Speaker 1: Welcome the trillions. I'm Joel Webber and I'm Eric Valcunas. Eric. Uh,
Speaker 1: the world is in a very different place than the
Speaker 1: last time we had trillions, and we felt like we
Speaker 1: needed to bring everyone up to speed on on sort
Speaker 1: of the big macro implications of this war in Ukraine
Speaker 1: and the role of commodities and what what's happening in
Speaker 1: the commodities market, because there's a lot of turmoil and
Speaker 1: and uh, commodities are basically part of the thing that
Speaker 1: everybody's watching. Yeah, you know, we planned to do this
Speaker 1: episode really because commodities are the new shiny objects. I mean,
Speaker 1: if you look at the commodities category, which has been
Speaker 1: really bad for like a decade, it's now the hot spot. Really,
Speaker 1: it's green all over no matter what commodity you pick,
Speaker 1: pretty much. And we were going to do it because
Speaker 1: commodities are up because of inflation fears where they were
Speaker 1: Now you have geopolitics. So we've got two major catalysts
Speaker 1: here that are creating potentially a really attractive category and
Speaker 1: investors are starting to put in money. And the commodities
Speaker 1: e t f s have grown by about fift over
Speaker 1: the past fourteen months. In organic growth. So there's a
Speaker 1: lot of trapdoors, a lot of um rated our products
Speaker 1: in here places. To you know that you don't know
Speaker 1: what you're doing, it can be tricky. So we really
Speaker 1: need to be careful when we go over a category
Speaker 1: like this. So to help us make sense of everything,
Speaker 1: Mike mccloan commodity strategist with Bloomberg Intelligence, is gonna help
Speaker 1: us understand the field, this time on trying in the
Speaker 1: boom in commodities. Last, Mike, welcome to trillions. Thanks for
Speaker 1: having so. Mike, before you were at Bloomberg, you actually
Speaker 1: were in the E T F world, So let's just
Speaker 1: start there. What what would you do before you're a
Speaker 1: commodity strategist? But I did, I like to say it
Speaker 1: just took me thirty years to get to Bloomberg. But
Speaker 1: Eric and I met on a panel. I was the
Speaker 1: head of research at et S Courtage, which is not
Speaker 1: Wisdom Train, and I remember discussing precious medals and stuff
Speaker 1: like that, and um so we've been it's been how long?
Speaker 1: Has that there? About eight nine years now? It was
Speaker 1: probably about ten years ago. Can I just explain what
Speaker 1: Mike did on this panel? I think we were in Austin,
Speaker 1: Texas at or Dallas in this like cool art bar.
Speaker 1: We were using these unique venues to do presentations on
Speaker 1: e t s and panel discussions. Anyway, Mike actually brought
Speaker 1: like physical gold coins or silver coins and he held
Speaker 1: them up and I was like, I told him after
Speaker 1: him like props. I like that. That's good. I gotta
Speaker 1: I gotta use some props in my thing too, because
Speaker 1: these panels can be so boring, So anything that you
Speaker 1: can do to spice them up, I like as a presenter,
Speaker 1: and I was. That's how I first met Mike. And
Speaker 1: then that night or later that day, I saw him
Speaker 1: in the line at the airport waiting for bags, and
Speaker 1: that's how we started talking, and um we met. That's
Speaker 1: how we became friends. And man, I remember I had
Speaker 1: a silver one of those silver dollars. If I had
Speaker 1: just given you the equivalent, had the equivalent mont of bitcoin,
Speaker 1: it would have been much better off. So so much
Speaker 1: for the physical like mindys anymore. I guess they're coming
Speaker 1: back a little. Also worth mentioning that you you cover
Speaker 1: cryptocurrencies for bluemrinkin Intelligence, which I'm sure we'll talk about.
Speaker 1: But Mike, Mike has gone full crypto. You know, we
Speaker 1: talk half crypto, Mike's I think he's probably so, Mike,
Speaker 1: let's start in a non crypto space. Let's talk about Ukraine.
Speaker 1: UM commodities has been just on this terror there's you know,
Speaker 1: the word supercycle was dropped many times last year. So
Speaker 1: where where are we at in that supercycle? And sort
Speaker 1: of bring us up to speed on on inflation and
Speaker 1: what you're seeing in Ukraine. Well, I think the most
Speaker 1: important thing for investors to realize here is allocating or
Speaker 1: some partial allocations to commodities has worked really well as
Speaker 1: a diversifier. And that's been the investors who did that
Speaker 1: early on UM reaping the benefits at least having that
Speaker 1: hedge says, you know, the boomer commodity in decks up
Speaker 1: almost on the year, crew up on as of the
Speaker 1: beginning of March, and stock market down, you NASTAC down.
Speaker 1: They're doing what they're supposed to do. UM. But the
Speaker 1: key thing that's happened is the market's price for a
Speaker 1: significant amount of demand about a supply shock out of
Speaker 1: the Russia invasion of Ukraine. And I still think it's
Speaker 1: going to be the opposite. I think it's gonna be
Speaker 1: more of a demand destruction event like happen in two
Speaker 1: thousand and eight. I'll bring those parallels in there. But
Speaker 1: one thing we need to point out is this will
Speaker 1: be a absolute boom for North American commodity producers. Now
Speaker 1: we can get in that later and a lot of
Speaker 1: our our audience will be interested in some of those
Speaker 1: producers because right now Crudels is the first time w
Speaker 1: h I really sustained above a hundred dollars of bail.
Speaker 1: The first time I did that was in two thousand eight,
Speaker 1: right about this time of year. Will dig into that.
Speaker 1: The parallels are uncanny, very scary, but we're basically almost
Speaker 1: triple the cost of US production shale, where if producers
Speaker 1: can head you out two to three years based on
Speaker 1: the curve, and you can roll down that curve when
Speaker 1: you're investing in those commodities and they can double their
Speaker 1: cost of production in terms of a price in the screen.
Speaker 1: It's happening in all the grains and everything. So this
Speaker 1: is an absolute boom for those producers. It's the question
Speaker 1: is sustainability. My fears this war will trigger a global
Speaker 1: recession which was overdue, and the whole thing will tumble
Speaker 1: down like two eight. Well, okay, let's that's a lot
Speaker 1: of like in the no macro talk rate. Let's just
Speaker 1: take a big step back and talk oil. Okay. Xcel
Speaker 1: e is a is a popular ETF people use. I
Speaker 1: believe Lestimer looked AT's in the past year. This wasn't
Speaker 1: supposed to happen. I remember some people were like, oil
Speaker 1: is over, this is a green revolution, this will never happen.
Speaker 1: Just explain to us why oil in particular is up
Speaker 1: so much in the past twelve months. If we're supposed
Speaker 1: to be like over oil, well, the first of all,
Speaker 1: the bottom line, the foundation for oil going up to
Speaker 1: Hunter down the barrel was it went down the negative
Speaker 1: forty back in April. That shut off a lot of production,
Speaker 1: and from that we came out with this almost unprecedent
Speaker 1: discipline from OPEC. Now we're returning to a demand environment
Speaker 1: and the supply is not they're OPEC discipline. But if
Speaker 1: the lessons of oil is a good example, the higher
Speaker 1: price cure should kick in and we should go back
Speaker 1: to where we were before. So it's point out right
Speaker 1: now the price of oil is about fifty below the peak,
Speaker 1: maybe below the peak in two thousand and eight. There's
Speaker 1: a reason for that because the US back in two
Speaker 1: thousand eight was a net importer, one of the largest
Speaker 1: in the world, and we had a financial we had
Speaker 1: a real estate crisis. Now the world's largest import is
Speaker 1: China and they're having a real estate crisis. But the
Speaker 1: key thing about oil was it's on the back of
Speaker 1: that major demand shock. Now we're getting supply to kick in,
Speaker 1: and the rule in commandities I'll leave you with this
Speaker 1: is a higher price cure should kick in right now.
Speaker 1: We have the war and there's fears of how that
Speaker 1: will happen, and we'll have a cut off of rush
Speaker 1: and supply, but Russia's supply is probably gonna goes directly
Speaker 1: to China and then I don't think there'll be a
Speaker 1: major disruption supply in the planet. But key thing to
Speaker 1: think about what's happening right now is this is a
Speaker 1: major shock to inflations, major shock to the FED for consumers,
Speaker 1: and it's basically repeated what it did in two thousand eight.
Speaker 1: So I'm worried that this is going to revert lower.
Speaker 1: And that's what Karel has been doing since the peak
Speaker 1: in two thousand eight. I'll end with this three times
Speaker 1: since two thousand has dropped, So that's what investors have
Speaker 1: to be worried about, and that would be more of
Speaker 1: a lower tide for everything. Okay, you mentioned the North
Speaker 1: American producers, which is an interesting component here because OPEC
Speaker 1: seems like it's gonna probably just do its own thing,
Speaker 1: maintain status quo. But what could happen over here in
Speaker 1: North America now that there's this that that opportunity, that
Speaker 1: margin that you know, if you're a shale producer, you're
Speaker 1: looking at hundred dollar oil that you could spool up
Speaker 1: real quick and start pumping again. I mentioned I focus
Speaker 1: on North America, Joel, because that North America's supply has
Speaker 1: been major paradigm pressure shift in crude oil since the
Speaker 1: peak in two thousand and eight. Back then, North America
Speaker 1: was in that import of about ten million barrels of
Speaker 1: liquid fuels a day as of this year, Department of
Speaker 1: Energy Estiment, So we'll probably be North America will probably
Speaker 1: have a surplus about four of production of liquid fuels
Speaker 1: versus consumption. Now I say liquid fuels because I'm from
Speaker 1: a farm background. In this country, towel percent of our
Speaker 1: unletted gas comes from ethanol, and that bio fuel kick
Speaker 1: self is kicking in so UM and I have to
Speaker 1: include Canada UM. But that's that's spend the paradise m
Speaker 1: this pressured oil. That's what's changed from just a decade ago.
Speaker 1: And what does that mean for the future. That supply
Speaker 1: is not gone forever, it's just coming back, it's revisiting,
Speaker 1: it's resetting. The key thing is that peak has been
Speaker 1: in consumption. I just remember being in the business line
Speaker 1: met eric All. It was all about the peak crude
Speaker 1: oil supply and it turned out to be Creek Keep
Speaker 1: peak consumption in North America. So US total liquid fuel
Speaker 1: consumption the US peaked around twenty four in barrels in
Speaker 1: two thousand eighteen. Maybe we get to twenty three million
Speaker 1: barrels a day. But the major, the most significant returning
Speaker 1: ever in the history of automotive manufacturers, is towards EVS.
Speaker 1: I own an e V and that's has probably peaked
Speaker 1: forever and it's gonna head lower. And also versus GDP,
Speaker 1: it's not it's insignificant. Now. The demand side is on China.
Speaker 1: But what's China facing major property crisis like you US
Speaker 1: had had. Now if the world has some recession, all
Speaker 1: that demand pulled for China, and of course it's gonna
Speaker 1: be a problem. Of course, this effect of China of
Speaker 1: the automobile sales last year where vs. First time? Ever,
Speaker 1: where's that going well? I I would add that to
Speaker 1: make evs you need fossil fuels. I mean, there's a
Speaker 1: lot of fossil fuel behind the scenes of clean energy.
Speaker 1: But let's move to oil. You mentioned something in your
Speaker 1: first answer, which was the curve, And just to deconstruct this,
Speaker 1: I have two categories of commodity ets. Those that are
Speaker 1: physically backed like gold, where it really does track the
Speaker 1: price very well, but then ones that you can't store,
Speaker 1: like oil, natural gas, corn. They are different than the
Speaker 1: price because they own futures and they have to constantly
Speaker 1: roll them from one month to the next as the
Speaker 1: one becomes closer to expiry because no one wants to
Speaker 1: get oil delivered to their house. So can you explain
Speaker 1: to me, if we have USO or an oil et
Speaker 1: F like that, what the annual roll costs look like
Speaker 1: right now versus what it looked like before, And what
Speaker 1: should investors be looking for when it comes to those
Speaker 1: roll costs or is it just worth it? So the
Speaker 1: key thing there, Eric is it's it's probably questions does
Speaker 1: it get much better for commodity and energy investors right now?
Speaker 1: Because of backwardation. What backwardation means you have to roll
Speaker 1: that future and every time you roll it periodically roll
Speaker 1: to a higher to a lower price. The front end
Speaker 1: this bid. The back isn't Why is the front end bid?
Speaker 1: Because typically what happens in you but a short term
Speaker 1: issue with the UM excess demand and lack of slacks supply,
Speaker 1: and then it's always expected to where can say it
Speaker 1: does that it's a higher price cure. The question is
Speaker 1: how much better is it yet? So right now crewe
Speaker 1: went in backgardation on a one year basis. I always
Speaker 1: look at the annual most of the futures positions roll
Speaker 1: each contract. That depends on how they work. But you
Speaker 1: meant there's that's the key thing I want to point.
Speaker 1: You mentioned natural gas. You've got to point a natural gas.
Speaker 1: It's the world's worst commodity investment history and mankind probably
Speaker 1: because if you look at the price right now, it's
Speaker 1: four to five dollars at the same price as twenty
Speaker 1: years ago, yet's the most expensive to store and always
Speaker 1: cost a fortune. UM and it's the key thing to
Speaker 1: remember about investing commodities. When you invest in commodities, sometimes
Speaker 1: it's better to be more tactical. And if you're thinking
Speaker 1: longer term, bye, hold stick with the metals gold. You
Speaker 1: mentioned precious metals because it will hold the physical you
Speaker 1: don't have the role as much. But the way I
Speaker 1: look at nowadays, you cannot be invested in any commands
Speaker 1: most noted goal without having some Bitcoin in that space
Speaker 1: because it's the fact that bitcoin is taking flows from
Speaker 1: gold and investment portfolio. So looking forward to what it's
Speaker 1: what's the actual roll yields? It really is dependent hipally.
Speaker 1: It costs on average five to seven percent annualized to
Speaker 1: hold crude oil in a normal contango environment. Right now
Speaker 1: you're probably making that in positive um positive returns in
Speaker 1: addition to this spot price. That's just the role. Okay,
Speaker 1: So we just went over oil, a little bit of
Speaker 1: natural gas. I would put all of those as big
Speaker 1: chunks of what's called broad commodity E T F S
Speaker 1: H and the biggest one on the market right now
Speaker 1: that's taking in the most flows and it's up this year,
Speaker 1: which is one of the best performers of the year's
Speaker 1: p DBC So this is going to hold a whole
Speaker 1: bunch of future commodity futures. You talked about tactical and
Speaker 1: I know that's what you do. You write for people
Speaker 1: who are trading, But what about a long term investor.
Speaker 1: Is this the kind of fund that is better to
Speaker 1: hold long term or should you never hold anything that
Speaker 1: holds commodity futures long term? Well, the lessons of commodities
Speaker 1: is more the latter. Unfortunately, just look at performance p
Speaker 1: dbc um from two thousand fifteen is you know, it
Speaker 1: is around twenty four or so right now it's sixteen.
Speaker 1: The problem is because there's a negative role in commodity.
Speaker 1: It's not like equities. You can buy and put them
Speaker 1: away and they're donny. You're you're in coupons, you use
Speaker 1: that buybacks. You have to worry about in this type
Speaker 1: of product. There's always have to rule that futures and
Speaker 1: the rule commodities is normal contangle. You're always in the
Speaker 1: long term half gonna have to pay some form of
Speaker 1: cost of storage. Natural gas is the most expensive. His
Speaker 1: historic commodity goal is the cheapest the store, and bitcoin
Speaker 1: is actually the cheapest now, So that's why I wrote
Speaker 1: that in there, So that's gonna come out through the
Speaker 1: future's role. Now there's periods when you have like now,
Speaker 1: you get some great performance um, and it's just a
Speaker 1: question of how long that lasts. But the bottom line
Speaker 1: is always remember is the cure for higher prices and
Speaker 1: commodities is higher prices. So why is the price of
Speaker 1: crudal right now? The same price is two thousand and
Speaker 1: eight wheat the same prices, two thousand and eight corn,
Speaker 1: the same price, and then let's looking even even um copper,
Speaker 1: it's the same price as two thousand and eleven. That's
Speaker 1: a problem. It has been a problem. You mentioned the
Speaker 1: performance the last ten years, but looking forward, when prices
Speaker 1: go up, I mentioned there's so much profits in the
Speaker 1: space that supply will come back. That's the difference withholding
Speaker 1: equities or commodity based equities, which I've understand a lot
Speaker 1: of institution investors like to focus on if they want
Speaker 1: the commodity exposure, because you don't have that always working
Speaker 1: against that contangle work in the long term working against you.
Speaker 1: So you you mentioned some specific areas there, the wet,
Speaker 1: the copper, corn, What other et F do you watch
Speaker 1: and and from you know, from a an investors standpoint,
Speaker 1: if we're back to a certain level and we have
Speaker 1: a potential for for this to be an area where
Speaker 1: we could see increased flows. Which which ETFs are you watching? Uh?
Speaker 1: Usually watched the man. I don't watch commodity t F
Speaker 1: particularly much anymore. Having been done, been there, done that.
Speaker 1: I managed many of um an SMP because I know
Speaker 1: what happens with those over time. They're melting ice cubes.
Speaker 1: It's just the fact that comminded except from the metal.
Speaker 1: It's the key ones. I watched our g l D
Speaker 1: and GBTC, and Eric knows which that is, because I
Speaker 1: think what's going to happen is GBTC will convert to
Speaker 1: a ETS. It's gonna whip take out that discount, and
Speaker 1: it probably end up being one of the best ways
Speaker 1: to get exposure the bitcoin, which is becoming the global
Speaker 1: digital reserve asset and going the world going that way. Okay, Mike, woa, Okay,
Speaker 1: So you just went over a lot quickly. I just
Speaker 1: want to can we just put bitcoin aside for a minute.
Speaker 1: We're gonna we'll get there when we When we look
Speaker 1: at at gold in particular, just it seems as though
Speaker 1: I guess we can bring bitcoin rebeck in g BTC
Speaker 1: is a is a trust which doesn't have new share creations,
Speaker 1: so it's trading in a discount. That's a that's a
Speaker 1: really unique trade that people are looking at. Let's let's
Speaker 1: put that aside. Let's look at golden bitcoin. It seems
Speaker 1: as though gold is a better store of value right now.
Speaker 1: It doesn't move around as much bitcoin. It seems to
Speaker 1: be trading like a high beta tech stock. So what
Speaker 1: isn't the bid on gold right now make make more
Speaker 1: sense if you're worried about inflation and the world, you know,
Speaker 1: having geopolitical situations. It just seems like gold is actually
Speaker 1: showing why. It's more uh true zero correl correlation. It's
Speaker 1: a more better diversifier slash hedge, whereas bitcoin is really
Speaker 1: more like a shiny object. I have to push back
Speaker 1: on that a little bit. Gold has been a horrible
Speaker 1: performer last couple of years, despite the highest inflation in
Speaker 1: forty years, and bitcoin has done very well. Serium has
Speaker 1: done a lot better. So I look at it this way.
Speaker 1: I can't speak about gold anymore without bitcoin in the
Speaker 1: same bucket. Because the world is going digital and bitcoins
Speaker 1: the digital reserve asset, and I see it and sense
Speaker 1: it every day that the old guard that held and
Speaker 1: allocated the gold, I'll know they have to have some
Speaker 1: Bitcoin in that bucket. The key thing about goal is
Speaker 1: I fully expect it's going to perform a lot better
Speaker 1: in a deflation environment UM, and it has. And that
Speaker 1: is a good indication for that would be when the
Speaker 1: long bond yields starts dropping, which I expect UM long
Speaker 1: bond yield right now it's peaked last year two point
Speaker 1: five percent and now it's like two point one. That's
Speaker 1: a recessionary trade. And gold had some major competition competition
Speaker 1: for a stock market last three years in a row
Speaker 1: of stock markets up SMP five average. Who needs goal
Speaker 1: in that environment? That to me is what should be changing.
Speaker 1: But the key thing fact is Eric and that's why
Speaker 1: what I mentioned earlier E T S. I watch gotta
Speaker 1: watch something that tracks bitcoin um because those two belong together.
Speaker 1: And I say gold is naked without bitcoin in the
Speaker 1: same bucket. That's just the facts of where things are
Speaker 1: going and have been going in the last few years.
Speaker 1: So now that Ukraine and this war is underway, a
Speaker 1: lot of interest in what bitcoin will do what's your tick.
Speaker 1: I think it's showing divergent strength versus stock market. Certainly
Speaker 1: is Bitcoin is down a few percent, but it has
Speaker 1: it basically trades that three to four x volatily, meaning
Speaker 1: the risk two D sixty day valta is that much higher.
Speaker 1: So Bitcoin at this stage versus the stock market should
Speaker 1: be done a lot more. So. What I think has
Speaker 1: happened is Bitcoin is transition from a risk on asset
Speaker 1: to a risk off asset. And what's happened in this
Speaker 1: war might have just set that tone, kicked the inflection
Speaker 1: point and bend the trigger point. People in Ukraine and
Speaker 1: Russia who can't get a penny from a t m
Speaker 1: s have have access to crypto dollars via their phones
Speaker 1: and cryptocurrencies and bitcoin is the biggest one. So to me,
Speaker 1: this is the transition. And the key fact is ask
Speaker 1: a millennial about gold. What do they say, Yeah, sorry,
Speaker 1: I'm going from bitcoin. The world is going that way,
Speaker 1: and I look at it, it it is why take the
Speaker 1: risk of not being allocated to one of the best
Speaker 1: performing assets in the world. In the world is going digital,
Speaker 1: And like I said, I'm bullish gold. I think at
Speaker 1: some point what's gonna happen is golds is gonna pop
Speaker 1: above two thousand dollars and ounce and stay there. But
Speaker 1: I fully expect bitcoint about performing. The key thing is
Speaker 1: how will we perform if when we get the next
Speaker 1: down leg in the stock market, which I expect bitcoin
Speaker 1: is still risk. Gasket will probably gravitate lower. But it's
Speaker 1: been only very good support around thirty and I think
Speaker 1: I'll end with this. I think it's just a matter
Speaker 1: of time that this global digital collateral goes to under grant.
Speaker 1: It's just a matter of time that's just based on
Speaker 1: supplied demand and increasing adoption. Let me ask you this question,
Speaker 1: which is something that I've been seeing debated on Twitter
Speaker 1: over the past couple of days, and it's a really
Speaker 1: good one, which is this idea of crypto trying to
Speaker 1: have it both ways like and this question really strikes
Speaker 1: at the core of that. Should crypto exchanges comply and
Speaker 1: do what the US government wanted to do in terms
Speaker 1: of freezing Russian accounts or should it say, no, Biden administration,
Speaker 1: that's not what we are. We are defy And that's
Speaker 1: the whole point is that we're not run by the governments.
Speaker 1: What should they do? And this is this is this
Speaker 1: is a war, and in war, the government can make
Speaker 1: them do it, and they should be smart enough to say, Okay,
Speaker 1: we're gonna do help the cause here because we have
Speaker 1: a very oppressive dictator um taking over and and taking
Speaker 1: over a free country. That's got to stop right away
Speaker 1: or it won't stop. And so any other financial institution
Speaker 1: has to do. Why shouldn't crypto exchanges to be different? Also,
Speaker 1: licensed will be revoked. That's just the fact of war.
Speaker 1: Get used to it, and get used to pay taxes
Speaker 1: when you make money. It's just that's life. The thing is,
Speaker 1: this is a revolution in digital assets. Now anybody in
Speaker 1: those they can run their own nodes. You don't have
Speaker 1: to go through an exchange to do things um, and
Speaker 1: they can figure it out away from these exchanges. But
Speaker 1: when you're have k y C and a m L
Speaker 1: rules and to be licensed in the U S, you
Speaker 1: gotta do what the government tells since the fact. But
Speaker 1: that's what's gonna happen this year. I fully expect we're
Speaker 1: gonna have more clarified regulation from the US eventually. I know,
Speaker 1: Eric is your space side. To me, it's just a
Speaker 1: matter of time we get properly. UM tracking physical ETPs
Speaker 1: attract an index of cryptos um just catching up to
Speaker 1: Europe and Canada. You know what's happening. Funds are leaving
Speaker 1: the world, and but bitcoin is becoming global digital reserve asset,
Speaker 1: and it's war is defining that. But the exchanges have
Speaker 1: to comply to what's happening the world. I expect a
Speaker 1: year from now we're gonna see Russia completely isolated on
Speaker 1: a global economic stage. And if we don't do that,
Speaker 1: we are risking this tyranny spreading. We have to. So
Speaker 1: it's just like, yes, she's investing when you're when you
Speaker 1: when your grandmother in Ohio who used the former teacher
Speaker 1: finds out that some of her pension fund money is
Speaker 1: invested in Russia, there's gonna be an uproar. It's got
Speaker 1: to be complete. Pull the plug. Yeah, I agree, Bitcoin
Speaker 1: is here to stay, cryptos here to stay. I just
Speaker 1: think there's a lot of you know, the performance and
Speaker 1: the use cases are are definitely gonna be debatable for
Speaker 1: a while in my opinion. But let's cook. Let's just
Speaker 1: take a big step back and just talk to me
Speaker 1: about I just told at the beginning of the UM
Speaker 1: podcast we talked about commodity e T s up a
Speaker 1: good amount over the past year as as because inflation
Speaker 1: fears are here, is now a good time to add
Speaker 1: to that? Uh? And we're you know, what, which, what
Speaker 1: practically should people do with a portfolio in terms of commodities? Uh?
Speaker 1: You know, should they use like a broad commodity and
Speaker 1: then add it with a little G l D and crypto?
Speaker 1: And I know we can't give investment advice, but what
Speaker 1: generally should people think about in terms of how to
Speaker 1: put this into a portfolio. I think think about commodities
Speaker 1: is a hedge. It's worked great as a hedge. But
Speaker 1: if you want to just be overweight or underweight, the
Speaker 1: rule of commodities in most markets you should be buying
Speaker 1: when they're crying, someone when they're yelling and the market
Speaker 1: is extremely high levels and don't ever underestimate the higher
Speaker 1: price cure. So I fully expect Rudell can easily drop
Speaker 1: fifties six seventy this year. UM. And that's just what
Speaker 1: it's done three times since two thousand and eight, So
Speaker 1: be prepared for that. And I fully expect if you
Speaker 1: are worried about inflation, which is what you should have
Speaker 1: been worried about a year ago. I mean, it's just
Speaker 1: it's this is not the time to worry about inflation.
Speaker 1: It is time to worry about the base effect UM
Speaker 1: and FED tightening and most assets going back down UM,
Speaker 1: which has always happened, and it's gonna happen, I think,
Speaker 1: particularly because we have a risk of this recession UM.
Speaker 1: But that's the key thing now. And overweighting commodities here,
Speaker 1: I just learned this lesson. Been in the business for
Speaker 1: a long time. You just never want to get two
Speaker 1: bullish commodities when they when producers can make so much
Speaker 1: money at such good levels. And you know, that's the
Speaker 1: old days when the US was a net importer of
Speaker 1: liquid fuels and now that you as as a net exporter.
Speaker 1: And this is UM and the world's changed. And and
Speaker 1: I view commodities as naked if there's not some digital
Speaker 1: assets in that space, because that's what's changing. The adoption
Speaker 1: of bitcoining the theorem is happening rapidly. And I'll leave
Speaker 1: you with this. The most widely traded cryptos and the
Speaker 1: planet are digital crypto dollars. People call them stable coins,
Speaker 1: but the really crypto dollars because the vast majority track
Speaker 1: the dollar. They're all based on stereum tokens. It's just
Speaker 1: a better way to do business. Um, just like you
Speaker 1: didn't learn an ets, it's just a better way to invest.
Speaker 1: Crypto dollars a better way to do business and um
Speaker 1: instant settlements four seven trading costs nothing. You're an interest.
Speaker 1: What more do you need to know? And the essential
Speaker 1: I you don't need a bank in between. Um, So
Speaker 1: that's gonna be regulated. But they're based on the storium tokens.
Speaker 1: That's part of when the sterium is doing its revolutionaries
Speaker 1: in the space. And then there's bitcoint the digital version
Speaker 1: of goal in the world going digital. You mentioned, uh,
Speaker 1: the potential for recession a couple of times. How do
Speaker 1: you see that playing out? And is the commodity market
Speaker 1: and does that provide indicators for what may transpire? Oh?
Speaker 1: Sure right now. Spiking energy, the most severe energy crisis
Speaker 1: in Europe in my lifetime, is a very good sign
Speaker 1: of what will happen to consumer spending. It's going to
Speaker 1: get crushed. I mean, just simple facts of inflation. Um.
Speaker 1: And this is not profound, this is almost exactly what
Speaker 1: happened two thousand and eight. But it was not. It
Speaker 1: was It's gonna be worse. I think this time UM,
Speaker 1: because it's global, it's being centered in Europe and China
Speaker 1: and US should come out very well. So spiking energy
Speaker 1: is really bad. So let's look at the fact that
Speaker 1: the SMP five is the trolls drop fift this year,
Speaker 1: yet the Fed funds are still priced for six tightenings
Speaker 1: pointings in the next year and in the next year.
Speaker 1: I used the one year measure. The last time we
Speaker 1: had correction in the stock market was two thousand eighteen.
Speaker 1: In September two th eighteen, markets price for four hikes
Speaker 1: high titans in the next year. By the time we
Speaker 1: got December, they're they're talking about easy. We're still priced
Speaker 1: for hikes. So the headwinds are increasing for asset revisions.
Speaker 1: We have this war, which I think is a significant
Speaker 1: trigger trigger for UM negative consumer sentiment. And and I'll
Speaker 1: end on this. At the beginning of the year, versus
Speaker 1: their sixty month moving average, the SMP five, Bloomberg Comandity
Speaker 1: in next were both about fifty above those levels. That's
Speaker 1: never happened in the last six years where they're both
Speaker 1: that stretched. So simple mean reversion is what I'm worried,
Speaker 1: and now we have pretty significant triggers for that. Alright,
Speaker 1: stuff to watch, you know, Mike. One et F we
Speaker 1: haven't talked about is wheat w A t you crane
Speaker 1: being such a big producer of wheat, obviously the war
Speaker 1: is going to jeopardize that production. What do you think
Speaker 1: would happen to that ETF? By low cell hi the
Speaker 1: higher price cure, there's gonna be massive supply coming on
Speaker 1: in the US wheat tracks. The US wheat future has
Speaker 1: to roll and contango. Historically, whea it's expensive to store um.
Speaker 1: If you're gonna invest in anything commodities in that space,
Speaker 1: look at soybeans. You know it was virtually it's one
Speaker 1: of the best roll yields of all commodities UM soy
Speaker 1: and um corn across you maybe six seven percent the
Speaker 1: year costs just to hold it. And wheat is great.
Speaker 1: But the time to buy wheat was two years ago.
Speaker 1: And if you know, if you've been long, you're supposed
Speaker 1: to be lightning up. I would not suggest overwaiting here.
Speaker 1: And this is the problem. You have to be careful
Speaker 1: about people chasing markets and that's the last thing you
Speaker 1: ever want to do in commodities. If you miss it,
Speaker 1: you miss it um And if you want to get
Speaker 1: in that space, look at soybeans because they're not gonna
Speaker 1: cost you historically, they're easy to store, typically don't have
Speaker 1: that contangle to roll in we um you have cantangled
Speaker 1: role and I typically cost you six percent annually just
Speaker 1: to hold it. Last question for you, what is your
Speaker 1: favorite e t F ticker? G BTC. Come on, I
Speaker 1: was hoping to Eric, I listen, listen. This is why
Speaker 1: I think Mike's gone full bitcoin because the old Mike,
Speaker 1: he would have picked g L t R Glitter, which
Speaker 1: is this cool basket of the physically backed gold, palladium, platinum,
Speaker 1: and silver. We we we that we kind of like
Speaker 1: this e t F on the team. We feel like
Speaker 1: it's a kind of a cool like diversified metals e
Speaker 1: t F that has no weird role cost in it.
Speaker 1: And that was from Mike's old company. And but the
Speaker 1: fact that he didn't pick it shows Mike has he's
Speaker 1: gone Bitcoin. He's gone. I gotta give it two reasons
Speaker 1: why that it was five years binehole accumulate, never trade
Speaker 1: five years bine hole accumulate, never tried. I think the
Speaker 1: upside is many exes and GBTC and glitter might be
Speaker 1: a but to me and and your risk obviously is
Speaker 1: appropriate and you might lose more too. But I see
Speaker 1: the upside is, like I said, it's unlikely. Um it's
Speaker 1: like say, many exes and and for the trends to continue.
Speaker 1: G BTC, Yeah, I love it, I've I've exposed it
Speaker 1: in the past. I liked it, but it's already had
Speaker 1: a pretty good run. And I think those together paired
Speaker 1: would be good too also. But again, when you're looking
Speaker 1: at your portfolio, wouldn't glitter or goal g l D
Speaker 1: be better to put in the commodities section and g
Speaker 1: BTC or bitcoin should be you should replaced maybe some
Speaker 1: tech stocks with that. Well, you could do that, but
Speaker 1: we're getting that divergence now. Eric I would say theium's
Speaker 1: more associated with tex stox, maybe a Bloomberg Galaxy crypto
Speaker 1: index or an index and EATF. Eventually we're gonna be
Speaker 1: talking about someday that attracts, you know, an index of cryptos.
Speaker 1: But um bitcoin has become a global digital claddals, so
Speaker 1: I think what's transition this year. It's already showing up
Speaker 1: in the tape is bitcoins transition again from that risk
Speaker 1: on to a risk off asset, and UM it's we're
Speaker 1: seeing that with I see bids coming in below on
Speaker 1: all dips, and it's going institutional. And here's a good
Speaker 1: fact about it. It's still less than one percent of
Speaker 1: most institutional portfolios. And I think most you know Fiducier
Speaker 1: has realized there great risk is UM not being allocated
Speaker 1: to this space. They might as well have some rather
Speaker 1: than being able to tell their grandkids, why did you
Speaker 1: miss the best performing acid in history versus who lose one?
Speaker 1: You know, it's not important, and I'm sensing that everywhere. Okay, Mike,
Speaker 1: thanks so much, Thanks for having Thanks for listening to trillions.
Speaker 1: Until next time. You can find us on the Bloomberg Terminal,
Speaker 1: Bloomberg dot com, Apple Podcasts, Spotify, and Wearber else you'd
Speaker 1: like to listen. We'd love to hear from you. We're
Speaker 1: on Twitter. I'm at Joel Webber Show. He's at Agriculturists.
Speaker 1: This episode of Trillians was produced by Magnus Hendrickson. Francesca
Speaker 1: Leady is the head of Bloomberg podcast fe and the
Speaker 1: Sister Ter. The sister