WEBVTT - Treasury ETFs See Big Inflows, Hot Money Is Spooked: Balchunas 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:33.360 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. I 0:00:33.360 --> 0:00:35.800 wonder bring to Eric Beltuna, senior et F analysts for 0:00:35.800 --> 0:00:39.600 Bloomberg Intelligence, what are you seeing with respect to e 0:00:39.760 --> 0:00:43.440 t F flows and how instructive are they with respect 0:00:43.520 --> 0:00:48.239 to just how panicked investors have gotten? Yes, so I'm 0:00:48.240 --> 0:00:51.960 seeing a lot of red naturally. Um, you know, maybe 0:00:52.120 --> 0:00:54.320 you could call it a blood bath. In terms of Spy, 0:00:55.080 --> 0:00:58.640 Spy has lost about twenty three billion in a week. Um, 0:00:58.680 --> 0:01:00.000 you know, in a couple of days of eight bill 0:01:00.000 --> 0:01:03.200 I in. So what this tells me is a lot 0:01:03.320 --> 0:01:06.040 of this sort of trading crowd, the hot money, as 0:01:06.040 --> 0:01:09.400 I call it, is really spooked. And Spy took in 0:01:09.400 --> 0:01:12.080 about twenty million in January, which helps ets blows go 0:01:12.120 --> 0:01:15.000 bonkers in the on the inside. But when the sell 0:01:15.080 --> 0:01:18.679 off started, Spy got hit hard as usual. Um, what 0:01:18.760 --> 0:01:20.679 I look for is deeper than spy. What are the 0:01:20.720 --> 0:01:22.880 allocators doing? And that's why I look for I v V. 0:01:23.440 --> 0:01:26.240 I v V is the cheap version that advisors love 0:01:26.360 --> 0:01:29.920 right of the smpts. And it's starting to see a 0:01:29.920 --> 0:01:32.120 little trickle of red. It see it saw inflows hunt 0:01:32.160 --> 0:01:34.000 on Monday, believe it or not, and it is like 0:01:34.040 --> 0:01:36.840 a machine of inflows. But even it is starting to 0:01:36.880 --> 0:01:39.000 see a little red And to me, that's almost more 0:01:40.200 --> 0:01:42.360 would make me more nervous is when you see something 0:01:42.400 --> 0:01:46.600 like that or Vanguard ets start to see outflows, that 0:01:46.840 --> 0:01:49.560 is a that's a whole bigger issue. Because spies used 0:01:49.640 --> 0:01:51.960 like just like futures contract for a lot of people. 0:01:52.280 --> 0:01:54.080 They go in and out all the time. It's like 0:01:54.120 --> 0:01:56.000 a hotel. But when you see it on the more 0:01:56.040 --> 0:01:59.040 buy and hold ets, I think it's a little more concerning. Well, 0:01:59.120 --> 0:02:01.480 so do you come on in here, because I'm wondering 0:02:01.640 --> 0:02:05.520 and you are there other gauges of flows that sort 0:02:05.560 --> 0:02:09.320 of indicate whether or not uh there is mass selling 0:02:09.400 --> 0:02:11.840 or whether this is just uh sort of around the 0:02:12.000 --> 0:02:16.080 edges macro bets. I mean there's a difference, Yeah, there is, 0:02:16.240 --> 0:02:19.519 and certainly there are plenty of numbers around that point. 0:02:19.560 --> 0:02:23.560 In that direction. Bank of America Merrill Lynch had their 0:02:23.720 --> 0:02:29.160 weekly update out today. You know, they're talking about thirty 0:02:29.240 --> 0:02:34.040 point six billion dollar outflow from equity funds. Now they're 0:02:34.080 --> 0:02:36.720 relying I think on data from ep f R to 0:02:36.880 --> 0:02:39.640 do that, uh, and they're talking about half a billion 0:02:39.680 --> 0:02:42.360 dollars coming out of gold, which is particularly interesting because, 0:02:42.400 --> 0:02:45.119 let's face it, you know, when you've seen these sort 0:02:45.120 --> 0:02:48.920 of upheaval that markets and have gone through the past, 0:02:49.040 --> 0:02:51.640 especially when you look at stocks, I mean, people have 0:02:51.760 --> 0:02:54.880 tended to run to areas where they see relative safety, 0:02:54.880 --> 0:02:57.040 and gold has been among them. And gold have been 0:02:57.200 --> 0:03:00.440 down this week, which is really saying something about how 0:03:00.480 --> 0:03:02.680 people are looking at the precious metal and you're seeing 0:03:02.720 --> 0:03:05.400 outflows on top of that, I'll just point out that 0:03:05.840 --> 0:03:09.720 they tracked four billion dollars going into bonds. So even 0:03:09.760 --> 0:03:13.000 with the higher yields that we're seeing, uh, it hasn't 0:03:13.000 --> 0:03:16.799 really deterred investors from sort of moving money in there, 0:03:16.800 --> 0:03:20.280 because remember, those higher yields mean bonds have been falling 0:03:20.280 --> 0:03:24.960 in value. Eric, can you explain the technical process that 0:03:25.040 --> 0:03:29.079 takes place during the trading day that causes most screens 0:03:29.120 --> 0:03:31.360 to light up like Christmas trees at the end of 0:03:31.440 --> 0:03:38.360 trading and the relationship between exchange traded funds in their positions. Well, look, 0:03:38.400 --> 0:03:39.600 I mean at the end of the day, you have 0:03:39.680 --> 0:03:42.280 a lot of trading going on UM and some ets 0:03:42.360 --> 0:03:45.720 have to re balance. UM. In that whole horrible Vick 0:03:45.840 --> 0:03:48.320 situation that happened earlier this week, that's where a lot 0:03:48.360 --> 0:03:51.560 of that happened on the rebalance. But a stock ets 0:03:51.680 --> 0:03:55.360 are they don't own all that much and they don't rebalance, 0:03:56.760 --> 0:04:00.360 They rebound quarterly. So it's the Vics ones rebound Bailey, 0:04:00.440 --> 0:04:02.920 So UM, it's I don't think it's that big of 0:04:02.960 --> 0:04:03.920 a deal. I just think you have a lot of 0:04:03.920 --> 0:04:05.840 trading at Didner day across the board. One thing I 0:04:05.880 --> 0:04:08.600 just want to comment on what Da've just said in gold, 0:04:08.640 --> 0:04:11.960 which I find fascinating, is you know gold is zero 0:04:12.040 --> 0:04:15.880 correlation to the market, not negative or inverse, and so 0:04:16.000 --> 0:04:19.120 it might it like just does its marches could have 0:04:19.160 --> 0:04:21.880 beat of its own drummer, and it was going up 0:04:21.920 --> 0:04:25.360 a lot during the past year, even when stocks are rallying, 0:04:25.400 --> 0:04:27.479 and now you have the opposite where we are seeing 0:04:27.520 --> 0:04:30.719 flows that I think also contributes to nervous investors. Is 0:04:31.160 --> 0:04:34.480 SHV the one to three month Treasury ETF and Bill. 0:04:34.920 --> 0:04:36.520 I mean these are the shortest of this. This is 0:04:36.560 --> 0:04:39.600 a mattress. Basically, those two funds have taken in some money. 0:04:39.600 --> 0:04:41.440 They're rarely on the top ten lists and they are 0:04:42.120 --> 0:04:44.680 yesterday and t LT saw some money. So I do 0:04:44.800 --> 0:04:48.599 think treasuries are where most people go. And it's really panic. 0:04:48.680 --> 0:04:51.840 Gold is a little more performance based. That's really fascinating 0:04:51.880 --> 0:04:53.360 to me. And it makes a lot of sense if 0:04:53.360 --> 0:04:56.159 you think about it. Uh, And this morning I was thinking, 0:04:56.200 --> 0:05:00.040 you know, if everything re prices down, that's awesome for 0:05:00.520 --> 0:05:03.159 true bond investors because that means you can actually buy 0:05:03.160 --> 0:05:05.520 stuff with higher yields. I mean, it's like, this is 0:05:05.560 --> 0:05:08.279 a good thing if you are sort of continuing to 0:05:08.360 --> 0:05:10.760 rotate money in so all of a sudden cash might 0:05:10.800 --> 0:05:15.520 start paying. Fascinating. Dave Wilson, Bloomberg SAX editor, columnist and 0:05:15.720 --> 0:05:18.760 blocker at M Live go on the Bloomberg Thank you 0:05:18.800 --> 0:05:21.039 so much. Eric Valcinas, thank you so much for joining 0:05:21.040 --> 0:05:37.920 a senior et F analyst for Bloomberg Intelligence. Well, it 0:05:38.040 --> 0:05:42.960 seems like the lessons learned are of dubious quality. Right now, 0:05:43.000 --> 0:05:45.839 I'm just looking at one of the funds, the short 0:05:46.000 --> 0:05:49.599 Volatility funds that blew up or lost a lot of 0:05:49.600 --> 0:05:52.919 its value in the recent turmoil. Well, people are pouring 0:05:53.040 --> 0:05:56.359 money back in. Here to talk about it is Nick Colas, 0:05:56.400 --> 0:05:59.520 co founder of Data Check Research LLC, which is based 0:05:59.560 --> 0:06:03.360 in New York, also a Bloomberg prophet. Nick, what's going 0:06:03.480 --> 0:06:06.360 on here? If people just not learn their lesson the 0:06:06.400 --> 0:06:10.200 short answers, No, they apparently have not. The longer answer is, 0:06:10.320 --> 0:06:13.600 I guess you know, if you liked shorting volatility at ten, 0:06:13.680 --> 0:06:16.520 you've gotta love shorting volatility at thirty on the VIX. 0:06:17.000 --> 0:06:19.320 And so you're right. Money is just poured back into 0:06:19.360 --> 0:06:21.599 this fund. Obviously the x I V went away or 0:06:21.640 --> 0:06:24.520 is closing, so there's fewer funds in which to focus 0:06:24.600 --> 0:06:26.599 this money in. S v X Y is really getting 0:06:26.640 --> 0:06:29.479 the benefit um, But you know it worked for a 0:06:29.480 --> 0:06:31.520 few minutes this morning at least s v X I 0:06:31.600 --> 0:06:34.719 was up. No, we're talking about the pro shares short 0:06:35.000 --> 0:06:39.200 VIX short term futures fund s v X Why so, 0:06:39.360 --> 0:06:42.320 what are you looking at? Is this really really just 0:06:42.400 --> 0:06:45.760 a purely technical driven sell off in the stock market 0:06:46.160 --> 0:06:49.000 due to a number of different factors that will just 0:06:49.040 --> 0:06:51.279 sort of stop at some point and everybody will go 0:06:51.320 --> 0:06:53.719 back about their business or is there something more here? No, 0:06:53.880 --> 0:06:56.440 there's probably something more here. It's a it's a combination 0:06:56.480 --> 0:06:59.400 of two factors. The first is obviously fundamental and where 0:06:59.440 --> 0:07:01.960 whereas in action going this year? Where a long term 0:07:02.400 --> 0:07:05.040 rates going this year? And what effect does that have evaluation? 0:07:05.080 --> 0:07:07.640 We started see that discussion shape up just two weeks ago, 0:07:08.120 --> 0:07:10.480 and then we kind of had it squared or cubed 0:07:10.840 --> 0:07:13.920 when we saw the inverse volatility funds blow up and 0:07:13.960 --> 0:07:16.000 that became more of a market structure issue. But the 0:07:16.040 --> 0:07:19.000 combination has obviously been very damaging. And the one thing 0:07:19.040 --> 0:07:21.200 I'd say is, you know, the VIX is often a 0:07:21.240 --> 0:07:24.000 good indicator of fear, but it's not a great indicator 0:07:24.040 --> 0:07:26.840 of market bottoms if you look back at prior cycles. 0:07:27.160 --> 0:07:29.200 When the VIX bottoms, you've got to wait a month 0:07:29.320 --> 0:07:33.120 or two or three before the market actually turns. So 0:07:33.240 --> 0:07:35.400 to the direction of the VIX that actually matters the 0:07:35.440 --> 0:07:39.160 stocks more than just raw fear. So too late to sell, 0:07:39.240 --> 0:07:42.760 too early to buy. Yes, that was the way we 0:07:42.800 --> 0:07:45.320 headed off our client note last night, and that's very 0:07:45.400 --> 0:07:47.680 much the way it feels, all right, And when it 0:07:47.720 --> 0:07:51.560 does become time to buy any particular areas you'd be 0:07:51.600 --> 0:07:55.360 focused on. Yeah, technology and financials two areas that we 0:07:55.480 --> 0:07:58.760 think do definitely still hold up. The one thing I'm 0:07:58.760 --> 0:08:01.800 really waiting for in terms a market flush is technology 0:08:01.800 --> 0:08:03.840 to really sell off. I mean, tech has held up 0:08:03.880 --> 0:08:06.800 extremely well in a rising rate environment and there's no 0:08:06.880 --> 0:08:10.600 reason why it should. High pea stocks should sufferers interest 0:08:10.680 --> 0:08:13.600 rates rise, and they really haven't. So that'll, for me, 0:08:13.640 --> 0:08:15.320 will be the sign of a bottom, but also a 0:08:15.360 --> 0:08:18.520 good entry point. So what do you look at every 0:08:18.600 --> 0:08:22.720 day as kind of a key leading indicator as to 0:08:22.840 --> 0:08:25.560 how equity markets are going to behave? The one thing 0:08:25.600 --> 0:08:27.120 I look at, which I don't see a lot of 0:08:27.120 --> 0:08:30.800 other people looking at yet, is something very simple Google Trends, 0:08:31.120 --> 0:08:33.120 which is a free tool online that allows you to 0:08:33.160 --> 0:08:35.400 see how many people are searching for a given term, 0:08:35.800 --> 0:08:38.160 And in this case, the term stock market is a 0:08:38.240 --> 0:08:40.600 very useful term because it tells you how much retail 0:08:40.720 --> 0:08:43.679 is paying attention to the current market volatility. In particular, 0:08:43.760 --> 0:08:46.040 it tells you how you might open the next day. So, 0:08:46.120 --> 0:08:48.920 for example, yesterday we didn't get anywhere near the amount 0:08:48.920 --> 0:08:51.200 of attention on the stock market from Google searches that 0:08:51.240 --> 0:08:54.120 we did back on Monday, Less than half actually, which 0:08:54.160 --> 0:08:56.400 told me that retail for whatever reason, was not tuned 0:08:56.440 --> 0:08:59.240 into the market coming down yesterday, and sure enough we 0:08:59.280 --> 0:09:01.760 had a very good it open. What I do fear 0:09:01.880 --> 0:09:04.400 is that as you see market termino will continue, those 0:09:04.480 --> 0:09:07.080 numbers will go higher and higher, and retail will eventually 0:09:07.120 --> 0:09:10.120 sell in that tradition is what creates the bottom. Can 0:09:10.160 --> 0:09:12.720 you talk a little bit about how you deploy capital 0:09:12.760 --> 0:09:16.720 at a time when perhaps you believe that the market 0:09:17.080 --> 0:09:20.199 is near a bottom, and I'm talking about not being 0:09:20.240 --> 0:09:22.880 a hero here, Yeah, I mean, the one thing I'll 0:09:22.880 --> 0:09:25.080 say is I mean in this business thirty years and 0:09:25.080 --> 0:09:27.240 I've had good friends get fired at the bottom of 0:09:27.280 --> 0:09:30.400 every cycle because they thought they knew better than the market. 0:09:30.520 --> 0:09:34.480 So my key takeaway is you're right, don't be a hero. 0:09:34.679 --> 0:09:38.840 Allocate capital very sparsely as markets go through these churned 0:09:38.880 --> 0:09:42.559 phases and downward moves, because remember that a capital allocated 0:09:42.600 --> 0:09:45.880 anywhere near bottom is very high velocity capital, and it 0:09:45.920 --> 0:09:47.959 can really help or it can kill you. So that 0:09:48.240 --> 0:09:51.400 key takeaway is be extremely careful, do not try to 0:09:51.480 --> 0:09:54.840 time and bottom edge into positions over time, take off 0:09:54.920 --> 0:09:57.720 risk if you're overexposed, and live for the long term. 0:09:58.000 --> 0:10:01.840 So if your sense is that tail investors are not 0:10:02.000 --> 0:10:05.720 the ones panicking right now, who is I mean other 0:10:05.760 --> 0:10:10.600 than the you know, sort of short vix funds. We 0:10:10.640 --> 0:10:14.880 did see the biggest ever weekly withdrawal from US equity funds. 0:10:14.920 --> 0:10:19.160 Who's pulling their money? I think it is basically everybody 0:10:19.720 --> 0:10:23.920 in retail is definitely definitely pulling some of it um. 0:10:23.960 --> 0:10:28.079 But it is also hedge funds are a manage money, 0:10:28.200 --> 0:10:31.719 financial advisor, manage money. It's everybody that got way too 0:10:31.760 --> 0:10:33.920 exposed to risk in the first part of the year, 0:10:34.400 --> 0:10:38.320 uh and basically got caught offsides and has to reduce risk. 0:10:39.800 --> 0:10:43.440 So if you are a veteran of markets, can you 0:10:43.480 --> 0:10:48.320 share with us the maybe behavioral characteristics, so the things 0:10:48.440 --> 0:10:53.920 you do that will mitigate that kind of emotional response 0:10:54.400 --> 0:10:56.200 to when things are not going the way you want. 0:10:56.240 --> 0:10:59.480 I keep thinking of Phil Fisher, uh, long time you know, 0:11:00.200 --> 0:11:02.360 expert in the world of bonds, and he would always 0:11:02.360 --> 0:11:04.200 say that, you know, when you see market turmoil, go 0:11:04.240 --> 0:11:07.720 out to the movies, because that keeps you away from 0:11:07.760 --> 0:11:10.880 the desire to keep doing something. Sometimes the idea is 0:11:10.960 --> 0:11:14.480 just step away. Stepping away is excellent advice. And I'll 0:11:14.520 --> 0:11:16.640 tell you a little story many years ago. I work 0:11:16.720 --> 0:11:19.520 for Stevie Cohen, from whom I learned a tremendous amount, 0:11:19.600 --> 0:11:22.520 and when things weren't going his way, he would ask 0:11:22.559 --> 0:11:24.640 his wife to bring his kids in for lunch, and 0:11:24.679 --> 0:11:26.720 he would just take an hour, hour and a half break, 0:11:26.920 --> 0:11:30.400 sit in the cafeteria downstairs and have lunch with his 0:11:30.480 --> 0:11:32.760 kids and his family. And that I got the sense 0:11:32.760 --> 0:11:34.760 that that really kind of resentered him and took him 0:11:34.760 --> 0:11:37.320 away from the screen, even though he was obviously a 0:11:37.400 --> 0:11:40.840 very active trader. So I have seen that process work 0:11:40.840 --> 0:11:44.080 in the past with very successful people. I'm trying to 0:11:44.160 --> 0:11:47.640 understand the dynamic. What is driving the selling right now? 0:11:47.679 --> 0:11:49.959 I mean, you say everyone, and I understand that people 0:11:49.960 --> 0:11:53.600 got over exposed, but there really is not that much. 0:11:53.600 --> 0:11:58.880 I mean, there was one unexpectedly good payrolls number after 0:11:59.000 --> 0:12:03.079 that one, is it? Yeah? So here's the thing, you know, 0:12:03.120 --> 0:12:05.720 the narrative around inflation has been floating around for the 0:12:05.760 --> 0:12:08.080 better part of a year. The narrative around central banks 0:12:08.080 --> 0:12:11.720 pulling back quantitative easing and doing quantitative tiding has been 0:12:11.720 --> 0:12:14.680 around for well over a year. And since literacy rates 0:12:14.679 --> 0:12:16.320 are so high in the US, I think we all 0:12:16.360 --> 0:12:21.199 assume that people understood those topics, but we everybody had 0:12:21.200 --> 0:12:24.000 this nagging feeling like there was going to be a reckoning. 0:12:24.440 --> 0:12:26.800 And so while there was capital coming into the market, 0:12:26.840 --> 0:12:30.199 it wasn't comfortable capital, wasn't confident capital. It was capital 0:12:30.240 --> 0:12:32.800 that was there because everybody else was there. And you know, 0:12:32.920 --> 0:12:34.960 like all the best parties in nightclubs, when they start 0:12:35.000 --> 0:12:37.800 to clear out, they clear out really fast, and when 0:12:37.800 --> 0:12:39.800 they turn on the lights, it's not pretty. No, you 0:12:39.840 --> 0:12:41.320 never want to be there when the turn lights start 0:12:41.360 --> 0:12:43.199 get turned on. All right, Who you think is most 0:12:43.240 --> 0:12:46.320 at risk right now in terms of equities or in 0:12:46.400 --> 0:12:50.319 terms of investors, well either way. So in terms of equities, 0:12:50.360 --> 0:12:52.720 tech is code and most exposed. I mean, I can't 0:12:52.840 --> 0:12:55.160 reiterate that enough. This is supposed to be a higher 0:12:55.160 --> 0:12:58.400 than one beta group. It has huge valuations and you 0:12:58.440 --> 0:13:00.040 can send that all the way into venture cap. But 0:13:00.080 --> 0:13:02.560 all if we continue to see market turmoil, venture capital 0:13:02.640 --> 0:13:04.320 is going to have a really tough time getting I 0:13:04.400 --> 0:13:06.240 p o s out of the door, getting deals done, 0:13:06.400 --> 0:13:08.760 and you're gonna see a lot of down rounds. That's 0:13:08.760 --> 0:13:11.800 the biggest area in terms of investors. I worry that 0:13:11.880 --> 0:13:14.680 investors that have coming in the past five years. Younger investors, 0:13:14.720 --> 0:13:17.400 millennial investors who have never seen it down in market. 0:13:17.880 --> 0:13:20.160 They're gonna be brave for a little while, but you know, 0:13:20.200 --> 0:13:22.480 it's always that new money that creates the bottom, and 0:13:22.520 --> 0:13:24.440 they will do it just like every other generation has 0:13:24.440 --> 0:13:28.479 done it. Thanks very much sharing your insight and your experience. 0:13:28.559 --> 0:13:32.839 Nikola's co founder Data trakt Research, and I want to 0:13:32.880 --> 0:13:35.960 congratulate you on the creation of Data tract Research and 0:13:36.000 --> 0:13:51.360 of your new company. Now let's get informed about the 0:13:51.400 --> 0:13:54.520 world of logistics and shipping. We have Lee Classgow He's 0:13:54.520 --> 0:13:59.840 our senior transport logistics and shipping analyst for Bloomberg Intelligence. 0:14:00.320 --> 0:14:04.120 Lee always a pleasure tell us about Amazon. Is Amazon 0:14:04.240 --> 0:14:08.880 really a threat to FedEx and ups? A threat might 0:14:08.920 --> 0:14:11.720 be a little overkilled. Maybe on the margin, UM, they could, 0:14:11.960 --> 0:14:15.560 you know, take some share away from FedEx neups, But 0:14:15.640 --> 0:14:18.000 the longer term, we don't see it as a systemic 0:14:18.080 --> 0:14:22.600 risk to the parcel industry. There was an announcement today 0:14:22.960 --> 0:14:26.000 UM following a report in the Wall Street Journal that 0:14:26.080 --> 0:14:28.360 notes that that the Amazon was going to do a 0:14:28.400 --> 0:14:32.200 parcel deliver delivery in the l A area UM for 0:14:32.440 --> 0:14:36.920 people in companies that are not on Amazon's network. UM. 0:14:37.040 --> 0:14:40.480 Some might view this as competition for UPS and FedEx, 0:14:40.480 --> 0:14:43.560 and some also might view it as Amazon looking for 0:14:43.640 --> 0:14:47.760 ways to get more companies into their Fulfillment by Amazon program. 0:14:48.240 --> 0:14:53.080 How expensive is this type of program the Amazon is proposing, Well, 0:14:53.120 --> 0:14:57.200 that's a great question. Um, there are really no answer 0:14:57.280 --> 0:15:00.240 because they're not throwing much money at this is at 0:15:00.320 --> 0:15:02.240 least as it seems, and it looks like they're looking 0:15:02.280 --> 0:15:04.840 to do an asset light model, meaning that they're not 0:15:04.880 --> 0:15:07.880 going to own the trucks and the drivers, um, they'll 0:15:08.440 --> 0:15:11.680 outsource that that type of work and where they'll do 0:15:11.840 --> 0:15:16.960 the sorting. Um. So it's really unclear on you know, 0:15:17.000 --> 0:15:19.000 what the costs would be for them, because I would 0:15:19.040 --> 0:15:21.880 assume that they're going to leverage their current facilities that 0:15:21.920 --> 0:15:25.560 they have for their for their for their fulfillment businesses 0:15:26.040 --> 0:15:29.120 um and just kind of a delivered deliver out of there. 0:15:29.200 --> 0:15:32.680 So it's going to cost people. But you know, you're 0:15:32.680 --> 0:15:35.160 also going to have more technology, You're gonna have to 0:15:35.160 --> 0:15:39.560 have relationships with these uh contracted drivers, and you need 0:15:39.760 --> 0:15:42.120 you know, a steady flow of drivers and and and 0:15:42.560 --> 0:15:45.320 with the labor market tightening, um, that's probably not going 0:15:45.360 --> 0:15:47.640 to be uh, it's probably gonna be easier said than done. 0:15:47.720 --> 0:15:50.960 I would could this end up being beneficial for say 0:15:51.000 --> 0:15:53.720 FedEx and UPS because at some point Amazon may have 0:15:53.800 --> 0:15:56.280 to come back to them at least their drivers and 0:15:56.360 --> 0:15:59.560 their trucks. Yeah, and that's that's a great question. I mean, 0:15:59.600 --> 0:16:02.400 you have are are kind of thought, is that you know, 0:16:03.040 --> 0:16:06.280 Amazon is two and a half percent call it of 0:16:06.400 --> 0:16:10.560 UPS as sales, maybe two of their sales, and a 0:16:10.760 --> 0:16:13.560 less than one percent of FedEx, so they're not there. 0:16:13.600 --> 0:16:16.360 They're a huge customer of both FedEx and UPS. But 0:16:16.520 --> 0:16:19.680 if Amazon went away tomorrow, it wouldn't be you know, 0:16:19.840 --> 0:16:21.920 the end of the world for those companies because to 0:16:21.960 --> 0:16:24.600 the growth of e commerce. But but Amazon, you know, 0:16:24.680 --> 0:16:28.240 needs to to kind of tread lightly here because you know, 0:16:28.280 --> 0:16:31.560 if they if fed X and NEUPS see that Amazon 0:16:31.680 --> 0:16:33.920 is going head to head with them, they might not 0:16:34.240 --> 0:16:36.560 you know, want to necessarily carry their products during the 0:16:36.600 --> 0:16:39.760 peak season, which you know, Amazon really needs the parcel 0:16:39.840 --> 0:16:42.200 industry for help when it comes to they can't just 0:16:42.280 --> 0:16:44.920 rely on the US Postal Service lead. Just to put 0:16:44.960 --> 0:16:48.240 this into context, I understand that FedEx operates about six 0:16:48.320 --> 0:16:51.720 hundred and fifty aircraft and UPS has a fleet of 0:16:51.760 --> 0:16:55.600 over two hundred and forty aircraft. That's pretty substantial. That's 0:16:55.600 --> 0:16:58.320 not something you can just put together in a week, right. 0:16:58.360 --> 0:17:00.520 And you know Amazon has been in the new with 0:17:00.520 --> 0:17:03.120 with you know, leasing of a bunch of aircraft, and 0:17:03.200 --> 0:17:05.800 you know that's really more for their linehole business, so 0:17:06.000 --> 0:17:08.359 meaning that you know, they're willing to take more the 0:17:08.480 --> 0:17:12.240 logistics in house, which is completely normal for retailer or 0:17:12.320 --> 0:17:16.080 consumer products company. You know, Walmart and PepsiCo, for example, 0:17:16.119 --> 0:17:19.119 have the largest trucking fleets in the United States, you know, 0:17:19.200 --> 0:17:22.159 larger than many public trucking companies. UM, so that's kind 0:17:22.200 --> 0:17:24.760 of a normal part of their business. You know, they 0:17:25.080 --> 0:17:28.480 want to rely as less as they possibly can on 0:17:28.520 --> 0:17:32.000 the outside world for their supply chain UM and then 0:17:32.160 --> 0:17:35.080 leverage the great networks of FedEx ups have built over 0:17:35.080 --> 0:17:38.160 the decades. UH. And the UPS is a case over 0:17:38.200 --> 0:17:42.320 a hundred years UM to UH to deliver packages for 0:17:42.359 --> 0:17:44.840 the final final mile and and maybe a little longer 0:17:44.920 --> 0:17:46.879 than that as well. Really real quick, do you have 0:17:46.880 --> 0:17:50.439 a sense of timing with this type of program, the 0:17:50.440 --> 0:17:53.120 timing of the program of when Amazon could could roll 0:17:53.160 --> 0:17:55.000 this kind of thing. Oh, it's gonna it's I mean 0:17:55.080 --> 0:17:58.199 we're talking they're just opening in in l A. So 0:17:58.240 --> 0:18:01.679 it's one city. Uh, it's going to take probably a 0:18:01.760 --> 0:18:05.480 year to really be fully ramped up to cover a 0:18:05.560 --> 0:18:08.320 city of that large. Uh. And we'll see, you know, 0:18:08.359 --> 0:18:11.399 where the other pilot programs go from there. Um and 0:18:11.400 --> 0:18:16.760 if they're really successful kind of migrating more UH retailers 0:18:16.800 --> 0:18:19.640 onto their fulfillment platform. Lee Glasgow, thank you so much 0:18:19.640 --> 0:18:23.359 for joining us. Lee Glasgow, Senior Transport Logistics and shipping 0:18:23.400 --> 0:18:40.760 analysts for Bloomberg Intelligence. There are many popular narratives about 0:18:40.800 --> 0:18:45.320 this week's sell off in US equities, among them jitters 0:18:45.440 --> 0:18:49.560 concerns over the deepening US deficit. But is this really 0:18:50.000 --> 0:18:53.320 truly what's behind the scenes going on here? Ward McCarthy 0:18:53.359 --> 0:18:56.400 joins us right now. He's chief financial economist at Jefferies 0:18:56.440 --> 0:18:59.040 and Co. In New York. Ward, thank you so much 0:18:59.119 --> 0:19:02.280 for being with us. So about this deepening deficit? How 0:19:02.400 --> 0:19:05.440 much is that what's behind all of the activity this week? 0:19:06.400 --> 0:19:09.159 I think it's part of there a big picture that 0:19:09.320 --> 0:19:13.080 is changing in material ways from what we've had for 0:19:13.119 --> 0:19:18.040 a number of years. Here. What we're seeing is that 0:19:18.160 --> 0:19:23.280 monetary policy accommodation is being withdrawn. It's being replaced with 0:19:23.960 --> 0:19:27.680 fiscal accommodation to try to support the economy. But one 0:19:27.720 --> 0:19:32.560 of the consequences of both the fiscal accommodation and the 0:19:32.600 --> 0:19:35.879 withdrawal of monetary accommodation is that the Treasury is going 0:19:35.920 --> 0:19:39.240 to have to borrow a whole lot more money. We 0:19:39.480 --> 0:19:44.280 estimate in fiscaleen For example, the Treasury is going to 0:19:44.359 --> 0:19:47.399 have to raise an additional four hundred and fifty billion 0:19:47.520 --> 0:19:50.080 over what it did last year, So that will mean 0:19:50.119 --> 0:19:53.919 we'll have to raise about nine hundred and fifty billion dollars. So, uh, 0:19:54.119 --> 0:19:56.639 that's going to put some stresses on the bond market 0:19:56.680 --> 0:20:00.280 and we're already seeing that. Well four and fifty billion ward. 0:20:00.359 --> 0:20:02.800 Isn't that sort of the amount that the Federal Reserve 0:20:02.880 --> 0:20:06.800 is drawing down its balance sheet? Well, that's part of 0:20:07.040 --> 0:20:11.280 the part of what the Fed is um driving down. 0:20:11.359 --> 0:20:14.920 Accounts for this increase in borrowing, but keep in mind, 0:20:15.000 --> 0:20:18.760 the Treasury also needs to fund the tax cuts that 0:20:18.800 --> 0:20:21.919 were passed in December, and they also have to fund 0:20:21.920 --> 0:20:26.360 the increased spending from the budget that was passed. Uh, well, 0:20:26.400 --> 0:20:30.480 I guess early, really early this morning. So that's the 0:20:30.600 --> 0:20:32.840 draw down in the Fed balance sheet is part of 0:20:32.880 --> 0:20:35.639 that four and fifty billion. It's not all of it, okay, 0:20:35.680 --> 0:20:37.600 So where can you clear up something for me? A 0:20:37.640 --> 0:20:40.680 lot of people are saying that if we don't get inflation, 0:20:41.160 --> 0:20:45.320 yields can't rise that far. Is that a fallacy? Can 0:20:45.359 --> 0:20:49.000 we see yields rise substantially due to the supply demand 0:20:49.080 --> 0:20:54.040 dynamic regardless of inflation. Oh, you can see rates rise. 0:20:54.119 --> 0:20:57.280 It's always just a question of how much we are 0:20:57.320 --> 0:21:01.160 seeing signs that inflation is going to creep. I we've 0:21:01.160 --> 0:21:02.960 been in and one and a half to two percent 0:21:03.040 --> 0:21:06.480 inflation range. I think this year we're going to find 0:21:06.520 --> 0:21:09.440 ourselves by the third quarter in the two and a 0:21:09.480 --> 0:21:13.919 half to three percent inflation range. But the increases in 0:21:13.960 --> 0:21:16.720 the auction sizes over a period of time, which is 0:21:16.720 --> 0:21:19.199 what the Treasury is going to do, is going to 0:21:19.280 --> 0:21:24.440 start to strain the the market's resources, and that alone 0:21:24.720 --> 0:21:30.040 will result in higher rates because higher rates are going 0:21:30.080 --> 0:21:34.400 to be required to attract the investor. Bit what if 0:21:34.400 --> 0:21:36.960 you were to look into the future, into the world 0:21:37.000 --> 0:21:40.320 of people perhaps not born or just the young adults 0:21:40.440 --> 0:21:42.560 right now, what do you think the picture looks like 0:21:42.640 --> 0:21:47.320 in about ten years. Well, I think that we are 0:21:47.440 --> 0:21:51.960 seeing some important structural changes in the economy that I 0:21:52.000 --> 0:21:57.000 think will make for a better labor market than we 0:21:57.040 --> 0:21:59.600 have seen over the past ten years, even though it 0:21:59.640 --> 0:22:05.080 has been improving quite substantially. My primary concern is that 0:22:05.160 --> 0:22:09.560 the US fiscal situation is in the process of deteriorating 0:22:09.680 --> 0:22:13.320 so much that ten years from now it could be 0:22:13.520 --> 0:22:17.920 a significant impediment to the us UH. To date, the 0:22:18.160 --> 0:22:21.760 US has been, you know, profligate on the fiscal side, 0:22:22.160 --> 0:22:25.479