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. Let's get to Danielle
Speaker 1: d Martino Booth. We're very fortunate to have her in
Speaker 1: our studio again today because she's based in Dallas, so
Speaker 1: when she comes to New York, we say, please stop by.
Speaker 1: Danielle d Martino Booth, CEO and chief strategist for Quill Intelligence.
Speaker 1: All right, Danielle, we haven't chatted with you for a
Speaker 1: little while here. What is your view about what our
Speaker 1: federal Reserve is going to do here? Given all the
Speaker 1: economic data that we've got today and the recession yesterday
Speaker 1: and the recession called they used the R word. Yes, wow,
Speaker 1: they're being so forthright. But to Matt's point, we're like
Speaker 1: in a time compression chamber. Everything's happening so much more
Speaker 1: quickly than it used to. I mean, we we've got
Speaker 1: inflation expectations that are collapsing, lapsing among households. Forget the cps,
Speaker 1: forget the pipe. Dude, you are doing the Tesla story yesterday. Yeah,
Speaker 1: I know you're saying right, Tesla buyers are now going
Speaker 1: to wait and see when the next price cuts come.
Speaker 1: And the mindset among you as households has done a
Speaker 1: complete one complete one eighty. Cox's Automotive came out and
Speaker 1: said that in the first week of April, applications to
Speaker 1: finance a car loan we're down twenty three percent year
Speaker 1: over year. I mean, this is happening so fast, and
Speaker 1: I think that that's what we have to appreciate about
Speaker 1: how aggressive and fast the FED was. So you're long
Speaker 1: and variable, it's like short and sweet. Yeah. By the way,
Speaker 1: on the loan front, I've been hearing the word credit
Speaker 1: crunch more and more often. I think Neil cash Car
Speaker 1: he said it on one of the Sunday shows a
Speaker 1: couple of weeks ago, and now everybody's starting to use
Speaker 1: that phrase. I've all seen seen some survey data that
Speaker 1: shows consumers aren't getting loans, not because rates are too high,
Speaker 1: but because the banks are being tighter and tight up
Speaker 1: with the money. Is that is that true. Are you
Speaker 1: seeing that in the data? CarMax came out yesterday, CarMax
Speaker 1: it was, it was, it was on the terminal. CarMax
Speaker 1: came out yesterday, and they were like, we're not gonna
Speaker 1: make as many loans. Our standards are tightening quickly. Capital
Speaker 1: One pulled all of its floor lines for for dealers,
Speaker 1: so you know, used card dealerships are going to start
Speaker 1: dropping like flies because they paid up in January. They've
Speaker 1: paid up in February at auction, which Mannheim Data told us,
Speaker 1: and then income tax refund season for US households was
Speaker 1: a disaster. Ye, So you're you're down eleven percent year
Speaker 1: over year and people don't have as much cash as
Speaker 1: they thought they were gonna have. Now we're gonna start
Speaker 1: seeing income receipts, which Janet Yellen is praying please bring
Speaker 1: the receipts in because the nation's checking account is down
Speaker 1: to like one hundred billion. It's like, you know, she's
Speaker 1: getting calls saying, you know you've hit your minimum balance?
Speaker 1: Are we really? Because Steve Rattner rode An op ed
Speaker 1: in The New York Times a couple of weeks ago
Speaker 1: saying he wants people to come back to work and
Speaker 1: you should really do it, you know, twelve hours a day,
Speaker 1: sixties and an MD at Goldman, Sorry, but only mds.
Speaker 1: I'm like, what does that mean for the non MD
Speaker 1: The one thing he one, well, that means they're they're
Speaker 1: gonna make those kids come in. The one thing that
Speaker 1: I thought the most interesting takeaway was that at least
Speaker 1: in his estimate, there's still a lot more money in
Speaker 1: UM consumers bank accounts, checking accounts then there was, you know,
Speaker 1: prepen heavily concentrated among the older and the wealthier. Okay,
Speaker 1: at this point, you the burn rate for people making
Speaker 1: seventy five thousand dollars fifty thousand dollars, that burn rate,
Speaker 1: they burned through the cash. In fact, if you look
Speaker 1: at the fiscal impulse, it turned negative in a big
Speaker 1: way in the fourth quarter of twenty twenty two, and
Speaker 1: the fiscal impulses continued to get lower. And remember they
Speaker 1: your average American family that was getting receiving food stamps
Speaker 1: was cut by two hundred and thirty three dollars a month.
Speaker 1: And you have seen there is really good granular data
Speaker 1: that shows that grocery shopping receipts are collapsing. People are
Speaker 1: spending a lot less at the grocery store. This is like,
Speaker 1: this is before you were born, Matt. But you remember
Speaker 1: Hamburger Helper. Sure, And this was the thing in the
Speaker 1: late seventies and eighties. It's that people switched away from
Speaker 1: steak to ground beef, and how can I make ground
Speaker 1: beef interesting for the family. We're seeing that in grocery stores.
Speaker 1: Here's the thing. Ever since I grew this beard, people think,
Speaker 1: for some reason, I'm a lot younger than I am.
Speaker 1: I look so much younger with the beard, but I
Speaker 1: was actually born in nineteen seventy three. Believe I can
Speaker 1: go on with my day now. Yeah, I've got a listener,
Speaker 1: an investor, a Bloomberg client who writes in. And first
Speaker 1: of all, he hasn't said it, but I know he
Speaker 1: has seen you speak before and he's a big fan,
Speaker 1: So that's a b. He's got a question for you.
Speaker 1: Why does the market interpret a FED cut in late
Speaker 1: twenty three as a positive and not as the negative
Speaker 1: that it is supposed to be viewed as rate cuts
Speaker 1: mean bad things with the economy. Yet SMP forty one
Speaker 1: hundred teams like no one cares and stunks. Yeah, it's
Speaker 1: a direct look at the VIX. I mean it's it's
Speaker 1: doesn't all all is good here. I'm not so old
Speaker 1: that I look at the visail well, I look at
Speaker 1: zero dated zero days. So these two exoptions, right with
Speaker 1: with deference to the individual asking the question, I think
Speaker 1: what people need to be prepared for is that the
Speaker 1: last rate hike on May third does not mean that
Speaker 1: quantitative tightening ends. So I don't think that. I don't
Speaker 1: I believe Powell. I believe Powell in saying there's no
Speaker 1: rate cut in twenty twenty three. He doesn't care what
Speaker 1: markets are pricing in. He has talked markets back off
Speaker 1: of their cliff over and over and over again. People
Speaker 1: are like, but the markets pricing it in, And I'm like,
Speaker 1: just wait from to open his mouth. And he's done
Speaker 1: this since March of twenty twenty two. Nobody realizes that,
Speaker 1: you know, we just had the largest draw down of
Speaker 1: the Fed's balance sheet in the most recent week in
Speaker 1: the history of mankind. That's how many treasuries rolled off
Speaker 1: so QT and you know, it's it's what Mike McKee,
Speaker 1: it's like the Super Bowl every Thursday afternoon and every
Speaker 1: Friday afternoon, waiting for everybody knows what the H four
Speaker 1: and the H eight are. Now it's like, how did
Speaker 1: what is four? And I know the weeds. I know
Speaker 1: about the Fed's balance sheet. You know, I know what
Speaker 1: about bank balance sheets. But everybody's watching it so closely
Speaker 1: because the credit crunch is happening way fast. Commercial lending
Speaker 1: is more than ever before. You know, we we we
Speaker 1: used to interview company CEOs on bloomber TV. We used
Speaker 1: to talk about company stocks. Now it's just fed from
Speaker 1: daybreak to sunday. You know. It's what company CEOs want
Speaker 1: to know is why they can't get the CNI loans
Speaker 1: that they want. Remember, we're in an inventory correction. So
Speaker 1: in most operation managers lives, it's been just in time
Speaker 1: inventory and now it's just in case. So they're sitting
Speaker 1: on an inventory that's that is the shortest rate you
Speaker 1: can possibly name. Operating expensive companies don't know what to do.
Speaker 1: I would not want to be a CFO right now.
Speaker 1: So is a recession now in I think we are
Speaker 1: in recession recession. I think we are in a receptive
Speaker 1: I think when it goes is it deep? Is it
Speaker 1: because it well, well, the FETE says it's going to
Speaker 1: be mild, right, right, I just how can we be
Speaker 1: in a recession with three and a half percent unemployment
Speaker 1: and use cars still going from like new car prices
Speaker 1: plus new car prices are unaffordable for everybody but the
Speaker 1: top like three percent. That's very true. But we have
Speaker 1: seen new car prices fall below MSRP for the first
Speaker 1: time in twenty months. New car prices have come down
Speaker 1: three months in a row, and judging by how buyers
Speaker 1: view car prices, we ran it in this morning's data.
Speaker 1: It's Mary Barra's promise to maintain profit margins and hold
Speaker 1: up high prices and not do incentive spending. That might work,
Speaker 1: but it's not gonna work for her competitors. She's holding
Speaker 1: the line, but Ford is following Tesla and cutting thank you, yeah, yea,
Speaker 1: So all right, so fed raises here May third, and
Speaker 1: then is are you kind of with everybody else that
Speaker 1: they're just gonna kind of hang and see what happens
Speaker 1: and look at the data. They're gonna hang and roll
Speaker 1: their balance sheet down. There was a report that came
Speaker 1: out of the New York Fed a few days ago
Speaker 1: that said, well, the balance sheet, we expect the balance
Speaker 1: She's gonna be six trillion dollars in twenty twenty five.
Speaker 1: I mean, incorporate that into your thinking. The New York
Speaker 1: Fed thinks that quantitative tightening is going to continue for
Speaker 1: the next two years. The market is saying zero interest rates,
Speaker 1: zero bound. They're not talking about cute little twenty five
Speaker 1: bases point rate cuts. They're talking about gwen to the
Speaker 1: zero bound immediately and restarting quantitative easing. That's what the
Speaker 1: market wants. The market just doesn't believe the FED put
Speaker 1: is going away. The market is like your kids, Paul.
Speaker 1: You've cut them off the payroll. It's been a couple
Speaker 1: of years, but they know the worst comes to worse
Speaker 1: when the s hits the fan. They can still go
Speaker 1: back to the bank of Dad. When they mean absolutely
Speaker 1: they have that back. Now. I'm trying to cut that
Speaker 1: off right down. Yeah, they're good though it I mean
Speaker 1: they don't, they don't come. It's it's it's pretty good
Speaker 1: so far, all right, So because they have jobs, because
Speaker 1: everybody has wait until these FED rate hikes put those
Speaker 1: kids out of jobs and then all of a sudden,
Speaker 1: you're gonna have a new roommate in summit or done.
Speaker 1: Any what you're seeing I mean, you're the entire Northeastern
Speaker 1: corridor has rising jobless claims from Maine to Pennsylvania. The
Speaker 1: entire Exceller route. That's my that's my top of my
Speaker 1: feather tomorrow. The entire exceler route is seeing rising initial
Speaker 1: jobless claims. And so it's like the recession recognition is
Speaker 1: coming hard and fast, and it goes right along with
Speaker 1: what you were saying right before I came on with
Speaker 1: this whole idea of long and variable labs being really short. Yeah,
Speaker 1: all right, So I guess is inflation. I mean, what's
Speaker 1: the biggest concern for you out there in this economy? Right? Yeah,
Speaker 1: if inflation is coming down, although at this morning and
Speaker 1: the sticking around these levels, uh, if inflation is coming down,
Speaker 1: and if unemployment is still you know, at a record low. Um,
Speaker 1: this recession feels okay to me. How long is it
Speaker 1: gonna last? It's gonna last until your neighbor loses their job,
Speaker 1: right yep? And then and and and that's why I
Speaker 1: think that we're not really prepared. I think we're going
Speaker 1: to see an unemployment rate shock because everything seems to
Speaker 1: come like like a with with a bullet. Everything's so
Speaker 1: dramatic that when it happens. I mean, if we looked
Speaker 1: at realtors realature's income in the PPI report this morning,
Speaker 1: and it looks like hockey stick going up and it
Speaker 1: looks like it's just collapsed coming down. Yeah, I believe that,
Speaker 1: and sold so many at high prices last year exactly,
Speaker 1: and it's just except for Paul's house on the shore,
Speaker 1: it's welcome. And then we saw, yeah, the consumer price
Speaker 1: in next Hi, what was the data we saw I did.
Speaker 1: What was the data we saw um Personal health up
Speaker 1: six point eight percent in the CPI yesterday? Child that
Speaker 1: was childcare. Childcare costs are sore. I'm here to tell
Speaker 1: you as a man with a two and a half
Speaker 1: year old kid. Look, I just came back from Berlin,
Speaker 1: where childcare is luxurious and free. I did not expect
Speaker 1: it to cost me the average American way. Look at
Speaker 1: where we look at where the job openings are still
Speaker 1: really strong, childcare, nursing homes, home healthcare workers. Those individuals
Speaker 1: are coming back into the labor force, but for now
Speaker 1: there's still there's still a deficit of these workers. So
Speaker 1: you pay through the nose for childcare. Those apps and jewels, Yes,
Speaker 1: all right, this was an extended block. We're really appreciate
Speaker 1: you taking the time. Danielle Danielle di Martino Booth. She's
Speaker 1: a CEO and chief strategist at Quill Intelligence. Highly recommend
Speaker 1: follow the Dallas fed You store Dallas fed fed Up,
Speaker 1: fed Up still my favorite. Great follow on Twitter, even
Speaker 1: though I'm off Twitter, but great following Twitter. Some good
Speaker 1: stuff committed Twitter side. Yes after Facebook. Yeah, I'm done. Done.
Speaker 1: You're listening to the Team Cancer Live program Bloomberg Markets
Speaker 1: weekdays at ten am easting on Bloomberg dot com, the
Speaker 1: I Heard Radio app and the Bloomberg Business App. We're
Speaker 1: listening on demand wherever you get your podcast. Right now
Speaker 1: when you want to talk about these markets here, we're
Speaker 1: gonna bring in a professional, Phil Tase. He's a CEO
Speaker 1: of Tay's Asset Management. He joins us here in our
Speaker 1: Bloomberg Interactive Broker Studio. Phil, the last time I think
Speaker 1: we saw you, or maybe maybe the time before that,
Speaker 1: we have in our notes ninety percent of the terms
Speaker 1: assets were in cash, with the remaining ten percent in
Speaker 1: defensive fixed income. Is that still the case for you, guys,
Speaker 1: It's not. It was a great place to be in
Speaker 1: twenty twenty two, but it is it has not this year.
Speaker 1: So our algorithms bar trend following funds moved us back
Speaker 1: into the markets the beginning on January the eighteenth, and
Speaker 1: then we came fully back in over the next couple
Speaker 1: of days. We had one brief period when we're out
Speaker 1: just harshly in March for a couple of days, but
Speaker 1: we've been just enjoying the rally. So let's talk about
Speaker 1: your new fund. It's the Tay's Agility Shares Managed Risk ETF.
Speaker 1: And tell us first of all, what it does. Okay,
Speaker 1: so it's a different way of trying to address risk
Speaker 1: than leaving the markets. And what it is is it's
Speaker 1: an SMP five hundred type of ETF, but it has
Speaker 1: full notional options for tection on a leap that's two
Speaker 1: years out that we buy every year in December. Here's
Speaker 1: what's super important. If all you're doing is buying the
Speaker 1: equities market, but you're and hedging but not figuring out
Speaker 1: a way to pay for that, you're going to give
Speaker 1: up most of the above inflation gains. And that's why
Speaker 1: so few people end up doing options over the long term. Well,
Speaker 1: so what we also do. Inside of that ETFs, we
Speaker 1: sell shorter dated calls sixty and ninety days out about
Speaker 1: five percent above the market. We also sell some put
Speaker 1: spreads and that brings in a premium each month that
Speaker 1: helps pay for that put protection. Now, the other important
Speaker 1: component of this, the way this works is that options
Speaker 1: need to be dynamically managed. So if we have that
Speaker 1: leap and it's at the market and the the markets advanced
Speaker 1: ten or twenty percent in the year, you need to
Speaker 1: be able to roll that price up to the market
Speaker 1: so you can bring your protection higher. Here's another super
Speaker 1: important point. If the market plummets, we can roll the
Speaker 1: leap down and monetize it. So the key to success
Speaker 1: with options when you're in the equities market is figuring
Speaker 1: out a way to both pay for the protection but
Speaker 1: also monetize and when you have wins when the market
Speaker 1: move lower. I gotta say it for I feel like
Speaker 1: for me and Paul, we need illustrations options. I'm just
Speaker 1: I'm kind of lost there. But what I do know
Speaker 1: is that on you know, in money markets, in short
Speaker 1: duration treasury ETFs, you're getting four or five six percent, right,
Speaker 1: So what kind of returns can you get in something
Speaker 1: like the agility Shares Managed Risk ETF well, so over
Speaker 1: its history we have around a seventy percent capture and
Speaker 1: a forty percent down capture. But if the market would
Speaker 1: enter into free fall, which we didn't really see in
Speaker 1: twenty twenty two, we think you could have more offsetting
Speaker 1: appreciation in those puts and less market down capture than
Speaker 1: forty percent. So I'll summarize it. It's a way to
Speaker 1: be in the market with potentially dramatically less risk on
Speaker 1: the downside and a way to pay for that risk protection.
Speaker 1: All right, So mr SK is the ticker, yes, and
Speaker 1: just kind of summary. The holdings are mostly options M
Speaker 1: risk managed risk. So actually no, the holdings are mainly
Speaker 1: just the S and P five hundred, okay, using options
Speaker 1: to both you know, address the possibility of it down
Speaker 1: and you know, options to help pay you for that. So,
Speaker 1: so what is your view of the market. We've had
Speaker 1: a whole slew of economic data just recently on an
Speaker 1: inflation front suggesting that may be cooling. We're gonna have
Speaker 1: earnings kicking off tomorrow with some of the banks. How
Speaker 1: are you guys viewing this market, which, by the way,
Speaker 1: we should point out, you know yesterday's CPI and today's
Speaker 1: PPI as fascinating. Well as boring as yesterday's CPI was
Speaker 1: and as fascinating as today's PPI was, they're not really
Speaker 1: moving the markets, right, We're still up year to date
Speaker 1: on the S and P seven and a half percent, right, right, Okay,
Speaker 1: So I'll give you two views. One is short term.
Speaker 1: Over the short term, markets are like teenagers, and sometimes
Speaker 1: it's gonna be like a group of teenagers. And if
Speaker 1: you get a momentum driven equity market that's higher than
Speaker 1: it's like a group of teenagers with beers, right, it's
Speaker 1: not it's not rational, it doesn't make sense. Over the
Speaker 1: longer term, they're buying ripped genesre ripped genes again. So
Speaker 1: over the longer term, we have a lot of challenges.
Speaker 1: One thing that's not talked about at all that I'm
Speaker 1: in the process of right the paper right now is
Speaker 1: the global debt situation unprecedented. The consequences I think will
Speaker 1: be significant. That's more than we have time for in
Speaker 1: this segment. But also we've addressed that though in the past. Okay,
Speaker 1: it's nuts. So especially when you look at I thought
Speaker 1: twenty percent interest rates would have been unbearable in the eighties,
Speaker 1: and someone reminded me, we had a debt to GDP
Speaker 1: back then, have like twenty or thirty percent. Now five
Speaker 1: percent hurt just as much because we have debt to
Speaker 1: GDP of like one hundred and twenty percent exactly. And
Speaker 1: the last time we had one hundred percent of debt
Speaker 1: to GDP was after World War Two. The thing that
Speaker 1: saved us then was GDP growth, where we grew for
Speaker 1: twenty years at eight percent a year. That's not going
Speaker 1: to happen right now. So we have all the kinds
Speaker 1: of other outcomes. But you know, I was listening to
Speaker 1: your conversation earlier about the potential for a recession, and
Speaker 1: I think you still have this enormous wealth effect. So
Speaker 1: even though we may enter into a recession, we can't
Speaker 1: ignore the fact that everyone has so much money. Wealth
Speaker 1: to GDP is near record levels in the US. Well,
Speaker 1: Danielle is saying that that's pretty skewed, like the wealthy
Speaker 1: have so much money. That's true. That is true. So
Speaker 1: you know, I think that it's going to be a
Speaker 1: grind down, but longer term, looking at where valuations are,
Speaker 1: I think ultimately it's not a great story, So we're
Speaker 1: still looking at potentially you know, I was just listening
Speaker 1: to clip again of Mike Wilson. We might agree with
Speaker 1: him sort of over the next twelve to eighteen months
Speaker 1: where we think we've got a tough slog, big baby.
Speaker 1: So last year you were in so much cash, do
Speaker 1: you envision kind of getting back to anything close to that? Yeah? Totally,
Speaker 1: And what would push you there? Just were we used
Speaker 1: We follow trends. So the reason we're in is because
Speaker 1: the market has begun to move up, and so we
Speaker 1: try to buy in in the early stages based on
Speaker 1: how our systems are built and so then that allows
Speaker 1: us to participate. But if the market turns down, I
Speaker 1: was just looking now, if the market moves down only
Speaker 1: about like about one and a half percent, we're going
Speaker 1: to sell range again. So it won't take a lot
Speaker 1: for us to sell. Sometimes there are false signals right
Speaker 1: where we can come out and then back in again.
Speaker 1: But the key is if that happens, you know, the
Speaker 1: world is long, right, the world is betting on fam
Speaker 1: of French they're scared to do anything but just be
Speaker 1: in the markets. But most investors they really can't afford that. Oh,
Speaker 1: the mean works. They need to worry about their own
Speaker 1: specific lives and address risk, all right, So with that
Speaker 1: in mind, other than managed risk, what else are you buying?
Speaker 1: What else do you want to own right now? Well,
Speaker 1: so we are specialists in just owning indo season figuring
Speaker 1: out ways to hedge that risk, right, So we do
Speaker 1: have a strategy that So basically MRSK is your wheel
Speaker 1: house MRSK or we have you know, a couple of
Speaker 1: other funds THHLGX, THHSMX funds. Those are our trend following
Speaker 1: algo funds and those will move into cash inside the
Speaker 1: funds themselves. So we just like right now being in
Speaker 1: the markets. I mean, you know, we thought small cap
Speaker 1: was going to do well. Now we've seen that sort
Speaker 1: of fall off a ledge recently, so we haven't seen that.
Speaker 1: But just own the market broadly right now, we think.
Speaker 1: But the most important advice I would give to investors
Speaker 1: is that you need to figure out a way to
Speaker 1: address contingencies. Right don't bet for markets are going to
Speaker 1: move higher or betas are going to move lower. Bet
Speaker 1: since stay with the markets, but figure out a way
Speaker 1: to address the possibility. We think it's a significant possibility
Speaker 1: that markets are going to move lower. So do you
Speaker 1: even care? Given you your style and kind of the
Speaker 1: way you guys do things, you care about earnings, you're
Speaker 1: gonna pay attention to that stuff. Yeah, yeah, Well we
Speaker 1: not actually not really no, because we're just gonna follow
Speaker 1: trends one way or another. We keep hoping someone's going
Speaker 1: to care about earnings. Really does in terms of the
Speaker 1: ETF business, I mean we've seen it now grow to
Speaker 1: what ten trillion dollars globally, I mean across the industry, right,
Speaker 1: and people will continue to convert mutual funds into ets,
Speaker 1: people continue to bring out new products. Last year was
Speaker 1: amazing and they're still You've just brought out a new
Speaker 1: product yourself. How do you see this market growing? Yeah,
Speaker 1: I just think that ETFs are going to grow because
Speaker 1: they have lower expense racers. There's a lot of stuff
Speaker 1: that goes on with some of these custodians, big custodians
Speaker 1: where they charge sort of users fees to mutual funds
Speaker 1: that live there. So there's incentive to convert over to
Speaker 1: ETFs and avoid all those fees. Plus they can trade
Speaker 1: them for free. So I think that all is just
Speaker 1: going to continue to the movement over there. But the
Speaker 1: one thing about that most of these ETFs are just
Speaker 1: buy and hold the market and own it forever and
Speaker 1: their inb indussees you know that has worked extremely well
Speaker 1: for the last twenty years. But is active is very hot? Right? Well?
Speaker 1: I think you know, I honestly who cares, right because
Speaker 1: active or beta, if the market falls off a cliff
Speaker 1: and move down twenty or thirty percent, you're gonna be
Speaker 1: talking about being down twenty eight percent versus thirty two, right.
Speaker 1: I mean, you need things that can really address risk.
Speaker 1: And so I think and people the thing that people
Speaker 1: aren't thinking thinking about is the possibility of multi year declines.
Speaker 1: The longest decline we've had in the last twenty years
Speaker 1: has been the great you know, the financial crisis, and
Speaker 1: that was about a sixteen month decline. People aren't thinking
Speaker 1: about the possibility multi year declines, and those are going
Speaker 1: to hit in disease hard. All right. It's making my
Speaker 1: stomach hurts. You can't come in again. There's a lot
Speaker 1: of risk out there that's multi year declines. Yeah, I
Speaker 1: don't think that's I thought that was over. That was
Speaker 1: generations again ago, exactly good right now, And so let's
Speaker 1: just enjoy it for the moment. Okay, Yeah, that's my strategy,
Speaker 1: all right, Phil Tas, thank you so much for joining us.
Speaker 1: Phil Tas, CEO of Tay's Asset Management, joining us live
Speaker 1: here on our Bloomberg Interactive Brokers studio. Again, kind of
Speaker 1: looking at the markets here, Matt just kind of s
Speaker 1: and p up about a half of one percent, so,
Speaker 1: you know, a little bit of a lift off of
Speaker 1: that PPI data. But maybe we thought we might have
Speaker 1: gotten a little we might have gotten a little bit more,
Speaker 1: but we'll see. You're listening to the Take cancerre Live
Speaker 1: program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
Speaker 1: the tune in app, Bloomberg dot Com, and the Bloomberg
Speaker 1: Business App. You can also listen live on Amazon Alexa
Speaker 1: from our flagship New York station, Just say Alexa play
Speaker 1: Bloomberg eleven thirty. Now, we were kind of bummed out
Speaker 1: yesterday because we talked to Morgan Paxia, who runs the
Speaker 1: Poseidon Investment management firm. They have a weed etf the
Speaker 1: ticker is PSDN. But we only got a few minutes
Speaker 1: with them, and also it was raining and in Miami.
Speaker 1: Yeah then, which makes it even worse. He's there at
Speaker 1: the Benzinga. I guess it's a weed conference down there.
Speaker 1: We got him back on the line, and I'm glad
Speaker 1: I want to spend some time Morgan. Thanks so much
Speaker 1: for coming back and joining us again. I was kind
Speaker 1: of joking around that you were harsh and my mellow
Speaker 1: and you needed to reach for some sativa yesterday. And
Speaker 1: we do kind of tend to joke around about smoking
Speaker 1: weed on this show, but there are serious there are
Speaker 1: important reasons for marijuana use, legalization and use. You and
Speaker 1: your sister started this investment management company because of a
Speaker 1: difficult time losing your father in the nineties, and you
Speaker 1: realized I guess then that you know, if we'd had
Speaker 1: been legal and hadn't had as much of a stigma,
Speaker 1: it would have been easier for him to go through
Speaker 1: to the next phase. So talk to us about that
Speaker 1: and how successful you've been. That's right, Well, thank you
Speaker 1: for having me back. Today is a much sunnier day
Speaker 1: after one and one thousand year rain event we had
Speaker 1: down here in Florida, so pretty pretty wild times. But yes,
Speaker 1: for Emily and I was certainly was a passion project
Speaker 1: initially just seeing that firsthand, what could have happened I
Speaker 1: guess so to speak, right, where where do you want
Speaker 1: to see someone find some comfort in their final days
Speaker 1: and just not even having something that should be readily
Speaker 1: available as an option not be and actually be thought
Speaker 1: of in a negative way. You know, that just all
Speaker 1: seemed very wrong. And I'll tell you you know, we've
Speaker 1: been doing this for ten years now, and the amount
Speaker 1: of people we've talked to over the years that came
Speaker 1: to this industry with that same familial kind of experience
Speaker 1: where they had a family member that was sick, they
Speaker 1: saw benefits, right, So we actually got to see the
Speaker 1: positive sides for so many people. And that's how it
Speaker 1: changes a stigma, is when you get that firsthand experience
Speaker 1: and you know, a great thing about this industry as
Speaker 1: there's a lot of different applications. Sure you have that
Speaker 1: wellness perspective, and we're even seeing people that do find
Speaker 1: you know, potentially some medicinal benefits for it. But it
Speaker 1: just should be a legal, regulated option for people instead
Speaker 1: of pushing it to the illicit market. That just doesn't work, right.
Speaker 1: We've learned this over again. Hey Morgan, you know Matt
Speaker 1: and I have you know kind of learned a lot
Speaker 1: about the business of cannabis over the last several years
Speaker 1: as more and more states have legalized it. One of
Speaker 1: the challenges that we've come to understand from speaking to
Speaker 1: people like you is just the whole financial side of
Speaker 1: funding the cannabis industry. Talk to us about what you're
Speaker 1: seeing there. I can't imagine some of the banking stresses
Speaker 1: that we've seen over the last several months or several
Speaker 1: weeks with some of these regional lenders can be very helpful.
Speaker 1: Talk to us about the banking side. Sure, yeah, So
Speaker 1: banking has been an ongoing challenge in our industry where
Speaker 1: though people have access to deposit, that's really it. So
Speaker 1: there's been a big growth of In the earlier days,
Speaker 1: we had very strong equity support right where you could
Speaker 1: raise rounds of equity venture capital that we've done private
Speaker 1: rounds or even when when these companies got public, you
Speaker 1: know you could do secondaries and then debt financing from
Speaker 1: private groups or the riis became very prevalent. But all
Speaker 1: of that has been very tight and I think when
Speaker 1: you when you look at these when these banks now
Speaker 1: are are just really pulling back, retrenching on lending um
Speaker 1: that just raises risk, the price of risk and the
Speaker 1: availability of it right becomes even more scarce. And I
Speaker 1: think that's certainly is the case for our industry. But
Speaker 1: we're two years into a very tight capital market, so
Speaker 1: our industry has had to find its own way. Regardless
Speaker 1: of this, banking progress has not been happening. Right. We
Speaker 1: thought we were actually close to seeing some banking reform
Speaker 1: late last year, but it didn't happen, and so our
Speaker 1: industry has had to focus on being self funding, becoming
Speaker 1: cash generative businesses. Well, Morgan, I've been thinking about this
Speaker 1: for a while because of the Safe Banking Act, and
Speaker 1: we've been following the progress in Washington, DC, or lack thereof, right, right,
Speaker 1: I thought that's what was holding back Weed stocks. But
Speaker 1: then we got till Ray results and you and I
Speaker 1: talked about this briefly yesterday. Why would a company like
Speaker 1: that have a drop in revenue year over year? I mean,
Speaker 1: isn't this a burgeoning business? Isn't this I mean I
Speaker 1: have to imagine that weed sales across the country every
Speaker 1: year just climb and climb and climb. Are they stagnating? Well,
Speaker 1: Tilray doesn't do business in the US They are a
Speaker 1: Canadian company. They're listed in the US, but they're and
Speaker 1: they have you know, they have their Canadian business, but
Speaker 1: they also have European business, and they do a lot
Speaker 1: in alcohol now too. They're almost more of a beer
Speaker 1: company than they are a cannabis company. So there's some
Speaker 1: specific things within their business. Okay, peculiarly Cresco. I don't
Speaker 1: know who makes the Kiva things, but they're brilliant. I mean,
Speaker 1: aren't these sales off the hook? So what's happening is
Speaker 1: you have unit growth, but because there was an overbuilt capacity,
Speaker 1: we had a lot of price compression, and so even
Speaker 1: though positive unit growth, the total dollars in certain markets
Speaker 1: were actually down. But we're getting through that process, right,
Speaker 1: capacity is being rational, lies we're seeing continued demand and
Speaker 1: more access, so it's rebalancing that whole issue of oversupply
Speaker 1: and price compression. So with that unit growth. But I mean,
Speaker 1: like Michigan, as I mentioned, I think yesterday for or
Speaker 1: actually came out afterwards. Michigan in two hundred and fifty
Speaker 1: million dollars in legal sales in the month of March,
Speaker 1: and they've had some of the most aggressive price compression
Speaker 1: in the last year, so they're actually overcoming that price
Speaker 1: compression with such strong unit growth, and that's we look
Speaker 1: at both, right, and you know, we're big investors in
Speaker 1: a data company called Headsets, so we're constantly looking at
Speaker 1: these trends and looking at data across all these different markets.
Speaker 1: But like legacy markets like California, we've seen that very
Speaker 1: significant price compression and so it's been more flat. So
Speaker 1: once we get through that phase, we think we'll start
Speaker 1: to see much more attractive top line growth. Businesses are bored. Yeah,
Speaker 1: about thirty seconds left, Morgan, what's the next big thing
Speaker 1: that you're looking out for that maybe you're looking to
Speaker 1: invest in. We're still very much focused on cannabis. We
Speaker 1: think there's a lot of opportunities. Yeah, within the cannabis space.
Speaker 1: What's the next we should be looking for? Yeah, So
Speaker 1: we think states like Missouri are doing great job. There's
Speaker 1: a lot of movement in the South, so we think
Speaker 1: those are really interesting markets. So we're still doing work
Speaker 1: on the operating side, but we're also very passionate and
Speaker 1: see opportunity on the technology side, so we're doing work
Speaker 1: with private companies on the tech side. There's really not
Speaker 1: much yet in the public markets that we find very
Speaker 1: attractive on the tech side, that is, so you know,
Speaker 1: if you look at our et F there's really not
Speaker 1: much there yet, but always looking, always looking, because we
Speaker 1: think there's a lot of return there. All right, Morgan,
Speaker 1: thanks so much for taking the time to come back
Speaker 1: to us today. I know we did. We got cut
Speaker 1: a little short yesterday, so we had so much more
Speaker 1: we want to cover with you said, thanks for making
Speaker 1: the time there. Morgan Paxi East co founder along with
Speaker 1: his sister, and he's managing partner of Poseidon Investment Management
Speaker 1: that Poseidon Dynamic Cannabis ETFs tickers p S d N.
Speaker 1: So if you want some some exposure to the cannabis business,
Speaker 1: that's one of the ways to go. This is Bloomberg.
Speaker 1: You're listening to the team. Ken's herline program Bloomberg Markets
Speaker 1: weekdays at ten, AMI's Daring on Bloomberg dot com, the
Speaker 1: I Heard Radio app and the Bloomberg Business App. We're
Speaker 1: listening on demand wherever you get your podcast got big
Speaker 1: earning starting tomorrow. But let me ask one of our
Speaker 1: favorite professionals out there kind of what they're looking at.
Speaker 1: Lizan Son, there's chief Investment strategists from Charles Schwabs. She's
Speaker 1: got experience, she's got perspective and money at Schwab's got
Speaker 1: a couple of shekels under assets. How many trillion dollars
Speaker 1: Lizan does of assets under manage? Seven trillion dollars? Tiny
Speaker 1: little seven trillion? Wow, that's amazing. So jeez, all right, Lizanne,
Speaker 1: what are you focused on? Are you focused on the
Speaker 1: Eco screen on the Bloomberg terminal that gives you all
Speaker 1: the PPI and CPI data and all the kind of stuff?
Speaker 1: What are you really focused on here? So? I you know,
Speaker 1: I think it's important. You've seen the needle move a
Speaker 1: little bit in the last couple of days with regard
Speaker 1: to expectation for whether the set's going to go twenty
Speaker 1: five on May sir, recent high it was about seventy
Speaker 1: two percent likelihood with the batch of data that's dropped
Speaker 1: to about sixty six, but clearly still in that direction. Yeah,
Speaker 1: pretty much everything in both the CPI report was either
Speaker 1: in line or better than expected. It just does show
Speaker 1: the important deceleration, the fact that headline inflation dropped a
Speaker 1: full percent in terms of CPI. I'm what, I'm sort
Speaker 1: of grappling with is from an equity market perspective, how
Speaker 1: much of the rally is simply due to the notion
Speaker 1: of a pause or is it a belief in a pivot?
Speaker 1: And I just think that the Goldilocks scenario that seems
Speaker 1: to be part of that narrative of a pivot doesn't
Speaker 1: make sense because the FED is not going to pivot
Speaker 1: to rate cuts unless you either have much more serious
Speaker 1: stress in the banking system than what we're seeing now
Speaker 1: and or a much more significant deterioration in the economy
Speaker 1: and specifically the labor market. This notion that the FED
Speaker 1: would pivot to cuts a pause makes sense. I think
Speaker 1: they'll do it sooner read them later. But a pivot
Speaker 1: to rate cuts with inflation nowhere near their target, you know,
Speaker 1: I think that would be such a hit to their credibility.
Speaker 1: And this year luzianne I mean, I had a listener
Speaker 1: right in earlier he made the point that it doesn't
Speaker 1: make any sense that the market interprets a FED cut
Speaker 1: in twenty twenty three as a positive, because if the
Speaker 1: FED needs to cut this year, after Jerome Powell has
Speaker 1: assured us all over and over and over again that
Speaker 1: the FED is not going to cut this year. That
Speaker 1: would mean something very big has broken or they just
Speaker 1: have no credibility right then it's a credibility problem. I
Speaker 1: think they understand that the credibility problem pre existed even
Speaker 1: the fall of best feed be Given that they concede,
Speaker 1: they probably waited too long to come off the zero
Speaker 1: bound and start shrinking the balance sheet. So I just
Speaker 1: I'm not sure I kind of square the whole circle
Speaker 1: in terms of optimism in the equity market unless it's
Speaker 1: purely a function of just a pause. But as history
Speaker 1: shows that a pause is not necessarily green light for
Speaker 1: the market, you've got a really mixed bag Historically, post pause.
Speaker 1: In fact, post pause is often when the bigger sort
Speaker 1: of part of a crisis unfold, like was the case
Speaker 1: in O eight. Hey, Luzanne, I'm an old equity analyst.
Speaker 1: Earnings matter to me, so I'm going to be paying
Speaker 1: attention to this earning cycle that season, even if most
Speaker 1: others aren't. What are you looking for? What do you
Speaker 1: expect to see? What are you looking to see out
Speaker 1: of this earnings over the next several weeks. I think
Speaker 1: what's less important in this earning season are the stats
Speaker 1: like the beat eight percent by which companies beat. I
Speaker 1: think it's the outlook and obvious specificity coming from the
Speaker 1: financial on what they're seeing across the spectrum of you know,
Speaker 1: demand outflows, credit tightening, loan demand continuing to come down,
Speaker 1: net interest margin pressures. But I think it's also the
Speaker 1: case that analysts are sort of this narrow window they've
Speaker 1: been operating under in terms of adjusting estimates. Not because
Speaker 1: they're being lazy or they just don't have the foresight,
Speaker 1: it's just companies are providing less precision and guidance not
Speaker 1: quite as dire as with the situation during the worst
Speaker 1: part of the pandemic, when a record percentage of companies
Speaker 1: just said, we're not just gutting down, we'll withdrawing guidance
Speaker 1: all together because you know, we have no idea. It's
Speaker 1: gotten better, but it's still not the kind of clarity.
Speaker 1: So analysts sort of have this, all right, maybe I'll
Speaker 1: make an adjustment out the next quarter or two, but
Speaker 1: then wait until we get the current core or commentary
Speaker 1: and then maybe make adjustments to the out year. So
Speaker 1: this idea of you know, negative year every year in
Speaker 1: the first quarter, in the second quarter, that makes sense.
Speaker 1: Maybe that's still a little bit too high, but then
Speaker 1: you get back into positive territory and the third quarter
Speaker 1: and consensus is that you're back in double ditch a
Speaker 1: growth territory. About the fourth quarter, that's where I think
Speaker 1: it's the path of leisure. Distance may still be down,
Speaker 1: and I think we'll have a bit more color on
Speaker 1: that forward twenty twenty three guide and so maybe even
Speaker 1: twenty twenty four that can help with the whole valuation analysis.
Speaker 1: You know, the recession worries I think really kicked off
Speaker 1: in earnest with SBB and signature. At least I was having,
Speaker 1: you know, slight heart palpitations, and we did see across
Speaker 1: banking money move from deposits to money market funds to
Speaker 1: short term treasury ETFs. I feel like its Schwab. You know,
Speaker 1: there was a little bit of worry, but the you
Speaker 1: have the real benefit that you have those you know,
Speaker 1: broker dealer assets, so people who had money could stay
Speaker 1: inside Schwab. What do you see in terms of the
Speaker 1: flows there, Well, I don't comment on our stock on
Speaker 1: the sort of internals of what's happening at Schwab. That's
Speaker 1: you know what that ends are enters our CEO if
Speaker 1: your corvids are CFO, so I but I think there
Speaker 1: has been a lot of information and yes, um, you
Speaker 1: know you're you're quoting what I hope we now all
Speaker 1: know isn't a firm like ours. It stays you know,
Speaker 1: within the mothership. So well, that's the benefit. And I
Speaker 1: don't mean to ask you about the business of SCHWAB.
Speaker 1: I just mean to ask you know what you're seeing
Speaker 1: because you're in you have such an advantageous view over
Speaker 1: seven trillion dollars in assets. You know, have they come
Speaker 1: back a little bit from short term treasuries and money
Speaker 1: market funds or I mean, what we're seeing in terms
Speaker 1: of flows broadly in the mutual fund space, in the
Speaker 1: ETF space is consistent with what data from the likes
Speaker 1: of the icies of the world, so broader overall industry
Speaker 1: data is pretty consistent. There's clearly been a bias toward
Speaker 1: not just cash, higher yielding type investments, but fixed income.
Speaker 1: There's income and fixed income again, and you've seen those
Speaker 1: flows on the fixed income side. Obviously, you've also seen
Speaker 1: flows up the cap spectrum on the equity side, and
Speaker 1: some renewed interest on the international equity side, which has
Speaker 1: been a recommendation of ours for some time, not so
Speaker 1: much sell US by international, but a lot of investors,
Speaker 1: either because they didn't rebalance or just had a home
Speaker 1: country bias, let portfolios get a bit over bias toward
Speaker 1: US over international. So we are seeing a shift there
Speaker 1: on the equity side to international. But it's you know,
Speaker 1: it's as you would expect and somewhat consistent with what
Speaker 1: you're seeing with broad industry data. Hey, listen, you know
Speaker 1: so many investors in this marketplace they you know, all
Speaker 1: they've really known over the last ten, twelve, fourteen years
Speaker 1: has been Tech has been the leader of this market.
Speaker 1: Is that still the case or they've given up their
Speaker 1: mantle too. I don't know what industrials are something else.
Speaker 1: Do you need to see tech leading this market to
Speaker 1: have a broad rally? Not necessarily. In fact, in this
Speaker 1: particular environment, I think you need to see some stabilization
Speaker 1: and improvement in financials given what that's at the heart
Speaker 1: of in terms of the inner workings of the economy
Speaker 1: right now. And I think there is this misperception that
Speaker 1: without tech that you can have a market that does well.
Speaker 1: We also have to think about how a lot of
Speaker 1: people think of tech like lowercase T. For instance, you're
Speaker 1: to day people think, oh it's been a big tech rally. Well,
Speaker 1: communication services is the best performing sector this year, So
Speaker 1: there's that kind of trio of sectors comm services, consumer discretionary,
Speaker 1: where a stock like Amazon falls into consumer discretionary, not tech.
Speaker 1: So it's these sort of techie companies, and they did
Speaker 1: represent the lockdown era's kind of defensive names, but they
Speaker 1: represented the only ecosystem in which we're living. The more
Speaker 1: recent pushback into those names, some of it I think
Speaker 1: is short covering, but some of it I think is
Speaker 1: in this higher interest rate, higher inflation environment, with the
Speaker 1: woes in the banking system and the credit contraction we're
Speaker 1: starting to see. I think investors are saying, I want
Speaker 1: big companies that are shorter duration in nature, meaning they
Speaker 1: have cash flows and earnings in here, and now they've
Speaker 1: got ample cash on the balance sheet, they don't need
Speaker 1: to go to credit markets or the banking system to
Speaker 1: funder operations. So I think the fundamentals behind the move
Speaker 1: this time are different from what was the case three
Speaker 1: years ago. Lizzie, thank you so much for joining us.
Speaker 1: Really appreciate it. As always. Lizzie Saunders, Chief investment strategist
Speaker 1: at Charles Ruff. You're listening to the Take kens are
Speaker 1: Line PROGRAMM Bloomberg Markets weekdays at ten am Eastern on
Speaker 1: Bloomberg Radio, the tun in app, Bloomberg dot Com, and
Speaker 1: the Bloomberg Business App. You can also listen live on
Speaker 1: Amazon Alexa from our flagship New York station. Just say
Speaker 1: Alexa play Bloomberg eleven thirty Looking at gold today, up
Speaker 1: another one point two percent, two thou thirty eight for
Speaker 1: gold near an all time Hi, what is going on there?
Speaker 1: Will mcdonnegh, He's the CEO and lead portfolio manager at
Speaker 1: EMG Advisors. Boy, the goldbugs are out in force here. Well,
Speaker 1: what's going on with that precious metal gold? Well, you know,
Speaker 1: as we always see in times where markets are you know, volatile,
Speaker 1: people go to flight to quality. They go to gold,
Speaker 1: and they go to base metals that they take confidence in.
Speaker 1: You know, they go to the assets that are fixed
Speaker 1: or diminishing supply because you know, US dollars and the
Speaker 1: like are clearly worthless day over day, and so we'll
Speaker 1: continue to see action towards gold and other precious metals.
Speaker 1: But where's the demand actually coming from? Is this a
Speaker 1: kind of simply market move this is how you head
Speaker 1: your portfolio bid or is there physical demand that's driving
Speaker 1: this as well? Yeah, there's not physical demand. I think
Speaker 1: that's what's funny is people just don't know any better.
Speaker 1: It's just what people have been been doing for a
Speaker 1: long time is thinking, when I want to be safe,
Speaker 1: I go to gold. But gold doesn't even you know,
Speaker 1: make fake teeth anymore. Gold isn't used in society. World
Speaker 1: uses copper, lithium, nickel, cobalts. Those are the base metals
Speaker 1: that we focus on. I have no interest in holding
Speaker 1: gold for the long term because there's less and less
Speaker 1: use cases for gold day over day, in year over year.
Speaker 1: You know. I want fixed supply assets that actually have
Speaker 1: demands and not just from you know four one ks
Speaker 1: that pivot to that when they want to lessen their
Speaker 1: SMP exposures. But isn't that a pretty bold call. I'd
Speaker 1: say the power of the Chinese an Indian consumer who
Speaker 1: primarily use gold from a consumption purpose. Yeah, I think
Speaker 1: that the future of demand there is not gold. I
Speaker 1: think that the future is more so copper. It's more
Speaker 1: so all these green energy metals that have massive rising
Speaker 1: demand and have more and more volatile supply chains. And yes,
Speaker 1: gold is still relied on in different parts of the world,
Speaker 1: but less and less day over day. What's the supply
Speaker 1: picture for gold? I never think about it that way.
Speaker 1: I just kind of think about it with the you know,
Speaker 1: the price on my screen here, But what's the supply
Speaker 1: situation look like? Yeah, we all take that stuff for granted,
Speaker 1: And the truth of the matter is nobody really wants
Speaker 1: to talk about it because it's not pretty. You know,
Speaker 1: gold comes from largely non democratic parts of the world
Speaker 1: that don't have e S or G compliance and you know,
Speaker 1: so nobody wants to talk about that. They just want
Speaker 1: to see it on their screen and they don't want
Speaker 1: to think about what it's going to take to actually
Speaker 1: get it. But then also, the volumes that trade in
Speaker 1: gold are largely by people who have no capacity to
Speaker 1: take physical delivery of the metal itself, and so it's
Speaker 1: just more screen the screen as you reference, than it
Speaker 1: is people that are actually utilizing the underlying metal. And
Speaker 1: that's why you know, I have concerned for that over
Speaker 1: the long haul. Well what does it then mean for Well,
Speaker 1: we got to bring it back to central bank policy specifically,
Speaker 1: how is the Federal Reserve or the Bank of England.
Speaker 1: Looking at what these gold prices are doing. We always
Speaker 1: ask our guests, what is the bond market telling you
Speaker 1: about the FED? What is the gold market telling you
Speaker 1: about the Fed? Well, I think it's telling us that
Speaker 1: people don't trust the FED and that, you know, the
Speaker 1: the amount of money that's been pumped into the system.
Speaker 1: You know, I think it was nineteen seventy two that
Speaker 1: the US government depegged the US dollar from its gold reserve.
Speaker 1: Ever since that day, you know, gold and the underlying
Speaker 1: price of it has had really no bearing on the
Speaker 1: value of the US dollar or of global currencies. Sadly,
Speaker 1: and because of that, we find ourselves in environments like
Speaker 1: we're in today, where you know, they can just print
Speaker 1: as much money as they choose to to calm and
Speaker 1: satiate the markets, and less and less is that correlated
Speaker 1: to two golds. So more so gold is rising as
Speaker 1: something that people perceive to have fixed supply or more
Speaker 1: finite supply than US dollars have or will have. And therefore,
Speaker 1: you see when people, you know, find volatility in those markets,
Speaker 1: they're gonna they're gonna drive to those base metals and
Speaker 1: those fixed supply assets just because you know there's nobody
Speaker 1: sitting at the helm that can just press a button
Speaker 1: and create more of them overnight. So another story here
Speaker 1: will that got my attention here just in the metal
Speaker 1: space is JP Morgan. You know, they're the biggest players
Speaker 1: in trading metals globally. It kind of feels like maybe
Speaker 1: they're they're cutting back a little bit. They're cutting back
Speaker 1: on some of their bonuses, they cut back on their
Speaker 1: roster of clients they'll deal with. I know they were
Speaker 1: had some bed uh, you know, exposure to the nickel
Speaker 1: market last year and that short squeeze. What do you
Speaker 1: take from when you see something like JP Morgan say
Speaker 1: maybe we're gonna pull back our exposure to commodities. Yeah,
Speaker 1: you know, that disappoints me. And I think there's two
Speaker 1: angles to it. One is when Silicon Valley Bank goes
Speaker 1: under and regional banks find a lot of pressure, the
Speaker 1: big banks who have consolidated those assets now all of
Speaker 1: a sudden, they don't have to take as much risk,
Speaker 1: right because they don't have as much competition. And so
Speaker 1: when you have a zero risk environment, you know where
Speaker 1: you can buy treasuries that give good yields. JP Morgan
Speaker 1: ironically also announced today that they're in emerging market debt
Speaker 1: because they can get teams like returns. You see people
Speaker 1: going into the debt markets for high single digit and
Speaker 1: low double digit returns and not needing to take Chinese
Speaker 1: counterparty risk, Russian counterparty risk, and trade in some of
Speaker 1: these more esoteric markets. So it's net negative for all
Speaker 1: of us because the big banks aren't innovation and putting
Speaker 1: more risk assets into play. It's net negative for the
Speaker 1: global commodities markets because you have one less player. But
Speaker 1: what that's going to result in is less competition for
Speaker 1: the same underlying assets, which is arguably going to drive
Speaker 1: pricing up. I think you just see JP Morgan throwing
Speaker 1: their hands in the air and saying, we clearly aren't
Speaker 1: good at this. This isn't our expertise. You know, we
Speaker 1: don't need to be taking these risks and we got
Speaker 1: to leave this to the experts, which is good for
Speaker 1: you know, EMG and good for my business because you
Speaker 1: know that happens to be where we focus. So where
Speaker 1: are you guys other than gold? Where are you guys,
Speaker 1: you know, doing some work these days? Where you guys active?
Speaker 1: We are most active. We have an ETF on the
Speaker 1: New York Stock Exchange called charge HRG, which is purely copper, lithium, nickel,
Speaker 1: and cobalt, giving investors exposure to the future price activity
Speaker 1: and exploration of the future you know, price hopefully increase
Speaker 1: of the base metals necessary for solar wind ev all
Speaker 1: of that adoption. You know, we're very heavily allocated to
Speaker 1: copper today because copper is needed for all solar, all
Speaker 1: wind all or ev all charging infrastructure for any ev
Speaker 1: So no matter who wins the race between GM FORD, TESLA, RIVAN,
Speaker 1: we don't really care. They all need the same base metals,
Speaker 1: and so we give investors a pure allocation to that,
Speaker 1: you know, through the New York Stock Exchange under CHRG.
Speaker 1: I wonder about then, the actual I guess safety of
Speaker 1: the trade you mentioned JP Morgan. Recently they've talked about
Speaker 1: kind of getting into trouble with a nickel trade in
Speaker 1: which the nickel wasn't actually there was there was no
Speaker 1: physical supply to back up the contracts that they were pushing.
Speaker 1: Does that then have a little bit of a kind
Speaker 1: of risk factor for other investors, maybe not the biggest banks,
Speaker 1: to say, well, do we really want to get involved
Speaker 1: in the commodity trade to begin We've always already seen,
Speaker 1: for example, in oil prices that open interest is completely dropped.
Speaker 1: Are we seeing that in the metals? You are for
Speaker 1: sure you're seeing less players in the term open interest
Speaker 1: is an important one, and I know you know the
Speaker 1: space well. I've followed you tracking it for a while
Speaker 1: and I think you do a good job covering it.
Speaker 1: You know, people more and more are realizing that you
Speaker 1: need to have deep industry expertise to trade in these markets,
Speaker 1: and so there's a lot of offscreen trading that occurs
Speaker 1: between counterparties like miners and like the consumers or the producers. Sadly,
Speaker 1: you know, China, to their own benefit, have gone out
Speaker 1: over the last decade and secured off take agreements and
Speaker 1: locked up you know in Nickels specifically, I think they
Speaker 1: have thirty five percent of the global processing capacity is
Speaker 1: in China. So they've gone out and locked in. They
Speaker 1: locked in these off take agreements from the physicals all
Speaker 1: across the world, and now we're hoarding and creating a
Speaker 1: bottleneck in the processing capacity. So that results in less
Speaker 1: open interest because there's less parties trading and a more
Speaker 1: controlled environment, which is bad because you know that arms
Speaker 1: priced tocovery, and therefore you know it is going to
Speaker 1: result in higher pricing because there's less counterparties to create competition.
Speaker 1: So I'm just looking at this HRG. You your ETFE,
Speaker 1: where's the biggest swing factor for that ETF. You know,
Speaker 1: we've taken the position that you know, the four trillion
Speaker 1: dollars that have been committed to going green and carbon
Speaker 1: neutrality global over the next ten to fifteen years, which
Speaker 1: by the way, is more money than every other human
Speaker 1: endeavor ever undertaken, which is from the World Bank, that
Speaker 1: demand curve and that pull with stimulus from global governments,
Speaker 1: with top ten car companies committing to only selling evs,
Speaker 1: with the EPA yesterday coming out and saying it's going
Speaker 1: to be harder and harder for people to get combustion
Speaker 1: engine vehicles approved because of their emissions, we think that
Speaker 1: that demand curve is going to be way outpacing the
Speaker 1: supply capacity for the existing infrastructure, and therefore we think
Speaker 1: that the price of those base medals is going to
Speaker 1: increase in these coming years, and that's why we built
Speaker 1: the product. It's also very hard, as you reference to
Speaker 1: trade futures. Yeah. I used to work at Goldman Sachs
Speaker 1: and my old desk turned me down there when they
Speaker 1: said unless you have passed on the pause that you
Speaker 1: can't trade. And yeah, all right, well we're gonna have
Speaker 1: to have to leave it there just because of time.
Speaker 1: Will mcdonea CEO and lead portfolio manager for EMG Advisors.
Speaker 1: You're listening to the tape cancer O Live program Bloomberg
Speaker 1: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 1: Pandu shahre joins us. He is COCO of Indie's Capital.
Speaker 1: He is Indonesian Coal Mining Association. He's the chairman there,
Speaker 1: so he can really talk to us about Indonesia. Pan
Speaker 1: do thanks so much for taking the the time here.
Speaker 1: Can you give us kind of if you will. Let's
Speaker 1: start us off with the elevator pitch for Indonesia from
Speaker 1: an investment perspective. Yeah, sure, thank you. Thank you for
Speaker 1: having us Indonesia as a member of the g TWNT.
Speaker 1: We hosted the gun last year. You know, we've been
Speaker 1: growing at about five six percent per clip, and in
Speaker 1: the next seven years, most people expect that will be
Speaker 1: part of the G seven as the seven largest economy
Speaker 1: in the world. And a lot of it is actually
Speaker 1: driven by energy transition and a lot of it is
Speaker 1: related to nickel. You are here, I'm in the US
Speaker 1: right now, Washington, d C. What's so interesting is that,
Speaker 1: you know, majority of cars motorcycles will be mainly be
Speaker 1: driven by electric vehicles, and a lot of it will
Speaker 1: come the battery source will come from nickel, and maybe
Speaker 1: for some of your listeners that know or don't know,
Speaker 1: majority or a quarter of those supply will come from Indonesia.
Speaker 1: Indonesia's the largest nickel producer and now just leader supplier
Speaker 1: in the world. And you know there's a lot of
Speaker 1: activities happening between America and Indonesia. So, you know, happy
Speaker 1: to talk more about what's going on in our part
Speaker 1: of the world. Yeah, that's interesting, So talk to us
Speaker 1: about just the energy pivot you're talking about. I know
Speaker 1: you're involved or have been involved in the coal industry.
Speaker 1: Talk to us about just Indonesian general that switch. Yeah,
Speaker 1: so you know, the switch happened I think the last
Speaker 1: two three years where you know, we are the largest
Speaker 1: coal producer and exporter in the world, and you know,
Speaker 1: our president essentially says we have to switch and we're
Speaker 1: moving away from just crossing raw materials and moving into
Speaker 1: the downstream industry and nickel it's one of the main
Speaker 1: market that we're focusing on. And what's interesting in Indonesia
Speaker 1: today it can go from a raw material of nickel
Speaker 1: all the way to the battery creation and now creating
Speaker 1: the motorcycle and what is it called cars. An example,
Speaker 1: Yanda just finished the largest car manufacturing facility in Indonesia
Speaker 1: for all of its four wheeler for Southeast Asia. Soon,
Speaker 1: I think Ford just sign an MoU last week in
Speaker 1: Jakarta to build a facility too in Indonesia using nickel
Speaker 1: and hopefully soon I think. I'm sure you've heard it
Speaker 1: in Bloomberg about Tesla as well. You know, for ourselves
Speaker 1: we're building two wheelers motorcycle. Indonesia's the second largest motorcycle
Speaker 1: in the world right because a massive market. You know,
Speaker 1: you're talking about per industry thirty to forty billion per anna.
Speaker 1: So in in Indonesia here talk You talk a lot
Speaker 1: about the nickel and how important that is. Is it
Speaker 1: is that sourced in Indonesia. Has that always been a
Speaker 1: mineral available? It's always it's always been a middle available
Speaker 1: in Indonesia, but most people don't know what to do
Speaker 1: with it right now, with technology and obviously the amount
Speaker 1: of demand for ev Indonesia has become the battleground for
Speaker 1: most car manufacturers because essentially all the car manufacturers in
Speaker 1: the world today has become mineral specialists. And you're seeing
Speaker 1: this globally, right And if you talk about alternative I
Speaker 1: would say supply chain, Indonesia today has become one of
Speaker 1: the most important places globally for car manufacturers. So if
Speaker 1: i'm if it Indonesia, give us a sense of the
Speaker 1: business climate there, particularly on on the venture capital side.
Speaker 1: I mean it sounds like, obviously resource rich nation, is
Speaker 1: how easy or how supportive is the environment to kind
Speaker 1: of build businesses there? Create? Oh venture amazing? I think,
Speaker 1: thank you for asking this question. I think venture capital
Speaker 1: I think Indonesia's stopped five in the world after America.
Speaker 1: Obviously China is a big market, then it's actually India
Speaker 1: and Indonesia those are the key growth markets globally or
Speaker 1: venture related businesses, and as you know, the big side
Speaker 1: and venture is outside of AI. I think AI is
Speaker 1: very big here in the US. Number two is related
Speaker 1: to energy transition, so things related to the carbon credit,
Speaker 1: anything related to how how do you create more renewable
Speaker 1: energy sources? What are you doing with processing of raw
Speaker 1: materials and creation of batteries. I would say Indonesia stopped
Speaker 1: for in the world of amount of venture capital investment
Speaker 1: going into these sectors. Talk to us a little bit
Speaker 1: about China here. So much change, you know over the
Speaker 1: last several years. Give us just a sense historically how
Speaker 1: Indonesia's interacted with China and maybe how that is changing
Speaker 1: from a you know, both as a customer and as
Speaker 1: a source and trade in general, things are changing a lot.
Speaker 1: I know Bloombergers in the middle of this too, But
Speaker 1: Indonesia has been you know, we're good friends with everyone.
Speaker 1: China is a big trading partner. But again, you know,
Speaker 1: it's just win win, right with a US too. There's
Speaker 1: been significant amount of new investment coming in especially the
Speaker 1: last twelve months, and outside of Nickel, there's a lot
Speaker 1: of investment coming up in digital infrastructure and things related
Speaker 1: to renewable energy. And that's why we're all here in
Speaker 1: Washington and after this we're going to New York. Is
Speaker 1: because to engage a lot with both the public and
Speaker 1: the private sector anything to do with energy transition, you
Speaker 1: have to manage both the public sectors as well as
Speaker 1: the private sectors. So is that how I mean? I
Speaker 1: think what we're learning in order at least the folks
Speaker 1: that are really focusing on the energy transition is a
Speaker 1: private public partnership. The government can't do at all. Private
Speaker 1: companies and venture capitalists can't do it all. It's got
Speaker 1: to be some type of Is that the kind of
Speaker 1: the model you're following in Indonesia? I think so we are,
Speaker 1: and we're learning a lot the way things work in India,
Speaker 1: for example, that's a good example. I think it is
Speaker 1: halfway between the US and Indo. A government place a
Speaker 1: significant role from a policy perspective to encourage people to
Speaker 1: switch behavior. So there's a certain critical mass where things
Speaker 1: switches and everybody start using it. A good example is
Speaker 1: the usage of electric vehicle. Right today, we used yourtional
Speaker 1: means for cars. You need to have incentive programs, so
Speaker 1: in a good example incentive program where people can buy
Speaker 1: and get a discuss with you buy EV. So the
Speaker 1: regulation nesia has happened two weeks ago. It's probably the
Speaker 1: most aggressive across all the Nation States and Assam. And
Speaker 1: I think this will help encourage further investment into the
Speaker 1: EV sector as well as building the manufacturing in Indonesia.
Speaker 1: So ponder what's a lot of tailwinds of course for Indonesia.
Speaker 1: What's the biggest challenge for Indonesia to achieve? Kind of
Speaker 1: what are some of the opportunities. Yeah, I think there's
Speaker 1: just two. I mean, we're in such a good momentum
Speaker 1: today because now we've entered the global stage as we
Speaker 1: host the gpuenty last year well and this year we're
Speaker 1: hosting the Assam Sement. I think it's more about execution,
Speaker 1: continuously execute, execute. And second, obviously we're next year is
Speaker 1: election years, similar to here in the US, so continuity
Speaker 1: will be top of mind for any investors. So how
Speaker 1: do you continue the policy of of creating what's called
Speaker 1: a stable environment? So politics also played croll in that. Pondu,
Speaker 1: thank you so much for taking a time to join
Speaker 1: us from glad we had had the chance to have
Speaker 1: this conversation Pendu Shahre, He's COCO of Indies Capital, really
Speaker 1: involved all across the public private partnerships across Indonesia. He's
Speaker 1: been called one of the you know, the leading venture
Speaker 1: capitalists in Indonesia. So we're just trying to get you know,
Speaker 1: get more educated on that part of the world, and
Speaker 1: I think that we're starting to do more and more
Speaker 1: of that. Is a lot of folks look to say, hey,
Speaker 1: where else can we source part of our products and
Speaker 1: services other than China? As China's you know, kind of
Speaker 1: backing off a little bit again people talking about India,
Speaker 1: of course, but Indonesia a definitely in the center of
Speaker 1: that conversation as well. Thanks for listening to the Bloomberg
Speaker 1: Markets podcast. You can subscribe and listen to interviews with
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
Speaker 1: I'm on Twitter at Matt Miller nineteen seventy three, pen
Speaker 1: On Falswhinnie on Twitter at pt Sweeney. Before the podcast,
Speaker 1: you can always catch us worldwide at Bloomberg Radio.