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the question every investor is confronted with right now is how do you put capital at risk with any degree of confidence when the outlook is perhaps as you say more than certain that at any time in modern history and that is of course the great dilemma because investing is only about positioning your capital to profit from future developments and yet i always say we don't know what the future holds more so today probably than any other time in my life i think the first thing you have to assume is that life will go on we will continue to have an economy we will return to shopping and working and eating in restaurants and children going to schools and people traveling and taking vacations and so forth but of course we also have to make allowances for the possibility that life will be different than it was in the past you know i always say that the four most dangerous words in the world are it's different this time because people use those words to rationalize uh breaks from the past well today we're living through a massive break from the past there will be differences this time and we have to uh try to imagine them and allow for the possibility in our analysis what kinds of differences do you anticipate obviously many people have been somewhat productive working from home i feel i've been probably as productive as ever in the last two months um and uh i say well now tell me again why i have an office and why i go there uh and so forth so that that that could be a big difference uh we don't know but it would change a lot uh and uh restaurants uh sports events uh hotels uh business travel cruise ships uh shopping malls many of these things are are now in a state of flux but we have to make assumptions about them in order to be able to move forward well speaking of assumptions the market as it always does has divided itself into two camps there are those who are optimistic about controlling the pandemic and reviving growth and there are those who aren't which camp do you fall into well i think that uh i think the real divide eric is the ones who think it'll come easily and quickly and the ones who think it'll come slowly and and uh haltingly and i'm in the latter category in that regard uh i don't see a immediate v-shaped recovery and people are talking about the possible recovery using different letters v u w my my partner bruce karsh talks about an l shaped uh some people talk about the nike swoosh and uh um i think that uh we'll we won't have a continuous uplift of good news we'll have good news left mixed with bad news we'll have a vaccine but it won't come this year and it won't come to everybody immediately you know we need seven billion doses for the whole world and uh it's going to take a long time to manufacture those and roll them out um i will add one thing eric there's another divide there's a divide between the people who think that stocks are fully to highly priced today given the economic outlook and there are people who think that's okay because the fed will make sure that the whole economy and all the markets levitate uh and in many ways that's the more important divide today we all think that life will go on there will be a return some part of the way to toward normalcy there will be a vaccine and so forth but the big divide is is uh the people who don't understand why stocks are where they are and the people who do understand it by uh interiorizing the old motto you can't fight the fed and and that is is i think an even bigger divide today what do you think can you fight the fed i think that the fed has great power but not forever and i think that first of all i don't think it really you know uh jay powell talked about the fed having uh will not have the ability to run out of ammunition i don't know if the fed's ammunition is really limitless i know that the fed can cause markets to rise and stay up as long as it buys but i don't know if it can buy forever you know we're in we're in new territory here historically the fed has never bought corporate securities uh this time around they included corporate securities and then they moved on to include non-investment-grade corporate securities uh and uh its buying can make these things rise but only as long as it's buying i think of it as kind of you know we've seen these things where there's a there's kind of a a column of water and then a ball sitting on top of the water and as long as the water's forced up the ball stays there water stops pole falls down earth so obviously the fed hopes that its buying will among other things inject confidence into people and that they'll take over in buying uh but that remains to be seen and it remains to be seen whether that buying will be at today's levels is there any reason howard to expect that's going to happen let's just talk about the corporate bond market but use as an analogy the 10 years to follow the financial crisis we had qe1 2 3 and every time the fed tried to pull liquidity out of the market it seemed uh investors rebelled there was the taper tantrum there was the fourth quarter of 2018 and other instances are you suggesting that the moment the fed tries to withdraw liquidity from a market that that really prices itself on solvency more than anything else the same thing's going to happen i think i think it has to happen to some extent i well that you know this is the dilemma can the fed keep keep it up forever and if it doesn't keep it up forever will prices weaken i mean those of us in the markets believe that stocks and bonds as well are selling at prices that they wouldn't sell at if the fed were not the dominant force at at prices that would be determined by just the outlook for the companies um and so number one uh you know if if the fed were to recede we would all take over as buyers but i don't think at these levels and um you know you mentioned the difficulty of withdrawing the support um i personally believe that there is too much concern with the downside of withdrawing the support and not enough concern with the downside of never withdrawing the support uh and i think that if it had been done earlier and gradually it could have been done and as you say there was a bit of a temper tantrum in the fourth quarter of 18 when the interest rate on the 10-year treasury reached three and a quarter i think that was october 4th and the market started to go down from there so uh of course you know the kids like candy and uh investors like low rates but we have to have discipline also
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