WEBVTT - Agrochemical Mega-Deals Could Reshape Industry, BI's Miner Says 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:29.640 SoundCloud and at Bloomberg dot com. One share that is 0:00:29.680 --> 0:00:32.320 moving quite a bit is that of DuPont. Another is 0:00:32.360 --> 0:00:35.599 Dow Chemical. That's because the European Union approved the merger 0:00:35.680 --> 0:00:39.279 of these two agro chemical behemoths to create an even 0:00:39.280 --> 0:00:41.680 bigger company. To get a better sense of what this 0:00:41.760 --> 0:00:44.800 means going forward is Jason Minor. He is senior Global 0:00:44.880 --> 0:00:47.919 Chemicals Analyst for Bloomberg Intelligence and it comes to us 0:00:47.960 --> 0:00:51.519 from Princeton, New Jersey. Jason, can you just give us 0:00:51.560 --> 0:00:54.560 a sense of how unexpected this was that the European 0:00:54.640 --> 0:00:58.160 Union would approve this deal? Well, on in one sense, 0:00:58.200 --> 0:01:00.920 it's you know, it's been widely inticipated. I mean, we've 0:01:00.920 --> 0:01:03.360 been watching this deal. This is really a shape shifter 0:01:03.440 --> 0:01:06.680 of a deal, remember, because it's such a huge behemoth 0:01:06.760 --> 0:01:08.440 merger and then a three way split up. But we've 0:01:08.480 --> 0:01:11.320 been watching that unfold or sort of rumble forward. Since 0:01:11.360 --> 0:01:14.200 two thousand fifteen when it was announced, the companies have 0:01:14.360 --> 0:01:16.560 said that they were expecting to close this in the 0:01:16.600 --> 0:01:19.119 first half. They have missed a couple of deadlines before, 0:01:19.160 --> 0:01:23.360 and we're in a really mind boggling climate for regulatory 0:01:23.480 --> 0:01:26.280 sort of antitrust approval and accempts a lot of deals 0:01:26.319 --> 0:01:29.400 so um. On the one hand, it was really foreshadowed. 0:01:29.720 --> 0:01:32.760 The timing though, and many folks mind was was uncertain, 0:01:32.760 --> 0:01:34.680 and there were those who would even thought that the 0:01:35.120 --> 0:01:37.880 divestitures required to be so massive that they might undermine 0:01:37.920 --> 0:01:40.520 the value. So maybe it's a little bit more minor 0:01:40.800 --> 0:01:43.360 or manageable than folks expected as well. So just to 0:01:43.360 --> 0:01:44.920 give some perspective, and some of the things we were 0:01:44.920 --> 0:01:47.680 talking about, I mean, there are a bunch of combined transactions, 0:01:48.080 --> 0:01:51.800 uh that are going to reshape the agrochemical industry, bears 0:01:51.840 --> 0:01:55.440 planned by Monsanto and China National Chemicals agreement to buy 0:01:55.480 --> 0:01:59.200 some Genta that would bring the six major players in 0:01:59.240 --> 0:02:02.720 this industry town to just three. Uh. The surprising thing 0:02:02.800 --> 0:02:06.040 to me was that the European Commission said that there 0:02:06.080 --> 0:02:09.400 was specific evidence that Dow and DuPont would cut back 0:02:09.440 --> 0:02:12.840 on the amount they spent on the developing innovative products. 0:02:13.000 --> 0:02:16.120 I mean, what is going to be the ramifications from 0:02:16.120 --> 0:02:20.480 this complete reshaping of the agrochemical industry. Yeah, you have 0:02:20.560 --> 0:02:22.240 to to to feel the fear. You've got to put 0:02:22.280 --> 0:02:24.079 yourself in the seat of the tractor. Right. So the 0:02:24.520 --> 0:02:27.120 fear is the farmers looking at this as exactly what 0:02:27.160 --> 0:02:31.040 you said, which is these labs have generated the yield 0:02:31.080 --> 0:02:33.800 gains around the world, particularly for corn and soy, but 0:02:33.840 --> 0:02:37.480 many other crops for for decades now. Uh. And as 0:02:37.520 --> 0:02:39.919 we as we put these all together, all the names 0:02:40.000 --> 0:02:44.000 that you've just mentioned, Um, we're potentially cutting back on overlaps, 0:02:44.120 --> 0:02:46.400 right and now do pot have promised US three billion 0:02:46.639 --> 0:02:50.839 cost synergies alone? Uh? And And obviously under the hood 0:02:50.880 --> 0:02:53.200 of that, the EU saw some specifics that looked like 0:02:53.240 --> 0:02:55.240 it would be a few less test tubes devoted to 0:02:55.480 --> 0:02:59.600 crop chemicals. So it raises a question though, who's left 0:02:59.600 --> 0:03:01.480 out there. It's a strong hand that can buy what 0:03:01.600 --> 0:03:04.360 comes out of this as it's spent off well. And 0:03:04.360 --> 0:03:06.680 then it raises another question to which is what is 0:03:06.680 --> 0:03:10.480 the advantage for these mergers if not for eventually jacking 0:03:10.520 --> 0:03:14.040 up prices or having or cutting jobs to such a 0:03:14.040 --> 0:03:18.160 degree that they are much more efficient, right, I mean 0:03:18.520 --> 0:03:21.079 studying the context. Remember we're we're in now, we're about 0:03:21.120 --> 0:03:24.720 to nominally break three years of declining farm incomes. It's 0:03:24.800 --> 0:03:28.760 been tough times. After biofuels kicked in after two thousand 0:03:28.800 --> 0:03:30.720 five or so, we had a big boom, a lot 0:03:30.760 --> 0:03:33.399 of investment. All these companies are looking to cut back now, 0:03:34.120 --> 0:03:37.720 from fertilizers to seeds. Everybody spent a ton and and 0:03:37.800 --> 0:03:41.600 so ultimately, I think the first wave really is cost cuts. 0:03:41.640 --> 0:03:43.280 Then if you get a little rise in some of 0:03:43.320 --> 0:03:45.760 the crop prices, you're right, that could have played into 0:03:45.840 --> 0:03:48.680 a lot of pricing power. So now the stipulation is 0:03:48.680 --> 0:03:51.320 you've got to find strong hands to put this thing 0:03:51.320 --> 0:03:53.720 in that will continue to compete with you. We've gotta 0:03:53.800 --> 0:03:56.160 keep five strong players out there. Who this fifth is 0:03:56.160 --> 0:03:59.080 going to be is is really uncertain because it will 0:03:59.080 --> 0:04:01.080 be a big transfer, your national deal for any of 0:04:01.080 --> 0:04:03.800 the leftover players probably who could do it? What what 0:04:03.920 --> 0:04:06.040 parts just to that point, what parts are going to 0:04:06.120 --> 0:04:08.080 be spun off? What businesses are going to be for sale? 0:04:08.600 --> 0:04:12.480 So what we're taking out is a piece of DuPonts. No, 0:04:12.560 --> 0:04:14.760 they haven't sized it one good reasonably guess it's a 0:04:14.800 --> 0:04:17.360 couple of billion dollars of sales a year. It's it's 0:04:17.440 --> 0:04:22.680 a a bunch of um insecticides and herbicides, uh and 0:04:22.720 --> 0:04:25.039 then and and they so they name specific products, but 0:04:25.400 --> 0:04:27.240 really the key is the R and D lab. They said, 0:04:27.760 --> 0:04:30.120 you can't take those, uh, the TAO and the DuPont 0:04:30.240 --> 0:04:32.760 R and D programs and put them together, which is 0:04:32.800 --> 0:04:35.200 obviously where that cost concern came in. You've got to 0:04:35.240 --> 0:04:37.720 hand that that R and D development and all of 0:04:37.760 --> 0:04:41.000 your upcoming products, which again it's really the core that 0:04:41.080 --> 0:04:44.920 the existing portfolios weren't the worry so much as UM 0:04:44.960 --> 0:04:47.440 you've got to put the place where the magic happens. 0:04:47.440 --> 0:04:49.279 You've got to keep that lab alive. You've gotta hand 0:04:49.279 --> 0:04:52.120 it to somebody else. UM. So, so it's a it's 0:04:52.120 --> 0:04:54.520 a few, it's herbicides, insecticides, and then the R and 0:04:54.600 --> 0:04:57.160 D program, which is a key Jason, does this at 0:04:57.160 --> 0:05:01.280 all play into the debate over genetically modified grains and 0:05:01.279 --> 0:05:03.520 and other types of foods? I mean, I know that 0:05:03.560 --> 0:05:08.279 Europe has been much more against genetically modified UH food 0:05:08.279 --> 0:05:11.279 whereas in the US it's more accepted. Yeah, links in 0:05:11.279 --> 0:05:13.880 two ways. So one of the concerns is, um, what's 0:05:13.880 --> 0:05:15.800 happening in all these deals is you're putting together big 0:05:15.800 --> 0:05:18.240 seed players who have done the biotech stuff with big 0:05:18.320 --> 0:05:21.360 chemical players. UH. And there's those two things go hand 0:05:21.360 --> 0:05:24.600 in hand. You often engineer a seed to work with 0:05:24.640 --> 0:05:26.719 a chemical or a spray, So it's a sort of 0:05:26.720 --> 0:05:30.440 a seeds plus sprays world we're going into. UH. But 0:05:30.640 --> 0:05:32.840 it can mean that if you have only certain sprays, 0:05:32.880 --> 0:05:36.040 you only engineer certain seeds, you reduce innovation that way. 0:05:36.560 --> 0:05:38.960 On the other hand, there are alternatives to GMOs that 0:05:39.000 --> 0:05:40.240 can come out of these labs, and we want to 0:05:40.240 --> 0:05:43.160 see those alternatives come to fruition. I think Jason Miner, 0:05:43.279 --> 0:05:45.920 thank you so much for joining us. A fascinating development 0:05:45.920 --> 0:05:48.400 in the agrichemical industry. I'm sure we'll be talking about 0:05:48.400 --> 0:05:50.760 it more coming up. Jason Minor is senior Global Chemicals 0:05:50.800 --> 0:05:53.600 analyst for Bloomberg Intelligence, and he was speaking to us 0:05:53.640 --> 0:06:11.000 from Princeton, New Jersey. Many people thought that volatility was dead. 0:06:11.040 --> 0:06:14.039 Well today it seems to be showing that perhaps it's 0:06:14.040 --> 0:06:17.360 not quite dead yet. We see the VIX index at 0:06:17.360 --> 0:06:20.040 the highest level of the year, and there's somebody perfect 0:06:20.080 --> 0:06:23.159 to talk about that today Rick sell Vola, CEO and 0:06:23.240 --> 0:06:27.080 co founder of Harvest Volatility Management. It's as hedge fund 0:06:27.440 --> 0:06:31.400 uh that overseas nine billion dollars of assets. Rick, thank 0:06:31.440 --> 0:06:33.400 you so much for joining us. I want to start 0:06:33.440 --> 0:06:36.240 with a VIX. We are seeing it tick up from 0:06:36.240 --> 0:06:39.880 a historical perspective. It is still incredibly low. But are 0:06:39.920 --> 0:06:44.720 we just seeing the beginning of this swell in volatility 0:06:44.720 --> 0:06:47.400 and equity markets? Thank you, Lisa. I think it's a 0:06:47.400 --> 0:06:50.080 pretty good way to think about it. The the fact 0:06:50.120 --> 0:06:53.279 that the SMP hadn't had a one percent pullback since 0:06:53.560 --> 0:06:56.840 early October, and we finally saw one late last week 0:06:57.080 --> 0:07:00.400 and are continuing to see that today. Umans the VIX 0:07:00.520 --> 0:07:03.560 is waking up, and so UM. The VIX is long 0:07:03.680 --> 0:07:07.359 term average, you know, is around twenty uh interesting, the 0:07:07.400 --> 0:07:09.440 last five years or so, the average has been closer 0:07:09.480 --> 0:07:12.840 to sixteen. So UM and to be clear, it's still 0:07:13.000 --> 0:07:16.240 less than fourteen, so it's still really low. It's still 0:07:16.320 --> 0:07:19.760 it's still low. It's it's it's traded closer to you know, 0:07:19.760 --> 0:07:22.440 eleven twelve area for much of this year, as we've 0:07:22.480 --> 0:07:26.240 just seen a very long, sustained rally without any real pullbacks, 0:07:26.240 --> 0:07:29.360 any real reason to be fearful. But UM, you know, 0:07:29.400 --> 0:07:31.840 now you're seeing markets wake up to the fact that, hey, 0:07:32.160 --> 0:07:34.760 stocks go up and down and everything that maybe was 0:07:34.800 --> 0:07:38.600 priced in perfection. Um, maybe there's some questions and and 0:07:38.640 --> 0:07:42.560 so now there's more reason to either be fearful or 0:07:42.680 --> 0:07:45.320 to um to realize that. You know, we could see 0:07:45.400 --> 0:07:47.600 a bit more chop and more reason to buy protection. 0:07:47.760 --> 0:07:50.800 But your fun doesn't. It doesn't really bet on the 0:07:50.800 --> 0:07:52.720 direction of fatility. It's not like you wake up every 0:07:52.720 --> 0:07:55.320 morning and say, ah ha, we're gonna finally get it, um. 0:07:55.320 --> 0:07:57.160 And if we don't get this pop in volatility, we're 0:07:57.160 --> 0:07:59.600 gonna get sunker we do, and we're gonna we're gonna 0:07:59.640 --> 0:08:03.200 we're gonn to win. Um. You're just betting on incremental 0:08:03.760 --> 0:08:11.080 changes in volatility. Correct. Um, that's close. You're like, you're right, 0:08:11.120 --> 0:08:14.320 we're not making judgment calls on the VIX and we're 0:08:14.320 --> 0:08:17.960 not making judgment calls on volatility. UM. We are a 0:08:18.040 --> 0:08:21.680 perpetual seller of volatility, but with limited risk, meaning we 0:08:21.840 --> 0:08:25.480 use spreads, so we try to sell the expensive options 0:08:25.480 --> 0:08:27.800 but by the cheap options to limit our risk. So 0:08:28.000 --> 0:08:30.720 another way to think about it is, UM, you know 0:08:31.480 --> 0:08:36.000 there is a perpetual richness of implied over realized volatility 0:08:36.040 --> 0:08:38.320 that's been in place since the eighty seven crash, and 0:08:38.320 --> 0:08:41.760 it's about three and a half four percent, and we're 0:08:41.760 --> 0:08:45.320 trying to exploit and harvest that UM. And there are 0:08:45.320 --> 0:08:47.760 many different ways you can do that, but we utilize 0:08:48.080 --> 0:08:50.400 index options on the SMP five hundred. You know, the 0:08:50.440 --> 0:08:55.920 deepest most liquid market UM. You know, liquidity transparency low, 0:08:56.200 --> 0:08:59.760 you know, execution costs, etcetera. UM. And for taxable investors, 0:08:59.760 --> 0:09:03.760 there's actually tax efficiency in using this SPX index option. 0:09:04.080 --> 0:09:06.920 So Rick, you're FIRB started in two thousand and eight, 0:09:06.960 --> 0:09:09.560 and one thing that I'm struck by is you're looking 0:09:09.679 --> 0:09:12.280 to get returns of one and a half to two 0:09:12.280 --> 0:09:16.000 percent that is sort of overlaid on top of returns 0:09:16.120 --> 0:09:18.599 that investors are already getting on their other capital. In 0:09:18.640 --> 0:09:21.840 other words, Uh, their investments are used as collateral for 0:09:21.880 --> 0:09:25.800 you to go out and make these synthetic wagers. Uh. 0:09:25.840 --> 0:09:28.360 And your goal is to gain that sort of incremental 0:09:28.400 --> 0:09:31.199 extra yield. And in the process you have amassed nine 0:09:31.240 --> 0:09:34.080 billion dollars. To me that this raises a question about 0:09:34.400 --> 0:09:37.760 the hunt for yield. And you know, if yields do 0:09:37.840 --> 0:09:40.480 go up, our investors still going to be seeking this 0:09:40.559 --> 0:09:44.040 incremental yield. And you know, does it also represent potentially 0:09:44.040 --> 0:09:48.520 that people are are looking too hard for it? Great question. Um, 0:09:48.640 --> 0:09:51.600 the we are very much the tortoise. This is a 0:09:51.840 --> 0:09:54.760 this is not a sexy, glamorous strategy where we're looking 0:09:54.800 --> 0:09:56.920 to hit it out of the park. Um. But when 0:09:56.920 --> 0:10:00.480 you can add one and a half to two to anything, um, 0:10:00.840 --> 0:10:03.880 you make it a lot better. Meaning if somebody's long 0:10:03.960 --> 0:10:05.880 equities and you can add one and a half to 0:10:05.880 --> 0:10:08.840 two percent, that's kind of take you maybe from the 0:10:08.880 --> 0:10:11.120 middle of the pack to the top desctile. But but 0:10:11.200 --> 0:10:13.120 you can also lose, right well, you can also lose. 0:10:13.120 --> 0:10:16.760 Of course, you can't add risk without adding um, you 0:10:16.800 --> 0:10:21.160 know the possibility of loss. So uh. Part of what 0:10:21.240 --> 0:10:25.199 we do is, you know, we're selling out of the 0:10:25.240 --> 0:10:27.480 money spreads on the upside and on the downside, which 0:10:27.520 --> 0:10:30.280 is another way of saying, um, a part of the 0:10:30.320 --> 0:10:33.240 return profile distribution of the SMP to the up and 0:10:33.280 --> 0:10:35.840 to the down. We create a nice wide band so 0:10:35.880 --> 0:10:37.360 the market can go up or down and we don't 0:10:37.360 --> 0:10:40.679 really care if it goes up too far too fast. Um, 0:10:40.720 --> 0:10:42.560 we're gonna lose a little on the call spread side. 0:10:42.559 --> 0:10:44.600 But we're gonna win in the foot spread side, etcetera. So, 0:10:44.600 --> 0:10:46.480 so do you have certain models to get a sense 0:10:46.520 --> 0:10:48.360 of when we are going to see these big swings 0:10:48.400 --> 0:10:54.600 in volatility? You know, the VIX is more reactive than predictive. 0:10:55.000 --> 0:10:59.439 Um it will um, it will wake up before big 0:10:59.480 --> 0:11:03.040 known on owns like you will see it um higher 0:11:03.080 --> 0:11:05.720 in front of an election, higher in front of a 0:11:05.720 --> 0:11:09.280 FED meeting, higher in front of monthly non farm payrolls. 0:11:09.600 --> 0:11:12.680 When there's an event that we know is there, but 0:11:12.760 --> 0:11:15.520 we don't really know a what the outcome will be 0:11:15.640 --> 0:11:17.960 and and and be how the market will react to 0:11:17.960 --> 0:11:22.760 that outcome um so um. But we don't have models 0:11:22.800 --> 0:11:25.000 that are going to tell us what is going to happen. 0:11:25.040 --> 0:11:27.760 We more react to it. But we have a lot 0:11:27.760 --> 0:11:30.319 of experience and and we're also looking at the curve 0:11:30.360 --> 0:11:32.840 and looking at where things look reature and look things 0:11:32.840 --> 0:11:35.280 like cheaper, etcetera. But you've been in the business for decades, right, 0:11:35.280 --> 0:11:37.640 and so you've been watching the cycles. And is there 0:11:37.640 --> 0:11:40.560 anything that gives you a sense that we are going 0:11:40.600 --> 0:11:45.120 to see a more dramatic swing in volatility this year? Um? 0:11:45.160 --> 0:11:47.240 I don't know. I'm not sure if it will be 0:11:47.280 --> 0:11:50.640 more dramatic, but I do think we will see UM 0:11:50.880 --> 0:11:55.240 higher levels of volatility. I think we'll see UM more 0:11:55.240 --> 0:11:59.960 frequent spikes, just because there is such great uncertainty, whether 0:12:00.080 --> 0:12:05.720 rits UM, political uncertainty, economic uncertainty, global uncertainty. UM. I 0:12:05.800 --> 0:12:09.240 frankly and many of my colleagues have been really shocked 0:12:09.280 --> 0:12:12.200 actually that the VIX has remained as low as it 0:12:12.200 --> 0:12:13.920 has for as long as it has, you know, since 0:12:13.920 --> 0:12:18.560 the election UM, and I think today is is probably 0:12:18.600 --> 0:12:21.559 more like what we're going to see going forward. UM. 0:12:21.640 --> 0:12:24.640 We will see the occasional drop down below twelve or so, 0:12:24.679 --> 0:12:26.920 but I think a VIX in the mid to higher 0:12:27.000 --> 0:12:31.400 teens is is a more likely outcome. Where are most 0:12:31.400 --> 0:12:35.360 of your investors from UM? Most of our investors at 0:12:35.360 --> 0:12:40.040 this point are ultra high net worth either individual investors, families, 0:12:40.080 --> 0:12:43.000 but we partner with firms like Mary Lynch and UBS 0:12:43.040 --> 0:12:47.000 and Morgan Stanley, and so their advisors see the value 0:12:47.000 --> 0:12:49.680 in adding harvest to their client portfolios. They see what 0:12:49.720 --> 0:12:53.480 it does to the risk adjusted quality of the returns 0:12:54.040 --> 0:12:57.199 UM and so well. One thing that somebody could argue 0:12:57.240 --> 0:12:59.240 is that your fund has been around since two thousand 0:12:59.320 --> 0:13:01.760 and eight, but it has really been Uh, certainly not 0:13:01.840 --> 0:13:04.680 in its current form. Has not survived through a crash. 0:13:05.280 --> 0:13:07.800 Um when you actually volatility is going to be the 0:13:07.840 --> 0:13:11.080 flash point. So you know what happens then, right, I 0:13:11.080 --> 0:13:12.880 mean if you have all these alternate worth people who 0:13:12.920 --> 0:13:15.560 are looking for uh, you know, an extra one percent, 0:13:15.800 --> 0:13:18.120 but it could be a lot more downside in a 0:13:18.240 --> 0:13:21.920 hurt cycle. Yes, a great question. Um. You know we 0:13:22.040 --> 0:13:24.400 launched in April of oh eight, so we did weather 0:13:24.640 --> 0:13:27.319 the financial crisis in the fall of oh eight. I 0:13:27.400 --> 0:13:29.560 mean when you look at what the SMP did from 0:13:29.600 --> 0:13:32.840 September of eight into early March of oh nine, and 0:13:32.880 --> 0:13:36.840 that six month window the SMP was down. Um, we've 0:13:36.920 --> 0:13:40.360 weathered a VIX that quadrupled you know, it's long term 0:13:40.400 --> 0:13:42.760 averages twenty and that's about where it was when we launched. 0:13:43.240 --> 0:13:45.880 You know, it doubled to its previous all time high 0:13:45.880 --> 0:13:49.520 of forty in September of eight. It doubled again to 0:13:50.080 --> 0:13:53.559 eighty in in October in parts of November of eight, 0:13:53.640 --> 0:13:58.280 so um, we did weather um quite a hilacious downturn 0:13:59.360 --> 0:14:02.280 and uh and spike involved. And then the flip side 0:14:02.280 --> 0:14:05.280 is equally challenging. When the market surges the way it 0:14:05.320 --> 0:14:08.000 has and and VIX has been more constrained. So well, 0:14:08.320 --> 0:14:10.400 we'll have to check back with you when the VIX 0:14:10.440 --> 0:14:12.920 wakes up a little bit more from its current levels. 0:14:13.000 --> 0:14:14.960 Rick Silvala, thank you so much for joining us, CEO 0:14:15.040 --> 0:14:18.000 and co founder of Harvest Volatility Management, which has nine 0:14:18.000 --> 0:14:33.240 billion dollars of asses under management. Well, it's a sad day, 0:14:33.280 --> 0:14:35.640 and they say a sad day in UH the s 0:14:35.840 --> 0:14:38.680 n P five hundred. It is the sixth day of 0:14:38.880 --> 0:14:44.040 falling UH index values. What do you make this, Dave Wilson, Well, 0:14:44.480 --> 0:14:46.600 I also like to look at the down Jones Industrial 0:14:46.640 --> 0:14:51.880 Average downy alright, fine, and if it closes lower, it 0:14:51.920 --> 0:14:55.040 will be the longest losing streets since August when stocks 0:14:55.040 --> 0:14:57.600 were really kind of falling out of bed. And what's 0:14:57.680 --> 0:14:59.760 interesting is if you take a step back and think 0:14:59.760 --> 0:15:03.160 about what's going on, it almost looks like the flip 0:15:03.280 --> 0:15:06.320 side of what we saw post election, where you know, 0:15:06.400 --> 0:15:09.320 you see stocks go up day in and day out 0:15:09.360 --> 0:15:13.080 pretty much but not very extreme moves. And you look 0:15:13.080 --> 0:15:15.800 at where we are now, it's sort of a similar situation. 0:15:15.960 --> 0:15:18.680 You know, down down eight days in row. You're talking 0:15:18.720 --> 0:15:21.360 about two and a half percent. Okay, but hold on 0:15:21.360 --> 0:15:24.080 one second. Though you raise an interesting question, Dave, which is, 0:15:24.360 --> 0:15:28.400 if we're seeing the reversal of the post election Trump bump, 0:15:28.920 --> 0:15:31.840 how much further do the SMP five hundred and the 0:15:31.880 --> 0:15:36.440 doubt jones have to fall to leave us flat. Well, 0:15:36.480 --> 0:15:39.000 there's still quite a ways to go. I mean, you 0:15:39.080 --> 0:15:43.840 look back to where we were just after the election, 0:15:44.000 --> 0:15:50.200 you see UH change. That's where the SMP started out, 0:15:50.240 --> 0:15:53.520 and we're about close to two hundred points higher than 0:15:53.560 --> 0:15:56.360 that even with today's decline. I mean, you can run 0:15:56.360 --> 0:15:59.120 the numbers on the down you see a similar UH 0:15:59.400 --> 0:16:02.880 potential role And it really comes down to at this point, 0:16:03.400 --> 0:16:06.400 you know how much of this is sort of people 0:16:06.520 --> 0:16:10.240 looking for an opportunity to sell, especially as you get 0:16:10.280 --> 0:16:13.080 close to the end of the first quarter, as opposed 0:16:13.120 --> 0:16:17.240 to real concern about the state of the policy agenda, 0:16:17.320 --> 0:16:21.200 if you will, given the fact that the healthcare bill 0:16:21.320 --> 0:16:23.600 did not manage to get a vote in the House 0:16:23.680 --> 0:16:25.640 last week. Well, the flip side to the risk off 0:16:25.680 --> 0:16:30.120 trade is the bullish trade for treasuries. And here with 0:16:30.200 --> 0:16:33.080 us is Brian Chapatta, who writes about treasuries and UH 0:16:33.160 --> 0:16:36.760 and generally for Bloomberg News. Brian, you're a really compelling 0:16:36.760 --> 0:16:41.120 story talking about how the cost of buying treasuries and 0:16:41.200 --> 0:16:44.160 hedging against any dollar moves for Japanese investors has actually 0:16:44.200 --> 0:16:46.720 fallen to the lowest in two years. It should make 0:16:46.720 --> 0:16:48.720 it a buy for them. They should be rushing into 0:16:48.760 --> 0:16:51.400 the US to capture the extra yield given how cheap 0:16:51.440 --> 0:16:54.200 it's gotten, But they're not. Why they're not because they're 0:16:54.240 --> 0:16:57.680 just worried about fiscal policy and monetary policy here in 0:16:57.720 --> 0:16:59.960 the U S which is seen as way more volatile 0:17:00.160 --> 0:17:03.520 than over in Japan, where it's you know, persistent easing 0:17:03.600 --> 0:17:06.199 on the monetary front and there's nothing going on on 0:17:06.240 --> 0:17:08.080 the fiscal side that's going to jeopardize things. I mean, 0:17:08.080 --> 0:17:11.280 in fact, their tenure rate is basically fixed between like 0:17:11.400 --> 0:17:14.320 zero and ten basis points, so they find it's much 0:17:14.320 --> 0:17:17.199 more attractive, but potentially to just stay home and you know, 0:17:17.320 --> 0:17:20.199 take the paltry yield that they got rather than you know, 0:17:20.320 --> 0:17:22.960 risk further losses. The losses on the treasury index, the 0:17:22.920 --> 0:17:25.840 Boo Bloomberg Barclays Treasury Index on the final quarter of 0:17:26.200 --> 0:17:28.440 sixteen was the worst that it's ever been in data 0:17:28.480 --> 0:17:32.080 going back about thirty years, so uh, it was it 0:17:32.200 --> 0:17:35.600 was a surprising loss on their books. So I'm looking 0:17:35.640 --> 0:17:38.320 at the ten year. It's down the most in uh 0:17:38.640 --> 0:17:41.560 about two weeks. I'm wondering, you know, the yield is down, 0:17:41.680 --> 0:17:44.480 the prices up. I'm wondering, who's buying, if Japan is 0:17:44.520 --> 0:17:47.920 not buying, if China's not buying, if European investors maybe 0:17:47.960 --> 0:17:49.840 are staying home. I mean, who who's coming into the 0:17:49.880 --> 0:17:51.720 US right now? I mean it seems like in part 0:17:51.840 --> 0:17:53.639 it's you know, the flip side of you know, the 0:17:53.640 --> 0:17:56.360 equity markets. You know, people who uh you know, we're 0:17:56.359 --> 0:18:00.520 potentially you know, betting against betting un interest rates going higher, 0:18:00.600 --> 0:18:02.879 essentially shorting the treasury market. Uh. Then I have to 0:18:02.920 --> 0:18:04.880 cover some of their shorts as they're seeing a risk 0:18:04.960 --> 0:18:07.600 off here in the market. We saw the specula the 0:18:07.720 --> 0:18:13.080 position UH in shorts really decline over the past week. So, um, 0:18:13.119 --> 0:18:15.359 it seems like it's a lot of that, and um, 0:18:15.400 --> 0:18:17.520 you know, I think the real interesting thing is that 0:18:17.520 --> 0:18:19.760 a lot of these uh foreign investors that were sort 0:18:19.760 --> 0:18:23.520 of hesitant seeing a FED poise to raise rates are 0:18:23.560 --> 0:18:25.480 really caught in limbo here because they missed out on 0:18:25.480 --> 0:18:27.920 a on a nice rally. But now they think, oh man, 0:18:27.960 --> 0:18:29.639 we're at the bottom of this range that we've been 0:18:29.640 --> 0:18:31.720 in for the past few months now. I don't want 0:18:31.720 --> 0:18:35.399 to buy either, so they're sort of caught, uh in limbo, 0:18:35.920 --> 0:18:39.240 which is not great for their demand. Well, Dave, to 0:18:39.320 --> 0:18:41.920 that point, there was a story that Matt Levine highlighted 0:18:42.240 --> 0:18:45.200 in the World. He's a Bloomberg columnist. Uh. The story 0:18:45.320 --> 0:18:48.840 was in Wall Street Journal, quoting in Investment Manager saying, 0:18:48.880 --> 0:18:51.119 it's like dental work. You dread it, you don't want 0:18:51.160 --> 0:18:52.720 to get it, but you're glad when it's over and 0:18:52.760 --> 0:18:54.440 you feel better. What is he talking about. He's talking 0:18:54.440 --> 0:18:57.000 about a correction, Like everyone's been sort of praying for 0:18:57.040 --> 0:18:59.159 this pullback in equity so that they can get in 0:18:59.160 --> 0:19:01.880 a better valuation. What are you hearing from investment funds? 0:19:01.880 --> 0:19:03.280 I mean, is this is this the time to get 0:19:03.280 --> 0:19:06.240 back in or people waiting for it for a lot more? Well, 0:19:06.640 --> 0:19:08.960 I mean, if you think back over the last year 0:19:09.040 --> 0:19:11.840 or so, I mean, we've certainly seen plenty of times 0:19:11.920 --> 0:19:16.040 when stocks have dipped, and you've seen so of recovery 0:19:16.400 --> 0:19:19.520 in short order. You know, the question is whether this 0:19:19.680 --> 0:19:22.760 time there's something more gradual going on that will take 0:19:22.960 --> 0:19:26.240 more time to unwind, sort of like you say, you 0:19:26.280 --> 0:19:29.280 know the the trunk trades, if you will, So you 0:19:29.320 --> 0:19:32.240 know that that becomes the issue for the moment, and 0:19:32.280 --> 0:19:36.520 you're certainly seeing that play out today within specific industry groups. 0:19:36.520 --> 0:19:38.560 You look at the banks, they're lower. You look at 0:19:38.600 --> 0:19:41.320 the steel companies, they're lower. You know, the banks were 0:19:41.359 --> 0:19:46.000 supposed to benefit from deregulation, the steel companies from infrastructure spending. 0:19:46.320 --> 0:19:48.960 And of course you've got the hospital stocks taken off 0:19:49.040 --> 0:19:53.320 because the repealing and replacing the Affordable Care Act hit 0:19:53.320 --> 0:19:55.720 its bumps. So you know, it's just a matter once 0:19:55.760 --> 0:19:58.080 you get to shake out, where do things go from here? 0:19:58.200 --> 0:20:00.879 And Brian, I mean when you talk with sources, do 0:20:00.920 --> 0:20:04.560 you get the sense that uh bond investment managers are 0:20:04.640 --> 0:20:07.960 generally kind of moving toward a or back toward, I 0:20:08.000 --> 0:20:11.280 should say, a slow growth for longer type of environment. 0:20:11.320 --> 0:20:13.479 Are they basically pricing in the same kind of environment 0:20:13.480 --> 0:20:16.120 that people were talking about last year and kind of 0:20:16.320 --> 0:20:19.639 ignoring and casting off the brief reflation hopes that we 0:20:19.680 --> 0:20:22.720 got after the election. I think that's the underlying tone 0:20:22.840 --> 0:20:25.360 of the market right now, is that you know, how 0:20:25.440 --> 0:20:28.240 much has changed from a year ago, and I think 0:20:28.240 --> 0:20:30.640 it's going to take a few days to shake out here. 0:20:31.119 --> 0:20:33.359 Exactly if you know, this is the death of the 0:20:33.400 --> 0:20:37.000 reflation trade that we've been seeing since the election, um 0:20:37.119 --> 0:20:39.920 or if there is still that potential because we haven't 0:20:39.960 --> 0:20:42.480 seen treasuries break out of arrange that they've been in 0:20:42.520 --> 0:20:45.520 since basically the start of December. UM, because there's just 0:20:45.560 --> 0:20:48.840 been this back and forth of you know, just sentiment, 0:20:48.880 --> 0:20:50.960 I mean, will that you know, will growth take off 0:20:51.160 --> 0:20:53.200 or will it be subdued? You know what what's going 0:20:53.240 --> 0:20:55.600 on with inflation? Is this going to be a persistent 0:20:56.040 --> 0:20:58.840 thing going on? And so um, It's gonna take a 0:20:58.840 --> 0:21:00.639 little while to play out, but I think the underlying 0:21:00.720 --> 0:21:04.280 tone definitely is you know, how how how sustainable is this? 0:21:04.440 --> 0:21:07.160 And just to sort of underscore the confusion, New York 0:21:07.160 --> 0:21:10.440