WEBVTT - U.S Retail Sales Beat Forecasts, Walmart Earnings 0:00:00.600 --> 0:00:07.240 Bloomberg Audio Studios, Podcasts, radio News. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:17.000 weekdays at ten am Eastern on Affo, Cardplay and Android 0:00:17.000 --> 0:00:20.120 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:20.160 --> 0:00:24.000 you get your podcasts, or watch us live on YouTube. 0:00:25.040 --> 0:00:27.920 Alex st alongside Paul Sweeney. This is a Bloomberg Intelligence Radio. 0:00:27.960 --> 0:00:30.600 We are broadcasting to you live my interactive broker studio 0:00:31.040 --> 0:00:35.200 right here in Midtown Manhattan, Manhattan. Camon Christ Macroman writes 0:00:35.240 --> 0:00:37.520 at Bloomberg like, if the economy is slowing down, someone 0:00:37.560 --> 0:00:40.920 may want to tell the consumer, because really retail sales 0:00:41.360 --> 0:00:43.520 didn't point to that, So I thought that was quite 0:00:43.520 --> 0:00:46.440 a good point, and you look at equities just flying higher. 0:00:46.479 --> 0:00:50.120 Here joining us now is Mariy Shore, Senior Equity Analystic Columbia, 0:00:50.120 --> 0:00:55.000 Thread Needle Investments. Marie, what good news good news for stocks? 0:00:55.920 --> 0:00:58.279 Is that a fair statement? We get good news by 0:00:58.360 --> 0:00:59.640 the equity market. 0:01:01.320 --> 0:01:04.759 Absolutely, yes. I think the results today show us that 0:01:04.800 --> 0:01:09.959 the consumer is more stable versus what was feared. We 0:01:10.040 --> 0:01:12.440 had heard more throughout the month of July that there 0:01:12.520 --> 0:01:15.560 was a slow down happening, but in my view, the 0:01:15.600 --> 0:01:20.160 consumer backdrop remained stable, and the different results that we 0:01:20.240 --> 0:01:25.160 see between different retailers just shows you know who's gaining 0:01:25.200 --> 0:01:28.200 share and who's losing share. But when I looked at 0:01:28.200 --> 0:01:33.240 the trends today, I think although the high level retail 0:01:33.280 --> 0:01:35.480 sales number was better than feared, I would say when 0:01:35.520 --> 0:01:38.160 you dig a little deeper, the trends are still mixed. 0:01:38.640 --> 0:01:42.040 On the one hand, we see the consumer still choiceful 0:01:42.200 --> 0:01:46.760 in their spend, spending more on services over goods and 0:01:46.920 --> 0:01:50.920 needs over ONTs. At the same time, within discretionary we 0:01:51.000 --> 0:01:55.120 do see some signs of life in categories like apparel 0:01:55.240 --> 0:02:00.320 and even electronics. So still a very mixed print, but 0:02:00.560 --> 0:02:01.880 certainly better than feared. 0:02:03.520 --> 0:02:05.760 Back to school holidays. 0:02:05.840 --> 0:02:07.320 What are some of the retailers telling me about some 0:02:07.360 --> 0:02:10.240 of the big events coming up here for the retail 0:02:10.280 --> 0:02:10.880 sales number? 0:02:12.560 --> 0:02:15.640 These events are very important because, as we've heard from 0:02:15.840 --> 0:02:19.280 every retailer for years now, the consumer is shopping very 0:02:19.320 --> 0:02:20.200 close to need. 0:02:20.960 --> 0:02:21.880 So you know the. 0:02:22.200 --> 0:02:25.639 Tone from Walmart in terms of the trends they saw 0:02:25.840 --> 0:02:29.000 ending the quarter and in August today, we're very positive 0:02:29.040 --> 0:02:33.720 again they've seen very consistent results. I think the consumer 0:02:33.800 --> 0:02:36.000 will show up for back to school in the same 0:02:36.040 --> 0:02:38.799 way that they showed up for holiday, and again I 0:02:38.880 --> 0:02:41.040 think we're seeing that in some of the data today 0:02:41.080 --> 0:02:44.519 with the strength and electronics and even in apparel where 0:02:44.560 --> 0:02:48.360 there are some new trends that are resonating now. 0:02:48.639 --> 0:02:52.120 So in the equity market, then, is it difficult to 0:02:52.200 --> 0:02:55.400 pick the winners and losers? Because it does feel like 0:02:55.520 --> 0:02:57.760 it's hard to get a broad back or read like 0:02:57.800 --> 0:03:00.440 the data slowing. We know that check, check that Bucks, 0:03:00.639 --> 0:03:02.320 but in terms of what they're buying, I would have 0:03:02.320 --> 0:03:05.119 thought the tapestry would have struggled, right, I would say, Okay, 0:03:05.160 --> 0:03:08.920 at some point the coach passing on price increases was 0:03:08.960 --> 0:03:10.959 going to max out consumers. It doesn't look like that's 0:03:10.960 --> 0:03:13.120 actually happening. How hard is it to do your job? 0:03:14.480 --> 0:03:18.280 It has become more challenging, especially because the markets are 0:03:18.320 --> 0:03:22.679 so volatile right and head funds and macro funds are 0:03:22.720 --> 0:03:25.520 just having such a large impact in how the stocks 0:03:25.520 --> 0:03:29.840 are trading. But we are seeing a very clear difference 0:03:29.880 --> 0:03:33.400 between shared gainers and losers at this point, and so 0:03:33.480 --> 0:03:36.480 what we're really trying to do is focus on the 0:03:36.520 --> 0:03:41.200 companies that are gaining share where we see the potential 0:03:41.240 --> 0:03:43.920 for positives positive earnings revisions. 0:03:44.160 --> 0:03:46.160 The problem is a lot of those stocks. 0:03:45.840 --> 0:03:49.560 Are screening is pretty expensive, you know, names like Walmart 0:03:49.640 --> 0:03:53.320 and Costco. On the other hand, there are names where 0:03:53.480 --> 0:03:57.760 even with more modest revenue growth assumptions, there is a 0:03:57.800 --> 0:04:01.480 real margin in free cash flow growth story there. So 0:04:01.520 --> 0:04:04.240 that is like the other group of stocks that we 0:04:04.720 --> 0:04:07.119 are trying to focus on. But to your point, it's 0:04:07.240 --> 0:04:10.440 very hard to listen to what one company is saying 0:04:10.880 --> 0:04:15.960 and extrapolate that because it really feels like within a 0:04:16.720 --> 0:04:21.719 kind of lackluster consumer or retail backdrop, there are still 0:04:21.760 --> 0:04:24.760 some companies like Walmart is a perfect example, that are 0:04:24.880 --> 0:04:27.560 able to do very well right now, Hey. 0:04:27.520 --> 0:04:29.680 Mari, what kind of deals can I get if I 0:04:29.720 --> 0:04:33.680 go shopping at there? How promotional are retailers out there? 0:04:33.680 --> 0:04:34.600 You as for me? 0:04:35.320 --> 0:04:36.000 So sweet? 0:04:37.560 --> 0:04:37.800 Yeah? 0:04:37.880 --> 0:04:40.679 I think we talked about this last time. So since 0:04:40.760 --> 0:04:46.239 the holiday season of twenty three, the retailers inventory levels 0:04:46.279 --> 0:04:50.680 have been much better positioned, not perfect, but much better positioned. 0:04:51.080 --> 0:04:56.400 So while the retailers remain aggressive on promotions to drive traffic, 0:04:56.880 --> 0:05:00.360 you're not going to see the crazy promotions that they 0:05:00.360 --> 0:05:03.080 had to run when they were heavy on inventory. And 0:05:03.279 --> 0:05:07.360 we should also see fewer markdowns, which will be very 0:05:07.400 --> 0:05:12.240 good for margin. But at the same time, everyone recognizes 0:05:12.360 --> 0:05:15.440 that the consumer is stretched, and I know both like 0:05:15.480 --> 0:05:19.039 the consumer staples companies and a lot of the retailers 0:05:19.040 --> 0:05:23.239 and brands are talking about needing to promote to drive 0:05:23.960 --> 0:05:25.480 volume and traffic. 0:05:26.880 --> 0:05:29.200 I was reading an article the other day that retailers 0:05:29.240 --> 0:05:31.599 are already buying their inventory for the holiday, which totally 0:05:31.640 --> 0:05:33.520 makes sense. I mean, a lot of cargoes were coming 0:05:33.520 --> 0:05:37.920 into ports, etc. How confident do you think retailers are 0:05:37.960 --> 0:05:39.839 in their inventory build up for the holiday? 0:05:41.320 --> 0:05:42.720 They seem pretty confident. 0:05:42.800 --> 0:05:43.040 You know. 0:05:43.120 --> 0:05:45.320 What we've seen on the freight side is a recent 0:05:45.480 --> 0:05:48.400 rise in ocean freight rate, So that's something we've been 0:05:48.400 --> 0:05:50.919 talking to the retailers about. Right now, a lot of 0:05:50.960 --> 0:05:54.480 them are locked into their contract rates, so it doesn't 0:05:54.520 --> 0:05:56.880 sound like that as a near term risk to margin, 0:05:56.920 --> 0:05:59.640 but definitely something we have to monitor for next year. 0:06:00.040 --> 0:06:02.720 There's also been some disruption in the Red Sea. 0:06:03.160 --> 0:06:07.560 We've heard about recent protests in Bangladesh, which could impact 0:06:08.160 --> 0:06:11.120 companies that are sourcing from there, But so far, in 0:06:11.160 --> 0:06:14.640 our conversations with retailers, it doesn't really feel like any 0:06:14.680 --> 0:06:18.400 of those things are going to result in any real 0:06:18.720 --> 0:06:21.840 near term disruption to the business, and it sounds like, 0:06:22.240 --> 0:06:24.360 you know, the outlook for a holiday in terms of 0:06:24.400 --> 0:06:28.120 getting the inventory that they want and need is pretty 0:06:28.800 --> 0:06:30.080 consistent and stable. 0:06:30.440 --> 0:06:32.800 And Mari, when I was looking at the Walmart numbers again, 0:06:32.839 --> 0:06:35.240 what jumps out of me is it does so many quarters? 0:06:35.279 --> 0:06:39.520 Is there e commerce up twenty two percent? Yes, boy, 0:06:39.600 --> 0:06:42.720 they've They're right there with Walmart, aren't they. They don't 0:06:42.839 --> 0:06:45.279 take it, I mean from with the Amazon. They don't 0:06:45.279 --> 0:06:48.400 take a step back from Amazon at all, do they? 0:06:48.560 --> 0:06:48.760 Right? 0:06:48.880 --> 0:06:49.880 No, absolutely not. 0:06:50.000 --> 0:06:54.239 I mean, remember, Amazon is still clearly the dominant player 0:06:54.400 --> 0:06:58.640 in this category. I mean, overall e commerce is about 0:06:58.720 --> 0:07:02.880 thirty percent of total retail sales, and Amazon is almost 0:07:02.920 --> 0:07:07.280 half of that. So Amazon is obviously operating off a 0:07:07.360 --> 0:07:11.280 much larger base. Having said that, Walmart is now growing 0:07:11.400 --> 0:07:15.000 faster than Amazon. I think the only other company I 0:07:15.120 --> 0:07:18.040 follow that is growing at a similar rate is actually Costo. 0:07:18.560 --> 0:07:21.280 And I think what's happening specifically in the case of 0:07:21.320 --> 0:07:24.200 Walmart is a lot of their new initiatives, building out 0:07:24.240 --> 0:07:29.920 their marketplace, building out fulfillment, building out their membership model, 0:07:31.000 --> 0:07:35.720 building out advertising. All of those initiatives are finally coming 0:07:35.760 --> 0:07:40.040 together and really driving their e commerce business and So 0:07:40.520 --> 0:07:43.200 the thing that's so impressive about Walmart as we look 0:07:43.200 --> 0:07:45.440 at their results is it is very clear that they 0:07:45.440 --> 0:07:50.400 are gaining share across channel, across category, across income demographic, 0:07:50.880 --> 0:07:55.680 and that broad based strength I think will drive strengthen 0:07:55.720 --> 0:07:58.480 their results for the foreseeable future. 0:07:58.800 --> 0:08:00.520 All right, make we appreciate that. Thank you so much. 0:08:00.560 --> 0:08:03.960 Mario Shore, Senior equity analyst over at Columbia Thread Needle Investments, 0:08:04.000 --> 0:08:07.760 joining us from Boston, Massachusetts. And again, now I'm addicted 0:08:07.800 --> 0:08:11.720 to this altd go scream and I'm looking at sort 0:08:11.720 --> 0:08:13.920 of the estimated sales we're looking at here, and they're 0:08:13.960 --> 0:08:15.640 still beating competitors. 0:08:15.760 --> 0:08:16.000 I know. 0:08:16.240 --> 0:08:19.680 Anyway, altd Go really cool function on the termin You 0:08:19.680 --> 0:08:20.840 should definitely check it out. 0:08:22.360 --> 0:08:26.239 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:08:26.320 --> 0:08:29.840 weekdays at ten am Eastern on applecar Play and Android 0:08:29.880 --> 0:08:32.640 Auto with the Bloomberg Business at You can also listen 0:08:32.760 --> 0:08:35.840 live on Amazon Alexa from our flagship New York station. 0:08:36.200 --> 0:08:39.000 Just say Alexa play Bloomberg eleven thirty. 0:08:40.559 --> 0:08:43.240 Let's get back to the story of the retail. Is 0:08:43.280 --> 0:08:45.839 today's the story about the consumer. We had retail sales 0:08:45.840 --> 0:08:48.680 coming a little bit better than expected. We had Walmart 0:08:49.160 --> 0:08:51.559 reports some numbers at the street like this SoC is up. 0:08:52.679 --> 0:08:56.560 So Jen Bartasha's storyin so she's bloomerg Intelligence retail analyst 0:08:56.960 --> 0:08:59.319 covering all the retail space, including Walmart. Hey, Jen, what 0:08:59.360 --> 0:09:02.280 did you take away from these Walmart numbers? The streets 0:09:02.280 --> 0:09:02.959 certainly like them? 0:09:03.840 --> 0:09:06.560 Yeah, Actually, Walmart had a great quarter. I think most 0:09:06.559 --> 0:09:08.920 people expected it because they do tend to do well 0:09:08.960 --> 0:09:11.640 when the consumer's under stress. But some of the things 0:09:11.640 --> 0:09:15.240 that were interesting takeaways were things like the amount of 0:09:16.040 --> 0:09:18.720 generative AI that they're using in their business to close 0:09:18.760 --> 0:09:22.760 the competitive gap to peers like Amazon, especially in e commerce, 0:09:23.559 --> 0:09:26.840 the idea that their growth is being led by volume, 0:09:26.880 --> 0:09:28.839 which is a very different story than we're hearing from 0:09:28.840 --> 0:09:32.360 most retailers. And finally, one of the other remarkable things 0:09:32.400 --> 0:09:33.880 is that they sort of issued a little bit of 0:09:33.880 --> 0:09:37.160 a warning shot to package food companies about still wanting 0:09:37.200 --> 0:09:40.200 to try to pass through price increases and that Walmart 0:09:40.280 --> 0:09:42.800 is really focused on bringing prices down instead. 0:09:43.320 --> 0:09:46.360 So does that bode well? So here's what I'm trying 0:09:46.360 --> 0:09:48.520 to understand what the volume side. Does this mean that 0:09:48.559 --> 0:09:50.840 this is good news for like a costco or Target? 0:09:51.000 --> 0:09:53.600 Or is Walmart taking share from the likes of Target. 0:09:54.720 --> 0:09:56.719 Well, I would say I would argue that Walmart is 0:09:56.760 --> 0:10:00.760 probably taking some share and that they're translated that into 0:10:00.880 --> 0:10:05.240 volume gains because they're very focused on offering value, whether 0:10:05.240 --> 0:10:08.160 it's from a price perspective or from a convenience perspective, 0:10:09.120 --> 0:10:11.920 and that seems to really be resonating with consumers. Right now. 0:10:12.800 --> 0:10:17.400 Are people coming down who maybe we're not Walmart shoppers, 0:10:17.440 --> 0:10:20.560 but now they're coming to Walmart. Is Walmart seeing that 0:10:21.760 --> 0:10:22.120 they are. 0:10:22.480 --> 0:10:26.800 They talked last quarter about bringing in hiringcome households, and 0:10:26.840 --> 0:10:29.760 that trend seems to be continuing. You know, in the 0:10:29.840 --> 0:10:32.480 last year and a half or so, Walmart has invested 0:10:32.480 --> 0:10:37.360 in improving and renovating their stores, which is particularly important 0:10:37.360 --> 0:10:40.440 for hiringcome households, because when you walk into a store 0:10:40.480 --> 0:10:43.719 and it's kind of dingy or grungy, it doesn't make 0:10:43.760 --> 0:10:46.440 for the best shopping experience. And so part of that 0:10:46.520 --> 0:10:50.720 investment is resonating with those hiring consumers. But also people 0:10:50.760 --> 0:10:54.320 are becoming more practical about where they're seeking value. And 0:10:54.400 --> 0:10:56.280 I think I've used this example before, but if you 0:10:56.320 --> 0:10:58.880 can buy a box of cereal, which is a standard 0:10:58.920 --> 0:11:02.320 box for you know, fifteen or twenty percent less at 0:11:02.320 --> 0:11:05.200 Walmart than you can at your grocery store. Even that 0:11:05.240 --> 0:11:08.320 speaks to hiringcome households that are looking to save a 0:11:08.320 --> 0:11:09.720 little bit here and there as well. 0:11:10.120 --> 0:11:13.120 Also just in comparison of just how expensive regular and 0:11:13.120 --> 0:11:16.280 grocery stores have gotten to just in terms of that. Also, 0:11:16.360 --> 0:11:18.880 what about their e commerce because basically another perk for 0:11:18.960 --> 0:11:22.920 Walmart is there just basically like a giant warehouse. 0:11:23.000 --> 0:11:27.920 Also, yeah, I mean their e commerce operations are continuing 0:11:27.960 --> 0:11:30.360 to grow. I think one of the things that that 0:11:30.400 --> 0:11:34.119 investors are finding very encouraging is that the losses associated 0:11:34.160 --> 0:11:38.120 with e commerce aren't narrowing. Originally, Walmart said that they 0:11:38.160 --> 0:11:41.640 actually thought that it would generally be profitable in the 0:11:41.679 --> 0:11:44.320 next year to year and a half. Now today Doug 0:11:44.400 --> 0:11:46.400 McMillan kind of backed off and said, you know, don't 0:11:46.440 --> 0:11:49.640 focus so much on just one metric, but that those 0:11:49.640 --> 0:11:54.000 losses are easing and that really is a good indicator 0:11:54.040 --> 0:11:56.720 for Walmart as well with regards to its overall profit 0:11:56.760 --> 0:11:59.120 profile and where it's developing as a company. 0:12:00.080 --> 0:12:02.520 We're it just wrote thirty seconds, where does growth come 0:12:02.520 --> 0:12:05.640 from Walmart? Is it just a GDP top line story? 0:12:06.640 --> 0:12:09.319 It is in part Paul. But at the same time, 0:12:10.000 --> 0:12:12.520 they really are pulling more people into it. They're kind 0:12:12.520 --> 0:12:16.120 of with their their overall ecosphere, and so it's also 0:12:16.160 --> 0:12:18.720 through variety. So it's not just the store, it's you know, 0:12:18.760 --> 0:12:21.560 an increasing marketplace where they're becoming more competitive with the 0:12:21.640 --> 0:12:24.640 likes of Amazon. But it's also things like financial services 0:12:24.760 --> 0:12:27.760 or vet services or things that they're exploring that help 0:12:27.800 --> 0:12:30.439 bring people in for more than just shopping. 0:12:30.640 --> 0:12:33.839 All right, that's I tell everybody My next gig is 0:12:33.840 --> 0:12:35.880 I'm going to be a greeter at Walmart. I'm not kidding. 0:12:36.679 --> 0:12:38.280 Jen Bartash, just thanks so much for joining. 0:12:38.480 --> 0:12:40.040 That would be entertaining or weird. 0:12:40.160 --> 0:12:42.120 That would be you would loved and you walked in 0:12:42.160 --> 0:12:43.880 to see me. Wouldn't that be great? 0:12:44.400 --> 0:12:46.880 I don't know how people were dressing walking into the 0:12:47.280 --> 0:12:49.000 I'm really trying to absorb what this would look like. 0:12:49.280 --> 0:12:51.160 I We're gonna have more coming up. That was Jen 0:12:51.200 --> 0:12:53.079 Bartash's given us the latest on Walmart. 0:12:54.520 --> 0:12:58.400 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:12:58.480 --> 0:13:01.280 weekdays at ten am Eastern on Affo, Cardplay and then 0:13:01.320 --> 0:13:04.200 broud Otto with the Bloomberg Business app. Listen on demand 0:13:04.240 --> 0:13:08.559 wherever you get your podcasts, or watch us live on YouTube. 0:13:09.840 --> 0:13:12.840 Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio, 0:13:13.080 --> 0:13:14.880 where you bring you all the top news in business 0:13:14.920 --> 0:13:17.120 and economics and finance through our lens of our Bloomberg 0:13:17.160 --> 0:13:19.960 Intelligence folks, because they cover two thousand companies and one 0:13:20.040 --> 0:13:23.160 hundred and thirty industries worldwide. So back to that retail 0:13:23.200 --> 0:13:26.600 sales data. Good news, good news. I guess you look 0:13:26.640 --> 0:13:28.680 at the two year though bonds yields are up by 0:13:28.679 --> 0:13:31.760 about twelve basis points, which is a head scratcher for 0:13:31.840 --> 0:13:34.079 me because the news is good. So good news is 0:13:34.120 --> 0:13:36.440 good news. That's at least what the equity market is saying. 0:13:36.440 --> 0:13:38.960 But then the bond market, what is that telling me? Luckily, 0:13:38.960 --> 0:13:41.360 we're going to talk to Vanir buan Shalli. He's founder 0:13:41.400 --> 0:13:44.600 and chief investment officer of long Tail Alpha. Hey, Vanier, 0:13:44.760 --> 0:13:47.199 are we looking at the bond and equity market telling 0:13:47.240 --> 0:13:49.840 us the same thing about retail sales right now? 0:13:51.000 --> 0:13:52.920 I think they're slightly different. I think this has been 0:13:52.960 --> 0:13:55.280 a problem, not just this year, but for a couple 0:13:55.280 --> 0:13:57.320 of years now. I think the equity markets are being 0:13:57.360 --> 0:14:01.720 driven by a lot of cources externals, buybacks from large 0:14:01.720 --> 0:14:06.319 corporations retail buying a lot of stock. The bond market 0:14:06.440 --> 0:14:10.120 is not that convinced. I think the inverted youth curves, 0:14:10.520 --> 0:14:12.320 certainly we can talk about it, is telling you a 0:14:12.360 --> 0:14:15.160 very different story. I think long term meals are too 0:14:15.240 --> 0:14:17.200 low here, which is part of the reason why retail 0:14:17.280 --> 0:14:20.960 sales and the economy is strong and keeps getting stronger. 0:14:22.560 --> 0:14:24.640 What do you make of a week ago Friday that 0:14:24.760 --> 0:14:27.800 was a real shock to the marketplace and we see 0:14:27.840 --> 0:14:30.080 it saw dislocations. I mean, we had the VIX, which 0:14:30.120 --> 0:14:32.640 is now below fifteen was above sixty five. What do 0:14:32.640 --> 0:14:35.280 you make of that training activity we saw a week 0:14:35.320 --> 0:14:36.560 ago Friday even here? 0:14:37.320 --> 0:14:39.760 Yeah, so you know I wrote about this last week. 0:14:39.800 --> 0:14:42.080 What we've observed over the last few years is that 0:14:42.640 --> 0:14:45.320 the intensity at which markets are selling off and the 0:14:45.360 --> 0:14:48.720 big spikes is getting bigger and bigger. It happens over 0:14:48.760 --> 0:14:50.760 a very short period of time. And you know, going 0:14:50.760 --> 0:14:53.640 back town two thousand and eight, where he used to 0:14:53.680 --> 0:14:56.840 take a months and quarters, now it's just taking weeks 0:14:56.880 --> 0:15:00.920 and days and maybe hours. And last Monday was again 0:15:01.040 --> 0:15:04.080 you couldn't have done anything except if you did something 0:15:04.120 --> 0:15:06.160 in the pre market. You know, Nick was down twelve 0:15:06.160 --> 0:15:08.680 percent we were up that night all night, and you know, 0:15:08.800 --> 0:15:11.400 again it was just an air gap. There was absolutely 0:15:11.440 --> 0:15:15.440 no liquidity. And I think that's just one of those 0:15:15.480 --> 0:15:18.240 warning shots that tells you how lever the system is 0:15:18.840 --> 0:15:21.400 and how ill liquid the system is. And I don't 0:15:21.400 --> 0:15:24.520 think that was the end of it. I think even today, 0:15:24.840 --> 0:15:29.360 the massive valley we're seeing is happening on extremely in 0:15:29.640 --> 0:15:30.880 ill liquid conditions. 0:15:31.120 --> 0:15:32.640 I thought positioning, though, if we just stick with the 0:15:32.640 --> 0:15:34.920 mom market Verzayonna, I thought positioning was all cleaned out 0:15:34.920 --> 0:15:37.640 now that after the turmoil last couple of weeks, now 0:15:37.640 --> 0:15:39.880 you have a cleaner read. Is that not the case? 0:15:40.960 --> 0:15:43.560 I don't think so. I think what happened was people 0:15:43.600 --> 0:15:45.040 try to get out. I mean it's like a very 0:15:45.080 --> 0:15:47.520 big elephant trying to get through, you know, the eye 0:15:47.560 --> 0:15:50.000 of a needle. I think some people got out, maybe 0:15:50.000 --> 0:15:53.120 in Tannic on Monday and Tuesday, and then a lot 0:15:53.120 --> 0:15:56.800 of systematic strategies started to reverse as BIS dropped, Like 0:15:56.800 --> 0:15:59.720 Paul just mentioned, from sixty five pre market to about 0:15:59.760 --> 0:16:03.280 you know twenty, many systematic strategies that are index to 0:16:03.280 --> 0:16:06.520 the volatility market have to re lever, and I think 0:16:06.520 --> 0:16:09.960 that's what you're seeing today. Very ill liquid billions and 0:16:10.000 --> 0:16:13.280 billions coming back into the market, and there's really very 0:16:13.280 --> 0:16:17.040 little liquidity for them to buy the risk assets back. 0:16:17.640 --> 0:16:19.240 Vinyar, What do you think our Federal Reserve is going 0:16:19.320 --> 0:16:20.440 to do next month? 0:16:21.520 --> 0:16:23.640 Well, I think they have to ease now that they've 0:16:23.680 --> 0:16:25.920 conditioned the market, they have to ease, and I think, 0:16:25.960 --> 0:16:28.800 you know, that could be a twenty five. I don't 0:16:28.800 --> 0:16:30.640 think they're going to do fifty will be too aggressive. 0:16:30.760 --> 0:16:34.160 My senses, they're going to do a hawkish ease. They'll 0:16:34.200 --> 0:16:37.240 do twenty five, and like the ECB, they'll say we'll 0:16:37.280 --> 0:16:40.320 wait and see what happens, which is exactly what they 0:16:40.320 --> 0:16:42.840 should do at this stage. And I think, you know, 0:16:42.920 --> 0:16:47.240 that could set the stage for the next round of 0:16:47.440 --> 0:16:49.920 the carry trade unwined. I mean, it's trillions out there, 0:16:49.960 --> 0:16:53.040 trillions that have been accumulated over yeah, I don't know, 0:16:53.080 --> 0:16:57.480 two decades or so. Because US rates going down, Japanese 0:16:57.560 --> 0:17:01.680 rates going up compresses the yield spread, meaning a stronger again, 0:17:02.080 --> 0:17:04.000 which could generate the next round. 0:17:04.560 --> 0:17:07.760 So you think that we'll see a hawkish ease in September. 0:17:07.920 --> 0:17:10.399 But a hawk ish use doesn't seem to me. A 0:17:10.480 --> 0:17:13.360 carry trade unwined, it would be more than more dubish 0:17:13.440 --> 0:17:13.760 they are. 0:17:13.800 --> 0:17:18.600 No, yeah, possibly, it depends on again the carry trade online. 0:17:18.720 --> 0:17:18.880 Right. 0:17:19.040 --> 0:17:22.080 The currency markets is driven by the short trade differential. Right, 0:17:22.160 --> 0:17:25.160 So US rates come down twenty five basis points unless 0:17:25.160 --> 0:17:28.360 the Japan has to raise another twenty five basis spin 0:17:28.440 --> 0:17:32.640 that fifty basis points have a very significant magnifier effect 0:17:32.960 --> 0:17:35.920 on things like the cost of carry and so on, 0:17:36.440 --> 0:17:38.800 And I think that's what's going to drive things in 0:17:38.840 --> 0:17:41.399 the short run. So when I say hawkish ease, I 0:17:41.440 --> 0:17:44.040 mean they're going to ease, but then they're going to 0:17:44.119 --> 0:17:48.720 try to manage expectations for rates, call it two years 0:17:48.760 --> 0:17:52.040 out or five years out, that this is not the 0:17:52.080 --> 0:17:57.280 beginning of ten ease cycle, which is typically what you know, 0:17:57.680 --> 0:17:59.240 what happened, and most of the markets are going to try 0:17:59.240 --> 0:18:00.760 to build in right away. 0:18:01.480 --> 0:18:03.199 If you're in a fixed income space, where do you 0:18:03.520 --> 0:18:06.000 see value here? Do you should I just stick with 0:18:06.040 --> 0:18:07.840 my two year treasury north of four percent? 0:18:07.840 --> 0:18:08.000 Here? 0:18:08.040 --> 0:18:09.240 Should I take some credit risk? 0:18:10.080 --> 0:18:10.159 No? 0:18:10.280 --> 0:18:12.000 I like the two year note. I think, Paul, the 0:18:12.040 --> 0:18:14.439 two year note and T bills. You know, just a 0:18:14.560 --> 0:18:17.719 month ago the auction cleared at close to five percent. 0:18:17.840 --> 0:18:21.879 So I think if you can get a four percent 0:18:21.960 --> 0:18:24.560 yield on two year notes or five five uarter percent 0:18:24.640 --> 0:18:27.280 on T bills without taking any risk, duration risk or 0:18:27.359 --> 0:18:29.480 credit risk. I think that's a great place to be. 0:18:29.560 --> 0:18:32.280 And I'm talking about credit. Yes, it could tighten, but 0:18:32.560 --> 0:18:36.639 I mean it's trading at basically all time tights right now. 0:18:36.680 --> 0:18:40.000 I mean investment great credit and highield credit. You really 0:18:40.040 --> 0:18:44.040 have to bet that there is nothing on the horizon 0:18:44.160 --> 0:18:46.920 that could upset the Apple card and I believe there's 0:18:46.920 --> 0:18:49.040 a lot out there, so you have to be careful 0:18:49.080 --> 0:18:49.480 right now. 0:18:49.560 --> 0:18:51.800 Well, yeah, that was an interesting That's an interesting point 0:18:51.840 --> 0:18:54.400 because when we saw the VIC spike, we didn't see 0:18:54.440 --> 0:18:56.240 the blowout and credit spreads in a way that one 0:18:56.320 --> 0:18:58.639 might have thought. Why do you think that was? 0:18:59.680 --> 0:19:01.679 Yeah, I think the market was waiting, right. So we 0:19:01.680 --> 0:19:04.000 were here early in the morning, you know, and we 0:19:04.000 --> 0:19:06.640 were watching the VIX at sixty five and the futures. 0:19:06.640 --> 0:19:09.399 The VIX future is only getting up to about thirty something, 0:19:09.400 --> 0:19:11.920 and the credit market waits and sees right because the 0:19:11.960 --> 0:19:14.560 credit you can think of it as a long term 0:19:14.600 --> 0:19:17.000 put on the equity market, and the fact that the 0:19:17.080 --> 0:19:20.240 vics came down was a breath of relief or the 0:19:20.280 --> 0:19:23.040 credit markets. President did white out, and CD Express did 0:19:23.040 --> 0:19:27.200 widen out about fifty seven or actually mid sixties from 0:19:27.480 --> 0:19:31.240 fifty to fifty three the week prior. But then as 0:19:31.280 --> 0:19:34.840 the VIX came down, people basically said, Okay, this vigpike 0:19:35.320 --> 0:19:39.639 is not translating into long term equity volatility rise because 0:19:39.680 --> 0:19:41.960 the VIC curve was inverted and so on, and credit 0:19:42.000 --> 0:19:45.119 markets watched that pretty carefully, and basically that was the 0:19:45.160 --> 0:19:49.440 reason for the credit markets to kind of settle down again. 0:19:49.600 --> 0:19:52.359 If you believe like I do, that that was only 0:19:52.400 --> 0:19:55.560 the first round, I do think you have to be 0:19:55.600 --> 0:19:59.640 careful because the next time around, if there's a big 0:19:59.680 --> 0:20:02.800 shock to the system, great spreads could widen then stay wide, 0:20:02.880 --> 0:20:03.920 not even widen more. 0:20:04.800 --> 0:20:07.639 Finear, how do you guys? Do you guys have exposure 0:20:07.640 --> 0:20:10.040 to alternative investments? Is that part of your outlook? 0:20:11.119 --> 0:20:13.800 So we're direct investors in the market, so we don't 0:20:13.840 --> 0:20:16.320 allocate to other funds. Obviously we're creating, you know, all 0:20:16.320 --> 0:20:19.480 the futures and options and so on for our investors. 0:20:19.880 --> 0:20:22.160 But yes, we are looking at all the alternatives as 0:20:22.200 --> 0:20:25.159 signals on what might be happening. So you have to 0:20:25.160 --> 0:20:27.360 be pretty hooked onto what everybody else is doing. 0:20:27.359 --> 0:20:30.000 In today's market, What do you think is going to 0:20:30.000 --> 0:20:32.800 be the trade around the elections? Like, I get the FED, 0:20:32.840 --> 0:20:35.040 we got to get through that, right, But there's got 0:20:35.080 --> 0:20:37.720 to be some political and geopolitical risk hedging that we're 0:20:37.720 --> 0:20:40.320 going to see crop up. How do you think about that, 0:20:40.359 --> 0:20:42.000