WEBVTT - Markets Vs. Central Banks 0:00:03.720 --> 0:00:07.120 Scrap on your parachute. It's time for What Goes Up 0:00:07.360 --> 0:00:14.920 with Sarah Ponzick and Mike Reagan. Hello, and welcome to 0:00:15.040 --> 0:00:18.960 What Goes Up, a Bloomberg Weekly Markets podcast. I'm Sara Pont, 0:00:19.480 --> 0:00:22.320 reporter on the Cross Asset team, and I'm Mike Reagan, 0:00:22.520 --> 0:00:26.000 a senior editor at Bloomberg. This week on the show, 0:00:26.480 --> 0:00:30.120 a year ago, global markets were reeling from the COVID crisis. 0:00:30.680 --> 0:00:34.640 Now stocks are surging, meme stocks are a near daily phenomenon, 0:00:35.000 --> 0:00:37.400 and bond yields are taking higher on Wall Street. It 0:00:37.440 --> 0:00:40.640 almost feels like a different world. Well, our guests last 0:00:40.720 --> 0:00:43.040 joined the show in the summer to discuss the very 0:00:43.080 --> 0:00:47.680 trade that delivered a double digit return duringsh So now 0:00:47.960 --> 0:00:49.559 he's going to join us and he'll share how is 0:00:49.560 --> 0:00:52.720 from his position to capitalize on the recovery, and of 0:00:52.760 --> 0:00:55.640 course we will close out the episode with our tradition 0:00:55.760 --> 0:00:59.760 the craziest thing I saw in markets this week? And 0:01:00.000 --> 0:01:02.000 if you saw something crazy, please do give us a 0:01:02.080 --> 0:01:05.760 call on the Bloomberg Podcast hotline at six four six 0:01:06.319 --> 0:01:08.960 three two four three four nine, oh and leave us 0:01:08.959 --> 0:01:11.559 a voicemail and maybe we'll play it on the show. 0:01:12.160 --> 0:01:15.840 Of course, can also tweet in our general direction. We're 0:01:15.880 --> 0:01:20.199 at the handle at podcasts are Bloomberg podcast Handle and Sarah. 0:01:20.240 --> 0:01:22.920 I gotta say, for the crazy things I've sworn off 0:01:22.959 --> 0:01:24.880 of n f T s, I'm done with the n 0:01:24.920 --> 0:01:27.720 f T s there were I have plenty of n 0:01:27.800 --> 0:01:29.600 f T s to offer, and I did bring one 0:01:29.680 --> 0:01:32.360 non n f T crazy thing as well, because I 0:01:32.360 --> 0:01:34.119 know we've discussed n f T s the past couple 0:01:34.400 --> 0:01:36.000 but come on, there were just a couple of this 0:01:36.080 --> 0:01:38.400 past week that you couldn't ignore. I know, I know, 0:01:38.520 --> 0:01:40.880 but there, I feel like they're jumping the shark now there. 0:01:40.920 --> 0:01:42.680 There there were fun when no one had ever heard 0:01:42.720 --> 0:01:44.479 about an n f T. Now it's just get it's 0:01:44.480 --> 0:01:48.640 getting everywhere, very commonplace. We're minting n f T millionaires 0:01:48.680 --> 0:01:52.440 and probably billionaires soon. You know. I it makes my 0:01:52.520 --> 0:01:55.200 head spin, But I look forward to your crazy n 0:01:55.280 --> 0:01:58.600 f T things. But before we get to that, let's 0:01:58.720 --> 0:02:03.200 welcome back our guest. He is the chief investment officer 0:02:03.400 --> 0:02:07.640 at Reminiscent Capital in Australia. His name is David Adams. David, 0:02:07.680 --> 0:02:11.239 welcome back to the show. Thanks guys, great to be here, 0:02:11.400 --> 0:02:13.200 and yeah, I guess it was nine months ago that 0:02:13.200 --> 0:02:14.919 we last caught up. So thanks for having us back 0:02:14.919 --> 0:02:17.880 on the show. It was fun last time. Right right now, David, 0:02:17.919 --> 0:02:20.440 I know you made some trades that that worked out 0:02:20.440 --> 0:02:24.600 pretty well during COVID. Luckily for you, what goes up 0:02:24.639 --> 0:02:27.440 we allow for victory laps, So so we will allow 0:02:27.600 --> 0:02:31.320 allow a victory lap. Remind us about what worked for 0:02:31.400 --> 0:02:35.280 you in your trading strategies, what didn't work during COVID. 0:02:35.320 --> 0:02:37.600 Catch us up on and you know sort of how 0:02:37.639 --> 0:02:40.920 you handle the whole situation and kind of where things 0:02:40.960 --> 0:02:46.560 stand now as far as how you're looking at opportunities. Sure, yeah, 0:02:46.600 --> 0:02:49.720 so we sort of, um we we I mentioned last time, 0:02:49.720 --> 0:02:52.160 we've we've been lucky enough that we're on lucky in 0:02:52.160 --> 0:02:56.040 some ways, had been through four crises previously, and so 0:02:56.080 --> 0:02:58.200 there was a certain sort of playbook when you've been 0:02:58.360 --> 0:03:00.440 been there. All a little bit to front, but they 0:03:00.440 --> 0:03:02.640 have an underlying kind of similarity. So we sort of 0:03:02.680 --> 0:03:05.919 rolled out that playbook um in Q one of last year, 0:03:05.919 --> 0:03:09.120 and it was essentially, you know, bonds and then FX 0:03:09.280 --> 0:03:12.720 involved in equity downside, and then margin as people kind 0:03:12.720 --> 0:03:14.320 of have to post margin. We sort of went went 0:03:14.320 --> 0:03:16.919 through that and uh and and it played out much 0:03:16.960 --> 0:03:19.760 like the prior prior crisis had done. So we're fortunate 0:03:19.840 --> 0:03:23.040 enough to sort of capture that and avoid avoid trouble 0:03:23.080 --> 0:03:25.560 and make money for investors in Q one. And I 0:03:25.560 --> 0:03:30.040 think when we caught up was around July from memory 0:03:30.880 --> 0:03:33.519 on the show, and and then what we were describing 0:03:33.720 --> 0:03:36.560 was what we thought was giving the opportunity possibly for 0:03:36.560 --> 0:03:40.640 the next couple of years, is a handover from the 0:03:40.720 --> 0:03:44.880 developed markets um into the ear market, especially Asia. So 0:03:44.880 --> 0:03:47.720 what I mean that specifically is UM for for for 0:03:47.720 --> 0:03:50.960 for countries like China, India and Japan to extent, and 0:03:51.080 --> 0:03:54.160 and and one or two others in Asia to play 0:03:54.320 --> 0:03:56.920 a big catch up to the likes of the SMP 0:03:57.040 --> 0:03:59.680 and the NASDAC. And I was just against some some 0:03:59.760 --> 0:04:03.880 note last night, and this is an anecdote. UM you've had. 0:04:04.000 --> 0:04:06.960 China since we last caught up peaked up at thirty 0:04:06.960 --> 0:04:10.640 eight point nine percent gained from that July level, India 0:04:10.680 --> 0:04:13.640 up at forty six point six, Japan the NICK up 0:04:13.640 --> 0:04:16.960 at thirty five point six, and meanwhile the SMP put 0:04:17.040 --> 0:04:19.039 up a healthy yame it was only twenty two point eight. 0:04:19.560 --> 0:04:22.400 So that's the sort of seventeen and a half PERCENTUM 0:04:22.640 --> 0:04:26.440 kind of relative catch up that Asia is starting to do, 0:04:26.880 --> 0:04:28.839 and a lot of that actually came in the fourth quarter. 0:04:29.320 --> 0:04:31.080 So if we just take beta, you know, the beta 0:04:31.120 --> 0:04:33.360 of the market out for a second, you know, this 0:04:33.440 --> 0:04:36.120 is just starting to happen now. So this this sort 0:04:36.160 --> 0:04:38.880 of relative catch up which we started in a fourth 0:04:38.920 --> 0:04:41.200 quarter is beginning. I think last time on the show 0:04:41.200 --> 0:04:42.960 we described that could be as much as a sixty 0:04:44.040 --> 0:04:46.359 relative catch up. So it's definitely not too late for 0:04:46.400 --> 0:04:49.120 investors out there. And I'll talk in a minute about 0:04:49.160 --> 0:04:51.839 kind of opportunities for this year and how we're positioning 0:04:51.880 --> 0:04:54.880 to sort of participate in that. It's quite interesting because 0:04:55.560 --> 0:04:58.200 UM equity markets had a strong start, but had you 0:04:58.240 --> 0:05:01.520 piled in so late jan mid web, you'd be sort 0:05:01.520 --> 0:05:04.000 of eighteen percent off side with this pullback that we've had. 0:05:04.120 --> 0:05:07.200 We'd have described how we avoided that UM. So that 0:05:07.279 --> 0:05:08.599 was one of the main things we were talking about 0:05:08.640 --> 0:05:12.560 as an opportunity UM that relative catch up for Asian equities, 0:05:12.760 --> 0:05:14.760 which is starting to occur, and we'll expand on that 0:05:15.000 --> 0:05:17.359 maybe a little bit later in the show. That was 0:05:17.400 --> 0:05:19.320 one thing, and then we had a bit of an 0:05:19.320 --> 0:05:25.159 anecdote that I spoke about Mr Bunny and Terry age 0:05:25.200 --> 0:05:27.920 of turbulence book. But I'm pleased to say there's been 0:05:27.920 --> 0:05:33.520 no no books eaten since then. Probably probably probably you know, 0:05:34.560 --> 0:05:36.440 probably tells us this probably a little bit of smooth 0:05:36.440 --> 0:05:40.520 sailing a head still for a while. However, Um, we're 0:05:40.520 --> 0:05:44.440 seeing some stuff in our process that's very concerning, that's 0:05:44.480 --> 0:05:46.880 actually very interesting as well, and we'll talk to that 0:05:46.960 --> 0:05:49.120 a little bit later. Um. So yeah, that just brings 0:05:49.160 --> 0:05:51.760 us up to speed. So I definitely want to get 0:05:51.800 --> 0:05:54.359 into what you said is possibly concerning. But you mentioned 0:05:54.400 --> 0:05:57.120 the pullback that we have seen in particularly in Asian equities. 0:05:57.160 --> 0:05:59.320 I was just pulled up the CSI three D. We 0:05:59.360 --> 0:06:02.560 recently saw fourteen percent pullback. Granted we've seen a pullback 0:06:02.600 --> 0:06:06.040 in US equities and other equities around the globe as well, 0:06:06.560 --> 0:06:10.560 but more pronounced any um in Asian equities to We've 0:06:10.560 --> 0:06:12.359 spent a lot of time over the last couple of 0:06:12.360 --> 0:06:15.800 weeks discussing with guests this cyclical rotation that we've seen, 0:06:15.839 --> 0:06:19.680 but mostly focused on US equity is talking about growth 0:06:19.720 --> 0:06:22.239 to value or the move that we've seen into energy 0:06:22.240 --> 0:06:25.080 and financials. Where does this rotation that we have seen 0:06:25.120 --> 0:06:28.240 from developed to emerging markets currently stand and even considering 0:06:28.240 --> 0:06:30.919 the pullback that we have seen in recent weeks, would 0:06:30.920 --> 0:06:32.600 you say that there is more room for a catch 0:06:32.640 --> 0:06:35.320 up and why would that be? What what will do 0:06:35.440 --> 0:06:37.880 here is I'll draw on you know what it typically 0:06:37.880 --> 0:06:41.560 in my career has been a north star and UM 0:06:42.080 --> 0:06:45.159 is very worthwhile paying attention to. I think we spoke 0:06:45.200 --> 0:06:48.520 about it last time. It was analogous back in February March. 0:06:49.240 --> 0:06:51.440 UM been in many ways in the opposite direction. That 0:06:51.520 --> 0:06:55.120 was the bonde market, the rights market, UM. And you know, 0:06:55.200 --> 0:06:58.160 when when she wakes up and speaks, we should definitely listen. 0:06:58.200 --> 0:07:00.560 And last year I think I'm just bribed some of 0:07:00.600 --> 0:07:04.400 the intricacies of you know, dollar block funding. We spoke 0:07:04.400 --> 0:07:06.800 about how the informational value at the front end. You know, 0:07:06.839 --> 0:07:09.840 she definitely knows what's going on. We spoke also about, 0:07:09.880 --> 0:07:12.840 you know, the type of price section whereby last year, 0:07:12.840 --> 0:07:15.360 when we're going into the crisis mode, UM, you know, 0:07:15.640 --> 0:07:18.480 very large percentage of the of the price section was 0:07:18.520 --> 0:07:20.600 happening on the offense side of futures are either we're 0:07:20.600 --> 0:07:23.960 getting bought with no pullbacks and that that tells you something. 0:07:24.560 --> 0:07:27.120 UM this time around is actually the opposite UM. So 0:07:27.160 --> 0:07:29.040 the so the bond market has woken up and shaken 0:07:29.080 --> 0:07:31.680 her tail. It's not the front end I you risk 0:07:31.720 --> 0:07:34.960 off and rates lower, it's the back end rates higher, 0:07:35.320 --> 0:07:37.000 and in some way they won't call it a risk on. 0:07:37.080 --> 0:07:39.680 I'll describe in a minute when I think is going on. Um. 0:07:39.720 --> 0:07:43.080 And the opposite to the price section was relentless selling 0:07:43.080 --> 0:07:46.120 of bonds and fixed income and fixed income futures kind 0:07:46.120 --> 0:07:49.960 of across the board. Um. Okay, that's really interesting and 0:07:49.960 --> 0:07:54.480 and what's happening there. So my humble belief is that 0:07:55.800 --> 0:08:00.000 the central banks have completely overcooked this. There's way too 0:08:00.080 --> 0:08:05.240 much kind of stimulus globally. Now granted that's probably not 0:08:05.320 --> 0:08:09.360 helping the real economy, but the financial asset reflation UM 0:08:09.400 --> 0:08:12.280 and some of the exuberant behavior, whether it's game stop 0:08:12.400 --> 0:08:15.160 or other anecdotes we want to choose from for people 0:08:15.200 --> 0:08:16.880 have been around for a while, it really is kind 0:08:16.880 --> 0:08:20.840 of um reminiscent to plug the name of you know, 0:08:21.000 --> 0:08:26.960 sort of uh overcooking, overcooking of of a stimulus. And 0:08:26.960 --> 0:08:29.840 I think, you know, um, I don't think if you 0:08:29.920 --> 0:08:33.439 look at Stanley Drugconen was recent interviewed. He gave a 0:08:33.480 --> 0:08:36.400 fantastic interview and he quotes some really interesting stats about 0:08:36.400 --> 0:08:39.400 the extent of um kind of stimulus that was that 0:08:39.520 --> 0:08:41.520 was that was handed out in the first three months, 0:08:41.960 --> 0:08:43.960 something on the lines of it equal the prior three 0:08:44.080 --> 0:08:47.360 q q E episodes. Has been quite phenomenal. Now compliments 0:08:47.360 --> 0:08:50.440 of the Chinese, they've really matured out in terms of 0:08:50.440 --> 0:08:54.120 their approach for for crisis management. It would be much 0:08:54.160 --> 0:08:56.960 more prudent, frugal um they didn't have to do anywhere 0:08:56.960 --> 0:09:00.960 near as much kind of disbursement of stimulus. And in 0:09:01.000 --> 0:09:04.520 addition to that, they've been quite prudent on commenting. They've 0:09:04.520 --> 0:09:06.120 had the bravery taken out to a comment on some 0:09:06.120 --> 0:09:08.520 sort of perspectative bubble like behavior in their equity market. 0:09:08.559 --> 0:09:11.000 Now they have suffered as a result, but just remember 0:09:11.040 --> 0:09:13.720 I mentioned this last time. They're getting very very good 0:09:13.760 --> 0:09:16.480 at managing They've got a lot of leavers to manage 0:09:16.520 --> 0:09:19.600 their economy and their stock market. And we saw this 0:09:19.679 --> 0:09:21.960 recently on the recent pullback. You know, they had the 0:09:21.960 --> 0:09:25.840 ability to sort of um we were there was we 0:09:25.840 --> 0:09:27.840 were led to believe that the national team or there 0:09:27.880 --> 0:09:30.840 was some national support for their stock market that sort 0:09:30.840 --> 0:09:33.120 of halted the decline and started to recover a bit. 0:09:33.160 --> 0:09:35.600 So I don't feel like they're not until after they 0:09:35.640 --> 0:09:38.160 came out and said that assets looked over price. I mean, 0:09:38.160 --> 0:09:42.199 granted they were talking about Chinese equities, but correct, yeah, yeah, correct. 0:09:42.400 --> 0:09:44.280 So so so going back on on the on point 0:09:44.400 --> 0:09:47.720 is UM. The bond market move that we had in 0:09:47.840 --> 0:09:52.280 February UM is a very important signal. And essentially what 0:09:52.280 --> 0:09:53.679 it's saying as the bondom market is saying, you know, 0:09:53.760 --> 0:09:56.280 to the center banks, you're wrong. There's you've gone a 0:09:56.320 --> 0:09:59.000 little bit too far. And whether it's you know, reflationary 0:09:59.040 --> 0:10:03.400 assets through copper equity prices, UM. You know, they're also 0:10:03.440 --> 0:10:07.920 speaking as well. UM. So, so that's important. I'm also 0:10:08.000 --> 0:10:11.400 seeing some really interesting signs leads I've seen in the past. 0:10:11.440 --> 0:10:13.600 You know, if you think about the G ten. Oddly enough, 0:10:13.720 --> 0:10:17.000 we mentioned before in New Zealand for whatever reasons, partly 0:10:17.120 --> 0:10:20.040 is a small open economy and juxtaposed between EM and 0:10:20.120 --> 0:10:22.920 d M M is speaking as well. You know, they're 0:10:22.920 --> 0:10:25.960 they're over there in New Zealand recently they had UM. 0:10:26.240 --> 0:10:28.760 The New Zealand government essentially's turned around to the central 0:10:28.800 --> 0:10:31.160 Bank and said, you know, you need to take house 0:10:31.200 --> 0:10:35.080 prices into account in your mandate. Your wire is this 0:10:35.080 --> 0:10:37.959 This is because it's very similar in the G ten um. 0:10:38.040 --> 0:10:41.640 The policies that are being deployed helping the top ten 0:10:41.679 --> 0:10:45.760 percent get richer. House prices are going up, equity prices 0:10:45.760 --> 0:10:48.199 are going up, but real folks, you know, they're real 0:10:48.320 --> 0:10:50.960 jobs that don't necessarily have any of those things, are 0:10:50.960 --> 0:10:54.440 not benefiting from that. And your places like New Zealand 0:10:54.440 --> 0:10:57.160 and Australia to extended quite equalitarian. And then they said, 0:10:57.200 --> 0:11:00.640 you know, central bank policies not helping are our voters, 0:11:01.040 --> 0:11:04.040 constituents and and and they paid a lot of attention 0:11:04.080 --> 0:11:06.199 to that. So what does that mean? That means in 0:11:06.800 --> 0:11:09.520 some of these detaining countries where you've had property go up, 0:11:09.559 --> 0:11:13.360 stocks go up, but people are not necessarily benefiting from that. Perversely, 0:11:13.400 --> 0:11:15.440 you could have say, what what what New Zealand could 0:11:15.440 --> 0:11:18.000 be sort of hinting at here is um you might 0:11:18.040 --> 0:11:20.840 need to raise rates, you know, to just cool down 0:11:20.880 --> 0:11:23.880 some of these asset prices. That's very different from where 0:11:23.920 --> 0:11:26.280 we were just three six months ago. And you know, 0:11:26.280 --> 0:11:28.199 whilst people might say that's just that's New zeal it's 0:11:28.240 --> 0:11:30.920 not not applicable here. That won't happen in the US. 0:11:32.440 --> 0:11:35.040 Let's see, you know, I've been through many, many rate 0:11:35.080 --> 0:11:37.520 cycles up and down, and I'll get a lot of 0:11:37.679 --> 0:11:39.319 pushback on this, with a lot of that indemics, it 0:11:39.320 --> 0:11:41.320 will tell me why that's not going to happen. But 0:11:41.480 --> 0:11:43.719 I wouldn't be surprised we continue at going at this 0:11:43.840 --> 0:11:48.520 rate of commodity prices, asset prices, property prices, that the 0:11:48.559 --> 0:11:51.839 conversation gets brought way forward as to potential when rate 0:11:51.840 --> 0:11:54.720 backs can happen. Now, why is that worrying? Well, in 0:11:54.760 --> 0:11:57.679 the real economy, um, you know, and in a very 0:11:57.800 --> 0:12:00.920 leveraged world that we're in now, I don't think markets 0:12:00.920 --> 0:12:03.240 will be able to take rate hugs all that well. 0:12:04.040 --> 0:12:06.560 And people say that, well, nor it's reflation that you 0:12:06.600 --> 0:12:09.120 can have higher stocks, you can have higher commodities, you 0:12:09.160 --> 0:12:11.120 can have higher rates, because it's all it's all in 0:12:11.200 --> 0:12:14.480 the recovery mode. Now, the first thirty basis points of 0:12:14.520 --> 0:12:16.160 that in rates is true, and we saw this in 0:12:16.160 --> 0:12:18.840 the recent hundred basis points sell off. The last thirty 0:12:18.840 --> 0:12:22.080 basis points is not. Um whereby that started to really 0:12:22.760 --> 0:12:27.560 puncture things like long duration assets like tech. So you know, 0:12:28.200 --> 0:12:29.760 around at a minute, but what I'm saying, I think 0:12:29.800 --> 0:12:31.880 we're entering into a very kind of dangerous spiral in 0:12:31.920 --> 0:12:33.640 the later stages of and you can see a lot 0:12:33.640 --> 0:12:37.800 of that because retails participation is very high. Whereby m 0:12:37.960 --> 0:12:40.480 as we had that kind of nasty sell off in 0:12:40.480 --> 0:12:43.079 bonds that started to prick things like the Nasdaq. Central 0:12:43.120 --> 0:12:45.480 banks had to come in and calm down verbally, and 0:12:45.600 --> 0:12:48.559 initially bond markets you could get what we're getting now, 0:12:48.760 --> 0:12:51.320 which is yields of calm down, you'll start to go 0:12:51.400 --> 0:12:55.600 back down, and you probably get equities rip higher again, 0:12:56.360 --> 0:12:58.360 and then you're back to the same problem whereby the 0:12:58.400 --> 0:13:00.920 bond market maybe two three months from now, we'll start 0:13:00.920 --> 0:13:03.920 to go We'll hang on. We're back into a reflationary 0:13:03.960 --> 0:13:06.559 situation here, and I wouldn't be surprised if you make 0:13:06.640 --> 0:13:09.720 fresh significant highs and yields well up above two percent 0:13:09.840 --> 0:13:12.320 in U S tens for example, And that then puts 0:13:12.360 --> 0:13:14.439 us in the precarious situation of how assets going to 0:13:14.480 --> 0:13:17.559 be able to take that, things like tech. So it's 0:13:17.559 --> 0:13:20.160 gonna be a very interesting year, I think from that Bally, 0:13:31.640 --> 0:13:33.960 You know, David, it's good to get someone on who 0:13:34.000 --> 0:13:36.640 sounds even more worried than I am about how all 0:13:36.679 --> 0:13:38.800 this stuff is going to shake out. You didn't even 0:13:38.840 --> 0:13:41.800 get into n f T price inflation, which which we 0:13:41.800 --> 0:13:44.920 we won't even go there. But I'm curious how um 0:13:45.080 --> 0:13:48.199 break evens fit into your thinking with all this. You know, 0:13:48.240 --> 0:13:50.600 at least in the US, if you look at UM 0:13:50.840 --> 0:13:54.199 five year break evens uh less I checked something like 0:13:54.240 --> 0:13:57.560 two and a half percent ten years, or at something 0:13:57.600 --> 0:14:03.240 like two point three roughly. Um, is this sort of 0:14:03.360 --> 0:14:07.040 just uh indicator of exactly what you're talking about? That 0:14:07.080 --> 0:14:09.200 maybe the central banks have put a little too much 0:14:09.400 --> 0:14:12.440 whiskey in the punch pole, so to speak, or is 0:14:12.480 --> 0:14:14.880 there something you know, I'm just curious how much faith 0:14:14.920 --> 0:14:16.920 you put into the break evens as sort of a 0:14:17.440 --> 0:14:20.440 fortune teller when it comes to inflation, or is there 0:14:20.480 --> 0:14:24.760 anything about market structure and sort of this exuberance and 0:14:24.880 --> 0:14:28.960 massive risk taking mood that we see that would allow 0:14:29.000 --> 0:14:32.720 them to send a false signal? Perhaps? Yeah, that's a 0:14:32.720 --> 0:14:36.440 good question. Um, good questions. So there a few components 0:14:36.440 --> 0:14:39.400 of that. One would be just in the very short run, 0:14:39.720 --> 0:14:43.240 you know, we're not actually seeing inflation. Yes, CPI called 0:14:43.280 --> 0:14:47.760 last last this week was not particularly stellar seven or 0:14:47.800 --> 0:14:51.960 something I think, Yes, yeah, and slightly underkindawhelmed intom x 0:14:52.200 --> 0:14:56.080 X energy. So it's not turned up yet number one. UM. 0:14:56.640 --> 0:15:00.800 Number two would be that UM as we described, underlying 0:15:01.680 --> 0:15:05.200 within many of the economies, even just the US, for example, 0:15:05.240 --> 0:15:06.640 despite all the hype, if you look at the U 0:15:06.800 --> 0:15:10.600 s um that the small medium enterprises with five or 0:15:10.640 --> 0:15:13.760 less employees from memories something like forty center of the 0:15:13.880 --> 0:15:17.120 entire employment workforce, and they're not doing so well. In fact, 0:15:17.120 --> 0:15:18.960 many of them are actually going out of business or struggling, 0:15:19.320 --> 0:15:21.520 So that that detracts a little bit from this UM 0:15:22.480 --> 0:15:25.280 feared kind of wage inflation and inflation that people think 0:15:25.400 --> 0:15:28.320 is coming UM and they're not. Also, in addition to 0:15:28.440 --> 0:15:30.880 if you look at China, you know their data is 0:15:31.120 --> 0:15:33.280 slowing somewhat. If you look at some of the charts 0:15:33.320 --> 0:15:35.960 of what the Chinese aggregates are doing, they're very very 0:15:36.040 --> 0:15:38.440 much in contrast to the likes of Copper and commody. 0:15:38.440 --> 0:15:42.720 And then one the biggest UM one of one of 0:15:42.760 --> 0:15:45.800 the biggest consumers of energy and commodities in the world, 0:15:46.200 --> 0:15:48.760 if not the biggest, depending which ones you look at. 0:15:49.200 --> 0:15:51.000 And so that's that's painting a very different picture and 0:15:51.120 --> 0:15:54.720 kind of the real economies UM. So those two things 0:15:55.240 --> 0:15:56.520 make me sort of look at the world in the 0:15:56.560 --> 0:16:00.760 following way. And that is, Um, there's asset price reflation 0:16:01.800 --> 0:16:04.720 just anticipation and kind of flows and money flooding into 0:16:04.800 --> 0:16:08.040 various markets, and then there's kind of real actual inflation. 0:16:08.720 --> 0:16:10.680 Now will it work in the end if we kept 0:16:10.720 --> 0:16:13.480 on at this rate and starts to create more jobs 0:16:13.560 --> 0:16:17.520 and get more confidence feeds back into economy and you 0:16:17.600 --> 0:16:21.280 start to get in certain pockets by all means, I'm 0:16:21.320 --> 0:16:23.040 sure if you look at the safe exams restaurants when 0:16:23.040 --> 0:16:25.200 they reopen in New York and things like that, Um, 0:16:25.280 --> 0:16:27.040 you get demand for waiters and labor and things that 0:16:27.280 --> 0:16:29.680 you probably will start to actually get some actual inflation 0:16:29.840 --> 0:16:32.080 further down there down So the you know, the break 0:16:32.120 --> 0:16:35.160 evens and such are probably a relatively decent predictor given 0:16:35.240 --> 0:16:37.920 where we are now. It's a long way of from 0:16:37.920 --> 0:16:39.680 the future, and a lot can change between now and then. 0:16:39.720 --> 0:16:41.480 So I think it's one of those that I need 0:16:41.560 --> 0:16:44.800 to think about asset price reflation, what actual inflation is 0:16:44.840 --> 0:16:46.720 doing now, what it could do further down the track. 0:16:47.280 --> 0:16:48.720 For me to sit here and think I've got a 0:16:48.800 --> 0:16:50.880 view on where it could actually be five years from now, 0:16:51.280 --> 0:16:55.480 it's not that relevant because, um, you know, what is 0:16:55.520 --> 0:16:59.200 more relevant is letting the market speak okay, and in 0:16:59.360 --> 0:17:01.560 the in the in the in the investiable time wherese 0:17:01.560 --> 0:17:04.439 we're looking at, which is say, for example, this year, Um, 0:17:04.600 --> 0:17:08.080 what what's relevant by which we can make money for investors? 0:17:08.359 --> 0:17:11.760 And it probably as follows, you know, as your real 0:17:11.880 --> 0:17:15.240 rates in the US go up a lot um what 0:17:15.440 --> 0:17:17.199 what what starts to happen then is you look at 0:17:17.240 --> 0:17:20.560 a world where say six months a year ago, there's 0:17:20.680 --> 0:17:23.760 very little yield, people having to chase the last little 0:17:23.920 --> 0:17:27.440 um a few basis points of returns, whether it's crunching 0:17:27.440 --> 0:17:29.720 in high yield credits or trying to receive that last 0:17:29.760 --> 0:17:33.000 little bit of five or ten year yields, or being 0:17:33.040 --> 0:17:35.840 an emerging market FX where there's a little bit of 0:17:35.880 --> 0:17:39.320 extra carry and pick up money just chases that has 0:17:39.400 --> 0:17:43.160 been doing for quite some time. And that that bond 0:17:43.240 --> 0:17:47.240 market wake up call and and real rates going higher 0:17:47.240 --> 0:17:51.200 in the US means that um a lot of manage 0:17:51.240 --> 0:17:53.480 managers out their investors out there start to scratch their 0:17:53.520 --> 0:17:55.240 heads and say, do I really want to be in 0:17:56.000 --> 0:17:59.080 you know, um, some of these emerging markets currencies where 0:17:59.119 --> 0:18:00.840 I get very little from pick up for all of 0:18:00.920 --> 0:18:05.000 that additional risk. So that's the interesting bit to me 0:18:05.400 --> 0:18:08.280 is you know, when if the market is speaking and 0:18:09.040 --> 0:18:10.879 real rates are going off in the US, you know, 0:18:10.960 --> 0:18:13.119 where are the monkey's going to run? As it was 0:18:13.119 --> 0:18:16.240 an expression people used to use, and um, you start 0:18:16.240 --> 0:18:18.240 to see little bit of a sign of that. Um 0:18:18.680 --> 0:18:21.040 just recently with money coming out of tech. Um some 0:18:21.160 --> 0:18:24.719 E M f X getting hit. How your credit getting hit? Um? 0:18:24.800 --> 0:18:27.280 I think it's probably just an early wake up call 0:18:27.800 --> 0:18:30.399 for what can happen sort of later in the year. UM. 0:18:30.560 --> 0:18:32.720 So if that moves, it's to some talk points on that. 0:18:33.560 --> 0:18:36.040 When you say real rates moving up by a lot, 0:18:36.160 --> 0:18:40.080 I mean what exactly quantifies a lot? I mean, certainly 0:18:40.200 --> 0:18:43.120 we have moved a lot. We were negative one point 0:18:43.160 --> 0:18:47.320 one uh percent, Now we're closer to negative sixty five, 0:18:47.400 --> 0:18:49.920 negative seventy basis points or so. But when you say 0:18:49.960 --> 0:18:52.520 a lot, I mean what do you expect? Are you 0:18:52.560 --> 0:18:56.680 talking positive? By chance? Yeah? I mean so in the 0:18:56.760 --> 0:18:58.440 great scheme of things, the moves not been to that 0:18:58.520 --> 0:19:00.720 secen different the speed of it has been. UM. So 0:19:00.800 --> 0:19:03.040 it's it's it's speed matters as well, because it can 0:19:03.800 --> 0:19:06.320 people can extrapolate and start to start to get concerned 0:19:06.320 --> 0:19:08.439 that you carry out at that sort of rate. UM. 0:19:08.760 --> 0:19:11.879 I think things will obviously um get dislodged. So so 0:19:11.960 --> 0:19:14.440 the speed of the moves obviously in February was important. 0:19:15.200 --> 0:19:18.119 UM So further down the track, if you know, if 0:19:18.160 --> 0:19:21.920 we go to the example of um what I described, 0:19:21.960 --> 0:19:25.359 whereby after maybe some pullback in yields lower, if the 0:19:25.440 --> 0:19:28.920 reflationary story kind of gather steam again and yields dislodge 0:19:29.480 --> 0:19:32.080 later in the year, we get up above two two 0:19:32.119 --> 0:19:34.080 and a quarter in U s tens. You know, I 0:19:34.119 --> 0:19:35.960 guess bottom to top that would be a move of 0:19:36.000 --> 0:19:38.040 a hundred hundred and fifty basis points and starting to 0:19:38.080 --> 0:19:41.560 push positive. And you know, positive is an important rubicon 0:19:41.680 --> 0:19:45.240 to cross because much like we've seen in European assets 0:19:45.280 --> 0:19:49.919 when they went negative, people just allows to individuals, allows 0:19:50.000 --> 0:19:52.240 to pay away native rates that that obviously starts to 0:19:52.280 --> 0:19:55.840 become relevant. UM So I would say crossing crossing over 0:19:55.960 --> 0:20:00.040 positive and don't have hundred fifty plus basis point It 0:20:00.160 --> 0:20:02.160 was mean you don't need to be chasing that last 0:20:03.320 --> 0:20:06.760 basis points in a very high yield bond structures or 0:20:06.760 --> 0:20:27.800 an emotion markets maybe quite vicarious. It's fun to talk 0:20:27.840 --> 0:20:29.520 with you, David, because I know we can jump from 0:20:29.560 --> 0:20:31.920 asset class to asset class and you'll you'll jump along 0:20:31.960 --> 0:20:35.680 with us, which is nice. So I know, you know, 0:20:35.720 --> 0:20:38.200 as a hedge fund manager you must keep sort of 0:20:38.359 --> 0:20:40.800 at least one eye or half an eye on volatility 0:20:40.920 --> 0:20:44.480 markets to some degree. I think what's been amazing to 0:20:44.600 --> 0:20:49.200 me is this continued grind higher inequities. Yeah, we had 0:20:49.560 --> 0:20:51.760 a little bit of a correction in the last month 0:20:51.880 --> 0:20:55.760 or so, but you know, continued grind higher, and yet 0:20:55.840 --> 0:20:58.600 the VIX just does not seem like it wants to 0:20:58.680 --> 0:21:01.879 go below twenty. It seems gets found a floor around twenty. 0:21:02.640 --> 0:21:05.639