Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. I want to switch
Speaker 1: the conversation though, over to uh, fixed income kind of
Speaker 1: currencies economists sort of thing. I'm sure pretty has chopping
Speaker 1: at the bit to talk about the Bank of Japan,
Speaker 1: because if anybody cares about the Bank of Japan, it
Speaker 1: is pretty good. It's important, I know, very important. Huge.
Speaker 1: Jennifer Lee Joins, a senior economist managing director over at
Speaker 1: BEMO Capital Markets, and Jennifer, Um, you know, I I
Speaker 1: sort of realized the importance this morning when Valerie Title
Speaker 1: in London said, look, the b o J is the
Speaker 1: only anchor among major central banks holding rates lower, like
Speaker 1: they're the only ones with nerve or ZERP right now,
Speaker 1: and uh, if they let that go, it's like off
Speaker 1: to the races, do you agree? Um, they've already started
Speaker 1: letting it go in some ways, but you know, just
Speaker 1: a little bit. And and yes, in many ways it
Speaker 1: is going to be off to the racist um. You know,
Speaker 1: I remember a time when you know, it was like
Speaker 1: snooze fest over at the Bigger Japan because they were
Speaker 1: doing nothing forever. And finally, you know, back in December
Speaker 1: they let the creating range around the tenure ye old
Speaker 1: wide in a bit um. But now it looks like
Speaker 1: with this new and I actually don't not very familiar
Speaker 1: with this new potential incoming governor, but it sounds like he's,
Speaker 1: you know, his comments this morning sounds like it's going
Speaker 1: to be you know, business as usual at the Big
Speaker 1: Japan when he takes over. So that's probably why we
Speaker 1: saw some some some gift back, I guess in the ends,
Speaker 1: in the end this morning. So so far it sounds
Speaker 1: like that it might be again just you know, keep
Speaker 1: going on with very easy monetary policy, so we don't
Speaker 1: have to worry Jeff yet, Oh, Jen, talk to us
Speaker 1: a little bit about the actionable differences in that policy.
Speaker 1: What does going from dovish to hawkish actually look like
Speaker 1: for the b o J that's kind of been stuck
Speaker 1: for what ten twelve years minimum? Yes, for well, I've
Speaker 1: been exaggerating to say, well forever um but being going
Speaker 1: from you know, some super dubbish to slightly less subbish
Speaker 1: again by letting that training range widen a little bit
Speaker 1: last month, but you know, going I guess officially hawkish
Speaker 1: would be actually raising their interest rates, which you know,
Speaker 1: I think possibly might happen in April. I actually thought
Speaker 1: was something that's gonna happen in a at the last meeting,
Speaker 1: but you know, it may in March. It's it's still
Speaker 1: you know, it's gonna be the end of their their
Speaker 1: fiscal years, so there's always walking this's going on in
Speaker 1: financial market. So I don't know what they want a
Speaker 1: chance doing anything, But of course if the governor or
Speaker 1: Corona wants to go off with a bang, and that's
Speaker 1: the way to do it. So I think April is
Speaker 1: probably a more likely time to start tweaking it. But
Speaker 1: I guess if they don't make any actual like giving
Speaker 1: any changes in their actions, just changing the conversation or
Speaker 1: making their tone of their discussions a bit more hawkish
Speaker 1: will also do the job a little bit as well.
Speaker 1: Fascinating stuff, yeah, sure, But to me the question is
Speaker 1: still for the b O J are we still viewing
Speaker 1: this as kind of its own I mean, as Matt said, like,
Speaker 1: is this kind of its own thing that doesn't necessarily
Speaker 1: apply to the rest of the world At a time
Speaker 1: when the ECB and the BOW remains uber hawkish and
Speaker 1: arguably the FED as well, does the B O J
Speaker 1: matter when the bigger central banks have kind of decided
Speaker 1: the path that, especially for investors who are focused on
Speaker 1: the US, or for investors who are focused on Canada,
Speaker 1: or even investors focused on does it really matter that much?
Speaker 1: I still you know, I I have a bove leaned
Speaker 1: toward yes, and it still matters because it's still heard
Speaker 1: of the G seven, it's still part of the G tenth,
Speaker 1: So it does have a bearing, even though again you know,
Speaker 1: as we all know, they've they've been doing nothing and
Speaker 1: while everyone was has been uh husband has been tightening.
Speaker 1: And now it looks like it's it's kind of interesting case.
Speaker 1: Now we've got the FED potentially coming to the end
Speaker 1: of the eating eating cycle to my boys to men
Speaker 1: there um, and the end of course, you know, make
Speaker 1: a candle, looks like they are going to be on
Speaker 1: hold for for some time um. And then of course
Speaker 1: the e c B is going the other direction, and
Speaker 1: the big of England is sort of you know, still tightening.
Speaker 1: So you know, the Big Japan is almost going to
Speaker 1: go in to wake or break this uh this this
Speaker 1: this tipe breaker in many ways. But again still it's
Speaker 1: just it broadens the overall picture of you know the
Speaker 1: fact that central banks are still in some sort of
Speaker 1: a tightening mode, even the Big Japan, and not as
Speaker 1: tight as it once was, but still you know, inching
Speaker 1: a little bit more towards that towards that line. By
Speaker 1: the way, um Ed Harrison from Bloomberg in Washington, d C.
Speaker 1: Writes that some trader on Tuesday build up an eighteen
Speaker 1: million dollar position on six percent FED funds rate by September.
Speaker 1: Um it's obviously a big or a deeply out of
Speaker 1: the money, uh position, But people are guarding against that possibility.
Speaker 1: What are the chances that we get up over five
Speaker 1: and a quarter over five and a half per Oh wow?
Speaker 1: So you know, I'm gonna be very humble and say,
Speaker 1: you know, we we've you know, over the past couple
Speaker 1: of years, we've been nudging our fed pigs right higher,
Speaker 1: and uh, you know, now we're looking for the final
Speaker 1: move to be in May I mean, obviously anything as possible.
Speaker 1: But at this point, and we've already seen the peak
Speaker 1: in inflation, we're starting to see it coming down. Maybe
Speaker 1: not as as as steadily and as as much as
Speaker 1: the SET is still wanting to but you know, we've
Speaker 1: already moved down to the twenty five dayses point r
Speaker 1: right moves. It would have to do be something pretty dramatic,
Speaker 1: um pre substantial, well you know what I mean, possibly,
Speaker 1: if you can gonna do see that, yes, but I
Speaker 1: I don't think that's going to be the case. I
Speaker 1: think that might be a bit of an l a liar.
Speaker 1: On Tuesday, as pretty points out, c p I is
Speaker 1: coming in, we're expecting six what have it's seven? Oh again,
Speaker 1: it's gonna you know, it's gonna take more than a month.
Speaker 1: It's gonna have to take more. And then plus we've
Speaker 1: got these new seasonals, right, so I think it's gonna
Speaker 1: take more of them up. Just like when we saw
Speaker 1: inflation decline in UH over the summer, and everyone jumped
Speaker 1: on the fact that the potential for the set to
Speaker 1: start turning. You know, they said they needed more than
Speaker 1: one month, and you know, now they've had more than
Speaker 1: the month just like if you go to the other direction,
Speaker 1: if you see a big jump in CPI, you're gonna
Speaker 1: need more than just one month of a big jump
Speaker 1: in CPI for the set to change its tune. All right, Ennifer,
Speaker 1: thanks so much for joining us. Pleasure as always talked
Speaker 1: to you. Grateful for your insight. Jennifer Lee Uh there
Speaker 1: over from BEMO, where she is a senior economist and
Speaker 1: Managing Director BMO Capital Markets, Bank of Montreal. I am
Speaker 1: psyched to get over to Anika Gupta right now. She
Speaker 1: covers equities and commodities as director of Macroeconomic Research for
Speaker 1: Wisdom Tree and Uh On a day when Anika, we
Speaker 1: got a couple of I think pretty interesting calls. Um.
Speaker 1: Michael Hartnett over at ba A says, as soon as
Speaker 1: the SMP gets forty five, says Cell Cell, Cell, don't
Speaker 1: believe this rally. Meanwhile, Deutsche Bank says the SMP is
Speaker 1: gonna go to forty five by the end of the
Speaker 1: year if there was a recession, and if there's a
Speaker 1: soft landing, we're looking at five thousand. What do you think, well, Um,
Speaker 1: I agree with the former, Matt. You know we've been
Speaker 1: plotting the SMP versus the FED balance sheet. Take away
Speaker 1: the the the tightening that we've seen on the balance
Speaker 1: sheet and repurchase agreements, and it it is a clear
Speaker 1: cell signal at this point in time, and I think
Speaker 1: that's what's being reflected by the market. Um. You know,
Speaker 1: we've had this um speculative frenzy in the first first
Speaker 1: month of this year, and you know, we kept warning
Speaker 1: our clients that look, come that pivotal week where we
Speaker 1: have these central bank meetings, you are going to see
Speaker 1: that you know, that that renewed concern actually being echoed
Speaker 1: in the markets. And we've we've rightly seen that happened. UM.
Speaker 1: I think what what remains for us as a key
Speaker 1: focus is that, you know, the employment data still remains
Speaker 1: very strong. And as long as that is the case, UM,
Speaker 1: you know, the US is the U S economy is
Speaker 1: essentially trying to trying to show us that you know,
Speaker 1: it's it is pointing to economic resilience and if that is,
Speaker 1: if that is going to continue, then the Fed will
Speaker 1: need to continue keeping rates in restricted territory. So UM,
Speaker 1: I think that's what's a key on our minds at
Speaker 1: this point in time. And obviously retail sales is going
Speaker 1: to be the big swing factor because you know, we
Speaker 1: are seeing one of your source of strength coming in
Speaker 1: from autos. We've you know, where we can see vehicles
Speaker 1: sales have rebounded um versus the December figure, so you
Speaker 1: know that. I think that's going to be really interesting
Speaker 1: to watch out for. Hey, Matt, I'm looking at her
Speaker 1: bio here. She got a bachelor's in math from St.
Speaker 1: Stephen College in New Delhi. And I think my dad
Speaker 1: went to school as well. Oh, that's amazing that we
Speaker 1: have the same last name, we have the same sort
Speaker 1: of connection to this college. So unlikely that you're related.
Speaker 1: I don't think we're related. But and then she got
Speaker 1: she got the masters in mathematics or maths as they say,
Speaker 1: from a small known college in England called Oxford. All right,
Speaker 1: so it's clearly she knows her stuff. Let's talk about
Speaker 1: the pricing of it all, because I really, I mean, look,
Speaker 1: you got your bachelor's and masters and math, so explain
Speaker 1: the math here when it comes to what we're looking
Speaker 1: at for the commodity market, you're looking at rent crewed
Speaker 1: an eighty five handle at the moment. But I'm concerned
Speaker 1: about how you quantify this Chinese reopening, which seems to
Speaker 1: be the real tailwind for commodities right now. You're absolutely right.
Speaker 1: I think the way we were looking at commodities, we
Speaker 1: try to split up the commodities within their four subsectors.
Speaker 1: And I think from the Chinese reopening theme coming up,
Speaker 1: you know, taking into effect, we believe energy stands to
Speaker 1: benefit more than the industrial metal space. And the reason
Speaker 1: for that is UM. You know, there's a clear distinction
Speaker 1: that China is is UH like as a message that
Speaker 1: they're sending out in terms of how they plan to
Speaker 1: prop up the property sector. It isn't a full scale
Speaker 1: UH initiative to just prop up the entire property sector.
Speaker 1: They are distinguishing between UH you know, developers that that
Speaker 1: have a better buffer buffer of UH and a better
Speaker 1: quality of assets compared to the other, so that they're
Speaker 1: clearly distinguishing one from the other. So I think we're
Speaker 1: going to have a moderate rebound in the property sector.
Speaker 1: I think they're trying. What China is also trying to do,
Speaker 1: is they're trying to boost their energy sector as well,
Speaker 1: because they want they want they don't want to find
Speaker 1: themselves as vulnerable as you have found themselves in two
Speaker 1: so I think these two sectors are going to get
Speaker 1: uh you know, are going to be helped and aided
Speaker 1: by the Chinese government or into which we we do
Speaker 1: believe that UM energy stands to benefit as a subsector
Speaker 1: within commodities a lot more than the industrial metal space.
Speaker 1: Where we believe industrial metals are really going to get
Speaker 1: their boost from is from uh you know, the energy
Speaker 1: transition that is in full swing at this Garrent junc show.
Speaker 1: By the way, UM I was talking earlier about this
Speaker 1: commodity story that Bloomberg put out overnight, a trader traffic EURL,
Speaker 1: a British trading group, has discovered that more than five
Speaker 1: hundred million dollars worth of uh nicol it's paid for,
Speaker 1: actually five seventy seven million dollars is fake as a
Speaker 1: result of well it alleges as a result of a
Speaker 1: fraud from an Indian company. This coming right after a
Speaker 1: Donni UM, what do you think about this rapid turn
Speaker 1: in UM the fortunes of you know, the Indian reputation,
Speaker 1: because before the Hindenburg report, like every every week we
Speaker 1: were saying news stories about how India was the new
Speaker 1: place to invest and it was gonna overtake China and
Speaker 1: population growth and it has a much better demographic. And
Speaker 1: it was even Matt Winkler, our editor in chief emeritus, wrote,
Speaker 1: you know, a love letter to India. So what are
Speaker 1: we to make of this rapid turn of events. Well,
Speaker 1: I think it is a sign of caution for the
Speaker 1: Indian economy because clearly, you know, they were the most
Speaker 1: resilient economy in two and surprised you know, the vast
Speaker 1: majority of investors. But I think what we do need
Speaker 1: to keep in mind is they've been through so many
Speaker 1: headwinds over the past few years. You know, be at
Speaker 1: the COVID pandemic um that that's carred the economy quite
Speaker 1: a lot. We've also had the denomination um, you know,
Speaker 1: the change and the currency that that caused quite a
Speaker 1: bit of an overhaul within the economy. UM. And I
Speaker 1: think what we do need to keep in mind is
Speaker 1: those very tailors that you did mention they do still exist.
Speaker 1: But clearly what Hindburg is trying to site, is trying
Speaker 1: to bring out is you know there is there is clearly, um,
Speaker 1: you know, something going on within the Adani group that
Speaker 1: investors should be aware of. UM. But I don't think
Speaker 1: it will be real India's growth story. But because I
Speaker 1: think obviously with China being locked down, that was a
Speaker 1: very important tailwind for India that they that they actually
Speaker 1: benefited from, you know, be it Apple moving its supply chain,
Speaker 1: um uh you know, the I G sector benefiting a
Speaker 1: lot more from uh, from from from the US, which
Speaker 1: which did quite well. So I think those have been
Speaker 1: important tail winds for the Indian economy. And obviously they
Speaker 1: have one of the most favorable demographics in the world,
Speaker 1: and this comes a bit time when you know, you
Speaker 1: have aging demographics globally, can't fight demographics. Can if they've
Speaker 1: got if they've got this huge new generation is bigger
Speaker 1: than the old generation, that's just got to turn out well, absolutely,
Speaker 1: and they have this strong consumption uh you know, that
Speaker 1: is helping drive demand and I think that's really important.
Speaker 1: And even if you just reflect on the recent budget
Speaker 1: that is being launched, I think that was another tailwind
Speaker 1: where you know, the government is trying to be a
Speaker 1: bit more disciplined in terms of keeping uh you know,
Speaker 1: the deficit of the entage to the GDP in line.
Speaker 1: They're also benefiting from much higher tax collection, so that's
Speaker 1: really benefiting uh, you know, government capex. So I think
Speaker 1: from that point of view, you know, those state table
Speaker 1: wins are still going to aid the economy. But I
Speaker 1: think from a sentiment perspective, we are going to see
Speaker 1: a bit of a blip, you know, towards Indian equities
Speaker 1: until we see that does settle. We'll see if that happens, Anika.
Speaker 1: We have to kind of harp on the Indians on
Speaker 1: the show right now. I recently educated Matt Miller on Bollywood,
Speaker 1: a very brief education, and I showed him the wedding
Speaker 1: photos uh Kr Advani and said, Molota, have you seen him?
Speaker 1: I did? I did that? They have. They put out
Speaker 1: a video overnight as well, which I'll show you in
Speaker 1: the break. It is stunning. What did you make of Ana? Well?
Speaker 1: I I just barely glanced on the picture. I think
Speaker 1: the couple looked lovely. Um. Indian weddings are known to
Speaker 1: be extravagant, long affairs that the West are not very
Speaker 1: used to. Um So I think, yeah, I wouldn't. I
Speaker 1: wouldn't spend too much of my time on it. But
Speaker 1: you know that's another sign of how what how do
Speaker 1: you have to in some senses right, I mean the
Speaker 1: gold purchasing power there and the will to buy gold
Speaker 1: actually drives markets. It does, it definitely does. Um. Yeah,
Speaker 1: and it's it's obviously, you know, Indians identified with a
Speaker 1: source of like obviously being a physical asset, a big
Speaker 1: sign of wealth, and you know it has been increasing
Speaker 1: over the past year. It really has. Also, for what
Speaker 1: it's worth, Matt has been saying for like a year
Speaker 1: now that he's going to affreciate my wedding one day,
Speaker 1: which she has some experience an incredible efficient. I've done
Speaker 1: it a few times. Yeah, so, but I'm not sure
Speaker 1: if I could. The Indian weddings tend to last longer
Speaker 1: than I think I could. Party, right, it's exactly to
Speaker 1: be too much for you. I can help. I'll do
Speaker 1: one or two days of it, you know, and then
Speaker 1: the elephants will carry me out. Get it together. You
Speaker 1: gotta you gotta push through it. I just want to
Speaker 1: get Hannah, the Hannah painted on me that too. That's
Speaker 1: gonna last piece. A week, that's gonna last you. I'm
Speaker 1: ready for a week. He's ready for like I could
Speaker 1: use I could use a week actually, And Nica thanks
Speaker 1: so much for joining us there. She's director of macroeconomic research.
Speaker 1: Equities and commodities over wisdom treat a little bit of
Speaker 1: a turnaround here if John says the Dow Jones Industrial
Speaker 1: Average rising as the SMP is unchanged, so maybe we
Speaker 1: will get a little bit of a rally into the
Speaker 1: end of the day today. Still, it's gonna take a
Speaker 1: lot to bring the nastact back. Yeah, it really is.
Speaker 1: You're seeing the down about five tons of one percent
Speaker 1: yield higher. I wonder if there's a relationship. It doesn't
Speaker 1: really look like there is, but um yeah, tech underperforming today,
Speaker 1: all right. One of the important pieces of news we got,
Speaker 1: I think for the market this morning was on China's
Speaker 1: consumer inflation accelerating last month as the company reopened and
Speaker 1: the lunar New Year holiday spur demand. But the games
Speaker 1: were pretty small. In fact, the c p I, the
Speaker 1: Chinese Consumer Price Index, was up two point one percent,
Speaker 1: which you know, for for China is not a huge jump,
Speaker 1: and the p p I actually um drops zero point
Speaker 1: eight percent. Let's bring in a China expert right now
Speaker 1: to help us figure out what's going on with this
Speaker 1: reopening and what kind of effect it's really gonna have.
Speaker 1: Hans Doubt joins us. He is the CEO of the
Speaker 1: Madison Mitchell Group and uh sorry, Mitchell Madison Group, and
Speaker 1: he joins us from Jackson, Wyoming. It's a place I
Speaker 1: always love to be, Hans. I'm always so jealous when
Speaker 1: I say that, but um, thank thanks for joining us.
Speaker 1: Give us your take on the Chinese situation. We're starting
Speaker 1: to get more and more data points coming out to
Speaker 1: help well, hopefully to help answer the question is the
Speaker 1: reopening gonna be good for you know, an engine of
Speaker 1: global growth. But I'm not sure if we're really getting
Speaker 1: the answer yet. Yeah, it's it's always a hard picture there, right,
Speaker 1: because you can't always trust the data. But I think
Speaker 1: overall it's a positive story. Right. We talked a lot
Speaker 1: about China, uh and and it's always been really concerning
Speaker 1: supply chain, and nobody, you know, everybody expected that this
Speaker 1: this COVID spreading COVID you know, so quickly in China,
Speaker 1: especially around the lunar New Year, would would be a
Speaker 1: major catastrophe. And it wasn't right, it really wasn't. It
Speaker 1: just simply inspected the whole country and then now they're
Speaker 1: going back to work. And if you you want to
Speaker 1: think about it, this way if they really kind of
Speaker 1: you know, flattened the curve on the back of the
Speaker 1: whole world, right, which is sort of what they did,
Speaker 1: and you have to admit that it was a success. Right.
Speaker 1: So I think China is going back to work. China
Speaker 1: capacity in dost the capacity is going up just as
Speaker 1: the Western demand is going down a bit. And you're right,
Speaker 1: you see this in the pp I a little bit already,
Speaker 1: and I think it's going to be a very positive
Speaker 1: effect on inflation, at least as far as treatable goods
Speaker 1: DOT concerned. Right, that's that's you will see this everywhere,
Speaker 1: and I think that's overall a good thing. Um. On
Speaker 1: the other side, you have the political implications, right, So
Speaker 1: I was you know, you have the Chinese balloon, You
Speaker 1: got Biden giving his speech. There's a lot of you know,
Speaker 1: sort of negative sentiment towards China and the desire to continue,
Speaker 1: you know, the great decoupling. And even worse than that,
Speaker 1: you had Biden saying nobody would want to be she
Speaker 1: right now he's facing a ton of problems. I thought
Speaker 1: it was almost insulting, um, And it seems like the
Speaker 1: Chinese took it that way as well. Yeah, but this
Speaker 1: is all nice and fine. But at the same time,
Speaker 1: we had a record trade between the US and China
Speaker 1: last year, right, So you guys had this really nice
Speaker 1: headline a couple of days ago saying globalization finds a way.
Speaker 1: And I think that's true, right, It's not so much
Speaker 1: about you know, beating up China. Of course, you know,
Speaker 1: the US has to do it on the critical goods obviously,
Speaker 1: on military things and stuff like that. And I think
Speaker 1: as we're disassembling the balloon, finding more you know, American
Speaker 1: and Sony parts in there, it's going to be very interesting.
Speaker 1: But I think the bottom line is that corporation simply
Speaker 1: have to diversify globally. The globe is bigger than just China.
Speaker 1: But can we agree that there's something we're not all
Speaker 1: of us are not being told about the balloon. I mean,
Speaker 1: it just does not add up if it's really some
Speaker 1: big spy balloon. I cannot buy any of the million
Speaker 1: different reasons I've been given for why they didn't shoot
Speaker 1: it down right when it entered you know, US airspace
Speaker 1: over Montana. I mean, you live out there. There are
Speaker 1: not a lot of people around, so they wanted to
Speaker 1: shoot it down yes, they should have. But so I
Speaker 1: don't think that we're getting the full story on that.
Speaker 1: I'm not saying there's some big conspiracies, deep state theory,
Speaker 1: but something we're not being told. Maybe I don't know why,
Speaker 1: but um, it just strikes me as an odd time
Speaker 1: to be then insulting to the Chinese leader when we
Speaker 1: had a US Air Force general saying, prepare for war.
Speaker 1: It's gonna happen. By even if we are trading a lot,
Speaker 1: we could get into a pretty serious military scuffle with
Speaker 1: a big army. Absolutely, yeah, gotta be careful. Well, all right,
Speaker 1: we'll walk us through. Then back to China. The COVID
Speaker 1: story of it all. Do we just not factor it
Speaker 1: in anymore? I think I think COVID is over. I think,
Speaker 1: like I said, I think China's done really the right thing.
Speaker 1: And when I was dealing with after effects of COVID globally, right,
Speaker 1: I mean, if if you actually think kind of becoming
Speaker 1: a little bit boring, right, if you maybe shifting you're
Speaker 1: a little bit here. So another news piece of news
Speaker 1: which I thought was really interesting last year, last last
Speaker 1: week was around employment. Right, we had employment, unemployment rates
Speaker 1: very low, and people got really skittish about this, right,
Speaker 1: I think that is not really an area of concern
Speaker 1: because I think what you really have seen is not
Speaker 1: incremental demand from employers because they actually firing. You see
Speaker 1: a reduction in in vacancies obviously, but what you're seeing
Speaker 1: now is workers finally taking jobs because they're running out
Speaker 1: of savings. They have rising consumer prices that more it
Speaker 1: is smart and more expensive. So I think in this
Speaker 1: really crazy post COVID environment, you're seeing a lot of
Speaker 1: things that normally don't make sense, and I think this
Speaker 1: is actually a sign of economic weakness. So I think
Speaker 1: the global story is China will produce, the US and
Speaker 1: the West will slow down, and things are going to
Speaker 1: go to normal. I think the issues how quickly and
Speaker 1: with what rates? So so what effects do you expect
Speaker 1: all that to have on asset prices? I mean, especially
Speaker 1: like commodities, right, because it's one of the first places
Speaker 1: we look when we heard China was reopening. Yeah, I think,
Speaker 1: look China, China obviously is a net exporter, right, so
Speaker 1: of course you're going to have some impact on commodity prices.
Speaker 1: Uh in the short term might be it might be
Speaker 1: you know, going up, But I and you have to
Speaker 1: remember the end product demand will be down and this
Speaker 1: stuff is made in China with a combination of labor, capital,
Speaker 1: and raw materials. Right, So this is just one component.
Speaker 1: I don't think inflation in tradable goods is going to
Speaker 1: be a massive problem. What about the thirty seconds? If
Speaker 1: you can the relationship between China and say Russia, the
Speaker 1: relationship between China and India, is there going to be
Speaker 1: a read through into the States? I mean you have
Speaker 1: to The Russia relationship is obvious, right, you have you
Speaker 1: have Russia and China. Is the match made in heaven
Speaker 1: because of energy, right, So that's that was always going
Speaker 1: to happen, and it's just a question of getting it there.
Speaker 1: With North Stream too gone, however, was you know, eliminated?
Speaker 1: That makes sense, right. I think India's is a slightly
Speaker 1: different story. But I think um at the end of
Speaker 1: the day, you have to look at trade flows. Right,
Speaker 1: China in the US are mutually so dependent that it's
Speaker 1: it's not a good comparison to you know, the Cold
Speaker 1: War era between Russia United States. We were so dependently
Speaker 1: to other portrayed and I think that the Chinese recognized that.
Speaker 1: So there's gonna be a lot of noise, but I
Speaker 1: think I would be fairly positive that UM, the economic
Speaker 1: reality would drive good policy. Al Right, Hans, thanks so
Speaker 1: much for joining us. Hans Dowt there. He is the
Speaker 1: CEO of Mitchell Madison Group, China expert. We go to
Speaker 1: UM whenever there are open questions here, and you can
Speaker 1: be sure that for a lot of people in this market,
Speaker 1: there are a lot of open questions. Even with the
Speaker 1: new data inflation CPI coming out in China at two
Speaker 1: point one percent last month. UM, so a little bit tepid,
Speaker 1: but nonetheless UH growth in prices rather than declines as
Speaker 1: they reopened. And that's the ETS was interesting to me.
Speaker 1: For me, I think my favorite et F fun factors
Speaker 1: that you can actually use e t F as a
Speaker 1: shorting vehicle. UM. I guess a little wonky, but it's
Speaker 1: interesting to me. UM, let's bring in someone who is
Speaker 1: a true expert on e t F. S Uh has
Speaker 1: far more knowledge on the subject than Matt and I combined,
Speaker 1: probably a Ward Boards et F portfolio manager over at
Speaker 1: Angel Oak. He's going to talk to us a little
Speaker 1: bit about probably everything, but we're indulge the nerdiness here.
Speaker 1: Shorting through e t f s. Is that a thing? Oh, yeah,
Speaker 1: that's the thing. That's one of the great things about
Speaker 1: the e t F market is it's a way for
Speaker 1: you know, markets where it can sometimes be difficult to
Speaker 1: short things like corporate bonds or high yield corporate bonds.
Speaker 1: If you want to get underweight or short exposure, you
Speaker 1: can utilize the e t F market to UH to
Speaker 1: do that. And that actually, you know, it's a nice
Speaker 1: way to kind of create liquidity in the e t
Speaker 1: F market. And there's also options markets that are growing
Speaker 1: rapidly around large liquid UH e t f s that
Speaker 1: are out there. I also love that you can, you know,
Speaker 1: build your own index is now um you can invest
Speaker 1: in active e t f s and you can just
Speaker 1: complete you can put together a complete strategy with e
Speaker 1: t s. There are some limitations, right, especially in certain
Speaker 1: vehicles like a four oh one K for example. Are
Speaker 1: those are those sort of barriers falling away? Yeah? The
Speaker 1: last call it even two years has been really interesting,
Speaker 1: particularly in the fixed income market right along the lines
Speaker 1: of what you're you're talking about. So historically, if you
Speaker 1: wanted exposure to the fixed income market via e t
Speaker 1: f s, you were buying either treasury bonds or corporate bonds.
Speaker 1: And as active ETFs have grown and the difference between
Speaker 1: active and passive e t f s. Passive you're just
Speaker 1: gonna track a very simple index, so you need very
Speaker 1: liquid securities underlying those those uh, those passive e t s.
Speaker 1: With an active index or with an active e t F,
Speaker 1: you're gonna look to try and achieve an outcome. So
Speaker 1: maybe you're trying to get total return, maybe you're trying
Speaker 1: to get a very high beta exposure to the fixed
Speaker 1: income market. Maybe you're looking for something very stable that's
Speaker 1: not going to move. It gives you a lot more
Speaker 1: flexibility though, to be able to select different securities. You're
Speaker 1: not forced to change when an index changes, and so
Speaker 1: one of the things we're really excited about what that
Speaker 1: allows in the E t F market. You know, as
Speaker 1: I highlighted, historically you've only been able to get exposure
Speaker 1: to credit through corporates, and now you can get exposure
Speaker 1: to mortgage backed securities, commercial mortgage backed securities, clos All
Speaker 1: these things that have been concentrated in the mutual fund
Speaker 1: space where only mutual fund investors could could get access
Speaker 1: are now quickly entering the E t F marketplace. Okay,
Speaker 1: so let's bring it to UH next week, making a
Speaker 1: little bit more short term here. Matt mentioned at the
Speaker 1: top of the segment thematic e t s specifically, it
Speaker 1: feels like the no brainer to play this market is
Speaker 1: while you look at the Federal Reserve and you kind
Speaker 1: of gamble what they're going to do next, what are
Speaker 1: we looking at the Mattock ets as perhaps reemerging as
Speaker 1: things like China, Russia, even Europe become a larger part
Speaker 1: of the trading conversation. So we tend to focus right
Speaker 1: exactly with what was highlighted around the Federal Reserve. We're
Speaker 1: we're a bond focused manager and for us, you know,
Speaker 1: the our kind of UH credents going into two thousand
Speaker 1: twenty three is that bonds are the new equity, and
Speaker 1: so UH you look at the Federal reserve policy, we
Speaker 1: think we're getting towards peak policy at the Federal Reserve.
Speaker 1: Um later this year you could even see a light recession,
Speaker 1: and this is going to create what we think is
Speaker 1: a tremendous opportunity in the fixed income marketplace. And we
Speaker 1: think investors were already seeing this are starting to reduce
Speaker 1: their equity allocations and actually think about adding fixed income
Speaker 1: given the the yield effectively in the marketplace. You know,
Speaker 1: particularly if that recessionary scenario plays out, you could see
Speaker 1: that hit corporate rings and that would suggest this might
Speaker 1: be a mooted year, particularly given the strong returns that
Speaker 1: we've seen in the beginning of the year in the
Speaker 1: equity marketplace on a go forward basis, without you know,
Speaker 1: the growth and earnings and in the rally we've already
Speaker 1: seen in equities, you know, fixed income could look like
Speaker 1: a great place. That's particularly true in our market where
Speaker 1: we tend to focus, which is credit. Where in the
Speaker 1: fixed income space, Like, what kind of maturities are we
Speaker 1: talking about here? We had a guest on yesterday who
Speaker 1: was saying a lot of what you were saying as well,
Speaker 1: but he said, look, we gotta go out in maturity.
Speaker 1: You gotta go to the thirty year to the fifty
Speaker 1: year because that's the safest play way to play the FED.
Speaker 1: What kind of what kind of duration? What kind of
Speaker 1: maturity are we looking at? I gotta I gotta tell you,
Speaker 1: I don't know who it was, but I'm on the
Speaker 1: opposite end of the spectrum. I think you can get
Speaker 1: six and a half percent yields in UH in structured
Speaker 1: investment grade rated securities that are one year and in
Speaker 1: versus going out the curve to the thirty year UH,
Speaker 1: where you're getting less yield and taking significantly greater risks.
Speaker 1: So we think in the near term you want to
Speaker 1: have those you know, safe, high quality, short duration securities,
Speaker 1: get that high yield, and then over time, perhaps later
Speaker 1: in the year, as spreads widen out with with that
Speaker 1: potential recession um, that's when you might get a little
Speaker 1: bit longer data and you know, buy stuff. Call it
Speaker 1: further out the curve and further down the credit quality spectrum.
Speaker 1: What are you seeing in the in the flows right
Speaker 1: now and and how do you use the flows to
Speaker 1: inform your views? Yeah, so last year was clearly a
Speaker 1: very challenged year from a flow standpoint in the fixed
Speaker 1: income marketplace, and on one hand, as an asset manager,
Speaker 1: that's not as fun as the alternative. On the other hand,
Speaker 1: it's what's creating this amazing opportunity that we're we're seeing
Speaker 1: this year, and so far this year we have started
Speaker 1: to see floats turn around aggressively. I think it's a
Speaker 1: lot of the investors who were tax harvest tax harvesting
Speaker 1: last year, uh um, and also just kind of had
Speaker 1: moved to cash given the yields in cash were at
Speaker 1: levels they hadn't seen in a long time. But they're
Speaker 1: starting to put that money to work now. There After
Speaker 1: you kind of look at what the demand is going
Speaker 1: to be. We look at what the supply is in
Speaker 1: the market, and there's not a lot of supply coming
Speaker 1: from fixed income market, which you know, again informs our
Speaker 1: bullish view that if you have a lot of demand
Speaker 1: for bonds and there aren't a lot of bonds being
Speaker 1: produced out there, you know, the price has to go up.
Speaker 1: I am confused then about when you're talking about the yield.
Speaker 1: Isn't this been kind of a dynamic for a couple
Speaker 1: of months now. I'm just wondering, like, what's new here?
Speaker 1: Why are people more convinced that perhaps the bond market
Speaker 1: is deserving of a bull case. I think the point
Speaker 1: you you brought up, which are flows flows having turned around,
Speaker 1: I think is a positive catalyst. I also think some
Speaker 1: of the CPI that we've numbers that we've seen in
Speaker 1: the last call it month or two as that kind
Speaker 1: of flows into the marketplace and starts to see interest
Speaker 1: rate volatility declimb. All those things, you know, effectively inform
Speaker 1: or drive this kind of both spread tightening in particular
Speaker 1: and at least the stabilization in yields, if not a
Speaker 1: a lower yield number itself. But you also got to
Speaker 1: remember that you're getting a nice coupon now, a six
Speaker 1: and a half percent, seven percent coupon with the potential
Speaker 1: for price appreciation. That's where you get into this call
Speaker 1: at seven, eight, nine, even ten total return potential. You know.
Speaker 1: That's that's why we view as bonds as the news stocks.
Speaker 1: That's interesting, you know. I will say that I saw
Speaker 1: a great piece today by Ed Harrison from Bloomberg pointing
Speaker 1: out that one of the most unnoticed monetary policy transmission
Speaker 1: channels is the interest income channel. So that that coupon
Speaker 1: is um maybe less helpful than the Fed wants it
Speaker 1: to be right now, which leads you down a whole
Speaker 1: uh well, leads you down a big rabbit hole, and
Speaker 1: I recommend the macrobu column. Um alright, Ward, Boards, thank
Speaker 1: you very much for joining us. Pleasure having on. Hope
Speaker 1: you can get you back on again soon. Ward is
Speaker 1: the et F portfolio manager as well as a head
Speaker 1: of distribution in public strategies over at Angel Oak. I've
Speaker 1: been waiting all day long to get to this story.
Speaker 1: I know you mentioned it like every commercial break. Well,
Speaker 1: it is to me absolutely fascinating the sheer scale of theft.
Speaker 1: Until this point, my all time favorite theft was the
Speaker 1: Great maple Syrup heist of like two twelve. Do you
Speaker 1: remember one Canada has like maple syrup is a big
Speaker 1: deal for Canada obviously, and they have these huge, like
Speaker 1: government run depots that store all the extra maple syrup,
Speaker 1: just like we have Fort Knox for gold. And at
Speaker 1: one point, I can't remember all the details, but at
Speaker 1: one point they looked in one of the barrels and
Speaker 1: found it was just water. And then they realized somebody
Speaker 1: had still and like millions of dollars worth of maple syrup.
Speaker 1: But that was like twenty million bucks or the maple syrup.
Speaker 1: This is five hundred and seventies seven million dollars worth
Speaker 1: of nickel. Okay, yes, quite not quite the same. Let's
Speaker 1: get out to Jack farshe's one of the reporters on
Speaker 1: this story, which Jack, I just you know, there are
Speaker 1: a few stories that I just read straight top to
Speaker 1: bottom um and then want more. This is one of
Speaker 1: those stories. So traffic Eurra Group is the big trading
Speaker 1: outfit where based in London that realized, um, it was
Speaker 1: buying all this nickel and was getting I guess rocks
Speaker 1: that head office in Geneva. They're one of the world's
Speaker 1: biggest trading companies. Uh. Probably not the company that you
Speaker 1: would expect to be to be caught out in this
Speaker 1: kind of in this kind of situation. Uh. You know,
Speaker 1: if you if you think of the the global commodity
Speaker 1: trading industry, they are one of the blue chips. They are,
Speaker 1: you know, the Microsoft or Apple of the of the
Speaker 1: commodity trading industry. And yet here they are and you know,
Speaker 1: according to our reporting and and indeed what they've what
Speaker 1: they've said now and confirmed on the record. Uh. They
Speaker 1: started opening containers as they started arriving at ports. First
Speaker 1: the first one in Rotterdam a few days before Christmas
Speaker 1: last year. They opened this container that was supposed to
Speaker 1: contain nickel that they supposedly owned, and what they found
Speaker 1: in it was essentially not much. I think there were
Speaker 1: some things like crude steel in some of these containers
Speaker 1: and other things that are worth you know, a tiny,
Speaker 1: tiny fraction of what of what nickel is worth. Uh,
Speaker 1: And when they add up, I mean they're still they're
Speaker 1: still apparently I think probably hundreds of these containers sitting
Speaker 1: on container ships going around the world at the moment.
Speaker 1: But if they add up all of the containers that
Speaker 1: they have that as uh, that that that they bought
Speaker 1: from a from a group of a group of companies
Speaker 1: connected to a particular individual, um, they say that's worth
Speaker 1: five seven million dollars and they've they've taken that as
Speaker 1: a loss already. So so talk us through first of all,
Speaker 1: how this nickel gets transported around the world. How big
Speaker 1: are these containers? Are we talking like twenty ft fort containers?
Speaker 1: What do they weigh? Did they just fill them up
Speaker 1: with nickel? Is it like shoveled in or what are
Speaker 1: we What are we really talking about here? Because I
Speaker 1: just think it's fair, it's standards, its standard shipping container.
Speaker 1: There's a lot of a lot of industrial metals get
Speaker 1: shipped on in containers. You know, if you think about
Speaker 1: things like iron ore and coal, they tend to be
Speaker 1: shipped in bulk. So you have a whole ship that
Speaker 1: is full of coal or of iron ore, but things
Speaker 1: like refined in copper, nickel, aluminium, even copper ores. That
Speaker 1: kind of thing usually shipped in containers alongside everything else
Speaker 1: that gets shipped in containers, you know, the cars, the whatever.
Speaker 1: If you're moving house, you're container full of your stuff
Speaker 1: moving from one country to another. All the rest of
Speaker 1: it is on a container ship with you want to
Speaker 1: contains on a container ship with with the with the
Speaker 1: nickel and the copper, uh, and you can probably put
Speaker 1: about twenty five tons of copper give or of nickel
Speaker 1: rather or copper for that matter, in a single container.
Speaker 1: And so there will be a few dozen containers containing
Speaker 1: nickel that is owned by Trafficura, say in this case,
Speaker 1: on a container ship going from one part to another. UM.
Speaker 1: The key really to the whole, this whole story and
Speaker 1: why this happens time and time again in commodity trading
Speaker 1: is the reliance of the industry on physical documents. So,
Speaker 1: just to be clear, was there actually nickel there or
Speaker 1: was this a complete like fraud. It's a good question.
Speaker 1: We don't know all the details yet of what exactly happened.
Speaker 1: Traffic Oura has said UH that they think they were
Speaker 1: the victim of a systematic fraud, UM, and that involved
Speaker 1: misrepresentation and the presentation of a variety of false documentation. UM.
Speaker 1: There are various ways in which this kind of thing
Speaker 1: can happen and has happened in the past. One is,
Speaker 1: you know, at some point there is some real nickel, uh,
Speaker 1: and then at some point somebody produces some some fake
Speaker 1: documentation saying that the real nickel is still in this
Speaker 1: container when actually it no longer is, or or that
Speaker 1: it hasn't been sold when actually it has. That kind
Speaker 1: of thing. So somewhere in the chain, maybe there was
Speaker 1: some nickel at some point, but by the time that
Speaker 1: trafficer opened the container, it wasn't there anymore. Season maybe
Speaker 1: it's been taken so could it could have been stolen,
Speaker 1: Maybe it was never there. I guess we don't know.
Speaker 1: We're not to the bottom of this yet, Jack traffic Er,
Speaker 1: I guess pressing legal action against um I. When I
Speaker 1: saw India, I immediately thought of Donnie, as I'm sure
Speaker 1: many other people did. But it's not. It's there pursuing
Speaker 1: legal action against Pratique Gupta and no relation to Critty.
Speaker 1: By the way, I want to point out right now, UM,
Speaker 1: but what does pratique Gupta say, and how I mean
Speaker 1: even if you know, if if you take Trafficer at
Speaker 1: his word, this guy must be a big deal to
Speaker 1: even sell five hundred seventy seven billion dollars million dollars
Speaker 1: of fake nickel. Well that's a very good point. Um.
Speaker 1: So Prettee up to we have been trying to contact
Speaker 1: him and his companies. We haven't had any response so far. Um.
Speaker 1: Obviously they're defending themselves in legal action or they they
Speaker 1: will be scrambling to defend themselves in legal action against
Speaker 1: traffic or which trafficker has been launching around the world
Speaker 1: in the last few days. Um. But it's a good
Speaker 1: point that Trafficer had this huge exposure to them. Uh.
Speaker 1: They're not that huge trading company. They're relatively well known
Speaker 1: in the world of people who trade uh metals like nickel,
Speaker 1: but it's not a vast group of companies. Um. Uh.
Speaker 1: You know, Prettee up to there was a company called
Speaker 1: Tushtev International, which was an Indian company that's now an
Speaker 1: insolvency that he was running and was partially owned by
Speaker 1: him and other members of his family. It's maximum which
Speaker 1: was more than a decade ago. It was worth about
Speaker 1: two d and fifty million dollars and since then is
Speaker 1: worth you know, only a few million dollars which is
Speaker 1: listed on in India. Um. So it is quite striking
Speaker 1: that Trafficura managed to end up with an exposure of
Speaker 1: five seven million dollars to to these guys. I think
Speaker 1: that you know, the point that I would make is uh,
Speaker 1: and I guess the reason why a company like Trafficura
Speaker 1: could end up being caught out by this kind of thing. Uh.
Speaker 1: This was metal that Trafficura thought it had bought. So
Speaker 1: it wasn't like they had a credit exposure to these companies.
Speaker 1: They thought they bought some metal and they thought what
Speaker 1: they owned it. It was only when they discovered that
Speaker 1: they didn't own what they thought they owned but they
Speaker 1: that they realized they had a big exposure. So actually
Speaker 1: their assumption was that they didn't have much of an
Speaker 1: exposure at all because they owned some metal, they had
Speaker 1: title of documentation to this all of these parcels of
Speaker 1: metal fitting in ships around the world, which wasn't there.
Speaker 1: It wasn't which in fact, Jack, thanks so much for
Speaker 1: joining us. It's a great story. Jack. Here she wrote
Speaker 1: this story with Archie Hunter highly recommend checking it out
Speaker 1: on the Bloomberg terminal. Traffickerro faces five seventy seven million
Speaker 1: dollar loss after finding nickel fraud. Thanks for listening to
Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to
Speaker 1: interviews with Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller. Pen
Speaker 1: On Fall Sweeney I'm on Twitter at pt Sweeney. Before
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg
Speaker 1: Radio