanks for listening

to the Bloomberg Saveillas 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