Daily Briefing – May 18, 2020

Published on
May 18th, 2020
Duration
27 minutes


Daily Briefing – May 18, 2020

Daily Briefing ·
Featuring Jack Farley, Ash Bennington, and Ed Harrison

Published on: May 18th, 2020 • Duration: 27 minutes

Real Vision Senior Editor Ash Bennington hosts Managing Editor Ed Harrison to make sense of a roaring day on Wall Street. They analyze the extreme bullishness in today's session through the lens of Fed Chair Powell's remarks, and discuss yield divergences in European sovereigns, as well as the valuation of European banks. In the intro, Jack Farley takes a look at recent 13F filings.

Comments

Transcript

  • NB
    Nidhi B.
    20 May 2020 @ 03:36
    We want more Jack!!!!!
    • DR
      Derrick R.
      20 May 2020 @ 13:58
      It is a joy to watch Jack's commentary. He's very engaging and entertaining!
  • IY
    Ilto Y.
    18 May 2020 @ 23:42
    I think you guys totally missed that the real reason for the rally today was the vaccine trial, not at all any of the other reasons you mentioned. Stock markets in Europe opened up negative, Gold was on the surge, long-dated gov bonds yield were going down. But as soon as the vaccine trial news came out markets turned almost immediately. Hence, I also think you should Have given more thought to the actual news around the vaccine trials. It really sounds like a game changer. And all of this if coming someone like me that is all-in on gold / risk-off assets. Have a thorough read: https://www.ft.com/content/63ba718d-98e5-4873-aa1d-9f6fd912d8df?shareType=nongift
    • EH
      Edward H. | Real Vision
      19 May 2020 @ 00:30
      We know the trial made a big difference after the European open. I mentioned bank stocks trading at the lowest level on price to book this morning for that reason.
    • CY
      C Y.
      19 May 2020 @ 01:47
      Ed.. well, the point you were making with that banks PB ratio comment was their potential asset impairment issue down the line. I completely agree with Ilto's observation. I have been a fan of the show but today's briefing has missed the mark. Granted that's a small trial, and I'm approaching the vaccine optimism with caution. That said, the dominating narrative that drove risk on today was a valid vaccine "hope" and Powell's pledge to keep businesses out of "insolvency". Both are material enough to challenge our charted 3-phrase roadmap. As such, thoughtful investors should be at least open minded enough to entertain what those surprises could mean to the portfolio. To this bear, today's move was by no means driven by momentum.
    • DS
      David S.
      19 May 2020 @ 05:15
      Time will tell who missed the mark. A knee jerk reaction to a possible vaccine should not drive the market up about 4%. There is many a slip between the cup and the lip. When a bank is selling its Blackrock position, the algos are looking at the wrong news. The algos will make money with knee jerk reactions. If you follow the algos you may not. DLS
    • RS
      Riki S.
      19 May 2020 @ 06:01
      To give some perspective on the vaccine. - Its Phase I or three phases. - Phase II and III usually takes years and 1000's of patient trials. This will be faster but still multiple months. - Phase II is to check dosage, toxicity, safety. - Phase III is to check efficacy - Not in the Donald Trump sort of way. - FDA sign off is months, but expect it to be fast tracked if the above is passed. - Manufacturing volume and distribution will take months to be effective to the mass population. - Vaccines are only partially effective and so a % of the population will still develop serious complications (ARDS). - The virus will mutate, although this one's mutation lifecycle appears to be slower than typical. - Anitbodies wear off in the human body. In summary, if this gets through some fairly significant hurdles, will be many months away from effective enough to allow economies to recover without significant risks. The market has got well ahead of itself and definitely living on hope.
    • IY
      Ilto Y.
      19 May 2020 @ 07:14
      Riki S., that all might be true but what is key here is that based on this initial test the vaccine seems to somewhat work - it may even lead to longer immunities than usual vaccine due to the new technology that it is utilized (subjects had significantly more antibodies than actual infected and recovered people). Even if this vaccine only ends up somewhat working it will be extremely useful to milden the impact on people. As mentioned in the article and by the company, it has lined out a clear path to getting fully approved and being wrapped up by the end of this year. Production and distribution would probably happen then beginning of next year. Apart from all these points, just the mere fact that one of the first vaccine trials leads to these fairly positive results, lets one think the development of a vaccine will not be an impossible task (at all). My personal view was, prior to this, the vaccine may take years and years until it is distributed (record is 4 years) or may never come out (there are numerous diseases that do not have one as we know: SARS, HIV, Malaria, etc). However, these news challenge these views strongly and I am getting open to adjust my portfolio accordingly. I believe it is very important to stay open-minded because as Howard Marks has lined out in his latest memo again we are biased to information that supports our own bias/view and as all value investors, even Ray Dalio, praise to remain open-minded at all times. Be ready to change/adjust views if there is strong evidence for it.
    • JD
      Jason D.
      19 May 2020 @ 09:46
      Emotionally the market and culture at large is starved of good news. But to keep this in perspective it was an 8 patient trial.
    • RS
      Riki S.
      20 May 2020 @ 00:09
      @Ilto Yes, an open mind is very useful and in particular with respect to finding solutions to a problem that impacts humanity on multiple levels. That said, the vast majority of many initial results of vaccines over many decades have proven to show potential, only to fail in Phase II and III - the burden of proof is high for a reason. The point I was making is specifically one of timing and in particular the added acute pressure to open the economy because of the election cycle, how this dovetails (or not) into vaccine availability based on my initial post points, and risk to the population and subsequent significant risk associated with additional shutdowns, monetary and fiscal support, the human psychological impacts, etc. There's definitely opporunities asset wise to invest in biotech, but you'd better know the risks associated with development timelines, approvals, competition, management, perspectives - every man and his dog in on a float. As Jason D noted, 8 patients is borderline a non event, but the market has apparently been driven significantly higher disproportionately on the news. There are additonal technical reasons, above the fundamental risk/reward equation, suggesting this all has an elevated level of risk, because the rise is based on sentiment and not the real immediate future economy.
  • wj
    wiktor j.
    19 May 2020 @ 20:49
    What politicians want to do is not always legal. Lets see what the German high courts do. The last comment from them was that EU are not the rulers of the universe and they also must abide German law. I am still short the Euro. I don’t play hopes of 2 politicians. Lets not forget the Italians are burning the EU flag!
  • SK
    Shiu K.
    18 May 2020 @ 22:40
    A chart of the 5 Year which Raoul always cites is no looking like negative interest rates are coming....
    • MD
      Mike D.
      19 May 2020 @ 18:40
      True, and it's just a little anxiety inducing for those of us who are in the related trade. @Raoul P, can we get an update on strategy please? Do you advise rolling forward, selling out to preserve capital, or hanging on to this trade until June 26 expiry in hopes of a more favorable trend? Thanks,
  • WM
    William M.
    19 May 2020 @ 00:07
    great stuff on banks and Buffett, Jack!
    • JF
      Jack F. | Real Vision
      19 May 2020 @ 01:06
      Thanks William! You want to really go down a rabbit hole, look at M&A activity of investment banks. One reason why Buffett may be opting for the consumer route - no deals
    • VB
      Vikram B.
      19 May 2020 @ 16:40
      @Jack surely the lack of M&A activity will change as there is a lot of distress? The M&A activity must currently be on pause because people are looking for direction but one way or the other, the market will require consolidation, asset sales, restructuring - all activity for investment banks?
  • MD
    Mike D.
    19 May 2020 @ 16:16
    I greatly appreciate Ed Harrison's rebuke of the closed minds -- on either side of the political divide -- who insist on parroting their favorite media outlets' talking points in this forum, while concurrently disparaging tremendously accomplished and respect-worthy guests. I expect RealVision to deliver a wide range of insights and opinions regardless of political affinity. Every truly thoughtful person I've ever encountered wanted to hear fresh thoughts from other thoughtful people, and not simply ideas which confirm existing leanings. RealVision does this extremely well. A suggestion: It would not be easy, but if partisanship continues to be a distraction in comment streams RealVision may wish to think about a policy encouraging discussion on macro and investment topics, while discouraging or disallowing political rants and ad hominem attacks. There's a place for those rants elsewhere. Discussion thread moderation can be useful in keeping conversations on topic.
  • DS
    David S.
    19 May 2020 @ 04:42
    The Coronavirus Euro bond proposal is a red herring. France, Italy, Spain, Greece, Portugal, each could instantly use 500 billion Euro loans and still be in a big hole. We have European politicians who love the Euro idea and have worked most of their careers to promote it. The fact remains that Germany will not back the bonds. What interest rate will be required for a bond that is simply backed by the full faith and credit of Brussels? I would not expect the principal to be paid back. DLS
    • PC
      Paul C.
      19 May 2020 @ 06:17
      At some point, the German people have got to wake up and say, enough of this WW2 monkey on our back, we are not going to sell the financial future of the country down the river any longer.
    • DS
      David S.
      19 May 2020 @ 16:15
      Paul C. - The Euro folks with the money probably do not have enough money to bail out everyone even if they wanted to. Even if they did, the amount of money would continue to expand. Other people’s money is easy to spend. That is why I would like to see some RVTV content on how and the effects of a possible breakup of the Euro. Who currently owns the bonds? How much did they really pay for them? Many Euroland bonds were on bank balance sheets. Where are these bonds now? Are they on the sovereign balance sheets - purchased to save their own banks? Did the sovereigns push all the bonds onto the ECB in case of default? If the ECB defaults, what happens? If the Euro were dissolved would this stop private depositors being forced to bail out insolvent banks? Would it be better to postpone it until the COVID-19 crisis passes by issuing a lot more ECB bonds? What happened by the creation of Euroland is the exporting countries had a lower currency so they could export. Many other countries had their interest rates radically lowered with ECB backing. They borrowed all kinds of money to keep their economies going at low interest rates. A Euroland win/win until the balance is exceeded. No one would have loaned all debtor countries so much money without the ECB behind them. Then it became the ECB who had to buy up all the bonds because no one else would. In a little over 20 years, this political idea may have run its course. In the meantime, the exporting engines of the Euro are in recession and the borrowing economies are in desperate need for much more COVID-19 borrowing. There is nothing brilliant here. At some point common sense will have to come into play like any bankruptcy - liabilities vastly in excess of assets. China at least is a sovereign and can print money. The US is a sovereign and is printing money like the Sorcerer’s Apprentice. Euroland does not have a sovereign. Do bureaucrats make a sovereign? DLS
  • DS
    David S.
    19 May 2020 @ 14:25
    If you want grade A genuine insight into the future of the markets, have Raul interview Jack. DCS
  • ZY
    ZHENG Y.
    19 May 2020 @ 13:07
    Pls bring Prof. Richard Werner for interview...
    • EH
      Edward H. | Real Vision
      19 May 2020 @ 13:11
      Done! Hugh Hendry has interviewed him. It's coming soon. Watch for it.
  • PJ
    Peter J.
    19 May 2020 @ 12:42
    Great contribution from Ash and Ed, I find these daily calls invaluable. Cheers.
  • mf
    massimo f.
    18 May 2020 @ 23:52
    Gotta agree with ed, his political affiliation shouldnt matter Novogratz made great points. Like ed said getting all huffy because of who someone likes caused a lot of people to completely miss the point of what he was saying. When it comes to the financial world your emotions should be sidelined.
    • JC
      John C.
      19 May 2020 @ 11:16
      Novogratz was at times very coy and disingenous about about the way he framed up his arguments and dressed up many of them with obvious mainstream leftist political undertones. For example, he casually mentioned how polarized the country is and implied that Trump has caused this. When one would have to be deaf, dumb and blind not to notice how the leftist mainstream media, led by CNN & MSNBC, and supported by NBC, ABC, CBS, NY Times, Wash Post etc. all have been so vehemently anti-Trump that that quite literally support the opposite side of whatever he says or does just to create opposition and drama. Or just to support the Democratic position at the time. There were countless other examples of this during the interview. I enjoyed the interview, but at times it got a bit too political. If Novo's political views were something new and refreshing and a counter-narrative to the mainstream media messages we get 24/7 it might be more enlightening, but we can hear those tired old themes all day long. I tune in to RV for differning opinions. In any case, Novo is gonna be Novo so Raoul did a good job of moderating and staying on track.
  • PA
    Paul A.
    18 May 2020 @ 23:55
    Couldn't agree more on EU analysis. One comment: the Swedes don't play a role in this. They're not part of the Eurozone. The point is valid about the Dutch, though.
    • JC
      John C.
      19 May 2020 @ 11:06
      To clarify, Sweden is part of the EU but do not use the Euro as their currency.
  • RK
    Ray K.
    19 May 2020 @ 09:07
    Why does Ash does a second intro every time? Hilarious. It's like he undermines Jack's excellent intros.
  • jR
    james R.
    18 May 2020 @ 22:19
    Save us the lectures Ed. What viewers took exception to is Novogratz declaring the Biden victory a fait accompli. I'm not sure why you would be surprised that such a baseless and untestable assumption would evoke a lively response from even apolitical viewers.
    • pd
      peter d.
      18 May 2020 @ 23:06
      it reminds me of 2016 where most people were stridently dec;laring hillary the winner. for biden to win he has to appear competant and not senile. im in the uk and i dont see biden as those things. if biden does a terrible gaffe on live tv shortly before the election shurely he will lose? who knows? best wishes to everyone
    • jR
      james R.
      18 May 2020 @ 23:22
      spot on! and Hillary was a far more viable candidate than Biden
    • ab
      alfred b.
      19 May 2020 @ 09:05
      What appears incontestable is that it will be one of two incompetents.
  • JB
    Jose B.
    19 May 2020 @ 08:22
    RWAs can be weighted way above 100%. Every equity stake that a bank holds on its books weighs typically above 500%
  • AS
    Ash S.
    19 May 2020 @ 08:03
    Excellent intro from Jack.
  • UJ
    Ulf J.
    19 May 2020 @ 06:58
    Rising stock-market in this environment what can possible go wrong. I think a rising stock market is telling you that there is trouble ahead, My understanding is that the stock market always rallies before reality kicks in. The rising stock market was also a reality in Venezuela, Zimbabwe. Fixed-income assets and bonds might not be attractive anymore and the money finds it’s way to the stock market. just my thought I am no expert. In Zimbabwe, For example, farmers who accessed quasi-fiscal funds from RBZ, through commercial banks, rationally opted to invest the money at ZSE first, than to do farming. Ed is right to listen to what people say is important
  • II
    IDA I.
    19 May 2020 @ 06:45
    If they go ahead with fiscal consolidation, it's certainly bullish for Spain and Italy, but could it be bearish for the DAX? you are currently discounting cash flows at a negative yield, if the cost will weigh on Germany it could be bullish on one hand because the Euro area comes out stronger, but Germany would have a positive yield on bonds, could you both give us your take on this? I would say relatively bearish
  • Ja
    Jillian a.
    18 May 2020 @ 23:18
    Buffett bought the airlines at the peak and sold at bottom. Completely opposite of traditional Buffett positioning. Perhaps his day has passed.
    • DS
      David S.
      19 May 2020 @ 05:23
      The important point here is Mr. Buffett did not like the airline business. He probably relented and bought against his own convictions. Then when the airline stocks fell, he bailed. This hopefully will help a lot of other investors. DLS
  • CN
    Charles N.
    18 May 2020 @ 22:50
    So very glad that you (Ed and Ash) underlined the point "Listen to what they say, not what their political beliefs may be." ....as well as the subtext of RealVision's mission to help us build the framework for thinking for ourselves, making our own decisions. It's called Education for Pete's sake! If I may, a thought from the past In around 1912, John Alexander Smith, a professor of Moral Philosophy at Oxford addressed the students in his course to the effect that what they were about to study would have little utilitarian application to the works-and-days, getting-and-spending lives they would lead once they went down from the university. “Save only this,” he told them, “that if you work hard and diligently, at the end of this course you will have a good idea of when another man is speaking rot, and that, in my opinion, is the main if not the sole purpose of education.” Thank you, Ed, Ash and all the RV crew.
    • AB
      Ash B. | Real Vision
      18 May 2020 @ 23:05
      Thanks, Charles. It's a great quote.
    • DS
      David S.
      19 May 2020 @ 05:20
      Charles N. I- Great story and loved the quote. I will borrow it often. DLS
  • OA
    Obai A.
    19 May 2020 @ 05:14
    All good here but I thought the possibility of quicker vaccine was neglected in the past and what are the consequences of that on the market and the whole economy recovery.
  • DS
    David S.
    19 May 2020 @ 04:54
    Excellent discussion Mr. Bennington and Mr. Harrison. Interesting times. DLS
  • DS
    David S.
    19 May 2020 @ 04:41
    Excellent introduction. Very interesting about Buffet. I hope that the world opens well, there is a vaccine, there are better treatment protocols, etc. As they say hope is not a strategy. I am in the Buffet camp for now. I think everyone else is playing the vast money flows coming out of the Fed, a lot more to come from the treasuries, and inflows from around the world - it has worked many times before. The second wave in the Fall will offer better prices. If no second wave, I happy many lives were not lost. DLS
  • DR
    Derrick R.
    19 May 2020 @ 02:37
    Great quality update as usual. Jack is fantastic!
  • SG
    Sebastian G.
    18 May 2020 @ 23:12
    Shout out to Jack - I never see him getting love on here. I think we need more European pronunciations in the daily briefing, too. Give it a crack, Ash! Haha.
    • JF
      Jack F. | Real Vision
      19 May 2020 @ 01:11
      Thanks Sebastian!
  • Ja
    Jillian a.
    18 May 2020 @ 23:19
    Sorry about the spam. Comments section seems to be hanging.
    • JF
      Jack F. | Real Vision
      19 May 2020 @ 01:06
      All good! :)
  • DM
    Darren M.
    19 May 2020 @ 00:21
    I have to admit. I'm jealous of Jack. At his young age to get to work for Real Vision with all the great minds, what an opportunity!
    • JF
      Jack F. | Real Vision
      19 May 2020 @ 01:03
      Hi Darren, thanks. I really am very lucky. It truly is the apprenticeship of a lifetime!!
  • RY
    Ron Y.
    19 May 2020 @ 00:09
    Ed - Ash, You might want to reach out to these guys and interview one or both of them re their 4 possible scenarios for the Covid-19 future. It's at least an idea I thought worth bringing to your attention. Ron https://breakwaterstrategy.com/scenarios-for-the-covid-19-future/
  • KC
    Kirk C.
    18 May 2020 @ 23:53
    He is discussing people in politics - not policy - real financial discussions might touch on policy which would tend to have a more small government/individual freedom aspect that some leaning left could consider conservative in their less rational moments. This guy is all about the politicians - not policy. THERE IS A BIIIIIG DIFFERENCE!!!!
  • CS
    Christopher S.
    18 May 2020 @ 23:19
    This was great you guys killed it thanks.
  • Ja
    Jillian a.
    18 May 2020 @ 23:18
    Buffett bought the airlines at the peak and sold at bottom. Completely opposite of traditional Buffett positioning. Perhaps his day has passed.
  • Ja
    Jillian a.
    18 May 2020 @ 23:18
    Buffett bought the airlines at the peak and sold at bottom. Completely opposite of traditional Buffett positioning. Perhaps his day has passed.
  • Ja
    Jillian a.
    18 May 2020 @ 23:18
    Buffett bought the airlines at the peak and sold at bottom. Completely opposite of traditional Buffett positioning. Perhaps his day has passed.
  • Ja
    Jillian a.
    18 May 2020 @ 23:18
    Buffett bought the airlines at the peak and sold at bottom. Completely opposite of traditional Buffett positioning. Perhaps his day has passed.
  • JL
    Jake L.
    18 May 2020 @ 22:28
    Regarding the rallies on the Fed hopes & Vaccine hopes. Even if the economy opened up to 100% capacity tomorrow, the virus completely disappeared over night & the FED added another $5 trillion, the market would still be over valued (if valuations matter anymore). Maybe, "it's different this time". We'll see, I doubt it.
    • sc
      sung c.
      18 May 2020 @ 23:02
      In a world out of wack, wacky behaviour makes sense, I suppose.
  • JD
    James D.
    18 May 2020 @ 22:42
    Ed, I totally agree - the less cognitive bias when it comes to politics the better. It just distorts rational decision making. Thanks for another great briefing guys.