WEBVTT - Nike Down, Muni Check-In, Geopolitical Unrest 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market crows, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.000 at Bloomberg dot com slash podcast. I n go on 0:00:22.000 --> 0:00:24.680 your Bloomberg terminil that brings up the Bloomberg Index browser. 0:00:24.680 --> 0:00:26.960 It gives you all the total returns on a year 0:00:26.960 --> 0:00:28.560 to date basis for a lot of the fixed income 0:00:28.600 --> 0:00:31.760 aggregates the U. Alright, so look at this, folks, The 0:00:31.800 --> 0:00:36.880 Bloomberg US aggregate fixed income return here to date minus 0:00:36.920 --> 0:00:41.040 fourteen point three five. Yikes, that's sixty forty portfolio that 0:00:41.040 --> 0:00:44.199 ain't working for you this year. Alfonso Peccatiello, author and 0:00:44.280 --> 0:00:46.519 former head of Fixed Income Portfolio manage at I n 0:00:46.600 --> 0:00:50.000 G Deutschland, he joins us here. Uh, Alfonso, thanks so 0:00:50.040 --> 0:00:52.479 much for taking the time here. Boy, it has been 0:00:52.560 --> 0:00:56.440 a brutal year for fixed income investors. Nowhere to hide. 0:00:57.120 --> 0:00:58.360 What do you make of it? You've been doing this 0:00:58.400 --> 0:01:00.640 for a long time, what do you make of this? Well? 0:01:00.640 --> 0:01:03.400 Will that make of this is that basically central banks 0:01:03.440 --> 0:01:05.919 try to warn us that they were very serious about 0:01:06.040 --> 0:01:08.440 fighting inflation, but the bond market didn't want to listen 0:01:08.480 --> 0:01:11.080 at first, and they just had to double down to 0:01:11.160 --> 0:01:13.760 make sure that everybody understands it. This is not like 0:01:13.840 --> 0:01:16.399 it does in an eighteen or nineteen, where you know 0:01:16.480 --> 0:01:19.880 they can basically tighten a little bit and make sure 0:01:19.880 --> 0:01:22.680 that they are respected by markets. Because inflation and inflation 0:01:22.760 --> 0:01:26.240 expectations went out of control, the reaction function is not 0:01:26.319 --> 0:01:29.080 linear anymore, and they need to get ahead of the curve. 0:01:29.120 --> 0:01:31.160 And that's what they're trying to do now, which obviously 0:01:31.240 --> 0:01:33.920 hits the bond market. I find I'm looking at the 0:01:33.959 --> 0:01:36.760 volatility across treasuries and we're at a stage or at 0:01:36.760 --> 0:01:38.920 a height that's even greater than what we saw in 0:01:38.959 --> 0:01:42.080 this kind of crunch moments of the pandemic where none 0:01:42.120 --> 0:01:43.920 of us knew what was going to happen. And what 0:01:43.920 --> 0:01:48.080 I'm struggling to understand is why is this market struggling 0:01:48.920 --> 0:01:52.720 to price in the future path in terms of recession, 0:01:52.760 --> 0:01:55.600 in terms of where policymakers go next. Some things more 0:01:55.640 --> 0:01:59.320 certain now than they were in that early pandemic era. 0:02:00.360 --> 0:02:03.720 This is such a great point. And the problem with 0:02:03.760 --> 0:02:06.200 this is that central bankers told us they're going to 0:02:06.280 --> 0:02:09.640 be pretty mechanical, So I'm gonna quote power. Basically, it 0:02:09.720 --> 0:02:12.360 told us that he wants to have a real fat 0:02:12.440 --> 0:02:15.519 funds rate at least in the one percent positive area 0:02:16.040 --> 0:02:19.240 before it feels relatively satisfactory with the stunts. And that 0:02:19.320 --> 0:02:21.640 means that even if inflation slows down a little bit, 0:02:21.680 --> 0:02:24.080 and we all hope that next year, that fat funds 0:02:24.160 --> 0:02:25.920 rate will have to be in the four and a 0:02:25.919 --> 0:02:29.240 half five percent area. Now, if inflation doesn't slow down, 0:02:29.240 --> 0:02:32.280 on the other hand, that means that mechanically the Federal Reserve, 0:02:32.360 --> 0:02:34.880 to preserve the credibility, will need to have nominal fat 0:02:34.919 --> 0:02:38.480 funds rate even higher than that. So when new price volatility, 0:02:38.520 --> 0:02:41.079 as a bond trader, obviously you left to look at 0:02:41.200 --> 0:02:44.280 both the right end and the left end of your distribution, 0:02:44.600 --> 0:02:47.360 and at the moment, because of recession risks, the left 0:02:47.440 --> 0:02:49.680 end is open, but the right end is also open 0:02:49.720 --> 0:02:52.720 because if inflation doesn't slow down, then central banks will 0:02:52.760 --> 0:02:55.959 just mechanically keep hiking rates. The last one I have 0:02:56.160 --> 0:03:00.280 is that higher bond volatility actually deters investors from taking 0:03:00.400 --> 0:03:03.000 risks in other rest classes. The bond market is the 0:03:03.000 --> 0:03:05.280 biggest market in the world, the most liquid and deep. 0:03:05.560 --> 0:03:07.440 And if people can figure out and they have to 0:03:07.440 --> 0:03:09.800 price alativity is so wide in the most liquid us 0:03:09.800 --> 0:03:12.600 at so ball, how can they take risks when it 0:03:12.639 --> 0:03:14.960 comes to risk your uset classes. And that also has 0:03:15.000 --> 0:03:17.959 implications for equities and credit spreads which are widening. Indeed, 0:03:19.120 --> 0:03:20.600 so one of the things we hear about when we 0:03:20.600 --> 0:03:23.240 talked about fixing come folks, particularly on on the trading 0:03:23.280 --> 0:03:27.360 sign is poor liquidity in the marketplace. Can you define 0:03:27.760 --> 0:03:31.400 what that means to you and maybe how the practical 0:03:31.600 --> 0:03:35.560 implications day to day for investors. So how would define 0:03:35.600 --> 0:03:38.120 that is, if you're a market practitioner, if you try 0:03:38.160 --> 0:03:41.120 to trade anywhere above a hundred to two hundred millions 0:03:41.120 --> 0:03:44.360 of ten year treasuries, you would have big dusk quotes 0:03:44.400 --> 0:03:47.760 which are much wider than you know, what you're used 0:03:47.800 --> 0:03:50.080 to be, you're used to have in the past. So 0:03:50.080 --> 0:03:52.320 when you have that kind of big dusk spreads that 0:03:52.440 --> 0:03:55.040 tend to widen in the most liquid market doable, it's 0:03:55.080 --> 0:03:58.240 a sign that the plumbing is not really working well. 0:03:58.640 --> 0:04:02.160 And for plumbing, refer to the ability of market makers 0:04:02.160 --> 0:04:05.720 to warehouse risk, and this ability was crippled from Great 0:04:05.760 --> 0:04:09.559 Financial Pride, the post Great Financial Prices regulation, which effectively 0:04:09.600 --> 0:04:12.480 made it much more capital expensive and inefficient for market 0:04:12.560 --> 0:04:15.640 makers to provide liquidity to such a market. But the 0:04:15.720 --> 0:04:19.919 real underlying problems actually happen when the report market doesn't 0:04:19.920 --> 0:04:22.279 work because most of this balance sheet, the risk, the 0:04:22.360 --> 0:04:25.480 risk taking ability out of market makers and hedge funds 0:04:25.480 --> 0:04:28.640 actually happens to be balanche it heavy. So there are 0:04:28.680 --> 0:04:32.000 report transaction underlying the ability to provide liquidity. If the 0:04:32.000 --> 0:04:34.760 report markets show some sign of stress, you immediately see 0:04:34.800 --> 0:04:37.880 that in the treasury market right now, That's really not 0:04:37.920 --> 0:04:39.760 the case yet. It also has to do with some 0:04:39.800 --> 0:04:43.039 facilities the Federal Reserve set up, like the standard reper facility. 0:04:43.080 --> 0:04:45.400 But it is definitely something to ever look at. I 0:04:45.400 --> 0:04:47.960 want to look some other corners the market Europe corporate 0:04:47.960 --> 0:04:50.719 bond September is kind of classically. I believe a great 0:04:50.760 --> 0:04:55.039 month for the bond market this year. It's not why well, 0:04:55.080 --> 0:04:59.080 this year is not because we saw an acceleration of inflation, 0:04:59.320 --> 0:05:01.680 both in your up and in the US. And when 0:05:01.680 --> 0:05:04.320 I'm in acceleration, guys, it is not only the level 0:05:04.360 --> 0:05:07.200 of inflation which is undoubtedly very high. But it's the 0:05:07.240 --> 0:05:10.760 momentum and the composition of these inflationary pressures which is 0:05:10.800 --> 0:05:13.799 interesting if you look at the moving average of core 0:05:13.960 --> 0:05:17.479 inflation x energy. So I'm looking like at the momentum 0:05:17.520 --> 0:05:20.560 of the stickiest part of the inflationary basket, the one 0:05:20.600 --> 0:05:23.080 that central bankers are the most worried about because they're 0:05:23.080 --> 0:05:26.400 tough to bring down. They're actually accelerating, both in the 0:05:26.480 --> 0:05:28.960 US and in Europe, two levels last set in momentum 0:05:29.040 --> 0:05:32.760 terms in the eighties. So no wonders that actually have 0:05:32.839 --> 0:05:35.599 to tighten the stands, which hits the bond market further. Alright, 0:05:35.640 --> 0:05:38.760 a fan, so great stuff. Really appreciate getting your thoughts 0:05:38.760 --> 0:05:42.640 on your perspective. Afonso Peccatillo, author and former head of 0:05:42.640 --> 0:05:51.680 fixed income portfolio management at I n G Deutschland. Looking 0:05:51.720 --> 0:05:53.520 at the shares of Nike down by ten and a 0:05:53.600 --> 0:05:58.520 half percent today eight change on agre day basis down 0:05:58.600 --> 0:06:02.000 almost fifty per sent here so uh, and they reported 0:06:02.000 --> 0:06:04.000 some numbers today that disappointed Wall Street. Let's get the 0:06:04.040 --> 0:06:08.120 latest with Bloomberg's Abigail Doolittle. Abigail, I guess they got, 0:06:08.160 --> 0:06:10.520 like a lot of other retailers. They got an inventory problem. 0:06:10.680 --> 0:06:16.159 They do. North American inventories up six overall global inventories 0:06:16.200 --> 0:06:18.919 up more than And what's interesting about this is a 0:06:18.920 --> 0:06:20.760 piece of it has to do with the supply chain 0:06:20.839 --> 0:06:24.160 kinks because they can't get what they have had made 0:06:24.240 --> 0:06:26.400 abroad where they needed to get it on time. By 0:06:26.400 --> 0:06:29.279 the time it gets to where it's needed, it's out 0:06:29.279 --> 0:06:32.159 of season and it's sort of rocks like bad food. So, yeah, 0:06:32.520 --> 0:06:36.359 bloated inventories like so many other UH companies and retailers. 0:06:36.360 --> 0:06:38.560 So that led to a miss and led to them 0:06:38.560 --> 0:06:41.560 cutting the outlook. Gross margins are real big problem. They're 0:06:41.560 --> 0:06:44.040 now going to be two two hundred and fifty basis 0:06:44.040 --> 0:06:47.680 points lower than expected. But it's not just the inventories. 0:06:47.720 --> 0:06:50.040 It's also those higher freight their freight issues, but the 0:06:50.120 --> 0:06:52.800 higher freight costs and of course for an exchange. Yeah, 0:06:52.839 --> 0:06:55.800 they had the kind of full potion cauldron of problems, right. 0:06:55.839 --> 0:06:57.280 And it's interesting. I'm gonna get some of the other 0:06:57.320 --> 0:06:59.680 stocks in the market that pays Lulu lemon for example, 0:06:59.760 --> 0:07:02.880 some of the shoemake is also lower. It's not getting better, 0:07:02.960 --> 0:07:06.160 is it? It's not getting better? And the sense that 0:07:06.320 --> 0:07:08.960 I get from this quarter because the miss actually wasn't 0:07:09.040 --> 0:07:11.600 that bad. They actually beat on sales sales three percent 0:07:11.640 --> 0:07:14.720 out of than estimates, and the earnings miss by less 0:07:14.720 --> 0:07:18.040 than one percent. Again, it's more the outlook. First of all, 0:07:18.120 --> 0:07:21.120 China was very weak because of the continued COVID outlook. 0:07:21.440 --> 0:07:24.360 But my sense is that there's not so much of 0:07:24.400 --> 0:07:27.520 a weak US consumer factored in here yet. It has 0:07:27.560 --> 0:07:29.680 more to do with these other issues. So if we 0:07:29.720 --> 0:07:32.960 are stumbling into some sort of a true recession, I 0:07:33.000 --> 0:07:34.720 think we can all agree that on some level the 0:07:34.720 --> 0:07:38.280 economy is slowing, it could really be a strong issue 0:07:38.320 --> 0:07:40.920 when you put it together with these other factors. And 0:07:41.000 --> 0:07:42.840 what I've learned from you know, reading the research of 0:07:42.920 --> 0:07:45.960 like Punham Goyle from Bloomberg Intelligence, for example, is when 0:07:46.000 --> 0:07:49.840 you got extra inventory in the pipeline, it's not like 0:07:49.880 --> 0:07:51.400 you just kind of keep there and I'll sell it 0:07:51.440 --> 0:07:53.160 next year. You gotta blow it out. You gotta blow 0:07:53.200 --> 0:07:54.720 it out. The way you do it is a discount, 0:07:54.840 --> 0:07:57.360 massive discounting. Well, I will admit the first time I 0:07:57.400 --> 0:07:59.760 was reading these discounts, as I told you, I'm in 0:07:59.760 --> 0:08:03.360 the the market for some new golf clothing. I was thinking, oh, 0:08:03.760 --> 0:08:05.160 but you know what the one thing I will say is, 0:08:05.200 --> 0:08:07.360 so we heard this. We've heard the story so many times, 0:08:07.400 --> 0:08:09.920 but we heard it in big time earlier this year. 0:08:10.000 --> 0:08:14.200 Probably the real the big company that started all this 0:08:14.320 --> 0:08:17.200 target I went to those stores and I didn't find 0:08:17.240 --> 0:08:19.120 any of the good deals, right, So I'm thinking that 0:08:19.160 --> 0:08:22.920 maybe some of the inventory problems are more regional. But 0:08:23.000 --> 0:08:25.600 I'm still going to try relative to Nike. Something relative 0:08:25.640 --> 0:08:28.040 to the stock though, to think about. So as we're 0:08:28.040 --> 0:08:31.240 mentioning Paul, it is down on the year, the worst 0:08:31.280 --> 0:08:34.880 year ever. The evaluation is still sky high. That they're 0:08:34.920 --> 0:08:38.480 trading at a pe of twenty four times forward, that 0:08:38.679 --> 0:08:41.240 is at the high end of the two year range, 0:08:41.240 --> 0:08:44.320 and it's also above the mean of eighteen point times 0:08:44.600 --> 0:08:46.840 for the rest of the group, and it's also high 0:08:46.880 --> 0:08:49.160 for all the other evaluation metrics. So you could make 0:08:49.200 --> 0:08:51.760 the case that fundamentally and technically this stock has more 0:08:51.800 --> 0:08:54.600 to go as high to most of them has some 0:08:54.679 --> 0:08:57.400 of the stretched chip covering day to day. It's actually 0:08:57.400 --> 0:09:00.520 astonishing to see that stats walking behind us. He made 0:09:00.520 --> 0:09:03.440 the point earlier that actually another intr entry issue. You 0:09:03.480 --> 0:09:05.920 go onto the website, you can't get the thing that 0:09:05.960 --> 0:09:08.520 you want anyway, and that speaks to the shipment issues. 0:09:08.559 --> 0:09:12.079 But you love golf, I love football, European football soccer 0:09:12.120 --> 0:09:14.280 to you out there. We have a World Cup here, 0:09:14.480 --> 0:09:17.600 and you do wonder if that event that catalyst helps 0:09:17.600 --> 0:09:20.160 a company like Nike later on in the year. Well, 0:09:20.200 --> 0:09:23.200 if it could, if they can make the product that 0:09:23.320 --> 0:09:25.680 is appealing to you and to John and to other folks, 0:09:25.679 --> 0:09:27.280 and then if they can actually get it to you, 0:09:27.360 --> 0:09:28.960 if you can order it and buy it. I mean 0:09:29.000 --> 0:09:32.720 to have these supply chain kinks. I remember these sorts 0:09:32.720 --> 0:09:35.240 of issues back in the tooth, that early two thousand area, 0:09:35.320 --> 0:09:39.080 that their bear market unrelated to uh this sort of 0:09:39.080 --> 0:09:42.880 factor was actually more about uh fashion wrong. So companies 0:09:42.920 --> 0:09:44.760 would make the fact, you know, whatever the style was, 0:09:44.800 --> 0:09:46.640 and then folks didn't want it, so kind of sit 0:09:46.679 --> 0:09:48.440 there and they would have to discount it. But it'll 0:09:48.480 --> 0:09:49.880 be interesting to see whether or not they'll be able 0:09:49.880 --> 0:09:51.319 to take advantage of it. That could that could be 0:09:51.360 --> 0:09:53.360 a nice opportunity for them to kind of come out 0:09:53.360 --> 0:09:55.440 of this hole. All right, So ed you mentioned this. 0:09:55.640 --> 0:10:01.319 The World Cup. English plans notably are good. They travel well, 0:10:01.440 --> 0:10:03.319 they do travel well. Are they going to go to cutter? 0:10:03.880 --> 0:10:09.920 It's really interesting there are lots of moral cultural issues. 0:10:10.200 --> 0:10:13.160 Football fans, I would say, tend to look past those. 0:10:13.960 --> 0:10:16.200 Qatar is an expensive place to go at the best 0:10:16.240 --> 0:10:19.720 of times if you're if you're a UK football fan. 0:10:20.120 --> 0:10:22.600 Remember also Whales are in that group as well. I'm 0:10:22.640 --> 0:10:25.040 proudly Welsh and I'm looking forward to that show down 0:10:25.080 --> 0:10:28.400 with the United States and h are on um. Do 0:10:28.480 --> 0:10:30.760 they travel? I have no idea, but they can drink 0:10:30.800 --> 0:10:33.360 I think now I saw news not twenty four hours 0:10:33.360 --> 0:10:36.000 a day, but maybe like eighteen or nineteen hours a day. 0:10:36.200 --> 0:10:39.040 They can, but only in like selected places. I mean 0:10:39.320 --> 0:10:43.240 football fans like that their adult beverage of choice they do. 0:10:43.360 --> 0:10:45.600 And also how big a factor is the pound right now? 0:10:45.640 --> 0:10:48.080 If you I mean, I'm hoping to go home in 0:10:48.120 --> 0:10:52.160 December for the holiday period and as a somebody that 0:10:52.200 --> 0:10:54.200 draws a salary in dollars, you know, it's not so 0:10:54.240 --> 0:10:57.880 bad for me but for my family. Yeah. Well it's 0:10:57.880 --> 0:11:00.280 interesting you're saying that because I've been thinking about winning 0:11:00.280 --> 0:11:01.920 a trip and somebody was saying, well, you should go 0:11:01.960 --> 0:11:04.320 to Europe, you know, because it's on ze um. So 0:11:04.400 --> 0:11:05.840 the same thing with UK. You know, looking at these 0:11:05.920 --> 0:11:08.319 Nike numbers, it kind of makes me think about and 0:11:08.600 --> 0:11:11.160 whenever we have these earnings issues, it kind of goes 0:11:11.200 --> 0:11:13.960 to show you that the earnings risk in this market. 0:11:15.040 --> 0:11:17.800 I think it's still there. Oh, I can't say. I 0:11:17.800 --> 0:11:20.559 think it's it's just starting. Yeah, And I just wonder 0:11:20.640 --> 0:11:23.120 how much you know earnings are going to come down 0:11:23.200 --> 0:11:24.959 in this period. Are our company is gonna kind of 0:11:25.000 --> 0:11:27.719 really throw in the kitchen sink? And if so, this 0:11:27.760 --> 0:11:31.000 market can't really make a bottom until we get through that. Yeah. 0:11:31.160 --> 0:11:32.720 I think that that's a great point. And to go 0:11:32.800 --> 0:11:35.040 back to that two thousand to two thousand three time 0:11:35.080 --> 0:11:38.240 period that was just a long, slow move lower for 0:11:38.320 --> 0:11:41.280 earnings and companies not being able to manage expectations and 0:11:41.360 --> 0:11:43.640 having to cut quarter after quarter after quarter, like the 0:11:43.720 --> 0:11:46.280 kitchen sink really didn't exist at that point. So now 0:11:46.320 --> 0:11:48.800 you see a company trying to do this but kind 0:11:48.840 --> 0:11:51.600 of get worse than this. Absolutely, if the consumers slows down, 0:11:51.720 --> 0:11:54.720 earnings expectations are coming down, but in a recession, historically, 0:11:54.760 --> 0:11:57.079 looking at the data, they get a mega reset right 0:11:57.120 --> 0:12:00.720 ten to depending on the sector. Is that happened yet? No? 0:12:01.000 --> 0:12:03.000 Absolutely not. And the other thing is this is a 0:12:03.080 --> 0:12:06.240 recession that will also come against with the FED raising 0:12:06.280 --> 0:12:07.600 I mean, I think a lot of people are. I 0:12:07.600 --> 0:12:09.960 saw something about like the FED pudd is coming back soon, 0:12:10.000 --> 0:12:13.040 because it's uh that personally, I don't agree with that. 0:12:13.080 --> 0:12:16.680 I think that every single UM FED official and you know, 0:12:16.679 --> 0:12:19.280 if you look at the dot plot, the average year 0:12:19.400 --> 0:12:22.199 end rate FED funds rate for the media and FED 0:12:22.440 --> 0:12:25.319 is four thirty seven. WARP has it at four twenty. 0:12:25.440 --> 0:12:28.719 That's a seventeen bit difference between what the FED is 0:12:28.800 --> 0:12:31.760 saying and what the markets are saying. If the FED serious, 0:12:31.760 --> 0:12:33.840 even just this year, there's some catchup. So to have 0:12:33.960 --> 0:12:38.360 that kind of liquidity pressure, uh, in addition to the 0:12:38.360 --> 0:12:42.080 fundamental slowdown, it's just it's something we haven't seen. I mean, 0:12:42.080 --> 0:12:44.000 I guess we sort of stow in the early eighties. 0:12:44.040 --> 0:12:48.360 I don't remember it, but wasn't that I was very small. 0:12:48.480 --> 0:12:50.600 Early eighties were very good for me. Thank you very much. 0:12:50.679 --> 0:12:52.280 All right, Abigail the little thank you so much. We 0:12:52.320 --> 0:12:55.079 appreciate it. She covers all things markets for Bloomberg Radio 0:12:55.120 --> 0:13:00.880 and Television. Let's talk geopolitics as we talk about these markets, 0:13:00.880 --> 0:13:02.720 because boy, there's a lot going on in the world 0:13:02.800 --> 0:13:05.080 with Russian, Ukraine and so on. We can do that 0:13:05.120 --> 0:13:08.360 with Nick stat Miller, Director of Emerging Markets at Medley 0:13:08.360 --> 0:13:11.400 Global Advisors. So, Nick, I mean emerging markets at a 0:13:11.480 --> 0:13:15.520 time when interest rates are rising, We've got geopolitical issues 0:13:16.120 --> 0:13:18.640 like we haven't seen since World War Two in Europe. 0:13:19.600 --> 0:13:21.559 How does that factor into what you guys do in 0:13:21.600 --> 0:13:25.840 your emerging market work there? Well, you know, one observation 0:13:25.880 --> 0:13:27.800 I've heard from a lot of a lot of our 0:13:27.880 --> 0:13:31.400 clients is that they feel like geopolitics is more relevant 0:13:31.480 --> 0:13:34.480 for the market now than it has been any time 0:13:34.520 --> 0:13:36.199 in the last thirty years, going back to the First 0:13:36.200 --> 0:13:38.880 Gulf War. So it obviously takes up a lot more 0:13:38.920 --> 0:13:43.439 of our bandwidth. And geopolitics is, by necessity, by definition, 0:13:43.480 --> 0:13:46.840 a very qualitative discipline, so it becomes very hard to 0:13:46.960 --> 0:13:49.760 quantify what the impact. You know, you can talk through 0:13:49.800 --> 0:13:53.320 all the scenarios and assigned probabilities, but figuring out what 0:13:53.440 --> 0:13:55.439 that's going to do to a currency or rates or 0:13:55.480 --> 0:13:58.040 stock markets is is really hard. So you have to 0:13:58.080 --> 0:14:00.400 spend a lot of time tracking the psycho oology of 0:14:00.440 --> 0:14:04.320 the market around those events. We're talking about Russia, but 0:14:04.400 --> 0:14:07.920 we're also thinking about Turkey. I find this fascinating that 0:14:08.040 --> 0:14:11.400 Riship tie Burdwan is kind of offering himself as a 0:14:11.480 --> 0:14:15.640 mediator in the conflict Russian Ukraine conflict. At the same time, 0:14:16.200 --> 0:14:18.640 the Turkish economy is suffering. I think I'm right and 0:14:18.679 --> 0:14:22.760 saying the trade deficit hit the worst on record in August, Right, 0:14:22.920 --> 0:14:26.920 So where do you look to in that scenario? Should 0:14:26.960 --> 0:14:30.200 should Turkey stay out of the way? What's going on there? Yeah, 0:14:30.280 --> 0:14:32.960 there are a lot of moving parts, and Turkey is 0:14:33.160 --> 0:14:36.360 on track to post a record current account deficit this year. 0:14:36.400 --> 0:14:39.080 It probably is going to be around fifty billion dollars. 0:14:39.840 --> 0:14:42.720 And the other problem they have is that their effects 0:14:42.760 --> 0:14:45.920 reserves are very low. Radwan is forcing the central Bank 0:14:45.960 --> 0:14:48.360 to keep interest rates low. They're at twelve percent when 0:14:48.400 --> 0:14:51.160 inflation is eighty percent and they're looking to cut more. 0:14:52.480 --> 0:14:54.720 So you know the energy markets that are a big 0:14:54.760 --> 0:14:58.040 factor in this, right absolutely, the the energy import bills 0:14:58.160 --> 0:15:01.440 is the biggest driver in that current account deficit, and 0:15:01.720 --> 0:15:03.880 uh in the high cost of energy. So everyone is 0:15:03.880 --> 0:15:07.320 in a very weak position economically, and He's tried to 0:15:07.480 --> 0:15:10.400 sort of balance his support for Ukraine and Russia and 0:15:10.440 --> 0:15:13.680 you know, play that sort of impartial mediator, but he 0:15:13.720 --> 0:15:15.920 frequently gets caught on the side. And then you've got 0:15:15.960 --> 0:15:20.520 Russia that has faced unprecedented unified sanctions from the West 0:15:21.120 --> 0:15:24.480 and really looking to figure out ways to do foreign 0:15:24.520 --> 0:15:27.960 trade and investment around those sanctions, and they're trying to 0:15:27.960 --> 0:15:31.680 do it in Turkey, and Turkey really needs the money, 0:15:31.720 --> 0:15:34.840 but the US really does not want Russia to subvert 0:15:34.920 --> 0:15:38.800 those sanctions, so it's really sort of becoming a pressure 0:15:38.800 --> 0:15:41.280 point in the confrontation between Russia and the West. So 0:15:42.280 --> 0:15:44.200 just broadly to find how do you think, how do 0:15:44.240 --> 0:15:46.240 you guys think about Turkey as a place to invest. 0:15:46.360 --> 0:15:49.720 Is it just too too risky at this point? You 0:15:49.760 --> 0:15:51.760 need more stability, whether it's from the government or just 0:15:51.840 --> 0:15:55.680 the fiscal side. It's it's wrong on all fronts. You 0:15:55.720 --> 0:15:59.880 have a lot of political instability and increasing repression, so 0:16:00.520 --> 0:16:03.800 you know, it doesn't score very well on policy predictability 0:16:03.800 --> 0:16:08.040 and stability. Monetary policy as a disaster, the central banks 0:16:08.080 --> 0:16:12.440 balance sheet is a mess, Fiscal policy is becoming increasingly 0:16:13.240 --> 0:16:17.120 not credible um, so it's very hard to see how 0:16:17.200 --> 0:16:19.920 anyone would want to firm make some firm commitments there 0:16:20.000 --> 0:16:23.600 until you see some serious policy changes. When we consider 0:16:23.640 --> 0:16:29.600 emerging markets, how has the war in Ukraine prompted the 0:16:29.640 --> 0:16:34.280 market to reshuffle where it places capital because of all 0:16:34.320 --> 0:16:36.960 the interlink between these nations and also of course because 0:16:36.960 --> 0:16:41.760 of the effects of sanctions. Right well, the big impact initially, 0:16:41.800 --> 0:16:43.960 of course, you know there's risk off whenever you have 0:16:44.000 --> 0:16:46.320 any sort of geo political uncertainty, you get this broad 0:16:46.400 --> 0:16:49.320 risk off, and emerging markets are always friends in the 0:16:49.360 --> 0:16:53.080 fire line. But then you had this price shock into 0:16:53.120 --> 0:16:57.440 commodities because particularly on grain and wheat and on the 0:16:57.480 --> 0:17:01.560 oil side. That's largely subside it since then. But then 0:17:01.600 --> 0:17:05.280 you have these lingering sort of regional problems. Great example 0:17:05.560 --> 0:17:09.440 is the cut off of Russian gas into europe Um, 0:17:09.560 --> 0:17:12.560 particularly in the emerging markets front. You have the central 0:17:12.560 --> 0:17:16.960 European economies, most notably hungry, very vulnerable to that. So 0:17:17.040 --> 0:17:20.480 it there is a global impact in terms of the 0:17:21.040 --> 0:17:23.480 you know, the commodities and the risk off sentiment, but 0:17:23.520 --> 0:17:25.560 then there's sort of this regional impact that you have 0:17:25.640 --> 0:17:29.040 to sort of suss out on a country by country basis. 0:17:29.359 --> 0:17:32.720 And again back to Turkey, higher energy prices really hurts 0:17:32.760 --> 0:17:36.280 them on the external account. Where are given all these 0:17:36.880 --> 0:17:39.760 uncertainties in the backdrop in whether it's interest rates, monetary policy, 0:17:40.200 --> 0:17:44.760 political issues, the least place I want to be as 0:17:44.800 --> 0:17:47.720 emerging markets, But you have to do it for a living. 0:17:47.800 --> 0:17:50.280 So what where are you and your clients kind of 0:17:50.359 --> 0:17:53.879 doing work and seeing opportunities in emerging markets? Yeah, I 0:17:53.880 --> 0:17:58.359 mean the strong dollars killing EM currencies, higher rates, and 0:17:58.440 --> 0:18:03.280 tighter liquidity globally are really tightening up their access to credit. 0:18:03.760 --> 0:18:06.720 I think at this point it's it's a relative value story. 0:18:06.800 --> 0:18:09.520 So you look for places, um, you know, where they're 0:18:10.280 --> 0:18:13.199 that could outperform others. And so you know, you have 0:18:13.240 --> 0:18:16.040 the Czech Republic which has you know, a stronger balance sheet, 0:18:16.720 --> 0:18:20.000 uh and um, you know, a very stable currency because 0:18:20.000 --> 0:18:23.040 of the central bank policies. You know, I think that 0:18:23.520 --> 0:18:26.359 has a really strong chance about performing Hungary. You know, 0:18:26.400 --> 0:18:29.520 if you look in Latin terms of trade, probably favor 0:18:29.640 --> 0:18:33.199 countries like Columbia that are oil exporters over places like 0:18:33.280 --> 0:18:36.080 Chile which are very exposed to copper prices which have 0:18:36.200 --> 0:18:39.920 really taken a plunge in recent months. So it's really 0:18:39.960 --> 0:18:43.040 sort of selective and it's more relative value than just hey, 0:18:43.160 --> 0:18:46.560 let's expand our exposure to EM as a whole. What's 0:18:46.560 --> 0:18:52.280 the biggest cat list for emerging markets in I think 0:18:52.520 --> 0:18:55.120 I'm gonna say two very interrelated things, which is how 0:18:55.200 --> 0:18:59.040 long this dollar strength persists, and I don't think it's 0:18:59.040 --> 0:19:01.800 so much a story about what the Fed does. You know, 0:19:01.840 --> 0:19:04.240 if it's fifty or seventy five and an individual meeting, 0:19:04.680 --> 0:19:08.320 But the overall structurally higher set of dollar rates that 0:19:08.359 --> 0:19:11.040 you're seeing, I think, um, those two and then I 0:19:11.040 --> 0:19:15.600 would say, secondarily is the extent to which inflation starts 0:19:15.600 --> 0:19:19.360 to normalize globally and this inflation shock recedes. All right, Nick, 0:19:19.440 --> 0:19:22.760 that's great stuff. Nick stad Miller, Director Emerging Markets at 0:19:22.800 --> 0:19:26.200 Medley Global Advisors. Joining us live in studio, so it 0:19:26.240 --> 0:19:28.680 gets a gold star for being in studio. We appreciate 0:19:28.720 --> 0:19:37.240 that today's focus on munities has brought to you by 0:19:37.280 --> 0:19:41.320 Built American Mutual. When the market is volatile, BAM provides stability. 0:19:41.680 --> 0:19:44.960 BAM insured municipal bonds delivered the fall protection, value, preservation, 0:19:45.000 --> 0:19:48.040 and a durable rating. Ask your broker about BAM in 0:19:48.160 --> 0:19:53.800 short municipal bonds. That that's a read that Matt Miller 0:19:53.880 --> 0:19:56.159 just loves to read. He goes all off on the 0:19:56.200 --> 0:19:58.680 BAM thing, and it's it's kind of embarrassing, but it's 0:19:58.720 --> 0:20:01.000 his thing, so I leave him to it. Yeah, I 0:20:01.000 --> 0:20:03.399 did not do it justice. Joe Mysac joins us here. 0:20:03.480 --> 0:20:07.160 Joe does all things municipals for Bloomberg News. Joe, we're 0:20:07.200 --> 0:20:09.320 you know, we're all kind of looking at the images 0:20:09.320 --> 0:20:12.040 in the video of the terrible tragedy down in Florida. 0:20:12.520 --> 0:20:15.760 Is it an issue for the missible bond market when 0:20:15.760 --> 0:20:20.040 you see that type of disruption and destruction, destruction, and 0:20:20.119 --> 0:20:22.560 you know, not just Florida. If it's kind of it 0:20:23.000 --> 0:20:25.280 back out in the ocean, it's winding up, it's going 0:20:25.320 --> 0:20:30.160 to South Carolina, more destruction there. But in answer your question, 0:20:30.680 --> 0:20:36.119 it's very surprising to most people that natural disasters tend 0:20:36.200 --> 0:20:40.720 not to be a credit issue for municipalities, for states 0:20:40.720 --> 0:20:46.560 and municipalities, purely because insurance money, you know, following the waves, 0:20:46.680 --> 0:20:50.760 following the actual water that comes in comes waves of cash, 0:20:51.359 --> 0:20:58.359 insurance money, federal assistance, rebuilding efforts get under way. So yes, 0:20:58.800 --> 0:21:02.880