WEBVTT - Fed Hawks Emerge as Inflation Remains Sticky 0:00:03.920 --> 0:00:07.600 Welcome to Bloomberg Opinion. I'm Valley Quinn. This week, everyone's 0:00:07.680 --> 0:00:11.960 kind of sitting around the houndcare US now and that's 0:00:12.039 --> 0:00:14.120 the next big question from users. Now, what have you 0:00:14.200 --> 0:00:17.280 do with a reminding cat? Tim colban On Massa Yoshi Son, 0:00:17.480 --> 0:00:21.560 founder of SoftBank Group. SoftBank's Vision fund losses have adopted 0:00:21.600 --> 0:00:24.640 five billion dollars now as the start of investors strategy 0:00:24.760 --> 0:00:28.400 comes a cropper in markets, looking for profitable companies is 0:00:28.480 --> 0:00:30.720 a preview of what's to come for the greater aventure 0:00:30.760 --> 0:00:34.440 capital universe and later. Many lawmakers are focused on this 0:00:34.560 --> 0:00:37.479 and trying to figure out different ways to help parents 0:00:37.520 --> 0:00:40.440 with these costs. There are all different ways, Um that 0:00:40.560 --> 0:00:43.479 it's clear that there's like this patchwork system you know 0:00:43.560 --> 0:00:45.320 in a in a city like Washington, see that it 0:00:45.360 --> 0:00:47.960 is the most expensive city in the US for childcare. 0:00:48.560 --> 0:00:51.720 The average annual costs for infant care is twenty four thousand, 0:00:51.800 --> 0:00:54.080 two hundred forty three dollars, and that is just for 0:00:54.200 --> 0:00:58.000 one child. As childcare colls increase, associated relief in the 0:00:58.040 --> 0:01:02.000 tax code stay stagnant, exces Leando's explains first though, to 0:01:02.240 --> 0:01:05.200 the capital markets directly. This week, we saw a massive 0:01:05.240 --> 0:01:08.400 repricing in the treasury curve. We also heard FED officials 0:01:08.440 --> 0:01:12.320 begin to voice considering a fifty basis point interest rate increase. Again, 0:01:12.680 --> 0:01:15.600 here's St. Louis FED President Jim Bullard. I think we 0:01:15.640 --> 0:01:20.840 can lock in this disinflationary trend by continuing to have 0:01:21.080 --> 0:01:26.560 policy rate increases during even though the real economies looks 0:01:26.600 --> 0:01:29.720 like it's going to continue to grow and the labor 0:01:29.800 --> 0:01:33.760 market broadly across the country looks like it remains strong. 0:01:33.959 --> 0:01:37.160 And here's Cleveland FED President Lurettemester. But this juncture, the 0:01:37.200 --> 0:01:39.720 incoming data have not changed my view that we will 0:01:39.720 --> 0:01:43.080 need to bring the FED funds rate above five and 0:01:43.160 --> 0:01:45.520 hold it there for some time. Indeed, at our meeting 0:01:45.600 --> 0:01:50.240 two weeks ago, setting aside what financial market participation participants 0:01:50.240 --> 0:01:53.120 expected us to do, I saw a compelling economic case 0:01:53.840 --> 0:01:56.760 for a fifty basis point increase, which should have brought 0:01:56.800 --> 0:01:59.400 the top of the target range to five. I spoke 0:01:59.400 --> 0:02:02.800 with Bloomberg CHEF rates correspondent Garfield Reynolds to gauge bond 0:02:02.880 --> 0:02:05.920 market reaction to the daily drip of new data and 0:02:06.040 --> 0:02:09.480 Fed speak. So Garfield, since the last FED meeting, the 0:02:09.520 --> 0:02:12.440 two year bond yields up about sixty basis points, and 0:02:12.560 --> 0:02:15.320 Marko Kolanovitch pointed out that it's the bond market moving 0:02:15.360 --> 0:02:19.160 towards the FED, but the prevailing sentiment is of exuberance 0:02:19.200 --> 0:02:23.440 and greed. Do you think that's fair, Well, I think 0:02:23.440 --> 0:02:25.800 it's it's a little bit. I mean, as so as 0:02:26.040 --> 0:02:29.560 the bond market goes, it's definitely received a big shock, 0:02:30.760 --> 0:02:34.280 both from from the data itself, you know, they've been 0:02:34.560 --> 0:02:42.480 upside surprises, and also from the feds willingness to actually 0:02:42.680 --> 0:02:46.960 deliver on higher rates and the idea that they would 0:02:46.960 --> 0:02:49.160 hold them there for longer. Now, that's something that was 0:02:49.200 --> 0:02:52.400 flagged by the Fed last year, even as it was 0:02:52.440 --> 0:02:54.520 starting to slow the pace of rate hikes. But the 0:02:54.560 --> 0:02:58.560 bond market was looking past that and assuming that the 0:02:58.600 --> 0:03:01.240 impact of last years it stream rate hikes would be 0:03:01.280 --> 0:03:04.280 such that the FED would be able to soon stop 0:03:04.440 --> 0:03:06.960 hiking rates and in fact would have to turn towards 0:03:06.960 --> 0:03:10.600 considering rate cuts, I mean on the greed side. If 0:03:10.639 --> 0:03:14.160 that's talking about what's going on in the equities market, 0:03:14.200 --> 0:03:18.840 where we're seeing some perhaps surprising resilience, especially the NASDAK 0:03:19.000 --> 0:03:21.560 is shrugging off like a sixty basis point jump in 0:03:21.639 --> 0:03:24.560 the two year yield has not done much damage to 0:03:24.560 --> 0:03:30.640 the NASDAK at all, despite texts famously supposedly being yield sensitive. Now, 0:03:31.000 --> 0:03:33.360 perhaps part of the reason for that is that the 0:03:33.480 --> 0:03:38.560 economic data have been so resilient in the face of 0:03:39.480 --> 0:03:43.720 last year's rate hikes. So we're kind of in a 0:03:43.800 --> 0:03:47.360 scenario where perhaps equity markets are judging that good news 0:03:47.400 --> 0:03:50.480 for the economy is good news for equities, even as 0:03:50.560 --> 0:03:55.360 bonds are deciding more traditional set up, good news for 0:03:55.400 --> 0:03:58.480 the economy is bad news for bonds. Yeah, the whole 0:03:58.520 --> 0:04:01.000 thing is a little bit harder, feels like there's something 0:04:01.080 --> 0:04:04.240 that we're missing out on. Anyway, Marco says the market 0:04:04.320 --> 0:04:06.240 not just fighting the FED, but it's taunting the FED 0:04:06.240 --> 0:04:09.240 with crypto and meme stocks and on profit companies responding 0:04:09.240 --> 0:04:11.560 best to FED communications. So I guess he sees it 0:04:11.720 --> 0:04:14.240 slightly differently, that this is some kind of fake out 0:04:14.320 --> 0:04:16.200 or something on the part of those that are putting 0:04:16.200 --> 0:04:19.960 money into these particular stocks. Well, I think there is 0:04:19.960 --> 0:04:22.520 here ultimately a disconnecting the way the bond market is 0:04:22.600 --> 0:04:27.919 positioning very deeply inverted yield curve and persistently inverted yield curve, 0:04:28.520 --> 0:04:33.080 signaling a lot of concerns about the potential for a 0:04:33.160 --> 0:04:36.520 major economic slowdown. You've also got even that the bond 0:04:36.560 --> 0:04:40.200 market has pushed back it's expectations for when the FED 0:04:40.200 --> 0:04:43.400 will peak and pushed up the expectations for where it 0:04:43.480 --> 0:04:46.880 will call a whole to rate hikes. It still sees 0:04:47.600 --> 0:04:50.080 next year now rather than this year, But next year 0:04:50.440 --> 0:04:53.599 it sees one and a half percentage points of rate cuts. 0:04:54.560 --> 0:04:58.560 You know, that says the bond market. The recession stocks 0:04:58.560 --> 0:05:02.280 seemingly don't see what yeah, I mean. I guess it's 0:05:02.279 --> 0:05:04.720 the Eisman call of we don't like to change our 0:05:04.920 --> 0:05:08.160 market narratives, or people get very attached to their market narratives. 0:05:08.160 --> 0:05:10.080 And perhaps the bond market maybe has a little bit 0:05:10.120 --> 0:05:12.680 better of an ability to not be in denial about 0:05:12.680 --> 0:05:14.800 certain things. But that seems a little bit too deep. 0:05:15.680 --> 0:05:17.760 Why should the bond market be so much more nuanced 0:05:17.760 --> 0:05:19.640 and so much more sovestigated than the stock market in 0:05:19.680 --> 0:05:22.720 some ways? Well, I think it's more they look at 0:05:22.720 --> 0:05:25.200 different calculations, and especially now you know, one of the 0:05:25.240 --> 0:05:30.120 things that's feeding this is bonds again have yields. So 0:05:30.240 --> 0:05:33.840 because they have yields, you can buy a bond and 0:05:33.960 --> 0:05:38.080 still do okay, even if those yields thin rise e. 0:05:38.279 --> 0:05:41.680 The price of bonds go down. That's a reverse or 0:05:41.720 --> 0:05:44.960 the situation for much of the past decade when yields 0:05:44.960 --> 0:05:48.280 went down so low that bonds are almost like stocks. 0:05:48.279 --> 0:05:51.440 You have to buy them on the basis of price appreciation, 0:05:51.720 --> 0:05:54.360 not on the basis of carrie. But now they've got 0:05:54.440 --> 0:05:57.840 yields again. So the calculation for quite a few bond 0:05:57.839 --> 0:06:01.520 investors is hey, three percent, four and a half percent, 0:06:01.600 --> 0:06:04.479 depending on the instrument. I can buy that, hang onto it, 0:06:04.520 --> 0:06:08.720 and I'll do it okay. Whereas equity investors mostly don't 0:06:08.720 --> 0:06:11.760 look so much at dividends. They're looking for capital appreciation. 0:06:12.200 --> 0:06:17.159 So they're looking for the idea that earnings are going 0:06:17.240 --> 0:06:20.640 to improve. And we're seem to be having mostly a 0:06:20.720 --> 0:06:25.039 fairly decent earning season, and although there are plenty of 0:06:25.120 --> 0:06:27.440 dire warnings that are slow down is coming and that 0:06:27.560 --> 0:06:32.000 will cause and earnings recession. For now, to some extent, 0:06:32.040 --> 0:06:35.320 they're almost drawing confidence from the FEDS willness to keep 0:06:35.400 --> 0:06:40.000 raising rates at a slower pace, because that says to them, well, 0:06:40.040 --> 0:06:42.640 the Fed doesn't think the economy is about the collapse, 0:06:42.800 --> 0:06:44.960 because at the FEDS thought the economy was about the collapse, 0:06:45.000 --> 0:06:47.920 they'll be saying we're going to stop hiking rates. Yes, exactly, 0:06:48.000 --> 0:06:50.960 moved the whole portion of their agenda, assuming that's still 0:06:51.000 --> 0:06:54.240 on fat expectations up to five point four percent now 0:06:54.320 --> 0:06:58.240 for the terminal rates, and they're even places where you 0:06:58.279 --> 0:07:00.200 see the market looking at the propular we have a 0:07:00.279 --> 0:07:03.200 high Q two six point one, and the chances of 0:07:03.200 --> 0:07:07.479 a hike to six percent now is so that's a 0:07:07.600 --> 0:07:14.160 one in two or something. Yeah exactly. Yeah, so not huge, 0:07:14.240 --> 0:07:16.600 but nevertheless it's starting to be there. And when anything 0:07:16.720 --> 0:07:18.360 kind of appears in the market, you really have to 0:07:18.400 --> 0:07:21.440 take notice. I mean, how quickly can this change again 0:07:21.480 --> 0:07:24.800 if we get more communication, which is really just constant 0:07:24.840 --> 0:07:29.120 at this point, Yeah, I mean, obviously it can change rapidly. 0:07:29.680 --> 0:07:33.960 Less than a month ago, the market was mostly expecting 0:07:34.000 --> 0:07:36.200 that the FED was going to pick under five percent, 0:07:36.280 --> 0:07:38.840 and that was despite plenty of commentary from the FED 0:07:38.880 --> 0:07:42.160 that five percent was about the minimum where they thought 0:07:42.240 --> 0:07:45.280 they would go to. And you know, it would only 0:07:45.320 --> 0:07:49.080 take a couple of data points here. If inflation had 0:07:49.160 --> 0:07:53.440 come in weaker than expected just this week, then you 0:07:53.480 --> 0:07:57.960 would have had a fairly rapid cooling down in great 0:07:58.040 --> 0:08:01.680 expectations at least in two until unless you then had 0:08:01.720 --> 0:08:04.680 Fair officials pushing back saying, yeah, this is not we 0:08:04.720 --> 0:08:07.520 don't really believe this, so it's all it's all on 0:08:07.560 --> 0:08:11.200 the table. And like I said, that that constant expectation 0:08:11.320 --> 0:08:14.720 that next year will bring very steep rate cuts that 0:08:15.040 --> 0:08:18.360 underscores the idea that the bond market is worried about 0:08:18.400 --> 0:08:21.400 what's going to go on with the economy. They're worried 0:08:21.440 --> 0:08:24.080 that the Fed, or they're pricing for the possibility that 0:08:24.160 --> 0:08:26.600 the FED has to go high enough with its rate 0:08:26.640 --> 0:08:30.520 in order to cool inflation that it will cause very 0:08:30.520 --> 0:08:33.120 strong damage to the economy, and that then it will 0:08:33.160 --> 0:08:36.840 have to rapidly reverse those moves, if not this year, 0:08:37.120 --> 0:08:39.640 the next year. Now, Garfield, I know you give a 0:08:39.720 --> 0:08:43.120 lovely explanation just a moment ago about why bonds are 0:08:43.120 --> 0:08:45.559 repricing at a different paste to equities and how the 0:08:45.679 --> 0:08:49.320 repricing differently. But is there anything special about this market 0:08:49.480 --> 0:08:52.080 that we can see such large moves in the bond 0:08:52.160 --> 0:08:55.120 market and really relatively not so large moves in the 0:08:55.120 --> 0:08:57.480 equity market. Is there something awaiting us, let's put it 0:08:57.480 --> 0:09:00.760 that way. Well, I think it's more that we're in 0:09:00.800 --> 0:09:05.600 a situation where the outlook of FED policy is very fluid, 0:09:05.840 --> 0:09:12.000 and bonds are your bonds are very focused on how 0:09:12.080 --> 0:09:14.600 high does the FED going? When does the FED stop? 0:09:15.880 --> 0:09:18.800 And on the idea that you've had the steepest rate 0:09:18.880 --> 0:09:22.080 hikes in a generation. What's that going to do to 0:09:23.440 --> 0:09:29.160 the economy. For equity markets there, they're looking at it 0:09:29.160 --> 0:09:31.640 as okay, so we had all these big, great hikes. 0:09:32.000 --> 0:09:36.400 The economy seems to be okay with that, and most importantly, okay, 0:09:36.440 --> 0:09:39.959 even if there's not stopping, it's slowed down. It's very 0:09:40.040 --> 0:09:42.520 unlikely it's going to do more than twenty five basis 0:09:42.520 --> 0:09:48.040 points of time. So the disruptive phase is done and dusted. 0:09:48.600 --> 0:09:54.120 And for equities who who price you know sort of 0:09:54.160 --> 0:09:58.199 second third order impacts from FED moves, whereas bonds of 0:09:58.280 --> 0:10:03.120 pricing of first order or zero order impact that that 0:10:03.160 --> 0:10:05.880 means they can be a bit more relaxed about you know, 0:10:06.000 --> 0:10:08.720 how are we going to get to basis point hikes 0:10:08.760 --> 0:10:13.000 or three basis point hikes? Whereas for bonds that that's 0:10:13.080 --> 0:10:17.760 a more disruptive scenario. Chief Rate's correspondent Garfield reynalds there 0:10:17.960 --> 0:10:20.240 he stays with us, So stay tuned for more of that. 0:10:20.360 --> 0:10:24.400 Conversation and later. The thing is he's kind of exhausted 0:10:24.480 --> 0:10:27.800 most of the pretty much invested all of the money 0:10:27.840 --> 0:10:31.240 that he has in time, and so all investors and 0:10:31.320 --> 0:10:33.240 Massa himself and there is just sider out to wait 0:10:33.320 --> 0:10:37.200 for somebody to come to fruition. And right now a 0:10:37.240 --> 0:10:39.160 lot of these companies are not going to IPR. It's 0:10:39.200 --> 0:10:41.640 not a very good market right maybe a year now 0:10:41.760 --> 0:10:45.199 will be. So everyone's kind of still sitting around twiddling 0:10:45.200 --> 0:10:49.440 their homes going now. And that's the next big question. 0:10:49.880 --> 0:10:53.960 Tim Colpen on Massa Song's dilemma. This is Bloomberg Opinion. 0:10:54.640 --> 0:10:57.920 You're listening to Bloomberg Opinion. I'm Vonnie Quinn. Let's return 0:10:57.960 --> 0:11:01.200 to Garfield Reynolds now Bloomberg Chief Free correspondent, and some 0:11:01.280 --> 0:11:04.600 of the prevailing questions raised by market moves and FED 0:11:04.640 --> 0:11:08.800 speakers this week. Monetary hawks, Laretta Mester, Cleveland FED President 0:11:09.400 --> 0:11:13.080 see is common appreciational way in bringing policy from a 0:11:13.200 --> 0:11:16.920 varier committive stance to a restrictive one. But I do 0:11:17.040 --> 0:11:19.319 believe we have more work to do. Indeed, at our 0:11:19.360 --> 0:11:23.360 meeting two weeks ago, setting aside which financial market participation 0:11:23.640 --> 0:11:26.839 participants expected us to do I saw a compelling economic 0:11:26.920 --> 0:11:30.640 case for a fifty basis point increase, which should have 0:11:30.679 --> 0:11:33.280 brought the top of the target range to five. And 0:11:33.360 --> 0:11:36.120 Jim Bullard St. Louis Fed President, we're out towards the 0:11:36.200 --> 0:11:38.720 end of the week with words of caution for markets, 0:11:38.760 --> 0:11:42.320 assuming the FED won't return to larger rate ekes if necessary. 0:11:42.480 --> 0:11:46.920 The benefits of getting inflation under control quickly are vast, 0:11:47.679 --> 0:11:50.760 and uh, we do want to achieve that. But if 0:11:50.800 --> 0:11:53.240 we don't, we risk this replace. So I think that's 0:11:53.280 --> 0:11:56.160 the thing to watch out for. Heres that we uh 0:11:56.360 --> 0:12:00.480 don't do enough on inflation and we get a rep eight. 0:12:01.280 --> 0:12:04.240 This all after a slew of hard data from retail 0:12:04.320 --> 0:12:08.160 sales to producer prizes which showed inflation clear and present 0:12:08.480 --> 0:12:12.120 and raised questions about market expectations for disinflation over the 0:12:12.120 --> 0:12:15.600 coming months. Let's get back to our conversation. Cameron Christ 0:12:15.640 --> 0:12:17.960 brought up something interesting on M Live when it comes 0:12:18.000 --> 0:12:20.520 to the so called lag that's long and variable. He 0:12:20.559 --> 0:12:22.880 was asking the question, how long and variable is the 0:12:22.920 --> 0:12:25.560 delay with which rates work in a world of forward 0:12:25.600 --> 0:12:29.120 guidance and literally stream of consciousness communication. Do you have 0:12:29.160 --> 0:12:32.920 any impressions that this long and variable lag has changed 0:12:33.120 --> 0:12:36.320 at all in the minds of FED watchers or FED 0:12:36.360 --> 0:12:38.440 governors or you know, anyone at touched to the FED 0:12:38.480 --> 0:12:41.880 in the last year or so. Well, it's a very 0:12:42.200 --> 0:12:44.960 is a very interesting point. I mean, I think in 0:12:45.120 --> 0:12:51.760 financial markets, uh, the lag is is much less. If 0:12:51.960 --> 0:12:55.240 you could, you could even argue that they are almost 0:12:55.400 --> 0:12:59.880 reverse lag. You know, we had a financial markets moving 0:13:00.760 --> 0:13:04.520 by getting ahead of themselves, perhaps moving to price in 0:13:04.600 --> 0:13:07.720 the pivot, before the FED had even seriously started to 0:13:07.760 --> 0:13:13.320 consider it. Um But the question for the FED, and 0:13:13.400 --> 0:13:15.800 this of course is one of the things the FED 0:13:15.840 --> 0:13:18.600 that's there. It's run by economists who are looking at 0:13:18.880 --> 0:13:20.719 what is this going to do to Main Street? And 0:13:20.880 --> 0:13:25.920 Wall Street usually only matters much to them from the 0:13:25.920 --> 0:13:28.679 point of view of what's the impact on Main Street 0:13:28.679 --> 0:13:32.960 that Wall Street is transmitting. Now, there's been a very 0:13:33.120 --> 0:13:37.680 large run up in mortgage rates and in borrowing costs 0:13:38.120 --> 0:13:42.160 for the rest of the economy, and even if those 0:13:42.320 --> 0:13:45.360 costs have come down, they're still much much higher than 0:13:45.400 --> 0:13:50.120 they were six months ago, a year ago, so that 0:13:50.200 --> 0:13:53.680 takes it's time to feed through. You could even argue 0:13:53.720 --> 0:13:56.120 there's the potential that the lag is going to be 0:13:56.320 --> 0:13:59.839 longer than usual. The reason for that being, and this 0:14:00.080 --> 0:14:02.280 something central bankers have pointed to. It's a lot of 0:14:02.320 --> 0:14:05.679 households out there to build up some very strong buffers 0:14:06.200 --> 0:14:09.400 during the pandemic when there's a lot of money being 0:14:09.440 --> 0:14:14.880 pumped into the economy. So if you've got those savings buffers, 0:14:15.320 --> 0:14:21.680 then the impact of monetary policy increasing your costs via 0:14:21.760 --> 0:14:26.040 the interest rate mechanism. So you know, if you're a business, 0:14:26.080 --> 0:14:29.800 you're paying you're having to pay more to get funding. 0:14:29.920 --> 0:14:34.640 If you're household, depending on you know, if you're not 0:14:34.680 --> 0:14:37.040 on a variable rate mortgage, it doesn't matter so much 0:14:37.240 --> 0:14:40.760 other than the indirect impact that people who take out 0:14:40.840 --> 0:14:44.600 new mortgages face higher costs, and there might be you're 0:14:44.760 --> 0:14:46.680 less wanting to pay the sort of prices you want 0:14:46.680 --> 0:14:49.080 for your home. But all of those effects are going 0:14:49.120 --> 0:14:52.040 to take longer. Potential to feed through the economy presidesly 0:14:52.120 --> 0:14:56.000 because the FED and others, looking at globally fat and 0:14:56.120 --> 0:14:59.840 others and the governments that they were acting a concert with, 0:15:00.280 --> 0:15:03.400 they pumped an enormous amount of money into the economy 0:15:03.640 --> 0:15:06.240 during the pandemic. They wanted to make sure the economy 0:15:06.320 --> 0:15:10.160 kept working. They almost certainly, to a man and woman, 0:15:10.880 --> 0:15:14.760 over stimulated during the pandemic left too much money out 0:15:14.800 --> 0:15:17.240 there on the table. Now they're trying to scoop that up, 0:15:17.760 --> 0:15:23.000 it might take them longer than in previous cycles. Speaking 0:15:23.000 --> 0:15:25.200 of which, the layer Brainer departure, will it have an 0:15:25.240 --> 0:15:28.840 impact on the SEP the dot plot? Well, a lot 0:15:28.880 --> 0:15:33.760 depends on who I think sort of assumes it's going 0:15:33.800 --> 0:15:36.640 to have an impact on the dot plot. But we 0:15:36.680 --> 0:15:39.400 really don't know, do we No, No, we're there. I mean, 0:15:39.920 --> 0:15:44.320 I suppose the judgment, rightly or wrongly, is that she 0:15:44.520 --> 0:15:48.160 was pretty close to the doublish side. So it's it's 0:15:48.280 --> 0:15:51.560 unlikely to lead to a lower dot plot because she 0:15:51.600 --> 0:15:57.280 would be unlikely to find somebody who would outdove brainard Um. 0:15:57.360 --> 0:16:01.120 You know. Then again, I don't see I haven't seen 0:16:01.120 --> 0:16:05.160 anybody saying that the administration is going to be looking 0:16:05.160 --> 0:16:09.400 to appoint somebody who's significantly more hawkish, uh, given that 0:16:09.560 --> 0:16:12.560 they need to do plenty of borrowing, so it might 0:16:12.640 --> 0:16:16.920 really not have a huge impact. Garfield weakness in the 0:16:16.920 --> 0:16:18.720 dollar that we have had a recent bounces back near 0:16:18.760 --> 0:16:20.920 one oh four again, the d x Y how is 0:16:20.960 --> 0:16:24.600 it impacting or being impacted by rates these days, which 0:16:24.600 --> 0:16:27.040 as the House is impacting the other well, yeah, I 0:16:27.080 --> 0:16:32.040 mean the ramping up in radar expectations and what that's 0:16:32.040 --> 0:16:37.440 done to treasury yields has definitely revived the US dollars level, 0:16:37.880 --> 0:16:40.800 return some strength to the dollar at a time when 0:16:41.480 --> 0:16:46.280 the general expectation was this year that the dollar would weaken. UM. 0:16:47.000 --> 0:16:51.160 So far, that's not having too much of an impact 0:16:51.280 --> 0:16:55.040 on broader markets because it's simply sort of recovered some 0:16:55.200 --> 0:16:57.640 of the ground that it had lost. If it does 0:16:58.000 --> 0:17:02.520 continue to rise and continues to push beyond its previous highs, 0:17:03.040 --> 0:17:04.959 then you might start to see that have a bit 0:17:04.960 --> 0:17:08.720 of an impact, especially in emerging markets who are actually 0:17:09.040 --> 0:17:13.760 starting to look a bit more vulnerable, both because of 0:17:14.359 --> 0:17:18.840 that factor and also because of some idiosyncratic concerns in 0:17:18.880 --> 0:17:24.119 places like India and Brazil. UM that that that that 0:17:24.200 --> 0:17:29.720 they might not be the outperformers this year, that some 0:17:29.760 --> 0:17:31.439 people at the beginning of this year had said that 0:17:31.680 --> 0:17:35.640 they would be relative to more developed markets. Marco Kolanovitch 0:17:35.680 --> 0:17:37.359 again to bring him up as warning of volmged and 0:17:37.400 --> 0:17:40.080 two point oh. Thanks to the explosive rise of short 0:17:40.160 --> 0:17:44.520 data options and Goldman SAX has found that such options 0:17:44.560 --> 0:17:48.040 actually make up more than of the SMB five total 0:17:48.080 --> 0:17:50.320 trading volume these days, which is almost double what it 0:17:50.400 --> 0:17:53.000 was six months ago. Is it something that you have 0:17:53.080 --> 0:17:55.320 seen much focus on or that you are concerned about 0:17:55.320 --> 0:17:59.359 when you look at the market moves. No, I haven't 0:17:59.400 --> 0:18:02.640 seen a huge amount of focus on it. I mean, 0:18:02.880 --> 0:18:06.119 you know, there's certainly plenty of concerns at times that 0:18:07.000 --> 0:18:09.840 you get some very sudden moves at particular times of 0:18:09.920 --> 0:18:11.800 the day, and that that may well be linked to 0:18:12.680 --> 0:18:19.879 you two options trades or settlements. But so far, there's 0:18:20.000 --> 0:18:24.639 not a huge amount of anxiousness that options in and 0:18:24.720 --> 0:18:31.600 of themselves are going to cause major difficulties. That's mostly 0:18:31.720 --> 0:18:36.520 seen as being noise rather than rather than signal. Right, 0:18:37.000 --> 0:18:39.400 He points out that what would happen is the big 0:18:39.440 --> 0:18:42.320 move might force options dealers to unwind a large amount 0:18:42.320 --> 0:18:44.399 of their positions. But I guess in that instance it 0:18:44.480 --> 0:18:47.159 might be contained. But anyway, if it happens, we have 0:18:47.160 --> 0:18:50.840 more time to talk about it. Bloomberg Chief Rates correspondent 0:18:50.840 --> 0:18:53.920 Garfield rentals there. Next up, we'll take a look at 0:18:54.000 --> 0:18:56.840 one example of what might be becoming a broader trend. 0:18:57.480 --> 0:19:01.480 Japanese startup investor Masayoshi Son, isting on billions of dollars 0:19:01.480 --> 0:19:05.399 of losses as market sentiment turns away from initial public 0:19:05.400 --> 0:19:10.560 offerings and from gross companies not currently profitable. Venture capitalists well, 0:19:10.600 --> 0:19:13.000 it's just not their time right now. But can they 0:19:13.080 --> 0:19:15.440 sit out the current malaise for their industry now? The 0:19:15.480 --> 0:19:18.720 global markets going up and down, the private market, the 0:19:18.760 --> 0:19:21.480 startups and bcs is going up and down, but it's 0:19:21.600 --> 0:19:23.480 very opaque, so we don't know alway know what the 0:19:23.560 --> 0:19:26.960 valuation of an unmisted company is. But with soft Bank, 0:19:27.119 --> 0:19:29.600 we can look very very closely at how they're doing. 0:19:29.840 --> 0:19:33.400 And people believe in soft Bank, they believe in mass 0:19:33.400 --> 0:19:36.199 If they believe in that, you really have to be 0:19:36.240 --> 0:19:38.480 ready for a white knucle right if you you want 0:19:38.480 --> 0:19:40.840 to have to ride these dips and troughs, which are 0:19:40.920 --> 0:19:42.760 the company has been going for over the last year 0:19:42.840 --> 0:19:45.479 or so. We'll chat with bloombergs Tim Colburn about what 0:19:45.600 --> 0:19:48.720 one VC investor is doing to mollify his investor base. 0:19:49.480 --> 0:19:52.159 And don't forget We're available as a podcast on Apple, 0:19:52.320 --> 0:19:56.520 Spotify or your favorite podcast platform. Stay tuned. This is 0:19:56.560 --> 0:20:00.919 Bloomberg Opinion. You're listening to Bloomberg Opinion. I'm Vonnie Quinn, 0:20:01.200 --> 0:20:04.320 Japanese billionaire Massa Yoshi Son's soft Bank Group said this 0:20:04.480 --> 0:20:06.920 month It's a vision fund posted an investment loss of 0:20:07.000 --> 0:20:10.520 five and a half billion dollars and total startup investing 0:20:10.680 --> 0:20:14.440 was down nine year over year. The tech investment company 0:20:14.480 --> 0:20:16.840 has invested in more than four hundred and fifty companies 0:20:16.920 --> 0:20:19.160 since the launch of its first of two Vision funds 0:20:19.200 --> 0:20:22.560 in twenty seventeen, companies such as TikTok, Owner by Dance, 0:20:22.720 --> 0:20:26.160 We Work, FDx, Ali Baba Well. In total, it's spent 0:20:26.200 --> 0:20:28.320 more than a hundred and forty billion dollars over the 0:20:28.359 --> 0:20:31.760 five years. These days, Son himself says he's focused on 0:20:31.880 --> 0:20:34.760 taking UK chip maker ARM public and a stepping back 0:20:34.800 --> 0:20:37.600 from SoftBank's day to day operations. I got up with 0:20:37.640 --> 0:20:40.840 Bloomberg opinion columnist Tim Colpan in Taipei to see what 0:20:40.960 --> 0:20:44.920 Masso she Son could do to boost flagging returns. So, Tim, 0:20:44.960 --> 0:20:47.440 before we get into the nitty gritty of Massa's options, 0:20:47.600 --> 0:20:49.800 first tell us a little bit about soft Bank and 0:20:49.960 --> 0:20:54.280 why it's fortunes are so captivating. Well, one thing about 0:20:54.359 --> 0:20:58.520 soft Bank is, about seven years ago added the company 0:20:59.200 --> 0:21:02.479 ass or software company selling software that is, and then 0:21:02.520 --> 0:21:05.600 became my telco. And now he's become essentially the world's 0:21:05.680 --> 0:21:08.600 largest VC, and he has a couple of funds which 0:21:08.720 --> 0:21:11.879 all combined to have close to hundreds minnie dollars of 0:21:12.080 --> 0:21:15.399 capital available. And so the company that is is in 0:21:15.520 --> 0:21:19.920 Japan Bank Group called essentially rises and falls based on 0:21:20.000 --> 0:21:23.159 the value of his investments in other companies. And some 0:21:23.240 --> 0:21:26.520 of those famous examples include uber we Work, or the 0:21:26.600 --> 0:21:30.000 Weed Company, and even side Dance, which is payments for TikTok. 0:21:30.440 --> 0:21:33.719 Massias's son's big early BET's really gone very well off 0:21:33.720 --> 0:21:35.840 for him is Huddy Barber and they still hold but 0:21:36.040 --> 0:21:39.480 if a stake in Huddi Barber, so it's a fassionating 0:21:39.520 --> 0:21:42.959 company because right now we can see the global markets 0:21:43.000 --> 0:21:45.440 going up and down. The private market, you know, the 0:21:45.520 --> 0:21:48.280 startups in bcs is going up and down, but it's 0:21:48.400 --> 0:21:50.760 very opak, so we don't always know what the valuation 0:21:50.840 --> 0:21:53.920 of an unlisted company is. But with soft Bank, we 0:21:54.000 --> 0:21:56.639 can look very very closely at how they're doing. And 0:21:57.600 --> 0:21:59.840 the last year or so we've not been doing very well. 0:22:00.080 --> 0:22:02.399 More and more of a private investments have been getting 0:22:02.440 --> 0:22:05.840 written down by a certain amount and public investments mostly 0:22:05.880 --> 0:22:09.080 coming down. So if you're an investor in soft Bank, 0:22:09.200 --> 0:22:13.919 really be kind of investor in massive kind of neutral funds, 0:22:14.320 --> 0:22:18.639 private equity fund a mix of different investments. And people 0:22:19.320 --> 0:22:21.480 believe in soft Bank, they believe in must if they 0:22:21.520 --> 0:22:24.040 believe in the vision. But you really have to be 0:22:24.119 --> 0:22:26.159 ready for a white knuckle ride if you if you 0:22:26.200 --> 0:22:28.480 want to have to ride these dips and troughs which 0:22:28.560 --> 0:22:30.440 are the company has been going through over the last 0:22:30.520 --> 0:22:33.840 year or so. Does Japanese monetary policy have much of 0:22:33.880 --> 0:22:36.320 an impact on the vision funds? Or is it more 0:22:36.640 --> 0:22:39.119 what the Federal Reserve does? In other words, are we 0:22:39.240 --> 0:22:40.840 witnessing the same thing as we are in the U 0:22:41.000 --> 0:22:43.520 s where investors have suddenly remembered that they prefer it 0:22:43.560 --> 0:22:46.760 when a company actually turns a profit. Yeah, that's a 0:22:46.800 --> 0:22:49.560 really good point. Now, So if you are an investor 0:22:49.680 --> 0:22:52.960 in soft Bank Group up it is a Japanese traded company, 0:22:53.800 --> 0:22:55.840 then if you're sitting around with you know, a few 0:22:55.920 --> 0:22:57.919 hundred thousand in the end to invest or a few 0:22:57.960 --> 0:23:00.280 hundred millions the end to invest in, thinking that where 0:23:00.280 --> 0:23:03.720 I'm going to buy money for the next year, you 0:23:03.960 --> 0:23:05.840 might not be wanting to put it in soft Bank 0:23:05.920 --> 0:23:08.960 because a lot of what they're invested in is stuff 0:23:09.000 --> 0:23:12.520 that is going to be impacted from a tighter monetary policy. 0:23:13.200 --> 0:23:16.840 They do have, for example, a telecom company called SoftBank Corps, 0:23:16.960 --> 0:23:19.800