Kind of takes the relief trade, if you will, out of the treasury market. Have a vaccine but have to deal with the rising case counts. Its difficult for Bond Investors to show no caution to the wind. Think about what actually has the chance to survive. Jeff rosenberg is joining us right now. What a week it has been in the market, tested in several fronts. Lets talk about credit first. We have the fed and the treasury having a little bit of a spat over the emergency programs introduced this year. I have to say this market has responded quite well to it. What was your take . The the most important of support measures are not affected, these were not used very much. They were most effective on announcement date, not much uptake. The market is seeing through that, and its a little bit less of a significant Market Reaction because it is less of a significant issue, if those support measures were to fall away. Pointsn as my colleague out, hasnt harmed the appetite for debt. We have been trying to measure, balance out the shortterm headwinds with a longterm tailwind developing right now. How do you navigate those waters right now with the team at blackrock . Jeff we are trying to look through some of the near uncertainty. It is covid headline after covid headline. Very volatile in the short run. We are looking through the short run uncertainty to a little bit longer run perspective, where we can look through that uncertainty to what we are seeing underlying the economy, and what may emerge in the postcovid environment of a vaccine. That is a little bit too far in front of us to plan for today but it also temperatures some of the overreactions and nearterm headlines that are clearly on thevirus side, eroding to negative. That is partly what most investors are seeing, why you are seeing a lot less negative Market Reaction, given the balancing act that you were highlighting, between the shortterm negative news on the virus and a longterm positive on the vaccine. Jonathan what have you made of the resilience of treasuries in the face of Vaccine Development . On the equity side of things, we see an outperformance and cyclicals, small caps, but the Treasury Curve is exactly where it was 10 weeks ago. We are really dealing with very heightened expectations for Monetary Policy intervention on any negative news. In terms of the expectations for fed policy to support the nearterm, i think, these are the nearterm expectations around the fomc december meeting, changes to the modalities of the purchase program, all of that helps to restrain a lot of the movements and bond yields. Havee other hand, what you is the longerterm concerns of success around want to terry and fiscal policy stimulus, success most importantly with respect to the vaccine, and a lot of show me the proof on inflation before the bond market starts pricing in that inflationary concern. That is keeping the lid on Interest Rates and steepening the curve on the upside. The net of the two is this dramatic collapse in curve volatility, credit volatility, very much in contrast with what you are seeing on the inside and the equity markets. There is a lot more rotational exposures going on inside equity Market Participants than in credit Market Participants. Jonathan lets talk about portfolio construction, because i know this is something you have been laser focused on, going away from 60 40. Something that you are calling 60 20 20. Tell me what that entails. Jeff a lot of focus on this. As we were going through the covid crisis, we were talking about the possibility of what the zero lower bound meant for fixed income in a portfolio. Covid accelerated the onset of that kind of change in the regime. We are dealing with a simple problem. The proximity to the zero lower bound creates two issues for investors, first low income. Second, and more novel, because we have been dealing with low income since the end of the Global Financial crisis, is the loss of diversification. That was theoretical but really showed up in the collapse on bond market sensitivity to equity market declines in september and october. It is this second issue of the decline in the efficacy of the tod side of the portfolio diversify the equity side of the portfolio, challenging investors to find new solutions. One simple solution is you take half of that fixed income, which is not doing what it used to, and allocating it to alternative forms of diversification, and that is where half of the 40 goes into 20 of alternative diversification. Jonathan you are calling it defensive alpha. Risksy, idiosyncratic tend to be hired to equity markets falling. Where do you find that in the credit markets . In thehat you find credit market is an important insight, and that is something that we saw clearly during this covid crisis. What is it that distinguishes the performance of companies, distinguishes winners and losers when you have real shocks to the economy . We have seen these in the form of recessionary shocks, cash flow uncertainty, but covid amplified it to integrate we had not seen before. What distinguishes winners and losers in those kinds of environments is the quality of the Balance Sheet which reflects on the access to liquidity, funding, the level of funding. What you are getting from the credit market is an important insight that credit market perspectives matter most in difficult down markets, and it helps you to identify, delineate the winners from the losers, which is an insight that you can employ in investment strategies. Critically, we take this fixed income perspective, credit market perspective, but the instruments we deploy to create this defensive alpha, this alternative form of diversification is actually through the equity instruments. The equity instruments give us the expressions of winners and losers that we capture to create this defensive alpha. Jonathan you are not just looking at the 40 side of it, you are starting to break down the 60 side in a different way as well. Jeff thats right. It is really important, if we are talking about the challenges to fixed income, in a portfolio conversation, about what is the new 60 40. We have to think about the interactions about what are we doing to replace our fixed income, to solve those problems, and how does that relate to the exposures we have in our equity portfolio . When we think about the two problems that face investors from the zero lower bound and its proximity the first one is a familiar one, low yield. Toanother solution is also substitute the fixed income portion, the safe areas for higheryielding areas of fixed income. That usually means more highyield, more emerging markets. But when we solve that first problem by doing that, what we are increasing in our portfolio is the sensitivity and the Downside Risk to our overall portfolio. Those instruments are highly correlated to my equity risk. So we have to think about both sides of the portfolio when thinking about solutions. To thedd some solution fixed income side, we have to look at is that interacting with the equity side . We have to look at liquid orernatives in the 60 20 20 as we change the credit nature of our fixed income portfolio, we will have to look at our equities as well and take some of that down at the same time. Jonathan this is really thoughtprovoking, and i enjoyed it. Great to catch up with you. Lets continue the conversation another time. Lets get to the week ahead. Meetingnce ministers over the weekend in saudi arabia. Pmi out of the euro zone and the u. S. On monday. Charles evans speaking on monday. Jim bullard on tuesday. Fomc minutes on wednesday. Of course, markets are closed on thursday for the thanksgiving holiday. We will be with you again on friday. A scheduling change. This was bloomberg real yield. This is bloomberg. Vonnie welcome to bloomberg markets. Im vonnie quinn. Joan davis of vanguard weighs in on the rare public risk between the public treasury and the fed and the stimulus and emergency measures. The cdc warning americans not to travel for the thanksgiving holiday, but are they listening . We will talk to the flexjet coo. And Ilana Weinstein will talk about performance, pay, and prospects. All of that to come in the next 30 minutes. Boeing improving right now. We just got a headline that the 737 max is nearing critical approval from eu regulators. That approval may come next week. Already has approval in the united states, not just yet in china. The s p 500 down a quarter percent. The 10year yield at a recent low, below 84 basis points. Gold heading higher at 1872 per ounce. The three doing taller 3 trillion Hedge Fund Industry leaving some clients questioning the values that they are bringing to the table. In next guest specializes alternatives. Ilana weinstein is the president and ceo of ceo of the idw group. We know there were improvements for the industry but where were the strategies where we saw outsized gains or losses . You, thisave to tell was an unbelievable year across the board. This was an alpha year for the industry, a great defense of the asset class. We saw phenomenal gains with the multimanagers, citadel hit it out of the park, up 20 . Oconnor, exodus point, multimanagers that historically have had more muted performance up 20 , 11 . Long short equity funds, which historically had a difficult time justifying their those that are very correlated to the market producing returns upwards of 50, 70, 90 . Macro did great this year. We are seeing inflows to macro for the First Time Since i would argue even areas that had more difficulty, like quants had winners. Structured credit as well. It was all about being nimble and being able to quickly reposition and take advantage of market opportunities. Whether that was hedging real estate exposure or pivoting from a work from home to recovery stocks when the vaccine news hit, you just needed to be liquid and hedge. Was a no excuses year. Vonnie although there were some quant funds that had terrible years. You said the pandemic would be the great equalizer for the Hedge Fund Industry. Did it pan out that way . Ilana i absolutely believe that. Like soma, upnds 30 . Rock, up 70 on long short equities. Funds credit, you had that didnt do well. Im not even talking about distressed funds that were laden with illiquid positions that were legacy and difficult to hedge. Flagshipok at the cqx fund, down your due date. King street, anchorage. If you look at the qom litter performance of those funds the last three years, it is not there. We have seen aum drop dramatically. Withstreet started 2020 20 billion, now 16. 5 billion. Flagship wasund 14. 4 billion dollars in 2017, now 8. 4. Cqx is predominately long only. We have seen other credit funds aba, citadels credit fun has done phenomenally well. Being able to take advantage of opportunities. You cannot be laden done with illiquid assets. Vonnie some would say that the time has not come for them to show performance, that the cycle is still playing out, and maybe next year there will be better metrics to judge them on. What do these allocation pulls mean for the industry overall . Been a lot ofas press about the biggest allocators to hedge funds trimming their allocations down by 16 , and the industry still having outflows. We need to look at the context. Net outflows are what they half of what they were last year. Last year was 100 billion. This year, 48 billion. I dont use this as a pullback from hedge funds. Being smarterps about where they are allocating to. We have seen that with tremendous spikes for funds that have done well. I mentioned soma. You may not have heard of it because it was 58 million in 2016, and now it is 3. 5 billion. Ow 11 billion. N the money, it is like water finding its level. Struggling, we have seen decompression, other funds are charging 3 30 or 2 40. The best multimanagers can charge what they want. Vonnie what about headcount overall in the industry . Is it on the decline or just moving around . Also address compensation. Ilana it is about who is growing. Multimanagers have an infinite appetite for talent, so they are always growing. , they donter funds have as much capacity, so it is not so much a function of are they doing well or not. It is to an extent, but they cannot continue to add headcount because there are capacity issues. Aereas multimanagers, it is constellation of hedge funds. Compensation this will be an interesting year. So well. Unds have done ironically, that is what is tough for founders to figure out, how do you pay someone at a fund that is up 50 when they have been one of the key drivers of that performance . That is a big number that they are due this year. The way the industry works for single manager funds, more senior people have more points in the fund, and then there is a bucket. If you are responsible for the 10 billion fund that is up 50 , and you are responsible for a quarter of that performance, how will you be paid, will it be enough to keep you there and make you feel like you shouldnt go on your own or to a top multimanager which can effectively run your own thing . Vonnie what is the obsession with spacs this year . A lot of hedge funds have raised them. Ilana everyone is talking about spacs. I had lunch the other day with my mom and she was asking about it. I dont know. I am dubious. There has been too much issuance. I am not sure there are enough good private companies to justify the issuance. Of course, there is a twoyear fuse to make these deals have been so we will see. I think it is overheated. Vonnie we have to leave it there but appreciate your insights. Ilana weinstein is the president and ceo of the idw group. This is bloomberg. Vonnie this is bloomberg markets. Im vonnie quinn. Retailers had a anderthanexpected q3, sports is no exception. Abigail doolittle has a look. It is not just the Third Quarter. Third quarter, the Second Quarter was tremendous. They are doing well through the pandemic. They have a strong brickandmortar presence. Brickandmortar for the Third Quarter grew by about 18 . A lot of other retailers didnt see that strength. That has to do with the fact that they are in the southeast and midwest, you are lockdowns, in most of their stores are strip malls anchored by walmart, so that his help all. Strong online presence. Up 21 . A comp they had huge gross margin improvements on a yearoveryear basis. Those improved by 5. 6 . They say that has to do with fewer sales. That has to do with what they sell. It is not so much goods but leisure wear. Nike is one of their big suppliers. 57 . Adidas, under armour, sneakers were another big category for hibbett. Not surprisingly, doing well on 50 , well better than Dicks Sporting Goods or footlocker. This has to do with their presence in the southeast, midwest, if lockdowns, and the walmart anchoring. Vonnie based out of alabama. Thank you so much. Coming up, we will talk to joe davis about the rare public risk between the fed and the treasury. This is bloomberg. Businesses today are looking to tomorrow. Adapting. Innovating. Setting the course. But new ways of working demand a new type of network. One thats more than just fast. You need flexibility to work from anywhere. And manage from everywhere. Advanced technology. With serious security. And reliable coverage, nationwide. Forwardthinking enterprises, deserve forwardthinking solutions. And thats what we deliver. So bounce forward, with comcast business. Mark im Mark Crumpton with bloomberg first word news. The state of georgia has officially certified that joe biden won the states president ial election, after a hand tally stemming from a mandatory audit affirming the president elect lead. Global news the georgia secretary of state said during a News Conference today that he believes the numbers his office has presented are correct. Want our side to win because our site provides the best leadership for our nation and state. I know. Im a passionate conservative, and as i said before, i am a proud trump supporter. I was with him early in the 2016 election cycle and he has govern the nation with the same conservative principles that i hold dear. Like other republicans, i am disappointed our candidate did not win georgias electoral votes. Close elections sow distrust. People feel there side was cheated. We saw this from the democrats in 2018, and we see this from republicans today. Mark the count affirmed mr. Biden won by 12,000 votes, or at of. 3 Percentage Points about 5 million ballots cast. Republican Governor Brian Kemp has until tomorrow to approve the 16 electoral votes. Congress is getting closer to a deal on a 1. 5 trillion spending deal that would avert a Government Shutdown next month. Aides to nancy pelosi and Mitch Mcconnell met to hash out details. The talks are separate from stalled negotiations on another Coronavirus Relief bill. In sports, a tough blow to the cleveland browns. Myles garrett will miss at least one if not two games after testing positive for covid19. That means the browns, in playoff contention for the first time in years, will play without garrett and they go up against the Philadelphia Eagles on sunday. Quinn. Global news 24 hours a day, onair, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. Im Mark Crumpton. This is bloomberg. Live from toronto, i am greg panella. Vonnie im vonnie quinn. We are joined by our bloomberg and Bnn Bloomberg audiences. Here are the top stories we are following from around the world. Weighing the backandforth between we will speak with joe davis at vanguard about the risk and what it means for the economy. Cdc is recommending americas not travel for the thanksgiving day holiday to stem the rising tide of infections. How is that impacting air travel . We will speak with flexjets coo megan wolf. Requestnd biontech will emergency use authorization for their vaccine today. We will look at the regulatory hurdles they will need to overcome. Look at thetake a markets, a real sense of caution. Its been a pretty eventful week in terms of news about covid19, both in a surge in cases around the world, new restrictions, but also vaccine optimism. You wrap it all together with the news that we had at the end of the day yesterday with lending programs, the Trump Administration and an apparent with the fed. The nasdaq and tech stocks showing strength. Strength ingot some our mining sectors. Lets go back to that curious rift. Times likege in these, the Trump Administration moving to and emergency pandemic lending programs from the Federal Reserve. The Federal Reserve didnt like the sound of that and a rear bit of tension between the two of them in public. We heard from the atlanta fed president. I was a bit surprised, and i have to say, after that announcement, they came up with a statement exposing their interest in extending them, to keep them available. That is where i am. Given where the economy is, given so much uncertainty out there, it is prudent to keep those things open so that if people have stress, they can draw upon it. What should we make of all of this as investors . Lets bring in joe davis of vanguard. What should we be making of this rift, which is not common for us to here in public like this . Joe thanks for having me. You nailed it, it is not common, particularly when we think about the profound cooperation that the treasury and Federal Reserve applied, successfully, in the early days of this unfortunate covid19 situation. I was somewhat surprised by it. Some of these facilities, although some of them were certainly important in smoothing market function. A pressing question Going Forward is, if we are in for a choppy economic environment, what, if any, are these alternative assets, how are they alternatively applied given the need for fiscal policy . Vonnie the market reacted when they were introduced originally. That is where we saw the calming reaction. Once markets went back to normal functioning, does it matter about the confidence level, in the sense that the market has corrected . Joe i think there are crosscurrents right now but i would still characterize it as positive. Even the nonnegotiable pause has been a positive, just the news that we had with respect to the vaccine and its efficacy. That was even above our highest expectations. Now its a matter of policy and the markets reflecting that, buying time where needed for the vaccine to be distributed. Whether that is some form of fiscal policy as well as continued focus of the Federal Reserve at the margins in the months to come because we will see a sharp downturn in growth for a brief period. It is how you soften the blow until a vaccine can be distributed. Greg it seems like a good news, bad news week. Good news on the vaccine but soaring cases. The treasury and administration and the fed, but also stimulus talks may also be back on. Is this the moment where we take a breath and take the long view . Joe that is what i would count on, but its been tough to do. Everyones stamina may have been tested this year. We are certainly not done this year. That is ultimately what has proven successful, even investing in the markets. If one had shared with me the headlines at the beginning of the year that we see in the economy, on the health front, and then the investment returns to date, i would not have guessed that. I think there is still an argument to be made for modest fiscal policy response to buy time for the vaccine. At the end of the day, the recovery should endure. Onare approaching the dawn covid19. Unfortunately, we are just not there yet. Vonnie in the last few days, we may have seen a pause in the recovery, Building Permits coming in flat unexpectedly. Where do you see the run rate for gdp . Joe we have had this long view since the beginning of the year of a two phase recovery. Coming out of that deep hole, and then getting into a sharp deceleration of growth. Certainly growth in the single digits. If we look into the first quarter, above zero, but closer to it than i would like. But i think that will be temporary. As we look out if we are right about the vaccine and its distribution you will see firmer numbers farther out. Although we have headlines today about tensions between the Federal Reserve and treasury, at the end of the day, a healthy economy begins and ends with health. If we see progress there, we will see progress in the economy and markets. Go, as we seeou the market, we are told by people active in the markets, it is looking forward to better days. Other organizations say the disconnect between they economy and the market scares them. How should we view this . Joe you can explain a lot of the positive market returns, whether it is Corporate Bonds or the equity market. Part of it has been the sharp fall in Interest Rates. Discounting those future cash flows, that will explain part of the rebound. You cannot explain all of it. I think we have a little more modest returns Going Forward. There are also opportunities. The equity market has not fully participated, some sectors are clearly not close to the highs of recent past. If you can look through the bedlines in the markets but as broadly diversified as possible, you can offset the lower expected return environment by harnessing those areas of the market that have not fully participated. Vonnie thank you for your time today, joe davis. For more discussion on the challenges facing the global economy, catch our program on the new Economy Forum this weekend on bloomberg television. Of flexjetmegan wolf will join to talk about how the private jet industry is faring as millions of americans rethink holiday plans. This is bloomberg. Rg. Vonnie this is bloomberg markets. Im vonnie quinn. Travel sector suffered the biggest drop among groups in dollar terms in october, some 66 from the year earlier, but the demand for private jets remain robust. Lets bring in megan wolf, flexjet coo. They operate a fleet of more than 150 private aircrafts. How has pricing been working, have you been able to increase pricing . Megan one of the benefits of being an owner in the flexjet program, you are making a longterm commitment. You are treated like a whole aircraft and you have greater per deductibility. In these times, it is more status quo are our owners and programs. Ahead of the holiday season, thanksgiving, from a canadians understanding, a huge time of travel. This year will be different. Is there a difference between commercial flight, private flight . Can you make it a safer experience but still facilitate that kind of travel . Megan we absolutely can. It is reported there are about 700 touch points when you fly commercial, between traveling through the terminals, standing in line, getting on the aircraft, picking up your bags. By flying private, you can reduce those touch points to less than 20. You are traveling with family members, boarding the aircraft at a Regional Airport instead of a large commercial or international terminal, so it affords you much more knowledge about where you are at, where you have come into contact. We give our owners much more confident when they fly that they can do so safely, and they know who they are flying with. Programsre there any where people share . Jet fort entirely your the week, lets say, sharing with other people. Have they requested that change . Megan when you are flying with flexjet, you are in full control of the passengers you are traveling with. It may be family members or friends, business associates, but you always know who you are traveling with because you provided that passenger list. They are your guest, or members of your family, so you are able to bring more people along with you. It is only people that you know. When you plan longerterm through this, we have had a lot of vaccine optimism, authorization they are looking for. As you plan out to 2021, when do things improve . It sounds like you are at and advantageous point to begin with, but where do things improve . Megan we are encouraged with thanksgiving travel, seeing a number people of fly over the holidays. They have confidence with us. The climes that we have today are referring people to fly with flexjet as well. We are seeing our pipeline and interest continuing to grow. We know this isnt something that people are taking about on a shortterm basis but longterm how they will continue to fly, continue to do business. Going into 2021, we are already looking ahead. We hired 85 pilots this year and we were able to take delivery of additional jets from our partners. We are well prepared for people continuing to fly into 2021. When people are more comfortable, even more so, as travel continues to grow. Vonnie it strikes me that up till now, where you made your money was airplanes being on the ground, so people would buy the fractional shares and not use them, and that would be to your benefit. How many more miles in the sky are you doing this year because people need to use their time . Megan we want people to fly. When they fly with us, they continue to travel more and more. For us, we want the planes in the sky. From onehem traveling point to another, visiting friends and family vonnie sure, but give us data. How many more longhaul flights have you been making, do you have data on that . Megan while Business Travel has slowed down with more people at home, using remote workforce, we up. Personal travel has been those flights are continuing to grow. People are flying more often. Downtimey are in this of not being in the office. Personal travel has been growing for us, offsetting the Business Travel. For checking in with us, megan wolf, flexjet coo. In the race for a vaccine, we partner is and its requesting fda authorization today. We will see how long it is before that treatment is widely available. This is bloomberg. Greg im greg pennell in toronto. Vonnie we are going to listen to a little bit of sound from forum,rgs new economy leading experts on the vaccine race. Have some good news in terms of vaccines and a chance to overcome the health crisis, but we are not there yet. It is not a silver bullet. Public Health Measures because we are nowhere near the beginning. This is the best weapon and we have to use it well. The next six months in the Northern Hemisphere will be very tough. The good news is the vaccines and therapeutics them in particular the antibodies, will come along, and will bring that number way down. Course, key to all of this and getting our lives back to something that it looked like before is a vaccine. Lookingaking strides, for emergency regulatory approval. Lets bring in anna. What happens next . When they get the diverted to use authorization for the vaccine, the fda employees will start coming combing through the raw data on the clinical trials, vaccine data, coming to their own conclusions on efficacy and safety. Then they will call together a ,anel of outside advisors experts in infectious diseases, vaccines, the people the fda looks to for help sorting through any of the data, questions they may have about the data. Any recommendations that they make are nonbinding but they will help the fda make a final decision. Are set to meet december 8 through 10th on a Covid Vaccine. After that, the fda will make a final decision on authorizing Pfizers Covid vaccine. Vonnie what should we be looking out for as we look for more green light on this long road . Once we see pfizers application moving through the fda, once the fda makes a decision, there are some other steps that will still be taken. The centers for Disease Control and prevention also has a panel of advisors. This will be a Different Group with a lot of the same expertise, but they will decide and recommend who should be first in line to get the vaccine. It is expected that will be health care workers. There will only be about 40 million doses ifmoderna another Company Close to turning in an application for emergency authorization for a Covid Vaccine it will be between moderna and pfizer, about 40 million doses before the end of the year. That is enough for 20 million people. The cdc group will make a recommendation on who goes first and who will come after that. Theill be more toward spring of next year my we are looking at all americans potentially having access to a vaccine. Only one minute left, but should we brace ourselves for any surprises . The one criticism i saw about pfizer and moderna, we are looking at the press releases, not the data itself. Anna exactly. We dont know all the data, what fda may find that they could have concerns about. This is all being done very quickly, so they want to make sure that they vet it thoroughly. We will know once this meeting of advisors comes up because the fda will present their findings. Edney, thank you for jumping on and giving us a roadmap for what is happening in the industry. A quick check on the markets one more time before we head to the weekend. A bifurcated market. Not too much turn in equities but certainly the bond market registering some movement this week. The Canadian Dollar a little bit weaker, 1. 3088. This is bloomberg. Businesses today are looking to tomorrow. Adapting. Innovating. Setting the course. But new ways of working demand a new type of network. One thats more than just fast. You need flexibility to work from anywhere. And manage from everywhere. Advanced technology. With serious security. And reliable coverage, nationwide. Forwardthinking enterprises, deserve forwardthinking solutions. And thats what we deliver. So bounce forward, with comcast business. Mark i am Mark Crumpton bloombergs first word news. The Supreme Court will delay upcoming arguments over whether congress should have access to secret injury testimony from Robert Muellers russia investigation. The counsel for House Democrats says the new Incoming Judiciary Committee should determine whether to pursue the application. The material was originally sought in 2019 as part of an investigation into whether President Trump obstructed the mueller probe. Bloomberg has learned Boris Johnson is considering ending local lockdowns in favor of tougher restrictions on broader regions beginning next month. The u. K. Is currently under a nationwide lockdown that to end on december 2. The shift in approach could result in local political backlash. As coronavirus cases continue to surge in connecticut, the democratic governor spoke on bloombergs balance of power about his plan to keep Public Schools open. I am doing everything i can to keep our schools open. It is vital to the kids mental health,
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