Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: I'm Mike Reagan, a senior editor at Bloomberg, and this
Speaker 1: week on the show, Well, investors did sell in May,
Speaker 1: but they didn't stay away very long, and now as
Speaker 1: we speak, SMP is more or less unchanged for the month.
Speaker 1: What exactly should we make of this pause in a
Speaker 1: raging bull market, especially now that some of the economic
Speaker 1: data is disappointing but inflation readings are surprising on the upside.
Speaker 1: We'll get into it with a global market strategist in London,
Speaker 1: but first, Charlie Pellett tell us who this week's mystery
Speaker 1: co host is. This week's mystery co host is Eric Weener.
Speaker 1: Weener is a markets editor for Bloomberg in New York
Speaker 1: who actually wrote a history of modern Wall Street called
Speaker 1: What Goes Up. He claims he's not bitter at all
Speaker 1: that Mike Reagan stole the name for this podcast. His
Speaker 1: hobbies include watching hockey and informing Reagan of all the
Speaker 1: things he was wrong about. You know, Eric, I had
Speaker 1: hope you actually had other hobbies, But I think that's
Speaker 1: pretty much it right that those two that that pretty
Speaker 1: much covers the whole thing. Um, basically sit around watching
Speaker 1: hockey and then wondering what you're saying wrong. And I
Speaker 1: managed to do both quite well. That's that you do,
Speaker 1: you do, that's uh, you know. And I'm also I'm
Speaker 1: conflicted about Charlie getting a promotion for your book into
Speaker 1: that intro. I don't know how to feel about that.
Speaker 1: As you know, one of the risks of being a
Speaker 1: financial journalists is so many of your friends end up
Speaker 1: having books and you have to sort of pretend like
Speaker 1: you you've bought them and read them. But I'm gonna
Speaker 1: tell you this, I'm gonna buy your What Goes Up? Book? Um.
Speaker 1: I might even buy there's a collector's version of it
Speaker 1: on Amazon that's actually cheaper than the regular version. I
Speaker 1: don't know how that works, but I might buy that.
Speaker 1: Go go just spend money, man. Uh. But whatever you
Speaker 1: can possibly do. Because you did rip off my title,
Speaker 1: which is how I sold the book. Um when the
Speaker 1: original it was funny. I did it during the dot
Speaker 1: com era, and the original title had a question mark. Uh.
Speaker 1: And then as the whole thing fell apart, it just
Speaker 1: became What Goes Up? Because at first it looked like
Speaker 1: things were never gonna stop going up and well then
Speaker 1: it stopped there you go. Well, without promoting your book
Speaker 1: atty further, I will say it's a it's a very
Speaker 1: interesting concept. You basically talked to a bunch of sort
Speaker 1: of titans of Wall Street, and it's the whole history
Speaker 1: of Wall Street told in their words, which I find interesting,
Speaker 1: not because I don't find your words interesting, but I'm
Speaker 1: I'm already a big consumer of your commentary, so I
Speaker 1: would be interesting to see how how you did this.
Speaker 1: So I'm excited. I'm excited to get that Amazon purchase
Speaker 1: one of these days. Yeah, it was. It was actually fun,
Speaker 1: but hard to do. I mean, you got to track down, like, uh,
Speaker 1: thousands of the richest people in the world who are
Speaker 1: very busy and really don't want to talk to you. Um,
Speaker 1: But getting it in their words is very different than
Speaker 1: having US journalists kind of explain it. So it's much
Speaker 1: more like the story is being told to you in
Speaker 1: a room full of all the most important people in
Speaker 1: Wall Street history, and they're coming at you and sort
Speaker 1: of telling you their view. So it's unique in that sense.
Speaker 1: And it's uh, it's just because our guest this week
Speaker 1: I recently had a similar experience with her for the
Speaker 1: Business Week how to issue, where we basically UH reached
Speaker 1: out to smart people to get in their words, how
Speaker 1: they would how they would do certain things, and so
Speaker 1: we talked about how to do sixty forty in in
Speaker 1: this low interest rate environment, which is a perfect segue
Speaker 1: to are very important Wall Street titan we have on
Speaker 1: the show this week. She is the actually a city
Speaker 1: of London titan, I guess if you consider Wall Street
Speaker 1: running through London, which which I very much do. But
Speaker 1: she is the chief strategy at Principal Global Investors. Her
Speaker 1: name is Sema Shaw. Sema, welcome back to the show.
Speaker 1: Thank you very much for having me back. Let's start
Speaker 1: with that idea that I mentioned in the intro seem
Speaker 1: in that it seems like this euphoric rally that we've
Speaker 1: had uh someone hit the pause button in May. I'm
Speaker 1: almost tempted to wonder, if you know, the whole reopening
Speaker 1: of the economy is almost a sell the news event,
Speaker 1: or at least not a continue to buy with both
Speaker 1: fist type of events. But I'm curious what your perspective
Speaker 1: is on this kind of sideways market that we've seen
Speaker 1: over the last month, especially because it corresponds with really
Speaker 1: the height of the economic reopenings, as well as some
Speaker 1: data that's kind of lackluster, you know, uh, some misses
Speaker 1: here and there. The city surprise index has come down,
Speaker 1: but the inflation readings are are still pretty hot, you know,
Speaker 1: transitory or not being the question on everyone's mind. But
Speaker 1: I'm curious how you're sort of sizing up the environment
Speaker 1: right now given that risk assets at least here in
Speaker 1: the US are kind of sideways. Um, is it changing
Speaker 1: any of the thinking about the main themes of this
Speaker 1: year for you to see this pause? Well, I think
Speaker 1: it's fair to say that the US is probably reaching
Speaker 1: peak recovery. And having said that, look, the fundamentals are
Speaker 1: really really strong. So although it hit a peak and
Speaker 1: you're seeing activity um no longer probably accelerating as much
Speaker 1: as it was, it's still resting at a really high level.
Speaker 1: So I think that's the main thing to remember. So
Speaker 1: fundamentals are still really strong. I think the key thing
Speaker 1: here is those you know, when we all came into
Speaker 1: we all knew or we all hopeful that there would
Speaker 1: be an economic reopening. We were all hopeful about fiscal policy.
Speaker 1: We all knew that there would be some kind of
Speaker 1: inflatoring pressures at some point in one. But what we've
Speaker 1: seen happen is that all of those things, all of
Speaker 1: those factors and those themes were pushed forward to like
Speaker 1: the Q one and Q two of this year, so
Speaker 1: much much early, all compressed in a really short time scale.
Speaker 1: And I think the market has just run out of Steve,
Speaker 1: But that doesn't necessarily mean that there's a correction. So
Speaker 1: when you look at Mike mentioned inflation, Uh, how do
Speaker 1: you see this sort of reflation playing out? If you're
Speaker 1: say a stock market investor, how do you respond when,
Speaker 1: as you say, it's sort of played out in the US,
Speaker 1: but there could be more coming and it looks like
Speaker 1: prices are going to rise. Do you rotate into different
Speaker 1: asset classes? How do you handle this? Yeah, this is
Speaker 1: gonna be a really interesting dimension now for investors because
Speaker 1: what we're seeing is inflation is clearly picking up, but
Speaker 1: it isn't necessarily related to a continued acceleration and activity.
Speaker 1: It's really down to those those transitory factors that that
Speaker 1: policymakers are talking about. But of course as investor, you
Speaker 1: can't just say, well, look, inflation is going to fade
Speaker 1: out in the near future, so I'm just going to
Speaker 1: sit back and watch it happening. You have to invest
Speaker 1: for what the current environment is. So we think that
Speaker 1: you need to have some kind of inflation pool portfolio
Speaker 1: protection um. And what we've seen is that investors, after
Speaker 1: a couple of decades of really not having to worry
Speaker 1: about inflation, just don't have it in their portfolios. So
Speaker 1: the increasing we have to start thinking about this. So
Speaker 1: we see a couple of different things. Is so within equities,
Speaker 1: one of the obvious places is going to be value
Speaker 1: because there's still growth. There's still growth, you have rising
Speaker 1: inflation pressures. That's a steaming yiel curve. So value specifically
Speaker 1: financials should do very very well in this situation. Same
Speaker 1: thing with cyclicals. You've got a reopening trade, You've got
Speaker 1: people are rushing back in to spend. That does well
Speaker 1: for cyclicals. But the other side of it is also
Speaker 1: going to be real assets that you know, we hear
Speaker 1: people talk about commodities all the time, like commodities have
Speaker 1: got a tendency of being really volatile. So as an investor,
Speaker 1: I don't know if that's the volatility that you want
Speaker 1: to be taking on. So an easy way you're playing
Speaker 1: this is real estate, and that is typically a good
Speaker 1: diversifier and it does well in a rising but steady
Speaker 1: inflation environment. Yes, I'm curious how you know. Obviously, if
Speaker 1: you're an institutional investor, there's any number of ways to
Speaker 1: play real estate. That's kind of an average investor, individual investor,
Speaker 1: it's a little bit trickier. I mean, you know, one
Speaker 1: thing you could do is buy a vacation home, say,
Speaker 1: or buy a rental property, but that entails a whole
Speaker 1: bunch of other work that you know and risks. So
Speaker 1: how how could you play a real estate team? Is
Speaker 1: it something as simple as reets or you know, other
Speaker 1: equities tied to the real estate space. So reats is
Speaker 1: a great place to be um. Generally speaking, in real
Speaker 1: estate you have to be careful which sectors you're looking at.
Speaker 1: We've seen a number of themes play out. If you
Speaker 1: just think about the retail side during the pandemic. Unfortunately,
Speaker 1: it really has declined from a real estate perspective, So
Speaker 1: some of those big shopping centers, which were already struggling
Speaker 1: in the run up to the pandemic, that deceleration just
Speaker 1: almost accelerated through the last year. Or so what we're
Speaker 1: seeing increased strengthen is data centers. If you think all
Speaker 1: of these companies are ones that are really thrived or
Speaker 1: even survived in the pandemic, they did so because they
Speaker 1: used technology to pivot themselves, to pivot their business models.
Speaker 1: And that's not going to go into reverse, which means
Speaker 1: that industrial data centers anywhere where they can house a
Speaker 1: lot of those technology technology centers, that's going to do well.
Speaker 1: So we would think they look at real estate, look
Speaker 1: at reads, but really focus on the right sectors. So
Speaker 1: the inflation idea is something that's just coming up a
Speaker 1: ton among our readers and in the newsroom in general. Uh,
Speaker 1: it's sort of the you know the topic jur as
Speaker 1: you as you watch prices rise and the FED has
Speaker 1: used the term transitory, which can mean a lot of things,
Speaker 1: and to me, it's one thing. It's like with a bubble.
Speaker 1: It's you can see where the bubble is, but timing
Speaker 1: when it's going to end, when it's going to pop
Speaker 1: is the challenge. Spotting it isn't so hard. The timing
Speaker 1: of where it's going to play out is what does
Speaker 1: transitory mean to you? And how transitory is this going
Speaker 1: to be. You have horned in on the most important
Speaker 1: point here. With inflation. We all know it's here, it's come.
Speaker 1: You know, it's going to continue rising, and we, same
Speaker 1: as the policymakers, think it's going to be short lived.
Speaker 1: But as you said, nobody knows how long now coming
Speaker 1: into this year, the general views it will last through
Speaker 1: the summer and then come full a lot of those
Speaker 1: UM inflation pressures driven by supply shortage shortages should fade away.
Speaker 1: What we're starting to see now actually is a supply
Speaker 1: shortages are worse than expected, the rising prices going a
Speaker 1: little bit higher than more higher than expected UM and
Speaker 1: on top of that we're also seeing inflation expectations increase.
Speaker 1: So the key things to what to figure out how
Speaker 1: long this is going to go on for is inflation
Speaker 1: expectations and how much of these cost increases are being
Speaker 1: passed onto consumers. That's going to tell you how sticky
Speaker 1: inflation is going to be. And I've got to say
Speaker 1: the jury is really out on that factor. Yeah, it's
Speaker 1: interesting to me, see me because you you know, explained
Speaker 1: about the sort of supply bottlenecks and shortages and I
Speaker 1: hate to use and overuse cliche like a perfect storm.
Speaker 1: But it's like this perfect storm for inflation because you
Speaker 1: have those shortages and supply bottlenecks on the one end,
Speaker 1: and then on the demand side, you've got the unleashing
Speaker 1: of what was a bottleneck during the pandemic. Everyone now
Speaker 1: is ready to spend and go out and travel again
Speaker 1: and all that. So I'm trying to think of how
Speaker 1: it looks on the other side when the that transitory
Speaker 1: period is over, you know, whether it be later this
Speaker 1: year or the first half. To me, there's almost a
Speaker 1: risk of sort of a reversion back the other way
Speaker 1: and and almost the transitory deflationary period on the other side. Um,
Speaker 1: everyone seems to be worried about a more prolonged period
Speaker 1: of inflation after you know, this year, But I wonder
Speaker 1: if the risk is almost as good, Uh for thinking
Speaker 1: we could see a transitory deflation period. So tell me
Speaker 1: if I'm nuts for thinking that, ay, and uh, if
Speaker 1: I'm not nuts, hopefully I'm not too crazy. How would
Speaker 1: how would that play out in the markets? Would that
Speaker 1: be a sort of about face and try to try
Speaker 1: to go back to growth again? Uh? You know, how
Speaker 1: are you thinking about that other side of the transitory period?
Speaker 1: Of inflation well fastly. I don't think you're crazy. I
Speaker 1: think that that is a possibility. You know, if we
Speaker 1: think about that, the supply is they're going to be
Speaker 1: looking at this unleashing of demand, and they could be
Speaker 1: ramping up their supply the next couple of months. But
Speaker 1: what if they go too far? What if they just
Speaker 1: go too far? A lot of their demand it's gonna
Speaker 1: be front loaded. Um as you see, it's it's about
Speaker 1: unbleashing that demand that has been so contained for the
Speaker 1: last number of months. So I think there is a
Speaker 1: chance that supply goes too far, demand just doesn't essentially
Speaker 1: meet it in the end, and then you get the
Speaker 1: disinflationary pressure is coming. Well, what happens to the market, Well,
Speaker 1: on one hand, I think the market really starts to
Speaker 1: get a bit worried because ultimately, you've seen Montree policymakers,
Speaker 1: you've seen fiscal policy makers throw everything they have this problem,
Speaker 1: and if they still can't create some kind of inflation,
Speaker 1: which is a healthy type of inflation, So around that
Speaker 1: two percent level, I think the market will become quite concerned.
Speaker 1: So I think from that perspective, the Fed is playing
Speaker 1: a really difficult game here. They have to get the
Speaker 1: balance right. Um, and if the market does get freaked
Speaker 1: then of course we have to be shifting into safer assets.
Speaker 1: We're talking about growth again. Technology if you're looking at
Speaker 1: lower bond deals, and technology is typically your your best
Speaker 1: place to hide out. So you mentioned the idea of
Speaker 1: stickiness of inflation, and that that intrigues me just the
Speaker 1: difference between flexible pricing versus sticky I saying, Um, what
Speaker 1: are you looking at in terms of the cues for
Speaker 1: what's a real inflation move, What's a real like hard
Speaker 1: inflationary move versus you know, so with sticky prices, it's
Speaker 1: something like the cost of getting your car fixed doesn't
Speaker 1: change no matter what happens in the economy, whereas you know,
Speaker 1: the cost of gas is very very reactive to the economy.
Speaker 1: What are you looking at in terms of gauging how
Speaker 1: severe things get or how how how much less we
Speaker 1: need to be concerned about it. So to us, there's
Speaker 1: there's a couple of key things to be watching out for,
Speaker 1: which is going to give us an idea of how sticky,
Speaker 1: so really how long this higher inflation is going to last?
Speaker 1: For um, the first thing is inflation expectations. You've got
Speaker 1: to be looking at not only market inflation expectations, but
Speaker 1: all the various surveys, because what we have seen the
Speaker 1: threat of is as consumers start to see higher prices,
Speaker 1: they start to expect themselves that they react in that way,
Speaker 1: and that brings forward or extends that inflation pressures that
Speaker 1: they've already been witnessing. So then it becomes part of
Speaker 1: the system and you're seeing permanently higher prices. But the
Speaker 1: second thing is is companies, how are they going to respond?
Speaker 1: Now this is gonna be really interesting because over the
Speaker 1: last year we've seen savings in the US increased significantly,
Speaker 1: So you have a new consumer subset who are extremely
Speaker 1: financially resilient, and consumers and companies are very aware of this.
Speaker 1: So if companies decide that, look, our consumers are clients
Speaker 1: now very financially resilient. We can pass on all of
Speaker 1: the cost increases that we're experiencing to our consumers, then
Speaker 1: you are looking at inflationary spiral, not to the kind
Speaker 1: of five or six percent level, that inflationary spiral in
Speaker 1: the current term meaning kind of the two to two
Speaker 1: and a half to three percent level, which of course
Speaker 1: as we know from the first perspective, is a little
Speaker 1: bit above where they wanted to be. I just want
Speaker 1: to read in a little bit and reiterate that Sema said,
Speaker 1: I'm not crazy Eric. You know, no matter what Eric says,
Speaker 1: I've got Sema on my owner said, I'm happy about that.
Speaker 1: But uh uh see, I want to switch gears a
Speaker 1: little bit um and talk about the vaccination rates. I
Speaker 1: know it's something you've kept an eye on. I think
Speaker 1: everyone you know who's got their eye on global markets
Speaker 1: is kind of seeing where the sort of advantages are
Speaker 1: and disadvantages are in vaccination rates. And obviously in the US,
Speaker 1: uh we got out to a strong start on that front. Um.
Speaker 1: Currently now we're at about I think a little bit
Speaker 1: over fifty of the population has had at least one
Speaker 1: shot of the vaccines. Um. But you know, as we
Speaker 1: all know, one of the big growth industries in the
Speaker 1: US is conspiracy theories and skepticism towards science and experts
Speaker 1: and that sort of thing. So there, I think there's
Speaker 1: this concern that we might plateau out a little bit
Speaker 1: on on vaccination rates that you know, the people left
Speaker 1: who are unvaccinated are those who are reluctant to get
Speaker 1: it for for whatever reason. Um, And I'm curious, you know,
Speaker 1: if you're seeing that in other countries, is that mainly
Speaker 1: a US phenomenon. It's it seems like we are sort
Speaker 1: of the epicenter of that potential issue of skepticism and
Speaker 1: reluctance to get a vaccine. But I'm curious if you're
Speaker 1: seeing it anywhere else or if it is kind of
Speaker 1: unique to the US. But also, how much does it
Speaker 1: really matter if we do get say above fift vaccinated.
Speaker 1: I mean, you know, should the reopening of the economy
Speaker 1: and the return to normal continue apace even if there
Speaker 1: is a certain segment of the population that might still
Speaker 1: be struggling with covid um If there are enough people
Speaker 1: are vaccinated that, you know, businesses feel comfortable, uh, going
Speaker 1: full capacity and and getting back to normal. How much
Speaker 1: does it matter if if we sort of plateau here
Speaker 1: in the US on vaccination rates. Well, I think you're
Speaker 1: right that the U s really is the epicent two
Speaker 1: of that, but that's because the US is so far
Speaker 1: ahead with this vaccination process, so you're kind of the
Speaker 1: guinea pigs here. What we are seeing though, is in Europe,
Speaker 1: for example, they do have a lot of vaccine hesitancy. UM.
Speaker 1: It's really not unusual even for for COVID. Actually you
Speaker 1: typically see in countries like France, they've always been very
Speaker 1: reluctant even to take the annual flu vaccine. So this
Speaker 1: is something that we were expecting, and of course the
Speaker 1: very side effects that have been reported from a couple
Speaker 1: of the vaccines haven't really helped the situation. Now. What
Speaker 1: we are expecting to see though, for example in the US,
Speaker 1: is that we are hitting we're close to hitting your
Speaker 1: peak vaccination numbers. You can have people who are reluctant,
Speaker 1: you can have people who simply aren't eligible maybe because
Speaker 1: of age UM, and then those can be the other
Speaker 1: ones who say, well, you know, everyone else surround us
Speaker 1: is vaccinated, so why would we could have bothered? Would
Speaker 1: come around to when it When it works for us,
Speaker 1: it doesn't really matter from an economic perspective, in the
Speaker 1: best case scenario, No, it doesn't really matter, because all
Speaker 1: the government cares about UM is of course they want
Speaker 1: to reopen the economy. It's really if those hospitalizations that
Speaker 1: that they start to get concerns. So if you've got
Speaker 1: a lot of people vaccinated, then they will continue to
Speaker 1: push forward with the reopening. The concern starts to arise
Speaker 1: though if you get some more of these variants start
Speaker 1: to circulate UM, and if those various circulate, then it
Speaker 1: becomes more of a concern for the population that isn't vaccinated,
Speaker 1: And then you get to a point where maybe the
Speaker 1: government was to take a bit of a stand still
Speaker 1: on that on that factor. And I would point to
Speaker 1: the UK here on this where although we have vaccinated
Speaker 1: a very high percentage of people, we have the variant
Speaker 1: from India is circulating in the UK and they are
Speaker 1: talking already about stopping the reopening. So when you talk
Speaker 1: about vaccination rates UM, the FED has pointed to a
Speaker 1: vaccination rates as something that it's looking at in terms
Speaker 1: of when to react to QUEI and whatever UM. Are
Speaker 1: we getting close to a point where the FED would
Speaker 1: feel comfortable? I mean obvious there are a bunch of
Speaker 1: other numbers that go go into that UM, but they've
Speaker 1: act they've not really been looking at necessarily the whole
Speaker 1: data and talking about more of this societal function. Are
Speaker 1: we close to that point where the FED can react
Speaker 1: based on being comfortable that the population is vaccinated. I
Speaker 1: think we are getting close to that point. But what
Speaker 1: we are increasingly seeing is that policymakers are saying that
Speaker 1: our country may be pretty healthy, doing pretty well with vaccinations,
Speaker 1: but they have to look at all the countries and
Speaker 1: not just even next to them, but all around because
Speaker 1: there are continued threats coming in from other countries. You know,
Speaker 1: we just have to think about India, about Brazil. Um.
Speaker 1: So I think policymakers will remain pretty cautious until this
Speaker 1: fight is over, and I unfortunately think that fight is
Speaker 1: going to continue into So you know, there's kind of
Speaker 1: this growing I wouldn't necessarily call it a consensus perhaps yet,
Speaker 1: but growing speculation that, uh, the Jackson Hall meeting in
Speaker 1: August will be when the FED at least admits their
Speaker 1: thinking about talking about maybe whispering about tapering. Um. How
Speaker 1: are you looking at that meeting? Do you think it's
Speaker 1: it's a live one that that we're all going to
Speaker 1: have to keep an eye on, or I guess just
Speaker 1: wait and see. I think that we have to be
Speaker 1: watching Jackson Hole very very carefully. You know, when we've
Speaker 1: talked about the FED, you know, we know that of
Speaker 1: course with the econom reopening, with the kind of pace
Speaker 1: of growth that we're saying we're seeing, and they must
Speaker 1: be talking about tapering behind closed doors. They must be
Speaker 1: talking about it. But this is a very very careful
Speaker 1: process that they're going to take. Where they started, as
Speaker 1: you said, they start to whisper about it, we start
Speaker 1: to hear hints, and then at Jackson Hole, hopefully they
Speaker 1: talk a little bit more openly to the market and
Speaker 1: prepare the market for the start. So it didn't start
Speaker 1: in Jackson Hole, but it starts a couple of months later.
Speaker 1: And I think over the last number of years we
Speaker 1: have become accustomed to Jackson Hole being that one event
Speaker 1: that all market makers, all investors need to watch very carefully.
Speaker 1: So now that we're talking about Jackson Hole in the FED, UH,
Speaker 1: if you're a bond investor, how do you view this?
Speaker 1: Now you've you know, we were at zero or close
Speaker 1: to it, uh, and now we're coming well off those levels. Uh.
Speaker 1: And you know, yields are going up, UM, bonds are falling,
Speaker 1: and it just sort of seems like an inexorable rise.
Speaker 1: How if you are a fixed income guy or a woman,
Speaker 1: how do you position yourself to handle this? If this
Speaker 1: is going to be ongoing and the FED is actually
Speaker 1: going to start doing some cube, you know, getting rid
Speaker 1: of some of that stimulus. Yeah. Absolutely, when we when
Speaker 1: we think about this, if you think the tapering is inevitable,
Speaker 1: even if you're worried about the timing, is such as
Speaker 1: we think is inevitable, in which case there will be
Speaker 1: upper pressure on bond yield from here. So what does
Speaker 1: the fixed income investity will look It is undoubtedly is
Speaker 1: a challenging environment for a fixed income investor. But what
Speaker 1: we think you need to do now is be a
Speaker 1: little bit innovative, start thinking a little bit outside the box. Um,
Speaker 1: you need to get that additional yield with thinking prefer securities,
Speaker 1: were thinking emerging market debt, high yield, private credit, anywhere
Speaker 1: where you can get that additional pickup because increasingly that
Speaker 1: is so difficult to find within fixed income. And that
Speaker 1: that allows me to talk my book a little bit here,
Speaker 1: Eric too and read Seema's thoughts on in last week's
Speaker 1: Business Week where she talks about the barbell with em
Speaker 1: and corporate credit on one side and save treasuries on
Speaker 1: the other. I think that's ah an interesting way to
Speaker 1: approach it. Um, see, well, one more thing and then
Speaker 1: we'll end this interrogation. Sometimes I feel like we were interrogating, uh,
Speaker 1: someone like the FBI does. So I apologize for all
Speaker 1: these questions, but one more and then we'll get to
Speaker 1: the crazy things. Um. You had a really interesting point
Speaker 1: in a note recently in which you talked about UM
Speaker 1: and I'll just read straight from your note. Uh. This
Speaker 1: has basically been the largest US fiscal injections since World
Speaker 1: War Two. What's interesting is though it boosts the global economy. UM,
Speaker 1: And I wonder I think that's a point that that's
Speaker 1: lost on a lot of US based investors. Is how
Speaker 1: you know US prosperity can can be a boom for
Speaker 1: emerging markets other developed markets around the world. Talk to
Speaker 1: us about that spillover effect from a really buoyant US consumer.
Speaker 1: I mean, is is it as simple as a matter
Speaker 1: of just, you know, going going long on the countries
Speaker 1: where we run big trade deficits with or is it
Speaker 1: is there more to it? How would you how do
Speaker 1: you sort express a global bullishness based on US consumers
Speaker 1: with these inflated savings rates and lots of stimulus money
Speaker 1: slashing around. You know, it's funny because when we do
Speaker 1: these presentations at global presentations, this year, increasingly we are
Speaker 1: talking about the US, and the reason is that the
Speaker 1: US is it's absolutely reinstating that global reflation narrative. And
Speaker 1: as you said, that American Rescue Act, as one of
Speaker 1: the largest government interventions since World War Two, is so
Speaker 1: significant that the spillovers to the rest of the world
Speaker 1: actually pick up growth in other countries. So if we
Speaker 1: look at the o e. C D, for example, has
Speaker 1: done a couple of studies on this, and they think
Speaker 1: that the American rescue plan on its own lifts global
Speaker 1: growth this year by one percent. And if you're thinking
Speaker 1: about the closest countries that Canda, Mexico, that's around one
Speaker 1: to one point to five percent just from that fiscal
Speaker 1: stimulus in the US, all the way to China to Europe,
Speaker 1: where it's about nor point five per it. So together
Speaker 1: this is really important. And you know what we've seen
Speaker 1: this year in the US is that you have had
Speaker 1: this perfect conduction of vaccinations enabling that reopening, plus this
Speaker 1: incredible fiscal stimulus. So now you have a combination of
Speaker 1: not just the opportunity to spend because of reopening, but
Speaker 1: also the ability to spend, and together those two factors
Speaker 1: create such a strong push into the U. S. Economy
Speaker 1: and then leaking out the rest of the world. Yeah,
Speaker 1: that's it's really you know, it's I think it's a
Speaker 1: point that a lot of Americans, we we Americans speak,
Speaker 1: can be very self reflective and we forgot about the
Speaker 1: rest of the world sometimes, And I think that's a
Speaker 1: very interesting way to play the sort of pumped up
Speaker 1: savings of the American consumer and all the stimulus money
Speaker 1: going around. So uh, definitely good food for thought. Um
Speaker 1: as is our next segment, which fans of the podcast, no, Well,
Speaker 1: the craziest things we saw in markets this week stand
Speaker 1: clear of the craziest things we saw in markets this week,
Speaker 1: I'm gonna get things started, um Seman. I got a
Speaker 1: sneak peek at Eric's crazy things. I will say both
Speaker 1: of ours involved real assets, which I know you're you're
Speaker 1: bullish on. Probably I'm gonna go out on a limb
Speaker 1: and say probably not the type of real assets you're
Speaker 1: you would be bullishawn, necessarily, especially Eric's, but mine. Maybe
Speaker 1: I'll start with mine because I I find it interesting.
Speaker 1: You know, obviously, for an investor, the biggest nightmare you
Speaker 1: could ever have is a hundred percent loss, right, would
Speaker 1: you guys agree with that? Yes? What what could be
Speaker 1: worse than a hundred percent loss? Well, in Las Vegas,
Speaker 1: there's some innovation on this where we've got a story
Speaker 1: about a loss bigger than a hundred and twenty percent
Speaker 1: loss on a Las Vegas mall loan. And I'm just
Speaker 1: gonna read the top of the story by our colleague
Speaker 1: Adam Tempkin, a loan side to a beleaguered mall outside
Speaker 1: of Las Vegas realized a loss of a hundred and
Speaker 1: after the shopping center sold for the same price as
Speaker 1: a condo, the loan, which had a current bounce of
Speaker 1: sixty two point two million, was completely written down after
Speaker 1: the Prism outlets were liquidated for just over four hundred
Speaker 1: thousand dollars. When accounting for eleven point five million in
Speaker 1: fees and reimbursements owned to the Nester services for advances made,
Speaker 1: the realized loss came out to seventy four millions. So
Speaker 1: you investors lost seventy four million on a sixty two
Speaker 1: million dollar loan because of all the fees and whatnot.
Speaker 1: But seem it's to your point. Someone bought a full
Speaker 1: shopping center in Las Vegas for four hundred grand the
Speaker 1: price of a two bedroom condo on the on the
Speaker 1: Vegas Strip. So bargains galore in real estate if you
Speaker 1: have the the ability to pounce on them. It's fascinating.
Speaker 1: And of course you know there are people short this
Speaker 1: the credit here, Uh, Carl Icon, I think making a
Speaker 1: fortune being short the credit index associated with this. But
Speaker 1: uh uh to your point, seem, I think it talks
Speaker 1: to it speaks to the the sort of distress real
Speaker 1: state that that is a great opportunity out there still,
Speaker 1: even at this point of the reopening, it is. It
Speaker 1: is that there are a lot of opportunities, but there's
Speaker 1: a lot of potholes. So so pick your investment, even
Speaker 1: in real estate, very very wisely, right right, And Eric's
Speaker 1: gonna talk to us about another real asset, which which
Speaker 1: I gotta give it to Terrik first time in the
Speaker 1: show when you came big with the crazy thing. This
Speaker 1: is a good one. Well, this was something that actually
Speaker 1: is near and dear and seem I really hope you
Speaker 1: actually aren't tracking this. Uh, this is something that's near
Speaker 1: and dear to my family's heart. My son is a
Speaker 1: big animal lover and took classes at the New York
Speaker 1: Zoological Society and is a major, majorly involved in anti poaching.
Speaker 1: And what what I noticed, for what we saw was
Speaker 1: this the rise. It's called the Rhizotope project where uh
Speaker 1: there's poaching of rhinos for their urns in South Africa.
Speaker 1: Last year alone, four hundred were killed illegally um and
Speaker 1: it's because the horns are used in traditional medicine and
Speaker 1: have value beyond what the actual animal is, so they'll
Speaker 1: kill the animal just to take the horns. So what
Speaker 1: they're doing, or what they're testing, is injecting the horns
Speaker 1: with radio active material in order to make the horns
Speaker 1: less desirable. Because if you're using them for medicine and
Speaker 1: you have radioactive material, that sort of defeats the purpose.
Speaker 1: So they're starting to do this in in South Africa
Speaker 1: where and it's a Russian company and another private organization
Speaker 1: are literally tracking uh there are a bunch of different
Speaker 1: trackers that track rhino movements and they're now catching them
Speaker 1: injecting them with this radioactive material. And the question is
Speaker 1: whether the material actually gets into their bodies and poisons
Speaker 1: these rhinos, basically subverting the entire idea of the project,
Speaker 1: or if this is a way to get people to
Speaker 1: no longer by rhino horns. Uh. And I just thought
Speaker 1: it was a fascinating, you know, damned if you do,
Speaker 1: damned if you don't kind of story where they're they're
Speaker 1: trying to save these rhinos and uh, you know, it's
Speaker 1: like we may have to burn the village in order
Speaker 1: to save it. Go ahead, see M I know, I,
Speaker 1: I know you're not investing in rhino horns, but please don't.
Speaker 1: That is incredible, So you know, I worry. I worry
Speaker 1: on many different parts of that. But I just also
Speaker 1: hope that the material doesn't make them give them super bowers.
Speaker 1: I have been changed rhino in Kenya before and it
Speaker 1: was a scary, scary experience, So let's hope they can't
Speaker 1: run even faster than than they did that that for
Speaker 1: that was my thought to Semo. I don't know if
Speaker 1: they showed The Incredible Hulk in in England back in
Speaker 1: the day, but Eric and I grew up watching The
Speaker 1: Incredible Hulk. I think all of us who saw that
Speaker 1: show realize you do not mess with radioactivity like that.
Speaker 1: If you do not want an Incredible Hulk rhino on
Speaker 1: the loose. No, no, nobody wants to. But My other
Speaker 1: thought is, and I agree with you, Eric Comman, Animal
Speaker 1: Lover two. I hate the idea of poaching, but as
Speaker 1: a markets guy, I I like that story. I felt
Speaker 1: it was lacking in the price discovery aspect though, in
Speaker 1: that what does a rhino horn cost? And I feel like,
Speaker 1: and I hate to I hate to be the guy
Speaker 1: to say this, but I feel like this project could
Speaker 1: be bullish for rhino horn prices if they reduce the
Speaker 1: supply of rhinos that are not incredible hulk radioactive rhinos.
Speaker 1: I'm just gonna throw that out there. I had not
Speaker 1: even considered that, what if it's the unintended consequence to see,
Speaker 1: This is what economics is all about. These are the
Speaker 1: externalities that you don't predict, where suddenly, you know, the
Speaker 1: the idea of uncontaminated rhino horns makes them even more valuable.
Speaker 1: And now we're going to go after the uh, non
Speaker 1: radioactive rhinos in order to really to really do this. Yeah,
Speaker 1: it's freaking and actually, you know, I feel like Jeff
Speaker 1: Goldbloom in Jurassic Park with all the philosophical connotations going
Speaker 1: through my head. But all I can tick of is
Speaker 1: the bullish price work. As for rhino horns as a
Speaker 1: reason we were warned. We were alright, Seema, I I
Speaker 1: know you've been on the show before and you've always
Speaker 1: delivered with a crazy thing. Eric's I gotta say, Eric
Speaker 1: is tough, the tough, the top. Despite the nebulous market connection,
Speaker 1: I'm okay with that as as regular listeners know it.
Speaker 1: It is a market. There's a market for rhino horns,
Speaker 1: so so we'll allow. But Seema, what's the craziest thing
Speaker 1: you've seen recently? There's a market for everything that. Let's
Speaker 1: remember that mine is boring by comparison, because mine is
Speaker 1: playing little markets again, I just want to celebrate ourselves,
Speaker 1: congratulate ourselves for for not talking cryptocurrency on this one.
Speaker 1: So in a in an area where we're not you know,
Speaker 1: governments are no longer worried about deficits, that they're happy
Speaker 1: to spend as much as necessary. Let me take you
Speaker 1: back ten years or so, when when the Greek sovereign
Speaker 1: debt crisis happened and markets really already cared about how
Speaker 1: much how much government they had, government debt they had. Well,
Speaker 1: fast forward to today. You have a Greek government debt
Speaker 1: over two GDP and yet the spread of Greek tenure
Speaker 1: yields over butins has fallen to its narrowest level since
Speaker 1: two thousand and eight. It's just a hundred and seven
Speaker 1: basis points. And that is despite having government debt accelerate
Speaker 1: from from that point ten years ago. So something has
Speaker 1: turned upside down in markets, and to me, that is
Speaker 1: pretty crazy. If you have that good memory of ten
Speaker 1: years ago. I'm completely fascinated with that as well. I mean,
Speaker 1: what that's spread peak that I don't know what was it,
Speaker 1: dred basis points or something like that. Way back in
Speaker 1: two thousands, anybody it was above a temper cent spread.
Speaker 1: I remember hitting the eight or so at one point
Speaker 1: one day. But so I guess the question, and I've
Speaker 1: asked others on the on the show about this too.
Speaker 1: To me, that leads me to believe that the whole
Speaker 1: notion of austerity is kind of dead in Europe now.
Speaker 1: Is that you think that's true? Or is it people
Speaker 1: just playing that the temporary retirement of austerity. I think
Speaker 1: in Europe it's temporary. You know, we talked, we've seen
Speaker 1: at european ecty markets do really really well the last
Speaker 1: few weeks, and everyone's very hopeful for the sum which
Speaker 1: I share probably the optimism for the summer. But beyond that,
Speaker 1: I think it returns to its position as perennial disappointment
Speaker 1: party because it will refer to that fiscal tightening again
Speaker 1: and it cannot let go of the feeling where they
Speaker 1: need to hold them to their fiscal purses. Yeah, I
Speaker 1: tend to agree. Yeah, and I just so I that
Speaker 1: seems like a rented sort of temporary trade be bullish
Speaker 1: Greek debt, you know, until until that this phase passes,
Speaker 1: I guess, yeah, right right, that Greek market as long
Speaker 1: as you can. I think Germany isn't going away right then.
Speaker 1: They're constantly Austerian, So as soon as things level out,
Speaker 1: I would assume we'll start hearing from them about the
Speaker 1: need for austerity economics again. Absolutely well, speaking of writing
Speaker 1: things as far as we can, I think we've written
Speaker 1: this podcast as far as we can see. It is
Speaker 1: always such a great pleasure to to catch up with
Speaker 1: you and hear your thoughts. You know, you're always welcome
Speaker 1: back on the show, and hopefully we can we can
Speaker 1: get you back again soon. Thank you so much. It's
Speaker 1: such a pleasure to be back with you. Guys, and
Speaker 1: Eric Weener. You can message me with everything I got
Speaker 1: wrong on this afterwards. I've been taking I'm just kidding,
Speaker 1: thank you, but it's been a it's been a real treat.
Speaker 1: What Goes Up. We'll be back next week. Until then,
Speaker 1: you can find us on the Bloomberg Terminal, website and app,
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Speaker 1: you took the time to rate and review the show
Speaker 1: on Apple Podcasts so more listeners can find us, and
Speaker 1: you can find us on Twitter. Follow me at Reaganonymous.
Speaker 1: Eric Weiner is at Eric J. Weener one. You can
Speaker 1: also follow Bloomberg Podcasts at podcasts. I thank you to
Speaker 1: Charlie Paul to Bloomberg Radio in the voice of the
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Speaker 1: by Tofur Foreheads ahead of Bloomberg Podcasts is Francesco Levie.
Speaker 1: Thanks for listening, See you next time.