WEBVTT - Microsoft, Inflation, Banks, TMT, and Prime Day 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.360 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com Slash podcast. 0:00:20.840 --> 0:00:24.920 Big Big News Nugget Today on the Big I mean 0:00:24.920 --> 0:00:29.160 we have it's this NonStop. Microsoft wins a US court 0:00:29.240 --> 0:00:31.640 nod to buy Activision that remember this is a sixty 0:00:31.720 --> 0:00:35.880 nine billion dollar transaction to Federal Trade Commission was looking 0:00:35.920 --> 0:00:38.239 to kind of block this deal. The court said no, 0:00:38.640 --> 0:00:41.560 ruled in favor of Microsoft Activision stock Trading hire. 0:00:41.600 --> 0:00:41.760 Here. 0:00:41.960 --> 0:00:44.200 We want to get the details, and we're so fortunate 0:00:44.200 --> 0:00:47.239 to have Jenre with us because Jenri from Bloomberg Intelligence. 0:00:47.240 --> 0:00:49.800 She covers all the anti trust issues across a number 0:00:49.880 --> 0:00:52.440 of industries. She's really an expert on anti trust and 0:00:52.479 --> 0:00:54.080 we want to get her sense of what's happening here. 0:00:54.120 --> 0:00:58.120 So Jen, a big win for Microsoft and Activision, not 0:00:58.760 --> 0:01:00.840 a good day for the Federal Trade Commission. What do 0:01:00.840 --> 0:01:01.600 you take away from this? 0:01:02.760 --> 0:01:05.120 There really isn't and you know, the Federal Trade Commission 0:01:05.160 --> 0:01:06.600 is going to have to rack up a win one 0:01:06.600 --> 0:01:09.480 of these days because their track record is not so 0:01:09.680 --> 0:01:12.600 great yet. But this was really a big deal for Microsoft. 0:01:12.720 --> 0:01:15.399 This was make or break the deal. If they had 0:01:15.520 --> 0:01:18.640 lost today, they probably would have had to abandon because 0:01:18.680 --> 0:01:21.520 the process then would have extended for years. So they 0:01:21.560 --> 0:01:24.280 needed this to move forward. And now it looks like, 0:01:24.440 --> 0:01:27.520 really they just have the UK to tackle. And since 0:01:27.520 --> 0:01:29.240 the last time I talked to you, Paul, it looks 0:01:29.280 --> 0:01:31.959 like we have some developing news because they are talking 0:01:32.000 --> 0:01:35.080 about suspending the litigation in the UK, which means to 0:01:35.120 --> 0:01:38.319 me they're probably talking settlement at this point with the 0:01:38.360 --> 0:01:40.080 Competition and Markets Authority there. 0:01:40.360 --> 0:01:44.160 So then would that mean the big barriers that were 0:01:44.200 --> 0:01:46.640 in front of it are potentially out of place at 0:01:46.640 --> 0:01:48.440 this point and it could more easily go through. 0:01:49.640 --> 0:01:52.440 It looks like we're getting there absolutely if they can. 0:01:52.640 --> 0:01:54.400 If they can get to some sort of a settlement 0:01:54.440 --> 0:01:56.880 with the CMA and the UK, they're good to go. 0:01:57.080 --> 0:01:57.280 Now. 0:01:57.320 --> 0:01:58.920 I want to be clear, all that's. 0:01:58.720 --> 0:02:01.760 Happened here today is that the refused to temporarily block 0:02:01.840 --> 0:02:04.840 the closing of this merger. The FTC still has an 0:02:04.880 --> 0:02:08.280 ongoing matter. Internally, it's called a part three, which is 0:02:08.360 --> 0:02:11.919 litigation to determine if the deal actually violates the antitrust laws. 0:02:12.040 --> 0:02:13.480 There's nothing stopping. 0:02:13.080 --> 0:02:15.760 The FTC from continuing to pursue that even if the 0:02:15.800 --> 0:02:19.000 deal is closed. At that point, though, it really becomes 0:02:19.080 --> 0:02:21.040 much harder for them because what they have to do 0:02:21.120 --> 0:02:23.480 is seek in order to unwind, which is even harder 0:02:23.760 --> 0:02:27.000 than in order to block a deal that's vertical in nature, 0:02:27.000 --> 0:02:28.520 which is tough to block to begin with. 0:02:28.840 --> 0:02:31.320 But it doesn't necessarily mean even. 0:02:31.080 --> 0:02:33.440 If they settle in the UK, even if they close 0:02:33.480 --> 0:02:36.760 the deal, doesn't necessarily mean that the legal challenge won't 0:02:36.800 --> 0:02:40.240 continue by the FTC. I would say, though, if that happens, 0:02:40.440 --> 0:02:43.080 I believe it's a losing battle on the FTC side. 0:02:43.160 --> 0:02:46.239 All right, And Activision stock up eleven percent. It was 0:02:46.280 --> 0:02:48.280 up about five percent on the Microsoft on the when 0:02:48.280 --> 0:02:50.639 the court ruling came out, now up eleven percent. Maybe 0:02:50.760 --> 0:02:53.320 getting a sense that the UK may there may be 0:02:53.320 --> 0:02:57.240 a settlement there. So Jen, you're expert in kind of 0:02:57.280 --> 0:03:00.000 working with a Department of Justice, the Federal Trade Commission, 0:03:00.040 --> 0:03:02.600 all these regulatory bodies, and we know what the Biden 0:03:02.639 --> 0:03:06.240 administration it has been taking a harder stance on deals 0:03:06.240 --> 0:03:06.840 in general. 0:03:07.400 --> 0:03:09.639 This looks like a bad day for the FTC. How 0:03:09.680 --> 0:03:10.240 bad was it? 0:03:11.560 --> 0:03:11.760 You know? 0:03:11.880 --> 0:03:14.800 I think it's pretty bad now. This was going to 0:03:14.800 --> 0:03:16.000 be a tough battle going in. 0:03:16.120 --> 0:03:18.120 As I said, this is a vertical deal, and it's 0:03:18.240 --> 0:03:21.760 very hard to challenge a vertical deal. The last time 0:03:22.200 --> 0:03:24.560 an agency tried to do that, it was the Department 0:03:24.600 --> 0:03:27.000 of Justice with AT and T and Time Warner, and 0:03:27.040 --> 0:03:30.920 the DJ also lost that pretty resoundingly and also lost 0:03:30.960 --> 0:03:34.000 on appeal. By the way, in that case, it is 0:03:34.120 --> 0:03:37.080 very hard to prove harm when companies are vertically integrating. 0:03:37.120 --> 0:03:40.400 It's very different than when two competitors come together. Because 0:03:40.440 --> 0:03:43.360 that concentrates a market. It's much more obvious how that 0:03:43.440 --> 0:03:46.240 might cause some consumer harm, and in a vertical situation 0:03:46.320 --> 0:03:48.440 it's less obvious and harder to prove. 0:03:48.640 --> 0:03:50.440 But I do think this was a big test. 0:03:50.600 --> 0:03:54.240 I mean, the FTC is simply trying to stop many companies, 0:03:54.240 --> 0:03:58.000 but in particular big tech platforms, from growing through acquisition. 0:03:58.240 --> 0:04:01.200 They tried to stop Meta from buying Within. They've now 0:04:01.240 --> 0:04:03.920 tried to stop Microsoft from buying Activision, and they haven't 0:04:03.960 --> 0:04:08.000 had success. It doesn't bode well for any future challenges, 0:04:08.040 --> 0:04:10.120 I think that may be coming up. 0:04:10.360 --> 0:04:12.720 As far as when it comes to future challenges, what 0:04:13.040 --> 0:04:16.000 potential other mergers are on your radar that you're keeping 0:04:16.000 --> 0:04:16.680 a close eye on. 0:04:17.880 --> 0:04:20.920 Well, I'm really watching Adobe Figma carefully because that's been 0:04:20.960 --> 0:04:23.320 pending for a while and the company's finished up their 0:04:23.320 --> 0:04:26.480 investigation in mid March, so I think something should happen 0:04:26.520 --> 0:04:29.479 there at any time that's before the Department of Justice, 0:04:29.560 --> 0:04:32.719 and I tend to think there will be a lawsuit 0:04:32.760 --> 0:04:34.719 to try to block it, because it sort of hits 0:04:34.760 --> 0:04:37.920 an area of heightened sensitivity right now, which it has 0:04:37.960 --> 0:04:42.120 the appearance of an incumbent buying a sort of smaller, scrappier, 0:04:42.240 --> 0:04:45.760 nascent competitor, a company that's posing some competition now but 0:04:45.839 --> 0:04:48.279 might grow into a bigger competitive threat in the future 0:04:48.320 --> 0:04:51.120 if it stays independent. So I think there could be 0:04:51.160 --> 0:04:54.200 a lawsuit there. There's a little bit you know, broad 0:04:54.240 --> 0:04:58.000 Common VMware is also pending. I just saw some breaking 0:04:58.040 --> 0:05:00.520 news that that might get clearance in Europe. I think 0:05:00.520 --> 0:05:03.400 that a deadline there is something like next week for 0:05:03.480 --> 0:05:06.679 the European decision. If that happens, I think that votes 0:05:06.720 --> 0:05:10.599 pretty well for getting clear And elsewhere we have Kroger 0:05:10.640 --> 0:05:13.960 and Albertson's very big grocery deal that's pending before the 0:05:14.000 --> 0:05:15.719 Federal Trade Commission, So we'll have to. 0:05:15.720 --> 0:05:16.880 See in second half. 0:05:16.920 --> 0:05:20.200 We could certainly see either a settlement there or a 0:05:20.240 --> 0:05:22.880 lawsuit to block. I tend to lean more toward to 0:05:22.960 --> 0:05:25.640 lawsuit to block because we just haven't seen a lot 0:05:25.680 --> 0:05:29.479 of settlement activity by this FTC or DOJ yet. 0:05:29.640 --> 0:05:30.520 In the last year. 0:05:31.000 --> 0:05:34.200 And then we have the pending litigation Jeck Blue and Spirit. 0:05:34.360 --> 0:05:37.520 The Department of Justice has already challenged that and that's 0:05:37.560 --> 0:05:38.960 going to start trial in October. 0:05:39.040 --> 0:05:40.599 So I'm watching that one as well. 0:05:40.760 --> 0:05:41.920 Lots of follow Hey, Jen. 0:05:42.120 --> 0:05:46.400 We also have the folks from the PGA Tour testifying 0:05:46.400 --> 0:05:50.919 in front of Congress today pending merger between the PGA 0:05:51.040 --> 0:05:54.440 Tour and the Live Tour, including a big investment from 0:05:55.000 --> 0:05:57.560 a Saudi investment fund. I'm not sure if you're a 0:05:57.560 --> 0:06:01.159 golf fan, but is there antitrust risk because that sounds 0:06:01.160 --> 0:06:02.760 like a horizontal deal. 0:06:03.960 --> 0:06:06.040 It is, And you know, Paul, I'll say, I'm kind 0:06:06.080 --> 0:06:07.360 of adjacent golf fan. 0:06:07.520 --> 0:06:09.800 That kind of means a huge golf fan, and that makes. 0:06:09.560 --> 0:06:12.200 Me adjacent, right, So sometimes I'm in front of the 0:06:12.200 --> 0:06:13.560 TV watching some of this stuff. 0:06:14.920 --> 0:06:16.360 Yes, I agree with you. 0:06:16.440 --> 0:06:20.840 That's a horizontal deal that superficially facially looks anti competitive, 0:06:21.560 --> 0:06:24.240 like a merger to monopoly or near to it. And 0:06:24.320 --> 0:06:27.320 so it's very surprising from an anti trust perspective that 0:06:27.360 --> 0:06:28.320 they move forward with this. 0:06:28.600 --> 0:06:28.840 Now. 0:06:28.960 --> 0:06:32.839 Congress is also worried about national security issues, so I 0:06:32.839 --> 0:06:36.320 think today's hearing may actually it covers both. I think 0:06:36.320 --> 0:06:38.960 it may be more focused on national security, you know, 0:06:39.000 --> 0:06:42.200 the idea perhaps that the saudiast could get in their 0:06:42.240 --> 0:06:46.560 hands the data of US golf fans, golf golf consumers, 0:06:46.680 --> 0:06:49.839 or even other issues. But from an anti trust perspective, Paul, 0:06:49.920 --> 0:06:53.200 it looks like a very difficult deal to do to me. 0:06:54.279 --> 0:06:56.840 And golf doesn't have an anti trust exemption like some 0:06:56.920 --> 0:07:00.960 other sports leagues. For instance, baseball has some limited trust exemptions. 0:07:01.000 --> 0:07:03.240 Golf does not have that. So we'll have to see 0:07:03.240 --> 0:07:05.840 what happens here. We do know that DOJ has already 0:07:05.880 --> 0:07:09.520 opened an investigation the Ant Trust Division, so they're looking 0:07:09.520 --> 0:07:12.320 at it. They'll be investigating it, and if they filed 0:07:12.320 --> 0:07:15.680 a lawsuit to challenge that merger wouldn't surprise me at all. 0:07:16.000 --> 0:07:18.360 Any indication of how long it could be before we 0:07:18.440 --> 0:07:22.520 get some more news about Microsoft and activision ah soon. 0:07:22.920 --> 0:07:25.000 I think we're going to get news every day because 0:07:25.720 --> 0:07:28.640 their end date is July eighteenth, right, that's next Tuesday, 0:07:28.880 --> 0:07:32.040 So they really want to close before July eighteenth. So 0:07:32.240 --> 0:07:35.720 I suspect they're talking right now very earnestly with the 0:07:35.800 --> 0:07:39.360 UK CMA, trying to reach some sort of settlement, maybe 0:07:39.400 --> 0:07:42.720 even with an agreement that let them close before their 0:07:42.760 --> 0:07:46.040 July eighteenth date, so maybe Monday or even this Friday 0:07:46.560 --> 0:07:49.680 and hold separate if they need to for continued discussions 0:07:49.680 --> 0:07:52.600 with the UK, or if a settlement can't be reached, 0:07:52.600 --> 0:07:55.480 to go through the appeal, because holding a company separate 0:07:55.480 --> 0:07:58.640 obviously makes it much easier down the road to unwind 0:07:58.680 --> 0:08:00.640 the deal if the UK were to veil. But I 0:08:00.680 --> 0:08:05.840 suspect at this point, given overwhelmingly the global regulators who 0:08:05.880 --> 0:08:09.080 cleared this deal, you know, Europe didn't only clear it 0:08:09.120 --> 0:08:12.320 that Europe said the settlement was pro competitive, that it 0:08:12.360 --> 0:08:14.520 wasn't just neutral, that it was pro competitive, and I 0:08:14.520 --> 0:08:16.520 think there's a lot of pressure on the CMA to 0:08:16.680 --> 0:08:19.000 let this go forward, also with some kind of a 0:08:19.040 --> 0:08:23.280 behavioral settlement promises by Microsoft not to take these Games exclusive. 0:08:23.600 --> 0:08:25.240 All right, Jen, thanks so much for joining us. Really 0:08:25.280 --> 0:08:25.720 appreciate it. 0:08:25.800 --> 0:08:31.040 Jenri antitrust litigation analysts for Bloomberg Intelligence, pining on a 0:08:31.280 --> 0:08:35.680 number of deals. The big news today Microsoft getting a 0:08:35.800 --> 0:08:40.679 court clearance to proceed next steps with its Penning acquisition activision. 0:08:40.679 --> 0:08:43.839 I remember that's a gaming company and this transaction is fight. 0:08:43.880 --> 0:08:48.040 It's sixty nine billion dollars, so even by Microsoft's standards, 0:08:48.120 --> 0:08:49.280 pretty darn material. 0:08:49.320 --> 0:08:50.920 We'll have more reporting on that going forward. 0:08:53.240 --> 0:08:56.640 You're listening to the team Ken's are Line program Bloomberg 0:08:56.720 --> 0:09:00.000 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:09:00.160 --> 0:09:03.360 the iHeartRadio app and the Bloomberg Business App, or listening 0:09:03.360 --> 0:09:05.480 on demand wherever you get your podcasts. 0:09:07.520 --> 0:09:11.600 I'm looking at the Bloomberg Commodity Index exactly, and you 0:09:11.600 --> 0:09:14.360 know from its high recent high back in August September 0:09:14.360 --> 0:09:16.760 of last year, it's then about almost twenty percent, so 0:09:16.800 --> 0:09:19.559 that there's yeh, disinflation for you, I guess. But we 0:09:19.640 --> 0:09:21.439 got some in our studio here who knows a lot 0:09:21.440 --> 0:09:23.760 more than we did. David Schastler, portfolio manager and head 0:09:23.760 --> 0:09:26.720 of quantitative investment Solutions at van Neck, joins us here 0:09:26.720 --> 0:09:29.360 in our Bloomberg Interactive Brokers Studio David talk to us, 0:09:29.360 --> 0:09:32.280 tell you guys at van Neck, how you guys trade 0:09:32.400 --> 0:09:33.800 invest in commodities? 0:09:34.120 --> 0:09:38.479 Sure, so we manage a commodity fund, the tickers pit pit. 0:09:38.640 --> 0:09:42.120 It's throw back to the old commodity pits. Really what 0:09:42.160 --> 0:09:44.120 we do. It's a quantitative approach. So we're looking at 0:09:44.120 --> 0:09:46.920 a few different things. The first, we're looking at what 0:09:47.080 --> 0:09:49.720 is the structure of the curve, so are we in 0:09:49.760 --> 0:09:53.760 backwardation or canentangle? If we're in backwardation, it's an implication 0:09:53.920 --> 0:09:58.160 that there's some likely supply issues bullshtign so that's something 0:09:58.200 --> 0:10:01.000 that we watch closely. Second Ndarily, what we're doing is 0:10:01.000 --> 0:10:04.079 we're looking at prices and seeing are these commodities well 0:10:04.120 --> 0:10:06.959 behaved or not. Clearly, natural gas has not been We've 0:10:07.000 --> 0:10:11.280 been significantly underweighted for a very long time now. And 0:10:11.320 --> 0:10:14.600 then the third mean reversion commodities are super cool in 0:10:14.640 --> 0:10:18.439 the sense of they may not have the most attractive 0:10:18.440 --> 0:10:20.720 return stream, but they're always zigging and zag right and 0:10:20.760 --> 0:10:23.520 if you watch those zig and zags relative to each other, 0:10:23.559 --> 0:10:27.040 there's usually an opportunity. So we will look for mean 0:10:27.080 --> 0:10:30.080 reversion opportunities within there. So it's a very active strategy 0:10:30.120 --> 0:10:30.520 and that's. 0:10:30.360 --> 0:10:32.600 What we do. So how are you advising clients to 0:10:32.679 --> 0:10:33.520 position at this. 0:10:33.600 --> 0:10:36.800 Point within commodities or from an overall acid allocation? 0:10:36.960 --> 0:10:38.200 Start with commodities first. 0:10:38.679 --> 0:10:41.960 Within commodities, right now, we are bullish on energy. We 0:10:42.120 --> 0:10:45.280 have a round of fifty percent allocation five zero percent 0:10:45.320 --> 0:10:48.760 allocation to commodities, significantly higher than what you reference before 0:10:48.760 --> 0:10:51.800 with the Bloomberg Commodity Index. We're bullish on oil right 0:10:51.840 --> 0:10:54.880 We've got a big CPI report coming out tomorrow. Don't 0:10:54.880 --> 0:10:56.559 have a big view on that, but if you look 0:10:56.600 --> 0:11:01.760 at the CPI trends, inflation's falling largely because energy prices 0:11:01.760 --> 0:11:04.800 are falling. We don't think that that trend continues. In fact, 0:11:04.800 --> 0:11:06.920 we're obviously betting in the opposite direction. 0:11:07.400 --> 0:11:08.640 A lot of those issues. 0:11:08.360 --> 0:11:12.760 We think are behind us. Lower prices, softer prices are 0:11:12.840 --> 0:11:18.840 discouraging production, right Saudi Arabia reducing production, eating into supply. 0:11:19.000 --> 0:11:22.319 Obviously the spr stuff largely behind us. We think loial 0:11:22.400 --> 0:11:26.280 prices firm up here, go higher. Clearly we're betting on that. 0:11:26.440 --> 0:11:28.800 So then the production issues would be the catalyst to 0:11:29.080 --> 0:11:30.080 moving energy prices. 0:11:30.160 --> 0:11:33.600 Yes, so hate to be bearish on the economy, but 0:11:33.760 --> 0:11:38.360 we are okay, But there's a relatively inelasticity of demand 0:11:38.360 --> 0:11:40.679 when it comes to energy prices, when it comes to oil. 0:11:41.080 --> 0:11:44.520 So we think we can see a softening and demand modestly. 0:11:45.440 --> 0:11:48.360 We think that the supply side is where the juice 0:11:48.360 --> 0:11:49.720 is in the story, and we think that that's what 0:11:49.800 --> 0:11:52.320 drives that's what firms up prices and eventually drives them 0:11:52.400 --> 0:11:53.760 higher as we move later in the year. 0:11:53.880 --> 0:11:57.439 And now that the contra cost to this is Bloomberg intelligence. 0:11:57.480 --> 0:12:01.680 Mike mcgloan are commodity strategist. He says, if Miami Mikey 0:12:01.720 --> 0:12:04.120 says it goes to fifty before it goes to one hundred, 0:12:04.320 --> 0:12:07.559 it's just that's the and his thing is and I 0:12:07.559 --> 0:12:09.440 actually I won't speak for it, but anyway, so and 0:12:09.480 --> 0:12:11.560 I guess the bearish call is just demand that the 0:12:11.600 --> 0:12:14.240 demand curve is outweighing the supply curve. Here is at 0:12:14.240 --> 0:12:17.000 a concern of you that demand out there, whether it's 0:12:17.640 --> 0:12:19.640 Russian up being as strong as we thought, whether it's 0:12:19.640 --> 0:12:22.280 being the continued tensions in Ukraine or whatever, maybe a 0:12:22.320 --> 0:12:24.920 recession in the US. How do you think about the 0:12:24.920 --> 0:12:26.880 demand side of the of the energy space. 0:12:27.720 --> 0:12:30.760 Demand softening continues to soften because we do have a 0:12:30.760 --> 0:12:33.800 bearish view on the economy. That's what's likely going to 0:12:33.840 --> 0:12:36.000 happen when the FED takes the juice bowl away. So 0:12:36.080 --> 0:12:38.480 we think that that's going to continue. But it's a 0:12:38.480 --> 0:12:41.079 supply side story, so we'll think that the supply side 0:12:41.320 --> 0:12:44.520 is going to cause an imbalance sends oil prices higher. Now, 0:12:44.520 --> 0:12:46.719 if we're talking two to three months out, he may 0:12:46.760 --> 0:12:48.679 be right, we may be right. But if we're talking 0:12:48.760 --> 0:12:50.840 six twelve months out, we think that we're right. 0:12:50.960 --> 0:12:54.000 So we talked about positioning specifically in the commodity space, 0:12:54.040 --> 0:12:55.040 what about more broadly. 0:12:56.320 --> 0:13:00.240 Our view, broadly speaking, is that investors should have an 0:13:00.280 --> 0:13:05.320 allocation of ten to fifteen percent to assets with scarcity. 0:13:05.400 --> 0:13:09.280 We're talking about commodities, we're talking about natural resource equities, 0:13:09.280 --> 0:13:12.640 we're talking about gold bullying gold equities. These are the 0:13:12.679 --> 0:13:16.440 assets that have historically performed the best during periods of 0:13:16.520 --> 0:13:20.480 high inflation. Now quick preview one r view on inflation 0:13:21.000 --> 0:13:24.480 This time is not different, meaning inflation doesn't happen often, 0:13:24.640 --> 0:13:27.080 but when it does happen, it sticks around for an 0:13:27.080 --> 0:13:29.960 extended period of time. We think that that's what happens. 0:13:30.320 --> 0:13:33.160 CPI again being pulled back because of energy prices. We 0:13:33.200 --> 0:13:37.280 think that reverses with periods of inflation, pockets of inflation, 0:13:38.160 --> 0:13:42.160 disinflationary pockets, pockets of inflation. It comes in waves. We 0:13:42.200 --> 0:13:45.360 are right now in a disinflationary wave. We've said it 0:13:45.360 --> 0:13:47.240 for a long time. Once you get into one of 0:13:47.240 --> 0:13:49.839 these disinflationary waves, everybody's going to come out of the 0:13:49.840 --> 0:13:52.199 closet again and say, listen, we knew that inflation wasn't 0:13:52.200 --> 0:13:54.080 gonna happen. It was only temporary. That crowd's gonna come 0:13:54.160 --> 0:13:56.120 back out. They're going to be really, really loud. We 0:13:56.160 --> 0:13:59.880 think that they get tricked again. Inflation continues, and we 0:14:00.600 --> 0:14:03.280 end up with an average level of inflation significantly above 0:14:03.320 --> 0:14:06.800 two percent. During these regimes, you want to own assets 0:14:06.840 --> 0:14:08.880 with scarcity. I look at the S and P five 0:14:08.920 --> 0:14:12.000 hundred right now, I get very nervous. I see a 0:14:12.120 --> 0:14:15.000 rich index. I see an imbalance index. I see an 0:14:15.000 --> 0:14:19.440 index that is dominated by the five biggest technology companies 0:14:19.800 --> 0:14:23.479 that have negative earning yield relative to short term treasuries. 0:14:23.680 --> 0:14:26.880 Then I look over at energy stocks. I see positive 0:14:26.880 --> 0:14:31.760 earning yields. I look over at diversified minors. I see 0:14:31.800 --> 0:14:34.280 positive earning yields. I sit there, I scratch my head 0:14:34.320 --> 0:14:36.240 and say, how can you be comfortable with the s 0:14:36.280 --> 0:14:39.239 and P five hundred when you see such attractive opportunities, 0:14:39.240 --> 0:14:42.720 specifically with an energy. Most attractive segment of the market right. 0:14:42.600 --> 0:14:43.880 Now in our opinion sugar. 0:14:44.320 --> 0:14:45.000 I like sugar. 0:14:45.360 --> 0:14:47.920 We've been bullish sugar for a long time. 0:14:48.000 --> 0:14:50.320 Now, how do you what's what's the call on sugar? 0:14:50.920 --> 0:14:54.080 So we've been bullish on it, We've taken profits on it, 0:14:54.160 --> 0:14:56.920 We're likely going to continue to do so. That's a 0:14:56.960 --> 0:15:00.320 supplied demand imbalanced story. We pick that up BA of 0:15:00.360 --> 0:15:03.680 all of our technicals. We're still bullsh on it. We 0:15:03.840 --> 0:15:07.480 maintain our Bush position on it. It's just a situation 0:15:07.560 --> 0:15:10.080 when you look at the commodity complex and you look 0:15:10.120 --> 0:15:13.480 at energy, and we see probably better opportunities there going 0:15:13.520 --> 0:15:15.920 forward than with sugar. But we've done well with the. 0:15:16.120 --> 0:15:18.880 Sugar of seventeen percent year to date? Is it? 0:15:20.160 --> 0:15:22.440 So if you invest in sugar, you just think the 0:15:22.480 --> 0:15:24.320 demands gonna higher than the supply, right? I mean it's 0:15:24.320 --> 0:15:26.080 just a commodity or is that kind of how you 0:15:26.920 --> 0:15:27.240 go back? 0:15:27.240 --> 0:15:28.680 That's that's the case for all commodities. 0:15:28.720 --> 0:15:29.320 Yeah, that's right. 0:15:29.360 --> 0:15:31.560 So you just think that demand is higher than a supply. 0:15:31.640 --> 0:15:33.600 So it has it been a supply issue that you 0:15:33.640 --> 0:15:36.040 guys got right or was it the demand side? 0:15:36.160 --> 0:15:38.680 It has been a supply issue that we got right. 0:15:38.840 --> 0:15:40.880 Why do we get it right though? We got it 0:15:41.000 --> 0:15:43.680 right because we read the tee lea's from the technicals 0:15:43.760 --> 0:15:47.080 of the market. So again, what are our three pillars 0:15:47.080 --> 0:15:50.600 of investing. We look at the structure of the future's curve, 0:15:51.240 --> 0:15:53.360 We look at the price of it. It had an 0:15:53.360 --> 0:15:58.040 attractive return profile and that's why we were biased towards it. Now, 0:15:58.080 --> 0:16:02.360 why was all that happening because of the weather situations? 0:16:02.360 --> 0:16:05.400 Because of what happened on the underlying supply side of sugar, 0:16:05.440 --> 0:16:06.320 and that was the catalyst. 0:16:06.360 --> 0:16:08.800 Where do you grow? Where's sugar grown? Where do we 0:16:08.800 --> 0:16:10.920 get sugar sugars? 0:16:11.000 --> 0:16:13.960 India's big produce explorer, sugars sugars across the board? 0:16:14.080 --> 0:16:15.720 Yeah, okay, I don't know if it was like some 0:16:15.880 --> 0:16:17.840 part of the world that was having a drought or 0:16:17.880 --> 0:16:18.360 this or that. 0:16:18.600 --> 0:16:21.840 Yeah, so we read that, We read the tea leaves 0:16:22.120 --> 0:16:25.480 from the technicals. The technicals are driven from the supplied 0:16:25.520 --> 0:16:29.000 demanded balances. But we are not fundamental analysts. What we're 0:16:29.000 --> 0:16:32.080 doing is we're looking at the structure of the curve 0:16:32.760 --> 0:16:33.800 supply demand in balance. 0:16:34.120 --> 0:16:37.040 What about infrastructure, because I know that's another big part 0:16:37.080 --> 0:16:40.120 when you're looking at the allocation within your ETF. 0:16:41.000 --> 0:16:45.520 Infrastructure is really cool in the sense of if you 0:16:45.560 --> 0:16:48.320 are a bearish on the economy and you want to 0:16:48.320 --> 0:16:52.920 protect profit margins, think of companies that have effectively you 0:16:52.920 --> 0:16:55.400 can almost think about it as contract pricing. Think of 0:16:55.480 --> 0:17:00.520 toll ros, airports, helports. These are businesses that are really 0:17:00.560 --> 0:17:04.240 insulated from inflation, so they can maintain profit margins and 0:17:04.240 --> 0:17:07.040 they are very defensive if we roll into a recession, 0:17:07.080 --> 0:17:10.600 which unfortunately is likely to happen given where we are 0:17:10.760 --> 0:17:14.159 right So when we think about the portfolio right now, 0:17:14.200 --> 0:17:17.840 we're invested in infrastructure through our inflation allocation. ETF ticker 0:17:17.920 --> 0:17:21.879 racks are a AX, it's around a sixteen percent allocation. 0:17:22.600 --> 0:17:25.600 If the economy has a crash landing, obviously commodities are 0:17:25.600 --> 0:17:27.280 going to be vulnerable there, and we look at the 0:17:27.320 --> 0:17:30.399 portfolio and say what should do well. Infrastructure should do 0:17:30.520 --> 0:17:32.720 very well in that environment. That's why it's there. It's 0:17:32.720 --> 0:17:36.400 there's diverse fire, it's there to maintain profit margins. If 0:17:36.440 --> 0:17:38.200 inflation continues, which we expect. 0:17:38.680 --> 0:17:42.000 Man, I learned a lot today, Sugar, Look, get this 0:17:42.040 --> 0:17:42.360 guy back. 0:17:42.640 --> 0:17:46.080 David Schessler, portfolio manager and head of Quantitative Investment Solutions 0:17:46.119 --> 0:17:49.280 at van K doing commodities. Lots of symbols out there 0:17:49.280 --> 0:17:51.480 to follow some of those now, are those, David, just 0:17:51.480 --> 0:17:54.520 real quick? Are those funds or those ETFs? Etf ETFs? Okay, 0:17:54.760 --> 0:17:57.160 god forbid. Anybody does is a nu mutri fed fun 0:17:57.200 --> 0:17:57.840 business anymore. 0:17:57.840 --> 0:17:58.560 It's all ETFs. 0:17:58.720 --> 0:17:59.320 It definitely is. 0:17:59.320 --> 0:18:01.159 That's what the kids auld. I get it. I get it. 0:18:01.480 --> 0:18:03.159 The days of me going up to Boston seeing all 0:18:03.160 --> 0:18:05.439 the big mutual funds. I think that's a thing in 0:18:05.440 --> 0:18:08.199 the past. David Schasler, thanks so much for joining us. 0:18:08.480 --> 0:18:11.600 You're listening to the tape Ken's Are Live program Bloomberg 0:18:11.680 --> 0:18:15.280 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:18:15.320 --> 0:18:18.560 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:18.600 --> 0:18:21.399 You can also listen live on Amazon Alexa from our 0:18:21.440 --> 0:18:25.800 flagship New York station, Just say Alexa play Bloomberg eleven thirty. 0:18:27.520 --> 0:18:30.960 Jess met Paul Sweety here in the Bloomberg Interactive Brokers 0:18:30.960 --> 0:18:32.800 Studio and Paul as you know, we've been discussing so 0:18:32.880 --> 0:18:35.639 much about those big banks coming up reporting earnings, but 0:18:35.680 --> 0:18:38.520 also when it comes to the fed's Vice Chair for Supervision, 0:18:38.560 --> 0:18:42.320 Michael Barr is proposing those big bank regulation changes. What 0:18:42.359 --> 0:18:44.359 would happen with banks with at least one hundred billion 0:18:44.400 --> 0:18:47.560 dollars in assets could face higher capital limits? So who 0:18:47.600 --> 0:18:50.920 better to speak with us about both of those two topics? 0:18:50.920 --> 0:18:55.080 And Alison Williams, senior Global Banks and Asset manager analysts 0:18:55.080 --> 0:18:58.000 with Bloomberg Intelligence, who's here in studio with us? So 0:18:58.040 --> 0:19:00.680 I'll start off Allison. When it comes to these changes 0:19:00.680 --> 0:19:03.520 that Michael Barr is proposing, can you walk us through 0:19:03.640 --> 0:19:06.760 what that really means in how the banking industry is 0:19:06.800 --> 0:19:07.600 reacting to this. 0:19:08.280 --> 0:19:11.720 So we're still waiting for the finalization, but I think 0:19:11.720 --> 0:19:14.960 the surprising things were one that he went down to 0:19:14.960 --> 0:19:19.800 the hundred billion market cap I'm sorry, not market cap 0:19:19.840 --> 0:19:23.520 by asset size. And then also you know he was 0:19:23.560 --> 0:19:26.000 saying basically adding, you know, it would add like two 0:19:26.000 --> 0:19:29.840