WEBVTT - Don’t Blame Market Turmoil On Machines: Salient’s Ben Hunt 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:33.120 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Let's 0:00:33.120 --> 0:00:35.880 find out what's real when it comes to markets. Ben 0:00:35.960 --> 0:00:39.040 Hunt is chief investment strategist for Salient. They are based 0:00:39.080 --> 0:00:43.640 in Houston, and he is also one of the bloggers 0:00:43.920 --> 0:00:48.240 for a website it's called the Epsilon Theory and you 0:00:48.280 --> 0:00:51.880 can follow them also on Twitter at Epsilon Theory. Ben Hunt, 0:00:51.920 --> 0:00:55.480 maybe just tell people why is it called epsilon theory. 0:00:56.280 --> 0:00:58.080 That's a great question. Tim, It's great to be here, 0:00:58.080 --> 0:01:00.760 by the way, Thanks you and Lisa for having so. 0:01:00.880 --> 0:01:06.000 It's called Epsilon theory after the standard formula that you 0:01:06.160 --> 0:01:08.880 learned about. Well, what goes into a portfolio? Right? We 0:01:08.920 --> 0:01:11.800 talked about a portfolio and its returns being a combination 0:01:11.800 --> 0:01:14.679 of alpha. Everybody knows what alpha is, right, That's that 0:01:15.200 --> 0:01:20.440 special sauce that you bring to to get better. It 0:01:20.520 --> 0:01:27.440 is to be honest, and the execution is a unicorn. 0:01:27.520 --> 0:01:30.280 That's that's that's well put, Lisa. And also everyone knows 0:01:30.280 --> 0:01:33.040 what beta is, which is, okay, I want to get 0:01:33.240 --> 0:01:35.080 the market. I want to get the returns of the 0:01:35.360 --> 0:01:37.480 world or the market gives to you. But if you 0:01:37.520 --> 0:01:39.920 if you look at that equation, right, and it's always 0:01:39.920 --> 0:01:42.560 set up as an equation in your textbooks and the like, 0:01:42.640 --> 0:01:44.800 which is a whole another thing. Yeah, yeah, well the 0:01:45.040 --> 0:01:50.160 equation is absolutely actually alpha plus beta plus this E 0:01:50.560 --> 0:01:55.520 term out there E for epsilon, which is E for error. Right, 0:01:55.600 --> 0:01:57.960 that that in all of econometrics, you've always got that 0:01:58.120 --> 0:02:01.040 error term that's sitting out there. And the point about 0:02:01.040 --> 0:02:05.600 epsilon theory is that, well, actually, let's unpack that error 0:02:05.680 --> 0:02:08.640 term a bit, because it's not just all randomness and 0:02:08.639 --> 0:02:14.880 and um what they call stochastic error in statistics. That's 0:02:14.919 --> 0:02:20.400 where market behavior lives. That's that's where game theory lives, 0:02:20.440 --> 0:02:24.120 that's where history lives, that's where market behavior lives, and 0:02:24.160 --> 0:02:28.200 there are patterns to that. It's not just random their patterns. 0:02:28.240 --> 0:02:32.960 There's a way to get real market information out of that. 0:02:33.280 --> 0:02:35.440 So that's what I'm trying to explore all right. So 0:02:35.520 --> 0:02:41.239 that's a great place to start with understanding market behavior. 0:02:41.639 --> 0:02:44.280 In the past few weeks, a lot of people say 0:02:44.320 --> 0:02:46.960 that it was the market behavior of computers, and that 0:02:47.000 --> 0:02:49.200 they took over everything and created a big mass, and 0:02:49.200 --> 0:02:52.119 then humans were left to try to darn these darn machines. 0:02:52.240 --> 0:02:55.040 Why were they? Why were they so complicated? H and 0:02:55.160 --> 0:02:58.919 other people were saying, well, people were just nervous, and uh, 0:02:59.040 --> 0:03:01.200 stocks are a good And then we had a ton 0:03:01.400 --> 0:03:04.520 of investment managers come on and we would ask them, 0:03:04.960 --> 0:03:06.560 all right, so are you buying and they said, well, 0:03:06.600 --> 0:03:11.000 not yet. What was The fundamentals are sound? Correct, correct, 0:03:11.240 --> 0:03:14.560 the fundamentals are sound? Are you buying? Not so much? 0:03:14.600 --> 0:03:17.399 Exactly every single one? So what's going on here? Well, 0:03:17.520 --> 0:03:19.920 I'll say this first, a couple of points to quit. First, 0:03:20.200 --> 0:03:23.880 it ain't the machines, right, it really isn't. And I 0:03:23.960 --> 0:03:28.760 say that from a perspective of well, it's only we 0:03:28.800 --> 0:03:31.079 managed about thirteen billion, right, so you know, not a 0:03:31.160 --> 0:03:33.240 huge fish. But we know what we're doing and we've 0:03:33.240 --> 0:03:35.480 got a wide range of strategies. A chunk of those 0:03:35.480 --> 0:03:40.120 strategies are these systematic strategies, including the boogeyman du jour 0:03:40.480 --> 0:03:42.760 risk parity. Right. So we've been in this for a lot. 0:03:43.320 --> 0:03:46.760 I know I know right, right, and and what I 0:03:46.760 --> 0:03:51.840 think is important to tell everyone about risk parity. I'll 0:03:51.920 --> 0:03:56.000 use that as the example here. These strategies are barges. 0:03:56.560 --> 0:03:59.760 They're not speedboats, right, and they and they react, they 0:03:59.840 --> 0:04:03.320 do react, and they react to volatility, but it's historical 0:04:03.440 --> 0:04:06.520 volatility they look at. And so I will tell you 0:04:07.240 --> 0:04:09.560 from our strategy and they say, we're not one of 0:04:09.560 --> 0:04:12.280 the giants here like in a q R or a Bridgewater, 0:04:12.360 --> 0:04:16.000 but the bones of all of these strategies are very similar. 0:04:16.279 --> 0:04:18.880 So I know what we're doing. I'm highly confident that 0:04:18.960 --> 0:04:21.200 I've got a strong sense of what those other risk 0:04:21.240 --> 0:04:25.400 parity strategies are doing. We're not selling on a on 0:04:25.440 --> 0:04:28.720 a Monday when the markets declining. We don't even take 0:04:28.760 --> 0:04:31.360 the VIX, which is what most people think of when 0:04:31.360 --> 0:04:34.760 they think of volatility. That's a forward looking thing. We 0:04:34.800 --> 0:04:37.919 don't even use that. We don't even use that. These 0:04:37.960 --> 0:04:43.600 strategies are barges. And that ain't it. What is it? 0:04:43.680 --> 0:04:45.200 What is it? What is it? What was it? I'll 0:04:45.200 --> 0:04:46.760 tell you what I think what I what I think 0:04:46.760 --> 0:04:48.760 it is, because this is what we're wrestling with with 0:04:48.800 --> 0:04:54.279 our own strategies and and asset management. In my conversations, 0:04:54.320 --> 0:04:58.520 I think this is what everyone is wrestling with. How 0:04:58.800 --> 0:05:03.160 how do you invest best in a world where inflation 0:05:03.560 --> 0:05:06.880 isn't going down, but it's starting to go up? How 0:05:06.920 --> 0:05:10.880 do you invest our our portfolios off sides for a 0:05:10.960 --> 0:05:17.200 world where inflation is increasing, not decreasing. That's a big change. Look, 0:05:18.080 --> 0:05:21.200 you don't have to go back thirty years to really 0:05:21.200 --> 0:05:23.560 be in in an inflationary environment. And even if you 0:05:23.600 --> 0:05:26.560 were investing thirty years ago, and I certainly was, and 0:05:26.600 --> 0:05:28.720 I don't know a many people who were. Even if 0:05:28.760 --> 0:05:33.720 you were, those muscles they've atrophied a lot. So so 0:05:33.880 --> 0:05:40.000 I believe so strongly that every asset owner in the 0:05:40.000 --> 0:05:43.000 world is wrestling with these questions. And when you get 0:05:43.000 --> 0:05:46.279 an event like that kind of hot wage number we 0:05:46.360 --> 0:05:50.960 had on Friday, February of the two, those wheels start turning. 0:05:51.640 --> 0:05:54.520 You start thinking, well, am I off sides? Is my 0:05:54.600 --> 0:05:57.760 portfolio right here? And when you've got a market that 0:05:57.920 --> 0:06:01.760 has very low i'll call it volume to it, that 0:06:02.040 --> 0:06:06.000 it has really quite thin liquidity to it. It doesn't 0:06:06.040 --> 0:06:09.520 take a lot of people changing their minds about where 0:06:09.560 --> 0:06:13.360 their portfolio sits to have an outsized impact in the market. 0:06:14.880 --> 0:06:17.760 All Right, I'm gonna make you dig a little deeper. Good. 0:06:18.560 --> 0:06:23.840 What is coyote math? Alright, that's something I've written about recently, 0:06:24.080 --> 0:06:26.920 and it's I like to use these kind of examples 0:06:26.960 --> 0:06:30.560 from Yeah, I'm this dilettante farmer out in the wilds 0:06:30.600 --> 0:06:34.120 of Connecticut, right, So we have coyotes out there, and 0:06:34.240 --> 0:06:37.919 you are, well, I am, I am, and and the 0:06:39.160 --> 0:06:43.400 I admire the coyotes, right because they're smart, they're clever, 0:06:44.320 --> 0:06:47.279 they're they're much smarter than my dogs, for example, My my, 0:06:47.279 --> 0:06:50.960 my dogs don't even know they exist. But they're too 0:06:51.000 --> 0:06:54.400 clever by half. They're too clever by half. And what 0:06:54.480 --> 0:06:56.240 I mean by that it's the same thing with Wiley 0:06:56.320 --> 0:07:00.279 coyote from the Looney Tunes, always scheming and planning. And 0:07:00.440 --> 0:07:03.480 that's the case with with real world coyotes. But it's 0:07:03.560 --> 0:07:07.920 also true for the coyotes in our business, because this 0:07:08.040 --> 0:07:12.160 business of financial advice and financial management attracts people who 0:07:12.200 --> 0:07:15.640 are frankly too clever by half. All right, So real quick, 0:07:15.840 --> 0:07:21.360 thirty seconds, what has been your biggest allocation shift concept 0:07:21.440 --> 0:07:24.360 shift that you think investors should know based on the 0:07:24.480 --> 0:07:28.320 signs of nascent inflation. So what you have to distinguish 0:07:28.360 --> 0:07:33.240 between is inflation going up and interest rates going up. 0:07:33.280 --> 0:07:36.720 There are two different things. They follow each other, but 0:07:37.160 --> 0:07:41.840 that connection between inflation going up and interest rates going 0:07:41.920 --> 0:07:44.520 up is the thing that everyone needs to be focused on. 0:07:44.840 --> 0:07:47.320 And this is why, Lisa, to your question, people say, oh, 0:07:47.360 --> 0:07:51.320 the fundamentals are sound, but I'm not investing. It's because 0:07:51.400 --> 0:07:55.280 the fundamentals have not been a sufficient condition to invest 0:07:55.720 --> 0:07:58.440 for eight or nine years. Now. What you have to 0:07:58.520 --> 0:08:01.280 have is some notion of Okay, I like the fundamentals, 0:08:01.680 --> 0:08:03.920 but what are the central banks going to do? What 0:08:03.960 --> 0:08:07.240 are they going to do about interest rates? So we 0:08:07.280 --> 0:08:09.880 can talk about inflation going up, but it's thinking about 0:08:09.880 --> 0:08:12.680 interest rates as well. Ben Hunt, a pleasure having you on. 0:08:12.720 --> 0:08:14.280 Thank you so much. Thank You'll let you go back 0:08:14.280 --> 0:08:17.480 to your coyotes. Ben Hunt, chief investment strategist at Salient, 0:08:17.560 --> 0:08:21.600 which is based in Houston, Texas and overseeing about thirteen 0:08:21.680 --> 0:08:39.640 billion dollars of bassets. There has been so much focus 0:08:39.760 --> 0:08:43.839 in the past few weeks on Russian interference in US 0:08:43.880 --> 0:08:48.560 elections and UH their encroachments in the cyber world of 0:08:48.760 --> 0:08:52.240 the US, but there are many other states sponsored actors 0:08:52.240 --> 0:08:57.240 out there trying to infiltrate UH the technological ecosystem of 0:08:57.280 --> 0:08:58.719 the U S. And here to talk about that is 0:08:58.840 --> 0:09:02.800 John halt Quist, director of intelligence analysis for fire Eye 0:09:02.920 --> 0:09:06.160 based in Washington, d C. He joins US Now, John, 0:09:06.280 --> 0:09:08.400 thank you so much for being with US. I wanted 0:09:08.440 --> 0:09:13.080 to start with North Korea. Fire Eye has identified them 0:09:13.120 --> 0:09:17.800 as behind a very sophisticated state sponsored cyber attacker. Can 0:09:17.840 --> 0:09:20.480 you give us a sense of what that effort looks 0:09:20.559 --> 0:09:24.080 like and what they would or have or will target 0:09:24.200 --> 0:09:29.520 in the US. So, we released recently released a report 0:09:29.520 --> 0:09:32.720 on a group that we call APT thirty seven. They're 0:09:32.840 --> 0:09:37.520 a North Korean hacking group that's been primarily focused on 0:09:37.720 --> 0:09:42.120 South Korea carrying out espionage sort of a classic mission 0:09:42.240 --> 0:09:46.080 for quite a long time. But we've seen them since 0:09:46.240 --> 0:09:50.280 actually UH start developing missions outside of South Korea. They've 0:09:50.280 --> 0:09:53.800 shown up in Japan, Vietnam, in the Middle East. UH, 0:09:53.800 --> 0:09:56.160 and our concern is that this is another tool that 0:09:56.200 --> 0:10:01.040 could be used by the North Korean regime to project power. UM. 0:10:01.120 --> 0:10:03.760 They a lot of the activity that we hear about 0:10:03.920 --> 0:10:06.920 North three and hacking activity has actually been attributed to 0:10:07.000 --> 0:10:10.920 another group UH. This team has been able to remain 0:10:11.120 --> 0:10:16.319 relatively obscure, which makes them an ideal choice for attack 0:10:16.400 --> 0:10:19.560 operations or even crime because they're not as well known. 0:10:20.640 --> 0:10:23.080 What have they attacked so far that you've been able 0:10:23.120 --> 0:10:27.320 to trace? So most of their operations now appear to 0:10:27.360 --> 0:10:32.280 be uh focused on sort of classic intelligence operations, are 0:10:32.400 --> 0:10:38.280 classic intelligence collections, so uh things like defectors or sanctions 0:10:38.360 --> 0:10:43.040 or unification efforts. Even the Olympics have been have they've 0:10:43.160 --> 0:10:47.280 targeted individuals associated with the Olympics? Um, So they're right 0:10:47.320 --> 0:10:50.760 now doing a lot of the low and quiet activity, 0:10:51.200 --> 0:10:53.800 which is precisely the side type of activity we see 0:10:53.960 --> 0:10:59.840 most nascent capabilities first focus on. For instance, the other 0:11:00.000 --> 0:11:02.240 acting groups that have been that are out of North 0:11:02.280 --> 0:11:06.040 three that they are very well known, first appeared to 0:11:06.160 --> 0:11:11.920 US as espionage operations mostly focused in South Korea. So John, 0:11:12.080 --> 0:11:15.520 I know, perhaps it's premature to talk about whether North 0:11:15.600 --> 0:11:20.359 Korea will be able to infiltrate the US cyber ecosystem, 0:11:20.440 --> 0:11:24.520 but I'm wondering, from your perspective, what areas are the 0:11:24.559 --> 0:11:29.040 most vulnerable in the US. And uh do any of 0:11:29.040 --> 0:11:33.960 these sort of state sponsored actors work together? Do they? Uh? 0:11:34.000 --> 0:11:35.400 You know, do you have a sense of how many 0:11:35.480 --> 0:11:38.600 there are trying to infiltrate a system at any given time. 0:11:40.240 --> 0:11:44.360 So UH, as far as working together, we're always concerned 0:11:44.360 --> 0:11:48.560 that lessons are being passed between some of these countries 0:11:48.600 --> 0:11:52.400 that have longs like Russia, uh Iran and North three. 0:11:52.520 --> 0:11:56.880 They have long standing relationships in military and move military 0:11:57.559 --> 0:12:01.640 armaments and the training which sween them. We haven't necessarily 0:12:01.679 --> 0:12:05.880 seen that play out from our visibility. Um our biggest 0:12:05.880 --> 0:12:08.600 concern is that they're actually learning from each other though 0:12:08.640 --> 0:12:11.880 as far as their offensive actions go. So each time 0:12:11.960 --> 0:12:16.600 one of these actors carries out a major attack, a 0:12:16.679 --> 0:12:20.880 disruptive attack, or um more of an influenced type of 0:12:20.920 --> 0:12:24.280 attack that we saw during the elections, there each each 0:12:24.280 --> 0:12:26.240 one of them is sort of pushing the edge for 0:12:26.280 --> 0:12:29.120 the other and pushing the norms and the red lines 0:12:29.160 --> 0:12:32.440 that the other other actor feels now more comfortable operating within. 0:12:33.120 --> 0:12:35.720 So UH, in that in that regard, they are sort 0:12:35.760 --> 0:12:39.840 of learning from each other. Would you would you say 0:12:39.880 --> 0:12:44.480 that all heads of information technology or even the boards 0:12:44.600 --> 0:12:48.720 of major corporations need to ask themselves are you happy? 0:12:48.920 --> 0:12:51.840 And I use that term because that's what you describe 0:12:51.920 --> 0:12:54.320 something tell people about are you happy? And why they 0:12:54.400 --> 0:12:59.120 need to be particularly wary. So one of one of 0:12:59.120 --> 0:13:02.920 the concerns that we've had with any North Korean actor is, um, 0:13:03.000 --> 0:13:06.319 are they are they going to carry out some sort 0:13:06.360 --> 0:13:09.400 of disruptive and destructive attack And uh, that's one of 0:13:09.440 --> 0:13:12.400 the tools that we came across with regards to this actor. 0:13:12.480 --> 0:13:15.280 They do have a destructive tool that could be used 0:13:15.840 --> 0:13:20.080 in a wiper type attack. It's a fairly simplistic attack, 0:13:20.720 --> 0:13:25.800 um and that's the name of the tool, and uh, 0:13:26.160 --> 0:13:28.400 it's a fairly simplistic attack, but it can have a 0:13:28.520 --> 0:13:31.880 lot of pretty strong effect on a on an organization 0:13:31.960 --> 0:13:37.520 if they can wipe uh, you know, wipe important systems simultaneously. 0:13:37.960 --> 0:13:41.360 And that's happened on several occasions already. From a lot 0:13:41.440 --> 0:13:44.880 of that is the Russians, Russian actors that have done 0:13:44.920 --> 0:13:49.040 that quite recently with a with a ransomware attack and 0:13:49.280 --> 0:13:53.120 it actually caused billions of dollars and damages to the economy. 0:13:53.240 --> 0:13:56.640 So it's a very real concern. So John, just real 0:13:56.720 --> 0:14:01.280 quick here, which organization in the US is most vulnerable 0:14:01.280 --> 0:14:06.920 at this point? Well, it's because they because a lot 0:14:06.960 --> 0:14:12.400 of their it's of the incidents focus on critical infrastructure. Uh, 0:14:12.400 --> 0:14:16.760 there's record that that recognized that represents often the biggest opportunity. 0:14:17.600 --> 0:14:21.960 We anticipate that any sort of major disruptive or destructive 0:14:21.960 --> 0:14:24.440 attack would focus on an area like that, and there's 0:14:24.480 --> 0:14:28.400 been a lot of other incidents UM that have that 0:14:28.480 --> 0:14:31.400 have played out like that. Uh. It's important to also 0:14:31.440 --> 0:14:35.440 remember that critical infrastructure is not just utilities. I think 0:14:35.480 --> 0:14:37.960 there's a lot of people to often focus on utilities, 0:14:38.000 --> 0:14:43.880 but UM logistics and finance. UM. I want to thank 0:14:43.920 --> 0:14:47.880 you John hould Quist, director of Intelligence Analysis or fire 0:14:47.920 --> 0:15:09.640 Eyed talking about cyber attacks. Everybody wants it, but now 0:15:09.760 --> 0:15:12.560 Apple wants to get it even more directly. Jack Farchie 0:15:12.680 --> 0:15:15.840 is the senior Energy and Commodities reporter for Bloomberg is 0:15:15.880 --> 0:15:19.240 based in London. Jack tell us the story about Apple 0:15:19.440 --> 0:15:25.320 and why does it want its own direct supply of cobalt. Yes, 0:15:25.400 --> 0:15:28.360 we've had this amazing shift in the cobalt market really 0:15:28.360 --> 0:15:32.040 in a matter of a little over a year, where 0:15:32.080 --> 0:15:37.000 the change in expectations for electric vehicles. You've seen almost 0:15:37.000 --> 0:15:40.520 every major automaker come out with with forecasts for how 0:15:40.520 --> 0:15:42.240 many electric vehicles they're going to build in the next 0:15:42.280 --> 0:15:45.240 few years. Glen Core, who reported results today, had a 0:15:45.320 --> 0:15:46.760 nice little toss up. They said it's going to be 0:15:47.000 --> 0:15:49.920 there's a ninety billion dollars of investments announced by the 0:15:49.920 --> 0:15:52.880 auto industry in electric vehicles, and that's had a huge 0:15:52.920 --> 0:15:56.120 impact on the cobalt market because cobalt is an essential 0:15:56.120 --> 0:15:59.120 commodity in the in most lithium ion batteries which are 0:15:59.200 --> 0:16:03.200 used in electric vehicles, where cobalts also uses in licking 0:16:03.400 --> 0:16:07.880 iron batteries in gadgets like smartphones and tablets and laptops 0:16:08.400 --> 0:16:11.600 until now, in fact still now, Apple is probably one 0:16:11.680 --> 0:16:14.840 of the largest end users of cobalt in the world. 0:16:14.920 --> 0:16:18.360 Apple gadgets along with things companies like Samsung UH some 0:16:18.440 --> 0:16:22.240 of the largest users of cobalt um As these car 0:16:22.280 --> 0:16:25.760 companies are beginning to come out with huge forecasts for 0:16:26.040 --> 0:16:27.800 how many electric vehicles are going to build over the 0:16:27.840 --> 0:16:30.240 next five or ten years, they are going out into 0:16:30.240 --> 0:16:35.200 the market, people like VW BMW going into the market 0:16:35.280 --> 0:16:39.880 and seeking to sign big long term deals to buy 0:16:39.960 --> 0:16:41.840 up supplies of cobalt to ensure they're gonna have enough 0:16:41.840 --> 0:16:44.560 cobalt to build all the electric vehicles they want to 0:16:45.240 --> 0:16:48.880 UH and now we're seeing Apple doing the same thing, essentially, 0:16:48.880 --> 0:16:52.120 looking at what's happening in the in the car market 0:16:52.200 --> 0:16:56.160 and what some of the car companies are doing, and 0:16:56.360 --> 0:16:58.440 in our in our understanding, wanting to make sure that 0:16:58.480 --> 0:17:00.760 they are going to have enough cobalt to UH to 0:17:00.840 --> 0:17:03.720 build to carry on building iPhones and iPads into the future. 0:17:03.840 --> 0:17:07.639 All right, So who does Apple currently buy cobalt from? 0:17:07.720 --> 0:17:11.000 And basically who's going to be losing business as Apple 0:17:11.280 --> 0:17:13.760 cuts out the middleman and goes direct to the miners. 0:17:14.359 --> 0:17:16.640 It's not so much a question of Apple losing business 0:17:16.920 --> 0:17:19.879 at the moment. Apple would go and buy batteries from 0:17:19.920 --> 0:17:23.520 battery producers, who in turn are buying components of batteries 0:17:23.520 --> 0:17:25.240 from people who produced those who in turn are buying 0:17:25.280 --> 0:17:27.879 the WAW materials in a in a supply chain that 0:17:27.920 --> 0:17:30.040 goes down the chain. So at the end of the day, 0:17:30.080 --> 0:17:34.479 Apple is not gonna, we don't think, immediately start building 0:17:34.480 --> 0:17:37.119 batteries of itself. They're just it's it's a question of 0:17:37.160 --> 0:17:39.919 securing the supply of cobalt for their supply chain, for 0:17:39.960 --> 0:17:43.000 the companies in their supply chain. Now, a cobalt is 0:17:43.600 --> 0:17:47.520 a byproduct of mining for copper and nickel primarily, that's right, 0:17:48.040 --> 0:17:50.960 Where does it come from? Well, that's one of the 0:17:50.960 --> 0:17:55.399 main problems. The vast majority of it, about thirds uh, 0:17:55.560 --> 0:17:57.760 and that's a number that's set to grow, comes from 0:17:57.760 --> 0:18:01.320 the Democratic Republic of Congo, which is not the most 0:18:02.760 --> 0:18:05.040 Even if it were the most stable country in the world, 0:18:05.440 --> 0:18:08.480 that would be a pretty significant concentration risk for any 0:18:08.520 --> 0:18:13.560 commodity UM. But uh, Democratic Republic of Congo is not 0:18:13.600 --> 0:18:16.440 the most stable country in the world. They've just announced 0:18:16.440 --> 0:18:21.119 a big planned increase in taxes on on minors uh, 0:18:21.240 --> 0:18:23.919 and so that's a big concern. So I'm looking at 0:18:24.040 --> 0:18:29.160 cobalt prices and they have skyrocketed in the past few years. 0:18:29.240 --> 0:18:31.360 Wean just to give you a sense, from the end 0:18:31.440 --> 0:18:35.160 of twenty sixteen, they've more than doubled uh. And I'm 0:18:35.200 --> 0:18:39.040 just wondering it is the actual demand going to keep 0:18:39.119 --> 0:18:43.080 up with the perceived demand that is driving prices now? 0:18:43.119 --> 0:18:44.800 I mean, in other words, is applicant to lock in 0:18:45.080 --> 0:18:46.760 prices that are much higher than which you might be 0:18:46.800 --> 0:18:49.960 able to get later on. That's a very good question. 0:18:50.119 --> 0:18:53.160 I think from what we have heard about the discussions 0:18:53.160 --> 0:18:55.840 that are going on in the market, it's not so 0:18:55.920 --> 0:18:59.000 much a question of locking in prices as locking in supply. 0:18:59.480 --> 0:19:01.800 So probably believe the deals that have done. Not just 0:19:01.800 --> 0:19:04.720 talking about Apple here, but v W, BMW, the big 0:19:04.760 --> 0:19:07.280 car companies, some of the battery makers like Samsung, SDI 0:19:07.359 --> 0:19:10.639 are also saying that they're seeking long term cobalt deals. 0:19:10.800 --> 0:19:12.920 They're probably gonna have a floating price, so it will 0:19:12.960 --> 0:19:15.200 be whatever the market price is. It's more a question 0:19:15.240 --> 0:19:18.199 of of locking in supply. Whether the price stays at 0:19:18.240 --> 0:19:22.040 this very high level is another question. If the shortage 0:19:22.040 --> 0:19:24.240 that some people are looking at and fearing for the 0:19:24.280 --> 0:19:27.480 future does materialize, then you'd have to say that prices 0:19:27.480 --> 0:19:30.160 would go higher. But that's several years down the line. 0:19:30.240 --> 0:19:32.760 I'm surprised that they're not lacking in a price for 0:19:32.840 --> 0:19:35.480 a long term contract. It's very hard to lock in 0:19:35.520 --> 0:19:39.080 a price in in the cobalt market where it's going. 0:19:39.280 --> 0:19:43.919 It's gone through this kind of um real complete paradigm 0:19:43.960 --> 0:19:47.040 shift because of electric vehicles. So the price has tripled, 0:19:47.080 --> 0:19:49.960 as you said, in the past eighteen months. Who knows 0:19:50.000 --> 0:19:52.560 what the right price is? Yeah, it's it's very it's 0:19:52.640 --> 0:19:54.000 very hard to say, you know, you do you you take 0:19:54.040 --> 0:19:59.600 five different forecasts for what electric vehicle production UH and 0:20:00.160 --> 0:20:04.399 UH and and sales are going to be in UH, 0:20:04.400 --> 0:20:07.240 and they're wildly different. UH so who can tell you 0:20:07.280 --> 0:20:08.959 what the correct price for cobalt in five or ten 0:20:09.000 --> 0:20:11.119 years time. Nobody can. Jack Fartie, thank you so much 0:20:11.160 --> 0:20:14.119 for joining us. Jack Farchie, senior Energy and Commodities reporter 0:20:14.200 --> 0:20:17.960 for a Bloomberg News coming to us from our London bureau. 0:20:18.040 --> 0:20:21.360 You can find his story on the website Bloomberg dot 0:20:21.440 --> 0:20:37.960 com or the terminal itself. Yes, let's talk about housing. 0:20:38.160 --> 0:20:40.960 US existing home sales in the month of January falling 0:20:41.000 --> 0:20:42.919 a little bit more than three percent. Here to help 0:20:43.000 --> 0:20:45.600 us understand what's going on is Brad Hunter. He is 0:20:45.600 --> 0:20:49.000 the chief economist of Home Adviser. They're based in West 0:20:49.040 --> 0:20:52.480 Palm Beach, Florida. He can be followed on Twitter at 0:20:52.720 --> 0:20:57.360 Bradley Hunter. Alright, at Bradley Hunter. What what's your view 0:20:57.400 --> 0:21:00.359 of the of the housing market and this time that 0:21:00.440 --> 0:21:02.480 we saw on the run rate of about five point 0:21:02.520 --> 0:21:06.320 four million units morning, Pim. Well, Yeah, I think that 0:21:07.040 --> 0:21:10.480 clearly the housing number was lower than expected, and I 0:21:10.520 --> 0:21:13.320 think there are three different things that play. Number one 0:21:13.880 --> 0:21:17.360 is the inventory and that's what everybody's talking about right now, 0:21:17.400 --> 0:21:21.760 three point four months of supply of unsold inventory. And secondly, 0:21:22.240 --> 0:21:25.280 uh in January mortgage rates were starting to edge up, 0:21:25.320 --> 0:21:28.000 and of course they've gone up a lot more since then, 0:21:28.040 --> 0:21:29.920 and I think they will go up a lot more 0:21:30.080 --> 0:21:34.680 going forward. And the third factor is that prices were 0:21:34.760 --> 0:21:37.560 up also in this reading, and uh, I think that 0:21:37.640 --> 0:21:41.280 the rate of home price appreciation is going to slow. 0:21:42.280 --> 0:21:47.200 So Brad Home Advisor helps homeowners figure out how to 0:21:47.240 --> 0:21:51.119 renovate their homes in an effective manner. Correct. Yeah, we 0:21:51.200 --> 0:21:55.080 connect where the marketplace that connects homeowners with the pros 0:21:55.119 --> 0:21:58.200 that they need to get their projects done. So, just 0:21:58.280 --> 0:22:00.720 can you give me a sense of what you're seeing 0:22:00.800 --> 0:22:04.520 from that perspective and what it tells you about the 0:22:04.560 --> 0:22:07.200 sort of mental state of homeowners? In other words, are 0:22:07.200 --> 0:22:09.880 they looking to invest in their homes and expand them 0:22:09.920 --> 0:22:12.760 because they don't want to move out? Or are they 0:22:12.800 --> 0:22:15.760 investing in their homes in order to sell them at 0:22:15.760 --> 0:22:20.000 a higher price. Can you get a sense of that? Yeah? Sure, Well, uh, 0:22:20.280 --> 0:22:23.480 we just talked about the low inventory situation and it's 0:22:23.480 --> 0:22:26.800 actually part of a vicious cycle. Um. Low supply of 0:22:26.920 --> 0:22:31.560 homes for sale causes people to stay frustrated and I 0:22:32.280 --> 0:22:34.719 have trouble getting the home that they want, So some 0:22:34.800 --> 0:22:36.760 of them say, you know, I'm just gonna stay put 0:22:36.840 --> 0:22:39.960 and remodel the house that I have. A lot more 0:22:40.040 --> 0:22:42.879 people are looking to move because they are tired of 0:22:42.920 --> 0:22:45.280 their current home, according to research from n A are 0:22:45.760 --> 0:22:48.800 than people who are moving for a job that's in 0:22:48.800 --> 0:22:51.840 a different area or what have you. So that further 0:22:52.119 --> 0:22:55.639 reduces inventory because people stay put and then the cycle 0:22:55.800 --> 0:22:59.159 just lather, rense, repeat, right. Um. The other thing that 0:22:59.200 --> 0:23:04.000 I'm noticing is trend I'm calling nesting is investing. There's 0:23:04.040 --> 0:23:06.560 all this stock market volatility, and I think it's going 0:23:06.640 --> 0:23:10.159 to drive some people to say, you know what, instead 0:23:10.200 --> 0:23:13.280 of staying fully invested in the stock market, up all 0:23:13.400 --> 0:23:15.399 some of my chips off the table, and maybe go 0:23:15.480 --> 0:23:19.320 ahead and reinvest in my home and you know, expand 0:23:19.560 --> 0:23:22.879 or improve the property. And you know, that's a pretty 0:23:22.880 --> 0:23:27.520 safe investment in terms of any risk. On the downside, Brad, 0:23:27.600 --> 0:23:31.440 you note that the size of home improvement or renovation 0:23:31.520 --> 0:23:35.920 projects is increasing. Expand on that, sure, we're seeing more 0:23:36.080 --> 0:23:40.240 what we call major renovation projects. Our year end survey 0:23:40.280 --> 0:23:44.680 actually showed that most home improvement companies and professionals saw 0:23:44.720 --> 0:23:47.720 an increase in the size of their average job, whereas 0:23:47.760 --> 0:23:50.280 only five point eight percent reported a decrease in the 0:23:50.280 --> 0:23:52.639 average size of the job. So people are taking on 0:23:52.800 --> 0:23:57.600 projects that they had deferred years ago. Now that the 0:23:57.640 --> 0:24:00.640 economy is stronger, and more importantly, either equity in their 0:24:00.640 --> 0:24:04.399 home is much higher. They're saying, Okay, you know what, 0:24:04.600 --> 0:24:07.040 it's time to do that kitchen update that I've been 0:24:07.080 --> 0:24:10.560 wanting to do, Or it's time to turn that basement 0:24:10.600 --> 0:24:13.760 into a man cave or into a rental unit, or 0:24:14.000 --> 0:24:16.439 redo the garage or the tile or whatever it is 0:24:16.480 --> 0:24:21.040 that they've been wanting. So they're taking on more discretionary projects, 0:24:21.040 --> 0:24:25.240 more of what I called lifestyle projects. I'm wondering bread 0:24:25.520 --> 0:24:29.399 which parts of the country are seeing the fastest rates 0:24:29.600 --> 0:24:34.359 of spending on home improvement. For the past few years, 0:24:34.720 --> 0:24:38.920 it was the markets that we're seeing the greatest increases 0:24:39.240 --> 0:24:45.840 in home prices and therefore homeowner equity, So San Francisco, 0:24:46.520 --> 0:24:52.200 San Diego, New York, Miami, Seattle, Portland's and now it's 0:24:52.240 --> 0:24:55.960 starting to shift. Those markets are starting to um kind 0:24:56.000 --> 0:24:59.359