JACK FARLEY: Hi, I'm Jack Farley with Real Vision. I'm here with our Managing Editor, Ed Harrison. Ed, welcome.
ED HARRISON: Thank you and happy Thanksgiving to you.
JACK FARLEY: Happy Thanksgiving to you. So yeah, this is going to air on Thanksgiving Day, November 26. But we're filming this on Tuesday, two days before. So if the Dow goes back to 24,000, if there's a massive crash-- please, to people at home, don't judge us too much if we sound bullish.
ED HARRISON: Do you have your Dow 30,000 hat out? I was looking for one. I was talking to Ash about this. We finally crossed over the Rubicon.
JACK FARLEY: Yeah, well, we need to get hats. I had a joke on Twitter that Max bet me that if the Dow went to 30,000, I would change my Hinge profile to a photo of Jim Cramer partying in Miami.
ED HARRISON: Excellent.
JACK FARLEY: So that's not the only special thing about today's "Daily Briefings," that we're filming it two days before. We're also-- it's an AMA. We're taking questions from Real Vision members.
So I asked in The Exchange, what questions you have for Ed and for me. And I think, honestly, these are the best questions that we've ever gotten for any AMA on the "Daily Briefing". Ed, I know you haven't even looked at these questions. So I'm going to be asking you the questions. I'm really excited for it.
ED HARRISON: Yeah. And so as we were saying right before we came on, we're going to divvy them up. You're going to put them out there. You can take half of them. I'll take some of the ones that are obvious for me. And let's just see how it goes.
JACK FARLEY: OK. Well, starting off Jonathan Jessen asks, with Europe and US entering a second wave of lockdowns, will equities have a repeat of their March performance? I think this question is for you.
ED HARRISON: Yeah. That is a good question. I'm a better bond guy. Let me put it this way, just to go from the bonds to the equity side of things. I think that bonds, you can clip the coupons. But when bad things happen from an economic perspective and defaults occur, then that's when the separation between those who have done well and those who don't do well is made.
I had a good conversation with Boaz Weinstein about this. To the degree that this particular lockdown causes certain companies to default or even potentially have their numbers go much worse in terms of spreads. Then you're going to see a massive reaction in the bond market.
So there's a good potential for that to happen just because the bond market is very different than the equity market. I think the equity market might be able to power through this based on liquidity and a forward-looking approach, as long as these companies don't go to zero. So I think that the real answer is if a company goes to zero, then the equity gets wiped out and the bonds default. And therefore there are bad outcomes.
But absent that, it's really hard to say what's going to happen over the short to medium term. Because I don't really think that this particular wave is a long-term outcome. We on the backside of that we have the vaccine. So I'm going to have to punt on that, Jack, and say really we don't know what's going to happen. A lot of it is liquidity fueled rally.
JACK FARLEY: That's so interesting, Ed. I have a million questions. But the one that comes to mind is you said at the very end, I don't know if this wave thing will last. Were you referring to the second wave or third wave of corona the flood of liquidity that we've had? When we're filming today, the Dow and the S&P are at all-time highs.
ED HARRISON: Yeah, I was thinking about the second wave. Because I was just talking to some investors-- Charles Gave and one of his analysts at a Gavekal. And they were talking about the vaccine coming out.
And by this time next year, perhaps 75% of us are going to be vaccinated. So what we're going through right now as a second wave won't necessarily-- or actually in the United States it's a third wave-- won't be repeated per se when the next year comes around.
JACK FARLEY: That's so interesting, I have another question. I want to pick your brain, Ed. Let's say that the vaccine is administered to the bulk of the population. People begin to fly again. I mean, they're flying. But people will get to go on cruises again. Oil is rebounding as people travel all around the country.
Is there a scenario where that actually could sink the S&P because all of this market capitalization that's been gathering in that index, which is tech-dominated? It's been going to the Googles-- not just the Googles and the Amazons and the Facebooks, but the Zooms and the Teslas as well that are thriving at this work-at-home economy.
ED HARRISON: Yeah, I've thought about that too; the concept that if you have a rotation, that the rotation is so violent that given the market cap weights, you have an overall diminution of the S&P. Because the stay-at-home companies, which were the largest market cap companies, they're really getting hammered as a result of that.
I think it's a possibility, definitely. So I wouldn't rule it out as a outcome from this particular rotation, if that rotation occurs. And I think that it will occur at some point in time.
JACK FARLEY: Interesting. So Jonathan Jessen actually asked a multipart question. It was in four parts. And we're not going to indulge every single one of his questions. But just to his last question, Ed, what is your outlook on commodities in 2021?
ED HARRISON: I don't have a firm view on commodities. But I will say that commodities look good because we're going to have the vaccine, we're going to have a re-opening. And I think that we're already seeing that the numbers are starting to go up for oil. Copper actually preceded that, and a lot of other commodities. So I'm positive on commodities in terms of at least maintaining where they are.
The real question is, is there more upside or has it already been priced in? So when we talk about bonds versus equities, and then we think about commodities on top of that, I think that when you take a look through this particular wave, commodities will look through the wave. And on the other side, things will be positive.
JACK FARLEY: That sort of leads into the next question. Because I think commodities thriving in 2021, that happens if there's a reflation, which is a pick up in inflation. So this next question comes from Nen Nguyen. "Jack and Ed, I'd love your take on the risk-on and risk-off factors that would allow one thesis to hold true versus another.
I saw Roger's insiders talk today. And it looks like there's a battle of narratives with the inflation or reflation narrative versus a flight to safety into bonds, which presumably corresponds to a sell-off in equities." So what do you think of that?
ED HARRISON: Well, I was thinking this is a perfect place for you to step in yourself and defend your turf. I think this is something that's totally in your wheelhouse. What are your thoughts there, Jack?
JACK FARLEY: I think I agree with all of the premises of the question. I think a risk on events happens if capital floods into the stocks that are banking on a quick recovery-- your cruises, airliners, oil refineries, and the like. I think it all comes down to the virus and to the ability of the government to administer a vaccine.
I think the efficacy of the vaccine-- "oh, 90.9%. Oh, it's 95%. Oh, actually, we're 95% too." That's all great. And I think of what Stan Druckenmiller said. He was, like, "great day in the history of mankind."
And I think that is wonderful news. I think, though, I would rather-- I think it's a better scenario to have an 80% efficacy rate and a strong health care system that has a demonstrated track record of being able to deliver health care to a bulk amount of population rather than to just people who walk through the door than say we have a 95% efficacy.
But I don't have a lot of confidence, to be honest, in the United States health care system, which is sclerotic. It's the only major developed world where health care is not guaranteed by the government, whether that's through just the government authorities like in the UK or it's a public-private partnership like they have in other parts of Europe.
To be honest, this girl, who I have started seeing recently-- so she got tested for coronavirus over the weekend so she could see her family. And she went to a city MD. And, Ed, take a guess as to how long it took her. How long did she have to wait in line?
ED HARRISON: Let me guess, because my wife was doing the exact same thing. And it took her two hours.
JACK FARLEY: Wow. See, two hours is a lot of time. And when I got my test, I waited two hours. And I thought that was a long of time. She had to wait eight hours.
ED HARRISON: Wow. Eight hours. That is crazy.
JACK FARLEY: So I'm not convinced that the United States will administer this vaccine with the rapidity and the comprehensiveness that we need. And I don't like saying that. And I don't think that that is good for risk assets. Incidentally I talked today to Teddy Vallee of Pervalle Global. He's a macro fund who invests in all sorts of assets.
And he is a big believer in the reflation trade. And he is investing heavily in energy stocks. And interestingly he's someone who has been very bullish on gold and Bitcoin. And he's been proven right. But he's actually taking his foot off the gas pedal on gold and Bitcoin. So that airs on Tuesday.
Ed, they call me "the plug." So Teddy's actually up something like 30% or 40% this year, which is a lot. But I think one of the only fund managers who is up more is Boaz Weinstein. And that airs on Friday. For the people at home, it will be tomorrow.
ED HARRISON: Excellent. And so two thoughts on that. Thought number one is one of the biggest problems with the US health care system in this regard is what I would call the inability to keep the virus in check. If we had as many tests as we do now, but we had 1/3 the number of cases, maybe your girlfriend would have waited an hour or 30 minutes instead of having to wait 8 hours.
It's because the virus has spiraled out of control in the United States and we have so many cases that she had to wait as long. That's my first thought. Maybe you can answer that.
But the second thought I had, which is interesting, is when you talk about risk-on versus risk-off based upon efficacy and things of that nature, it makes me think about Asia. And when you think about asset allocation, who's going to come out of this on the other side in a positive way? In terms of your allocation of assets, I know Jeremy Grantham was talking up emerging markets. Well, Emerging Markets Asia in particular, maybe that's the answer there.
JACK FARLEY: Yeah, definitely. It's a really interesting question. And then it becomes more complicated because you ask, well, what is risk-on? Its equities. OK. Well, is it FANG? Because if there is a risk-off event, in terms of bad news about the virus, that actually could be good for FANG because of work-from-home and the technology stock. So it's very complicated.
But I want to move on to a question from Oliver Anderson who asks-- this is a good question, Ed. You're going to like this. "Real Vision began as a platform for conversation that were generally quite wonky in finance, sort of 'Inside Baseball,' especially against the backdrop of the wider and generally terrible financial reporting landscape.
My guess is that this is what has set you apart and earned Real Vision such an incredibly loyal following for very bright, engaged individuals. Now as you're starting to reach a broader audience, as well as one that isn't bringing the same baseline understanding of markets, the need to make content that caters to this new audiences' needs, I'm sure can come into conflict with the interests of your original audience. How are you navigating scaling up Real Vision with keeping the content that makes you so special in the financial media space"?
ED HARRISON: Yeah, that is a great question. And on the fly, what my answer is, is the question. Also I'd love to hear your answer to this because this is how I'm thinking about it. Dumbing things down, that's not my idea of a good time.
If I'm going to have a conversation with someone, I want to have the same conversation that I would have naturally, irrespective. And I have very great confidence in Real Vision viewers to be able to pause and ask the right questions, look it up on the internet, et cetera or whatever it might be.
The big filler for that, however, is these explainers; these pieces by the likes of Steven Van Metre. And actually, Roger's doing something like that on the pro tier, which basically says-- if you watch the Real video and you only got 50%, 75% of what's being said, we can break it down for you in a way that will get you to 90%, 95%.
I think those are great. And that's one of the ways forward for us in terms of making this work. But I don't think dumbing it down is one of the ways forward.
The second thing I would say, Jack, is that we do need more content for other people. I know a plethora of people who don't really care about the hardcore finance at all. But they do care about the political economy. They do care about public policy.
And I think that being able to provide a more expansive view than just hardcore finance-- the perfect example is this Charles Kennedy interview that I did. He talked about venture capital in the health care system. I think those kinds of things are important. Haley talked to someone about public charter schools. I think that was also an important conversation.
It's not in the wheelhouse of what we used to be. But I think it is something that is important in terms of thinking about the political economy. And so I hope that we can continue to do that. So that's my answer, Jack.
JACK FARLEY: Absolutely. I think a lot of what you said I agree with. I think explainers are really important. Because we have these videos, like Russell Napier talks to Brent Johnson. And it is very complicated. I'm watching it, and I don't have a deep background in finance. But I am watching it very closely because I'm making the charts and then writing the chapters, writing the copy.
And even a few things go over my head. So I can imagine people who are watching things and may have a job and they're busy with their lives and with their families, they don't have time to delve into it with as much depth as I do because Real Vision is my job. So I think explainers are really important. I think what Steven Van Metre does is great. And I think we should definitely expand that. I think that is key.
What you said with regards to widening the funnel, which is a phrase that we use a lot at Real Vision in terms of covering topics in the political economy as well as social issues and how they intersect with markets-- I think that's really important. I think another thing is that we're going to get a lot of people to come on the platform from crypto, which is our latest offering. It's something that Ash is working on with Raoul. Raoul's very keen on it.
And I think with Bitcoin approaching the $20,000 level, I think there could be some renewed interest in that. So I think, Ed, what I want to focus on with you is how people who come to the Real Vision for Bitcoin because they love Bitcoin content, how can we interest them and say, "oh, actually, well you like the crypto; here's a piece about debt.
Here's a piece about equities. Here's something that you've wondered your entire life, but you never knew the answer to it. Here's why." So I think that is a project that we'll focus on as well.
ED HARRISON: And the integrative approach is good. I mean, all of these things are not seen in isolation. There is overlap. You can get a whole collective. And definitely crypto is a part of that. So we have to be asking ourselves, what is it that's happening on Real Vision classic that has overlap with crypto?
And every week we should be offering something on both sides that flips between the two. Gold and silver certainly has some applicability. Digital currency, whether it's central bank digital currency or Bitcoin, there interrelated. Monetary policy, totally related to what's happening with crypto. So I definitely see it from that perspective really getting a huge integrated approach.
JACK FARLEY: OK, Ed, I sort of raised up crypto at the end because it's what I believe. But I also raised it as a little segue to this fantastic question from Allen Azar. "A thought experiment-- you're a super-villain bent on ruining my day. Hypothesized how you would drive down the price of Bitcoin substantially, if not destroy it entirely. Extra points if you answer while stroking a white cat."
ED HARRISON: I think this is for you, Jack. This is your question 100%. The super-villain, I like it.
JACK FARLEY: Well, I think that Bitcoin thrives at a period of monetary uncertainty when it looks like the printing presses will go on all night and never end. So I don't know. The Fed having a Volcker Paul Volcker moment and raising rates to 16%, 18%-- that could put a damper on Bitcoin. What do you think, Ed?
ED HARRISON: I think that there's liquidity and then there is store value. And I think that over time, cryptocurrencies are becoming a better stored value. However, when it comes to liquidity concerns, everyone wants to get into an asset like the US dollar where liquidity is greater. And so in times like March, Bitcoin will go down with everyone else.
But over time, to the degree that you have more dollars chasing fewer goods-- and part of that's because of the monetary base. But much of that's definitely going to have to be because you still have velocity of money where banks are adding to the credit portfolio. I think that's a case in which you could get the gold higher, you can get Bitcoin higher.
And it all depends on the currency system and how it atomizes. I think that over time the dollar standard is probably going to break down to a certain degree. And central banks are going to get in there.