WEBVTT - The Fed, China, and ETFs (Podcast) 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 pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 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 --> 0:00:22.200 at Bloomberg dot com slash podcast. Looking at my e 0:00:22.440 --> 0:00:25.720 c O go function for the economic calendar, lots of 0:00:25.760 --> 0:00:28.800 stuff going on. We got the I s M manufacturing 0:00:28.840 --> 0:00:31.920 stuff tomorrow, the jolts number still looking at a ten 0:00:32.000 --> 0:00:34.879 million uh job open to go figure that fed me 0:00:35.120 --> 0:00:39.120 minutes tomorrow. We got initial claims Thursday. Then of course 0:00:39.159 --> 0:00:43.160 the non farm pay rolls, the big labor and number 0:00:43.159 --> 0:00:46.559 comes out Friday. Still look for two adds down two 0:00:46.640 --> 0:00:49.560 hundred sixty three thousand the week before, so certainly slowing, 0:00:49.560 --> 0:00:51.960 but still pretty healthy. But that's a lot of stuff 0:00:52.000 --> 0:00:55.080 for IRA Jersey's filled to reserve to kind of digest there. 0:00:55.120 --> 0:00:58.000 So our Jersey joins as Chief US Interest Rate Strategies 0:00:58.040 --> 0:01:00.920 for Bloomberg Intelligence. I what do you think that the 0:01:00.960 --> 0:01:03.720 FEDS really looking at these days as they think about 0:01:03.760 --> 0:01:08.640 their next meeting and their next messaging here for this market. Yeah, 0:01:08.680 --> 0:01:11.280 so I think the messaging that you just mentioned, Paul 0:01:11.360 --> 0:01:13.800 is probably going to be more important to the direction 0:01:13.880 --> 0:01:16.880 of treasury yields than is UM. You know, what they 0:01:16.920 --> 0:01:19.280 do at the next meeting, whether they go twenty five 0:01:19.360 --> 0:01:22.200 or fifty at the next meeting, probably is less relevant 0:01:22.240 --> 0:01:28.000 than UM them describing what they're react. It's the market 0:01:28.040 --> 0:01:31.600 is pricing fifty. I suspect, uh it it will be fifty, 0:01:31.720 --> 0:01:34.760 but UM. But but there's a non trivial chance that 0:01:35.080 --> 0:01:37.399 they could do less. So for example, when you look 0:01:37.440 --> 0:01:41.039 at some of those data that are coming out this week, UM, 0:01:41.080 --> 0:01:42.840 you know, the Fed will get get the full run 0:01:42.880 --> 0:01:45.480 of this month's data. UM, the I S M new 0:01:45.560 --> 0:01:49.040 orders numbers which we get tomorrow are That's my favorite 0:01:49.040 --> 0:01:53.040 indicator for the future path of the economy real right 0:01:53.840 --> 0:01:56.240 it Yeah, it is for a number of reasons. One 0:01:56.360 --> 0:01:59.400 is that it tends to be the best predictor of 0:01:59.440 --> 0:02:02.080 what the overall business sector is going to do, not 0:02:02.120 --> 0:02:05.520 necessarily the job sector, but but certainly the um the 0:02:05.800 --> 0:02:09.080 business sector. And we're at the level right now where 0:02:09.120 --> 0:02:11.680 we're either showing a mid cycle slowdown like we had 0:02:12.639 --> 0:02:16.359 we had in or where if we go lower, we're 0:02:16.440 --> 0:02:19.480 going to be near recessionary levels. So so I think 0:02:19.520 --> 0:02:22.040 that that can be a really important indicator if we 0:02:22.240 --> 0:02:24.560 if it stays at forty seven ish, then that's fine. 0:02:24.600 --> 0:02:29.359 If it goes below forty five, that's typically recession type levels. Um. 0:02:29.480 --> 0:02:31.880 So I think that there's going to be some interesting, 0:02:31.919 --> 0:02:34.120 you know, fireworks that could come depending on how that 0:02:34.520 --> 0:02:37.200 data shows shows tomorrow. And of course the jobs numbers, right, 0:02:37.200 --> 0:02:41.000 we'll be watching wages will be right now, Um, the 0:02:41.000 --> 0:02:45.240 FED is focused on services wages and um and and 0:02:45.280 --> 0:02:47.960 that's going to be a key focus then for us 0:02:48.000 --> 0:02:49.920 and for the rest of the market is do those 0:02:49.919 --> 0:02:52.960 continue to run at six percent year on year? And 0:02:53.000 --> 0:02:55.760 if they do, then you know, that's when a fifty 0:02:55.800 --> 0:02:58.480 basis point it's probably I don't want to say assured, 0:02:58.600 --> 0:03:01.000 but certainly more like if if we do to get 0:03:01.000 --> 0:03:03.640 those kind of numbers, I mean, twenty five basis points 0:03:03.639 --> 0:03:05.960 would be pretty weak sauce that would be a signal 0:03:06.400 --> 0:03:10.080 that this is no vulgar Powell we're watching right, more 0:03:10.200 --> 0:03:13.400 of Burns and Powell. Well, the way that I look 0:03:13.440 --> 0:03:15.800 at it, mat is is the FED is trying to 0:03:15.800 --> 0:03:19.240 get into calibration mode, right and and because they can 0:03:19.280 --> 0:03:21.840 go more and they can still do the same amount 0:03:21.919 --> 0:03:24.120 if they go fifty or twenty five, they just might 0:03:24.200 --> 0:03:27.480 have to go an extra five kind of at the end, right. So, 0:03:27.480 --> 0:03:29.960 so so they know at some point over the next 0:03:30.040 --> 0:03:32.600 six months they want to stop hiking and are likely 0:03:32.919 --> 0:03:34.600 to stop hiking. You just look at the dots. You 0:03:34.760 --> 0:03:37.480 just you know, you hear what J. Powell and other 0:03:37.600 --> 0:03:41.840 members of the feders saying. And the FED is interested 0:03:42.000 --> 0:03:44.920 in getting towards the end and waiting and seeing if 0:03:45.280 --> 0:03:48.440 the hikes that they've already done feed through the economy. Right. 0:03:48.480 --> 0:03:50.640 We always talk about long and variable legs. So we're 0:03:50.680 --> 0:03:52.600 at the point where, you know, if they if they 0:03:52.680 --> 0:03:56.960 hike another seventy five or take another hundreds, so maybe 0:03:55.560 --> 0:04:00.400 five for example, by by May, then uh, then they're 0:04:00.400 --> 0:04:02.280 in a wait and see mode. And given that just 0:04:02.320 --> 0:04:04.600 about every forecaster thinks that the second half of the 0:04:04.680 --> 0:04:07.280 year we're going to have, you know, the near recession. 0:04:07.320 --> 0:04:10.640 If not in recession, then you know, they can probably 0:04:10.640 --> 0:04:15.440 say job done in that situation, because recessions typically come 0:04:15.600 --> 0:04:20.400 with significantly lower inflation, right, but also typically with tighter 0:04:20.520 --> 0:04:25.520 uh financial constraints, right, And we don't have that. So Uh, 0:04:26.240 --> 0:04:28.920 giving us twenty five basis point hikes isn't exactly going 0:04:28.960 --> 0:04:31.760 to get us there? By the way, I was wondering, 0:04:31.880 --> 0:04:34.839 you know, we were at nine c p i um 0:04:34.839 --> 0:04:38.800 what in June last year, and if the Fed gets 0:04:38.880 --> 0:04:41.840 us closer to two, that would be a drop of 0:04:42.000 --> 0:04:47.200 seven percentage points in headline cp I scoured the terminal 0:04:47.240 --> 0:04:49.560 for the last time we saw that happen such a 0:04:49.640 --> 0:04:52.080 huge drop in such a short period of time, and 0:04:52.120 --> 0:04:55.320 it was from July of two thousand eight to July 0:04:55.400 --> 0:04:58.719 of two thou nine. Uh, you don't want to be 0:04:58.760 --> 0:05:02.479 in that situation, do you? Or or do they? Well, 0:05:02.680 --> 0:05:05.120 it's so you know, they don't necessarily want to be 0:05:05.120 --> 0:05:06.719 a two percent but you know, why do you get 0:05:06.760 --> 0:05:08.520 to two percent? Right? If you get to two percent 0:05:08.600 --> 0:05:11.960 because oil prices fall to thirty bucks of barrel, then 0:05:12.160 --> 0:05:14.400 that's a great situation for the Fed, right because you 0:05:14.440 --> 0:05:18.400 have inflation. Inflation expectations would likely be significantly lowered. At 0:05:18.400 --> 0:05:20.800 the same time, that's kind of a tax cut on 0:05:20.839 --> 0:05:24.039 the consumer, and the consumer would then have more discretionary spending, 0:05:24.240 --> 0:05:27.320 you know, non energy discretionary spending to to help boost 0:05:27.320 --> 0:05:30.480 the economy. So so that's a scenario where you might 0:05:30.560 --> 0:05:33.960 actually um with lower energy prices, where you might actually 0:05:34.040 --> 0:05:36.520 avoid a recession. UM. You know that being said, I 0:05:37.000 --> 0:05:39.760 think that that seems pretty unlikely that you get that 0:05:39.839 --> 0:05:43.200 type of move in in energy prices. And and because 0:05:43.240 --> 0:05:45.880 of that, um, you know, a fault to two percent 0:05:45.920 --> 0:05:48.000 would mean that you'd have to have wages go down 0:05:48.120 --> 0:05:52.120 or massive marching compression, particularly in the services sector. UM. 0:05:52.160 --> 0:05:55.159 And that that's not necessarily public companies, right, because most 0:05:55.160 --> 0:05:59.360 services are provided by small businesses, not public companies. Um. 0:05:59.720 --> 0:06:02.520 And and that means things like proprietors income, which which 0:06:02.520 --> 0:06:05.400 we also look at for for the health of the 0:06:05.440 --> 0:06:08.880 economy overall, would have to would have to shrink massively. 0:06:09.080 --> 0:06:12.280 And and you know that that could still mean a recession. Right, 0:06:12.320 --> 0:06:14.919 So you can wind up with a situation where you 0:06:15.000 --> 0:06:19.960 do get significantly slower consumer spending, you get prices falling 0:06:20.000 --> 0:06:22.680 in some sectors. And keep in mind, prices in the 0:06:22.680 --> 0:06:26.799 good sector are already falling um now, not in every sector, 0:06:26.880 --> 0:06:30.080 but in many sectors. So with good prices going down, 0:06:30.120 --> 0:06:33.320 the question now is how quickly do services prices UH 0:06:33.400 --> 0:06:36.480 stop increasing? And um, you know it's hard to it's 0:06:36.480 --> 0:06:38.400 hard to know that and that's going to be driven 0:06:38.440 --> 0:06:42.000 again by by the wage data that we get this Friday. Hey, 0:06:42.680 --> 0:06:45.480 is quantitative tightening still a thing? Like if I'm a 0:06:45.520 --> 0:06:49.680 mortgage backed security trader or government bond trader, Morgan Stanley, 0:06:49.720 --> 0:06:52.880 is the Fed call me up to buy my bonds? Um? 0:06:53.120 --> 0:06:55.640 Well they are a little bit, but only well not 0:06:55.640 --> 0:06:58.880 not mortgages for sure. For treasuries, they do buy some 0:06:58.960 --> 0:07:02.719 treasuries on refunding months, so they'll buy some treasuries in 0:07:02.960 --> 0:07:07.400 UH at auction UH in February because they have more 0:07:07.920 --> 0:07:11.960 UM maturing treasuries in February than UH than they are 0:07:12.120 --> 0:07:13.760 are allowing to run off in the balance sheet. But 0:07:13.800 --> 0:07:17.000 the mortgages were not even close because there's very very 0:07:17.000 --> 0:07:21.120 few refinancings going on right now because mortgage rates are 0:07:21.160 --> 0:07:24.040 so high compared to the mortgage rates that most people have, 0:07:24.640 --> 0:07:28.440 So there's significant volatility in that market, in part because 0:07:28.440 --> 0:07:30.640 there's not a lot of supply, which is a little 0:07:30.640 --> 0:07:34.920 bit ironic, but it's also the UM. The Fed isn't 0:07:34.960 --> 0:07:38.480 buying everything that's cheap, so UM, you're at You're at 0:07:38.480 --> 0:07:41.200 a point now where you're going to see continued volatility 0:07:41.240 --> 0:07:44.800 I think in mortgage spreads. UM but the mortgage rate 0:07:44.880 --> 0:07:48.200 probably is peaked, um, both in terms of spread and 0:07:48.400 --> 0:07:51.640 also in rate, and that's due in at least in 0:07:51.640 --> 0:07:55.440 our view, because tenure treasury yields we think peaked around 0:07:55.440 --> 0:07:59.480 that that three three point facing me four point um, 0:07:59.600 --> 0:08:01.680 and we're out likely to get back up there um. 0:08:01.920 --> 0:08:05.680 So we're we're looking for mortgage rates kind of stabilize here. 0:08:05.920 --> 0:08:08.360 But that's still you know, there's still a massive sticker 0:08:08.400 --> 0:08:10.840 shot going on. People aren't used to paying six or 0:08:10.880 --> 0:08:13.000 six and a half percent. I always joked because twenty 0:08:13.040 --> 0:08:15.080 five years ago when I got my first mortgage, I 0:08:15.080 --> 0:08:17.320 had a seven percent mortgage. So for me, it's like, okay, 0:08:17.320 --> 0:08:18.960 this is kind of like, you know, the high end 0:08:19.000 --> 0:08:23.240 of the range, back to square one exactly. Hey, you know, 0:08:23.280 --> 0:08:26.480 when Pale came into my consciousness, it was probably in 0:08:26.480 --> 0:08:28.640 the mid seventies when he came over for the New 0:08:28.720 --> 0:08:30.920 York Cosmos. But as we think about look back on 0:08:31.000 --> 0:08:33.440 his life, holy cow, he had a Hall of Fame 0:08:33.480 --> 0:08:36.600 career the way before that, with all the World Cup 0:08:36.640 --> 0:08:38.480 stuff in his in his club stuff. But I'm just 0:08:38.559 --> 0:08:41.120 looking at some live footage here on the Bloomberg video 0:08:41.160 --> 0:08:43.319 screen of Brazil as they continue to more in Pale, 0:08:43.440 --> 0:08:46.880 but wow, what a name within the sport. Yeah, he was, 0:08:46.960 --> 0:08:49.840 And I have to say his playing for the Cosmos 0:08:49.960 --> 0:08:52.200 is the reason why I am so into soccer because 0:08:52.200 --> 0:08:54.920 it came to my little tiny soccer club on Long 0:08:54.920 --> 0:08:57.520 Island where I played four back in the nineteen seventies 0:08:57.520 --> 0:09:00.080 six or seventy seven, and did some things with a 0:09:00.120 --> 0:09:02.280 ball that just amazed us and shocked us. And I 0:09:02.360 --> 0:09:04.559 just fell in love with the sport in part because 0:09:04.600 --> 0:09:06.200 of what Paley did in front of us. You know, 0:09:06.360 --> 0:09:08.719 forget the fact that like Franz Beckenbauer was also there, 0:09:08.720 --> 0:09:11.000 I had no idea who he was, but Pale had 0:09:11.040 --> 0:09:14.720 such a big personality and his his fame transcended the 0:09:14.760 --> 0:09:17.920 sport right where in the nineteen seventies, you know, no 0:09:18.000 --> 0:09:21.560 one could name any professional soccer player in the United States, 0:09:21.679 --> 0:09:24.080 but they could all name Pale, right, So I think 0:09:24.080 --> 0:09:26.440 that that was just a massive uh. He was just 0:09:26.480 --> 0:09:28.760 a massive figure in the sport and helped grow the 0:09:28.760 --> 0:09:32.079 sport both here and abroad. Um created, you know, purveyor 0:09:32.080 --> 0:09:35.000 of the beautiful game, which which Brazil to this day 0:09:35.040 --> 0:09:37.480 tries to continue to live up to his legacy and 0:09:37.559 --> 0:09:41.199 beloved as well right and without the kind of tarnished 0:09:41.480 --> 0:09:46.400 You know, other soccer greats have been involved in taking 0:09:46.480 --> 0:09:50.120 bribes for putting the World Cup in places it doesn't belong. 0:09:50.480 --> 0:09:54.440 I want to mention any names, or or doing drugs, right, 0:09:54.520 --> 0:09:56.800 so and and you know, even at well, I was 0:09:56.800 --> 0:10:01.200 thinking of Beckenbauer. Yeah, I was thinking of Diego Maradonna. 0:10:01.280 --> 0:10:04.920 But um, yeah, I think you know Pale. You know, 0:10:04.920 --> 0:10:06.880 Pale was a class act. And I think just about 0:10:06.880 --> 0:10:10.320 everyone who's ever so, Chef Messing, who has been a 0:10:10.360 --> 0:10:12.199 commentator for the New York Red Bulls for a very 0:10:12.200 --> 0:10:16.480 long time. Um, and and who's who who I know, Um, 0:10:16.600 --> 0:10:19.199 you know he he stayed in touch with Pale. Pale 0:10:19.240 --> 0:10:21.320 stayed in touch with Bob Smith, a guy from down 0:10:21.320 --> 0:10:24.240 here in Central Jersey, um, who is also a professional 0:10:24.240 --> 0:10:26.720 soccer player. Pale kept in touch with all these guys 0:10:26.720 --> 0:10:28.960 and was just everyone that I've talked to about Pale 0:10:29.160 --> 0:10:32.000 just says he's such a regular guy. You know, he's 0:10:32.000 --> 0:10:34.440 super famous. Good stuff. I were Jersey Chief US Interest 0:10:34.520 --> 0:10:40.280 rate strategist. Thanks so much for joining us. Well. The 0:10:40.320 --> 0:10:43.760 story over the last several weeks has been the reopening 0:10:43.840 --> 0:10:46.680 of China, the dropping, if you will of the zero 0:10:46.760 --> 0:10:50.880 COVID policy and the pace at which China is reopening, 0:10:50.880 --> 0:10:53.600 taking a lot of people around the world by surprise. 0:10:53.640 --> 0:10:55.200 What does it mean for the global economy? What does 0:10:55.200 --> 0:10:57.440 it mean for the people of China? Um, just a 0:10:57.480 --> 0:11:01.240 Bloomberg story out here today China's biggest cities see subway 0:11:01.320 --> 0:11:05.240 use rebound as COVID peaks. We want to check in 0:11:05.280 --> 0:11:07.560 with all things China. When we want to do that, 0:11:07.600 --> 0:11:09.600 we check in with Leland Miller. He's the CEO of 0:11:09.679 --> 0:11:14.520 China beige Book International, just extraordinary data analysis on all 0:11:14.559 --> 0:11:17.880 things China. So, Leland, We've had a couple of weeks 0:11:17.880 --> 0:11:20.520 here where we've had been able to digest you know, 0:11:20.600 --> 0:11:23.240 this this reopening of China. What do you think are 0:11:23.280 --> 0:11:26.120 some of the key takeaways here as they continue to 0:11:26.120 --> 0:11:30.040 reopen and pretty aggressively. Yeah, well, there's certainly just letting 0:11:30.040 --> 0:11:33.400 it rip. Um. You know, there's there's several different stories 0:11:33.440 --> 0:11:36.240 and they focus on on different parts of this of 0:11:36.320 --> 0:11:39.360 this so called recovery. Uh. The first is, you know 0:11:39.400 --> 0:11:42.160 what happened in Q four, what happened specifically in December, 0:11:42.200 --> 0:11:44.760 And I think everyone's come around the idea that December 0:11:44.840 --> 0:11:47.960 was very, very bad. You know, everyone was talking about reopening, 0:11:48.160 --> 0:11:50.920 but there wasn't actually reopening because everybody was hiding either 0:11:50.960 --> 0:11:52.720 getting COVID or they were hiding in their rooms trying 0:11:52.720 --> 0:11:55.240 not to get COVID. So so nothing good happened December. 0:11:55.280 --> 0:11:56.720 Our dad are some of the worst you know, we've 0:11:56.720 --> 0:11:59.760 seen in many, many, many years. Uh. Then there's a 0:11:59.800 --> 0:12:01.720 quite what's going to happen later in Q one? And 0:12:01.720 --> 0:12:05.200 I think people are optimistic that when COVID's passed, then 0:12:05.280 --> 0:12:06.560 then there was going to be a bounce back in 0:12:06.559 --> 0:12:09.480 the recovery because in the in the economy. So then 0:12:09.520 --> 0:12:12.600 the question is like what happens in January, February and March. 0:12:12.720 --> 0:12:14.439 You know, how do you time this? And I think 0:12:14.480 --> 0:12:16.840 that that's really the question market should be focusing on. 0:12:17.160 --> 0:12:19.400 There's a lot of focus on COVID peaking in the 0:12:19.440 --> 0:12:23.160 big cities right now, subway indicators, etcetera. But you're talking 0:12:23.160 --> 0:12:26.040 about a very small all be an important part of China. 0:12:26.120 --> 0:12:29.319 There's plenty of China left to left to left the 0:12:29.360 --> 0:12:31.319 infection to spread. So I think this is gonna be 0:12:31.360 --> 0:12:35.600 a slower economic recovery than people think. You know, albeit, uh, 0:12:35.640 --> 0:12:38.760 you know, the economy should be back in Q two. 0:12:38.960 --> 0:12:42.760 Well so, but as China really investable? I mean, I 0:12:42.800 --> 0:12:44.920 know the market has a very short memory, but it 0:12:44.960 --> 0:12:47.400 was only a few months ago that jack Ma was 0:12:47.480 --> 0:12:50.520 nowhere to be seen. Um, you know, if if this 0:12:50.600 --> 0:12:55.040 is a country that takes company leaders and puts them 0:12:55.080 --> 0:12:58.320 into some sort of isolation. I don't know the details 0:12:58.320 --> 0:13:00.719 of what happened there, but that isn't the only thing 0:13:00.720 --> 0:13:04.600 that we saw and the most recent incident of China 0:13:04.720 --> 0:13:10.240 interfering with investor assets. Um, what do we expect in 0:13:10.240 --> 0:13:14.480 the future. Well, obviously there's there's plenty of reason to 0:13:14.600 --> 0:13:17.560 be to be worried about investing in China. You know, 0:13:17.640 --> 0:13:21.200 you there's limited rule of law. You know, you don't 0:13:21.200 --> 0:13:24.480 always know what you're investing in. But the landscape has 0:13:24.559 --> 0:13:27.080 changed from you know, six months ago and twelve months ago. 0:13:27.160 --> 0:13:31.199 People are looking at these, you know, incredibly low valuations 0:13:31.200 --> 0:13:33.640 for Chinese stocks. They're not liking what they're seeing. Around 0:13:33.640 --> 0:13:36.280 the rest of the world. There's an emerging market investment 0:13:36.360 --> 0:13:38.880 story that people want to buy into, and there's a 0:13:38.920 --> 0:13:42.320 COVID recovery story and a pullback of COVID zero recovery story. 0:13:42.440 --> 0:13:46.160 So everyone went from being very embarished on China uninvestable 0:13:46.200 --> 0:13:50.040 to being absolutely you know, all in, let's let's do this. 0:13:50.200 --> 0:13:52.880 And it's interesting because when you talk to funds investing 0:13:52.920 --> 0:13:55.240 in China, they say, we don't really care what happens 0:13:55.240 --> 0:13:57.600 in the next you know, months, or even three months 0:13:57.720 --> 0:14:00.280 or sometimes even six months, just as long as talks 0:14:00.320 --> 0:14:02.800 go up for us, you know, by mid year, you know, 0:14:02.840 --> 0:14:04.600 we're going in, and we don't care what happens in 0:14:04.600 --> 0:14:07.839 the meantime. Leland, I know, you know, I'm just thinking 0:14:07.880 --> 0:14:10.320 about kind of what we experienced here in the U. 0:14:10.440 --> 0:14:13.920 S and the West, you know, as the pandemic initially, 0:14:13.960 --> 0:14:16.200 as the virus initially went through the population, and the 0:14:16.320 --> 0:14:19.320 terrible numbers. I guess we have some anecdotal data coming 0:14:19.360 --> 0:14:20.840 out of China, but we don't really have any good 0:14:20.920 --> 0:14:25.480 data about hospitalization's death rates, that type of thing. Is 0:14:25.480 --> 0:14:30.080 there any good guesses you're using. Well, look, there's been 0:14:30.160 --> 0:14:32.360 model after model that said China was going to hit 0:14:32.360 --> 0:14:35.400 you know, a million plus and million plus deaths, and 0:14:36.160 --> 0:14:38.840 I don't think anything has changed. Due to the fact 0:14:38.840 --> 0:14:41.800 that they're that they're getting infected much faster than anyone 0:14:41.840 --> 0:14:44.600 thought possible. So you know, it is a black box. 0:14:44.640 --> 0:14:46.360 We don't know the death ray. We don't know the 0:14:46.440 --> 0:14:49.840 cases either, although we assume just about everybody's getting COVID 0:14:50.080 --> 0:14:52.200 in the big cities and that will eventually spread to 0:14:52.240 --> 0:14:54.920 the countryside. So we don't and it has it's a 0:14:54.920 --> 0:14:56.800 black box. But I think what it has done is 0:14:56.840 --> 0:15:00.400 it is made investors a little bit more opt mystic, 0:15:00.400 --> 0:15:04.240 oddly because they're seeing low reported deaths or or very 0:15:04.240 --> 0:15:07.600 little reporting on deaths, but they know everyone's getting infected. 0:15:07.600 --> 0:15:10.040 So there's this idea, okay, world, we're just weeks away 0:15:10.160 --> 0:15:13.200 from COVID peaking in China. That's actually not what the 0:15:13.280 --> 0:15:16.400 numbers say. There may be COVID peaks in some of 0:15:16.400 --> 0:15:18.320 the larger cities, but you've got a lot more to spread. 0:15:18.440 --> 0:15:20.480 So the fact that this is such a black box 0:15:20.520 --> 0:15:22.880 I think is making it hard for investors. But you know, 0:15:22.960 --> 0:15:24.920 there will be a recovery, it just may not be 0:15:24.960 --> 0:15:27.720 as quickly as people are assuming. Leland In terms of 0:15:27.760 --> 0:15:30.680 the timing, here was this simply a case of President 0:15:30.800 --> 0:15:32.920 she wanting to get through the party Congress, get his 0:15:33.960 --> 0:15:37.320 you know, next term, before he just pulled the band 0:15:37.320 --> 0:15:40.720 aid off here. I don't think so, but I'll tell 0:15:40.760 --> 0:15:42.640 you what I don't know anybody who knows who can 0:15:42.680 --> 0:15:45.040 explain what happened other than the fact that that she 0:15:45.240 --> 0:15:48.680 just sort of, you know, flipped on something that that 0:15:49.080 --> 0:15:51.840 you know, he seemed pretty passionate about for three years. 0:15:52.200 --> 0:15:54.600 Obviously that the economy was near a breaking point. We've 0:15:54.600 --> 0:15:57.000 been reporting on that for for for not just months, 0:15:57.080 --> 0:16:00.280 but years. Uh, you know, the the situa age with 0:16:00.320 --> 0:16:02.920 the protests pressured him. But the fact that they had 0:16:03.000 --> 0:16:06.040 multiple years to prepare for COVID zero coming off and 0:16:06.080 --> 0:16:09.040 instead of you know, waiting after COVID spread season in 0:16:09.080 --> 0:16:12.560 the winter, or preparing with m RNA vaccinations or or 0:16:12.760 --> 0:16:17.560 therapeutics campaign or vaccinating the elderly, they just pulled it back. 0:16:17.680 --> 0:16:21.640 And it's very hard to imagine this was well thought out, 0:16:21.720 --> 0:16:26.040 so huge mystery, but it doesn't it doesn't speak very 0:16:26.120 --> 0:16:29.400 highly of their you know, long term strategic prowess. What 0:16:29.440 --> 0:16:34.640 do you think about the UM conflict with Taiwan UM 0:16:35.320 --> 0:16:39.640 How bad could it get in terms of you know, 0:16:39.720 --> 0:16:43.320 military intervention because they still are reliant on that economy 0:16:43.360 --> 0:16:46.880 for chips to run their own right. Yeah, Look, taiwan 0:16:47.000 --> 0:16:49.000 Is is hovering in the background. I don't think it's 0:16:49.000 --> 0:16:52.360 a near term issue. But obviously they're gearing up their 0:16:52.720 --> 0:16:56.400 military capabilities. The United States is doing similarly. You know, 0:16:56.440 --> 0:16:59.840 Taiwan just reinstituted year long conscription. So this is something 0:17:00.040 --> 0:17:03.000 it should be on hand everyone's mind. But I think 0:17:03.000 --> 0:17:05.200 that the state of the global economy, the state of 0:17:05.280 --> 0:17:07.760 China's economy right now, being so weak and and and 0:17:07.800 --> 0:17:09.840 in the midst of this COVID wave, I don't think 0:17:09.880 --> 0:17:13.120 anything is is on the minds of the leadership right now. 0:17:12.960 --> 0:17:16.280 But this certainly should be a discussion topic as we go, 0:17:16.600 --> 0:17:18.280 you know, a year or two in the future, because 0:17:18.320 --> 0:17:20.439 by the end of this decade, you do have some 0:17:20.480 --> 0:17:24.920 pretty pretty nasty, uh, pretty nasty challenges coming forward. And 0:17:24.920 --> 0:17:27.280 and uh, you know, people have to be aware of 0:17:27.280 --> 0:17:29.639 the possibility that this is something that that Beijing is 0:17:29.640 --> 0:17:32.240 going to want to do before not too long. Leland, 0:17:32.480 --> 0:17:36.080 do we have any good data or about the support 0:17:36.119 --> 0:17:39.879 that she still has with his people, given maybe the 0:17:39.920 --> 0:17:43.280 last few weeks with the COVID outbreak, You know, no, 0:17:43.520 --> 0:17:45.760 we don't. There's there's no way of getting attitudes. I 0:17:45.800 --> 0:17:48.280 think anyone who answered that survey negatively would put their 0:17:48.320 --> 0:17:50.760 life at risk. But look, I think that the reality 0:17:50.800 --> 0:17:52.600 here is that this has definitely been a ding to 0:17:52.640 --> 0:17:56.119 the leadership, but that doesn't mean that the leadership is fracturing. 0:17:56.160 --> 0:17:58.359 It doesn't mean that chij and Ping, you know, is 0:17:58.440 --> 0:18:01.240 has has weakened dramatically. We just don't know. So a 0:18:01.280 --> 0:18:03.240 lot of it will depend on how fast they can 0:18:03.240 --> 0:18:05.119 get out of this current COVID wave and back to 0:18:05.240 --> 0:18:08.040 an economy that's actually working. And then I think we 0:18:08.119 --> 0:18:10.200 have to revaluate about six months and see where we 0:18:10.200 --> 0:18:13.080 are there. Alright, great stuff. Leland Miller. He's the CEO 0:18:13.119 --> 0:18:16.439 of China beij Book International. Uh really one of our 0:18:16.440 --> 0:18:18.200 goat two voices when we want to get the what's 0:18:18.200 --> 0:18:23.479 going on on the ground there in China. In our 0:18:24.040 --> 0:18:26.320 Suitet conversation today, we want to check in with air 0:18:26.680 --> 0:18:31.320 nor Limb CEO at Exaction No sorry, Evaccion Biotech. The 0:18:31.359 --> 0:18:34.960 symbols e v A x on trades on nastac. You 0:18:34.960 --> 0:18:37.639 can punch it into your Bloomberg Professional service. Take a 0:18:37.680 --> 0:18:39.919 look at that. Stocks pretty flat today, but they've got 0:18:39.960 --> 0:18:43.600 some big now. Yeah, but it was the open I know, 0:18:44.160 --> 0:18:47.040 crazy stuff. So um part thanks so much for joining 0:18:47.080 --> 0:18:48.760 us here. Talk to us about your news in the 0:18:48.800 --> 0:18:54.160 cancer space today. What did you guys disclose. Yeah, thanks 0:18:54.160 --> 0:18:56.879 so much for calling on. What we've done today is 0:18:57.240 --> 0:19:00.160 just releasing the news. But the FDA has accepted will 0:19:00.240 --> 0:19:04.160 giving a green light to our clinical trial, our phase 0:19:04.240 --> 0:19:09.600 two clinical trial for a personalized cancer vaccine. So what 0:19:10.280 --> 0:19:13.040 exactly is this? There's a lot of different kinds of cancer. 0:19:13.200 --> 0:19:17.840 I've read on UM your website that it's melanoma treatment. 0:19:17.840 --> 0:19:20.640 But explain it to us, you know, obviously not so 0:19:20.680 --> 0:19:22.399 complicated that we need a doctor to understand it a 0:19:22.440 --> 0:19:26.080 little bit more in depth. Yeah, well, it's it's pretty 0:19:26.160 --> 0:19:28.240 similar to what was in the news about a month 0:19:28.240 --> 0:19:31.920 ago from Moderna and Murphy with our a Morna vaccine. 0:19:31.960 --> 0:19:35.240 So this is a similar vaccine where we essentially make 0:19:35.400 --> 0:19:39.359 a new product for each patient. So very simply, we 0:19:39.480 --> 0:19:43.240 take a sample from the patient, we use artificial intelligence 0:19:43.320 --> 0:19:46.399 to see where the mutations are, and then we create 0:19:46.440 --> 0:19:50.480 a vaccine that is tailored for just that patient. And 0:19:50.600 --> 0:19:53.159 all is just to make sure that we get a 0:19:53.200 --> 0:19:57.159 strong immune response towards that. Very humor, So when you 0:19:57.240 --> 0:20:00.720 say vaccine, I think of something that's preventative. Um, does 0:20:00.760 --> 0:20:08.120 that mean this won't treat someone who already has metastasized melanoma? Oh, yes, 0:20:08.480 --> 0:20:13.360 and that's it's usually called therapeutic vaccines or indeed personalized 0:20:13.440 --> 0:20:19.360 cancer immunotherapies. So these are patients at with advanced metastatic 0:20:19.440 --> 0:20:22.920 cancer where we can look at the tumors and through 0:20:23.000 --> 0:20:27.880 artificial intelligence identify the different mutations in that very tumor 0:20:28.240 --> 0:20:31.600 and that is the basis for this immunotherapy. Or well, 0:20:31.600 --> 0:20:36.920 that's incredible news. And um, what does this mean for 0:20:37.160 --> 0:20:41.040 you know, maybe patients listening? Um, is there a possibility 0:20:41.160 --> 0:20:44.320 that anyone's going to be able to get access to 0:20:44.400 --> 0:20:48.840 this in the near in the near future, Well, I 0:20:48.880 --> 0:20:51.600 definitely think this is the future. How long it will 0:20:51.640 --> 0:20:54.840 take that depends because it is challenging. We need to 0:20:54.880 --> 0:20:59.159 make it right for every patient. But given that it 0:20:59.200 --> 0:21:02.399 can be done, we also know today that the sects 0:21:02.560 --> 0:21:06.080 are better. We already have a phase one trial that 0:21:06.119 --> 0:21:09.600 has been presenting most of the results where we can 0:21:09.600 --> 0:21:12.159 show that we have two thirds of the patients responding 0:21:12.200 --> 0:21:15.800 to the therapy in the late stage metastatic melanoma. So 0:21:15.880 --> 0:21:20.159 that's quite the very promising results, I would say, And 0:21:20.480 --> 0:21:23.359 so from our perspective, we are really confident it works 0:21:23.440 --> 0:21:27.000 and it will provide better results. But again, you need 0:21:27.040 --> 0:21:29.399 to make a drug for each patient, so it is 0:21:29.440 --> 0:21:32.560 more complicated, and I would think it would be extreme, 0:21:32.680 --> 0:21:35.960 extraordinarily difficult to get this to market in scale. If 0:21:36.000 --> 0:21:40.280 every vaccine is personalized for an individual patient, how do 0:21:40.359 --> 0:21:43.080 you in fact distributed in scale or get it to 0:21:43.119 --> 0:21:49.000 the patients. Yeah, today we have a peptide based platform, 0:21:49.720 --> 0:21:52.280 you know Modern and Murky. They are developing their own 0:21:52.280 --> 0:21:55.800 in an m RNA based platform, and we have ourselves 0:21:55.960 --> 0:22:00.160 a new DNA based platform coming up and we needse platform. 0:22:00.880 --> 0:22:04.760 Once you have proven that is effective, you can definitely 0:22:04.800 --> 0:22:09.160 streamline all the processes and make this very quick. Today 0:22:09.280 --> 0:22:12.080 we can do it with a peptide based platform in 0:22:12.119 --> 0:22:16.199 about two months. We foresee that in a couple of 0:22:16.280 --> 0:22:18.119 years we would be able to do it with a 0:22:18.240 --> 0:22:21.560 DNA based platform in maybe two weeks and then bring 0:22:21.600 --> 0:22:25.240 down the cost tremendously. So it can definitely be done, 0:22:25.520 --> 0:22:28.800 be done. It's just we need the engagement or bigger 0:22:28.840 --> 0:22:32.280 players like the formats. But as I said that Mark 0:22:32.400 --> 0:22:36.200 is already there and also other formats like growth, so 0:22:36.440 --> 0:22:39.600 they are taking it very seriously enough. So what does 0:22:39.680 --> 0:22:44.640 your capital structure look like? We just mentioned your depositary 0:22:44.800 --> 0:22:48.600 seats trading here e v a X is the ticker. 0:22:49.280 --> 0:22:51.640 I see a market cap of forty two million dollars, 0:22:51.640 --> 0:22:56.359 which is fairly small, um, but I guess you're in 0:22:56.400 --> 0:22:59.680 the position to to exponentially grow that. What is the 0:22:59.680 --> 0:23:03.920 structure look look like now? Yes, and so we are 0:23:04.000 --> 0:23:06.399 a Danish company coming from a private setting. And then 0:23:06.440 --> 0:23:08.840 we were listening in New York about two years ago, 0:23:09.119 --> 0:23:12.119 and at the start there was a lot of the 0:23:12.160 --> 0:23:16.560 institutions they have over the last year many of them 0:23:16.800 --> 0:23:21.359 actually left the company in the quite depressing market that 0:23:21.400 --> 0:23:26.320 has been here. We see now that hopefully there is 0:23:26.359 --> 0:23:29.960 coming more interesting back into this field, especially into personalized 0:23:30.000 --> 0:23:33.680 cancer mini therapy. But that's that very still quite a 0:23:33.760 --> 0:23:39.399 significant part of retail and the Scandinavian retails and also 0:23:40.040 --> 0:23:44.920 smaller US investors. Alright, great stuff. Pair Pear Norland, he's 0:23:44.920 --> 0:23:48.359 the CEO of Evaccition, the symbols e v a X. 0:23:48.920 --> 0:23:51.640 I was some promising news on some of their drug therapies. 0:23:51.760 --> 0:23:54.119 We wanted to check in there because it seems like 0:23:54.240 --> 0:23:58.199 here with the m r n A vaccine technology and 0:23:58.280 --> 0:24:01.800 others starting to move pretty quickly here, so we want 0:24:01.800 --> 0:24:07.400 to always stay on top of that. Let's get to Washington, 0:24:07.480 --> 0:24:10.600 d C. Because apparently the rumor is Connress is going 0:24:10.640 --> 0:24:12.520 back to work here, so we want to see what 0:24:12.640 --> 0:24:15.280 it will be up. I don't know, we'll see Nathan Dean, 0:24:15.560 --> 0:24:19.040 Senior US POSSI annalso Bloomberg Intelligence Joints US here, Nathan. 0:24:19.520 --> 0:24:22.840 All right, the folks done, Congress are getting back to work. 0:24:23.359 --> 0:24:25.920 I think the first order of businesses doesn't the Republican 0:24:25.960 --> 0:24:29.240 Party have to get uh speaker or something. What's the 0:24:29.280 --> 0:24:31.680 latest on that? That's absolutely right, you know, right now 0:24:31.760 --> 0:24:34.600 the Republican caucus is actually debating about who's going to 0:24:34.600 --> 0:24:36.399 be the next Speaker of the House. And it's actually 0:24:36.520 --> 0:24:38.680 uh fairly good for those of us who want to 0:24:38.680 --> 0:24:42.159 watch popcorn and uh, you know, politics intrigue right now 0:24:42.240 --> 0:24:45.200 Speaker McCarthy is struggling to get those votes. Now. From 0:24:45.200 --> 0:24:47.639 a market perspective, really this is just a delay of 0:24:47.680 --> 0:24:51.040 a few weeks. I mean, eventually whoever becomes speaker, you know, 0:24:51.080 --> 0:24:54.080 we we anticipate that to be resolved in the next 0:24:54.119 --> 0:24:57.360 week or so. But the Republicans need this because they 0:24:57.359 --> 0:25:00.080 already have like five or seven bills just ready to 0:25:00.160 --> 0:25:04.960 go on repealing I R S funds, abortions, immigration, border security. 0:25:05.200 --> 0:25:06.879 None of these bills are really going to pass. But 0:25:07.760 --> 0:25:11.200 usually when we're a new Congress comes in, whoever is 0:25:11.240 --> 0:25:13.800 the Speaker of the House needs those few weeks to say, Okay, 0:25:13.840 --> 0:25:16.160 these are our policy goals and this is how we're 0:25:16.160 --> 0:25:19.000 gonna move forward, and any further intrigue, if you will, 0:25:19.080 --> 0:25:22.159 is just going to delay that. Um, what are the 0:25:22.240 --> 0:25:27.639 chances that we see uh, George Santos elected speaker? Well, 0:25:27.680 --> 0:25:30.520 you know that's actually that's another issue that's obviously that's 0:25:30.520 --> 0:25:32.679 playing out right now. I mean the Bloomberg newss have 0:25:32.720 --> 0:25:35.600 reported that you know, he's under investigation and so forth. 0:25:35.640 --> 0:25:39.080 But what I will say in multiple jurisdictions in different 0:25:39.119 --> 0:25:42.600 countries on different continents exactly. I mean, we we saw 0:25:42.640 --> 0:25:45.159 the news out of Brazil that you know, they dusted 0:25:45.160 --> 0:25:48.239 off an investigation as well, but you know, because they 0:25:48.240 --> 0:25:51.800 couldn't find him, right he was a scoff law. Well, 0:25:51.840 --> 0:25:54.320 you know, it just signals though that the problem that 0:25:54.359 --> 0:25:55.879 the Republicans are going to have with the House of 0:25:55.960 --> 0:25:59.640 Representatives because they have such a thin majority, and if 0:25:59.880 --> 0:26:02.639 they were to lose George Santos and there's another runoff, 0:26:02.680 --> 0:26:04.520 that's just another person that you know, it can make 0:26:04.520 --> 0:26:07.720 that margin even slimmer. So you know, as this plays 0:26:07.760 --> 0:26:12.439 out through twenty four, I just also remind people is that, 0:26:13.000 --> 0:26:16.119 you know, you always have like five to seven retirements 0:26:16.200 --> 0:26:18.880 or deaths or so forth in the house, and so, uh, 0:26:18.880 --> 0:26:20.800 you know, with such a slim margin, you know, obviously 0:26:20.840 --> 0:26:25.159 things could change. Dude, I mean, Kevin McCarthy and the 0:26:25.200 --> 0:26:29.479 speaker bid is nothing on you know, popcorn drama compared 0:26:29.520 --> 0:26:33.240 to what's going on with Santos. Is there a possibility 0:26:33.320 --> 0:26:35.720 that this guy, I mean the Post. I was reading 0:26:35.680 --> 0:26:39.320 a story in the Post. So he lied about graduating 0:26:39.359 --> 0:26:42.880 from college, not just where, but graduating at all. Uh. 0:26:42.880 --> 0:26:46.920 He lied about working for Goldman Sachs and city where's 0:26:46.920 --> 0:26:50.280 the OPO research before he got here. He lied about 0:26:50.440 --> 0:26:52.959 he's at He owned thirteen properties, he lives with his 0:26:52.960 --> 0:26:55.879 sister and doesn't own one, but he's thinking about buying one. UM. 0:26:55.960 --> 0:27:00.119 Maybe more damning is the fact that he may have 0:27:00.320 --> 0:27:06.520 spent campaign funds on personal travel and rent um and 0:27:06.560 --> 0:27:10.560 now we find out that Brazil is reopening UM an 0:27:10.560 --> 0:27:14.800 investigation into him. He's apparently stole a checkbook and then 0:27:15.720 --> 0:27:19.320 went and used the stolen checks to buy stuff, admitting 0:27:19.440 --> 0:27:21.800 later that he did it, but now he denies it. 0:27:21.840 --> 0:27:25.280 I mean, can this guy really stay i mean even 0:27:25.359 --> 0:27:29.639 start in office. So you know, obviously members of members 0:27:29.640 --> 0:27:32.000 in Congress under investigation is not a new thing. I mean, 0:27:32.480 --> 0:27:35.439 there's there's always a member of Congress who's under investigation 0:27:35.480 --> 0:27:38.040 for something. Um. You know, it will just be interesting 0:27:38.080 --> 0:27:41.199 to see though, do the Republicans actually embrace him or 0:27:41.240 --> 0:27:43.800 do they keep him aside. You know, we saw statements 0:27:43.800 --> 0:27:45.920 over the weekend saying that, you know, it wouldn't be 0:27:46.440 --> 0:27:51.159 and I'm paraphrasing here, essentially saying, uh, you know, resigning 0:27:51.240 --> 0:27:53.520 is not a bad thing for him. Um to your 0:27:53.560 --> 0:27:56.040 earlier point about the opposition research, that is a question 0:27:56.080 --> 0:27:58.480 that the Democrats are going to be asking themselves. Why 0:27:58.520 --> 0:28:02.480 didn't we actually discover this until the reporters did so? Uh, 0:28:02.520 --> 0:28:04.480 you know, this process is going to play out. It's 0:28:04.520 --> 0:28:06.560 not going to happen fairly soon, I don't think. But 0:28:06.640 --> 0:28:09.240 even if it does, if he were to just resign 0:28:09.280 --> 0:28:10.840 in the next week or so, you would have a 0:28:10.840 --> 0:28:13.560 special election and so forth. But the damonamics of Congress 0:28:13.600 --> 0:28:15.679 wouldn't change. Paul, I'm gonna ask a question that may 0:28:15.720 --> 0:28:18.639 be controversial. Okay, what does this say about people in 0:28:18.680 --> 0:28:22.679 Long Island that they would elect this guy. I don't know. 0:28:22.880 --> 0:28:26.680 I don't know, uh, Nathan. I mean as I think about, 0:28:27.280 --> 0:28:29.879 you know, the Republicans and their inability to get a 0:28:29.880 --> 0:28:32.640 speaker done in a timely basis, does that just highlight 0:28:33.640 --> 0:28:37.360 that this is a party that really is maybe more 0:28:37.480 --> 0:28:41.600 divided than maybe we initially thought. No. I mean, look, 0:28:41.840 --> 0:28:45.400 you always you always have, you know, wings of certain 0:28:45.440 --> 0:28:48.200 parties that are always going to be you know, challenging 0:28:48.240 --> 0:28:51.480 the speaker and challenging leadership to take their position. Uh. 0:28:51.520 --> 0:28:53.440 You know, we saw this under Speaker Baner, and we 0:28:53.480 --> 0:28:56.600 saw this under Speaker Pelosi. So that's always out there. 0:28:56.600 --> 0:28:59.600 The question is that can they come together and unify 0:29:00.360 --> 0:29:03.320 for an agenda because you know, this is a divided Congress. 0:29:03.360 --> 0:29:06.080 So the Republicans understand that there's not going to be 0:29:06.080 --> 0:29:08.160 a lot of policy wins here. I mean, this is 0:29:08.200 --> 0:29:10.120 going to be one of those where where they're gonna 0:29:10.120 --> 0:29:11.880 have to pick their fights, you know, the leverage points 0:29:11.880 --> 0:29:14.320 of government funding bills and the debt ceiling and so forth. 0:29:14.600 --> 0:29:17.840 From the market perspective, though, you know, the most concerning 0:29:17.880 --> 0:29:20.760 thing for us in terms of whether the Republicans are 0:29:20.840 --> 0:29:23.640 unified or not comes to the debt ceiling. Fortunately that's 0:29:23.640 --> 0:29:25.320 going to be in September, so a lot of things 0:29:25.360 --> 0:29:27.840 are going to happen between now and then. But uh, 0:29:27.880 --> 0:29:30.400 you know, we still anticipate that this session may actually 0:29:30.480 --> 0:29:33.840 be somewhat fruitful for legislation to get across some some legislation, 0:29:33.920 --> 0:29:35.840 not a lot. I gotta ask you about something that 0:29:35.960 --> 0:29:40.040 isn't being legislated anymore, but I guess worked out at Treasury, 0:29:40.080 --> 0:29:44.480 and that is um the tax credits for evs from 0:29:44.520 --> 0:29:47.880 the I r A. This is absolutely fascinating because the 0:29:48.000 --> 0:29:53.920 law um as it stands, I mean, most electric vehicles, 0:29:53.920 --> 0:29:56.960 if not all, are gonna be will no longer be 0:29:57.040 --> 0:30:00.920 eligible in a couple of months for dollar tax credit. 0:30:00.920 --> 0:30:04.600 But I guess it's up to Treasury to decide which vehicles, 0:30:05.120 --> 0:30:07.960 uh you know how lacks they are um when they 0:30:08.000 --> 0:30:12.600 try and adhere to the legislation because battery has to 0:30:12.600 --> 0:30:17.640 have of its components coming from a trading ally and 0:30:17.640 --> 0:30:19.520 we're not even sure what a trading ally is. How 0:30:19.560 --> 0:30:21.560 we're going to figure this out, you know. And it 0:30:21.600 --> 0:30:23.840 was funny I was reading about how like the certain 0:30:24.160 --> 0:30:27.760 you know, the the uh, the height of your base 0:30:28.480 --> 0:30:31.719 of the car determines how Sometimes it's an suv, sometimes 0:30:31.720 --> 0:30:34.560 it's not, and so forth like that. Yeah, the Tesla model, why, 0:30:34.680 --> 0:30:37.600 for example, is two hundred thirty eight pounds too heavy 0:30:37.640 --> 0:30:41.040 to qualify, sorry, too light to qualify for the suv 0:30:41.160 --> 0:30:44.320 tacked credit, so it won't get it. And someone suggested 0:30:44.360 --> 0:30:46.920 on Twitter that Elon must just added two fifty pound 0:30:47.000 --> 0:30:49.680 weight to the trunk that you know, drivers can remove 0:30:49.760 --> 0:30:52.080 after they buy the car. But you know, but there's 0:30:52.120 --> 0:30:54.600 nothing new. So I mean, obviously the IRA comes out, 0:30:54.640 --> 0:30:57.320 it's thousands of pages and so forth, but it's written 0:30:57.360 --> 0:31:00.240 at the you know, hundred thousand foot view level, and 0:31:00.360 --> 0:31:04.320 most legislation actually directs the uh, you know, the executive branch, 0:31:04.440 --> 0:31:07.320 via the regulators or the agencies and so forth, to 0:31:07.400 --> 0:31:10.160 actually put that down at the ten foot branch. And 0:31:10.240 --> 0:31:12.800 so as Treasury actually jumps into this, they're gonna look 0:31:12.840 --> 0:31:15.760 at the discrepancies and discrepancies in Congress is nothing new. 0:31:15.840 --> 0:31:18.960 This happens all the time, and so you know, as 0:31:19.000 --> 0:31:21.920 this as your Treasury moves forward to actually implement this stuff, 0:31:22.160 --> 0:31:25.040 if they see certain discrepancies where they think it's just 0:31:25.160 --> 0:31:27.120 not going to work out, or so forth, like that 0:31:27.320 --> 0:31:29.120 they always have the ability to go back to Congress 0:31:29.160 --> 0:31:32.239 and saying, hey, fix this. And if Congress doesn't do this, 0:31:32.320 --> 0:31:34.520 then you know, they can look within their statute to 0:31:34.560 --> 0:31:36.680 see is there any wiggle room that they can use 0:31:36.760 --> 0:31:39.760 issue A via the rulemaking process. Nathan, the State of 0:31:39.760 --> 0:31:43.160 the Union is coming up from not mistake in any 0:31:43.200 --> 0:31:45.680 preview of what we may hear, what we should be 0:31:45.680 --> 0:31:47.600 in to look out for. So the two things that 0:31:47.640 --> 0:31:50.080 I'm looking for, you know, obviously we're still a month 0:31:50.080 --> 0:31:54.280 and so away, is geopolitical issues, so essentially Russia and China. 0:31:54.600 --> 0:31:57.720 How does the President going to take those issues on, 0:31:57.760 --> 0:31:59.920 what's his vision and so forth? When it comes to 0:32:00.000 --> 0:32:02.520 domestic policy, it's nice to hear what he says, but 0:32:03.000 --> 0:32:05.040 you know, Congress more often than not just says, thank you, 0:32:05.120 --> 0:32:07.480 Mr President, but we're gonna do whatever we want anyway. 0:32:07.760 --> 0:32:09.320 The second thing that I'm going to look for into 0:32:09.360 --> 0:32:11.200 the State of the Union is whether or not he 0:32:11.240 --> 0:32:13.680 announces that he uses it as a catalyst to run 0:32:13.720 --> 0:32:16.120 for re election or not. I'm not sure he will. 0:32:16.160 --> 0:32:18.040 I think that decision will come outside of the State 0:32:18.040 --> 0:32:20.360 of the Union. But you know, if he were to 0:32:20.480 --> 0:32:22.280 decide that, I'm not going to run for re election. 0:32:22.360 --> 0:32:24.600 He's going to lose a lot of political capital, and 0:32:24.600 --> 0:32:26.719 that state of the Union may fall flat. So I 0:32:26.760 --> 0:32:29.600 think that decision will come afterwards, but there's always the 0:32:29.680 --> 0:32:33.360 chance it could. All right, good stuff. Nathan Dean coming 0:32:33.440 --> 0:32:36.760 to us from Washington, d C. He's all he's knee 0:32:36.800 --> 0:32:39.160 deep in all this Congress and policies. You know, the 0:32:39.160 --> 0:32:42.880 best thing for me is about three We're one year 0:32:42.960 --> 0:32:47.440 closer to getting my salt deduction back. Is that right? 0:32:47.520 --> 0:32:51.120 When I think, Nathan, by the way, isn't it is 0:32:51.160 --> 0:32:55.560 he still there? Isn't it? When we get the salt back? Well, 0:32:55.680 --> 0:32:58.640 you know the Trump tax cuts expiring five and so 0:32:58.720 --> 0:33:01.120 I think that the eight I'm bringing the salt back 0:33:01.160 --> 0:33:04.440 will actually be uh be a lot more. Uh. We'll 0:33:04.480 --> 0:33:06.840 take place later this year and earlier next year. And 0:33:06.840 --> 0:33:08.520 for those of you living in New York and New Jersey, 0:33:09.080 --> 0:33:10.880 hopefully it works out on the positive side for you. 0:33:11.520 --> 0:33:14.240 See Matt smiling, he's hoping. Nathan Dean, senior ys policy 0:33:14.280 --> 0:33:18.040 analyst with Bloomberg Intelligence, thanks so much for joining us 0:33:18.080 --> 0:33:21.120 here again. I guess I gotta get a speaker there 0:33:21.120 --> 0:33:23.040 for the Republican Party. That's kind of the first order 0:33:23.080 --> 0:33:26.120 business before they can move anything forward. So apparently that 0:33:26.240 --> 0:33:28.720 they're still kind of negotiating. I kind of envisioned backroom 0:33:28.800 --> 0:33:32.760 deals getting cut here between various factions, kind of like 0:33:32.760 --> 0:33:39.080 like the old days. Here, let's talk commodities. Let's talk 0:33:39.160 --> 0:33:42.160 E T F S. Let's talk commodity E T S. 0:33:42.240 --> 0:33:44.400 We can do that. Bob Inter, director of ETF Investment 0:33:44.400 --> 0:33:47.320 Strategy at Aberdeen, joins us live here in the Bloomberg 0:33:47.320 --> 0:33:52.240 Interactive Broker studio. Bob, we're throwing out it's it's in 0:33:52.280 --> 0:33:55.720 the rear view mirror. Three. What are some of the 0:33:55.760 --> 0:33:58.880 ideas that you're thinking about for your clients. Sure, so 0:33:58.920 --> 0:34:01.640 we look at the act drop coming into this year, 0:34:02.280 --> 0:34:05.560 and we see that the US dollar long positioning it 0:34:05.640 --> 0:34:07.760 still looks pretty crowded. Started to come off at the 0:34:07.800 --> 0:34:09.640 end of last year, but it still looks crowded. If 0:34:09.640 --> 0:34:11.919 we start to get a reversal of that, we could 0:34:11.960 --> 0:34:15.960 see some dollar weakness that's generally speaking, really very good 0:34:16.000 --> 0:34:21.040 for precious medals. Second thing, we have commodity inventories which 0:34:21.040 --> 0:34:25.320 are really incredibly low. No one's paying attention to it. Um. 0:34:25.440 --> 0:34:29.480 The London Medals Exchange just announced twenty five year low 0:34:29.960 --> 0:34:37.560 in the six major medals inventories. Why yeah, why is that? Why? Well, 0:34:37.719 --> 0:34:42.920 it some of it is because there are labor strikes 0:34:42.920 --> 0:34:47.200 in South America that have reduced supply. UM. At one point, 0:34:47.320 --> 0:34:52.880 natural gas was the equivalent of apparel for an oil equivalent. 0:34:53.640 --> 0:34:56.680 So those are costs that go into the manufacture of 0:34:56.719 --> 0:35:01.040 these very energy intense medals. So if you can't if 0:35:01.080 --> 0:35:03.200 you compete in the global marketplace, you don't make it 0:35:03.239 --> 0:35:06.000 in Europe, you make it somewhere else. So is that why? 0:35:06.000 --> 0:35:07.960 I mean? I was looking at gold this morning. Right now, 0:35:08.000 --> 0:35:11.600 it's trading eighteen thirty a troy ounce, and I thought, 0:35:11.600 --> 0:35:16.120 why is gold on a tear to the upside when 0:35:16.719 --> 0:35:19.439 you know we're still dealing with runaway inflation. The Fed 0:35:19.480 --> 0:35:22.200 has raised four or fifty basis points in one year 0:35:22.239 --> 0:35:24.719 and is going to keep going this year. Um, it 0:35:24.760 --> 0:35:28.200 just doesn't make much sense add into the at in 0:35:28.280 --> 0:35:30.680 the fact that inflation is coming down, right, So it's 0:35:30.760 --> 0:35:33.279 if it's really a hedge, why buy it now? It 0:35:33.880 --> 0:35:36.120 absolutely stood out to us going into the end of 0:35:36.120 --> 0:35:39.000 the year last year we said something's the market is 0:35:39.040 --> 0:35:42.799 fundamentally looking at gold differently than than it did before. 0:35:42.840 --> 0:35:46.240 At one point last year, eighteen trillion dollars of negative 0:35:46.280 --> 0:35:51.280 yielding bonds across the world. Now it's about a trillion 0:35:51.480 --> 0:35:55.440 just what's left. In Japan. Real yields rose, they came 0:35:55.440 --> 0:35:57.600 back a little bit, but they rose at one point 0:35:57.640 --> 0:36:01.759 that the real yield equivalent, it would tell you the 0:36:01.800 --> 0:36:04.520 gold should be seven an ounce, and here it is 0:36:04.560 --> 0:36:07.680 at eight hundred. So something different is going on. What 0:36:07.840 --> 0:36:12.640 the something different is that in the third quarter official 0:36:12.800 --> 0:36:16.480 gold purchases from central banks and the like, we're four 0:36:16.560 --> 0:36:22.120 hundred tons now. That is more than double the last 0:36:22.719 --> 0:36:27.200 roughly double the last the next closest largest purchase in 0:36:27.239 --> 0:36:30.960 a quarter, and it's the largest since they've been keeping records. 0:36:31.000 --> 0:36:36.080 And there they're stocking up, they're diversifying their reserves away 0:36:36.120 --> 0:36:39.439 from U S dollars. That's big, that's a big deal. 0:36:39.640 --> 0:36:42.080 Talk to us about China. They're reopening. We've been talking 0:36:42.080 --> 0:36:43.839 about it for the last few weeks now. And if 0:36:43.840 --> 0:36:47.400 I'm a commodity guy and I'm thinking about my demand model, 0:36:47.520 --> 0:36:51.279 my supply model, wow, i gotta recalibrate now. It's it's 0:36:51.320 --> 0:36:53.520 actually a little bit bigger than just than just China. 0:36:53.560 --> 0:36:57.120 If you think about it, we're returning the calendar here. 0:36:57.560 --> 0:37:01.640 It's been three years since we've seen what global demand 0:37:01.719 --> 0:37:05.200 really looks like. The whole world hasn't been open simultaneously 0:37:05.239 --> 0:37:08.000 for three years. We can't predict the next three months. 0:37:08.400 --> 0:37:11.520 And now we're trying to say exactly what demand is 0:37:11.520 --> 0:37:13.319 going to look like, and we haven't seen to come 0:37:13.360 --> 0:37:15.200 on and say that. You know, we continue to ask 0:37:15.280 --> 0:37:21.080 these questions and everybody posits of forecast anyway, but it's 0:37:21.120 --> 0:37:24.279 fair to say there's zero visibility, dude, Like we're in 0:37:24.360 --> 0:37:28.360 completely unprecedented, unchartered territory, so we don't know what's going 0:37:28.400 --> 0:37:33.280 to happen. Correct. Um, it is uh also a massive 0:37:33.320 --> 0:37:38.800 economy coming online. So even if um, you have tens 0:37:38.800 --> 0:37:41.280 of millions of infections a day, you've got to figure 0:37:41.600 --> 0:37:43.920 more people are going to be filling up their cars, 0:37:44.000 --> 0:37:47.880 more people are gonna want to be using um, you know, 0:37:47.960 --> 0:37:51.480 natural resources. Considering the high frequency data we saw, apparently 0:37:51.480 --> 0:37:54.240 more people are using the subway in China, that's correct. 0:37:54.280 --> 0:37:57.520 Just very recently we've started to see an uptick in 0:37:57.560 --> 0:38:02.160 the mobility data, and um, you know it's kind of 0:38:03.000 --> 0:38:06.760 there's the mobility restrictions, the official mobility restrictions were dropped, 0:38:06.960 --> 0:38:11.800 and then mobility absolutely plummeted because it was voluntarily restricted. 0:38:11.960 --> 0:38:14.160 But we're starting to see that bounce back, and again 0:38:14.360 --> 0:38:18.040 I think I think it's we're fundamentally see similar things 0:38:18.080 --> 0:38:20.840 like what we see in New York where the easy 0:38:20.840 --> 0:38:23.719 past data for bridges and tunnels went right back to 0:38:23.920 --> 0:38:27.480 pre pandemic levels, and the subways and the trains are 0:38:27.680 --> 0:38:31.640 not anywhere near that. I'm doing my part. I'm on 0:38:31.680 --> 0:38:34.360 the trains and subway every Yeah, but you're alone. I'm alone, 0:38:34.640 --> 0:38:36.719 well except on the weekends. Then they're pack. You can't. 0:38:36.719 --> 0:38:38.640 It's standing your moan because people are coming in the 0:38:38.680 --> 0:38:40.560 party in the city, but god forbid they come into 0:38:40.560 --> 0:38:43.359 their offices. Silver. What do I do with a work 0:38:43.440 --> 0:38:46.600 from home acts to grind? Yes? I do? What do 0:38:46.640 --> 0:38:48.040 we do? What do we do with silver? Here? We 0:38:48.040 --> 0:38:50.480 talk a lot about gold, but what's your calling silver? 0:38:51.200 --> 0:38:54.040 So we we like to break it down a little simply. 0:38:54.719 --> 0:38:59.120 Silver has two main demand drivers. One is industrial, right, 0:38:59.160 --> 0:39:02.520 so that's in all sorts of medical instruments, it's in 0:39:02.680 --> 0:39:05.759 solar panels. But it's also used by investors in the 0:39:05.800 --> 0:39:09.520 same way that it would um be used like that 0:39:09.600 --> 0:39:11.680 someone would use gold, so we think of baby gold, 0:39:12.040 --> 0:39:14.320 so we think of it as half copper and half gold, 0:39:14.480 --> 0:39:16.040 which isn't the right way to look at it, but 0:39:16.360 --> 0:39:18.600 in shorthand that's the way we look at it. It's 0:39:18.640 --> 0:39:24.319 more industrial used in industrial than gold. Absolutely, yes, And 0:39:24.560 --> 0:39:29.560 you're not concerned about the market being sort of owned 0:39:29.600 --> 0:39:33.759 by a couple of big players silver because I know 0:39:33.800 --> 0:39:35.399 that for a long time it was a real zero 0:39:35.440 --> 0:39:38.120 hedge like conspiracy theory thing that some big bank was 0:39:38.200 --> 0:39:40.799 running the silver market all over the place. I won't 0:39:40.840 --> 0:39:44.640 say which one. Palladium is that something that we care 0:39:44.640 --> 0:39:48.040 about for if you if you uh, you know, I'm 0:39:48.080 --> 0:39:51.240 glad I want everyone else to have a catalytic converter. 0:39:53.239 --> 0:39:55.480 Why is that? I don't love it for me, you know? 0:39:55.560 --> 0:39:57.880 And it really stuffs up the exhaust. I want the 0:39:57.880 --> 0:39:59.759 engine to be able to breathe. But yes, palladium is 0:39:59.840 --> 0:40:02.360 used catalytic converters and that's a good thing. Absolutely, And 0:40:02.400 --> 0:40:05.480 it's actually there are sort of poster child for this 0:40:05.680 --> 0:40:09.759 environmental trade that we have for metals. Is that, you know, 0:40:09.960 --> 0:40:13.080 you're just not economists scratch their head when they look 0:40:13.080 --> 0:40:17.040 at palladium because it's had tremendous returns over tremendous yearly 0:40:17.080 --> 0:40:19.280 returns over a long period of time. That's not supposed 0:40:19.320 --> 0:40:21.720 to happen. The price is supposed to go up, supply 0:40:21.800 --> 0:40:23.839 is supposed to respond, the price is supposed to come down, 0:40:24.200 --> 0:40:26.920 and that just hasn't happened for a number of reasons. 0:40:27.120 --> 0:40:29.640 There's no such thing as that pure palladium. Mind, the 0:40:29.680 --> 0:40:31.520 rest of the metals that come out of it have 0:40:31.600 --> 0:40:36.440 to also work and be profitable. But the sheer increase 0:40:37.080 --> 0:40:40.719 in the Chinese environmental regulations year over year, it was 0:40:40.840 --> 0:40:43.640 China's called China three, than China four, than China four 0:40:43.680 --> 0:40:47.359 A China four B meant that a car in China 0:40:47.440 --> 0:40:50.759 went from having roughly a gram of palladium in it 0:40:50.920 --> 0:40:54.560 in this catalytic converter to having three grams. You don't 0:40:54.600 --> 0:40:57.840 care how many cars are getting sold when the actual 0:40:58.480 --> 0:41:01.800 loading of the metal triples. Yeah, and supply just couldn't react. 0:41:02.200 --> 0:41:07.319 And so it's those sort of environmental regulations that tell 0:41:07.440 --> 0:41:13.840 us that an environmental metal can perform well over a 0:41:13.840 --> 0:41:19.080 long period of time, can exponentially growing. Bob, you are 0:41:19.480 --> 0:41:21.399 director of E t F Investment Strategy, So we're talking 0:41:21.400 --> 0:41:22.960 a lot about commodities, but I want to get to 0:41:23.000 --> 0:41:24.640 the E t F part of this because I have 0:41:24.640 --> 0:41:27.680 a program that's dedicated to E t F s. What 0:41:27.760 --> 0:41:32.439 an incredible year two was for issuance um, for new 0:41:32.480 --> 0:41:34.879 E t s, for thematic E t f s, and 0:41:35.000 --> 0:41:37.160 even any year when there were no I, P O 0:41:37.280 --> 0:41:40.520 S and M and A was dead. What does look 0:41:40.560 --> 0:41:50.120 like to you SOE for for us, we think that 0:41:50.120 --> 0:41:55.080 that backdrop going into twenty leaving two coming into three 0:41:55.560 --> 0:41:59.880 really sets us up for some some nice um return 0:42:00.280 --> 0:42:04.880 in in a few areas, and one of them is UH. 0:42:05.239 --> 0:42:09.440 We we have a an E t F The ticker 0:42:09.520 --> 0:42:11.759 is g L t R. It's called Glitter. It's a 0:42:11.920 --> 0:42:16.520 precious metals basket. These are physically held there in a vault. 0:42:17.160 --> 0:42:20.600 We list the serial numbers of the bars of all 0:42:20.640 --> 0:42:23.319 of the metals on our website. You can go in, 0:42:23.440 --> 0:42:27.480 you can see it. There's no roll yield problems UM 0:42:27.560 --> 0:42:31.400 and it is roughly allocated. It is a market UH. 0:42:32.160 --> 0:42:36.040 The allocation fluctuates based on market value and UH and 0:42:36.080 --> 0:42:40.560 it started in so it's fluctuated away from its original weight. 0:42:40.680 --> 0:42:44.160 But right now it's about fifty seven percent goal, seven 0:42:44.200 --> 0:42:50.000 percent over four platinum and twelve percent palladium. We talked 0:42:50.000 --> 0:42:53.000 about palladium. Platinum is what you use in a cut 0:42:53.080 --> 0:43:00.040 cataly converter for a diesel powered boo, yeah yeah, and 0:43:00.040 --> 0:43:02.440 and uh we we talked about gold and silver and 0:43:02.480 --> 0:43:05.320 so okay, we think the backdrop that we spoke about 0:43:06.160 --> 0:43:09.600 is positive for for for glitter, for glitter, g L 0:43:09.640 --> 0:43:13.000 t R g LTR Bob Mentor, Director of ETF Investment Strategy, 0:43:13.000 --> 0:43:15.200 thanks so much for joining us here. The firm is Aberdeen. 0:43:15.680 --> 0:43:18.520 He got his bachelor's in economics from Rutgers. Rutgers men's 0:43:18.520 --> 0:43:21.399 basketball had a huge win yesterday they beat number one 0:43:21.719 --> 0:43:25.600 per Du. That is a signature wind that come times March, 0:43:26.320 --> 0:43:29.320 that is gonna be a big for the committee they're on. 0:43:29.320 --> 0:43:33.400 They're picking teams for the big dance, talking commodities, talking metals, 0:43:33.920 --> 0:43:36.800 and lots of ways to play it on the precious metals, 0:43:37.200 --> 0:43:39.520 the base metals, all that kind of stuff. And there's 0:43:39.560 --> 0:43:45.920 certainly et F plays there alrightwo ugly, it's in the 0:43:46.000 --> 0:43:48.600 rear view folks here at Bloomberg Market. So we look 0:43:48.800 --> 0:43:51.440 forward and we do that with Gina Martin Adams today, 0:43:51.480 --> 0:43:54.600 chief equity strategist for Bloomberg Intelligence. All right, geane a. 0:43:54.920 --> 0:43:57.319 You know, I could put on my chief equity strategist hat, 0:43:57.360 --> 0:43:59.840 and if I do that, I say I've seen peak inflation. 0:44:00.400 --> 0:44:02.319 I can see the end of rate hikes at some 0:44:02.440 --> 0:44:05.160 point in the next you know, certainly the next six months. 0:44:05.200 --> 0:44:08.799 Maybe I feel like, Okay, I've got some earnings risk, 0:44:08.880 --> 0:44:10.600 but that's not too bad. I think I can take 0:44:10.640 --> 0:44:13.000 some risk here. But people keep coming back to me 0:44:13.040 --> 0:44:15.520 and saying, whoa, whoa, whoa. The earnings risk is bigger 0:44:15.560 --> 0:44:19.040 than you think. What's your call there as we start up? 0:44:21.440 --> 0:44:25.400 So our call is, yes, there is some likely downward 0:44:25.480 --> 0:44:29.920 estimate revision pressure to continue. But looking at past estimate 0:44:30.080 --> 0:44:33.120 or past recessions for guidance in the upcoming year is 0:44:33.200 --> 0:44:37.080 probably going to prove a faulty strategy. And what I 0:44:37.080 --> 0:44:40.160 mean by that is our most most likely sort of 0:44:40.200 --> 0:44:43.480 behavioral pattern as investors is to look at pastor recessions 0:44:43.560 --> 0:44:45.800 as guidance as to what to expect in the recession 0:44:45.800 --> 0:44:50.279 that is emerging in the US. But the reality is 0:44:50.280 --> 0:44:52.759 all recessions look very different, and the recession in the 0:44:52.880 --> 0:44:59.800 environment where inflation has piqued inflation was largely supply based, 0:45:00.040 --> 0:45:02.800 and some of those supply constraints are easy going forward 0:45:03.360 --> 0:45:06.880 creates a very different profit outlook than your typical recession, 0:45:06.920 --> 0:45:09.840 and certainly very different than the two thousand eight recession, 0:45:10.600 --> 0:45:12.960 where we were in the midst of a financial crisis 0:45:13.000 --> 0:45:16.839 which created that really big down draft in earnings. So 0:45:16.960 --> 0:45:19.320 we do think that we have some downward revision pressure 0:45:19.400 --> 0:45:22.759 to come. But the recession I had really unlikely to 0:45:22.800 --> 0:45:25.120 look like any of the past several recessions will be 0:45:25.200 --> 0:45:28.200 unique in its characteristics, and that should really drive your 0:45:28.239 --> 0:45:32.600 investment strategy for well. Michael Burry says, um, it could 0:45:32.600 --> 0:45:36.120 be the kind of recession that drives us from terrifying 0:45:36.160 --> 0:45:41.080 inflation back into deflation and and requires not only the 0:45:41.080 --> 0:45:46.160 FED to cut rates, but more fiscal stimulus from the government. Um. 0:45:46.200 --> 0:45:48.920 What do you think of his tweet? He of the 0:45:48.920 --> 0:45:52.479 big short Of course, you know, I'm not Michael Burry, 0:45:52.560 --> 0:45:55.080 so I can't really speak to his strategy. But what 0:45:55.160 --> 0:45:58.760 I will say is we absolutely are in a period 0:45:58.800 --> 0:46:02.960 of disinflation. Definitely saw inflation peak in the summer of 0:46:03.040 --> 0:46:06.400 last year. I frankly don't think we're going to have 0:46:06.520 --> 0:46:11.040 a massive deflationary crisis coming in three I do think 0:46:11.120 --> 0:46:14.640 that the monetary measures have a lot of people quite 0:46:14.640 --> 0:46:19.520 scared as to the potential financial implications. But offsetting that 0:46:19.600 --> 0:46:23.120 contraction in money growth, you do have very strong balance 0:46:23.160 --> 0:46:26.400 sheets in the part of us households to offset some 0:46:26.480 --> 0:46:28.759 of that pressure, which puts puts us in a very 0:46:28.760 --> 0:46:31.799 different position than we were in the two thousand seven 0:46:31.840 --> 0:46:35.320 two thou eight period. I think it's only natural for 0:46:35.520 --> 0:46:38.120 most people to look back and say, Okay, well, what 0:46:38.160 --> 0:46:41.839 were our recent experiences and attribute that is the most 0:46:41.840 --> 0:46:46.719 likely um, you know, outcome. Fore, I just think, you know, 0:46:47.080 --> 0:46:51.120 we sit in a very different position. We will see disinflation, certainly, 0:46:51.200 --> 0:46:53.440 we will see the unemployment rates start to take a 0:46:53.480 --> 0:46:56.920 little bit higher. But there are some you know, unique 0:46:56.960 --> 0:47:01.200 characteristics of the economy today that didn't exist fifteen years ago. Uh. 0:47:01.360 --> 0:47:03.919 Certainly we've been through the last fifteen years to set 0:47:03.960 --> 0:47:07.080 us up for the next cycle, and so I want 0:47:07.080 --> 0:47:09.080 to try to account for that when I think about 0:47:09.120 --> 0:47:12.279 where we're headed. And I know from reading your work 0:47:12.320 --> 0:47:14.120 over the years, you and your team you have score 0:47:14.160 --> 0:47:16.480 cards at different sectors. You kind of like, what's your 0:47:16.480 --> 0:47:20.160 score card telling you these days? As you as we start, Yeah, 0:47:20.200 --> 0:47:22.640 so our scorecard last updated at the end of the 0:47:22.680 --> 0:47:25.000 last earning season said you want to start to lean 0:47:25.040 --> 0:47:31.720 into cyclicals, into three cyclicals being financials and industrials popped 0:47:31.800 --> 0:47:35.160 up toward the top of our scorecard to accompany, energy 0:47:35.200 --> 0:47:37.799 and consumer stables. So it's a little bit of a 0:47:37.880 --> 0:47:41.120 mix right now. It would suggest to me a tiptoeing 0:47:41.160 --> 0:47:43.400 into what are likely to be the leaders in the 0:47:43.480 --> 0:47:47.719 next up cycle in stocks, while still hanging onto some 0:47:47.800 --> 0:47:51.719 of the you know, strong defensive place that work in 0:47:51.760 --> 0:47:56.080 the current environment, those being energy and consumer stables. What 0:47:56.120 --> 0:47:58.440 do you think about I mean, in looking at equities, 0:47:58.520 --> 0:48:03.440 you have to also, um, I guess, confer with the 0:48:03.480 --> 0:48:07.320 credit market, and we're seeing some cracks there. Loan loss 0:48:07.400 --> 0:48:11.920 provisions at banks surged in the last reporting quarter I 0:48:11.920 --> 0:48:15.280 think was the amount they were raised, of course from 0:48:15.320 --> 0:48:19.839 fairly low levels. But um, we have eight hundred and 0:48:20.160 --> 0:48:24.000 thirty four billion dollars of leverage loan issuance in two 0:48:24.040 --> 0:48:26.080 which is more than double the rate of two thousand seven, 0:48:26.160 --> 0:48:31.720 And Paul Singer says that the global financial system, maybe 0:48:31.840 --> 0:48:35.280 in contrast to the US consumer, is vastly over leveraged. 0:48:35.440 --> 0:48:40.040 Now that could also be UM a dramatic statement, but 0:48:40.760 --> 0:48:42.960 are you seeing these cracks in in the in the 0:48:42.960 --> 0:48:46.360 credit side, and does it concern you. So what I 0:48:46.480 --> 0:48:48.880 use for credit when I'm looking at the equity market 0:48:49.000 --> 0:48:52.160 is actually really simple. It is simply, you know, what 0:48:52.280 --> 0:48:55.320 is the corporate credit markets suggest is the likely outcome 0:48:55.400 --> 0:48:57.600 for equities. We look at high yield and high grade 0:48:57.600 --> 0:49:02.120 spreads as one of our prime are indicators of potential distress, 0:49:02.400 --> 0:49:06.080 distress emerging in the credit markets. Those spreads have certainly 0:49:06.080 --> 0:49:09.640 widened from all time low levels reached you know, in 0:49:09.719 --> 0:49:13.640 the early stages of this recovery process, but they're at 0:49:13.680 --> 0:49:16.880 about the same levels that we saw during the you know, 0:49:17.000 --> 0:49:20.960 many many recessions and earnings that that emerged in two 0:49:21.000 --> 0:49:25.719 thousand and eighteen as well as in twenty. They're not 0:49:25.800 --> 0:49:30.759 even anywhere close pandemic peaks, nor do they look to 0:49:30.800 --> 0:49:34.080 be going there anytime soon. They're nowhere close to two 0:49:34.120 --> 0:49:38.440 thousand eight crisis peaks either. So I think when you suggest, 0:49:38.640 --> 0:49:40.799 you know, some of these things are moving off of 0:49:40.880 --> 0:49:44.799 record low levels, that's the correct characterization. We're certainly not 0:49:44.880 --> 0:49:48.480 in an environment in which credit is easy, um, nor 0:49:48.560 --> 0:49:51.759 are we an environment that simply lacks distress at all. 0:49:52.480 --> 0:49:55.239 But we are moving into some form of a recession 0:49:55.239 --> 0:49:57.799 in the US, and that's reflected in some widening and 0:49:57.880 --> 0:50:01.640 credit spreads, which know, I think is consistent with an 0:50:01.719 --> 0:50:07.080 environment for a relatively moderate earnings recession persisting in the 0:50:07.160 --> 0:50:11.800 in the smp fid Gina, how about small cap stocks? 0:50:11.880 --> 0:50:14.960 Is it time to look there or with a pending 0:50:14.960 --> 0:50:18.160 recession that should wait. Look, I think small caps have 0:50:18.239 --> 0:50:21.080 priced in a tremendous amount of weakness, Paul. Small caps 0:50:21.080 --> 0:50:24.760 have been in a bear market for nearly two years now. 0:50:25.400 --> 0:50:29.719 Small caps are trading at extraordinary discounts by comparison to 0:50:29.840 --> 0:50:32.960 large cap stocks. So you've priced in a tremendous amount 0:50:32.960 --> 0:50:36.320 of risk in small caps. Yes, you will have stronger 0:50:36.360 --> 0:50:38.960 earnings declines and small caps than you do in large caps. 0:50:39.000 --> 0:50:44.040 Certainly there's much more um likely default risk and some 0:50:44.120 --> 0:50:47.120 degree of earnings distress and small caps. But our work 0:50:47.160 --> 0:50:50.640 would suggest you've largely priced that in. We even have. 0:50:51.760 --> 0:50:54.319 Our work would even suggests that we've priced in the 0:50:54.560 --> 0:50:57.600 entirety of a FED balance sheet reduction as well as 0:50:57.840 --> 0:51:01.840 very very tight interest rate policy invaluations for small caps. 0:51:02.040 --> 0:51:05.800 So I would suggest small caps downside is relatively limited. 0:51:06.239 --> 0:51:08.880 You also don't have the risk of you know, a 0:51:08.920 --> 0:51:11.920 bubble still deflating in small caps. This is one of 0:51:11.920 --> 0:51:15.480 the kind of underappreciated aspects of what's really happened in 0:51:15.520 --> 0:51:17.640 the large cap index over the course of the last 0:51:17.680 --> 0:51:20.799 year is you know, not only are we experiencing some 0:51:20.920 --> 0:51:24.640 degree of earnings distress, but we've seen um, you know, 0:51:24.680 --> 0:51:27.479 a bubble that emerged in large cap tech and tech 0:51:27.520 --> 0:51:32.040 related stocks really deflates substantially over the last year. That 0:51:32.080 --> 0:51:34.680 bubble is still in the process of deflating. In our view, 0:51:34.800 --> 0:51:38.280 that doesn't that doesn't really plague the small cap index. Alright, 0:51:38.320 --> 0:51:40.840 great stuff as always, Gina Martin Adams. She's the chief 0:51:41.719 --> 0:51:44.759 equity strategist for Bloomberg Intelligence. If you have access to 0:51:44.760 --> 0:51:48.960 the Bloomberg terminal print, offer us market three Outlook report. 0:51:49.080 --> 0:51:52.680 It has got great stuff and it gives you the perspective. 0:51:54.680 --> 0:51:57.759 Thanks for listening to the Bloomberg Markets podcast. You can 0:51:57.800 --> 0:52:01.560 subscribe and listen to interviews of Apple podcasts or whatever 0:52:01.680 --> 0:52:05.280 podcast platform you prefer. I'm Matt Miller. I'm on Twitter 0:52:05.600 --> 0:52:09.359 at Matt Miller three. On Fall Sweeney, I'm on Twitter 0:52:09.480 --> 0:52:12.279 at pt Sweeney. Before the podcast, you can always catch 0:52:12.360 --> 0:52:13.919 us worldwide at Bloomberg Radio.