WEBVTT - Fed Warnings on Asset Prices Could Sour Market, Maley Says 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 Bramowitz. 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 --> 0:00:32.560 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Tomorrow, 0:00:33.200 --> 0:00:36.480 Jenny Ellen, the Federal Reserve Chair, is going to be 0:00:36.479 --> 0:00:40.200 beginning her testimony in front of Congress. Uh, and this 0:00:40.360 --> 0:00:43.800 is going to be somewhat more important than it has 0:00:43.840 --> 0:00:46.120 potentially in the past. I want to bring in Matt Malee, 0:00:46.320 --> 0:00:51.479 managing director and equity strategist at Miller ta Back and Company. Uh. Matt, 0:00:51.920 --> 0:00:53.440 you know, I want to talk a little bit about 0:00:53.560 --> 0:00:56.240 something that you pointed out in a recent recent note 0:00:56.280 --> 0:00:59.840 where you said that aside from just balance sheet considerations 0:01:00.160 --> 0:01:03.760 and when the Fed may raise rates next, one of 0:01:03.760 --> 0:01:07.119 the most important things that Chair Yelling could talk about 0:01:07.319 --> 0:01:09.280 is asset prices. Can you give us a little bit 0:01:09.280 --> 0:01:11.679 of color around that. Well, you know, she came out 0:01:12.880 --> 0:01:15.679 and you know, said talked about stretch valuations, and that 0:01:15.800 --> 0:01:18.800 took people a little bit back. I'm saying, well, jeez, 0:01:18.880 --> 0:01:21.399 if she's worried about it, should we be worried about it? 0:01:21.480 --> 0:01:24.800 And uh and and usually when when things are misinterpreted 0:01:24.840 --> 0:01:27.880 by by the public or by the uh financial press 0:01:27.920 --> 0:01:31.320 with them or the markets. Uh, they quickly marched somebody 0:01:31.319 --> 0:01:32.520 out from the FED to say, oh, no, no no, no, 0:01:32.600 --> 0:01:34.760 she didn't mean to say that. Well, she said the 0:01:34.800 --> 0:01:37.440 exact opposite happened. She had some more people came up 0:01:37.480 --> 0:01:40.160 from the FED, including vice the vice chair saying that, 0:01:40.600 --> 0:01:42.560 you know, kind of reiterating what she was saying. So 0:01:42.920 --> 0:01:44.840 the reason why I worry about that a little bit 0:01:44.880 --> 0:01:46.920 is that, you know, people have felt that the FED 0:01:47.000 --> 0:01:49.120 has had their backs for quite some time now, and 0:01:49.160 --> 0:01:51.560 I'm not saying that that you know, it is suddenly 0:01:51.600 --> 0:01:53.120 going to be you know, they're they're looking to the 0:01:53.160 --> 0:01:55.320 stock market to go down in this to give it way. 0:01:55.640 --> 0:01:57.440 But people have a lot of leverages we see in 0:01:57.480 --> 0:02:01.600 the margin debt numbers, and if uh, people start to say, Jesus, 0:02:01.600 --> 0:02:03.560 the said doesn't have our back to the same degree, 0:02:03.600 --> 0:02:05.360 maybe I've got to unwind some of that leverage. So 0:02:06.400 --> 0:02:09.920 it brings into a back up for one second. So 0:02:10.000 --> 0:02:12.399 you're saying, if the FED doesn't have our back. Why 0:02:12.440 --> 0:02:15.760 does that relate to them saying, yeah, well things look 0:02:15.760 --> 0:02:18.640 a little stretched, because you know, in fairness, things do 0:02:18.720 --> 0:02:23.520 look a little stretched. Yes, but it's it's it's for 0:02:23.520 --> 0:02:26.239 for some of these leverage players and and momentum players. 0:02:26.280 --> 0:02:28.600 And we all know it was interesting Barons this weekend 0:02:28.639 --> 0:02:30.840 had this uh you know, the cover story was about, 0:02:31.000 --> 0:02:32.600 you know, the machine trading and a lot of that 0:02:32.680 --> 0:02:35.639 is very much momentum based. And if that momentum is 0:02:35.639 --> 0:02:37.560 going to slow down a little bit, uh, it might 0:02:37.720 --> 0:02:39.880 cause the market roll over. No, that's not the worst 0:02:39.880 --> 0:02:42.359 thing in the world. I mean, you know, it's funny 0:02:42.360 --> 0:02:45.320 when we talk about seven to ten percent pullbacks um 0:02:45.480 --> 0:02:46.880 and they was like, well, jeez, I don't know will 0:02:46.880 --> 0:02:49.320 be that bad. Well, jeez, we've had one of those 0:02:49.360 --> 0:02:52.200 every single year since. So it wouldn't be the worst 0:02:52.240 --> 0:02:55.320 thing in the world at all. But if if Janet 0:02:55.400 --> 0:02:57.840 Yellen starts talking about some of these continues to talk 0:02:57.840 --> 0:02:59.480 about some of these things, I should say, it could 0:02:59.480 --> 0:03:01.400 cause people pull pull on their horns a little bit. 0:03:01.560 --> 0:03:03.160 And to be honest with you, I think that would 0:03:03.160 --> 0:03:04.960 be number one to be normal, but it'll also be 0:03:04.960 --> 0:03:06.959 healthy for the market. Do you think people will buy 0:03:06.960 --> 0:03:11.120 that dip. Matt, Well, the big question is going to be, uh, 0:03:11.120 --> 0:03:13.880 I think odd, right, I mean, just isn't it odd that? How? 0:03:14.000 --> 0:03:18.040 You know, stocks are always an opportunity, whether if they 0:03:18.120 --> 0:03:20.760 fall there you know, it's by the dip, if they 0:03:20.800 --> 0:03:23.800 go up, it's a momentum trade. It doesn't seem to 0:03:23.800 --> 0:03:26.000 be any point along the way where people say, you know, 0:03:26.040 --> 0:03:28.760 this is just too expensive and uh, I don't I 0:03:28.760 --> 0:03:31.040 don't want any part of it. Well, that's why I 0:03:31.080 --> 0:03:34.200 think what we're seeing right now because not only from 0:03:34.280 --> 0:03:38.160 what the FED chair yelling and and the vice chair 0:03:38.240 --> 0:03:41.520 and the pred sorry San Francisco FED presidents have been 0:03:41.520 --> 0:03:44.560 saying about asset levels, but also the coordinated effort uh 0:03:44.720 --> 0:03:49.440 talking about you know, shrinking the balance seat raising the rates. 0:03:49.680 --> 0:03:51.600 And we're starting to see that creep out into the 0:03:51.600 --> 0:03:53.600 e c B, the B the Bank of England, the 0:03:53.640 --> 0:03:55.840 Bank of Canada, and even a little chatter about the 0:03:55.840 --> 0:03:57.600 B O J. So when you get this kind of 0:03:57.600 --> 0:03:59.840 coordinated effort that seems to be coming out of this 0:04:00.000 --> 0:04:03.360 central the global central banks, uh, some of those stretched valuations, 0:04:03.360 --> 0:04:05.240 I think people will have to change their thinking. This 0:04:05.320 --> 0:04:09.560 is not an insignificant change. In instance, and as we 0:04:09.640 --> 0:04:13.360 heard today from uh, you know, Jamie Diamond talking about how, 0:04:13.800 --> 0:04:15.880 you know, we we think we could see a pickup 0:04:15.880 --> 0:04:19.080 of votility because we really don't know. We don't know 0:04:19.160 --> 0:04:20.920 what will happen when when they start pulling back on 0:04:20.960 --> 0:04:23.760 this keew weik. Yeah, you know what Jamie Diamond was 0:04:23.800 --> 0:04:27.120 talking about was that the market may not be adequately 0:04:27.160 --> 0:04:31.560 prepared right as yeah, as potentially the Federal Reserve starts 0:04:31.560 --> 0:04:34.600 in winding its balance sheet and the ECB starts tapering 0:04:34.720 --> 0:04:36.880 its bond purchases. What do they what do they want though? 0:04:36.960 --> 0:04:39.360 Do they do they want like a postcard in the mail? 0:04:39.400 --> 0:04:43.680 Do they want a little you know? Basically that's my point, 0:04:44.440 --> 0:04:47.120 more other than you know, getting in a biplane and 0:04:47.200 --> 0:04:49.520 flying along the beach with this, you know, a sign. 0:04:49.680 --> 0:04:52.200 I mean, what else do you need to tell people? 0:04:52.279 --> 0:04:54.479 They don't know? Clearly they're not telling that. It's not 0:04:54.520 --> 0:04:56.560 like they have some super secret sauce. I mean, they're 0:04:56.600 --> 0:04:58.600 waiting to see what's going on in the economy as well. 0:04:58.640 --> 0:05:01.360 I think that people I mean not to speak for you, Matt, 0:05:01.400 --> 0:05:03.520 but it seems like people are looking for what is 0:05:03.600 --> 0:05:06.279 really the guiding factor for the Fed because they have 0:05:06.440 --> 0:05:10.200 said it's you know, inflation, but that's not really the case. 0:05:10.279 --> 0:05:12.839 They have said employment, but that's not really the case 0:05:12.839 --> 0:05:15.280 because the employment rate plunge. There. Then you know, people 0:05:15.279 --> 0:05:18.040 are saying, well, financial stability, but you know, is that 0:05:18.080 --> 0:05:19.839 really the case because they don't want to discrapt the 0:05:19.880 --> 0:05:22.240 markets or is it uh, you know, making sure that 0:05:22.279 --> 0:05:25.080 there's not another bubble. I mean, so it's just because 0:05:25.080 --> 0:05:27.200 they keep moving the goal post both back, you don't 0:05:27.240 --> 0:05:30.600 know what what's gonna come next. Well, the other thing 0:05:30.600 --> 0:05:32.359 too is you have to work. I mean, and again 0:05:32.360 --> 0:05:34.080 this is I'm not saying because they're not saying this 0:05:34.160 --> 0:05:36.640 the boy at some point, I mean back in the 0:05:36.680 --> 0:05:37.960 in the day. This is kind of going back to 0:05:38.000 --> 0:05:40.560 the very beginning I reread after the crisis, when Ben 0:05:40.560 --> 0:05:42.640 Bernanki came out and said, hey, listen, we can do 0:05:42.720 --> 0:05:46.240 all this monetary policy and provide all this liquidity, but 0:05:46.279 --> 0:05:48.200 it's only a kind of a stock cat measure or 0:05:48.240 --> 0:05:50.440 a bridge to, you know, to where we can get 0:05:50.520 --> 0:05:52.560 we need some help on the fiscal side. Well, we 0:05:52.800 --> 0:05:54.440 look like we're finally going to get some help on 0:05:54.440 --> 0:05:55.919 the fiscal side at the beginning of the year, and 0:05:55.920 --> 0:05:57.680 now we're not going to get it. And it's almost 0:05:57.680 --> 0:05:59.360 I wonder if if the FED is throwing their hands 0:05:59.440 --> 0:06:01.560 up and said, hey, we can't. We can't be the 0:06:02.360 --> 0:06:04.640 parents that you know, you know, you're the thirty year 0:06:04.640 --> 0:06:06.599 old who is still living off the You need to 0:06:06.600 --> 0:06:09.400 get out there and do your thing. And uh, you know, 0:06:09.440 --> 0:06:12.080 it's about time that Washington stepped to the plate. And 0:06:12.480 --> 0:06:15.440 we see more and more examples that they're not. So 0:06:16.120 --> 0:06:18.400 maybe they're finally saying, hey, you can't rely on us anymore. 0:06:18.600 --> 0:06:20.200 You need to step to the place. So we'll see 0:06:20.200 --> 0:06:23.120 what happened with the millennial market. Another thing that that 0:06:23.200 --> 0:06:26.080 might have a pretty significant effect on markets is bank earnings, 0:06:26.080 --> 0:06:28.960 which begin on Friday. And I'm wondering, you know, we 0:06:29.080 --> 0:06:31.920 have seen an expectation that fixed income trading revenues are 0:06:31.920 --> 0:06:34.479 gonna be down six in the second quarter for the 0:06:34.560 --> 0:06:38.640 five biggest US banks, trading in general down about uh 0:06:38.920 --> 0:06:42.560 Is there anything in particular within the bank earnings that 0:06:42.600 --> 0:06:47.680 are going to potentially have a material effect on market movements. Well, 0:06:48.000 --> 0:06:49.560 the thing that's going to be interesting is that is 0:06:49.880 --> 0:06:52.480 that obviously after these uh uh numbers, that of the 0:06:52.680 --> 0:06:56.159 c car numbers that give a lot of people allowed confidence. 0:06:58.000 --> 0:07:00.800 I'm sorry, And and they've rallied nicely off of that, 0:07:00.920 --> 0:07:02.760 and and and be honest that they're getting a little 0:07:02.760 --> 0:07:05.520 over bought on a technical basis. It's interesting. If you'd 0:07:05.520 --> 0:07:07.120 asked me this question a couple of weeks ago, I 0:07:07.160 --> 0:07:08.880 would have said, geez, this is this is gonna be 0:07:08.880 --> 0:07:11.640 a big problem because you worry about guidance because she's 0:07:11.680 --> 0:07:13.240 look at the way interest rates are, and look how 0:07:13.240 --> 0:07:15.440 flat the yield curve is. Well, in the last two 0:07:15.440 --> 0:07:17.800 weeks that has actually improved a little bit. It's only 0:07:17.880 --> 0:07:20.400 a two week move, but it will be interesting to 0:07:20.440 --> 0:07:23.600 see if if that gives them enough enough of impetus 0:07:23.640 --> 0:07:25.520 to to to give a little bit better guidance than 0:07:25.560 --> 0:07:27.400 I've been thinking, because, to be honest with you, I 0:07:27.400 --> 0:07:28.640 was getting a little worried that it was going to 0:07:28.680 --> 0:07:31.600 be one of those sell the news situations where we 0:07:31.640 --> 0:07:33.760 have all this good news, everybody's bullish on the group. 0:07:33.800 --> 0:07:36.360 Everybody said we should be uh, you know, overweight in 0:07:36.560 --> 0:07:38.520 the financial stocks. So I thought we were getting a 0:07:38.520 --> 0:07:41.480 little too frothy there. And and maybe this change in 0:07:41.520 --> 0:07:43.720 the yield curve, the spread and from the two years 0:07:43.720 --> 0:07:46.760 in the tenure uh has widened out nicely, but it's 0:07:46.800 --> 0:07:49.760 still quite low. So my concern is that we're we're 0:07:49.800 --> 0:07:51.920 not going to get quite the same kind of uh 0:07:52.160 --> 0:07:54.880 boost that we got out of the stress test results. 0:07:54.880 --> 0:07:56.840 But uh uh, it's not as bad as I was 0:07:56.960 --> 0:07:59.760 was thinking, you know, just two or three weeks ago. One. 0:08:00.000 --> 0:08:02.520 Thank you very much, Matt Maylee. He is Managing director 0:08:02.520 --> 0:08:16.920 equity strategist at Miller tay Back. Lack of daisical. So 0:08:16.960 --> 0:08:19.040 we've had languid, We've had list lists, and we've had 0:08:19.120 --> 0:08:22.000 lack of daisical. I'm on toucher hooks waiting for the 0:08:22.120 --> 0:08:25.520 next synonym. I don't have one for you. I'm sorry, 0:08:25.520 --> 0:08:28.920 but let's just go right on to the long awaited 0:08:29.000 --> 0:08:34.360 repeal replaced? How about repair? When it comes to healthcare. Republicans, 0:08:34.360 --> 0:08:37.160 of course, returned to Washington this week and they wanted 0:08:37.200 --> 0:08:40.080 to produce a revised version of the Senate healthcare bill, 0:08:40.640 --> 0:08:44.040 but none of the expected changes so far appear to 0:08:44.800 --> 0:08:49.480 win sufficient support from at least the ten GOP senators 0:08:49.480 --> 0:08:52.559 who have publicly opposed the bill. Here to tell us 0:08:52.559 --> 0:08:56.160 more about what is happening, if anything, is Max Neeson. 0:08:56.240 --> 0:09:00.040 He is our Bloomberg Gadfly columnist. He knows everything and 0:09:00.080 --> 0:09:04.080 others to know about the healthcare on the pharmaceutical industry. Max, 0:09:04.920 --> 0:09:09.360 go ahead, I want to launch your comments here with 0:09:09.400 --> 0:09:12.000 all good wishes go for What what is going on 0:09:12.160 --> 0:09:16.439 here with this healthcare bill? So? Um, you know we 0:09:16.520 --> 0:09:18.840 have the centers back they're working on a new bill, 0:09:19.640 --> 0:09:22.520 UH that that's set to be released I believe on Thursday. 0:09:22.920 --> 0:09:26.840 We do not yet know what's going to be in it. Um. 0:09:26.920 --> 0:09:28.760 It seems to be one of those situations that we've 0:09:28.800 --> 0:09:31.520 gotten pretty used to where they're kind of last minute 0:09:31.520 --> 0:09:35.840 tweaks and negotiations, horse trading all of that. Um. So 0:09:35.880 --> 0:09:38.440 what's going on right now is you know, the eternal 0:09:39.120 --> 0:09:42.559 uh kind of tug of war between moderates and conservatives 0:09:42.559 --> 0:09:46.360 on the bill. Moderates UH ted Cruz and likely one. 0:09:47.480 --> 0:09:50.439 Basically a proposal added that would allow insurers to sell 0:09:50.920 --> 0:09:55.199 much skinnier, much less generous insurance plans as long as 0:09:55.200 --> 0:09:58.760 those insurers also offered a c A compliant plans. The 0:09:58.840 --> 0:10:00.959 issue with that is that it makes insurance a lot 0:10:00.960 --> 0:10:05.160 more expensive when it's a compliant, like a lot more expensive. 0:10:05.320 --> 0:10:07.280 Just can you just give an example because I know 0:10:07.440 --> 0:10:10.960 some of the details here because the having to understand that, 0:10:11.000 --> 0:10:16.000 you know, the cost of the premium outweighs the deductible 0:10:16.400 --> 0:10:19.080 on in many cases that is rather ordinary, but this 0:10:19.200 --> 0:10:22.920 is even more exceptional. Yeah, I mean, you know, it's 0:10:22.920 --> 0:10:26.319 hard to tell unless insurers are actually putting out premiums 0:10:26.320 --> 0:10:30.080 in in kind of this alternative universe. But um, you know, 0:10:30.160 --> 0:10:34.640 this proposal seems sort of designed to to send them skyrocketing. 0:10:34.960 --> 0:10:38.520 Anyone who's not sick is going to pick the cheaper 0:10:38.600 --> 0:10:45.880 or not a month, right, Yeah, okay, but that comes 0:10:45.880 --> 0:10:48.040 out to a premium that is going to actually be 0:10:48.760 --> 0:10:52.120 costing you more than the deductible I and and also 0:10:52.200 --> 0:10:55.920 deductibles are gonna rise to because that's another another part 0:10:55.920 --> 0:10:58.679 of the plans. So not only do you have these 0:10:58.840 --> 0:11:04.280 these escalaiming premium, also deductibles, and especially for low income people, 0:11:04.640 --> 0:11:07.440 if you have a deductible that's you know, several thousand dollars, 0:11:07.440 --> 0:11:10.640 that's a substantial portion portion of your income, you can't 0:11:10.640 --> 0:11:13.720 really quite call that healthcare coverage. So that's another difficulty 0:11:13.760 --> 0:11:16.800 to the bill. So, Max, you know, the tenor of 0:11:16.960 --> 0:11:20.760 your discussion and your comments is somewhat negative. But that's 0:11:20.800 --> 0:11:25.240 surprising because you recently wrote probably the most positive piece 0:11:25.280 --> 0:11:27.960 you've ever written about how there's actually some silver lining 0:11:28.280 --> 0:11:30.280 and some of the back and forth that's going on, 0:11:30.360 --> 0:11:33.120 Can you uh give us a little sense of what 0:11:33.280 --> 0:11:37.640 this sort of gridlock among Republicans could mean for the 0:11:37.720 --> 0:11:40.480 bill and why this could be potentially a positive for 0:11:40.520 --> 0:11:43.200 at least the people in the health care industry. Absolutely, so, 0:11:43.240 --> 0:11:45.480 it's I'll preface this by saying that, you know, we've 0:11:45.480 --> 0:11:48.079 been here before. The House bill looked dead with a 0:11:48.160 --> 0:11:51.360 similar kind of in past, and that ended up getting done. 0:11:51.800 --> 0:11:54.000 But we've heard over the past couple of days and 0:11:54.200 --> 0:11:56.880 even last week for Mitch McConnell, is the idea of 0:11:56.960 --> 0:12:00.800 being floated of bipartisan fix of some kind. And and 0:12:00.840 --> 0:12:03.359 I want to emphasize that this is a remote possibility, 0:12:03.640 --> 0:12:05.960 um that just hasn't been you know what's happened lately 0:12:05.960 --> 0:12:10.040 in Congress. But I think the potential positive here is 0:12:10.080 --> 0:12:13.760 that from everything we we know, it wouldn't take all 0:12:13.840 --> 0:12:18.200 that much to stabilize the individual insurance market. It would 0:12:18.240 --> 0:12:20.720 take some pretty minor tweaks, a bit of extra spending, 0:12:21.040 --> 0:12:24.320 but but nothing you know, as as disruptive or kind 0:12:24.360 --> 0:12:27.719 of impactful as what we're seeing in this bill. Um, 0:12:27.760 --> 0:12:31.400 Some things like a permanent reinsurance market, promising to to 0:12:31.559 --> 0:12:34.439 fund cost sharing subsidies, just things that make it a 0:12:34.480 --> 0:12:37.679 little easier for people to stay on insurance and for 0:12:37.760 --> 0:12:39.720 insurance to stay in the market, but go a really 0:12:39.760 --> 0:12:43.440 long way. So if that is a possibility, and it 0:12:43.520 --> 0:12:46.120 seems a little closer now that that probably could be 0:12:46.120 --> 0:12:48.320 good for the market. Do you find max, though, that 0:12:48.480 --> 0:12:52.040 these kinds of discussions on on sort of strategy and 0:12:52.040 --> 0:12:55.480 philosophy of the actual system that really don't matter at 0:12:55.520 --> 0:12:58.080 this point because it's just about these ten g OP 0:12:58.280 --> 0:13:02.959 senators and in fact, one them. Senator Susan Collins, Republican 0:13:03.040 --> 0:13:08.760 from Maine, UH commented about the UH likely insertion of 0:13:08.840 --> 0:13:12.880 forty five billion dollars in funding to fight the opioid epidemic. 0:13:12.880 --> 0:13:16.120 Correct forty billion dollars. Her quote is that's helpful, but 0:13:16.240 --> 0:13:20.760 it's by no means sufficient. So if that's her issue, 0:13:20.800 --> 0:13:23.120 you're gonna have to solve that before you get to 0:13:23.160 --> 0:13:27.360 any of these other lofty philosophical resolutions. Yeah. Absolutely so. 0:13:27.400 --> 0:13:30.160 A lot of individual senators have their issues. For a 0:13:30.160 --> 0:13:33.400 lot of them, it's opioids. For others, in medicaid Expecsion 0:13:33.440 --> 0:13:36.839 states it's a little bit of a ratcheting back in 0:13:36.840 --> 0:13:39.320 in how much impact that is. But it's hard to 0:13:39.400 --> 0:13:42.719 fulfill ten of those desires all at once. Uh that 0:13:42.840 --> 0:13:45.040 there is a substantial pool of money with which they 0:13:45.080 --> 0:13:48.439 can do so. Uh. The Senate bill scored is saving 0:13:48.559 --> 0:13:51.520 a more than d billion dollars more against the deficit 0:13:51.600 --> 0:13:53.640 than the House bill, so that can be spent. And 0:13:53.679 --> 0:13:56.200 also the twenty years right, yeah, over over ten years, 0:13:56.280 --> 0:13:59.880 ten years, I beg And there's also some talk ab 0:14:00.000 --> 0:14:03.840 out ending the repeal of attacks on high income Americans. 0:14:04.160 --> 0:14:07.319 That adds another more than two billion dollars. So the 0:14:07.440 --> 0:14:09.760 question is can you buy it, you know, kind of 0:14:10.240 --> 0:14:12.959 give enough funding to various pet projects. But at the 0:14:13.040 --> 0:14:15.080 end of the day, it's really hard to fix the 0:14:15.120 --> 0:14:17.440 kind of fundamentally here, which is, you know, more than 0:14:17.480 --> 0:14:20.320 twenty million people scored to lose health insurance. It's it's 0:14:20.320 --> 0:14:22.440 hard to vote for that, and uh, it's it's hard 0:14:22.480 --> 0:14:25.080 to fix that. Well, we're gonna watch what happens. They've 0:14:25.120 --> 0:14:27.360 got this week and they've got next week, I believe 0:14:27.360 --> 0:14:30.960 in order to do this before the break, Well, this 0:14:31.040 --> 0:14:33.040 is what we don't have time. But that I gotta say, 0:14:33.200 --> 0:14:35.080 it just seems odd that you would have such an 0:14:35.120 --> 0:14:40.040 important piece of legislation done in such a I don't know, 0:14:40.880 --> 0:14:44.960 rush rush, thank you, rushed, okay, rushed manner. Thank you 0:14:45.040 --> 0:14:48.200 very much. Lisa Bramwit No, thank you very much for 0:14:48.280 --> 0:14:51.560 joining us. Max Needson is our Bloomberg gad Fly columnist. 0:14:51.560 --> 0:15:07.000 Are expert when it comes to all things healthcare. Well, 0:15:07.040 --> 0:15:10.200 if you have not been living in the Midwest, that 0:15:10.360 --> 0:15:16.440 particularly in places that depend heavily on harvesting wheat and grain, uh, 0:15:16.720 --> 0:15:19.880 you might not know, but there has been a drought 0:15:20.000 --> 0:15:23.920 that has been decimating the US wheat crop. And here 0:15:23.960 --> 0:15:26.400 to tell us more about it, as Sal GILBERTI. He 0:15:26.520 --> 0:15:29.320 is the president and the founder of two Cream Trading. 0:15:29.800 --> 0:15:33.680 Also with us, our guide to everything commodities is Mike McGlone. 0:15:33.680 --> 0:15:37.200 Here's our commodity strategist for Bloomberg Intelligence. Mike, do you 0:15:37.200 --> 0:15:39.040 want to maybe just set up what's been going on? 0:15:39.080 --> 0:15:40.920 I mean, I've been following it in detail just because 0:15:40.960 --> 0:15:43.280 I'm interested in the topic. But this is a really 0:15:43.960 --> 0:15:49.400 uh un sung saga right now. Tell us about the 0:15:49.520 --> 0:15:52.000 what's happening? Well, I think you nailed the main part 0:15:52.080 --> 0:15:53.560 of it. Pain, but I look at that as more 0:15:53.600 --> 0:15:57.120 than the shorter term granular situation. Yes, we're having a 0:15:57.120 --> 0:15:58.960 bit of a I would say more of a normal 0:15:59.040 --> 0:16:01.600 weather event. It's it's drought in kind of the planes 0:16:01.640 --> 0:16:05.160 in the US, it's in Dakotas in the Minnesota. It's 0:16:05.200 --> 0:16:07.840 really affected the wheat crop. But the bigger pictures, it's 0:16:07.880 --> 0:16:10.960 potentially trickling down to the rest of the crops. And 0:16:11.040 --> 0:16:12.600 the way I look at it in terms of real 0:16:12.640 --> 0:16:16.120 the real big picture is we've had significant about four 0:16:16.520 --> 0:16:19.800 five years of down years in the grain markets, corn 0:16:19.880 --> 0:16:22.120 beans and wheat. In fact, last year wheat was at 0:16:22.120 --> 0:16:23.880 a ten year low and then plantings were at a 0:16:23.960 --> 0:16:26.440 hundred year low. So what's happening is to me is 0:16:26.480 --> 0:16:30.680 the markets just normalizing, Weather's not so perfect, and prices 0:16:30.720 --> 0:16:33.240 are coming back, and this might just be the beginning 0:16:33.400 --> 0:16:36.440 with wheat leading. So sal I want to bring you 0:16:36.480 --> 0:16:39.600 in here. Do you think that the backdrop has been 0:16:39.680 --> 0:16:44.040 set for a surge in these commodities in the prices 0:16:44.160 --> 0:16:48.000 or do you think that simply efficiencies and farming and 0:16:48.280 --> 0:16:52.760 other sort of sorts of technological developments have increased production 0:16:52.800 --> 0:16:55.920 capability to such an extent that prices are going to 0:16:56.040 --> 0:16:59.000 remain subdued for the foreseeable future. Um, that's a great point. 0:16:59.000 --> 0:17:01.800 But I think what has atually happen is demand has 0:17:01.920 --> 0:17:05.320 increased so steadily that we are fortunate that these technological 0:17:05.320 --> 0:17:08.280 advantages have kept pace with the demand. And in general, 0:17:08.680 --> 0:17:11.359 supplies do keep pace with demand in terms of grain 0:17:11.440 --> 0:17:15.240 production and grain demand. But grain demand is continually rising, 0:17:15.480 --> 0:17:18.040 which means if it doesn't rain somewhere, people aren't going 0:17:18.040 --> 0:17:20.119 to stop using it. That you're not gonna let yourself 0:17:20.200 --> 0:17:22.040 be hungry just because it doesn't rain in some far 0:17:22.080 --> 0:17:24.840 away place. And that is the perfect setup right now. 0:17:24.880 --> 0:17:28.240 We've had uh, wheat prices at lows. We've had corn 0:17:28.280 --> 0:17:30.720 prices sitting at or near the cost of production now 0:17:30.760 --> 0:17:33.280 for a good part of three or four years. And 0:17:33.400 --> 0:17:35.680 what happens is again, no matter what the news is, 0:17:35.720 --> 0:17:37.359 today is a great day as an example for that, 0:17:37.359 --> 0:17:39.320 And no wonder what the stock market is doing, no 0:17:39.359 --> 0:17:42.399 matter what technology is doing, people are going to use grains. 0:17:42.440 --> 0:17:45.040 They don't stop using them. And so when there's a 0:17:45.080 --> 0:17:48.760 supply disruption mostly due to weather, and weather does affect 0:17:48.760 --> 0:17:51.520 even the new technology and new new new grains that 0:17:51.560 --> 0:17:53.840 are out there, drought resistance things like that, you do 0:17:53.960 --> 0:17:57.760 have an almost immediate reaction in prices, which is understandable. 0:17:57.800 --> 0:17:59.760 And it's happening now and wheat, and it could, as 0:17:59.800 --> 0:18:02.600 my says, be a precursor to what's to come in corn. 0:18:02.920 --> 0:18:04.920 And not to harp on the weather, but because Mike 0:18:05.000 --> 0:18:07.480 knows has just I love the learning about the weather. 0:18:07.520 --> 0:18:11.280 But what's going okay, but this it's interesting. But what's 0:18:11.320 --> 0:18:15.440 happening right now to the spring wheat crop. I think 0:18:15.440 --> 0:18:17.320 the U s d A says something like only thirty 0:18:17.359 --> 0:18:20.840 seven of the wheat crop is in good or excellent condition. 0:18:21.200 --> 0:18:23.840 And that particular wheat crop, to your point, is high 0:18:23.880 --> 0:18:26.840 in protein, and so it isn't in higher demand, It 0:18:26.920 --> 0:18:30.840 isn't constant higher demand. That's exactly correct, and in fact, 0:18:30.880 --> 0:18:33.520 poor protein we if it's so poort, they'll throw it 0:18:33.520 --> 0:18:37.439 in an ethanol exactly. So what happens is grains are 0:18:37.440 --> 0:18:40.119 going to get used one way or another, and people 0:18:40.160 --> 0:18:42.600 need to understand that farmers will drive the price of 0:18:42.640 --> 0:18:45.159 grains down to their cost of production because they're going 0:18:45.200 --> 0:18:47.399 to plant as many seeds as they can to make 0:18:47.440 --> 0:18:50.080 as much money as they can. But when it stops raining, 0:18:50.800 --> 0:18:53.200 people don't stop using, and in fact, people are using 0:18:53.240 --> 0:18:56.960 more over time, the the the global consumption of corn, 0:18:57.000 --> 0:18:59.960 soybis in wheat is rising, making records hies almost every 0:19:00.160 --> 0:19:02.919 single year. That doesn't stop even when it stops raining. 0:19:03.040 --> 0:19:06.000 So um. Not to not to go real macro here, 0:19:06.080 --> 0:19:08.480 but when we talk about the weather, we're also getting 0:19:08.480 --> 0:19:11.040 a heat wave. Yes, weather hasn't been perfect, but we're 0:19:11.080 --> 0:19:14.440 having quite a substantial heatwave in the South and in 0:19:14.760 --> 0:19:17.040 parts of the Midwest. And I'm just wondering, you know, 0:19:17.200 --> 0:19:21.680 on a broader level, if there is a persistent heat wave, 0:19:21.760 --> 0:19:23.320 call it whatever you will. I don't want to get 0:19:23.359 --> 0:19:27.040 into any political debates, but call it whatever you will. Well, 0:19:27.080 --> 0:19:31.920 this crimp the supply of some of these commodities or 0:19:32.040 --> 0:19:35.720 is that something that is peripheral and neither here. No, No, 0:19:35.800 --> 0:19:38.200 it's a it's a key, key point in the bigger picture. 0:19:38.200 --> 0:19:40.040 We all know what's happening in global warming. The good 0:19:40.040 --> 0:19:42.480 news is the last few years it's heated up in 0:19:42.480 --> 0:19:44.919 the grain belt, but we've had more rain. Weather it's 0:19:44.960 --> 0:19:47.560 been but I've had more rain. It's that precipitation. If 0:19:47.600 --> 0:19:50.719 that starts to decline a little, which is historically always 0:19:50.720 --> 0:19:53.120 has you know, you get these cycles of a lot 0:19:53.160 --> 0:19:55.480 of precipitation and less so, which seems to be kicking 0:19:55.520 --> 0:19:58.080 in now. Um that will be a big difference. But 0:19:58.160 --> 0:20:02.560 oh well, overall heat you hot and dry in the Midwest, 0:20:02.760 --> 0:20:05.280 that generally means less production. Even though we have these 0:20:05.320 --> 0:20:07.919 great you know, you know, advances in technology, just you 0:20:07.960 --> 0:20:10.520 can't grow without water, and you can only arrogate so much. 0:20:10.720 --> 0:20:13.080 And I will say that this is a critical time 0:20:13.080 --> 0:20:16.480 period basically post July four that week after July you 0:20:16.480 --> 0:20:19.320 can see the extended forecast, you have about four weeks 0:20:19.320 --> 0:20:21.440 where it really needs to rain and or at least 0:20:21.440 --> 0:20:23.439 be cool where the corn can survive. This is a 0:20:23.560 --> 0:20:26.480 very critical time for pollination. If you look back the 0:20:26.560 --> 0:20:29.920 last ten years, corn prices have doubled twice from their 0:20:29.920 --> 0:20:33.040 cost of production, both times it started in July. Both 0:20:33.040 --> 0:20:35.480