Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Looking at my e
Speaker 1: c O go function for the economic calendar, lots of
Speaker 1: stuff going on. We got the I s M manufacturing
Speaker 1: stuff tomorrow, the jolts number still looking at a ten
Speaker 1: million uh job open to go figure that fed me
Speaker 1: minutes tomorrow. We got initial claims Thursday. Then of course
Speaker 1: the non farm pay rolls, the big labor and number
Speaker 1: comes out Friday. Still look for two adds down two
Speaker 1: hundred sixty three thousand the week before, so certainly slowing,
Speaker 1: but still pretty healthy. But that's a lot of stuff
Speaker 1: for IRA Jersey's filled to reserve to kind of digest there.
Speaker 1: So our Jersey joins as Chief US Interest Rate Strategies
Speaker 1: for Bloomberg Intelligence. I what do you think that the
Speaker 1: FEDS really looking at these days as they think about
Speaker 1: their next meeting and their next messaging here for this market. Yeah,
Speaker 1: so I think the messaging that you just mentioned, Paul
Speaker 1: is probably going to be more important to the direction
Speaker 1: of treasury yields than is UM. You know, what they
Speaker 1: do at the next meeting, whether they go twenty five
Speaker 1: or fifty at the next meeting, probably is less relevant
Speaker 1: than UM them describing what they're react. It's the market
Speaker 1: is pricing fifty. I suspect, uh it it will be fifty,
Speaker 1: but UM. But but there's a non trivial chance that
Speaker 1: they could do less. So for example, when you look
Speaker 1: at some of those data that are coming out this week, UM,
Speaker 1: you know, the Fed will get get the full run
Speaker 1: of this month's data. UM, the I S M new
Speaker 1: orders numbers which we get tomorrow are That's my favorite
Speaker 1: indicator for the future path of the economy real right
Speaker 1: it Yeah, it is for a number of reasons. One
Speaker 1: is that it tends to be the best predictor of
Speaker 1: what the overall business sector is going to do, not
Speaker 1: necessarily the job sector, but but certainly the um the
Speaker 1: business sector. And we're at the level right now where
Speaker 1: we're either showing a mid cycle slowdown like we had
Speaker 1: we had in or where if we go lower, we're
Speaker 1: going to be near recessionary levels. So so I think
Speaker 1: that that can be a really important indicator if we
Speaker 1: if it stays at forty seven ish, then that's fine.
Speaker 1: If it goes below forty five, that's typically recession type levels. Um.
Speaker 1: So I think that there's going to be some interesting,
Speaker 1: you know, fireworks that could come depending on how that
Speaker 1: data shows shows tomorrow. And of course the jobs numbers, right,
Speaker 1: we'll be watching wages will be right now, Um, the
Speaker 1: FED is focused on services wages and um and and
Speaker 1: that's going to be a key focus then for us
Speaker 1: and for the rest of the market is do those
Speaker 1: continue to run at six percent year on year? And
Speaker 1: if they do, then you know, that's when a fifty
Speaker 1: basis point it's probably I don't want to say assured,
Speaker 1: but certainly more like if if we do to get
Speaker 1: those kind of numbers, I mean, twenty five basis points
Speaker 1: would be pretty weak sauce that would be a signal
Speaker 1: that this is no vulgar Powell we're watching right, more
Speaker 1: of Burns and Powell. Well, the way that I look
Speaker 1: at it, mat is is the FED is trying to
Speaker 1: get into calibration mode, right and and because they can
Speaker 1: go more and they can still do the same amount
Speaker 1: if they go fifty or twenty five, they just might
Speaker 1: have to go an extra five kind of at the end, right. So,
Speaker 1: so so they know at some point over the next
Speaker 1: six months they want to stop hiking and are likely
Speaker 1: to stop hiking. You just look at the dots. You
Speaker 1: just you know, you hear what J. Powell and other
Speaker 1: members of the feders saying. And the FED is interested
Speaker 1: in getting towards the end and waiting and seeing if
Speaker 1: the hikes that they've already done feed through the economy. Right.
Speaker 1: We always talk about long and variable legs. So we're
Speaker 1: at the point where, you know, if they if they
Speaker 1: hike another seventy five or take another hundreds, so maybe
Speaker 1: five for example, by by May, then uh, then they're
Speaker 1: in a wait and see mode. And given that just
Speaker 1: about every forecaster thinks that the second half of the
Speaker 1: year we're going to have, you know, the near recession.
Speaker 1: If not in recession, then you know, they can probably
Speaker 1: say job done in that situation, because recessions typically come
Speaker 1: with significantly lower inflation, right, but also typically with tighter
Speaker 1: uh financial constraints, right, And we don't have that. So Uh,
Speaker 1: giving us twenty five basis point hikes isn't exactly going
Speaker 1: to get us there? By the way, I was wondering,
Speaker 1: you know, we were at nine c p i um
Speaker 1: what in June last year, and if the Fed gets
Speaker 1: us closer to two, that would be a drop of
Speaker 1: seven percentage points in headline cp I scoured the terminal
Speaker 1: for the last time we saw that happen such a
Speaker 1: huge drop in such a short period of time, and
Speaker 1: it was from July of two thousand eight to July
Speaker 1: of two thou nine. Uh, you don't want to be
Speaker 1: in that situation, do you? Or or do they? Well,
Speaker 1: it's so you know, they don't necessarily want to be
Speaker 1: a two percent but you know, why do you get
Speaker 1: to two percent? Right? If you get to two percent
Speaker 1: because oil prices fall to thirty bucks of barrel, then
Speaker 1: that's a great situation for the Fed, right because you
Speaker 1: have inflation. Inflation expectations would likely be significantly lowered. At
Speaker 1: the same time, that's kind of a tax cut on
Speaker 1: the consumer, and the consumer would then have more discretionary spending,
Speaker 1: you know, non energy discretionary spending to to help boost
Speaker 1: the economy. So so that's a scenario where you might
Speaker 1: actually um with lower energy prices, where you might actually
Speaker 1: avoid a recession. UM. You know that being said, I
Speaker 1: think that that seems pretty unlikely that you get that
Speaker 1: type of move in in energy prices. And and because
Speaker 1: of that, um, you know, a fault to two percent
Speaker 1: would mean that you'd have to have wages go down
Speaker 1: or massive marching compression, particularly in the services sector. UM.
Speaker 1: And that that's not necessarily public companies, right, because most
Speaker 1: services are provided by small businesses, not public companies. Um.
Speaker 1: And and that means things like proprietors income, which which
Speaker 1: we also look at for for the health of the
Speaker 1: economy overall, would have to would have to shrink massively.
Speaker 1: And and you know that that could still mean a recession. Right,
Speaker 1: So you can wind up with a situation where you
Speaker 1: do get significantly slower consumer spending, you get prices falling
Speaker 1: in some sectors. And keep in mind, prices in the
Speaker 1: good sector are already falling um now, not in every sector,
Speaker 1: but in many sectors. So with good prices going down,
Speaker 1: the question now is how quickly do services prices UH
Speaker 1: stop increasing? And um, you know it's hard to it's
Speaker 1: hard to know that and that's going to be driven
Speaker 1: again by by the wage data that we get this Friday. Hey,
Speaker 1: is quantitative tightening still a thing? Like if I'm a
Speaker 1: mortgage backed security trader or government bond trader, Morgan Stanley,
Speaker 1: is the Fed call me up to buy my bonds? Um?
Speaker 1: Well they are a little bit, but only well not
Speaker 1: not mortgages for sure. For treasuries, they do buy some
Speaker 1: treasuries on refunding months, so they'll buy some treasuries in
Speaker 1: UH at auction UH in February because they have more
Speaker 1: UM maturing treasuries in February than UH than they are
Speaker 1: are allowing to run off in the balance sheet. But
Speaker 1: the mortgages were not even close because there's very very
Speaker 1: few refinancings going on right now because mortgage rates are
Speaker 1: so high compared to the mortgage rates that most people have,
Speaker 1: So there's significant volatility in that market, in part because
Speaker 1: there's not a lot of supply, which is a little
Speaker 1: bit ironic, but it's also the UM. The Fed isn't
Speaker 1: buying everything that's cheap, so UM, you're at You're at
Speaker 1: a point now where you're going to see continued volatility
Speaker 1: I think in mortgage spreads. UM but the mortgage rate
Speaker 1: probably is peaked, um, both in terms of spread and
Speaker 1: also in rate, and that's due in at least in
Speaker 1: our view, because tenure treasury yields we think peaked around
Speaker 1: that that three three point facing me four point um,
Speaker 1: and we're out likely to get back up there um.
Speaker 1: So we're we're looking for mortgage rates kind of stabilize here.
Speaker 1: But that's still you know, there's still a massive sticker
Speaker 1: shot going on. People aren't used to paying six or
Speaker 1: six and a half percent. I always joked because twenty
Speaker 1: five years ago when I got my first mortgage, I
Speaker 1: had a seven percent mortgage. So for me, it's like, okay,
Speaker 1: this is kind of like, you know, the high end
Speaker 1: of the range, back to square one exactly. Hey, you know,
Speaker 1: when Pale came into my consciousness, it was probably in
Speaker 1: the mid seventies when he came over for the New
Speaker 1: York Cosmos. But as we think about look back on
Speaker 1: his life, holy cow, he had a Hall of Fame
Speaker 1: career the way before that, with all the World Cup
Speaker 1: stuff in his in his club stuff. But I'm just
Speaker 1: looking at some live footage here on the Bloomberg video
Speaker 1: screen of Brazil as they continue to more in Pale,
Speaker 1: but wow, what a name within the sport. Yeah, he was,
Speaker 1: And I have to say his playing for the Cosmos
Speaker 1: is the reason why I am so into soccer because
Speaker 1: it came to my little tiny soccer club on Long
Speaker 1: Island where I played four back in the nineteen seventies
Speaker 1: six or seventy seven, and did some things with a
Speaker 1: ball that just amazed us and shocked us. And I
Speaker 1: just fell in love with the sport in part because
Speaker 1: of what Paley did in front of us. You know,
Speaker 1: forget the fact that like Franz Beckenbauer was also there,
Speaker 1: I had no idea who he was, but Pale had
Speaker 1: such a big personality and his his fame transcended the
Speaker 1: sport right where in the nineteen seventies, you know, no
Speaker 1: one could name any professional soccer player in the United States,
Speaker 1: but they could all name Pale, right, So I think
Speaker 1: that that was just a massive uh. He was just
Speaker 1: a massive figure in the sport and helped grow the
Speaker 1: sport both here and abroad. Um created, you know, purveyor
Speaker 1: of the beautiful game, which which Brazil to this day
Speaker 1: tries to continue to live up to his legacy and
Speaker 1: beloved as well right and without the kind of tarnished
Speaker 1: You know, other soccer greats have been involved in taking
Speaker 1: bribes for putting the World Cup in places it doesn't belong.
Speaker 1: I want to mention any names, or or doing drugs, right,
Speaker 1: so and and you know, even at well, I was
Speaker 1: thinking of Beckenbauer. Yeah, I was thinking of Diego Maradonna.
Speaker 1: But um, yeah, I think you know Pale. You know,
Speaker 1: Pale was a class act. And I think just about
Speaker 1: everyone who's ever so, Chef Messing, who has been a
Speaker 1: commentator for the New York Red Bulls for a very
Speaker 1: long time. Um, and and who's who who I know, Um,
Speaker 1: you know he he stayed in touch with Pale. Pale
Speaker 1: stayed in touch with Bob Smith, a guy from down
Speaker 1: here in Central Jersey, um, who is also a professional
Speaker 1: soccer player. Pale kept in touch with all these guys
Speaker 1: and was just everyone that I've talked to about Pale
Speaker 1: just says he's such a regular guy. You know, he's
Speaker 1: super famous. Good stuff. I were Jersey Chief US Interest
Speaker 1: rate strategist. Thanks so much for joining us. Well. The
Speaker 1: story over the last several weeks has been the reopening
Speaker 1: of China, the dropping, if you will of the zero
Speaker 1: COVID policy and the pace at which China is reopening,
Speaker 1: taking a lot of people around the world by surprise.
Speaker 1: What does it mean for the global economy? What does
Speaker 1: it mean for the people of China? Um, just a
Speaker 1: Bloomberg story out here today China's biggest cities see subway
Speaker 1: use rebound as COVID peaks. We want to check in
Speaker 1: with all things China. When we want to do that,
Speaker 1: we check in with Leland Miller. He's the CEO of
Speaker 1: China beige Book International, just extraordinary data analysis on all
Speaker 1: things China. So, Leland, We've had a couple of weeks
Speaker 1: here where we've had been able to digest you know,
Speaker 1: this this reopening of China. What do you think are
Speaker 1: some of the key takeaways here as they continue to
Speaker 1: reopen and pretty aggressively. Yeah, well, there's certainly just letting
Speaker 1: it rip. Um. You know, there's there's several different stories
Speaker 1: and they focus on on different parts of this of
Speaker 1: this so called recovery. Uh. The first is, you know
Speaker 1: what happened in Q four, what happened specifically in December,
Speaker 1: And I think everyone's come around the idea that December
Speaker 1: was very, very bad. You know, everyone was talking about reopening,
Speaker 1: but there wasn't actually reopening because everybody was hiding either
Speaker 1: getting COVID or they were hiding in their rooms trying
Speaker 1: not to get COVID. So so nothing good happened December.
Speaker 1: Our dad are some of the worst you know, we've
Speaker 1: seen in many, many, many years. Uh. Then there's a
Speaker 1: quite what's going to happen later in Q one? And
Speaker 1: I think people are optimistic that when COVID's passed, then
Speaker 1: then there was going to be a bounce back in
Speaker 1: the recovery because in the in the economy. So then
Speaker 1: the question is like what happens in January, February and March.
Speaker 1: You know, how do you time this? And I think
Speaker 1: that that's really the question market should be focusing on.
Speaker 1: There's a lot of focus on COVID peaking in the
Speaker 1: big cities right now, subway indicators, etcetera. But you're talking
Speaker 1: about a very small all be an important part of China.
Speaker 1: There's plenty of China left to left to left the
Speaker 1: infection to spread. So I think this is gonna be
Speaker 1: a slower economic recovery than people think. You know, albeit, uh,
Speaker 1: you know, the economy should be back in Q two.
Speaker 1: Well so, but as China really investable? I mean, I
Speaker 1: know the market has a very short memory, but it
Speaker 1: was only a few months ago that jack Ma was
Speaker 1: nowhere to be seen. Um, you know, if if this
Speaker 1: is a country that takes company leaders and puts them
Speaker 1: into some sort of isolation. I don't know the details
Speaker 1: of what happened there, but that isn't the only thing
Speaker 1: that we saw and the most recent incident of China
Speaker 1: interfering with investor assets. Um, what do we expect in
Speaker 1: the future. Well, obviously there's there's plenty of reason to
Speaker 1: be to be worried about investing in China. You know,
Speaker 1: you there's limited rule of law. You know, you don't
Speaker 1: always know what you're investing in. But the landscape has
Speaker 1: changed from you know, six months ago and twelve months ago.
Speaker 1: People are looking at these, you know, incredibly low valuations
Speaker 1: for Chinese stocks. They're not liking what they're seeing. Around
Speaker 1: the rest of the world. There's an emerging market investment
Speaker 1: story that people want to buy into, and there's a
Speaker 1: COVID recovery story and a pullback of COVID zero recovery story.
Speaker 1: So everyone went from being very embarished on China uninvestable
Speaker 1: to being absolutely you know, all in, let's let's do this.
Speaker 1: And it's interesting because when you talk to funds investing
Speaker 1: in China, they say, we don't really care what happens
Speaker 1: in the next you know, months, or even three months
Speaker 1: or sometimes even six months, just as long as talks
Speaker 1: go up for us, you know, by mid year, you know,
Speaker 1: we're going in, and we don't care what happens in
Speaker 1: the meantime. Leland, I know, you know, I'm just thinking
Speaker 1: about kind of what we experienced here in the U.
Speaker 1: S and the West, you know, as the pandemic initially,
Speaker 1: as the virus initially went through the population, and the
Speaker 1: terrible numbers. I guess we have some anecdotal data coming
Speaker 1: out of China, but we don't really have any good
Speaker 1: data about hospitalization's death rates, that type of thing. Is
Speaker 1: there any good guesses you're using. Well, look, there's been
Speaker 1: model after model that said China was going to hit
Speaker 1: you know, a million plus and million plus deaths, and
Speaker 1: I don't think anything has changed. Due to the fact
Speaker 1: that they're that they're getting infected much faster than anyone
Speaker 1: thought possible. So you know, it is a black box.
Speaker 1: We don't know the death ray. We don't know the
Speaker 1: cases either, although we assume just about everybody's getting COVID
Speaker 1: in the big cities and that will eventually spread to
Speaker 1: the countryside. So we don't and it has it's a
Speaker 1: black box. But I think what it has done is
Speaker 1: it is made investors a little bit more opt mystic,
Speaker 1: oddly because they're seeing low reported deaths or or very
Speaker 1: little reporting on deaths, but they know everyone's getting infected.
Speaker 1: So there's this idea, okay, world, we're just weeks away
Speaker 1: from COVID peaking in China. That's actually not what the
Speaker 1: numbers say. There may be COVID peaks in some of
Speaker 1: the larger cities, but you've got a lot more to spread.
Speaker 1: So the fact that this is such a black box
Speaker 1: I think is making it hard for investors. But you know,
Speaker 1: there will be a recovery, it just may not be
Speaker 1: as quickly as people are assuming. Leland In terms of
Speaker 1: the timing, here was this simply a case of President
Speaker 1: she wanting to get through the party Congress, get his
Speaker 1: you know, next term, before he just pulled the band
Speaker 1: aid off here. I don't think so, but I'll tell
Speaker 1: you what I don't know anybody who knows who can
Speaker 1: explain what happened other than the fact that that she
Speaker 1: just sort of, you know, flipped on something that that
Speaker 1: you know, he seemed pretty passionate about for three years.
Speaker 1: Obviously that the economy was near a breaking point. We've
Speaker 1: been reporting on that for for for not just months,
Speaker 1: but years. Uh, you know, the the situa age with
Speaker 1: the protests pressured him. But the fact that they had
Speaker 1: multiple years to prepare for COVID zero coming off and
Speaker 1: instead of you know, waiting after COVID spread season in
Speaker 1: the winter, or preparing with m RNA vaccinations or or
Speaker 1: therapeutics campaign or vaccinating the elderly, they just pulled it back.
Speaker 1: And it's very hard to imagine this was well thought out,
Speaker 1: so huge mystery, but it doesn't it doesn't speak very
Speaker 1: highly of their you know, long term strategic prowess. What
Speaker 1: do you think about the UM conflict with Taiwan UM
Speaker 1: How bad could it get in terms of you know,
Speaker 1: military intervention because they still are reliant on that economy
Speaker 1: for chips to run their own right. Yeah, Look, taiwan
Speaker 1: Is is hovering in the background. I don't think it's
Speaker 1: a near term issue. But obviously they're gearing up their
Speaker 1: military capabilities. The United States is doing similarly. You know,
Speaker 1: Taiwan just reinstituted year long conscription. So this is something
Speaker 1: it should be on hand everyone's mind. But I think
Speaker 1: that the state of the global economy, the state of
Speaker 1: China's economy right now, being so weak and and and
Speaker 1: in the midst of this COVID wave, I don't think
Speaker 1: anything is is on the minds of the leadership right now.
Speaker 1: But this certainly should be a discussion topic as we go,
Speaker 1: you know, a year or two in the future, because
Speaker 1: by the end of this decade, you do have some
Speaker 1: pretty pretty nasty, uh, pretty nasty challenges coming forward. And
Speaker 1: and uh, you know, people have to be aware of
Speaker 1: the possibility that this is something that that Beijing is
Speaker 1: going to want to do before not too long. Leland,
Speaker 1: do we have any good data or about the support
Speaker 1: that she still has with his people, given maybe the
Speaker 1: last few weeks with the COVID outbreak, You know, no,
Speaker 1: we don't. There's there's no way of getting attitudes. I
Speaker 1: think anyone who answered that survey negatively would put their
Speaker 1: life at risk. But look, I think that the reality
Speaker 1: here is that this has definitely been a ding to
Speaker 1: the leadership, but that doesn't mean that the leadership is fracturing.
Speaker 1: It doesn't mean that chij and Ping, you know, is
Speaker 1: has has weakened dramatically. We just don't know. So a
Speaker 1: lot of it will depend on how fast they can
Speaker 1: get out of this current COVID wave and back to
Speaker 1: an economy that's actually working. And then I think we
Speaker 1: have to revaluate about six months and see where we
Speaker 1: are there. Alright, great stuff. Leland Miller. He's the CEO
Speaker 1: of China beij Book International. Uh really one of our
Speaker 1: goat two voices when we want to get the what's
Speaker 1: going on on the ground there in China. In our
Speaker 1: Suitet conversation today, we want to check in with air
Speaker 1: nor Limb CEO at Exaction No sorry, Evaccion Biotech. The
Speaker 1: symbols e v A x on trades on nastac. You
Speaker 1: can punch it into your Bloomberg Professional service. Take a
Speaker 1: look at that. Stocks pretty flat today, but they've got
Speaker 1: some big now. Yeah, but it was the open I know,
Speaker 1: crazy stuff. So um part thanks so much for joining
Speaker 1: us here. Talk to us about your news in the
Speaker 1: cancer space today. What did you guys disclose. Yeah, thanks
Speaker 1: so much for calling on. What we've done today is
Speaker 1: just releasing the news. But the FDA has accepted will
Speaker 1: giving a green light to our clinical trial, our phase
Speaker 1: two clinical trial for a personalized cancer vaccine. So what
Speaker 1: exactly is this? There's a lot of different kinds of cancer.
Speaker 1: I've read on UM your website that it's melanoma treatment.
Speaker 1: But explain it to us, you know, obviously not so
Speaker 1: complicated that we need a doctor to understand it a
Speaker 1: little bit more in depth. Yeah, well, it's it's pretty
Speaker 1: similar to what was in the news about a month
Speaker 1: ago from Moderna and Murphy with our a Morna vaccine.
Speaker 1: So this is a similar vaccine where we essentially make
Speaker 1: a new product for each patient. So very simply, we
Speaker 1: take a sample from the patient, we use artificial intelligence
Speaker 1: to see where the mutations are, and then we create
Speaker 1: a vaccine that is tailored for just that patient. And
Speaker 1: all is just to make sure that we get a
Speaker 1: strong immune response towards that. Very humor, So when you
Speaker 1: say vaccine, I think of something that's preventative. Um, does
Speaker 1: that mean this won't treat someone who already has metastasized melanoma? Oh, yes,
Speaker 1: and that's it's usually called therapeutic vaccines or indeed personalized
Speaker 1: cancer immunotherapies. So these are patients at with advanced metastatic
Speaker 1: cancer where we can look at the tumors and through
Speaker 1: artificial intelligence identify the different mutations in that very tumor
Speaker 1: and that is the basis for this immunotherapy. Or well,
Speaker 1: that's incredible news. And um, what does this mean for
Speaker 1: you know, maybe patients listening? Um, is there a possibility
Speaker 1: that anyone's going to be able to get access to
Speaker 1: this in the near in the near future, Well, I
Speaker 1: definitely think this is the future. How long it will
Speaker 1: take that depends because it is challenging. We need to
Speaker 1: make it right for every patient. But given that it
Speaker 1: can be done, we also know today that the sects
Speaker 1: are better. We already have a phase one trial that
Speaker 1: has been presenting most of the results where we can
Speaker 1: show that we have two thirds of the patients responding
Speaker 1: to the therapy in the late stage metastatic melanoma. So
Speaker 1: that's quite the very promising results, I would say, And
Speaker 1: so from our perspective, we are really confident it works
Speaker 1: and it will provide better results. But again, you need
Speaker 1: to make a drug for each patient, so it is
Speaker 1: more complicated, and I would think it would be extreme,
Speaker 1: extraordinarily difficult to get this to market in scale. If
Speaker 1: every vaccine is personalized for an individual patient, how do
Speaker 1: you in fact distributed in scale or get it to
Speaker 1: the patients. Yeah, today we have a peptide based platform,
Speaker 1: you know Modern and Murky. They are developing their own
Speaker 1: in an m RNA based platform, and we have ourselves
Speaker 1: a new DNA based platform coming up and we needse platform.
Speaker 1: Once you have proven that is effective, you can definitely
Speaker 1: streamline all the processes and make this very quick. Today
Speaker 1: we can do it with a peptide based platform in
Speaker 1: about two months. We foresee that in a couple of
Speaker 1: years we would be able to do it with a
Speaker 1: DNA based platform in maybe two weeks and then bring
Speaker 1: down the cost tremendously. So it can definitely be done,
Speaker 1: be done. It's just we need the engagement or bigger
Speaker 1: players like the formats. But as I said that Mark
Speaker 1: is already there and also other formats like growth, so
Speaker 1: they are taking it very seriously enough. So what does
Speaker 1: your capital structure look like? We just mentioned your depositary
Speaker 1: seats trading here e v a X is the ticker.
Speaker 1: I see a market cap of forty two million dollars,
Speaker 1: which is fairly small, um, but I guess you're in
Speaker 1: the position to to exponentially grow that. What is the
Speaker 1: structure look look like now? Yes, and so we are
Speaker 1: a Danish company coming from a private setting. And then
Speaker 1: we were listening in New York about two years ago,
Speaker 1: and at the start there was a lot of the
Speaker 1: institutions they have over the last year many of them
Speaker 1: actually left the company in the quite depressing market that
Speaker 1: has been here. We see now that hopefully there is
Speaker 1: coming more interesting back into this field, especially into personalized
Speaker 1: cancer mini therapy. But that's that very still quite a
Speaker 1: significant part of retail and the Scandinavian retails and also
Speaker 1: smaller US investors. Alright, great stuff. Pair Pear Norland, he's
Speaker 1: the CEO of Evaccition, the symbols e v a X.
Speaker 1: I was some promising news on some of their drug therapies.
Speaker 1: We wanted to check in there because it seems like
Speaker 1: here with the m r n A vaccine technology and
Speaker 1: others starting to move pretty quickly here, so we want
Speaker 1: to always stay on top of that. Let's get to Washington,
Speaker 1: d C. Because apparently the rumor is Connress is going
Speaker 1: back to work here, so we want to see what
Speaker 1: it will be up. I don't know, we'll see Nathan Dean,
Speaker 1: Senior US POSSI annalso Bloomberg Intelligence Joints US here, Nathan.
Speaker 1: All right, the folks done, Congress are getting back to work.
Speaker 1: I think the first order of businesses doesn't the Republican
Speaker 1: Party have to get uh speaker or something. What's the
Speaker 1: latest on that? That's absolutely right, you know, right now
Speaker 1: the Republican caucus is actually debating about who's going to
Speaker 1: be the next Speaker of the House. And it's actually
Speaker 1: uh fairly good for those of us who want to
Speaker 1: watch popcorn and uh, you know, politics intrigue right now
Speaker 1: Speaker McCarthy is struggling to get those votes. Now. From
Speaker 1: a market perspective, really this is just a delay of
Speaker 1: a few weeks. I mean, eventually whoever becomes speaker, you know,
Speaker 1: we we anticipate that to be resolved in the next
Speaker 1: week or so. But the Republicans need this because they
Speaker 1: already have like five or seven bills just ready to
Speaker 1: go on repealing I R S funds, abortions, immigration, border security.
Speaker 1: None of these bills are really going to pass. But
Speaker 1: usually when we're a new Congress comes in, whoever is
Speaker 1: the Speaker of the House needs those few weeks to say, Okay,
Speaker 1: these are our policy goals and this is how we're
Speaker 1: gonna move forward, and any further intrigue, if you will,
Speaker 1: is just going to delay that. Um, what are the
Speaker 1: chances that we see uh, George Santos elected speaker? Well,
Speaker 1: you know that's actually that's another issue that's obviously that's
Speaker 1: playing out right now. I mean the Bloomberg newss have
Speaker 1: reported that you know, he's under investigation and so forth.
Speaker 1: But what I will say in multiple jurisdictions in different
Speaker 1: countries on different continents exactly. I mean, we we saw
Speaker 1: the news out of Brazil that you know, they dusted
Speaker 1: off an investigation as well, but you know, because they
Speaker 1: couldn't find him, right he was a scoff law. Well,
Speaker 1: you know, it just signals though that the problem that
Speaker 1: the Republicans are going to have with the House of
Speaker 1: Representatives because they have such a thin majority, and if
Speaker 1: they were to lose George Santos and there's another runoff,
Speaker 1: that's just another person that you know, it can make
Speaker 1: that margin even slimmer. So you know, as this plays
Speaker 1: out through twenty four, I just also remind people is that,
Speaker 1: you know, you always have like five to seven retirements
Speaker 1: or deaths or so forth in the house, and so, uh,
Speaker 1: you know, with such a slim margin, you know, obviously
Speaker 1: things could change. Dude, I mean, Kevin McCarthy and the
Speaker 1: speaker bid is nothing on you know, popcorn drama compared
Speaker 1: to what's going on with Santos. Is there a possibility
Speaker 1: that this guy, I mean the Post. I was reading
Speaker 1: a story in the Post. So he lied about graduating
Speaker 1: from college, not just where, but graduating at all. Uh.
Speaker 1: He lied about working for Goldman Sachs and city where's
Speaker 1: the OPO research before he got here. He lied about
Speaker 1: he's at He owned thirteen properties, he lives with his
Speaker 1: sister and doesn't own one, but he's thinking about buying one. UM.
Speaker 1: Maybe more damning is the fact that he may have
Speaker 1: spent campaign funds on personal travel and rent um and
Speaker 1: now we find out that Brazil is reopening UM an
Speaker 1: investigation into him. He's apparently stole a checkbook and then
Speaker 1: went and used the stolen checks to buy stuff, admitting
Speaker 1: later that he did it, but now he denies it.
Speaker 1: I mean, can this guy really stay i mean even
Speaker 1: start in office. So you know, obviously members of members
Speaker 1: in Congress under investigation is not a new thing. I mean,
Speaker 1: there's there's always a member of Congress who's under investigation
Speaker 1: for something. Um. You know, it will just be interesting
Speaker 1: to see though, do the Republicans actually embrace him or
Speaker 1: do they keep him aside. You know, we saw statements
Speaker 1: over the weekend saying that, you know, it wouldn't be
Speaker 1: and I'm paraphrasing here, essentially saying, uh, you know, resigning
Speaker 1: is not a bad thing for him. Um to your
Speaker 1: earlier point about the opposition research, that is a question
Speaker 1: that the Democrats are going to be asking themselves. Why
Speaker 1: didn't we actually discover this until the reporters did so? Uh,
Speaker 1: you know, this process is going to play out. It's
Speaker 1: not going to happen fairly soon, I don't think. But
Speaker 1: even if it does, if he were to just resign
Speaker 1: in the next week or so, you would have a
Speaker 1: special election and so forth. But the damonamics of Congress
Speaker 1: wouldn't change. Paul, I'm gonna ask a question that may
Speaker 1: be controversial. Okay, what does this say about people in
Speaker 1: Long Island that they would elect this guy. I don't know.
Speaker 1: I don't know, uh, Nathan. I mean as I think about,
Speaker 1: you know, the Republicans and their inability to get a
Speaker 1: speaker done in a timely basis, does that just highlight
Speaker 1: that this is a party that really is maybe more
Speaker 1: divided than maybe we initially thought. No. I mean, look,
Speaker 1: you always you always have, you know, wings of certain
Speaker 1: parties that are always going to be you know, challenging
Speaker 1: the speaker and challenging leadership to take their position. Uh.
Speaker 1: You know, we saw this under Speaker Baner, and we
Speaker 1: saw this under Speaker Pelosi. So that's always out there.
Speaker 1: The question is that can they come together and unify
Speaker 1: for an agenda because you know, this is a divided Congress.
Speaker 1: So the Republicans understand that there's not going to be
Speaker 1: a lot of policy wins here. I mean, this is
Speaker 1: going to be one of those where where they're gonna
Speaker 1: have to pick their fights, you know, the leverage points
Speaker 1: of government funding bills and the debt ceiling and so forth.
Speaker 1: From the market perspective, though, you know, the most concerning
Speaker 1: thing for us in terms of whether the Republicans are
Speaker 1: unified or not comes to the debt ceiling. Fortunately that's
Speaker 1: going to be in September, so a lot of things
Speaker 1: are going to happen between now and then. But uh,
Speaker 1: you know, we still anticipate that this session may actually
Speaker 1: be somewhat fruitful for legislation to get across some some legislation,
Speaker 1: not a lot. I gotta ask you about something that
Speaker 1: isn't being legislated anymore, but I guess worked out at Treasury,
Speaker 1: and that is um the tax credits for evs from
Speaker 1: the I r A. This is absolutely fascinating because the
Speaker 1: law um as it stands, I mean, most electric vehicles,
Speaker 1: if not all, are gonna be will no longer be
Speaker 1: eligible in a couple of months for dollar tax credit.
Speaker 1: But I guess it's up to Treasury to decide which vehicles,
Speaker 1: uh you know how lacks they are um when they
Speaker 1: try and adhere to the legislation because battery has to
Speaker 1: have of its components coming from a trading ally and
Speaker 1: we're not even sure what a trading ally is. How
Speaker 1: we're going to figure this out, you know. And it
Speaker 1: was funny I was reading about how like the certain
Speaker 1: you know, the the uh, the height of your base
Speaker 1: of the car determines how Sometimes it's an suv, sometimes
Speaker 1: it's not, and so forth like that. Yeah, the Tesla model, why,
Speaker 1: for example, is two hundred thirty eight pounds too heavy
Speaker 1: to qualify, sorry, too light to qualify for the suv
Speaker 1: tacked credit, so it won't get it. And someone suggested
Speaker 1: on Twitter that Elon must just added two fifty pound
Speaker 1: weight to the trunk that you know, drivers can remove
Speaker 1: after they buy the car. But you know, but there's
Speaker 1: nothing new. So I mean, obviously the IRA comes out,
Speaker 1: it's thousands of pages and so forth, but it's written
Speaker 1: at the you know, hundred thousand foot view level, and
Speaker 1: most legislation actually directs the uh, you know, the executive branch,
Speaker 1: via the regulators or the agencies and so forth, to
Speaker 1: actually put that down at the ten foot branch. And
Speaker 1: so as Treasury actually jumps into this, they're gonna look
Speaker 1: at the discrepancies and discrepancies in Congress is nothing new.
Speaker 1: This happens all the time, and so you know, as
Speaker 1: this as your Treasury moves forward to actually implement this stuff,
Speaker 1: if they see certain discrepancies where they think it's just
Speaker 1: not going to work out, or so forth, like that
Speaker 1: they always have the ability to go back to Congress
Speaker 1: and saying, hey, fix this. And if Congress doesn't do this,
Speaker 1: then you know, they can look within their statute to
Speaker 1: see is there any wiggle room that they can use
Speaker 1: issue A via the rulemaking process. Nathan, the State of
Speaker 1: the Union is coming up from not mistake in any
Speaker 1: preview of what we may hear, what we should be
Speaker 1: in to look out for. So the two things that
Speaker 1: I'm looking for, you know, obviously we're still a month
Speaker 1: and so away, is geopolitical issues, so essentially Russia and China.
Speaker 1: How does the President going to take those issues on,
Speaker 1: what's his vision and so forth? When it comes to
Speaker 1: domestic policy, it's nice to hear what he says, but
Speaker 1: you know, Congress more often than not just says, thank you,
Speaker 1: Mr President, but we're gonna do whatever we want anyway.
Speaker 1: The second thing that I'm going to look for into
Speaker 1: the State of the Union is whether or not he
Speaker 1: announces that he uses it as a catalyst to run
Speaker 1: for re election or not. I'm not sure he will.
Speaker 1: I think that decision will come outside of the State
Speaker 1: of the Union. But you know, if he were to
Speaker 1: decide that, I'm not going to run for re election.
Speaker 1: He's going to lose a lot of political capital, and
Speaker 1: that state of the Union may fall flat. So I
Speaker 1: think that decision will come afterwards, but there's always the
Speaker 1: chance it could. All right, good stuff. Nathan Dean coming
Speaker 1: to us from Washington, d C. He's all he's knee
Speaker 1: deep in all this Congress and policies. You know, the
Speaker 1: best thing for me is about three We're one year
Speaker 1: closer to getting my salt deduction back. Is that right?
Speaker 1: When I think, Nathan, by the way, isn't it is
Speaker 1: he still there? Isn't it? When we get the salt back? Well,
Speaker 1: you know the Trump tax cuts expiring five and so
Speaker 1: I think that the eight I'm bringing the salt back
Speaker 1: will actually be uh be a lot more. Uh. We'll
Speaker 1: take place later this year and earlier next year. And
Speaker 1: for those of you living in New York and New Jersey,
Speaker 1: hopefully it works out on the positive side for you.
Speaker 1: See Matt smiling, he's hoping. Nathan Dean, senior ys policy
Speaker 1: analyst with Bloomberg Intelligence, thanks so much for joining us
Speaker 1: here again. I guess I gotta get a speaker there
Speaker 1: for the Republican Party. That's kind of the first order
Speaker 1: business before they can move anything forward. So apparently that
Speaker 1: they're still kind of negotiating. I kind of envisioned backroom
Speaker 1: deals getting cut here between various factions, kind of like
Speaker 1: like the old days. Here, let's talk commodities. Let's talk
Speaker 1: E T F S. Let's talk commodity E T S.
Speaker 1: We can do that. Bob Inter, director of ETF Investment
Speaker 1: Strategy at Aberdeen, joins us live here in the Bloomberg
Speaker 1: Interactive Broker studio. Bob, we're throwing out it's it's in
Speaker 1: the rear view mirror. Three. What are some of the
Speaker 1: ideas that you're thinking about for your clients. Sure, so
Speaker 1: we look at the act drop coming into this year,
Speaker 1: and we see that the US dollar long positioning it
Speaker 1: still looks pretty crowded. Started to come off at the
Speaker 1: end of last year, but it still looks crowded. If
Speaker 1: we start to get a reversal of that, we could
Speaker 1: see some dollar weakness that's generally speaking, really very good
Speaker 1: for precious medals. Second thing, we have commodity inventories which
Speaker 1: are really incredibly low. No one's paying attention to it. Um.
Speaker 1: The London Medals Exchange just announced twenty five year low
Speaker 1: in the six major medals inventories. Why yeah, why is that? Why? Well,
Speaker 1: it some of it is because there are labor strikes
Speaker 1: in South America that have reduced supply. UM. At one point,
Speaker 1: natural gas was the equivalent of apparel for an oil equivalent.
Speaker 1: So those are costs that go into the manufacture of
Speaker 1: these very energy intense medals. So if you can't if
Speaker 1: you compete in the global marketplace, you don't make it
Speaker 1: in Europe, you make it somewhere else. So is that why?
Speaker 1: I mean? I was looking at gold this morning. Right now,
Speaker 1: it's trading eighteen thirty a troy ounce, and I thought,
Speaker 1: why is gold on a tear to the upside when
Speaker 1: you know we're still dealing with runaway inflation. The Fed
Speaker 1: has raised four or fifty basis points in one year
Speaker 1: and is going to keep going this year. Um, it
Speaker 1: just doesn't make much sense add into the at in
Speaker 1: the fact that inflation is coming down, right, So it's
Speaker 1: if it's really a hedge, why buy it now? It
Speaker 1: absolutely stood out to us going into the end of
Speaker 1: the year last year we said something's the market is
Speaker 1: fundamentally looking at gold differently than than it did before.
Speaker 1: At one point last year, eighteen trillion dollars of negative
Speaker 1: yielding bonds across the world. Now it's about a trillion
Speaker 1: just what's left. In Japan. Real yields rose, they came
Speaker 1: back a little bit, but they rose at one point
Speaker 1: that the real yield equivalent, it would tell you the
Speaker 1: gold should be seven an ounce, and here it is
Speaker 1: at eight hundred. So something different is going on. What
Speaker 1: the something different is that in the third quarter official
Speaker 1: gold purchases from central banks and the like, we're four
Speaker 1: hundred tons now. That is more than double the last
Speaker 1: roughly double the last the next closest largest purchase in
Speaker 1: a quarter, and it's the largest since they've been keeping records.
Speaker 1: And there they're stocking up, they're diversifying their reserves away
Speaker 1: from U S dollars. That's big, that's a big deal.
Speaker 1: Talk to us about China. They're reopening. We've been talking
Speaker 1: about it for the last few weeks now. And if
Speaker 1: I'm a commodity guy and I'm thinking about my demand model,
Speaker 1: my supply model, wow, i gotta recalibrate now. It's it's
Speaker 1: actually a little bit bigger than just than just China.
Speaker 1: If you think about it, we're returning the calendar here.
Speaker 1: It's been three years since we've seen what global demand
Speaker 1: really looks like. The whole world hasn't been open simultaneously
Speaker 1: for three years. We can't predict the next three months.
Speaker 1: And now we're trying to say exactly what demand is
Speaker 1: going to look like, and we haven't seen to come
Speaker 1: on and say that. You know, we continue to ask
Speaker 1: these questions and everybody posits of forecast anyway, but it's
Speaker 1: fair to say there's zero visibility, dude, Like we're in
Speaker 1: completely unprecedented, unchartered territory, so we don't know what's going
Speaker 1: to happen. Correct. Um, it is uh also a massive
Speaker 1: economy coming online. So even if um, you have tens
Speaker 1: of millions of infections a day, you've got to figure
Speaker 1: more people are going to be filling up their cars,
Speaker 1: more people are gonna want to be using um, you know,
Speaker 1: natural resources. Considering the high frequency data we saw, apparently
Speaker 1: more people are using the subway in China, that's correct.
Speaker 1: Just very recently we've started to see an uptick in
Speaker 1: the mobility data, and um, you know it's kind of
Speaker 1: there's the mobility restrictions, the official mobility restrictions were dropped,
Speaker 1: and then mobility absolutely plummeted because it was voluntarily restricted.
Speaker 1: But we're starting to see that bounce back, and again
Speaker 1: I think I think it's we're fundamentally see similar things
Speaker 1: like what we see in New York where the easy
Speaker 1: past data for bridges and tunnels went right back to
Speaker 1: pre pandemic levels, and the subways and the trains are
Speaker 1: not anywhere near that. I'm doing my part. I'm on
Speaker 1: the trains and subway every Yeah, but you're alone. I'm alone,
Speaker 1: well except on the weekends. Then they're pack. You can't.
Speaker 1: It's standing your moan because people are coming in the
Speaker 1: party in the city, but god forbid they come into
Speaker 1: their offices. Silver. What do I do with a work
Speaker 1: from home acts to grind? Yes? I do? What do
Speaker 1: we do? What do we do with silver? Here? We
Speaker 1: talk a lot about gold, but what's your calling silver?
Speaker 1: So we we like to break it down a little simply.
Speaker 1: Silver has two main demand drivers. One is industrial, right,
Speaker 1: so that's in all sorts of medical instruments, it's in
Speaker 1: solar panels. But it's also used by investors in the
Speaker 1: same way that it would um be used like that
Speaker 1: someone would use gold, so we think of baby gold,
Speaker 1: so we think of it as half copper and half gold,
Speaker 1: which isn't the right way to look at it, but
Speaker 1: in shorthand that's the way we look at it. It's
Speaker 1: more industrial used in industrial than gold. Absolutely, yes, And
Speaker 1: you're not concerned about the market being sort of owned
Speaker 1: by a couple of big players silver because I know
Speaker 1: that for a long time it was a real zero
Speaker 1: hedge like conspiracy theory thing that some big bank was
Speaker 1: running the silver market all over the place. I won't
Speaker 1: say which one. Palladium is that something that we care
Speaker 1: about for if you if you uh, you know, I'm
Speaker 1: glad I want everyone else to have a catalytic converter.
Speaker 1: Why is that? I don't love it for me, you know?
Speaker 1: And it really stuffs up the exhaust. I want the
Speaker 1: engine to be able to breathe. But yes, palladium is
Speaker 1: used catalytic converters and that's a good thing. Absolutely, And
Speaker 1: it's actually there are sort of poster child for this
Speaker 1: environmental trade that we have for metals. Is that, you know,
Speaker 1: you're just not economists scratch their head when they look
Speaker 1: at palladium because it's had tremendous returns over tremendous yearly
Speaker 1: returns over a long period of time. That's not supposed
Speaker 1: to happen. The price is supposed to go up, supply
Speaker 1: is supposed to respond, the price is supposed to come down,
Speaker 1: and that just hasn't happened for a number of reasons.
Speaker 1: There's no such thing as that pure palladium. Mind, the
Speaker 1: rest of the metals that come out of it have
Speaker 1: to also work and be profitable. But the sheer increase
Speaker 1: in the Chinese environmental regulations year over year, it was
Speaker 1: China's called China three, than China four, than China four
Speaker 1: A China four B meant that a car in China
Speaker 1: went from having roughly a gram of palladium in it
Speaker 1: in this catalytic converter to having three grams. You don't
Speaker 1: care how many cars are getting sold when the actual
Speaker 1: loading of the metal triples. Yeah, and supply just couldn't react.
Speaker 1: And so it's those sort of environmental regulations that tell
Speaker 1: us that an environmental metal can perform well over a
Speaker 1: long period of time, can exponentially growing. Bob, you are
Speaker 1: director of E t F Investment Strategy, So we're talking
Speaker 1: a lot about commodities, but I want to get to
Speaker 1: the E t F part of this because I have
Speaker 1: a program that's dedicated to E t F s. What
Speaker 1: an incredible year two was for issuance um, for new
Speaker 1: E t s, for thematic E t f s, and
Speaker 1: even any year when there were no I, P O
Speaker 1: S and M and A was dead. What does look
Speaker 1: like to you SOE for for us, we think that
Speaker 1: that backdrop going into twenty leaving two coming into three
Speaker 1: really sets us up for some some nice um return
Speaker 1: in in a few areas, and one of them is UH.
Speaker 1: We we have a an E t F The ticker
Speaker 1: is g L t R. It's called Glitter. It's a
Speaker 1: precious metals basket. These are physically held there in a vault.
Speaker 1: We list the serial numbers of the bars of all
Speaker 1: of the metals on our website. You can go in,
Speaker 1: you can see it. There's no roll yield problems UM
Speaker 1: and it is roughly allocated. It is a market UH.
Speaker 1: The allocation fluctuates based on market value and UH and
Speaker 1: it started in so it's fluctuated away from its original weight.
Speaker 1: But right now it's about fifty seven percent goal, seven
Speaker 1: percent over four platinum and twelve percent palladium. We talked
Speaker 1: about palladium. Platinum is what you use in a cut
Speaker 1: cataly converter for a diesel powered boo, yeah yeah, and
Speaker 1: and uh we we talked about gold and silver and
Speaker 1: so okay, we think the backdrop that we spoke about
Speaker 1: is positive for for for glitter, for glitter, g L
Speaker 1: t R g LTR Bob Mentor, Director of ETF Investment Strategy,
Speaker 1: thanks so much for joining us here. The firm is Aberdeen.
Speaker 1: He got his bachelor's in economics from Rutgers. Rutgers men's
Speaker 1: basketball had a huge win yesterday they beat number one
Speaker 1: per Du. That is a signature wind that come times March,
Speaker 1: that is gonna be a big for the committee they're on.
Speaker 1: They're picking teams for the big dance, talking commodities, talking metals,
Speaker 1: and lots of ways to play it on the precious metals,
Speaker 1: the base metals, all that kind of stuff. And there's
Speaker 1: certainly et F plays there alrightwo ugly, it's in the
Speaker 1: rear view folks here at Bloomberg Market. So we look
Speaker 1: forward and we do that with Gina Martin Adams today,
Speaker 1: chief equity strategist for Bloomberg Intelligence. All right, geane a.
Speaker 1: You know, I could put on my chief equity strategist hat,
Speaker 1: and if I do that, I say I've seen peak inflation.
Speaker 1: I can see the end of rate hikes at some
Speaker 1: point in the next you know, certainly the next six months.
Speaker 1: Maybe I feel like, Okay, I've got some earnings risk,
Speaker 1: but that's not too bad. I think I can take
Speaker 1: some risk here. But people keep coming back to me
Speaker 1: and saying, whoa, whoa, whoa. The earnings risk is bigger
Speaker 1: than you think. What's your call there as we start up?
Speaker 1: So our call is, yes, there is some likely downward
Speaker 1: estimate revision pressure to continue. But looking at past estimate
Speaker 1: or past recessions for guidance in the upcoming year is
Speaker 1: probably going to prove a faulty strategy. And what I
Speaker 1: mean by that is our most most likely sort of
Speaker 1: behavioral pattern as investors is to look at pastor recessions
Speaker 1: as guidance as to what to expect in the recession
Speaker 1: that is emerging in the US. But the reality is
Speaker 1: all recessions look very different, and the recession in the
Speaker 1: environment where inflation has piqued inflation was largely supply based,
Speaker 1: and some of those supply constraints are easy going forward
Speaker 1: creates a very different profit outlook than your typical recession,
Speaker 1: and certainly very different than the two thousand eight recession,
Speaker 1: where we were in the midst of a financial crisis
Speaker 1: which created that really big down draft in earnings. So
Speaker 1: we do think that we have some downward revision pressure
Speaker 1: to come. But the recession I had really unlikely to
Speaker 1: look like any of the past several recessions will be
Speaker 1: unique in its characteristics, and that should really drive your
Speaker 1: investment strategy for well. Michael Burry says, um, it could
Speaker 1: be the kind of recession that drives us from terrifying
Speaker 1: inflation back into deflation and and requires not only the
Speaker 1: FED to cut rates, but more fiscal stimulus from the government. Um.
Speaker 1: What do you think of his tweet? He of the
Speaker 1: big short Of course, you know, I'm not Michael Burry,
Speaker 1: so I can't really speak to his strategy. But what
Speaker 1: I will say is we absolutely are in a period
Speaker 1: of disinflation. Definitely saw inflation peak in the summer of
Speaker 1: last year. I frankly don't think we're going to have
Speaker 1: a massive deflationary crisis coming in three I do think
Speaker 1: that the monetary measures have a lot of people quite
Speaker 1: scared as to the potential financial implications. But offsetting that
Speaker 1: contraction in money growth, you do have very strong balance
Speaker 1: sheets in the part of us households to offset some
Speaker 1: of that pressure, which puts puts us in a very
Speaker 1: different position than we were in the two thousand seven
Speaker 1: two thou eight period. I think it's only natural for
Speaker 1: most people to look back and say, Okay, well, what
Speaker 1: were our recent experiences and attribute that is the most
Speaker 1: likely um, you know, outcome. Fore, I just think, you know,
Speaker 1: we sit in a very different position. We will see disinflation, certainly,
Speaker 1: we will see the unemployment rates start to take a
Speaker 1: little bit higher. But there are some you know, unique
Speaker 1: characteristics of the economy today that didn't exist fifteen years ago. Uh.
Speaker 1: Certainly we've been through the last fifteen years to set
Speaker 1: us up for the next cycle, and so I want
Speaker 1: to try to account for that when I think about
Speaker 1: where we're headed. And I know from reading your work
Speaker 1: over the years, you and your team you have score
Speaker 1: cards at different sectors. You kind of like, what's your
Speaker 1: score card telling you these days? As you as we start, Yeah,
Speaker 1: so our scorecard last updated at the end of the
Speaker 1: last earning season said you want to start to lean
Speaker 1: into cyclicals, into three cyclicals being financials and industrials popped
Speaker 1: up toward the top of our scorecard to accompany, energy
Speaker 1: and consumer stables. So it's a little bit of a
Speaker 1: mix right now. It would suggest to me a tiptoeing
Speaker 1: into what are likely to be the leaders in the
Speaker 1: next up cycle in stocks, while still hanging onto some
Speaker 1: of the you know, strong defensive place that work in
Speaker 1: the current environment, those being energy and consumer stables. What
Speaker 1: do you think about I mean, in looking at equities,
Speaker 1: you have to also, um, I guess, confer with the
Speaker 1: credit market, and we're seeing some cracks there. Loan loss
Speaker 1: provisions at banks surged in the last reporting quarter I
Speaker 1: think was the amount they were raised, of course from
Speaker 1: fairly low levels. But um, we have eight hundred and
Speaker 1: thirty four billion dollars of leverage loan issuance in two
Speaker 1: which is more than double the rate of two thousand seven,
Speaker 1: And Paul Singer says that the global financial system, maybe
Speaker 1: in contrast to the US consumer, is vastly over leveraged.
Speaker 1: Now that could also be UM a dramatic statement, but
Speaker 1: are you seeing these cracks in in the in the
Speaker 1: credit side, and does it concern you. So what I
Speaker 1: use for credit when I'm looking at the equity market
Speaker 1: is actually really simple. It is simply, you know, what
Speaker 1: is the corporate credit markets suggest is the likely outcome
Speaker 1: for equities. We look at high yield and high grade
Speaker 1: spreads as one of our prime are indicators of potential distress,
Speaker 1: distress emerging in the credit markets. Those spreads have certainly
Speaker 1: widened from all time low levels reached you know, in
Speaker 1: the early stages of this recovery process, but they're at
Speaker 1: about the same levels that we saw during the you know,
Speaker 1: many many recessions and earnings that that emerged in two
Speaker 1: thousand and eighteen as well as in twenty. They're not
Speaker 1: even anywhere close pandemic peaks, nor do they look to
Speaker 1: be going there anytime soon. They're nowhere close to two
Speaker 1: thousand eight crisis peaks either. So I think when you suggest,
Speaker 1: you know, some of these things are moving off of
Speaker 1: record low levels, that's the correct characterization. We're certainly not
Speaker 1: in an environment in which credit is easy, um, nor
Speaker 1: are we an environment that simply lacks distress at all.
Speaker 1: But we are moving into some form of a recession
Speaker 1: in the US, and that's reflected in some widening and
Speaker 1: credit spreads, which know, I think is consistent with an
Speaker 1: environment for a relatively moderate earnings recession persisting in the
Speaker 1: in the smp fid Gina, how about small cap stocks?
Speaker 1: Is it time to look there or with a pending
Speaker 1: recession that should wait. Look, I think small caps have
Speaker 1: priced in a tremendous amount of weakness, Paul. Small caps
Speaker 1: have been in a bear market for nearly two years now.
Speaker 1: Small caps are trading at extraordinary discounts by comparison to
Speaker 1: large cap stocks. So you've priced in a tremendous amount
Speaker 1: of risk in small caps. Yes, you will have stronger
Speaker 1: earnings declines and small caps than you do in large caps.
Speaker 1: Certainly there's much more um likely default risk and some
Speaker 1: degree of earnings distress and small caps. But our work
Speaker 1: would suggest you've largely priced that in. We even have.
Speaker 1: Our work would even suggests that we've priced in the
Speaker 1: entirety of a FED balance sheet reduction as well as
Speaker 1: very very tight interest rate policy invaluations for small caps.
Speaker 1: So I would suggest small caps downside is relatively limited.
Speaker 1: You also don't have the risk of you know, a
Speaker 1: bubble still deflating in small caps. This is one of
Speaker 1: the kind of underappreciated aspects of what's really happened in
Speaker 1: the large cap index over the course of the last
Speaker 1: year is you know, not only are we experiencing some
Speaker 1: degree of earnings distress, but we've seen um, you know,
Speaker 1: a bubble that emerged in large cap tech and tech
Speaker 1: related stocks really deflates substantially over the last year. That
Speaker 1: bubble is still in the process of deflating. In our view,
Speaker 1: that doesn't that doesn't really plague the small cap index. Alright,
Speaker 1: great stuff as always, Gina Martin Adams. She's the chief
Speaker 1: equity strategist for Bloomberg Intelligence. If you have access to
Speaker 1: the Bloomberg terminal print, offer us market three Outlook report.
Speaker 1: It has got great stuff and it gives you the perspective.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
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