Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Moving higher in these
Speaker 1: markets here smp U eight ten, so one percent. I
Speaker 1: think this move, Matt has taken a lot of people
Speaker 1: by surprise here and they're trying to figure out is
Speaker 1: it real? Do I buy it? Do I fade it?
Speaker 1: What do I do? Here? Let's check in with somebody
Speaker 1: who does this stuff for living, Megan Hornum and chief
Speaker 1: investment officer for Verdin's Capital Advisors. So what say you, Megan?
Speaker 1: As we look at this market, equity markets bouncing, you know,
Speaker 1: I don't know, they're teen percenters so off the bottom?
Speaker 1: Is this real? I think for certain areas of the
Speaker 1: market that got hit the most that yes, I think
Speaker 1: that this is a good opportunity to maybe be adding
Speaker 1: just some of those areas. So I mean, in that instance,
Speaker 1: look at some things like small cap mid cap stocks,
Speaker 1: These areas were beaten down the most and they're actually
Speaker 1: benefiting from this rebound we've seen. But if you look
Speaker 1: at your large cap, your technology, your growth, I'm still
Speaker 1: a little nervous about adding and you know, getting aggressive
Speaker 1: in that area because they also have rebounded. But I
Speaker 1: don't think it's fully reflecting where the interst rate market
Speaker 1: will go. And that's the one thing I think is
Speaker 1: a head wind there to those those stocks. The path
Speaker 1: looks like, oh sorry, my mic was off. What do
Speaker 1: you think the FED path looks like? Megan? So, I
Speaker 1: think between now and I know a lot of people
Speaker 1: are focused on the September meeting, and while they go
Speaker 1: fifty or while they go seventy five, right now, fifty
Speaker 1: is a definite. Uh, seventy five is still up in
Speaker 1: the air. Because keep in mind that between now and then,
Speaker 1: we'll get two jobs reports, will get at least two
Speaker 1: CPI reports, will get a lot more information on inflation,
Speaker 1: and we'll also get more information on just where economy is.
Speaker 1: We did get that second consecutive quarter of negative GDP
Speaker 1: we um we've seen today. Like you mentioned, the services
Speaker 1: sector was was much stronger, but manufacturing is getting weaker
Speaker 1: pretty rapidly, So they want to look at all of
Speaker 1: these things in way that against the future outlook for
Speaker 1: the second half of this year before they decide that, hey,
Speaker 1: it's going to be seventy five basis points. We'll be
Speaker 1: looking at the Jackson Whole meeting, which also comes out
Speaker 1: at the end of the of August. August they tend
Speaker 1: to give some more indication during those meetings, and it
Speaker 1: also tends to be a market mover. That's why I'm mad.
Speaker 1: I think I need to go out the Jackson Hole.
Speaker 1: What do you think? Have you not already got tickets?
Speaker 1: Are you not going to Jacksonly? I don't know. I mean,
Speaker 1: I know Michael McKee's going. I've volunteered to carry his luggage.
Speaker 1: But I mean, I think I need to be out.
Speaker 1: Are we broadcasting, Eric? Are we broadcasting from Jackson Hole?
Speaker 1: Are you not? Have you not already? Can you clear
Speaker 1: that with Colin and Anthony? Bob? I see Bob, and
Speaker 1: are you can pull the you can pull the strings?
Speaker 1: All right? Very good? All right? Megan. So we're thinking
Speaker 1: about here. You know, I'm an equity person, but I
Speaker 1: look at the fixed income and I see the negative
Speaker 1: returns year today and you know, I listened to credit
Speaker 1: strategists and portfolio managers saying, we've never had an under
Speaker 1: performance like we've seen in the first six seven months
Speaker 1: of Why don't I just jump into the deep end
Speaker 1: and start buying bonds because I wouldn't buy a tenure
Speaker 1: tenure treasury when it's at a two eighty two and
Speaker 1: you have inflation at nine percent. That's why, Okay, that
Speaker 1: that makes sense to me in the midst of an
Speaker 1: aggressive FED tightening cycle, where I do think that the
Speaker 1: market is getting a little ahead of itself that there's
Speaker 1: going to be cuts next year, Will there'll be a pause?
Speaker 1: That could quite possibly be the case, but the Federal
Speaker 1: Reserve doesn't want to get in a system of like
Speaker 1: the early nineteen seventies early nineteen eighties, where they would
Speaker 1: raise rates rapidly and then have to cut quickly. They
Speaker 1: want to try and smooth this out. So I think
Speaker 1: the market is getting a little ahead of itself that
Speaker 1: will be in for cuts next year, and that's why
Speaker 1: you're seeing interest rates rally. There's really not much opportunity
Speaker 1: or really any reward for the risk you're taking in
Speaker 1: an interest rate environment in long term bonds now short
Speaker 1: term bonds. They're adding a little bit of yield now.
Speaker 1: I mean you've got about a three fifteen on on
Speaker 1: the two year Treasury floating rate notes. They should keep
Speaker 1: pace with what the Feds doing so in your fixed
Speaker 1: income allocation because you can abandon it. I mean, we've
Speaker 1: seen that it still does have a diversification benefit even
Speaker 1: though it isn't what it used to be. It's been
Speaker 1: a tough year for that sixty forty portfolio, but you
Speaker 1: should always have something stay short um, keep defensive there
Speaker 1: from a maturity positioning, all right, In terms of UH
Speaker 1: stocks right now, if you wanted to get into this market,
Speaker 1: how would you get involved? Would you you know, by
Speaker 1: an index tracker? Would you look for active management UM
Speaker 1: other sectors that you like. It's definitely active management UM.
Speaker 1: That's where you need to be right now, being in
Speaker 1: an index level right now with the uncertainty, especially from
Speaker 1: an earnings perspective. Keeping mind, we haven't seen earnings really
Speaker 1: come down to reflect the whether you know, the economic
Speaker 1: or session or economic slowdown. We haven't seen a pretty
Speaker 1: move there, So I would it would definitely recommend being
Speaker 1: in the active side of it. People that can pick
Speaker 1: out stocks not indexing um, you know, being having dry
Speaker 1: powder on the sidelines too to be able to put
Speaker 1: that to work. That's what we recommend right now. So, Meg,
Speaker 1: we just had some I S M services data come
Speaker 1: out better than expected. I mean, is the consumer as
Speaker 1: strong as maybe we think here she is? Right now?
Speaker 1: The consumers shifted from that good space spending that we
Speaker 1: saw coming out of the pandemic, and now they're spending
Speaker 1: on services and experience, and I think that that still
Speaker 1: has a little bit of room to go. But people
Speaker 1: whether it's travel or vacation or going out to restaurants,
Speaker 1: we're still seeing people that are getting trips and things
Speaker 1: like that that they didn't use during the pandemic or
Speaker 1: last year. So you still have a pent up amand
Speaker 1: for that side of the economy. But how many trips
Speaker 1: to Disney World are you gonna take? Really? You know?
Speaker 1: I mean, this is going to fade, especially if you
Speaker 1: look at the consumer. I don't disagree that the balance
Speaker 1: sheet of the consumer is stronger than it's ever been
Speaker 1: leading up to any recession. If you look at you know,
Speaker 1: net worth, but they're taking out credit card debt at
Speaker 1: a double digit pace, and the savings during the pandemic
Speaker 1: has been dwindled away, so I don't think that this
Speaker 1: is sustainable in the second half. All right, Megan, great stuff.
Speaker 1: As always, always appreciate getting some of your valuable time.
Speaker 1: Megan Horneman, Chief Investment Officer, Verden's Capital Advisors Again, SMP
Speaker 1: five dred up seven tenths of one percent. How about that?
Speaker 1: This is bloomer. Let's get to our next guest. Mc mulroy,
Speaker 1: co founder of the Mobo Institute, Former Deputy Assistant Secretary
Speaker 1: of Defense for the Middle East at the U S
Speaker 1: Department of Defense. I'm gonna keep going on this resume
Speaker 1: here because it's just lying after the line. Former Power
Speaker 1: of mill Terry Operations officer at the CIA. I don't
Speaker 1: know what that is, but I'm sure it was on
Speaker 1: some TV show. Former US Marine Infantry officer. That gets
Speaker 1: my attention. Uh. So he's had quite uh the life
Speaker 1: so far. Mick mulroy, thank you so much for joining
Speaker 1: us here. So much geopolitical stuff to kind of talk
Speaker 1: about here. First, you know, our Speaker of the House
Speaker 1: went to Taiwan, had some meetings. Left Taiwan. I guess
Speaker 1: that's good. What do you what's your takeaway? Well, great
Speaker 1: to be with you guys. I think I think, quite frankly,
Speaker 1: the Chinese are obviously very angered about this. I think
Speaker 1: they way overstated the significance. I don't see how a
Speaker 1: civilian leader with her staff going to do meetings would
Speaker 1: challenger territory integrity. But they obviously are very irritated by it.
Speaker 1: And it looks like they're going to conduct more substantial
Speaker 1: military operations. And they've done awes and that includes essentially
Speaker 1: surround ning the island of Taiwan uh in what looks
Speaker 1: like it could be UH. An example of what they
Speaker 1: could do if they were to do a blockade of Taiwan,
Speaker 1: and that is that is very troubling and quite frankly,
Speaker 1: because it's live fire and we have multiple naval assets
Speaker 1: in the in the area, UH, the chances of escalation
Speaker 1: are are pretty high. So how does the US military
Speaker 1: deal with this? I know that well. It's been reported
Speaker 1: that the Ronald Reagan Strike Group is in the area,
Speaker 1: which consists of a naval aircraft carrier and then a
Speaker 1: bunch of other big, powerful, um you know, weaponry. Would
Speaker 1: would they not want to just back up while the
Speaker 1: Chinese do these live fire exercises just in case something
Speaker 1: goes wrong. Yes, essentially, that'd be correct. I mean they
Speaker 1: have to do direct military to military coordination to ensure,
Speaker 1: uh that we know where they're going to be firing
Speaker 1: and operating, so that we don't obviously, um get in
Speaker 1: that space. We won't want to put it as we're
Speaker 1: backing up to let them do this, because that would
Speaker 1: look I think in some ways as we're facilitating this
Speaker 1: really um significantly enhanced military exercise that is not in
Speaker 1: line with you know, keeping the peace so to speak,
Speaker 1: So we don't we probably will not put it as
Speaker 1: we're moving our assets, as you said, pretty significant out
Speaker 1: of the area, but more coordinating to ensure that there's
Speaker 1: no mistake that could you know, cause an eruption and
Speaker 1: in a conflict. Right, So there's a simmering cold war
Speaker 1: there in in Asia, but we've got a hot war
Speaker 1: uh in Europe. How do you tie all that together,
Speaker 1: what's going on in Ukraine with maybe this visit to Taiwan.
Speaker 1: I mean, how do you view America's kind of foreign
Speaker 1: policies that relates to some of these really hot areas well?
Speaker 1: I did. It's a good question. I do think they
Speaker 1: are connected because if you look at what the what
Speaker 1: the what the partnership of the U S it's meant
Speaker 1: to Ukraine uh in its fight against Russia means uh.
Speaker 1: That is also what China is looking at when it
Speaker 1: comes to the partnership between Taiwan and the United States,
Speaker 1: which is by law, it's not just something we wanted
Speaker 1: to do, like in the Ukraine, but the Taiwan. There's
Speaker 1: a specific act that requires the United States to militarily
Speaker 1: support Taiwan, not with troops, but with you know, advanced
Speaker 1: weapons systems, by US intelligence sharing. Those are all things
Speaker 1: we're doing for Ukraine, and it has essentially um allowed
Speaker 1: the Ukrainians to first repel the assault on Kiev but
Speaker 1: now come to almost virtual standstill on the Dome Boss
Speaker 1: and down in the south what they look like they
Speaker 1: could even take back the Key city or Kersan. So
Speaker 1: I think that the Chinese are looking at just what
Speaker 1: how significant being a military partner with the United States
Speaker 1: is for Ukraine, and highly concerned about what that could
Speaker 1: mean for Taiwan should they want to try to actually invade,
Speaker 1: invade Taiwan and make it Yeah. I mean when when
Speaker 1: when Pelosi sort of vowed America America support for Taiwan.
Speaker 1: I and I instantly thought of the support that we
Speaker 1: had for Afghanistan, which was clearly limited. Right, we will
Speaker 1: support you, but not for longer than twenty years. And
Speaker 1: then we're piecing out how how do we look right now?
Speaker 1: Mick as a as a partner globally, I mean, when
Speaker 1: you think of Afghanistan, Ukraine, Taiwan, so I think it's
Speaker 1: a mixed bag. So Afghanistan I disagreed, as I did
Speaker 1: most analysts on the news and most people I know,
Speaker 1: with the complete withdrawal. Obviously we didn't need to have
Speaker 1: a level that we've had in the past, but having
Speaker 1: a residual force I think was the way to go.
Speaker 1: It did indicate that we were not the partners that
Speaker 1: we should have been in Afghanistan. But Ukraine, I think
Speaker 1: it's a different story. Um, it shows that having being
Speaker 1: a partner with the United States, and we've been considerable
Speaker 1: as as you all know, amount of resources trying to
Speaker 1: support them, I think that shows the United States being
Speaker 1: a better partner. And I think that's what Taiwan is
Speaker 1: looking at right now and what future partners you're going
Speaker 1: to look at when it comes to whether they should
Speaker 1: throw in with the United States. Um, we need to
Speaker 1: we need to present, and we need to be the
Speaker 1: partner that we would want and return. And I think
Speaker 1: going forward we need to keep that in mind every
Speaker 1: time we make a decision on whether to withdraw forces
Speaker 1: or support or not support. Nick talked to us about
Speaker 1: the strike in Afghanistan Monday night, reportedly taken out a
Speaker 1: senior al Qaeda leader. Give us what that means. I mean, boy,
Speaker 1: it's twenty years after years after nine eleven. For those
Speaker 1: of us in New York, it's still very very fresh.
Speaker 1: But boy, that's a it's a long time to be
Speaker 1: hunting somebody. Yes, it is. And I think that actually
Speaker 1: shows that if you do harm the United States, we
Speaker 1: will find you eventually, and we will you will, you
Speaker 1: will face justice. And in this form it was, it
Speaker 1: was a strike, and you know, and and that too
Speaker 1: is a mixed bag. It does show that, uh, my
Speaker 1: former colleagues at the CIA can facilitate operations in Afghanistan
Speaker 1: even after withdrawal. I think personally it was a masterclass
Speaker 1: and how to do these operations. So my hats are
Speaker 1: off to them. But it also indicates that the Taliban,
Speaker 1: including some of its most senior leaders uh and specifically
Speaker 1: Sara Ja Khani felt like they were totally okay with
Speaker 1: facilitating the leader of al Quaina, one of the plotters
Speaker 1: in eleven, living at his house likely or one of
Speaker 1: his houses in Cobble. So it indicates that Afghanistan is
Speaker 1: now and that and that giadist Inc. It's going to
Speaker 1: be a safe haven in the future. So it shows
Speaker 1: that we can get to you, but it also shows
Speaker 1: that we have no partner in the Taala bomb. They're
Speaker 1: not only not helping us on our counters effort, they're
Speaker 1: actually facilitating Mick. Thank you so much for joining us.
Speaker 1: We covered a lot of topics that we really appreciate,
Speaker 1: getting the perspective, the value of your experience at c
Speaker 1: i A, at the in the Marines and then obviously
Speaker 1: in a secretary defense as a deputy assistant there mc mulroy,
Speaker 1: co founder of the Lobo Institute. Alright, a couple of
Speaker 1: our hack reporters from Bloomberg News not a Rogen Max
Speaker 1: Abelson teamed up to take a look at Goldman SAXS
Speaker 1: and you've got a big take story out that's really fascinating.
Speaker 1: The headline they quit Goldman Star Trading team. Then it
Speaker 1: raised alarms. Shree, not a rogen joins us here in
Speaker 1: our Bloomberg inactive broker studio. He's from Bloomberg News. Shree,
Speaker 1: You and Max did this great story. Uh A pretty
Speaker 1: a couple of pretty profitable traders left Golden sacked. But
Speaker 1: Goldman Sacks wasn't letting them go easily, did they Look,
Speaker 1: It's it's very rare that Goldman Sachs suspects its own
Speaker 1: of trying to steal code on their way out to
Speaker 1: a hedge funds. So these are traders. They're not just
Speaker 1: some guys slinging around corporate bonds. These are like from
Speaker 1: the block, from their prop trading desk and their program desk.
Speaker 1: What is it prop trading? That's the word. That's definitely
Speaker 1: not stop trading, but it is the program trading desk.
Speaker 1: And you know, effectively, what this group does is it's
Speaker 1: only a group of about twenty people globally. They craftedgorythms
Speaker 1: and they are trying to position themselves. You know, one
Speaker 1: of the key remits of this desk is to do
Speaker 1: these index rebalance trades. In the last few decades, passive
Speaker 1: investing is really shot through the roof. Indexes frequently changed
Speaker 1: their composition, and when that happens, you know that will
Speaker 1: force changes in these et s and other passive funds
Speaker 1: that have to mirror the indexes. That gives an opportunity
Speaker 1: for sophisticated films like Goldman Sachs or a hedge fund
Speaker 1: like Millennium Management to move ahead of that and know
Speaker 1: that there's going to be a man coming down the
Speaker 1: bike and make profits. And this desk, we say in
Speaker 1: the story, conservative estimates in the last couple of years
Speaker 1: made about seven million dollars each by itself may not
Speaker 1: sound like a huge figure, but then think about the
Speaker 1: fact that this disc is only about twenty odd people.
Speaker 1: That makes it one of the most profitable desks at
Speaker 1: least on a purpose and basis at Goldman Sex. It
Speaker 1: does that sound like a huge figure to me. To me,
Speaker 1: but here's the crux of the story. Three. The part
Speaker 1: that gets me is these guys alleged that while they
Speaker 1: were there and everything was going well, they were beloved
Speaker 1: and um in in their reviews. By the way, employee
Speaker 1: reviews are like the bane of my existence. But in
Speaker 1: their reviews, manople and they were lauded as let me
Speaker 1: find the exact words here. They were lauded in their
Speaker 1: reviews as exceptional, impeccable worth work, ethic, outperforming culture carrier.
Speaker 1: So these were ideal employees. Then the moment they left,
Speaker 1: they allege that they were warned, Hey, we're essentially going
Speaker 1: to make you guys look really bad. And Goldman Sachs
Speaker 1: will tell you that the two things are not mutually exclusive.
Speaker 1: You could be a great employee and you could do
Speaker 1: some bad things on your way out. And they say
Speaker 1: that when someone leaves a team like this, it's it's
Speaker 1: normal to do sort of customary checks. And they did
Speaker 1: customary checks and they found what they believe is something alarming.
Speaker 1: They accused them of trying to of trying to gain
Speaker 1: improper access to their systems. Ultimately, what is it all
Speaker 1: boiled down to? They suspected, but couldn't really prove, that
Speaker 1: these guys are trying to steal code on their way
Speaker 1: to a hedge fund varish and fund management. In this case,
Speaker 1: Let's assume their standing assumption is use that code base
Speaker 1: as reference to build a new system from scratch, and
Speaker 1: Goldman is very very protective of it. But these guys
Speaker 1: have also come back swinging, and that's what you normally
Speaker 1: don't see when you have this kind of acrimony, and
Speaker 1: it does happen often. You guys know this that banks
Speaker 1: and their tap when they're departing. It's not always the
Speaker 1: most amicable situation, but you'd always plays out in private.
Speaker 1: It rarely plays out in a way where both sides
Speaker 1: are willing to take such a public stand, not willing
Speaker 1: to back down convinced that the other side is wrong.
Speaker 1: The two guys who left believed that Goldman is being
Speaker 1: heavy handed and out to embarrass them and trying to
Speaker 1: send a message to the team effectively, this is retaliation
Speaker 1: for them finding a more lucrative opportunity, and Goldman saying,
Speaker 1: hold on a second, this was serious misconduct and they
Speaker 1: must be called out for that. So both of them
Speaker 1: are standing their ground, but only one of them can
Speaker 1: be right well. They also alleged that as they were leaving,
Speaker 1: their managers were begging them to stay, and when that
Speaker 1: didn't work, said, hey, I would be concerned about your
Speaker 1: behavior in the past. So that's not about taking code
Speaker 1: right now on your way at the door. It's like
Speaker 1: we're gonna make up stuff that makes you look bad
Speaker 1: in terms of past behavior by the By the way,
Speaker 1: let me also ask you this. It seems to me,
Speaker 1: from reading so many of these stories and hearing from
Speaker 1: sources in the industry that the way it's currently set
Speaker 1: up um banks have the advantage because all of these disputes,
Speaker 1: they don't go to court, they go to arbitration, and
Speaker 1: arbitration is almost always, you know, a good friend of
Speaker 1: the bank rather than the employee. Is that is that
Speaker 1: the right way to see it? Historically, that's always been
Speaker 1: true when when when employees are dragged through the arbitration process,
Speaker 1: it is really difficult for for for an individual to
Speaker 1: come out on top. And that's partly how a lot
Speaker 1: of these employment contracts are written. Banks are extremely protective
Speaker 1: of their talent. They do realize that there are better
Speaker 1: opportunities on the bi set, that people are willing to
Speaker 1: pay more and they have to do more, and therefore
Speaker 1: these contracts are written with such great latitude that even
Speaker 1: if you sneeze to their displeasure, they may ding you
Speaker 1: for that. And that's why you see in most occasions
Speaker 1: the banks and the institutions always come out on top. Sure,
Speaker 1: you and Max did some awesome reporting here, what is
Speaker 1: the expectation how this may play out, this is this
Speaker 1: is a settlement type of situation. Are they going to
Speaker 1: go to court? I mean any sense to this stage
Speaker 1: as things stand, and we talked about it in the story,
Speaker 1: the lawyer for the two people who's to folks are
Speaker 1: leaving for the Hedge Fund is actually saying what Goldman
Speaker 1: has done hurts their reputation is defammetry, and all litigation
Speaker 1: options are open. Goldman doesn't come out and say that,
Speaker 1: but one has to assume that they would be thinking
Speaker 1: along the same lines because they feel these guys didn't
Speaker 1: cooperate fully with their investigation. They are still very much
Speaker 1: planning to go join this Hatch Fund, which by the way,
Speaker 1: wouldn't be till much later in the year because not
Speaker 1: only did they have to have a three month notice,
Speaker 1: spirit on top of that, Goldman insists that even the
Speaker 1: junior employees on the desk and somewhat mid level vice
Speaker 1: presidents have a six month non compete. That's a nine
Speaker 1: month gestation period, which is pretty remarkable, especially for a bank. Alright,
Speaker 1: three some good good stuff. As I'm always jealous of
Speaker 1: people that get gardening waves because you know that it's
Speaker 1: always worked out so that they get comp and stage.
Speaker 1: It's like they're not getting paid. It's not like these
Speaker 1: guys are CouchSurfing and meantime right they're doing they've done
Speaker 1: well enough that they can spend their gardening leave in
Speaker 1: st Bart's. Absolutely, it's no big deal. And that's kind
Speaker 1: of how I think most players play it out. Sure
Speaker 1: not a rogen Max Abelson with this fantastic big take story.
Speaker 1: I highly recommend you take a look at that Bloomberg
Speaker 1: dot Com slash Big Take or and I Big Take
Speaker 1: Ni Space Big Take right, just and I Big Take
Speaker 1: and I Big Take Good Stuff Street. Thanks so much.
Speaker 1: Let's get right to our next guest, because he's got
Speaker 1: a awesome name. I just think it's cool, Red Bottle. Uh.
Speaker 1: He's a founder principal of Public Private Strategies. Hey, Rett,
Speaker 1: I want to talk to you about this Chips Act
Speaker 1: because I remember at the beginning of this pandemic, when
Speaker 1: this whole Mike semiconductor chip thing became something that we
Speaker 1: talked about here on Bloomberg Radio, that people are saying, oh,
Speaker 1: the solution is to ensure this stuff, and there you go,
Speaker 1: we have the Chips Act. A little bit is that
Speaker 1: does that get us where we need to be. Is
Speaker 1: this a small first step? How do we think about this? Well, look,
Speaker 1: as I will forego, they'll gone with the wind jokes, um.
Speaker 1: But this, you know, this law we we just learned
Speaker 1: today that President Biden will actually signed into law this
Speaker 1: upcoming Tuesday, the Chips Act. It's a really good start, um.
Speaker 1: And really, when you think about the Biden economic agenda,
Speaker 1: you have to think about all the pieces. You have
Speaker 1: to think about the American Rescue Plan, which was pasted
Speaker 1: earlier this year, the Bipartisan Infrastructure Deal, and now we
Speaker 1: have the Chips um Act, which which will be signed
Speaker 1: in law on Tuesday. And it's a really important part
Speaker 1: of not only bringing these jobs home, but it's an
Speaker 1: important piece for American competitiveness in national security. The reality is,
Speaker 1: over the past few decades, America has has been losing
Speaker 1: sort of the race to make these sorts of things
Speaker 1: at home. And there's the semiconductor The chips have become
Speaker 1: such an important part of our daily live and so
Speaker 1: this is really a good start making an investment here
Speaker 1: at home, um, that that we really believe will create
Speaker 1: you know, good jobs here at home as well as
Speaker 1: make America more competitive. So how can listeners reat um,
Speaker 1: you know, investors get involved with public private partnerships the best. Yeah. Look,
Speaker 1: I mean I think you know, learning about what's in
Speaker 1: the chip SACKED, I think is is really important because
Speaker 1: it's going to have a large impact on the market. Uh.
Speaker 1: You know everything uh that that we kind of do
Speaker 1: in our daily lives, whether it's the car we drives
Speaker 1: or you know, obviously the computers and the phones we're using. Um,
Speaker 1: all of those things rely upon you know, these important
Speaker 1: chips UM. And so you know, as the law begins
Speaker 1: to roll out, I think we'll we'll see some guidance
Speaker 1: come out from the government about what that would look like.
Speaker 1: There's a number of companies, obviously, you know, large manufacturers
Speaker 1: who already sort of making plans around sort of these investments.
Speaker 1: But I think we'll see ripple effects as well for
Speaker 1: for small companies and investors who are looking at it.
Speaker 1: And so, you know, we're at the piece now, we're
Speaker 1: sort of getting the implementation of the law is where
Speaker 1: we are. So folcus just continue to watch and monitor
Speaker 1: and I think that that will allow them to sort
Speaker 1: of plan appropriately as they're they're mapping their strategy out
Speaker 1: for how to invest in how to be integrated in
Speaker 1: But we sort of investment. But what public I mean, um,
Speaker 1: what public private strategies? Uh, what are you doing at
Speaker 1: public private strategies prior to the Chips Act? You're you're
Speaker 1: doing public private investment already, right, So what do you
Speaker 1: think that the best opportunities are that we can get
Speaker 1: into now? Yeah? So look, we uh you know, we
Speaker 1: work with business leaders to get them engaged in public policy. Right,
Speaker 1: and so the idea behind our organization is making sure that,
Speaker 1: you know, business both large and small, has a voice
Speaker 1: the public policy table. And I think you know, increasingly
Speaker 1: as we've been focused on economic recovery. Um, you know,
Speaker 1: business has played sort of a crucial role um in
Speaker 1: particularly in the policy and the political process. We're seeing that,
Speaker 1: you know, business has an outside voice in this moment
Speaker 1: as people are rethinking the importance of institutions and so, uh,
Speaker 1: you know, we are we are working with business leaders
Speaker 1: to make sure that they're shaping not only the passage
Speaker 1: of laws like the Chip SACK, but also the implementation
Speaker 1: of what that looks like. So ht it. You know,
Speaker 1: Eventually this comes down to economics, and a US made
Speaker 1: chip will never be economically financially competitive with an Asian
Speaker 1: made chip. Is that is that the assumption, and so
Speaker 1: therefore this is a long term public private kind of situation. Yeah.
Speaker 1: I don't know if that's necessarily the only assumption. I mean,
Speaker 1: I think that the reality is is that um uh,
Speaker 1: you know, we used to do quite a bit of
Speaker 1: this at home, this sort of manufacturing around forty percent
Speaker 1: in previous decades, and that has gone down to ten.
Speaker 1: I think what this does is it allows a few
Speaker 1: sort of things. One is it it allows companies to
Speaker 1: take advantage of investment in a in a smart way. Um.
Speaker 1: And I think it Uh, it creates good paying jobs, right,
Speaker 1: these are jobs that are going to be created to
Speaker 1: sort of create these chips here at home. Um. But
Speaker 1: it also has national security implications because of the important
Speaker 1: role that these chips play. And so I think, um,
Speaker 1: you know, in the immediate uh, it sends all the
Speaker 1: right signals to the investor community about sort of the
Speaker 1: sort of investments we want to make here at home.
Speaker 1: And in the long term, I think it has a
Speaker 1: long term sort of tangible benefits for jobs and communities
Speaker 1: as well. I wonder how I see that you've worked
Speaker 1: not only for the who's who of the Democratic Party Obama, Clinton, Biden,
Speaker 1: but also for Republican Governor Ald Schwarzenegger. And I was
Speaker 1: thinking it's got to be important, especially on the private side,
Speaker 1: that these um deals are kind of bipartisan or or
Speaker 1: or are not partisan at least, Right, how do you
Speaker 1: deal with that? Because, um, when I put my money
Speaker 1: into something that's gonna last for ten or twenty years,
Speaker 1: obviously they're gonna be different administrations in and out. Yeah. Look,
Speaker 1: I think these sort of long term investments sort of
Speaker 1: lived beyond politics. And I think, you know, we we're
Speaker 1: living in as I don't need to describe to you all,
Speaker 1: you know, in a hyperpartisan environment in Washington right now.
Speaker 1: But the reality is this, this actually, uh you know,
Speaker 1: it took a while to get negotiated and find the
Speaker 1: right assentives, but this is another bipartisan you know, piece
Speaker 1: of legislation. So we saw a lot of Democratic and
Speaker 1: Republicans support for this. I think you see on the fringe,
Speaker 1: you know size not a lot of uh, not a
Speaker 1: lot of interest in something like this. But you know,
Speaker 1: for folks who are making you know, long term investments,
Speaker 1: I think this is the sort of piece of legislation
Speaker 1: we want to see because it sends all of the
Speaker 1: right signals, I think, to the business community into the
Speaker 1: market about where we need to be investing. UM. Similarly,
Speaker 1: we saw the same thing with the bipartisan infrastructure deal.
Speaker 1: You know, that was one of the largest investments in
Speaker 1: our country. So you know, there are signs, there are
Speaker 1: signs out there that bipartisanship can't happen in the legislative process.
Speaker 1: And I think, you know, for folks who are thinking
Speaker 1: about investment strategies, pieces of laws like this are our
Speaker 1: important signals. Alright, great stuff, Red really appreciate you taking
Speaker 1: the time. Rhet Buddle, founder and principle Public Private Strategy
Speaker 1: has also senior fellow Aspect Institute. Now we're gonna talk
Speaker 1: about emerging markets here because the hot topic of what
Speaker 1: happens to other economies when the dollar rises, Well, it's
Speaker 1: a study that we can see right before our very eyes,
Speaker 1: incredible dollar strength. UM the Fed on a hiking uh
Speaker 1: bent right now. That looks set to continue. And UM
Speaker 1: it's had a real effect already on emerging market assets.
Speaker 1: Nick stap Miller is in the studio with us. He's
Speaker 1: an emerging market strategist, the director Emerging Market Strategy at
Speaker 1: Medley Advisors. So, nick uh, this is just such a
Speaker 1: fascinating um uh thing to watch, phenomena to watch, and
Speaker 1: it doesn't look like it's going to change anytime soon, right,
Speaker 1: this dollar strength. Yeah, and the problem that emerging markets
Speaker 1: have from that is, of course stronger dollar means a
Speaker 1: weaker local currency and then the cost of imported goods
Speaker 1: in the local current sea and everywhere from Brazil to
Speaker 1: South Africa to Poland and their dollar debt, right, the
Speaker 1: dollar debt, But that's mostly a corporate issue. A lot
Speaker 1: of the larger emerging markets have much less effects that
Speaker 1: at the sovereign level than they used to. That's really
Speaker 1: more of a friends here at the Sri Lanka's Sub
Speaker 1: Saharan Africa that are really getting hit on the sovereign
Speaker 1: debt side. Are we still talking about bricks? Is that
Speaker 1: Jim O'Neil's term, right, Brazil, Russia, India, China and Sri Lanka.
Speaker 1: I don't know what the ass is for. Well, it's
Speaker 1: kind of split up because you know, of course, China
Speaker 1: has sort of taken a seat at the table among
Speaker 1: the major economies. Russia's more or less cut out of
Speaker 1: the global financial system. UH, India is still developing and
Speaker 1: growing pretty fast. In Brazil, you know, ever since Bricks
Speaker 1: came out, has really been a massive disappointment for a
Speaker 1: variety of structural reasons. They've just undershot any sort of
Speaker 1: expectations or hopes for the last fifteen twenty years. Want
Speaker 1: you mentioned Russia? Sart you mentioned Russia? Give us a sense.
Speaker 1: Now all we read about is the civilians, is all
Speaker 1: the sanctions and so on and so forth. What does
Speaker 1: it mean for you as an emerging markets investor? Can
Speaker 1: you put money into Russia? Do you even think about it? Well? No,
Speaker 1: it's changed a lot. Uh And you know, one of
Speaker 1: the countries I covered pretty closely is Russia. And you know,
Speaker 1: eight ten months ago people are actually playing the currency,
Speaker 1: playing rates there. There was an interesting rate hikes story
Speaker 1: at the Central Bank and then that all just disappeared overnight.
Speaker 1: But there's huge macroeconomic implications for what they're doing because
Speaker 1: they're still exporting energy and of course the geopolitics around
Speaker 1: the energy, but they're also accumulating record current account surpluses,
Speaker 1: and that money is not safe with the store in
Speaker 1: dollars or euros so they're looking for alternative ways to
Speaker 1: deploy that kind of point. I mean, where do they
Speaker 1: put it? Well, the only options we really have are
Speaker 1: no No G seven current So basically, I mean in theory,
Speaker 1: gasprom Bank can hold dollars in Euros, but it's always
Speaker 1: at risk of being sanctioned any day. So the Chinese
Speaker 1: you want is one option, and you've started to hear
Speaker 1: some discussion from Russian officials that they would like to
Speaker 1: invest in what they call the currencies of quote unquote
Speaker 1: friendly current countries. UM Gold is another option, but the
Speaker 1: market is probably too small. I mean, you know, we're
Speaker 1: talking about like twenty billion dollars a month UM, and
Speaker 1: more recently they've actually announced a twenty billion dollar nuclear
Speaker 1: deal to build a nuclear power station in Turkey. So
Speaker 1: you know that's not enough. They can't build one of
Speaker 1: those every months. But you find a country here and
Speaker 1: there that takes some money and it starts to add
Speaker 1: up and I guess right. Uh, My director Wan Torres
Speaker 1: reminds me that the S is for South Africa and
Speaker 1: UM with with respect to the other countries in the
Speaker 1: bricks and and other emerging markets that you follow, what
Speaker 1: are their central banks do to fight inflation when they're
Speaker 1: importing so much from the stronger dollar. I mean, are
Speaker 1: they just in a rush to raise rates as faster
Speaker 1: faster than the Fed? Yeah? Well, you know the story
Speaker 1: I think last year and this year is some of
Speaker 1: the emerging markets, UM, Russia actually was in this boat. Chile, Brazil,
Speaker 1: UM were much more aggressive and starting the rate hiking cycle.
Speaker 1: And a lot of these countries, I mean, Russia has
Speaker 1: been tossed out of the equation for a variety of reasons,
Speaker 1: but Chile, Brazil, Hungary, UH, and a couple of others
Speaker 1: have kind of reached close to the peak of their cycle.
Speaker 1: Whereas the Fed, as we know, you know, they say
Speaker 1: they still have quite a bit more to go. And
Speaker 1: now they have this double with me because they have
Speaker 1: essentially slowed growth through this massive hiking cycle in these
Speaker 1: central banks in emerging markets, and now they're starting to
Speaker 1: worry about growth. But the FED is still hiking, which
Speaker 1: has implications for the global economy, global dollar liquidity. So
Speaker 1: they're basically getting double tightening, uh, you know, into the slowdown,
Speaker 1: and they don't really have as much room to cushion
Speaker 1: their economies. Alright, staying a little bit on the Russia
Speaker 1: things that just fascinates me. I mean for your emerging
Speaker 1: markets in Eastern Europe, Poland, Hungry, you know, and obviously
Speaker 1: we we talk a lot about Germany. But for some
Speaker 1: of these emerging markets, how bad is it going to
Speaker 1: be this winter? Are the are the markets telling you that, boy,
Speaker 1: it's gonna be tough to to be a you know
Speaker 1: need some of these Eastern European economies come this winter. Yeah,
Speaker 1: Well they have you know, two risks here. One of
Speaker 1: course is the fact that Poland, check and Hungary are
Speaker 1: massive trading economies. Exports are like their gdp UM, so
Speaker 1: you know, huge trade there and slowing Germany is slowing
Speaker 1: Western Europe, that's their primary export market is going to
Speaker 1: hit activity. But then also you have the gas dependence,
Speaker 1: and now Poland has done a lot to lower its
Speaker 1: dependence on Russia over the last few years, but they
Speaker 1: still buy a lot from Germany and who buys from Russia.
Speaker 1: Hungary is the really fascinating one because they have actually,
Speaker 1: uh they sent the Foreign Minister to Moscow to inca
Speaker 1: deal to buy more gas via turk Stream. So it
Speaker 1: basically goes over the Black Sea through Turkey and then
Speaker 1: up across Serbia and into Hungary. Now, if you get
Speaker 1: a scenario where the Russians cut gas to Western Europe,
Speaker 1: you know they cut nord Stream one and then the
Speaker 1: Hungarians are getting gas through this pipeline, I cannot imagine
Speaker 1: the Europeans are going to be happy about that one bit.
Speaker 1: Yea yeah, I tell you this winter, Matt is going
Speaker 1: to be just a real, real issue for all of
Speaker 1: your Hey, Nick, thanks so much for joining us here.
Speaker 1: Nick stat Miller, Director Merger market Strategy for Medley Global Visors,
Speaker 1: joining us live in our Bloomberg and Actor Broker studio.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller on false Sweeney, I'm on Twitter at
Speaker 1: pt Sweeney. Before the podcast, you can always catch us
Speaker 1: worldwide at Bloomberg Radio.