WEBVTT - Bloomberg Businessweek Weekend - November 3rd, 2023 0:00:01.360 --> 0:00:05.720 This is Bloomberg business Week inside from the reporters and 0:00:05.880 --> 0:00:09.479 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business, finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:18.640 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:19.960 --> 0:00:23.000 Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. 0:00:23.360 --> 0:00:25.919 It was a very busy autumn week for markets that 0:00:26.000 --> 0:00:28.680 saw the latest federal reserve rate decision, with the FOMC 0:00:28.840 --> 0:00:32.080 holding firm for a second straight policy meeting as expected. 0:00:32.520 --> 0:00:35.519 We also got the October government jobs report and quarterly 0:00:35.600 --> 0:00:36.440 earnings from Apple. 0:00:36.680 --> 0:00:40.280 And speaking of earnings, the increasingly high tech agricultural equipment 0:00:40.320 --> 0:00:43.600 maker Agco gave its quarterly update. Coming up this hour, 0:00:43.760 --> 0:00:46.760 the CEO explains how the interest rate environment affects his 0:00:46.880 --> 0:00:50.000 capital intensive business. Then the head of the family owned 0:00:50.040 --> 0:00:53.840 car rental company Enterprise Mobility as it's called now, stops 0:00:53.840 --> 0:00:56.080 by with some key insights into the health of the consumer. 0:00:56.360 --> 0:00:58.920 There is a ton, Carol, that you can learn when 0:00:59.000 --> 0:01:00.120 you analyze the rental car. 0:01:00.320 --> 0:01:02.320 I feel like both of those conversations gave us a 0:01:02.400 --> 0:01:04.600 nice little peek into the economy. And then a bit 0:01:04.680 --> 0:01:07.800 later on the North American CEO of alcoholic beverage Giant 0:01:07.800 --> 0:01:13.640 Perno recard details, key trends, peanut butter, whiskey anyone, Maybe not, 0:01:14.480 --> 0:01:16.959 maybe not, I've heard about this, although there was a 0:01:17.080 --> 0:01:20.440 topic that definitely plays to you. We also talked about 0:01:20.480 --> 0:01:23.959 consolidation driving the global market for premium wines and spirits, 0:01:24.240 --> 0:01:27.399 a sector valued in the area of a quarter trillion dollars. 0:01:27.640 --> 0:01:29.399 All of that to come. We begin with a story 0:01:29.400 --> 0:01:31.600 in the finance section of the latest issue of Bloomberg 0:01:31.640 --> 0:01:33.720 BusinessWeek and what we love to talk about the Fed's 0:01:33.760 --> 0:01:35.720 impact on the treasury yield curve. It turns out there's 0:01:35.720 --> 0:01:38.520 another group of investors that seem to be playing a role. 0:01:38.680 --> 0:01:41.320 Interesting story with more and how hedge funds are driving 0:01:41.360 --> 0:01:44.679 volatility in the creator in US bond market. Bloomberg Market 0:01:44.760 --> 0:01:47.160 Senior editor Mike Reagan and I turned to our colleagues 0:01:47.400 --> 0:01:51.520 Daniza Sikova and Liz McCormick. Guys, so great to have 0:01:51.600 --> 0:01:54.480 you here with us. Denis, let's start with you. I'm 0:01:54.520 --> 0:01:57.440 curious about the conversation in the newsroom. Joel has a 0:01:57.480 --> 0:01:59.360 tendency they'll kind of walk around the newsroom and like 0:01:59.440 --> 0:02:02.120 kind of poke all about stories. How did this story 0:02:02.120 --> 0:02:04.760 come about? What was the conversation or did you know 0:02:04.800 --> 0:02:06.560 one of you say, like, you should see what hedge 0:02:06.560 --> 0:02:08.040 fund guys are up to, So tell us how this 0:02:08.120 --> 0:02:08.520 came to be. 0:02:09.040 --> 0:02:11.120 Yeah, so it came back to that theme. We've talked 0:02:11.120 --> 0:02:14.400 a lot about price sensitive and price incensitive buyers, so 0:02:14.440 --> 0:02:17.520 we wanted to look into who are really those new buyers, 0:02:17.560 --> 0:02:19.880 and hedge fund's a big part of it. And obviously, 0:02:19.919 --> 0:02:24.040 like if you think of just generally trading treasuries and 0:02:24.639 --> 0:02:26.960 think of it as the safest market and kind of 0:02:27.320 --> 0:02:30.280 a little bit slower moving market compared to I don't know, 0:02:30.760 --> 0:02:34.720 compared to equities, currencies, I don't know. So the conversation came, 0:02:34.919 --> 0:02:38.200 how has the day of those people changed? And this 0:02:38.320 --> 0:02:42.280 is what we asked them, so won't tail alpha the 0:02:43.200 --> 0:02:45.640 year's day is very different. You know. 0:02:45.720 --> 0:02:47.280 The first andingcdote is he wakes. 0:02:47.120 --> 0:02:51.640 Up every two two hours to check the prices, and 0:02:51.960 --> 0:02:55.600 you know it's being there on your Bloomberg terminal or whatever. 0:02:55.639 --> 0:02:58.640 You check your prices all the time, and following every 0:02:58.639 --> 0:03:02.280 little move and then every small data release is very 0:03:02.280 --> 0:03:05.960 important and potentially it can make you move things. And obviously, 0:03:06.120 --> 0:03:07.880 like some of those traits are voice trades. 0:03:07.919 --> 0:03:08.520 Sometimes you have. 0:03:08.480 --> 0:03:10.240 To be in the office and look at all those 0:03:10.280 --> 0:03:13.040 releases together decide where you have to make moves. 0:03:13.280 --> 0:03:14.320 And you can imagine this is. 0:03:14.320 --> 0:03:16.799 Very different than I don't know, five years ago, when 0:03:16.840 --> 0:03:20.240 the FED was such a big important buyer and prices 0:03:20.240 --> 0:03:22.640 maybe weren't as sensitive to those things. 0:03:22.840 --> 0:03:25.160 Yeah, this is why I'm not a tail risk hedge. 0:03:25.160 --> 0:03:27.760 From that that. 0:03:28.440 --> 0:03:31.200 Well, I want to bring listen to this conversation, Liz, 0:03:31.200 --> 0:03:34.200 because we talk about the extreme volatility that we see 0:03:34.639 --> 0:03:38.640 in the US bond market this year. So are they 0:03:38.680 --> 0:03:41.240 playing our hedge fund guys and gals, if you will, 0:03:41.520 --> 0:03:43.840 playing a significant role in that volatility? 0:03:44.320 --> 0:03:44.480 Well? 0:03:44.560 --> 0:03:46.200 Yeah, right? Is it circular? 0:03:46.320 --> 0:03:48.600 Right? And they like the volatility, they come in, they 0:03:48.640 --> 0:03:52.480 create more volatility, right, So it kind of feeds on 0:03:52.560 --> 0:03:54.880 itself and then more becomes and I have to do 0:03:54.960 --> 0:03:57.760 a shout out. I know Tracy Allowood at some point 0:03:57.800 --> 0:03:59.720 did a story Treasury is Trading. 0:03:59.440 --> 0:04:01.640 Like a memest, so we have to book that one up. 0:04:01.720 --> 0:04:04.200 But that it becomes like, you know. 0:04:04.240 --> 0:04:04.839 What was it? 0:04:04.960 --> 0:04:06.800 Oh, I think Mike Reagan must have edited one of 0:04:06.840 --> 0:04:08.720 these stories we did where there was other things that 0:04:08.800 --> 0:04:11.200 were like the hot things that was crypto and now 0:04:11.520 --> 0:04:14.280 look at this treasuries even today, look at the yields 0:04:14.280 --> 0:04:17.520 across the curve, it's like down, you know, over fifteen 0:04:17.560 --> 0:04:18.279 bases points. 0:04:18.279 --> 0:04:18.920 It's crazy. 0:04:19.000 --> 0:04:21.480 So I think hedge fund's coming in because there's more 0:04:21.560 --> 0:04:24.480 volatility and trading than that adds to it. But they 0:04:24.480 --> 0:04:26.440 do kind of on the flip side say hey, we're 0:04:26.440 --> 0:04:29.160 adding to the liquidity, we're you know, making markets. And 0:04:29.680 --> 0:04:33.200 Deniza knows. Today we had the refunding today and they 0:04:33.240 --> 0:04:35.960 had their barring committee, which the Treasury always does look 0:04:36.000 --> 0:04:38.440 into different things. One of them was like the demand base, 0:04:38.520 --> 0:04:40.599 and they brought up things that were in our story, 0:04:40.640 --> 0:04:43.200 not that it was from our story, but that the 0:04:43.240 --> 0:04:47.000 buying base has changed. You know, you have less commercial banks, 0:04:47.000 --> 0:04:49.680 foreign central banks, you have more households and hedge funds 0:04:49.720 --> 0:04:52.240 you know, involved in the treasury market. So it's kind 0:04:52.240 --> 0:04:54.080 of interesting that they brought that up today. 0:04:54.279 --> 0:04:56.080 Mike did call it a memestock by the way, early. 0:04:56.120 --> 0:04:58.000 Yeah, I really wanted to take credit for that, but 0:04:58.040 --> 0:05:02.040 of course was Tracy's way ahead me as usual. But Liz, 0:05:02.640 --> 0:05:04.919 you know, one of the sort of standard bread and 0:05:05.000 --> 0:05:07.920 butter hedge fund trades when it comes to the treasury 0:05:07.960 --> 0:05:11.360 market is something known as the basis trade, which basically 0:05:11.400 --> 0:05:15.200 looks to profit between discrepancies in the price of bond 0:05:15.240 --> 0:05:18.080 futures and the actual bonds trading in the cash market. 0:05:18.600 --> 0:05:21.400 That seems to be kicking into high gear this year, 0:05:21.400 --> 0:05:24.120 and there's a bit of a backlash to that from 0:05:24.279 --> 0:05:28.400 the government and some scrutiny about what hedge funds are doing. 0:05:28.480 --> 0:05:31.920 I know it's created its own backlash to the backlash, 0:05:32.120 --> 0:05:34.760 Ken Griffin coming out and saying, why do they care 0:05:34.800 --> 0:05:37.400 about this? This is sort of an innocuous trade that 0:05:37.480 --> 0:05:41.560 actually helps save taxpayers money in the bond market. Walk 0:05:41.640 --> 0:05:45.080 us through the basis trade and why there is scrutiny 0:05:45.080 --> 0:05:46.000 of it right now. 0:05:46.400 --> 0:05:48.880 Yeah, in fact, you're front running another story. I have 0:05:50.320 --> 0:05:53.280 get it out before you do. But yeah, it's been interesting. 0:05:53.400 --> 0:05:55.680 Like you said, we've had the FED the BIS, A 0:05:55.720 --> 0:05:58.440 lot of regulators say, hey, we'll worry the side of 0:05:58.480 --> 0:06:00.560 the size of this basis trade is gotten as jig 0:06:00.600 --> 0:06:02.880 as it was like in March twenty twenty. 0:06:02.600 --> 0:06:03.600 And we know what happened then. 0:06:03.880 --> 0:06:06.320 But yeah, normally this is kind of like you say, 0:06:06.360 --> 0:06:09.720 picking pennies up under steamroller. You're shorting the futures, you're 0:06:09.760 --> 0:06:13.040 buying the cash. If you take it to you know, 0:06:13.120 --> 0:06:16.760 to expiration of the futures, they should converge and where 0:06:16.800 --> 0:06:20.240 they see some discrepancies, some price discrepancies, that's why you'll 0:06:20.240 --> 0:06:23.720 do that trade. Where the risk comes in is that 0:06:24.240 --> 0:06:27.800 most of that is done using leverage, meaning using the 0:06:27.880 --> 0:06:31.240 repo market to finance the treasury side. So you have 0:06:31.360 --> 0:06:34.080 the risk that's what happened in like twenty nineteen, that 0:06:34.200 --> 0:06:37.839 repo rates go crazy for whatever reason and you just 0:06:37.839 --> 0:06:40.760 can't keep funding this trade. On the flip side when 0:06:41.080 --> 0:06:43.760 volatility picks up, as you know in futures, you tend 0:06:43.760 --> 0:06:46.039 to get margin calls. It's just part of the metrics. 0:06:46.160 --> 0:06:49.400 And so if you started getting margin calls on the 0:06:49.440 --> 0:06:52.320 short side, so you know, things can just go awry 0:06:52.480 --> 0:06:54.480 on both sides and all of a sudden, you know 0:06:54.560 --> 0:06:56.320 you just can't keep in this trade. Then there's a 0:06:56.360 --> 0:06:58.200 mass exit. That's the way that there's a problem when 0:06:58.240 --> 0:07:01.080 everyone's running on the same way and no one can 0:07:01.120 --> 0:07:03.479 get out. And remember Mike, in twenty twenty, we had 0:07:03.520 --> 0:07:05.200 people saying, Hey, I had a good trade, I. 0:07:05.160 --> 0:07:09.360 Couldn't even get out of that. There's just no liquidity, right, well, that's. 0:07:09.240 --> 0:07:11.040 What I wanted to ask. Don't we want it to 0:07:11.080 --> 0:07:13.640 be a little bit of a sleepy market that you know, 0:07:14.320 --> 0:07:17.080 foreign central banks and the FED and others you know, 0:07:17.280 --> 0:07:19.200 use and can count on to be kind of trade 0:07:19.240 --> 0:07:22.520 a certain way. I mean, don't we to some extent 0:07:22.560 --> 0:07:25.240 the need to care about the composition of buyers or 0:07:25.240 --> 0:07:28.320 are we just glad that there are buyers in this market? 0:07:28.560 --> 0:07:31.080 We do care about the composition for sure, and obviously, 0:07:31.160 --> 0:07:35.320 like just to give perspective, so those big traditional buyers, 0:07:35.360 --> 0:07:39.400 including the FED, commercial banks, foreign buyers used to count 0:07:39.520 --> 0:07:42.720 for seventy five percent of the ownership of the treasury market. 0:07:42.960 --> 0:07:45.640 That number now is fifty five percent. So this is 0:07:45.640 --> 0:07:49.920 a very big drop. And speaking to different experts who've 0:07:49.920 --> 0:07:51.400 been following this for a year, a lot of people 0:07:51.680 --> 0:07:55.040 saying that in a case where there's a little like 0:07:55.080 --> 0:07:58.080 a slightly bigger shock, probably there will be very sharp 0:07:58.240 --> 0:08:00.960 moves and the market is more fraud to those moves 0:08:00.960 --> 0:08:03.840 that and it was in the past. Because obviously hedge 0:08:03.840 --> 0:08:06.240 funds are a big part, they're very price sensitive, but 0:08:06.320 --> 0:08:11.280 mutual funds are also growing fast. Pension funds are growing fast. 0:08:11.320 --> 0:08:14.760 They're not necessarily moving as fast as hedge funds obviously, 0:08:14.880 --> 0:08:16.840 but are sensitive. 0:08:16.440 --> 0:08:17.320 To macro events. 0:08:17.480 --> 0:08:21.240 So all those different participants are a lot more likely 0:08:21.320 --> 0:08:26.080 to react on who knows the next banking news or 0:08:26.480 --> 0:08:28.520 oil prices or any of those little things. 0:08:29.000 --> 0:08:30.920 But hedge funds have always been a part of this market, 0:08:31.040 --> 0:08:33.080 right it is now there a bigger part we know, 0:08:33.120 --> 0:08:33.840 percentage wise. 0:08:33.960 --> 0:08:36.680 Yeah, they have tripled in the past year. So currently 0:08:36.760 --> 0:08:40.480 they own two point three trillion, which is close to 0:08:40.600 --> 0:08:42.720 ten percent of the treasury market. 0:08:42.760 --> 0:08:44.600 Which makes me wonder if you get sleepy again, Mike, 0:08:44.640 --> 0:08:47.160 do they just run in the other direction right to 0:08:47.240 --> 0:08:47.720 make money? 0:08:47.840 --> 0:08:50.560 Yeah, and it makes me you know, the dirty word 0:08:50.600 --> 0:08:52.920 in macroland is are you a tourist in this market? 0:08:52.960 --> 0:08:53.160 Yeah? 0:08:53.160 --> 0:08:55.400 Now, are you really a macro fund. 0:08:55.120 --> 0:08:57.640 Who's used to this trade and knows what to do? 0:08:58.040 --> 0:09:01.360 Or are you taking rescue yourquity manager? You know, I've 0:09:01.400 --> 0:09:05.079 seen a few headlines out this week Bill Ackman with 0:09:05.160 --> 0:09:06.199 shortening treasuries. 0:09:06.440 --> 0:09:08.640 He's changed his mind, He's. 0:09:08.480 --> 0:09:12.520 Now covering that short Stan Druck and Miller are a 0:09:12.600 --> 0:09:15.000 very wealth known hedge fund manager used to work with 0:09:15.000 --> 0:09:19.079 George Soroz without saying he's very bullish treasuries. So is 0:09:19.360 --> 0:09:22.920 that at least the tourist sort of mentality. Does it 0:09:22.960 --> 0:09:25.560 seem like the consensus is we've seen the peak and yields, 0:09:25.559 --> 0:09:27.440 it's now time to back up the truck and start 0:09:27.480 --> 0:09:29.440 going along the treasury market? 0:09:29.520 --> 0:09:29.920 Do you think? 0:09:30.600 --> 0:09:32.400 I think the peak is for sure, very important, but 0:09:32.440 --> 0:09:35.400 it's also very important that for a very long time 0:09:35.480 --> 0:09:36.240 it was the. 0:09:36.120 --> 0:09:38.320 Direction of trouble was very sure. 0:09:38.760 --> 0:09:44.200 And obviously like the FED is likely to continue rowing 0:09:44.200 --> 0:09:47.200 off its balance sheet, so them being a smaller portion 0:09:47.559 --> 0:09:51.960 of it guarantees more volatility, whether those trades are whether 0:09:52.040 --> 0:09:55.240 short bonds will still be a successful trade. Obviously this 0:09:55.360 --> 0:09:58.080 is going back to the debate where we've seen the peak, 0:09:58.120 --> 0:10:01.920 but the fact that they're more say relative value trades 0:10:02.520 --> 0:10:05.760 or or you know, basis traits or things where you 0:10:05.760 --> 0:10:11.000 can exploit that volatility, uh, stace, no matter whether we've 0:10:11.080 --> 0:10:12.520 reached dot peaks. 0:10:12.720 --> 0:10:15.120 I wondered too, Liz, come on back in. I mean, 0:10:15.160 --> 0:10:18.680 what you make for someoney who's also followed this, you know, 0:10:19.080 --> 0:10:21.000 for a long time in terms of the bond market 0:10:21.000 --> 0:10:25.120 and treasury trade. To see a greater role of hedge funds, 0:10:25.200 --> 0:10:27.880 I do wonder. Listen, they love volatility, right, They want 0:10:27.880 --> 0:10:30.440 things to move that's how you make money and quickly 0:10:30.440 --> 0:10:34.720 for investors. But I do wonder does that potentially, you know, 0:10:35.280 --> 0:10:37.920 or could it spell trouble. We always talk about right 0:10:37.960 --> 0:10:41.199 these changing rate environments, and you know, as the tide 0:10:41.200 --> 0:10:43.240 goes out, like we get to see all the problems 0:10:43.240 --> 0:10:46.440 and we you know, could it create some kind of 0:10:46.520 --> 0:10:48.600 crisis many or otherwise in the future. 0:10:48.880 --> 0:10:50.719 Well, I have to say, and I wouldn't be doing 0:10:50.720 --> 0:10:52.959 a good service. And maybe Treasury Department will still talk 0:10:53.000 --> 0:10:56.440 to me if I do mention that. John Josh Frost 0:10:56.480 --> 0:11:00.880 to the Treasury Department Assistant Secretary for Financial Markets publicly 0:11:00.920 --> 0:11:03.280 in a press conference. Listen, we still have a very 0:11:03.320 --> 0:11:06.440 diverse buyer base. We're not relying on any one type 0:11:06.440 --> 0:11:09.720 of investor or group of investors. So they're saying, hey, 0:11:09.800 --> 0:11:12.360 we're doing fine. But to your point, Carol, I think 0:11:12.559 --> 0:11:14.600 that is why regulators worry, like they're. 0:11:14.440 --> 0:11:15.760 Zoning in on leverage of things. 0:11:15.760 --> 0:11:19.360 But you don't want a massive positioning and with one 0:11:19.400 --> 0:11:21.880 group of investors, who if they go the other way, 0:11:22.320 --> 0:11:25.679 you just create this groundswell of movement and they take 0:11:25.760 --> 0:11:28.640 everyone else out in the process. So I think that's 0:11:28.640 --> 0:11:31.920 the risk when any trade gets too big especially when 0:11:31.960 --> 0:11:32.560 it's leveraged. 0:11:32.640 --> 0:11:35.040 That's a problem. But like I said, Treasury saying. 0:11:34.760 --> 0:11:37.199 We're okay, we're looking at all this, but we still 0:11:37.240 --> 0:11:39.960 have enough folks that want to buy our stuff that 0:11:40.000 --> 0:11:43.000 we're not concerned. But like, who knows, We're going to 0:11:43.040 --> 0:11:44.600 see what happens for now. 0:11:44.640 --> 0:11:47.160 How Yeah, yeah, Well, let's I wonder you know that 0:11:47.160 --> 0:11:50.679 that expression crowded trade comes to mind with a story 0:11:50.760 --> 0:11:53.720 like this. I mean, is there enough diversity in sort 0:11:53.760 --> 0:11:56.880 of the trades going on or is there a risk 0:11:56.920 --> 0:12:00.520 of crowding in certain trades, especially know where you look 0:12:00.559 --> 0:12:04.000 at how the yield curve has really steepened pretty aggressively 0:12:04.400 --> 0:12:06.319 in the last couple of months. You know, is that 0:12:06.520 --> 0:12:09.800 potentially a crowded trade or you know, are there any 0:12:09.880 --> 0:12:12.320 pockets of crowded trades we should think about in this 0:12:12.400 --> 0:12:13.080 market right now? 0:12:13.360 --> 0:12:15.800 Well, I would say I think the biggest one is 0:12:15.800 --> 0:12:18.360 the basis, even though some people argue there's reasons it's 0:12:18.400 --> 0:12:22.600 not as big. But I keep saying, like Denisa says, 0:12:22.200 --> 0:12:25.520 it's this debate have yields peaked and that I think 0:12:25.520 --> 0:12:26.800 people keep getting burned. 0:12:27.000 --> 0:12:28.360 You know, I mean, we've. 0:12:28.240 --> 0:12:30.959 Seen a massive fall today, but that yields have peaked, 0:12:31.040 --> 0:12:33.040 let me just load up, bring up the truck and 0:12:33.080 --> 0:12:33.760 buy them. 0:12:33.640 --> 0:12:36.640 And then yields go up again. And so I think that's. 0:12:36.520 --> 0:12:39.200 Where the risk is that people are trying to just 0:12:39.200 --> 0:12:42.000 can't seem to time this market right, you know. So 0:12:42.120 --> 0:12:45.240 that's creating the extra volatility, not just from the hedge 0:12:45.240 --> 0:12:49.080 funds but just regular macro funds, et cetera, thinking it's 0:12:49.160 --> 0:12:51.600 time now. Maybe they're okay in the long run because 0:12:52.000 --> 0:12:54.040 this will come back. But I think that's the risk 0:12:54.120 --> 0:12:56.280 that people just can't seem to get a clarity for 0:12:56.320 --> 0:12:57.560 sure where rates are going. 0:12:57.800 --> 0:13:01.360 Yeah, right, exactly. The crystal ball is really muddy right now, Deniza. 0:13:01.840 --> 0:13:03.319 Just to bring it back to how you guys kick 0:13:03.320 --> 0:13:06.439 off this story and the founder of long Tail Alpha 0:13:07.120 --> 0:13:09.000 and talking to him, does it feel like it's a 0:13:09.040 --> 0:13:11.440 trade he plans to be in for a long time 0:13:11.559 --> 0:13:13.640 or is it something he's like, yeah, this is maybe 0:13:13.640 --> 0:13:15.400 a one or two year thing, or I don't know. 0:13:15.920 --> 0:13:18.080 Yeah, I think this is not including the story, but 0:13:18.240 --> 0:13:20.679 he actually said that probably the best time for this 0:13:20.760 --> 0:13:23.800 trade is yet to come. As as cliche as that is, 0:13:23.840 --> 0:13:25.720 but this is something we've also heard. 0:13:25.760 --> 0:13:27.040 We talked to people. 0:13:28.360 --> 0:13:31.320 Of course, I mean, what else could he say. But 0:13:31.400 --> 0:13:33.960 we also talk to people like who are selling trading 0:13:34.000 --> 0:13:36.520 algorithms and who are very you know, have a very 0:13:36.559 --> 0:13:39.880 good perception where the basis trade is growing, and they're 0:13:39.880 --> 0:13:42.960 saying that in the past three months they've seen the 0:13:42.960 --> 0:13:46.320 most demand they've seen for these type of things, and 0:13:46.360 --> 0:13:48.960 obviously they have interested in saying that this will continue 0:13:49.000 --> 0:13:51.400 to be strong. But this is this is a thing 0:13:51.440 --> 0:13:55.120 we're saying. So for sure, there are numerous players in 0:13:55.160 --> 0:13:58.280 this space that they're saying that as long as there 0:13:58.320 --> 0:14:01.720 is uncertainty of peak heels, his longest the fit is 0:14:01.760 --> 0:14:02.920 rowing off his bounce. 0:14:02.679 --> 0:14:03.839 She heets haven't heard peak keelty. 0:14:04.960 --> 0:14:07.680 As long as we see that volatility, there may be 0:14:07.720 --> 0:14:09.079 more appetite for those things. 0:14:09.120 --> 0:14:11.720 Feels like we could see some more volatility, guys. Thank 0:14:11.760 --> 0:14:14.360 you so much. Bloomberg News process at reporter Daniza Zakova 0:14:14.600 --> 0:14:18.360 along with Bloomberg News. She correspondent for Global Macromarkets Liz McCormick. 0:14:18.440 --> 0:14:20.920 This story in the new upcoming issue Bloomberg Business Week, 0:14:20.960 --> 0:14:24.680 on newstands tomorrow, already on the Bloomberg and already online 0:14:25.160 --> 0:14:27.120 at Bloomberg dot com. 0:14:27.560 --> 0:14:31.120 You're listening to the Bloomberg Business Week podcast. Catch us 0:14:31.160 --> 0:14:34.480 live weekday afternoons from three to six Eastern Listen on 0:14:34.560 --> 0:14:38.600 Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, 0:14:38.880 --> 0:14:41.280 or watch us live on YouTube. 0:14:41.560 --> 0:14:43.720 Well shares an ad co. Check it out, everybody. They're 0:14:43.760 --> 0:14:45.200 up for a third day. They're at more than six 0:14:45.240 --> 0:14:48.440 percent in that time. Company reported earnings yesterday morning, of 0:14:48.440 --> 0:14:50.520 which third quarter just at EPs was a big beat. 0:14:50.560 --> 0:14:53.440 Third quarter net sales in line with expectations, and the 0:14:53.440 --> 0:14:56.160 maker of tractors and combines also said it still sees 0:14:56.160 --> 0:14:58.840 fiscal year net sales of about fourteen point seven billion, 0:14:59.240 --> 0:15:02.720 slightly above estimates, with fiscal year just ADPs of about 0:15:02.960 --> 0:15:05.760 fifteen dollars seventy five cents a share. That's fifty cents 0:15:05.760 --> 0:15:09.360 above the company's earlier forecast. Three analysts nonetheless cutting their 0:15:09.360 --> 0:15:11.160 price targets on the company by an average of three 0:15:11.200 --> 0:15:14.040 and a half percent since it reported yesterday. So let's 0:15:14.080 --> 0:15:15.720 get to it. We have a great guest. We have 0:15:15.760 --> 0:15:19.440 the CEO, chairman, president and CEO at Aco. He's Eric 0:15:19.560 --> 0:15:25.240 and Eric Hensotia and excuse me, Eric Hensotia, He's on 0:15:25.320 --> 0:15:28.040 Zoom from Duluth Georgia, and he joins, us, forgive me, 0:15:28.080 --> 0:15:29.840 forgive me. I'm trying to race to get to you, 0:15:30.280 --> 0:15:31.479 So I apologize. 0:15:32.080 --> 0:15:32.240 Eric. 0:15:32.520 --> 0:15:33.440 Oh good, no problem. 0:15:33.600 --> 0:15:35.800 Really great to have you here with us. First of all, 0:15:36.160 --> 0:15:37.800 how are you? And I do have to ask you 0:15:37.840 --> 0:15:40.880 about the FED? In an environment where the FED says, 0:15:41.080 --> 0:15:43.200 you know, we could still continue raising rates, we're still 0:15:43.200 --> 0:15:46.480 worried about inflation. Does that kind of mesh with the 0:15:46.480 --> 0:15:47.720 outlook that you see? 0:15:48.160 --> 0:15:50.640 Well, your first question was how am I doing great? 0:15:51.320 --> 0:15:54.440 Just couldn't be happier with the progress that our company 0:15:54.480 --> 0:15:56.440 is having rel into our strategy. 0:15:56.840 --> 0:15:59.000 We're going to have two billion more in sales this year. 0:15:59.000 --> 0:16:02.560 We're going to grow margins significantly relative to the and 0:16:02.840 --> 0:16:05.520 it's all in line with our high tech focus on 0:16:05.640 --> 0:16:08.960 being the industry leader and smart farming machines relatively to 0:16:09.040 --> 0:16:12.680 the FED. You know, interest rates do weigh on farmers' minds. 0:16:12.840 --> 0:16:16.160 These are big as the carry a lot of technology. 0:16:16.160 --> 0:16:19.480 They're expensive machines, many times half a million to a 0:16:19.520 --> 0:16:22.520 million dollars, and so they often finance those machines, and 0:16:22.640 --> 0:16:25.560 higher interest rates are part of the part of the decision. 0:16:26.880 --> 0:16:30.960 I'm expecting that we're you know, at a high plateau, 0:16:31.200 --> 0:16:33.760 and that we're more likely over the coming year to 0:16:33.880 --> 0:16:37.040 have rates go down then up, and that would be 0:16:37.040 --> 0:16:38.880 welcomed by our customers, you. 0:16:38.920 --> 0:16:41.840 Know, Eric, I'm looking at the revenue growth of i 0:16:42.040 --> 0:16:45.160 CO over the years and really some impressive growth there. 0:16:45.200 --> 0:16:48.440 Twenty twenty one is up twenty two percent, twenty twenty 0:16:48.440 --> 0:16:52.680 two up fourteen percent, sixteen percent. This year it does, 0:16:53.080 --> 0:16:55.520 at least according to analyst estimates, look like you might 0:16:55.560 --> 0:16:57.680 be in for a dip in revenue last year, and 0:16:57.720 --> 0:17:00.960 I'm wondering what's the what's driving that? Is that entirely 0:17:01.000 --> 0:17:03.800 an Interra straight story or is there something else going on. 0:17:04.280 --> 0:17:06.720 It's actually very little related to interest rates. 0:17:06.920 --> 0:17:10.800 Agriculture often is not connected, not correlated highly with the 0:17:10.880 --> 0:17:17.120 regular GDP growth. It's more tied to the aggricultural agricultural economy. 0:17:17.200 --> 0:17:18.840 So the price of corn. 0:17:18.600 --> 0:17:22.880 Wheat, soybeans, and that's a function of how much green 0:17:22.920 --> 0:17:24.760 there is in the world. For the last two or 0:17:24.800 --> 0:17:28.560 three years, there's been green shortages and so grain prices 0:17:28.560 --> 0:17:30.840 have been high. That means more profit for our farmers. 0:17:32.160 --> 0:17:34.560 Now they've had a great year this year in terms 0:17:34.560 --> 0:17:37.080 of harvest, and so there's a little bit more stock 0:17:37.240 --> 0:17:40.280 prices have come down a bit, and that's really more 0:17:40.320 --> 0:17:43.240 what drives farmer profitability and in turn their interest to 0:17:43.520 --> 0:17:44.280 purchase equipment. 0:17:44.440 --> 0:17:47.000 Hey, Eric, what I wonder is longer term how you 0:17:47.040 --> 0:17:48.960 guys think about the business, how you plan, because I 0:17:48.960 --> 0:17:53.240 wonder if things like weather, climate change, demographics globally, is 0:17:53.280 --> 0:17:56.240 that more significant in terms of how you think about 0:17:56.240 --> 0:17:59.240 the growth longer term? And if so, what does that 0:17:59.320 --> 0:18:00.359 maybe indicate to you. 0:18:00.920 --> 0:18:02.240 Yeah, that's a great point, Carol. 0:18:02.560 --> 0:18:07.200 So we see three macro tailwinds plus this weather factor. 0:18:07.240 --> 0:18:10.040 So let me touch those real quickly. Number One, we're 0:18:10.080 --> 0:18:13.040 moving from eight billion people to ten billion people between 0:18:13.080 --> 0:18:19.119 now and twenty fifty. Number two, emerging economies are adding 0:18:19.160 --> 0:18:21.320 more meat to their diet as they do that. That's 0:18:21.359 --> 0:18:25.119 a multiplier on the demand for green chicken is a 0:18:25.160 --> 0:18:27.800 two to one multiplier, beef is a ten to one multiplier. 0:18:28.119 --> 0:18:31.480 And then third is renewable fuels, so ethanol in the 0:18:31.560 --> 0:18:35.600 United United States. But now the next one is renewable diesel. 0:18:36.280 --> 0:18:39.440 Ethanol consumes forty percent of the corn crop today. Renewable 0:18:39.480 --> 0:18:41.720 diesel is likely going to grow to that same kind 0:18:41.720 --> 0:18:44.639 of proportion over the next few years. Those are all 0:18:45.320 --> 0:18:50.560 macro tailwinds that cause the farmer to have higher yields, 0:18:51.040 --> 0:18:54.520 more pressure on higher yields, and then weather is another one. 0:18:54.640 --> 0:18:57.840 We're having more severe droughts and more severe floods every 0:18:57.920 --> 0:19:00.160 year that reduces. 0:18:59.880 --> 0:19:03.000