Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim
Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
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Speaker 1: There was a report late yesterday in the Wall Street
Speaker 1: Journal talking about how JP Morgan, which operates the main
Speaker 1: benchmark that is used to invest in emerging markets debt,
Speaker 1: the JP Morgan may be forced to remove Venezuelan debt
Speaker 1: from its benchmark index as a result of U S sanctions,
Speaker 1: details of which are expected to be announced today. They
Speaker 1: may have already been announced. They want to check that
Speaker 1: because that was supposed to come at eleven. I want
Speaker 1: to bring in Shamila Khan. She is director of Emerging
Speaker 1: Market Debt and Alliance Bernstein in New York. And Shamila,
Speaker 1: I want to start by talking about the market response
Speaker 1: to some of the rumors. I have been very surprised
Speaker 1: to see no market response, and I would think that
Speaker 1: there would be a massive further decline in Venezuela bonds.
Speaker 1: Should there be a removal of this UH, this particular
Speaker 1: type of debt from benchmark indexes. What's going on here?
Speaker 1: So what's going on really is a lot of uncertainty
Speaker 1: in terms of what kind of sanctions are going to
Speaker 1: be announced. To the extent that the U. S. Treasury
Speaker 1: sticks to the kind of sanctions they employed at the
Speaker 1: time of the Russian invasion of Ukraine UH and only
Speaker 1: limit the sanctions to newly issued debt in the future
Speaker 1: of Venezuelan entities, then the impact on the index is
Speaker 1: going to be fairly negligible, which is why you're not
Speaker 1: saying as seeing a tremendous price response UM in the bonds. UH.
Speaker 1: In addition, there have been some humors, rumors in the
Speaker 1: last day or so off you know, Chinese involvement in
Speaker 1: helping the Venezuelan government make its Maartom payments UM, which
Speaker 1: are being negotiated in China by Venezuelan officials that have
Speaker 1: been further supportive of prices. Wow, that's really interesting. I
Speaker 1: just want to bring you some headlines related to this.
Speaker 1: So President Trump has just as we were introducing you,
Speaker 1: Trump signed an executive order on new Venezuela sanctions that
Speaker 1: include UH some ban in dealing in new debt and
Speaker 1: equity from the state run oil company which is trades
Speaker 1: under the tick Peta VESA, as well as Venezuela Venezuela
Speaker 1: government issued debt and equity UM. We had been hearing
Speaker 1: that this could be potentially nuanced so that it wouldn't
Speaker 1: necessarily affect people in the US trading existing bonds between
Speaker 1: each other. But we still need to parse through the
Speaker 1: details and we will bring them to you when we
Speaker 1: get them. But Shamila, what about from your perspective, does
Speaker 1: Alliance Bernstein own Venezuela and debt? Have you been selling
Speaker 1: your holdings of it? And now where do you expect
Speaker 1: to go from here with those holdings? So, Alliance Pornstein
Speaker 1: manages a number of funds that are benchmarked to emerging
Speaker 1: market solvereign in disease that include Venezuela debt. As such,
Speaker 1: we are holders of Venezuela debt. But our stance in
Speaker 1: Venezuela has been very defensive for some time, and the
Speaker 1: way we think about Venezuela is really take a very
Speaker 1: strong fundamental stance with respect to these country's um future
Speaker 1: with respect to ability to pay back its debt um.
Speaker 1: There is no real reason Venezuela should be in the
Speaker 1: economic situation it is in right now. Uh. It has
Speaker 1: a lot of resources and it definitely does not appear
Speaker 1: to us a solvency issue, but rather a liquidity issue
Speaker 1: and the fact that the country does not have a
Speaker 1: credible regime and has not been able to attract investment
Speaker 1: into the country. We do not see the current situation
Speaker 1: as a sustainable situation. We do believe that there will
Speaker 1: be a change in the future which will lead to
Speaker 1: a better economic situation in Venezuela. And when we are
Speaker 1: putting together our exposures, we keep this fundamental view in mind,
Speaker 1: because our investments are always forward looking as far as
Speaker 1: fundamentals are concerned. Well, Shamala, I just want to give
Speaker 1: you the opportunity. I mean, if you're talking about the
Speaker 1: country's ability to repay it stead or potential ability, what
Speaker 1: about the potential ability of the country to restructure itself.
Speaker 1: I mean, that doesn't look like it's going to happen,
Speaker 1: at least internally. And uh, have you had any pushback
Speaker 1: from investors who say, you know what, we really don't
Speaker 1: want our money being lent to any entity that is
Speaker 1: supported by such a repressive regime. That's absolutely true, and
Speaker 1: that is something that we don't think is sustainable. We
Speaker 1: do not believe that the repressive regime is a sustainable
Speaker 1: regime in the near future, uh and in the medium term,
Speaker 1: as a result of which we believe that there will
Speaker 1: be a change to a more credible regime which will
Speaker 1: be able to put together policies um and that is
Speaker 1: what we are looking for in order to be less
Speaker 1: defensive in our positioning in when as Allah. The other
Speaker 1: thing to keep in mind is that prices are already
Speaker 1: at very depressed levels. They are at all time lows
Speaker 1: and for many of the bonds, and they are treating
Speaker 1: below what has been historically the recovery rates on emerging
Speaker 1: market sovereigns. So to a great extent, this country is
Speaker 1: already pricing in a restructuring of its external debt, Shamila. So,
Speaker 1: given the fact that we are getting now new sanctions
Speaker 1: by the US on Venezuela debt and equity, do you
Speaker 1: have any sense of how this could affect your day
Speaker 1: to day? Does this change anything about the way you
Speaker 1: approach investing in Venezuela well? We were expecting sanctions from
Speaker 1: the United States, so this is something that we have
Speaker 1: taken into consideration when constructing our own portfolios, and at
Speaker 1: this point as we are really seeing the headlines come
Speaker 1: out as we speak. From what I can understand based
Speaker 1: on what I'm reading right now, it is a ban
Speaker 1: on dealing in new debt, which is debt which will
Speaker 1: be issued in the future, which would not impact any
Speaker 1: of the existing debt. There are some headlines about certain
Speaker 1: bonds possibly getting impacted. It's unclear to me which bonds
Speaker 1: those are, but what we have tried to do is
Speaker 1: limit our holdings to the Venezuelan bonds, which we believe
Speaker 1: will not be controversial with respect to payments and are
Speaker 1: generally accepted by the opposition as legal debt. Thank you
Speaker 1: very much for being with us. Shamaila Khan is the
Speaker 1: director of Emerging Market Debt for Alliance Bernstein And once again,
Speaker 1: President Donald Trump has signed an order that imposes new
Speaker 1: U S sanctions on Venezuela and debt. This is new
Speaker 1: debt from the government as well as from the state
Speaker 1: oil company Petasa. Well, how about ordering your dinner from Amazon.
Speaker 1: It doesn't seem too far of idea, and indeed, with
Speaker 1: the purchase of Whole Foods, it seems like something is
Speaker 1: going to happen at least next week and terms of
Speaker 1: prices here. To tell us more about the effect on
Speaker 1: the grocery store industry is Shira Overday are technology columnists
Speaker 1: are Bloomberg gad Fly. She follows all of this technology
Speaker 1: for our fast commentary section of Bloomberg and you can
Speaker 1: follow her on Twitter at Shira Overday. And also whether
Speaker 1: us we have Sarah Halzac, our retail columnist for Bloomberg
Speaker 1: gad Fly. It's all coming together and you can follow
Speaker 1: Sarah at on Twitter at Sarah Halzack. Um. You know, Sarah,
Speaker 1: maybe we should just start with you, as uh, someone
Speaker 1: that's following retail. What effect do you believe the move
Speaker 1: by Amazon to acquire Whole Foods? What do you think
Speaker 1: it will make the other grocery stores do, because they're
Speaker 1: not going to just sit back and wait for someone
Speaker 1: else to take their market share away. That's exactly right,
Speaker 1: and I think what it's gonna do is really put
Speaker 1: pressure on them to squeeze every bit of pricing they
Speaker 1: can out of what they're offering to customers. You know,
Speaker 1: Whole Foods for a long time now has had this
Speaker 1: reputation as whole paycheck. They really hadn't been competitive on
Speaker 1: a price front. And so as consumer gets more health
Speaker 1: minded and they want these organics, there's been a lot
Speaker 1: of room for other grocers to take share their Kroger, Walmart,
Speaker 1: all the legal they're offering these kinds of products at
Speaker 1: better prices. Now that Amazon is going to make Whole
Speaker 1: Foods get serious about being competitive in that way, it
Speaker 1: really throws down the gauntlet to the rest of the sector. Shira,
Speaker 1: I want to bring you in here from the Amazon perspective.
Speaker 1: It's not that novel of an idea. If you cut prices,
Speaker 1: people will be more interested in something, right, and this
Speaker 1: is sort of it's but it's business model. But I
Speaker 1: imagine that there are reasons that Whole Foods didn't have
Speaker 1: lower prices to begin with. In other words, that cuts
Speaker 1: into their margins and their profit margins. I mean, where
Speaker 1: is the long term goal here for Amazon and how
Speaker 1: profitable is this model? It's a fair quiesh. I mean,
Speaker 1: it's it's worth noting that even a grocer like Whole Foods,
Speaker 1: albeit an expensive grocer like Whole Foods has significantly better
Speaker 1: operating margins than Amazon. Right You're talking five percent in
Speaker 1: the last quarter for Whole Foods, a five percent operating
Speaker 1: margins and two percent operating margins for Amason. So it's
Speaker 1: weird when you acquire a grocer and you're buying a
Speaker 1: higher margin business than the what you already have. But look,
Speaker 1: you saw what Amazon did right away, which is really
Speaker 1: it just shows their ruthless genius, which is they set
Speaker 1: out on day one to change the perception of Whole
Speaker 1: Foods as this expensive place to buy fancy groceries that
Speaker 1: you know, they use the word savings and you know,
Speaker 1: organic foods for everyone, uh several times in their news
Speaker 1: announcement yesterday. And it's really about changing the perception and
Speaker 1: getting more people in the door and starting to steal
Speaker 1: that market share from other grocers. Well, you know these uh,
Speaker 1: this idea that there's going to be let's say, a
Speaker 1: membership program that would morph from Amazon Prime over to
Speaker 1: let's say a point of sales system at Whole Foods,
Speaker 1: is that something shure that you believe is just gonna,
Speaker 1: you know, normally going to happen. I mean they endicate
Speaker 1: I will say it's unclear exactly how that's gonna work, right.
Speaker 1: Amazon's said yesterday that they're going to essentially make Amazon Prime,
Speaker 1: their existing hundred dollar a year shopping club, into the
Speaker 1: sort of loyalty card program for Whole Foods, and we
Speaker 1: didn't get a lot of details, but you can sort
Speaker 1: of imagine that Amazon will try to make it worth
Speaker 1: Prime members time to shop at Whole Foods and not
Speaker 1: at other places. And that's a clever idea. Well, and
Speaker 1: just to follow up the idea about point of sale
Speaker 1: is that maybe you will be in a situation in
Speaker 1: which you will not have to actually give your credit
Speaker 1: card or your cash in order to make a transit
Speaker 1: a purchase at Whole Foods because you're a Prime customer,
Speaker 1: you're logged in, you're done, it goes into your Amazon ACA.
Speaker 1: Maybe I don't. I don't think we're there yet. We
Speaker 1: will see exactly how they integrate the sort of cash
Speaker 1: register system with Prime. But you can sort of imagine
Speaker 1: where you go to check out, if you're a Prime member,
Speaker 1: you get a better discount on those bananas or that
Speaker 1: jar of peanut butter than you would if you're not
Speaker 1: a Prime member. And again, it means that if your
Speaker 1: prime member, and a lot tens of millions of Americans are,
Speaker 1: that gives you an extra incentive to shop at Whole
Speaker 1: Foods and not at the Kroger or whatever down the street.
Speaker 1: And I just want to point out that Amazon shares
Speaker 1: have actually been down for a third consecutive day, so
Speaker 1: even though yes, Kroger shares and other grocery store shares
Speaker 1: have gone down, although Kroger's bouncing back a little bit today, Uh,
Speaker 1: you know, Amazon's down too with the question of profit margins.
Speaker 1: But Sarah, I want to bring you back in here.
Speaker 1: Amazon one in the retail war or is winning because
Speaker 1: not just on lowering prices, they also found a way
Speaker 1: to distribute goods efficiently and quickly as well as often cheap,
Speaker 1: more cheaply but not always. Um, I want to give
Speaker 1: you a chance to sort of argue the case for
Speaker 1: why this may not work in the grocery industry. In
Speaker 1: other words, does Amazon have to compete on a level
Speaker 1: that goes beyond just lowering prices? And what is the
Speaker 1: barrier to entry there? Yeah, so put some plea. A
Speaker 1: perishable supply chain is just a whole different ball game
Speaker 1: than the kind of supply chain the Amazon has built
Speaker 1: already for selling US laundry detergent and selling US sweaters
Speaker 1: and all that kind of stuff. Right, So, someone in
Speaker 1: the grocery business once told me, for example, when you're
Speaker 1: thinking about grocery delivery, you have to consider things like
Speaker 1: that when bananas ripen, they emit something that makes apples
Speaker 1: ripen at a different pace than if they were not
Speaker 1: next to that banana. Right. This is supply chain no
Speaker 1: how that the Walmarts and the Trader Joe's and Krogers
Speaker 1: of the world had been building for a really long time.
Speaker 1: The Amazon simply doesn't have. And so Whole Food certainly
Speaker 1: has some of that know how, But it'll be interesting
Speaker 1: to see how Amazon is able to kind of leverage
Speaker 1: that and expand it more widely. Sarah, I beg your pardon. No,
Speaker 1: I was just gonna say that. I mean, Sarah makes
Speaker 1: a good point, which is that Amazon has been in
Speaker 1: the grocery business for ten years. So they've had Amazon Fresh,
Speaker 1: which is their grocery delivery service, up and running starting
Speaker 1: in Seattle and in other market now to um for
Speaker 1: ten years and it really hasn't made much of a
Speaker 1: dent in the grocery industry, and that points to some
Speaker 1: of the issues that Sarah pointed out, that they haven't
Speaker 1: necessarily figured out the sort of logistical dynamics of the
Speaker 1: grocery business quite yet. You know, they're smart people, they
Speaker 1: can figure it out, but you know, ten years of
Speaker 1: experience has shown that they haven't necessarily cracked it yet. Well,
Speaker 1: and to your point, I just want to apply that
Speaker 1: to whole foods, because, you know, Sarah, it looks as
Speaker 1: though what the sales are perishable foods at whole foods, right,
Speaker 1: nonperishable items they fare pretty poorly at whole foods, they do.
Speaker 1: And I think that that sort of gets to this
Speaker 1: idea that you know, people are willing to spend a
Speaker 1: little bit more for the things they're putting inside their
Speaker 1: bodies for feeling like they're having grass fed beef and
Speaker 1: you know, chicken that's not treated with antibiotics. They're willing
Speaker 1: to plunk down more money for those kinds of things.
Speaker 1: The man for toilet paper, they're just not willing to
Speaker 1: pay a premium, and so that that's one challenging thing
Speaker 1: they'll have to contend with. You know, I think it's
Speaker 1: really interesting to note that back in two thousand nine,
Speaker 1: when Whole Foods had only two d seventy three stores. Uh.
Speaker 1: Some research from canter Retail shows that seven percent of
Speaker 1: shoppers said during that time period they visited Whole Foods
Speaker 1: on a monthly basis. Now they have over four hundred stores.
Speaker 1: The sheriff shoppers that visit them on a monthly basis
Speaker 1: is virtually unchanged. So they're really having trouble growing the
Speaker 1: base of customers who are interested in their product. And
Speaker 1: I think that that package dry goods uh price issue
Speaker 1: is a big one. Thank you so much for joining
Speaker 1: us great insight. Sarah how Zac and Shara over Day,
Speaker 1: both Godfly columnists, they don't jointly wrote a column on
Speaker 1: this issue that's fabulous. Check it out Bloomberg dot com
Speaker 1: slash god Fly, also on the Bloomberg at NI space
Speaker 1: god Fly. The National Hurricane Center says that the storm
Speaker 1: Hurricane Harvey has maximum sustained winds of a hundred and
Speaker 1: ten miles per hour and it is just below the
Speaker 1: category three level four A storm. Forecasters say the storm
Speaker 1: is expected to reach that mark before making landfall late
Speaker 1: today and early Saturday in Texas. And here to tell
Speaker 1: us more about this is Shenando Bassu. He is a
Speaker 1: meteorologist and gas analyst for Bloomberg New Energy Finance, and
Speaker 1: he joins us here in our studio. Shenando, thanks very
Speaker 1: much for being with us. Maybe just give everyone a
Speaker 1: detailed over you know, view of what what we can
Speaker 1: expect over the next let's says hey, Pam. Yeah, thanks
Speaker 1: so much for having me here. So of course we
Speaker 1: know that right now Hurricane Harvey is going to be
Speaker 1: strengthening up to a category three. But what's unusual about
Speaker 1: the storm really is how quickly it has intensified. It's
Speaker 1: intensified so rapidly over the last forty eight hours UM
Speaker 1: as of this morning, the central pressure down to about
Speaker 1: nine and seendy millibars, and of course those wind speeds
Speaker 1: making it up there to about ten. And the other
Speaker 1: big piece of this is the duration and the amount
Speaker 1: of rain that we're going to be getting. Um we're
Speaker 1: looking at up to thirty or even over thirty inches
Speaker 1: of rain in parts of the coastal part of Texas
Speaker 1: as a result of the storm and the trajectory it's
Speaker 1: expected to take, I mean even as late as next
Speaker 1: Monday or Tuesday, that storm, Hurricane Harvey just still kind
Speaker 1: of hovering over um the central and eastern part of
Speaker 1: coastal Texas there. Yeah, people have talked about how it's
Speaker 1: going to stall out over Texas and it's going to
Speaker 1: be stalling out over populated areas of the state. What
Speaker 1: have the evacuation order has been like and what is
Speaker 1: the expected damage supposed to be? Yeah, I mean the
Speaker 1: damage of course is a big part of this, certainly
Speaker 1: to coastal oil and gas infrastructure. We've already been seeing
Speaker 1: offshore platforms being evacuated on you know, all the major
Speaker 1: oil companies and all their smaller e nps as well
Speaker 1: evacuating their their oil platforms and UM as far as
Speaker 1: you know, the gas gas infrastructure is a little bit
Speaker 1: different though, because you know, we haven't seen that much
Speaker 1: of a price movement yet in gas, and that's because
Speaker 1: you know, ever since um, you know, two thousand and
Speaker 1: eight with Gustav and Ike, you know, a lot of
Speaker 1: that infrastructure has been beefed up, and also the gas
Speaker 1: production environment has changed substantially, with a lot of that
Speaker 1: production shifting over to the northeast. So as a result,
Speaker 1: you know, we're not going to be seeing a whole
Speaker 1: lot of movement in the gas markets from the supply side. Now,
Speaker 1: going back to your point about the effects and the
Speaker 1: demand is really the big story here. With um effects
Speaker 1: of course of the power markets with multiple power outages
Speaker 1: and that kind of thing, flooding impacting a lot of
Speaker 1: the power assets down there, and also the wind farms
Speaker 1: with the high winds that are expected tell us about
Speaker 1: how the demand will go down number one, because it's
Speaker 1: going to be a weekend and also you have the
Speaker 1: situation it's just gonna be less use of electricity, yeah,
Speaker 1: for sure, um. You know, with people evacuating the area,
Speaker 1: and of course also industry shutting down. You know a
Speaker 1: lot of the plants and and factories and so on
Speaker 1: and so far in that area shutting down. You know,
Speaker 1: we're expecting uh, just industrial demand alone to account for
Speaker 1: about two to mc f of gas per day um.
Speaker 1: So that that piece of it shutting down. Also, we
Speaker 1: have a major nuclear plant, South Texas Nuclear that is
Speaker 1: probably going to be shutting down maybe today or early tomorrow, um.
Speaker 1: And that going offline accounts for about two gig lots
Speaker 1: of power right there, so you know, and in the
Speaker 1: aftermath of the storm, you know, gas generation will have
Speaker 1: to fill in for that missing nuclear piece right there.
Speaker 1: You know, it's interesting we were talking about this right
Speaker 1: before the segment when we were talking about how gasoline
Speaker 1: prices have increased. That's probably where you've seen the biggest
Speaker 1: effect of this impending hurricane, with prices at one point
Speaker 1: rising to the highest levels since November. Yet this will
Speaker 1: not translate to higher prices that people end up paying
Speaker 1: at the gas station simply because of the production. You
Speaker 1: sort of touched on this, but can you give us
Speaker 1: a sense of how much production has moved away, frankly
Speaker 1: from this region in Texas and more up north to
Speaker 1: say North Dakota and the shell production. Yeah, yeah, sure,
Speaker 1: So I think there are a couple of pieces to that.
Speaker 1: So the first is, of course, with the number of
Speaker 1: refineries that have gone down just today, I think we're
Speaker 1: just in just around the eight mark that has gone offline,
Speaker 1: which is certainly higher than what you would see on
Speaker 1: a you know, on a day to day kind of basis.
Speaker 1: So that's what's taking a shot at the supply side
Speaker 1: of gasoline. That's why we're seeing a rise in the
Speaker 1: price there. As far as natural gas, however, um, because
Speaker 1: now we're seeing so much more production in in in
Speaker 1: the Marcellus regions up in Pennsylvania, and you know, the
Speaker 1: northeastern general Gulf production has declined significantly over the last
Speaker 1: you know, five to eight years, and so that air
Speaker 1: yet that region as a you know, production region, the
Speaker 1: importance of that has gone down real quick. Almost the
Speaker 1: last time that we saw a storm of this magnitude
Speaker 1: actually hit landfall in the US, UM in the US
Speaker 1: in Texas two thousand and eight. Was that was the
Speaker 1: last time we had a hurricane ike And was this
Speaker 1: Is this going to be more or is this gonna
Speaker 1: be weaker or stronger than I It's going to be
Speaker 1: about the same or a little bit stronger. Yeah, especially
Speaker 1: um with the precipitation in the rain. Yeah, definitely important
Speaker 1: to watch and anyone who's listening, who is in that area,
Speaker 1: please be safe. I am very concerned. It sounds like
Speaker 1: it's going to be a lot of rain and a
Speaker 1: lot of flooding and certainly very messy at the best
Speaker 1: and uh and potentially life threatening it worse. Shenando Basso,
Speaker 1: thank you so much for joining us. He's meteorologist and
Speaker 1: gas analysts for Bloomberg New Energy Finance. Talking about Hurricane Harvey.
Speaker 1: If you've noticed over the past couple of months, we've
Speaker 1: been talking a lot about range bound markets, sleepy markets,
Speaker 1: lack of volatility, lack of volumes, lack of impetus to sell,
Speaker 1: but bullish and here to explain whether we're gonna see
Speaker 1: anything that's going to break us out of this one
Speaker 1: way or another is David Ader. He's chief macro strategistic
Speaker 1: inform of financial intelligence. He is also a writer for
Speaker 1: our Bloomberg Profits UH section that's part of Bloomberg View
Speaker 1: and he also was the number one ranked US government
Speaker 1: bonds strategist by Institutional Investor magazine for ten years. David,
Speaker 1: thank you so much for joining us. You know I'd
Speaker 1: love to get your sins Right now. We are seeing
Speaker 1: treasury yields dip lower yet again, even as we see
Speaker 1: UH markets rally, stock markets rally, I'm looking at a
Speaker 1: ten year treasury yield UH that is lower than two
Speaker 1: point two percent. Where do you think we're headed with
Speaker 1: this treasury yield by the end of this year? Oh?
Speaker 1: I I think that there's a great chance we'll see
Speaker 1: two eleven. How's that for a traumatic call. I'm blown away,
Speaker 1: isn't it isn't it. I mean for the balance of
Speaker 1: the year, you know, I mean, I would like to think,
Speaker 1: um that we will get a little more activity other
Speaker 1: than these sort of six basis point weekly ranges. And
Speaker 1: if I you know, with a bit of a bias,
Speaker 1: I think that you know, we are going to say
Speaker 1: I hate to say this term uncertainty is going into
Speaker 1: the end of the year, as we get around the
Speaker 1: dead ceiling, as we get around the possibility the likelihood
Speaker 1: of a new FED chairman. And I think we're going
Speaker 1: to continue with low inflation. So I think that there's
Speaker 1: a risk that we could actually um take tens a
Speaker 1: little bit below two percent. But I would not get
Speaker 1: overly excited. I do not think the there's going to
Speaker 1: be a big directional play in in yields for for
Speaker 1: the balance of this year and and you know, very
Speaker 1: possibly into next year, which raises a whole new set
Speaker 1: of questions. Well, we've been getting a lot of warnings.
Speaker 1: I guess whatever things feel like they're getting stagnant, we
Speaker 1: start to get a lot of warnings of terrible things
Speaker 1: to come. And we've gotten quite a few of them
Speaker 1: from some pretty big investment managers that you know, the
Speaker 1: end is ny and that markets are going to collapse
Speaker 1: and that you know we're going to have a real correction. Um,
Speaker 1: do you agree that there is something that's imminent and
Speaker 1: and sort of uh bad, that's percolating under the surface.
Speaker 1: And if so, where is where are we most at
Speaker 1: risk of seeing some kind of problem? Where? Oh, I
Speaker 1: think there is. I think that there's a big, huge
Speaker 1: thing under the surface. I just don't know whether it's
Speaker 1: going to prove bullish or bearish for interest great, And
Speaker 1: I don't know what it is. I mean, um, the
Speaker 1: economy is, it doesn't seem to be accelerating, it doesn't
Speaker 1: seem to be decelerating. We're dealing with sort of this
Speaker 1: muddling that we've dealt with for a very long time.
Speaker 1: The maschinations out of Washington, the antics between the White
Speaker 1: House and the Congress, I mean, have have no I
Speaker 1: don't know if I want to use the term jump
Speaker 1: the shark. But I think finally, the risk markets, the
Speaker 1: risk markets are are losing their patients. So whether it's
Speaker 1: about some physical stimulus or whether it's about tax reform,
Speaker 1: and we start putting that off into um into next year,
Speaker 1: with the potential of a default certainly over the debt
Speaker 1: ceiling I think likely to reside with us, you know,
Speaker 1: through October UM. And then the question about what is
Speaker 1: what is the balanty reduction going to look like? And
Speaker 1: I think all those things are going to put more
Speaker 1: stressed on risk assets than on the treasury market. So
Speaker 1: I would say that's where, um, that's where the risk is.
Speaker 1: I mean valuations of course, are high credit spreads for example,
Speaker 1: are type buy backs have slowed down? So that is
Speaker 1: where I think we're going to we would feel it. Well, David,
Speaker 1: what are you recommending that clients do that? Oh? Do what?
Speaker 1: Cash under your mattress? Just you know, freeze, dride food
Speaker 1: for cash and hunker down. Wait wait, wait, wait, wait,
Speaker 1: hold on a second. How much cash? And when did
Speaker 1: you start? How much? And how much free drive and
Speaker 1: cans or packages that you know, but are you have
Speaker 1: you been recommending over the past few weeks that people
Speaker 1: build their cash stashes or is it over the past year?
Speaker 1: Or and and how much? No? And and and realistically
Speaker 1: I think that from a from a portfolio, from a
Speaker 1: fixed income now we're talking on the fixed income side, UM,
Speaker 1: I think I would you retain a fairly good front
Speaker 1: end cash position, and then I would have a barbelled
Speaker 1: portfolio with exposure at the long end. Again because I
Speaker 1: don't think that we're seeing any inflation problems. So the
Speaker 1: barbelled portfolio would allow me to if we, for example,
Speaker 1: were to see if that High court, if we were
Speaker 1: to see opportunities I want to hunk. I want to
Speaker 1: have some cash on hand to take advantage of it
Speaker 1: um in other asset classes. So I think that the
Speaker 1: Barbel portfolio for now is the one I would like.
Speaker 1: And I think also, um, you know, I don't think
Speaker 1: the Fed's going to hike this year, and I'm you know,
Speaker 1: next year we'll get I think we'll get a new
Speaker 1: FED chairman. Presumably there will be umdabish Trump like slow
Speaker 1: interest rates and I but I do think that there
Speaker 1: is still some risk at the front end. Is going
Speaker 1: to get UM a little bit nervous about the feed
Speaker 1: as we approached next year and we get past the
Speaker 1: debt ceiling situation. So I think the Barbel portfolio is
Speaker 1: the one that makes the most sense to me. And
Speaker 1: in terms of a duration exposure to a benchmark, I
Speaker 1: would be a little bit long duration. Now, well, David,
Speaker 1: when do you throw in the towel. I mean, I
Speaker 1: want to know because you know you'll be the last
Speaker 1: bear standing when I throw in the towel. Um. You know,
Speaker 1: I think in these in these coming weeks, in these
Speaker 1: coming months, you know, we will get obviously more information
Speaker 1: on inflation. The FET has always talked about that that
Speaker 1: that there has been talking that ultimately they'll reach their targets.
Speaker 1: I do not care about the dot pots. I don't
Speaker 1: really care about their their own expectations. I want to
Speaker 1: see what the data is going to look like, you know, David,
Speaker 1: I have to wonder. You know, people lament that this
Speaker 1: market has been newter, either by financial regulation or by
Speaker 1: so many years of Federal Reserve interference. But are we
Speaker 1: just seeing a market that's a normal, that's moving back
Speaker 1: to a model where people actually have to look at
Speaker 1: data and actually look at the companies and not just
Speaker 1: wait for what comes out of the lips of central bankers.
Speaker 1: You know, I know we always look at it, and
Speaker 1: if you're an economist or you're a strategist, you know
Speaker 1: you historically and academically we rely on the data. But
Speaker 1: you know, we've we've had data up, we've had it down,
Speaker 1: and the treasury market. Generally, the yields are staying in arrange,
Speaker 1: so we will get back to it. We still need
Speaker 1: to look at those factors because it will impact central
Speaker 1: bank policy here and around the world. But um, the
Speaker 1: the the quantitative easy that's still going on elsewhere, the
Speaker 1: continuing reinvestment which the FED is doing, even if they're
Speaker 1: going to be in tapering. I do think he's put um,
Speaker 1: you know, put restrictions on the volatility that you would
Speaker 1: otherwise be seeing in in in the fixed income markets
Speaker 1: that slowly, gradually, glacially is coming off. So I don't
Speaker 1: see drama, but I do think, you know, in a
Speaker 1: few years, will probably get ourselves back to a more
Speaker 1: normal environment. Having said that, I still think that that
Speaker 1: there's a generational issue that interest rates are going to
Speaker 1: be lower than we might otherwise have seen, just because
Speaker 1: we are in a sort of a muddling growth mode.
Speaker 1: I want to thank you very much for joining us.
Speaker 1: David Adder is the chief macro strategist for Inform of
Speaker 1: Financial Intelligence. He is also a Bloomberg profit. Bloomberg profits
Speaker 1: are professionals who offer actionable insights on markets, the economy,
Speaker 1: and monetary policy, and Bloomberg profits may actually have a
Speaker 1: steak in the areas in which they write about. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
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Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
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