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. All right, in the
Speaker 1: wall of worry, we've got Slovan growth, rising interest rates,
Speaker 1: UM and valuation are some concerns, and now you have
Speaker 1: geopolitical risk to add into the um. The whole panoply
Speaker 1: of issues for this market to navigate. Let's check in
Speaker 1: on the economic outlook underpinning all of this. We can
Speaker 1: do that with Pete Earle. He's the economist at the
Speaker 1: American Institute of Economic Research. Pete, has your economic outlook
Speaker 1: changed at all given what we've seen coming out of
Speaker 1: Ukraine over the last week or so. Good morning, Gentlemen's
Speaker 1: good to talk to you. It's great to be back. Um, yeah,
Speaker 1: it certainly has. Um. When we last folk in October November,
Speaker 1: we had oil Brant and West excess between say fifty
Speaker 1: five and seventy dollars a barrel maybe consumer demand was high,
Speaker 1: but it was being blunted a bit we think by
Speaker 1: supply chain pressures, and inflation was running about five And
Speaker 1: I seem to recall that I mentioned that the ugliest
Speaker 1: word in economics, which is siflation, was back, but I
Speaker 1: didn't think it was where. I didn't think it was
Speaker 1: really reasonable concern because there we had inflation, but there
Speaker 1: was no real stagnation happening. And I think at this point, uh,
Speaker 1: we we've pivoted, and the last two weeks and perhaps
Speaker 1: the last few days, things have changed quite a bit.
Speaker 1: We see commodities across the board rising pretty precipitously, even
Speaker 1: with COVID slipping to the back burner. Now we have
Speaker 1: consumer sentiment falling. Consumer it fell in January, consumer competence
Speaker 1: fell a bit in February, and there's a host of
Speaker 1: other signs that we may we may actually see rising inflation,
Speaker 1: rising general price level with slowing growth. There's a few
Speaker 1: other issues embedded in there. But the answer is yes,
Speaker 1: I do think we are turning a corner here. Do
Speaker 1: we need um the Fed though too? Well? Is the
Speaker 1: market going to rethink whether the Fed hikes six seven
Speaker 1: eight times this year? Even if we're looking at rising prices, UM,
Speaker 1: they're not rising for any reason the FED can put
Speaker 1: a stop to other than demand. So the only way
Speaker 1: the FED can really slow UM inflation is by slowing
Speaker 1: economic growth. Yeah, so I think that they are. I
Speaker 1: think all the talk about a hundred seventy basis point
Speaker 1: moves are completely off the table, certainly for March. UM.
Speaker 1: I don't think the FED will move any greater than
Speaker 1: SAPs this year, but I will go out on a
Speaker 1: limb and say that when James Bullard of the St.
Speaker 1: Louis FED said he would like to see rates on
Speaker 1: hundred basis points higher by July, I don't think that
Speaker 1: will happen. But I do think he was sort of
Speaker 1: paving the way for unconventional not unconventional, but unusual monetary
Speaker 1: policy measures. So what I see are maybe not seven
Speaker 1: or eight UH hikes of basis points this year, but
Speaker 1: I see the heightened possibility of intermeding hikes, for example
Speaker 1: between the FO and C meeting, such as we haven't
Speaker 1: seen since UH two thousand eight or so, and before
Speaker 1: that since long term capital collapsed supply chain. That's another
Speaker 1: economic issue that has been with us as a result
Speaker 1: of this pandemic um. You know, initially we thought it
Speaker 1: would be relatively short term, but here we are beginning
Speaker 1: year three. Here, how do you think about the global
Speaker 1: supply chain? And maybe the events in Ukraine may exacerbate
Speaker 1: some of those issues, but how do you think about
Speaker 1: that as you think about your economic outlook. It's it's
Speaker 1: it's complicated, because I see some signs that the supply
Speaker 1: chain morass is actually easy. UM world container rates have
Speaker 1: leveled off. The Baltic Exchange dry index is half of
Speaker 1: what it was in October, although it's up a little
Speaker 1: bit on the Ukraine conflict, and the cast freight index
Speaker 1: is at levels we haven't seen since the start of
Speaker 1: the pandemic um. Even at the port of Los Angeles,
Speaker 1: which has sort of been the focal point um the
Speaker 1: number of containers ship and and by the way, the
Speaker 1: counting convention was changed, we have to bear that in mind.
Speaker 1: But even so, the number of container ships is down
Speaker 1: to the seventies from well over one hundred six or
Speaker 1: eight weeks ago. So the components in the rise of
Speaker 1: prices that I think we impute to um UH supply
Speaker 1: chain issues, I think is starting to to to to
Speaker 1: um to sort of dissipate. However, kicking a number of
Speaker 1: Russian institution institutions off of swift UM introduces entirely new issues. Uh.
Speaker 1: We could very easily see new supply chain issues or
Speaker 1: I should say new price pressure zoning to scarcity arise
Speaker 1: as a result of kicking a bunch of those institutions
Speaker 1: that deal in say oil, natural gas and grains off
Speaker 1: of swift So uh, it could be exit frying pan,
Speaker 1: enter fire. I wonder what I wonder what happens now
Speaker 1: in Europe as a result of mean, do they need
Speaker 1: to stop buying gas, oil, aluminum from Vladimir Putin? Are
Speaker 1: they going to have to do that? And then what
Speaker 1: happens to their economy for for some amount of time
Speaker 1: they may have to, But I think we are at
Speaker 1: a point right now where um, we will see um
Speaker 1: a real gut check of ideology where many nations are
Speaker 1: buying from from certain resources, especially UM carbon based uh
Speaker 1: uh you know, energies and and petroleum and things like
Speaker 1: that from nations because they don't want to do it
Speaker 1: at home because of the green wave we've seen. But
Speaker 1: I think, UM, this this incident, especially if it drives
Speaker 1: prices sizeably higher, but we're still really looking at you know,
Speaker 1: ninety five dollar oil. If we get prices one for barrel,
Speaker 1: that sort of thing in the next few months, um,
Speaker 1: we may see a real reconsideration of the ideologies which
Speaker 1: led many nations to pursue more costly, in some cases,
Speaker 1: less tested green energy at the cost of ignoring. Okay, Hey, Pete,
Speaker 1: thanks so much for joining us, taking the time. We
Speaker 1: appreciate it. Pete Earle economists at the American Institute of
Speaker 1: Economic Research, giving us his outlook. Take a look a
Speaker 1: Bitcoin up ten percent trading today forty two hundred up
Speaker 1: ten point one per cent, So a huge move there
Speaker 1: for bitcoin. I'll call that out for for Tom Keene.
Speaker 1: All right, let's talk commodities, guys. I have my g
Speaker 1: l c O screen up Global Commodity screen on the
Speaker 1: Bloomberg terminal. All of energy higher, metals higher, most of
Speaker 1: the big aggs higher, wheat, soybeans, cotton higher. So commodities
Speaker 1: definitely moving higher. We want to get a sense of
Speaker 1: kind of what's moving this market, so we turned to
Speaker 1: Everett Millman, chief market analyst at Gainesville Coins. Everett, what's
Speaker 1: your call across commodities here at a time when we
Speaker 1: have rising geopolitical tensions in Eastern Europe. Right well, appears
Speaker 1: that gold has certainly held up its bona fides as
Speaker 1: a faith haven asset UM. It has certainly rallied amid
Speaker 1: all this conflict, but also the economic sanctions that the
Speaker 1: West is imposing on Russia UM will almost certainly drive
Speaker 1: up the prices for many of these other major commodities UM.
Speaker 1: Even though the Russian economy makes up less than two
Speaker 1: percent of global GDP, they are one of the largest
Speaker 1: exporters of a lot of these really important commodities like nickel, aluminum,
Speaker 1: cobalts UM. As you mentioned obviously the key energy commodities
Speaker 1: like oil and natural gas. The fact that energy is
Speaker 1: rising is just going to make it more expensive to
Speaker 1: get all of those resources out of the ground, and
Speaker 1: even agricultural commodities. Russia exports more than ten percent of
Speaker 1: the world's fertilizer. They're a major exporter of grains like
Speaker 1: wheat and barley. So everything in the commodity space is
Speaker 1: really connected to this, and we should expect to see
Speaker 1: higher prices going forward. So what's the margin or what
Speaker 1: are we really waiting for for a reversal of this
Speaker 1: is this p puarly on geopolitical tensions. Because these prices,
Speaker 1: these commodities, they were rising before the Russian invasion, before
Speaker 1: the onset of the geopoliticals What are we watching for
Speaker 1: for reversal of some of the action. Do we have
Speaker 1: to wait for demand destruction? I think so. I mean,
Speaker 1: that's an excellent point that prices were already rising, we
Speaker 1: were already dealing with elevated inflation. I think the real
Speaker 1: reversal possibility would be a de escalation of this proposal
Speaker 1: to band Russia from the Swift system. I think that
Speaker 1: is a very potent um sanction. And really the direction
Speaker 1: of how long this goes on, all the disruptions and
Speaker 1: markets I think will be based mainly on that if
Speaker 1: the West is continue to be that aggressive with sanctions.
Speaker 1: All right, let's given this environment, given this backdrop here, ever,
Speaker 1: what are the two or three most common calls you're
Speaker 1: having with your clients? What are you telling them? Where
Speaker 1: are you telling them to be exposed here? Well, obviously
Speaker 1: gold it's always a safe place during on certain times
Speaker 1: like this, especially given at the Russian ruble has been tumbling,
Speaker 1: so that may force the Russian Central Bank to liquidate
Speaker 1: some of its gold. It's large stockpile of gold in
Speaker 1: order to support its foreign exchange value. UM. I'm also
Speaker 1: looking at platinum and palladium UM. Russia is far and
Speaker 1: away the world's number one exporter of palladium and an
Speaker 1: annual basis that's somewhere between and of the global supply.
Speaker 1: So if there is more difficulty in getting palladium out
Speaker 1: of Russia and it being one of the only sources UM,
Speaker 1: that is certainly an area that investors are going to
Speaker 1: want to be exposed to, because really the only the
Speaker 1: path of least resistances for palladium prices to continue to
Speaker 1: climb U due to that supply shortfall. We could see
Speaker 1: you mentioned gold in particular. This is interesting to me.
Speaker 1: I've been saying this all morning, the fact that gold
Speaker 1: and the dollar are up higher together that it's usually
Speaker 1: a sign a very very acute stress. Talk to us
Speaker 1: a little bit about what turns gold around. In particular,
Speaker 1: if you continue to see it, I mean gold, after
Speaker 1: the end of the day, it's priceton dollars. So does
Speaker 1: the currency mean nothing right now for the metal or
Speaker 1: is this purely a matter of haven demand? I think
Speaker 1: it really is haven demand, and only in these extremely
Speaker 1: high stress times do we see that both the dollar
Speaker 1: and gold and the Japanese end would all be rallying
Speaker 1: at the same time. UM. I think that the major
Speaker 1: kind of pivot point here between gold and the dollar
Speaker 1: is whether or not we're going to get any kind
Speaker 1: of quick relief for de escalation or for diplomacy to
Speaker 1: prevail here, because until then there really is no reason
Speaker 1: for investors to to sell their safe havens to get
Speaker 1: out of those assets that they really are the only
Speaker 1: game in town in terms of weathering the uncertainty. UM.
Speaker 1: Gold is always good across borders, so there is even
Speaker 1: as I mentioned before, with Russia possibly selling its gold,
Speaker 1: there is some evidence that gold bars minted in Russia
Speaker 1: have been ending up in vaults in London. So there's
Speaker 1: already some indication that perhaps we will be gold used
Speaker 1: in international trade or um to bolster the Russian central
Speaker 1: banks form reserves. Everett Milman, thank you so much for
Speaker 1: joining us. We always appreciate getting your take on the
Speaker 1: commodities market. Everett Milman, chief market analyst at Gainesville Coins.
Speaker 1: Right now, let's switch over to the markets. The market outlook,
Speaker 1: Lots of bricks in that wall of worry. Now we
Speaker 1: have to include geopolitical risk. Uh, and the markets are
Speaker 1: trying to digest that we have. Markets are mixed today
Speaker 1: off the bottoms, but again investors are trying to get
Speaker 1: a sense of how they price this Outlet's checking with
Speaker 1: Brett Ewing, chief market strategists for First Franklin Financial Services. Brett,
Speaker 1: thanks so much for joining us here. Kind of what
Speaker 1: are you telling your clients here over the last five days. Well, first,
Speaker 1: thanks for having me on today. Um, Yes, there's been
Speaker 1: a lot of turmoil, a lot of concern out there
Speaker 1: in the recent weeks with the volatility in the markets,
Speaker 1: and certainly our clients are talking to us and wanting
Speaker 1: some insight, and what we're trying to convey to them
Speaker 1: is we are still put the FED as one of
Speaker 1: the biggest risk into the markets for two and we're
Speaker 1: also guiding them to look a little out past these
Speaker 1: geopolitical risks. And you can go back over the last
Speaker 1: eighty years and really look at every geo political event
Speaker 1: and it's really a short run phenomenal in the market,
Speaker 1: meaning that the average raw down is around about four
Speaker 1: point five with the recovery rate around forty two days,
Speaker 1: So an event like that, we're trying to look past
Speaker 1: that and look out over the next eighteen months really,
Speaker 1: and so what we're doing here is positioning. We're taking
Speaker 1: advantage of this volatility and specifically looking at the small
Speaker 1: and MidCap sectors. So talk us a little bit about
Speaker 1: I mean, you said that you want to look past
Speaker 1: the geopolitical tensions, but isn't there a commodity read through
Speaker 1: that then kind of hits essentially the American recovery story.
Speaker 1: Is that perhaps worth making a bigger deal of over
Speaker 1: the FED. Well, I think the commodity spikes that we're
Speaker 1: seeing right here are most likely going to be short lived.
Speaker 1: I think that when we look at the oil markets
Speaker 1: right here, of course it's all it's reaching multi year
Speaker 1: highs UM. Again, we think it's closer to the peak
Speaker 1: than it than it um than most people realize UM.
Speaker 1: As a matter of fact, last week we actually sold
Speaker 1: a lot of our oil stocks into the strength and
Speaker 1: we just feel there's on a relative basis, there's a
Speaker 1: lot better asset classes that have just been decimated, whether
Speaker 1: it's growth, tech or other all MidCap stocks out there,
Speaker 1: so we feel there's better places to park that capital
Speaker 1: going forward. All Right, let's talk about tech, because a
Speaker 1: lot of folks have, you know, the last twelve months
Speaker 1: as the as the rotation trade as works so well,
Speaker 1: they've been kind of rotating out of some of those
Speaker 1: big tech names. Now you get some folks saying, hey,
Speaker 1: I like tech, just I need the tech that actually
Speaker 1: makes money um as opposed to some of the more
Speaker 1: high flying revenue growth stories. How do you think about
Speaker 1: tech and allocating capital there? Yeah? Absolutely, I mean, look
Speaker 1: is going to be a stock pickers year. There's a
Speaker 1: lot of great technology companies that have you know, it's
Speaker 1: the baby with the bathwater syndrome here just been thrown
Speaker 1: out and decimated here in the short run. But we're
Speaker 1: taking advantage of that. I think there's a lot of
Speaker 1: great opportunities within tech. There's a lot of tech companies
Speaker 1: out there that have wonderful moats around their business model,
Speaker 1: and those are the areas that I would be um
Speaker 1: advising people to take advantage of. We'll talk to us
Speaker 1: a little bit about perhaps the value rotation. I think
Speaker 1: a lot of people started off two thinking was going
Speaker 1: to be kind of a continuation of what we started
Speaker 1: off in one, and yet it doesn't seem like that
Speaker 1: strong kind of conviction essentially for the value at the
Speaker 1: start of the year has really persisted in the last
Speaker 1: six weeks or so. Do you think it can really
Speaker 1: revive itself. I think there's there's certainly a few areas
Speaker 1: within value that I would we would continue to look at. UM.
Speaker 1: I do think that the areas that I feel have
Speaker 1: a lot of upside is more of an asset class
Speaker 1: story within the small mid cap stocks. The valuation on
Speaker 1: those asset classes is the spread between large cap and
Speaker 1: small MidCap right here is those is the widest dating
Speaker 1: back twenty years. You have to go back to two
Speaker 1: thousand one. UM. Typically the small MidCap areas of the
Speaker 1: market are are you know, their four ps well above
Speaker 1: the large cap and right now it's quite the opposite.
Speaker 1: All right, Brett, thanks so much for joining us. We
Speaker 1: appreciate your time. You in chief. Market strategy is for
Speaker 1: First Franklin Financial Services. Let's get the latest here on
Speaker 1: some of these sanctions. I'll probably focus on what we're
Speaker 1: seeing from the global banking system and the impact that
Speaker 1: may have on Russia. Shinalie Bassik Wall Street Border for
Speaker 1: Bloomberg News drains us here in our Bloomberg Interactive Broker
Speaker 1: studio and she like, can you help me here, Just
Speaker 1: tell me what's SWIFT is and why it's important. Yeah. Well,
Speaker 1: it is a cooperative that serves as a global messaging
Speaker 1: system to the global financial system. So that's more than
Speaker 1: eleven thousand entities across more than two hundred countries, and
Speaker 1: it's governed by the G ten banks and incorporated in Belgium.
Speaker 1: So when the globe comes together and say they want
Speaker 1: to ban Russia from SWIFT, what you really saw at
Speaker 1: the end of the day is the US announced moves
Speaker 1: and other countries announced moves to really cut off a
Speaker 1: number of Russian banks and entities from that payment system.
Speaker 1: Here's the thing, Paul, there's a lot of questions around
Speaker 1: what the ultimate impact of this will be. The reason
Speaker 1: that a lot of countries did we're opposing this. Germany
Speaker 1: in particular, was uncertain of doing this for at the
Speaker 1: beginning is because if you cut off payments, then all
Speaker 1: of a sudden, do you start to make it very
Speaker 1: difficult to make transfers among energy companies and counterparts? For example?
Speaker 1: Will it have an impact that has a backlash on
Speaker 1: the energy trade between Russia and Russia and Germany, and
Speaker 1: really what is an ultimate economic impact on the countries
Speaker 1: that are pushing the band themselves. So let me just
Speaker 1: dumb this down for me, um, because I really needed.
Speaker 1: My understanding of this system is kind of like, I
Speaker 1: guess the only way I can describe it as back
Speaker 1: in high school, when I worked for the high school newspaper,
Speaker 1: we had a rule that when you send an email,
Speaker 1: you have to send a goded email back the idea
Speaker 1: that you have confirmation, right, And that's the way I
Speaker 1: think of about the system, right. It's a payment confirmation
Speaker 1: system that essentially, if you don't get that confirmation, that
Speaker 1: payment isn't necessarily being delivered in a kind of trustworthy way.
Speaker 1: Am I getting that right? Here's the thing. Ultimately, it
Speaker 1: doesn't control the payments, You're right. It only oversees the messaging.
Speaker 1: And by the way, it's not really led to go
Speaker 1: into the messaging. But any bank and any entity that's
Speaker 1: involved in the system being able to store those messages
Speaker 1: and track those messages helps those banks comply with sanctions rules,
Speaker 1: which is why swift is important even in an era
Speaker 1: of sanctions. One of the things that people worry about
Speaker 1: and remember since two thousand fourteen, Russia and China did
Speaker 1: try to create alternatives. It didn't really take off to
Speaker 1: such a massive degree. But can Russia and China create
Speaker 1: bigger alternatives to swift That was one concern. But the
Speaker 1: reality is this is the central This is a central
Speaker 1: way to communicate across banks across the world. So even
Speaker 1: if they left this and an alternate system is being made,
Speaker 1: then how do you transact with the normal global financial
Speaker 1: system as you know? It's it is a little bit
Speaker 1: meta alright, So yeah, I guess the way I'm thinking about,
Speaker 1: it's just gonna make it much more difficult for Russia
Speaker 1: to do business and putting increasing to pressure on them.
Speaker 1: Um another thing, another angle. I wanted to get your
Speaker 1: sense from its like the JP Morgan's of the world,
Speaker 1: the Bank of Americas, these big global the cities, these
Speaker 1: big global institutions, what are they saying about their business
Speaker 1: in Russia with Russia? All that kind of thing. So
Speaker 1: remember again, since when there were more restrictions kind of imposed,
Speaker 1: over time, a lot of banks have really stepped back.
Speaker 1: So most US banks don't have a meaningful explosion Russia,
Speaker 1: which is why those sanctions on those Russian banks themselves
Speaker 1: is so important. Suburb Bank and the v TB are
Speaker 1: fifty of the country's global assets. And then you know,
Speaker 1: all of the five banks combined are like sevent So
Speaker 1: if you take City Group, it's like a couple of
Speaker 1: billion dollars of exposure of assets in Russia, not meaningful
Speaker 1: to the bank itself. But with that said, remember how
Speaker 1: entwined the global financial system is. City Group and JP
Speaker 1: Morgan are big global transaction banks, which means they're effectively
Speaker 1: the banker to other banks that help these payments from
Speaker 1: one country to another happens. So what we're hearing right
Speaker 1: now is a lot of bankers in talks with the
Speaker 1: Treasury Department to figure out what the actual rules are
Speaker 1: because that has not been made clear to the bankers
Speaker 1: themselves yet. And so now all these banks basically have
Speaker 1: to figure out how to entangle entangle themselves from any
Speaker 1: transactions that may involve any of these sanctions entities, and
Speaker 1: remember there are many. Now, well, let's talk about the
Speaker 1: energy piece of this, right because I believe, and correct
Speaker 1: me if I'm wrong, but I believe there was discussion
Speaker 1: among the White House about how you actually kind of
Speaker 1: separate the energy payments from the entire metric, And one
Speaker 1: of them was simply you can have them denoted or
Speaker 1: have some sort of marker um, which is having me
Speaker 1: give me horrible biology DNA flashbacks, um. But the other
Speaker 1: piece was if they're all kind of going through one bank,
Speaker 1: can you just target that one bank? Any update on
Speaker 1: how they're going to target the energy piece of it, Well,
Speaker 1: that's the big question here, right If they wanted to
Speaker 1: target the energy sector, why don't they just target the
Speaker 1: energy sector? Why is this all being done through financial mechanisms? Interestingly,
Speaker 1: and just as important, and I'm sure you guys have
Speaker 1: been talking about it as the band with the central bank,
Speaker 1: the Russian Central Bank. So if you're going to target
Speaker 1: Russians economy right now, the way they are doing it
Speaker 1: is absolutely by targeting Russia's financial infrastructure, and they're doing
Speaker 1: almost every means to do that and do it effectively.
Speaker 1: But if you're going to target the energy system, then
Speaker 1: why don't you just do that by means of the
Speaker 1: companies and the people that own them. I think that's
Speaker 1: the next leg of this story that has a lot
Speaker 1: of big question marks that are rolling rolling into it. Yeah. Interesting,
Speaker 1: it's far and wide. It's been a weekend. We're just
Speaker 1: sanctions and you know, pull business out of Russians. Just
Speaker 1: it's just incredible news flow and continues today. And I'll
Speaker 1: point out there's a Bluebird editorial written by the Editorial
Speaker 1: board on the terminal entitled Wielding Swift against Russian banks
Speaker 1: is a big risk um and it's a great explainer
Speaker 1: for how swift works in the real world and how
Speaker 1: there could be some negative repercussions um by the nying
Speaker 1: Swift to the entire Russian economy. So I recommend that
Speaker 1: Snelle Basset, Wall Street reporter Bloomberg News joining us here
Speaker 1: on our Bloomberg inter active Brooker studio. She does every
Speaker 1: Monday giving us the latest from Wall Street, which is
Speaker 1: her beat. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller and on Fall Sweeney I'm
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can
Speaker 1: always catch us worldwide at Bloomberg Radio