Get Me Out!

out there. Come up with some some more recent ones for you next time. But anyway, Mike, this week on the show, the last time our guests joined us on the podcast, we had this lengthy conversation about how could stocks be near record when the economic outlook was so uncertain? Sound familiar, Well that was actually last summer in two thousand and nineteen, and it's just a reminder that the stock market and the economy are not one and the same.

We've had this conversation many times over the last couple of weeks. But again he'll tackle the question, but in different circumstances, and as always, will close out the episode with the craziest thing I saw in markets this week. So if you saw something crazy, please do give us a call on the Bloomberg Podcast hotline at six four or six three two four three four nine. Oh, and leave us a voicemail with the craziest thing you saw in markets this weekend. Maybe we'll play your crazy thing

on the air. But Sarah, let's let's introduce that guest. Very happy to have him back. His name is Shawn Snyder. He's the head of investment strategy at City Personal Wealth Management. Sean, welcome to the show, Thank you, glad you back. Great, Um, and we got some notes, some talking points of yours uh this week. And I'm I'm fascinated with this notion, Um, that all that basically matters to a lot of investors

right now is the Fed's balance sheet. You point out that at least for part of the last Bowl market there was like a ninety I think it's a percent correlation between the size of the balance sheet and what the stock market did. Obviously, now the FED is expanding that balance sheet again aggressively. Is that really? Is that all that matters right now as far as the level

of the stock market. I mean, I'm looking at valuations, and here we are among the highest valuations we've had on a forward basis SMP about twenty five times earnings forward earnings, NASTAC one hundred, almost thirty times forward earnings. Probably that in the at least the top decile, maybe even higher than that of this century. But yet, as you point out, when the it is in stimulation mode,

um evaluations really even matter at this point. You know, you ask if the Federal Reserve stimulus is all that matters, and I think the answer is that it's not all that matters. You know, health data is now economic data. If you saw a second wave of a coronavirus, then obviously, uh, you know, just having that FED stimulus may not be enough to keep the market on its pace. So there are things that do matter outside of the FED stimulus,

without a doubt. But one things that I've referenced lately is how fast and how powerful the reaction has been in terms of stimulus. During the global financial crisis, it took the Federal Reserve almost six years to increase their balance sheet by three trillion dollars. We've done that in just three months. UM, So it hasn't been exactly one trillion dollar every month. It's been a little bit less, a little bit more, but it's about one trillion dollars

each month UM. So far balance sheets at about seven trillion now projected to go to maybe nine trillion in the next few months, and that made me moderate. But just the sheer speed at which they operated this time around UM I think does volumes for the speed at which the stock markets recovered. It's not the only thing that matters, but it is really important. Speed has really been unbelievable. You kind of mapped out the speed of

balance sheet growth, but there's a statistic. We just had the fastest fifty day rally for the SMP fire ever. I mean, pretty unbelievable when you think about that. The SMP now up roughly or so off the bottom. We actually got a question on Twitter for you, Sean um from a listener at tweet view or nine, so I wanted to ask the question for him. He said, one, when and if FED support will ever be removed? So

will FED support ever actually be removed? And what is the downside if this support actually just goes on indefinitely and they can't remove it. I think the most important thing is what happens to the unemployment rate, And right now you're seeing an unemployment rate that's headed towards the highest level we've seen in decades, and one of the mandates of the Federal Reserve is to have full employment

in the country. So I think the notion that they're going to back off of stimulus will start to normalize it anytime soon is probably not accurate. Even if COVID nineteen is come and gone and we're past the worst of it, which I'm not necessarily confident about um. But if you still have high levels of unemployment, I think there's still going to continue to have that policy backstop. What is the downside if they remove it? It depends

on the economic environment we're in. We did see them start to remove it two thousand seventeen and two thousand and eighteen in the market climbed higher, but it was in this case it was on the back of fiscal stimulus from Congress, So it really depends on what the environment looks like. Then, if we're at the end of one and the economy is booming because it's so much pent up demand and so much stimulus, well well done. Shot. You know, whatever someone preps is a question with I've

got a question for you from someone on Twitter. I mean, that's reason to get nervous right there. So I uh, I think i'd be sweating a little bit. This is a question like that. You all know where that one's gonna go. Next week? Uh, this upcoming week the FED

will meet uh for the regular meeting. We did have, uh, some comments from William Dudley, the former head of the New York FED, talking about those old boogeyman words moral hazard, you know, worrying that the FED is incentivizing excessive risk taking with its latest measures. Now, obviously, I I think, as you pointed out, the FED has the mandate to keep unemployment low and to keep inflation stable and you know,

relatively near that that two percent target. I wonder though, if they will at least try to try to talk the market out of this this sort of phase of exuberance, sort of the way Dudley did bringing up that moral hazard that sort of thing. Could could you see that type of scenario where you know, the FED maybe someone uses that irrational exuberant or or or or sort of warns about the risk of getting too aggressive in your

investments at this time of of a cycle. Normally they try to stay away from making commentsary about the stock market. I have seen a few comments over the last few months where they did make reference to the equity markets, which is a bit unusual. I don't think that they're going to back away or talk down stimulus in the current environment with so much uncertainty right now, Um, what does it mean for risk assets? What does it mean

for valuations? I do think you could get to a point where the valuations become so stretched that they do start to warn about, uh, you know, risk assets being in a bubble, like we have heard that before. But I think we're ways away from that. Staying on the stimulus theme, but kind of shifting over to Washington and fiscal stimulus. I mean, I I know that the unemployment boost of the Cares Act is supposed to kind of

fall off and expire at the end of July. There's talk of more stimulus in Washington, d C. But it makes me wonder. I mean, we look at the Nasdaq this past week putting in a record high. We know that this administration does like to look at the stock market quite often and almost use it as a barometer of success sometimes of policy. We saw it with the US China trade war in a way when all of a sudden, when the stock market would go back up, maybe they would get a little bit more aggressive with

their tactics. I mean, do you do you think it's possible at all, though, that what we're seeing happen in the stock market could at least bring down the urgency of further stimulus measures to help the economy and there by the stock market. Albeit they're not in the same but still it almost makes you feel if you're only looking at the stock market, like there isn't this urgency for more help. And understand that theory, but I do want to make a couple of points that I think

go against that notion. Uh this the impact of COVID nineteen has been felt very unevenly across the demographics in the United States that Fetcher Powell made reference to. At one point that of households with income under forty thousand had lost jobs. If you look at the unemployment rate divided by education, the unemployment rate for those of the

bachelor's degree to higher is eight point five percent. The unemployment rate for someone with a high school degree or lower is closer to so really really big divide on how it's impacted Americans. So, even though the stock market seems to be doing well, if you're working remotely and you have that ability, which is maybe say thirty percent of the US population, you probably feel okay because it's getting sunny out and it feels like the health data

has gotten better. But for a lot of people, there's a lot of uncertainty about will they be able to return to a job. And don't think we knew that answer yet. So I hope that they keep that in mind when they think about the stimulus, and I think they'll go through with more. I'm not sure what the number will be. I've heard three trillion, I've heard one trillion. But I think they'll do it again based on that premise.

Show on another interesting point you've made in your notes here is uh you talk about as the economy reopens, investors are kind of rotating out of those stay at home stocks you know, your your social networks, your zoom, uh, that sort of thing, and into what you call get me out stocks, which I like that that. I like that everyone else is calling them reopening stocks, but no,

they're get me out there, get me out. I think I think we can all sympathize with that feeling of get get me out of here, Sarah there in her parents house in Florida. Although you seem to have a very happy domestic life with with the folks down in Florida. Look, I'm not I'm not complaining. A lot of people have it much worse than I do right now, so I'll I'll handle any annoyances that I have to do very well right now. I think your dad probably listens to

the show, so you can't. You can't criticize the home life too much. I guess right, no, not right now, just in private, not publicly over the airwaves. But anyway, Sean, you talk about you say you still think it makes sense to get in the companies that are sort of the future of of America. Look us through kind of what you mean by that, because I think that is I think that's a wise call. Sure. So, initially the concept was the core of America and the future of America.

And what I meant was the core of America was like food and staples, retailing, um, you know, the basics of the world that we all need to survive. Right. We saw a huge surgeon demand for toilet paper. That's an example of something we all needed at one point. That's kind of the core the future of America. And I think it's always been this way, but it's been

accelerated by COVID nineteen. UH is rise in demand for cloud computing, UM, tele medicine, UH in this case because of COVID nineteen, thermal imaging so that you can check temperatures. Those things have really done well, including in home entertainment, the more popular names that we tend to think about, they actually have positive returns year to date, whereas the

get me out stocks are still quite depressed, but they're improving. UH. And there's several data points that I can walk through if you'd like, that point towards Americans actually getting out of their house. UH. There's several things that t s A is reported for seven consecutive weeks. The number of flyers are picking up, still quite depressed, but you know, we saw a large airline announced today that they're actually

adding flights according to routing requests for directions. More people are driving, and if you look at open table data, and more people are dining. UH, not just in the US, but also in Germany and other countries, and they're reduced capacities, but in many cases are actually hitting those reduced capacities.

Do you think that what you see in that data, this like high frequency data that shows people getting out and about finally leaving their homes, does it show enough pent up demand almost to justify this run that we've seen in the markets. I mean, something that was really interesting about this past week was not just that we saw continuation in the stock market rally, but it almost seemed as though we started to see the bond market

giving as well. I mean, we saw a nice shoot up in bond yields almost this capitulation what you look at in the data of this reopening, does it actually justify this right now? Possibly, but we don't know yet. We don't know yet. So it's what you would call it if you're an economicy called green shoots. Right, there's signs of recovery. You know, there are going to be people that need to fly on a plane because they went and moved in with their parents in Florida and

they need to get back to New York. I drove, but I would be requesting Apple maps direct. Yeah, those are the people that might be flying my that could be some of that, but I would say something that supports it more than just those things I mentioned earlier is continuing claims, which is a component of the unemployment insurance claims we see each week on Thursdays. UH, continuing claims look like they have peaked and they're starting to calm down. That means people are going back to work.

And traditionally, when you see a decline in continuing claims, that tends to kind of happen around the time when the economy bottles and starts to recover. So it's not it's not just these anecdotal things about people going out of their house. It's also labor market data. So I think it's real, but it's really early sean. Obviously. The other big news in the past week or so has been this uh massive civil unrest with you know, protests

and looting and riots across the country. I was a bit surprised that we didn't see a little bit of a risk off reaction to that. I mean, I guess I guess you shouldn't be. If you go back in history and look at the sixties riots and that sort of thing, it never seemed to put much of a

in the market. But I'm wondering if these events are influencing your thinking at all about the economy, about markets, and specifically we're kind of all waiting for this next batch of fiscal stimulus from the government, and whether this could kind of maybe reshape what that looks like. A little bit less help for the corporation, is a little bit more help for the individuals, perhaps you know, something to to try to sort of soothe the masses here.

Um is that you know, is is this working its way into your your thought process at all when you try to figure out where the market's going next? It is? It is? And and I'll get to my point in a second. I mean, I think has been a difficult year for many people, for us to be at COVID nineteen. You know, now we have the protests acrostination, and you know, I think at this time we'd all probably benefit from

being kinded in one another mower form. That is, so I hope that's, you know, the way we had with things. My primary thinking about the protests, aside from you know, the stuff we all feel strongly about, is what does it mean for the coronavirus? We saw very large Memorial Day celebrations in the United States and certain regions, and now we're seeing very large protests in very emergent, major urban areas. Um, if there's gonna be a second wave, that seems like a time perfect catalyst to me. I'm

not saying that's going to happen. I'm not an epidemiologist. I have no idea as a strategist. I have to say I'm not an epidemiologist because everyone says that clearly I am not. I don't know. Maybe it hates sunshine, and sunshine kills it great. But if there's any catalyst, uh, this seems like an obvious one to me. But you're not gonna know for a while. It's gonna take time for that to spread. If you look at China, they actually re entered a lockdown again and it was about

a month later. So you know, maybe the market will care and maybe there will be some market impact from these protests through that form, do you get the sense at all through listening to communication maybe from from government officials and also taught medical officials that we've been hearing from that if there were to be a second wave, that we will see a lockdown reminiscent of what we have all been going through and facing over the last couple of months. I mean, I've been thinking about this.

We all think, Okay, if we get a second way, there's no question that we have to shut down again. But is that true? I mean, is that what we already saw the destruction that can cost to the economy, Like, when you think about it from a strategist point of view, do you think that's something we'd have to deal with again. This question comes from Sarah's dad, who's wondering if you should build a new wing on the house or not

that right? Oh, that's from my mom who keeps complaining that we need a larger house because there's too many of us and the other the other siblings are supposedly going to show up as well, so everyone needs now just build a wing. Right. So, I actually think the odds of a second shutdown nationwide at least are relatively low. And there's a few reasons I think that. One, I think that we've lost some of the political will to

do so. Um, people have seen high rates of unemployment, and at some point, if you're on a balance and on each side there's the economic damage or the human damage, it starts to tilt the other way, and I think that's what we've seen. Uh. The other thing I think that's important is shutting down the system and flattening the curve is not only designed to save life, but it's designed to keep the health care system from being overwhelmed. Now we don't have a vaccine yet, we do maybe

have some treatments. If those treatments are effective in getting patients out of the hospital quicker, so instead of fifteen days, they're out in eleven days. Even though that might seem minor, that reduces the burden on the health care system and maybe lowers the odds that we have to lock down and and and to me, reduces the odds of a W shaped recession. Back to that letter what what is the letter shape? Uh? You know, My thinking is that

they can't we can't do the lockdowns again. The lockdowns are over, not because the virus is going away, but because it's not going away, and we simply cannot just stay locked down forever. We have to sort of, um, put the masks on and and try to get back to some semblance of life. I'm wondering if that sort of goes into your thinking about everyone's favorite letter shape of this recovery you called a a V, but a lazy V, meaning that that recovery is not quite as

sharp as the decline at the beginning. UM, but it is perhaps if I'm if I'm interpreting the lazy V correctly, it is kind of a slow and steady uh grind higher and recovery without sort of another nasty dip, sort of a double dip before we're all the way back to the play as we started at right, So some people would call it a squosh. I just think lazy

be kind of is an easy way to interpret for me. Ironically, I actually think, you know, you make that a hand symbol when you're at a restaurant for the check and you kind of do a little dip down and a longer thing. That's kind of what it looks like to make, which is, you know, kind of ironic. In the current environment, I think that a lot of the forecasts are probably you know, I see more and more economists sort of focusing in on that's the shape, what it looks like,

and I don't disagree. I think you will see a rebound in some areas quicker uh and if you have manufacturing or automation, or you have simplely the social distance that enables you to reopen, they're gonna do. So there's gonna be pent up demand. Uh. If you're in industries like restaurants, it's less clear. Again, pretty positive news on people going back to restaurants, but if you do see a second way if then it could be very difficult slog for them. So I think it's gonna be a

long recovery in some sectors. You know, if we think in New York City, I believe about a hundred and eighty thousand of two hundred and seventy four thousand food and beverage workers lost their jobs. About are they all going to have a job to go back to because they reopened outdoor dining? I doubt it. Uh, And those people are going to be misplaced and it's going to take time to find a new role for them. It really is striking and their questions that none of us

know the answers too yet. But Sean, I have to give it to you for the creative descriptions the lazy V get me out stocks. I mean, we hear similar, similar descriptions often, but those are two new ones. So it's it's refreshing to hear I was sitting at home, locked into quarantine when I was just randomly thinking up weird terms. You really need to come up with an acronym to make it in this business, No Sewan, you know, fanger or bricks or something. Do you get working on that?

They will sean how important is the energy market UM in terms of what this recovery looks like, what the stock market sort of reacts to UM and and walk us through you're thinking on sort of the the geo politics between OPEC and the US and and the sort of global politics of energy production. Well, we have OPEC meeting coming up. UH. There is Saudi Arabia, of course, and then there's Russia, and they seem to have very

different opinions on what they want to do. They implemented pretty deep production cuts that were supposed to last through Midsummer about temper cent of global capacity or output. UH. Saudi Radio wants to keep those cuts in place longer UH and Russia wants to return to more regular production levels. So it's definitely gonna be a little bit of a battle between the two of them. We've seen that before. UM not that long ago, several months ago where oil

prices crashed because the two can come to agreement. So I think is gonna be volatility in that arena or commodity. That said, I do think it is helpful that people are driving more. Uh. If you look at China, for example, the number of auto sales actually rebounded pretty strongly after UM they dealt with the lockdown of COVID nineteen because people didn't want to take public transit. I suspect. I

suspect you'll see the same thing here in the United States. UM. If you look at the Apple Maps routing requests for I mentioned driving directions earlier, but they also have public transit requests and walking and public transit is flatlined. Hasn't changed at all. People do not want to return to public transit. And that's not just true in the United States. That's also you can look at the data in China, UM, other Asia countries that have maybe dealt a little bit.

I don't know if I shouldn't say necessarily better, but differently, Uh, same thing. So I think there will be higher demand, least from the driving side. It's it's fascinating the metrics that suddenly become important like Apple Apple map requests. You know it's It is absolutely fascinating and one one of the side effects of this virus will be we will now rely on high frequency data to determine when recoveries. O car. We're not gonna wait for GDP. Third quarter

GDP is in September. It seems a million miles away. Yeah, this new world we're living in, well in a lot of this data actually wasn't available before the crisis. This healthcare crisis actually made a lot of these private companies open up their private data that probably wouldn't have happened without COVID nineteen. So, Michael, we were listening to Sean speak about the oil market. I had this transition queued up, so let me know how, let me know how I

do here. So we have higher higher demand, likely we still have a potential for for muted supply going forward. So it's very unlikely that the oil market's gonna get anywhere near as crazy as it was in recent history. Not bet. I'll give you a be on that transition. I'll take. I'll take. Are you know I'm a harsh trader though, so I know, I know, honestly, I don't even know if I would have given me a beat. Well, in that case, you started off, what's the craziest thing

you saw this week? Something that I found not just crazy but interesting this week? Uh comes to the I p O market, Uh, when it comes to stock. So, Warner Music Group went public on Wednesday with an I p O price of about twenty five dollars to share. Twenty five dollars to share, that was the I p O price. Well, in this market, it surged on the first day two over thirty dollars to share. And sure this could represent opinions of investors on on what's going

on in the music industry. But I think it's very telling and also just a little bit crazy that seeing everything going on the world, what we just saw with such a steep and tremendous market collapse, that the I p O market, at least when it comes to Warner Music Group is thriving. That's pretty surprising given the you know, everyone has sort of left the music business for dead there. But I guess your Spotify and you're streaming, it's starting

starting to add up. That's pretty good. I like that one. Sean had to give me An a minus on that one. Okay, okay, that's better than the transition. Bringing that g p A up. That's what we want here, Sean. How about you? Have you seen anything crazy in markets this week? Oh, there's a lot of crazy stuff going on. But I think one of the data points I recently saw, which is something I would have never thought about, was box office

receipts for movies. Uh at below they hit just five thousand dollars in sales for box office receipts in the lockdown. It is now proudly back up to about three. So the five thousand was was drive ins, which I don't even know existed anymore, but they're apparently they're in hot demand now, big demand. Oh so like some rich guy got a movie for his own private home theater or something like that. Right, so maybe Kim Young Muton is

making up for all. I'm pretty sure that in Queens they they hosted a drive in, So maybe maybe that, oh, drive ins five thousand dollars, I'm pretty sure. Here in Florida, I'm not doing anything. I haven't left the house in a while, but um mute movie theaters are opening up pretty soon. Pretty crazy. I mean, it's as someone who lives in New York City or near New York City, it's hard to imagine go into a movie theater. But I guess not true for other parts of the country. Yeah,

those are both pretty good. Um Now, I'll give you the winning craziest thing of the week. I'm just I'm just kidding. I'm not gonna I'm not gonna word myself to the win anymore. I'll allow you toward me the win after this, Uh sir, But were when you deserve it, we get it. This is actually something that happened in the nineteen eighties. But it's the craziest thing I read at least this week, so it's still counts. I'll allow it.

But great, great Matt Levine Money Stuff newsletter on Thursday, and it's all about the this price fixing scandal in the chicken industry, and he goes into detail about how chicken prices are set. It's it's really kind of fascinating that there is there are like chicken price indexes, right, and then a supplier and a buyer will make a deal for say the index plus ten cents a pound or something like that, and he makes a comparison to library.

You know, it's it's basically the same thing. Because you ask a chicken supplier what their prices, you know they're they're probably gonna give you a pretty generous high price. Not generous, but you know, obviously there's there's skepticism towards these indexes. That's not a crazy part. He goes on a tangent and talks about Ray Dalio, the founder of Bridgewater UM, one of the obviously one of the biggest hedge funds in the world, one of the most famous

investors in the world. And here's where it gets crazy, Sarah, I kind of heard of this before, but I never really understood all the details. Do you understand the role Ray Dahio played in the Chicken McNugget? I have no idea. Have you heard about this so apparently about this san So it's it's fascinating. So, you know, Daio started off as a basically commodities focused I think he traded credit and stuff like that too, but he was very deep in the commodities and UM. He became well known for

his observations, his daily observations research report. Obviously Bridgewater still very well known for that UM and one of his customers in the eighties was McDonald's. Now McDonald's decided they wanted to come out with the chicken McNugget, but they were worried that they'd be buying chicken in such large scale that they would single handedly raise the price of chickens.

Right and there was right low. Uh yeah, I guess so you know, the FED would off the step step in and I don't know, hatch chicken eggs or something. But so the problem was there was no chicken futures contract that they could hedge with. So Dahlio figured out, basically, well, the price of a chicken is basically uh derived from the price of the corn and the soy meal that

the swy being food that you feed it. So he came up with a futures contract that was basically based on the price of corn and soy meal, which allowed McDonald's to hedge their chicken costs by buying that this the synthetic derivative of soy and uh and um corn meal.

And that was what apparently UH allowed McDonald's the confidence to go and start selling the chicken McNugget because they were worried again about driving those chicken prices up and having to either then immediately raised prices or just eat it on the margin. Um. So bottom line, I know I'll to tell my kids this at dinner time because they're big fans of the McNugget. That they can thank at least in part, Ray Dalio for the chicken McNugget.

That is pretty unbelievable. Mike. I'll give it to you because it was a story from the eighties. Tamps it down a little bit, but it's good enough that I'll give you the w Chicken price fixing. I was like, okay, anyway, well yeah, that's so. That's that's a whole secretary. And it's interesting. I check out Matt Levine's column from this Thursday, June fourth, and it it talks all about the chicken price fixing scandals. Basically anti trust. You know, different suppliers.

We're going back and forth and saying, hey, let's set the price here and see what you can do. Um, but fascinating column by Matt. From a chicken pricing to I p o S Two box office tickets. We we have quite the roundup this week. Sean Snyder, we really appreciate you coming on the show. I hope to see you guys in person, saying hopefully thanks Sean, What Goes Up. We'll be back next week. Until then, you can find us on the Bloomberg Terminal, website and app, or wherever

you get your podcasts. We'd love it if you took the time to rate, interview the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter, follow me at at Sarah Pontzack, Mike is at Reaganonymous, and you can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by Jordan's Gospore and the head of Bloomberg podcast is Francesca Leivie. Thanks for listening, See you next time. Wh