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Speaker 2: This is Bloomberg business Week, Daily reporting from the magazine
Speaker 2: that helps global leaders stay ahead with insight on the people, companies,
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Speaker 2: Daily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 1: Back to Netflix, where shares down five and a half
Speaker 1: percent as we speak. The company forecast revenue are for
Speaker 1: the full year. The guidance met the average analyst estimate.
Speaker 1: There were some questions though about profitability. The company out
Speaker 1: with a statement essentially saying that and this is the
Speaker 1: headline in the This is the way the letter begins. Carol,
Speaker 1: operating margin of twenty eight percent was below our guidance
Speaker 1: of thirty one and a half percent due to an
Speaker 1: expense related to an ongoing dispute with Brazilian taxi authorities
Speaker 1: that was not in our forecast. After to this expense,
Speaker 1: we would have exceeded our Q three twenty five operating
Speaker 1: margin forecast. We don't expect this matter to have material
Speaker 1: impact on future results, all right.
Speaker 3: So let's get to it.
Speaker 4: With our own Bloomberg Intelligence Senior media analyst, Guita Ringanathon.
Speaker 4: She's at BI headquarters in Princeton, New Jersey. Take it away,
Speaker 4: So tell us what we need to know and why
Speaker 4: is the stock really down?
Speaker 3: Is it because of that one time charge?
Speaker 5: Absolutely, Carol.
Speaker 6: So operating margin is now the new metric by you
Speaker 6: how investors kind of look at this company. We've seen
Speaker 6: just a tremendous increase in the way that they have
Speaker 6: kind of grown their profits, in the way that they've
Speaker 6: expanded their margins. It was up over six hundred basis
Speaker 6: points last year. We were really expecting them to actually
Speaker 6: exceed their guidance for both this quarter as well as
Speaker 6: to take up guidance for the full year. So this
Speaker 6: kind of really throws cold water and all of those
Speaker 6: expectations and overall kind of looks really really underwhelming.
Speaker 1: What's the biggest thing challenging the company right now?
Speaker 6: I mean, the biggest thing I think tim over the
Speaker 6: past few months has really been, you know, the growth
Speaker 6: of AI and whether that's going to be a headwind
Speaker 6: or a tailwind for Netflix. I think we've all kind
Speaker 6: of finally come to the you know, conclusion at least
Speaker 6: in the near term that it's going to be more
Speaker 6: of a tailwind. We've seen Netflix kind of really lean
Speaker 6: into AI, whether it's using a good user interface, whether
Speaker 6: it's improving that or using you know AI for you know,
Speaker 6: even more more and better content creation. So I think
Speaker 6: definitely in the near term, don't expect it to be
Speaker 6: much of a negative. But then, you know, I think
Speaker 6: over the longer term that's going to definitely be one
Speaker 6: of the concerns out there. For right now, I think
Speaker 6: what investors are really looking to and we need guidance,
Speaker 6: more guidance from Netflix management on this. There really wasn't
Speaker 6: much spoken about this in the newsletter, was you know,
Speaker 6: anything related to advertising. They talk about doubling their advertising revenue,
Speaker 6: but again there are no concrete metrics. There was no
Speaker 6: update in terms of monthly active users. The last time
Speaker 6: we got an update from them was in May. We
Speaker 6: really don't know what the number of subscribers are on
Speaker 6: the APD here or even what the revenue is, and
Speaker 6: I think that will definitely give investors some costs for concern.
Speaker 4: Yeah, they talked about ads, I feel like in the
Speaker 4: press release, but yeah, it sounds like we need a
Speaker 4: little bit more concrete. Hey, thirty seconds, Geita, Warner Brothers Discovery.
Speaker 4: Do you think Netflix to do something? And forgive me
Speaker 4: for just asking for you to be brief?
Speaker 6: Yeah, I know this is a little bit of a
Speaker 6: head scratcher, So I really don't think this is a
Speaker 6: make or break for them, Carol. Yes, it would be
Speaker 6: nice to have. Do they absolutely need it? No, not
Speaker 6: at all. So again there's a lot they can do
Speaker 6: with it, especially the studio a lot and all of
Speaker 6: the IP. But again I don't think it's do ordi.
Speaker 4: As always looking forward to reading your research that comes
Speaker 4: on the term a little bit later today and into tomorrow.
Speaker 3: Gets to ringingough On. Thank you so much.
Speaker 4: Bloomberg Intelligence senior media analyst with the breakdown and what
Speaker 4: you need to know about Netflix stock down about five
Speaker 4: point six percent in the aftermarket.
Speaker 1: Stay with us more from Bloomberg Business Week Daily coming
Speaker 1: up after this.
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
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Speaker 1: President Trump's administration is involved in talks for a US
Speaker 1: company to access one of the world's largest untapped deposits
Speaker 1: of tungsten. This is a metal used by the Pentagon
Speaker 1: to make ammunition, projectiles and other weapon Read this crossing
Speaker 1: the Bloomberg terminal just a little earlier today. Yeah, it's
Speaker 1: really interesting, right.
Speaker 4: We continue to see that Rare Earth's share space move
Speaker 4: as a result of these headlines coming out from the
Speaker 4: White House. Keep in mind, as to mention the news yesterday,
Speaker 4: President Trump signing that landmark pack with visiting Australian Prime
Speaker 4: Minister Anthony Albanize to boost America's access to Rare Earth's
Speaker 4: and other critical minerals.
Speaker 3: It's an effort to.
Speaker 4: Counter China's type grip on the supply chains of key metals. Now,
Speaker 4: the two governments will jointly invested in a swath of
Speaker 4: minds and processing projects in Australia to boost production of
Speaker 4: commodities used in advance technologies, everything from electric vehicles to
Speaker 4: setmicconductors and fighter plants.
Speaker 3: It goes into a lot of stuff toom.
Speaker 7: In a story on the Bloomberg.
Speaker 1: Our next guest says, quote, this is the most significant
Speaker 1: bilateral minerals minerals cooperation we have seen between two major
Speaker 1: Western countries. Here to explain why is Graceland Basker, and
Speaker 1: she's director of the Critical Minerals Security Program at the
Speaker 1: Center for Strategic and International Study. She joins us from
Speaker 1: the Washington, DC Bureau of Bloomberg News. Graceland, welcome back
Speaker 1: to Bloomberg Business Week Daily. It's always great to have
Speaker 1: you on the program. I do want to start with
Speaker 1: the bilateral minerals cooperation that we are seeing between the
Speaker 1: United States and Australia. Why is all of this happening
Speaker 1: right now?
Speaker 8: It's so great to be back.
Speaker 9: You know, this is a really big deal, and it's
Speaker 9: a big deal because this is mineral cooperation that's going
Speaker 9: not just from conversation and we've been doing years of
Speaker 9: talking about minerals to actually putting the resources in to
Speaker 9: develop really strategic projects. I mean, we've agreed to commit
Speaker 9: one billion dollars each to be deployed within six months
Speaker 9: on strategic projects. And this could be Alcoa's landmark gallium refinery.
Speaker 8: Keep in mind, China has cut us off of.
Speaker 9: Gallium, really crucial material for semiconductors, and this gallium refinery
Speaker 9: is going to produce one hundred tons a year in
Speaker 9: Western Australia. That may not sound like a lot, but
Speaker 9: remember the US only uses about twenty tons of gallium
Speaker 9: a year, so it's actually really significant to Australia announcing
Speaker 9: equity in a rare earth project there.
Speaker 8: But what we've also.
Speaker 9: Seen is the first time that these countries are making
Speaker 9: a concerted effort to counter China. So you may have
Speaker 9: seen that both countries have committed to preventing Chinese acquisitions
Speaker 9: of new projects, both within their own countries but also
Speaker 9: using diplomatic instruments. In other countries, we've seen a commitment
Speaker 9: to using price price support. So really, when you take
Speaker 9: the summation of all of these different efforts, we're really
Speaker 9: seeing rubber hit the road with a country that has
Speaker 9: enormous geological potential. We're talking about forty minerals that the
Speaker 9: US identified as critical. Incredible financial market gets in deep
Speaker 9: technical expertise.
Speaker 4: Is this all bottom line about putting kind of a
Speaker 4: hold on China?
Speaker 9: This is about countering China from a supply and a
Speaker 9: demand perspective. You know, let's be totally honest. This year
Speaker 9: was a wake up call for the whole world. Until now,
Speaker 9: a lot of the export restrictions on critical minerals were
Speaker 9: really targeted at US here in the United States, but
Speaker 9: the multiple rounds of restrictions this year actually hit companies
Speaker 9: around the world. Like these recent rare earth export restrictions,
Speaker 9: Australia is still on the other end of them. So
Speaker 9: what we're really doing is we're uniting with our allies
Speaker 9: and again Australia being the one country that has fought
Speaker 9: beside US in every war since nineteen eighteen, right to say, okay,
Speaker 9: if we work together, we can actually start to counter
Speaker 9: China in a meaningful way.
Speaker 3: Very then significant.
Speaker 4: Again, it feels like we have gone through a bunch
Speaker 4: of months where the US is like, we don't need you,
Speaker 4: We're going to do it alone. We're going to build
Speaker 4: up stuff, supply chain, so and so forth. At least
Speaker 4: this is coming from the administration to do stuff here
Speaker 4: in the United States. This feels like it's very significant
Speaker 4: the US saying wait, we actually need to have global
Speaker 4: partners on this.
Speaker 3: And this is kind of a big message.
Speaker 4: Again I'm going to point out to China and really
Speaker 4: the world at large.
Speaker 9: And this is a really important message because I want
Speaker 9: you to understand the historical relationship of Australian mining. Historically,
Speaker 9: Australian minerals have gone to China for processing, so it's
Speaker 9: a highly vertically integrated industry between these two countries. So
Speaker 9: this was a pretty big disruption. You know, if we
Speaker 9: roll out restrictions on China, no one really bat's an eye,
Speaker 9: But for Australia where those minerals go to China, this
Speaker 9: is a really important realignment with US in breaking from
Speaker 9: what has been their historical trade relationship as it relates
Speaker 9: to the mining industry.
Speaker 1: So I guess the question that we have is about
Speaker 1: the US companies that are a part of this, and
Speaker 1: we've spoken to quite a few of these. We spoke
Speaker 1: to US Antimony yesterday, Gary Evans over there a critical mineral,
Speaker 1: not a rare earth per se, but in the same space,
Speaker 1: and with the idea that they're getting a government contract,
Speaker 1: not investment from the government, but a government contract to
Speaker 1: actually buy antimony for Defense Department purposes. But I'm curious
Speaker 1: about US company's role and if there is such an
Speaker 1: opportunity for many different US companies right now to take
Speaker 1: advantage of this. And look, we have an investing audience.
Speaker 1: They want to know which are the companies that are
Speaker 1: best positioned right now to be in a place where
Speaker 1: they can be the ones that benefit from this increased
Speaker 1: need for critical minerals.
Speaker 9: So one of the big parts of this a new
Speaker 9: Framework agreement is that they will we will strategically together
Speaker 9: identify priority projects and companies.
Speaker 8: One of the early leaders here is Alcoa.
Speaker 9: Again, Alcoa is a Philadelphia based company who is now
Speaker 9: building this galleon refinery through support from the Department of War,
Speaker 9: and it was announced by the US and Australian governments yesterday. Again,
Speaker 9: I want to take you back to the fact that
Speaker 9: gallium is a no brainer of a priority for both
Speaker 9: sides because it was a commodity that China cut us
Speaker 9: off from earlier this year.
Speaker 8: So really, when we.
Speaker 9: Start to look at what are the winners going to be,
Speaker 9: I mean rare eerth Obviously we're going to see linus
Speaker 9: being really important. But broadly speaking, for some of these
Speaker 9: minor medals, which antimony is one of them, we've seen
Speaker 9: tungsten emerge in the news quite recently. These minor medals
Speaker 9: are going to be the ones where we're highly vulnerable
Speaker 9: and where we do not always have the geology to
Speaker 9: make it work and where Australia often does.
Speaker 7: We both have questions, but Carole, you go first.
Speaker 4: Well I want to go back forgive me for abouts
Speaker 4: round because it's just sometimes you know, the brain is
Speaker 4: a little slow and things settle in. But Grace, what
Speaker 4: I want to ask you is going back to, as
Speaker 4: you said, a big deal for Australia to do this
Speaker 4: because they have been so interested with China when it
Speaker 4: comes to Australia exporting large quantities of raw minerals and
Speaker 4: then China processing. I mean, this has been a very
Speaker 4: important trading relationship and so we know US and China
Speaker 4: has been antagonistic for a while. But to have them
Speaker 4: do that, that's really significant.
Speaker 8: It's extremely significant.
Speaker 9: But you've been seeing that growing tension for but probably
Speaker 9: the last seven years. Remember that Australia was the first
Speaker 9: country to theban howwey back into twenty eighteen. They also
Speaker 9: passed legislation to prevent foreign interference in their higher education sector.
Speaker 9: More recently, there was a one point twenty five billion
Speaker 9: dollar Australian loan that was given to build the Iluca
Speaker 9: refinery for Rare Earth. One of the t's and s's
Speaker 9: of that was that off take had to go to
Speaker 9: allied countries. But now what this really does now I mean,
Speaker 9: is it starts to potentially re architecture supply chains in
Speaker 9: a meaningful way. Australia, for example, is the biggest lithium
Speaker 9: producer in the world. They produce about close to sixty
Speaker 9: percent over world's lithium. Over ninety percent of that actually
Speaker 9: goes to China for refining. If that didn't happen, China
Speaker 9: would lose its grip on lithium ion batteries.
Speaker 8: So what this deal really.
Speaker 9: Stands to do is re architecture supply chains, not just
Speaker 9: from mind but down to the manufactured good.
Speaker 1: So if we think about this in the context of
Speaker 1: the leverage that China could still have even after the
Speaker 1: US makes deals such as this and deals with allies,
Speaker 1: where's that leverage.
Speaker 9: The leverage is still there in the short term with
Speaker 9: rare earths, for sure, no doubt, right although Australian Australia's
Speaker 9: Linus was the first company to separate heavy rare erths
Speaker 9: earlier this year outside of China, But it's going to
Speaker 9: go beyond that. There was a line in this framework
Speaker 9: agreement that actually said that the US and Australia will
Speaker 9: work with other international partners on price support mechanisms. So
Speaker 9: this conversation is likely to extend beyond these two countries
Speaker 9: to the G seven in later this year, to think
Speaker 9: about how do we scale these partnerships up even more so, Really,
Speaker 9: what we're starting to see is an economy of scale
Speaker 9: that we're creating for the minerals and the processing capabilities.
Speaker 9: I mentioned that i'll COED deal earlier, that our COED
Speaker 9: deal is also getting Japanese financing.
Speaker 8: It's actually a tripartheid effort.
Speaker 9: So an example of how this bilateral is going to
Speaker 9: set the stage for what's probably going to be a
Speaker 9: much bigger play of countries to counter China.
Speaker 4: How do we figure out, you know, especially as we
Speaker 4: see investors, you know, pushing up shares on all of
Speaker 4: these stories about the relationships, the investments by the US
Speaker 4: government and various critical mineral companies, how do we figure
Speaker 4: out which is investor speculation, you know, kind of chasing
Speaker 4: a trade. Do you think it's misplaced or is it
Speaker 4: a bit irrationally exuberant, or you think these investments, these relationships,
Speaker 4: this is the build out. It's happening, and with good
Speaker 4: reason because the demand's going to be there.
Speaker 9: The broader build out of the sector when it comes
Speaker 9: to mining being much more strategic, is absolutely here to stay.
Speaker 9: And it's here to stay for a couple of reasons.
Speaker 9: One of them is we are diversifying away from China, right.
Speaker 9: But the second thing we have to remember is that
Speaker 9: certain of these commodities, I need a lot more in
Speaker 9: objective terms, I need a lot more copper to electrify,
Speaker 9: to build data centers, to build defense technologies.
Speaker 8: So it's also the growing demand.
Speaker 9: So I'd say the larger macro trend in prioritization is
Speaker 9: here to stay. And again remember that the US Australia relationship,
Speaker 9: it's a continuation.
Speaker 8: It was being built under the Biden administration as well.
Speaker 8: But what you know.
Speaker 9: The other thing though, is you know there are going
Speaker 9: to be fads that come and go when it come
Speaker 9: to specific minerals. There's no doubt, right some things are
Speaker 9: going to you know, hit media attention. Certain deals are
Speaker 9: going to hit media attention and they're going to fall away.
Speaker 9: Not everything that this government is looking at is going
Speaker 9: to succeed, but what we are hoping is that the
Speaker 9: right number of them succeed to create a more resilient
Speaker 9: fly chain. But there are a lot of coming and goings.
Speaker 1: Yeah, certainly the relationship with Australia is on our radar
Speaker 1: right now given the visit of the Prime Minister. But
Speaker 1: I'm wondering what other countries the US could ally with
Speaker 1: that would be able to offer some sort of countermeasure
Speaker 1: to China and its capabilities.
Speaker 9: So countries that like I'm looking at with interest in
Speaker 9: South Korea, particularly because of their midstream and downstream capabilities.
Speaker 8: I'm looking at the UK.
Speaker 9: There have been you know, there's been some interesting acquisitions
Speaker 9: there least come metals by USA rare earth that's an
Speaker 9: interesting one.
Speaker 8: The EU again, it's an interesting jurisdiction.
Speaker 9: There's some there's some minerals, I mean things like Solvey
Speaker 9: for their permanent magnets in France, and interesting one again
Speaker 9: with some conversations happening with the US as well. So
Speaker 9: there's certain pockets of interesting transactions happening from a global north,
Speaker 9: obviously from the global south. Brazil is still a very
Speaker 9: interesting jurisdiction to US because they have the heavy rare
Speaker 9: earths that can come back and be separate rated here
Speaker 9: in the United States.
Speaker 3: Everything we need to know, Thank you. Thank you.
Speaker 4: Doctor gracelnd Basker and director of the Critical Mineral Security
Speaker 4: Program at the Center for Strategic and International Studies.
Speaker 7: Stay with us.
Speaker 1: More from Bloomberg Business Week Daily coming up after this.
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Speaker 4: We wanted to talk about what is going on between
Speaker 4: the US and Argentina. We did mention that Argentina's pay
Speaker 4: so we can do our fresh record and bonds gave
Speaker 4: back most of their gains. As US Treasury Secretary Scott
Speaker 4: Passen's lead US boost to the nation proof short lived.
Speaker 4: The US Treasury signed an economic stabilization agreement with the
Speaker 4: Central Bank of Argentina, again coming from the Treasury Secretary
Speaker 4: Scott Best so he put that post out on x him.
Speaker 1: The Secretary characterized the Treasury's twenty billion dollar swap line
Speaker 1: with the crisis pro nation central Bank is a quote
Speaker 1: economic stabilization deal.
Speaker 7: He said.
Speaker 1: The agreement is quote a bridge to a better economic
Speaker 1: future for Argentina, not a bell out.
Speaker 7: We have a lot of.
Speaker 1: Questions, Carol, and one voice we wanted to get on
Speaker 1: the program today.
Speaker 4: He has no idea, but we were like, no, we're
Speaker 4: going to talk to Eric. We need to talk to Eric.
Speaker 4: Eric Shasker is who we are talking about. He's Bloomberg
Speaker 4: New Economy editorial director. He's covered numerous global financial market
Speaker 4: cycles and crises. He's interviewed various Latin American leaders, including
Speaker 4: Venezuela and President Maduro former Argentinian President Mauricio Macrie.
Speaker 3: Hopefully I'm saying it correctly. I probably am not.
Speaker 4: He also had the September cover story on Secretary Bessett
Speaker 4: form Bloomberg BusinessWeek.
Speaker 3: You are the voice we wanted to talk to. Thank
Speaker 3: you wow for me.
Speaker 4: No, I speak the truth. We speak the truth. Why
Speaker 4: is this happening now? And why Argentina? Why does the
Speaker 4: US want to do this?
Speaker 5: Well?
Speaker 10: Good, So there's I think we can unpack this in
Speaker 10: three ways. One is why is.
Speaker 5: The US doing this?
Speaker 10: The second is what exactly have we got here? And
Speaker 10: the third would be how.
Speaker 7: Might it all end?
Speaker 5: Perhaps in tears? I'll take on the why.
Speaker 10: And this actually goes back to that story you mentioned
Speaker 10: that I did about Scott Besson, the Treasury Secretary, for
Speaker 10: Bloomberg Business Week in September.
Speaker 5: I spoke to the Treasury Secretary.
Speaker 10: Back in late July, and at the time he told
Speaker 10: me that one of his overarching goals in office as
Speaker 10: the Secretary of the Treasury was to quote unquote lock
Speaker 10: in dollar supremacy. And I asked him, well, how do
Speaker 10: you do that? And he said, and I didn't appreciate
Speaker 10: the significance of it at the time, was by facilitating
Speaker 10: swaps through the Treasury Department, as opposed to the way
Speaker 10: that swaps have traditionally been facilitated, which is by the
Speaker 10: FED from central bank to central bank. Now there is
Speaker 10: precedent for this. The Treasury Department did that from Mexico
Speaker 10: back in the mid nineties during the Peso crisis, and
Speaker 10: it helped, and maybe it'll help Argentina. But it appears
Speaker 10: that under the Trump administration, the government's focus is on
Speaker 10: again cuts to the why. It's not just about locking
Speaker 10: in dollar supremacy. It's using the dollar as an economic
Speaker 10: tool to support countries with which the United States feel
Speaker 10: it has some kind of ideological kinship or some kind
Speaker 10: of trading relationship. It's not like Argentina has been one
Speaker 10: of America's major trading partners.
Speaker 5: It has not.
Speaker 10: The amount of bilateral trade that goes on between those
Speaker 10: two countries is a fraction of what it is with
Speaker 10: the United States in Mexico, or the United States and Canada,
Speaker 10: or even the United States and Europe.
Speaker 5: So in that respect, it's unusual. I think.
Speaker 10: If you think about it though, in terms of locking
Speaker 10: in dollar supremacy and using the dollar as an economic tool,
Speaker 10: a tool of geostrategy, if you will, it begins to
Speaker 10: make a little more sense.
Speaker 1: You said that there are three different l that we
Speaker 1: could talk about with this. One is how another one
Speaker 1: is how this could end.
Speaker 10: Well, let's talk about what is it that we're actually
Speaker 10: talking about, heo. You mentioned that the Treasure Secretary today
Speaker 10: talked about it as a bridge to a better economic
Speaker 10: future and not a bailout and not a bailout. But
Speaker 10: the operative word there is bridge because bridge means something
Speaker 10: from here to there. In other words, what's the there?
Speaker 10: This is a bridge until when?
Speaker 5: Right?
Speaker 10: Is it a bridge until after Argentina's Mitrum elections on
Speaker 10: the twenty sixth of this month, Sunday. Is it a
Speaker 10: Trump seems to suggest as much the other day when
Speaker 10: he said, well, you know, if Milay doesn't win, we'll
Speaker 10: get rid of the swap line. So that's one possibility.
Speaker 10: Is it a bridge until Argentina decides to abandon the
Speaker 10: peso peg, which starts an agger the Minister for Deregulation
Speaker 10: and State Transformation said was in the cards just last
Speaker 10: week when I interviewed him here in New York. Is
Speaker 10: it a is Is it a bridge until the twenty
Speaker 10: billion dollars runs out, which might happen because Argentina was
Speaker 10: burning through a billion and a half dollars worth of
Speaker 10: foreign currency reserves a week, a billion and a half
Speaker 10: a week before the swap line was put in place.
Speaker 10: Is it until Argentina's economy can eventually support an exchange
Speaker 10: rate at this level it certainly can't right now.
Speaker 5: Or maybe is.
Speaker 10: It a bridge until I don't know, President Trump just
Speaker 10: loses patience or President Malay does something to annoy him.
Speaker 5: It's a lot to be any of those.
Speaker 4: It's a lot of questions, it's a lot of like
Speaker 4: possible scenarios, you know. Bloomberg Report out yesterday that Jamie
Speaker 4: Diamond is visiting Argentina this week, kind of an unprecedented
Speaker 4: show of support for the government. Mean, at the same time,
Speaker 4: we've had I think it's the Wall Street Journal reporting
Speaker 4: that banks are having a hard time kind of getting
Speaker 4: around this without some kind of guarantees.
Speaker 10: Nobody knows. Nobody knows what Argentina is pledging as collateral.
Speaker 10: In fact, nobody has seen the agreement. To our knowledge,
Speaker 10: the banks themselves, which you're playing intermedia year roles here,
Speaker 10: don't know what Argentina has agreed to pledge. You know,
Speaker 10: so that the United States isn't just on the unlimited
Speaker 10: losing end of a bad trade, and that is possible here, right.
Speaker 10: The big difference between what's going on here and the
Speaker 10: comparison that everybody wants to make with the trade that
Speaker 10: broke the Bank of England that the Treasury Secretary was
Speaker 10: involved in when he worked for George Soros and Stan
Speaker 10: Druck and Miller back in the early nineteen nineties. The
Speaker 10: big difference here is that then the UK had nobody
Speaker 10: backstopping them. Now Argentina has the United States backstopping it.
Speaker 10: But as I say, nobody knows until when nobody knows
Speaker 10: if there are any mechanisms that have been put in
Speaker 10: place to make the US taxpayer, if you will, hole,
Speaker 10: should the Treasury Department sustain losses on this trade. I've
Speaker 10: heard that Argentina's uranium reserves may be involved, that some
Speaker 10: kind of preferential access to Argentine market might be involved.
Speaker 5: Who knows.
Speaker 10: It's just it's like it's like a ready aim fire,
Speaker 10: you know, or a fire you know, ready aim, in
Speaker 10: the sense that the swap line was put in place,
Speaker 10: and then it appears, since no document has surfaced yet,
Speaker 10: that all of the mechanics behind it are being taken
Speaker 10: care of after the fact.
Speaker 5: I don't know.
Speaker 10: But my point is that if anybody knows, he or
Speaker 10: she hasn't put in his hand to say, hey, I know.
Speaker 1: The Treasury Secretary, as you mentioned, described this as a
Speaker 1: bridge to a better economic future for Argentina.
Speaker 7: Not a bail out.
Speaker 1: Is the not a bailout part a fair way to
Speaker 1: describe it in your view? Is this not a bail out?
Speaker 10: I think a bailout is in the eye of the
Speaker 10: beholder in some respects. It's unquestionably a gift to President
Speaker 10: midlay ahead of these midterm elections. It isn't working for
Speaker 10: the time being, right, The paesel fresh weakened today to
Speaker 10: a fresh low, and Argentine bonds, which had gained earlier
Speaker 10: on the formal announcement of this agreement, have since given
Speaker 10: up those gains and I think are posting losses. So
Speaker 10: it would appear to be a gift in the sense
Speaker 10: that the PASO exchange rate or the PEG to the
Speaker 10: dollar is unsustainable. Milay doesn't want to allow the PAESO
Speaker 10: to float freely. He wants to maintain this peg so
Speaker 10: that Argentine inflation is under control, a critical, critical economic
Speaker 10: consideration going into the midterms. So even if Argentine I like,
Speaker 10: there's no question if the PAESO peg were to be
Speaker 10: abandoned today, it's not like inflation would Inflation would show
Speaker 10: up immediately, but it wouldn't show up in official statistics.
Speaker 10: Excuse me for some time to come, But argentine'es are
Speaker 10: so conditioned to this they know what would happen.
Speaker 3: Again, I want to.
Speaker 4: Go back to you, and I know we've got a
Speaker 4: couple more minutes here, But Eric, the US involvement, and
Speaker 4: again it may be a relationship. President Trump wants to
Speaker 4: have with the President of Argentina, but I mean Bloomberg
Speaker 4: editors wrote an opinion piece why isn't the IMF coming
Speaker 4: in here? And the other question we as a group
Speaker 4: have been trying to figure out is it also to
Speaker 4: kind of keep China at bay?
Speaker 3: Is there that aspect as well?
Speaker 10: Argentina also has an existing eighteen billion dollar currency swap
Speaker 10: with China that goes back well before Sturtzenegger was the
Speaker 10: Central Bank governor. I think it may go back to
Speaker 10: twenty fifteen, and perhaps even before that. There has been
Speaker 10: some talk that one of the conditions behind, or at
Speaker 10: least one of the underlying conditions to this swap with
Speaker 10: the treasury would be that Argentina somehow winds up that
Speaker 10: previous swap agreement with the Chinese. Who knows as far
Speaker 10: as why the IMF isn't involved.
Speaker 5: I think the easy.
Speaker 10: Answer to that question is how many months would it
Speaker 10: take the IMF to get its act together? This was
Speaker 10: something that this was a perceived need on the part
Speaker 10: of the Argentine government the Malay government heading into these
Speaker 10: critical midterm elections that I'll repeat are just five days.
Speaker 3: Away Sunday, right right, Yeah.
Speaker 10: There's no way there's no conceivable way that the IMF
Speaker 10: in my mind, given everything that we've observed in our
Speaker 10: careers and everything we know, that precedes that there's no
Speaker 10: way that it could possibly acted without much haste.
Speaker 1: So before we let you go, how could this end?
Speaker 1: What could it mean for the US if it's a
Speaker 1: bad trade.
Speaker 10: Well, if it's a bad trade, it could I find
Speaker 10: it hard to believe that the United States would put
Speaker 10: itself in a position to ultimately lose money. But it
Speaker 10: may lose money on paper and have to recover that money,
Speaker 10: just like somebody who has been left holding the bag
Speaker 10: on a bad debt by liquidating some kind of Argentine
Speaker 10: assets or somehow you know, turning preferential access into Argentine
Speaker 10: assets or Argentine markets into value over time, that wouldn't
Speaker 10: look good. And again, it all depends on how long
Speaker 10: this bridge is. We have seen in the credit markets
Speaker 10: that you can paper things over for an awfully long
Speaker 10: time before either things reflate and you're able to cash
Speaker 10: out at par or you have to ultimately take some losses.
Speaker 10: So it's not like that's necessarily going to happen next week.
Speaker 10: It's not like it's necessarily going to happen next month,
Speaker 10: next quarter, even next year. But if Malay doesn't succeed,
Speaker 10: and if the Argentine economy doesn't continue to revive and
Speaker 10: inflation doesn't remain under control, it's hard to see how
Speaker 10: the speculative pressure against the peso won't continue. And we
Speaker 10: may even see, I don't know. We can only speculate
Speaker 10: here that twenty billion dollars may not end up being enough.
Speaker 4: All right, we just got schooled by Eric Shasker in
Speaker 4: a good way, in a good way.
Speaker 3: Thank you so much, Eric, sure so appreciate it. It's
Speaker 3: what we needed to know.
Speaker 4: Bloomberg New Economy Editorial Director Eric Shatsker.
Speaker 1: Stay with us more from Bloomberg Business Week Daily coming
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Speaker 3: A little bit higher, call it a little change on
Speaker 3: the S and P.
Speaker 4: Same story for the Nasdaq one hundred doubt that we've
Speaker 4: been talking about hitting a record today, up about half
Speaker 4: a percent, But.
Speaker 3: Does anybody really care? Why about the Dow.
Speaker 1: About the Dow, I think people today kind of care
Speaker 1: about gold and silver.
Speaker 3: Well, yeah, which is plunging.
Speaker 1: It'saw their steepest self in years. Investors locking in profits.
Speaker 1: I'm concerned that the recent historic rally and the precious
Speaker 1: metals had left them overvalued.
Speaker 4: Yeah, well you know they've had quite a run. So
Speaker 4: maybe you just like, is that it take some money
Speaker 4: off the I don't know. Lets see what our guest
Speaker 4: has to say.
Speaker 1: Andrew krist co cio of Crescent Grove Advisors. They've got
Speaker 1: about five billion dollars in assets under management. The company
Speaker 1: based in Milwaukee. He joins us here in our Bloomberg
Speaker 1: Interactive Broker studio. Welcome back, How are you here? I'm great,
Speaker 1: good to see you. I do want to start with
Speaker 1: the precious metals and the idea of like what Carol said.
Speaker 3: Does anybody really care?
Speaker 1: Well, you were talking about the down and not precious
Speaker 1: metals and said that that's right.
Speaker 10: I do.
Speaker 4: Are people just sorry, it's okay, it's Tuesday.
Speaker 7: On what Carol said?
Speaker 4: So is it just I think've had that to run,
Speaker 4: like why not take some profits?
Speaker 5: Like at this point, I think that's it.
Speaker 11: I mean, it's it's it went parabolic essentially, right, and
Speaker 11: you've seen incredible price move over the last several weeks even,
Speaker 11: so yeah, why not sort of unwine that momentum trade
Speaker 11: somewhat takes some chips off the table, but I think
Speaker 11: the bigger picture is still intact. This idea of the
Speaker 11: debasement trade, you know, concerned about deficits, concerned about us
Speaker 11: D assets, a rotation from you know, central banks around
Speaker 11: the world away from USD into gold.
Speaker 5: That all still holds true, no.
Speaker 3: Joke, right, Like it's happening, and it continues to happen.
Speaker 7: That's right.
Speaker 11: This looks way more like a technical kind of you know,
Speaker 11: just a little bit of a correction.
Speaker 1: But something weird happened yesterday and and that was that,
Speaker 1: and it's been happening. You have some of the haven's
Speaker 1: move higher, like gold, for example, but also risk assets
Speaker 1: move higher on the same day, like the S and
Speaker 1: P five hundred more than one percent yesterday.
Speaker 7: What gives?
Speaker 5: What gives?
Speaker 7: Yeah, that's weird.
Speaker 11: It is a little weird, But I think it's it's
Speaker 11: the marriage of the debasement trade, if you want to
Speaker 11: call it that, where you've got a scenario where you've
Speaker 11: got real concern about the sort of fiscal and monetary
Speaker 11: backdrop potentially debasing the US dollar, Right, so people then
Speaker 11: flood into gold as sort of a I guess a
Speaker 11: manifestation of that trade. But then along the same lines,
Speaker 11: if you've got sort of a reflationary element to fiscal
Speaker 11: policy monetary policy, you want assets that benefit from higher
Speaker 11: nominal growth, which effectively is telling you higher inflation alongside
Speaker 11: a reasonably good economy.
Speaker 5: Equities are going to stand to benefit from that as well.
Speaker 11: So I think there's a just a general flow into
Speaker 11: those asset classes that benefit from a more sort of
Speaker 11: reflationary or debasement type of trade.
Speaker 4: But this continues, like if, like what could change it? Like,
Speaker 4: I don't know, a new administration US getting its fiscal
Speaker 4: house in order, although I don't know, I feel like
Speaker 4: that ship has sailed or we've been talking about it
Speaker 4: for a long time, but it does feel like at
Speaker 4: some point we're going to have to get our house
Speaker 4: in better fiscal order.
Speaker 3: But like, what change is that?
Speaker 7: Yeah?
Speaker 11: I think the thing we would look at the reckoning
Speaker 11: comes when the ten year breaks loose.
Speaker 5: On the upside, if you get the.
Speaker 11: Bond vigilanteism kind of returning to the markets. But until then,
Speaker 11: I think if you've got a more dubvish FED and
Speaker 11: we'll see where you know, the next FED chairs is
Speaker 11: that comes to fruition next year, perhaps even more dubbish, right,
Speaker 11: I mean, I think you run the risk then of inflation,
Speaker 11: which sort of ties into all these themes on anchoring
Speaker 11: to the upside. Certainly stuck right now at around three
Speaker 11: percent on CPI. We'll see what it says on what
Speaker 11: the report comes out to be on Friday. But if
Speaker 11: we're stuck at that level, and then we're sort of
Speaker 11: putting stimulus into an economy that's reasonably healthy, right, you know,
Speaker 11: then yeah, you run the risk of retriggering inflation to
Speaker 11: the upside, and then you get again the bond vigilanteism,
Speaker 11: the term premium building back in in the ten year, pushing.
Speaker 5: Back towards five percent.
Speaker 11: Then you get the cascading effect like we saw in
Speaker 11: twenty two to almost higher bond yields, perhaps lower stocks,
Speaker 11: and then all this stuff sort of unwined alongside that.
Speaker 1: That's the big risk, beating a picture of something that's
Speaker 1: not so great.
Speaker 11: Yeah, I'm not saying that's going to happen because I
Speaker 11: think the base case for us is that the FED
Speaker 11: stays more dubbish. The FED is focused on growth at
Speaker 11: this point and the labor market as opposed to inflation,
Speaker 11: so and then it's going to take some time for
Speaker 11: inflation to take You think that's a mistake. We think
Speaker 11: that the labor market is healthier than the FED, and
Speaker 11: and a lot of people are giving it credit for it.
Speaker 11: We think it's more of a normalization phase than it
Speaker 11: is an outright fissure.
Speaker 7: You know, what data are you seeing that show that? Well?
Speaker 11: I think if you look at continuing claims, for instance,
Speaker 11: as a percentage of the labor force still you know,
Speaker 11: it's ticked up modestly, but it doesn't look overly concerning.
Speaker 11: If you look at job openings, it's come down significantly
Speaker 11: off the high, but it's still well above pre pandemic level.
Speaker 3: I'd like to look at continuing claims. So we haven't
Speaker 3: had data in a few weeks.
Speaker 11: Oh right, just saying the LEXT numbers we got on
Speaker 11: that looked reasonably good. But no, so you start to
Speaker 11: paint a picture prime age, you know, labor force participation,
Speaker 11: prime age employment rate.
Speaker 5: Still in the mid threes.
Speaker 11: There's some reasonably good data points out there to suggest that,
Speaker 11: again what we're seeing is more of coming off the
Speaker 11: boil and normalization of these levels as opposed an outright
Speaker 11: sort of break in the labor market.
Speaker 3: What does it feel so lousy for so many.
Speaker 11: Well, I think there is a sort of K shaped
Speaker 11: economy element too, where you do have the higher end
Speaker 11: sort of consumer still spending in a really robust way
Speaker 11: and supporting retail sales, where I think you're seeing this
Speaker 11: sort of insidious level of inflation that continues to eat
Speaker 11: at the lower end of the consumer.
Speaker 7: Yeah, it's pretty wild.
Speaker 1: I mean, we every few months talk to people who
Speaker 1: are executives at private jet firms, and for the last
Speaker 1: couple of years, what they've said does is basically a.
Speaker 3: Definitely the higher end of the case.
Speaker 1: Yeah, but it's business has never been better. Yeah, And
Speaker 1: there was a new one now, like a new startup
Speaker 1: private jet firm anounced last week, got some private equity fund.
Speaker 1: I mean, there's like the people who are doing well
Speaker 1: are doing very very well.
Speaker 5: Yeah.
Speaker 11: I think that's that's continued to be the case. You know,
Speaker 11: we kind of saw that play itself out post COVID
Speaker 11: and has just become even more exacerbated I think over
Speaker 11: the last several quarters in years now, and I think
Speaker 11: that sort of continues unabated at this point. But that said,
Speaker 11: I mean, if you look at median wage growth, if
Speaker 11: you look at some other numbers that would suggest, you know,
Speaker 11: sort of just wage growth. More broadly, you're still seeing
Speaker 11: positive you know, real wages. So I think again this
Speaker 11: goes back to the idea of is the labor market
Speaker 11: fundamentally broken at this point?
Speaker 5: We would say no.
Speaker 11: So if that's the case, we've got a reasonably okay
Speaker 11: labor market. Let's just say, let's assume that for a second,
Speaker 11: the Fed's cutting they're adding stimulus to an economy that's okay,
Speaker 11: reasonably healthy, you know. That to us then suggests that
Speaker 11: nominal growth trends higher, inflation probably trends higher alongside that.
Speaker 11: So that's where all of a sudden you start to say,
Speaker 11: is the tenure appropriately priced at four percent? And that's
Speaker 11: where you get the concern that could play out over
Speaker 11: the next several quarters about bond yields sticking back up.
Speaker 4: I want to go back though, to the case shape
Speaker 4: for economy, and forgive me, I mentioned this before a
Speaker 4: sister of mine, like I shared like a podcast and
Speaker 4: it's this really rich guy I think he's ever in
Speaker 4: New York percent but it says like, I don't want
Speaker 4: to be this rich guy in a poor economy? Like
Speaker 4: what are the implications? We can talk about records on
Speaker 4: Wall Street, but what happened when there are a few
Speaker 4: rich folks in what is a more generally poor economy?
Speaker 3: That can't be good?
Speaker 11: I think there are a lot of political implications that
Speaker 11: come alongside that. Sort of populism comes to mind in
Speaker 11: the first and foremost and then at some point is
Speaker 11: there a day of reckoning as it relates to some
Speaker 11: sort of incredibly large policy fissure. I guess, just sort
Speaker 11: of the implications that would results as a function of
Speaker 11: a real populous wave of taking hold, even more so
Speaker 11: than we've seen thus far. But yeah, I mean, I
Speaker 11: think if you come out it from a market's perspective, though,
Speaker 11: as long as you're looking at these aggregate measures, right,
Speaker 11: as long as the high end is still spending and
Speaker 11: that's being baked into the aggregate and that's really driving
Speaker 11: growth in the economy, and we're thinking about deploying capital
Speaker 11: on behalf of clients in the most efficient fashion. From
Speaker 11: a risk adjusted perspective, then it still looks pretty attractive
Speaker 11: to put money to work in risk assets.
Speaker 5: In that environment.
Speaker 3: It's an interesting time, no doubt.
Speaker 4: Come back soon. Great to have you here normally in Milwaukee.
Speaker 4: Here in our Bloomberg Interactive Broker Studio Andrew Craih, He's
Speaker 4: co CIO of Cruscent Grove Advisors.
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