WEBVTT - M&A Pipeline Is More Robust In 2020: Citizens' McCree 0:00:02.640 --> 0:00:05.360 Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:24.759 at Bloomberg dot com. Well the SMP Banks Index this 0:00:24.800 --> 0:00:29.000 year it's up about Citizens Financial, I seventeen billion dollar 0:00:29.040 --> 0:00:31.600 bank based in Providence, Rhode Island or Boston, is up 0:00:31.640 --> 0:00:35.239 about percent this year. To give us an overview of 0:00:35.280 --> 0:00:38.080 what is going on in the corporate and commercial banking business, 0:00:38.240 --> 0:00:40.640 returned to Don McCree, dons vice chairman and head of 0:00:40.680 --> 0:00:43.599 commercial banking for Citizens Financial Group. He joined us live 0:00:43.600 --> 0:00:46.519 in our Bloomberg Interactive Broker Studio. So, Don, we've had 0:00:46.600 --> 0:00:50.120 just a tremendous melt up in financial markets this year. 0:00:50.479 --> 0:00:53.920 How are your corporate customers feeling right now? Do they 0:00:53.960 --> 0:00:55.720 feel like they need to be aggressive on the M 0:00:55.720 --> 0:00:57.840 and A front um It depends on the nature of 0:00:57.880 --> 0:01:00.200 the customer. I think our customers, i'd say, are are 0:01:00.280 --> 0:01:03.880 optimistic in general. Their businesses are performing quite well. Uh, 0:01:03.920 --> 0:01:05.920 they're getting good, good lift, as you said, on their 0:01:05.920 --> 0:01:09.200 stock prices. So all all else being equal, that's not 0:01:09.280 --> 0:01:10.880 a recipe for a lot of M and A. What 0:01:10.959 --> 0:01:13.560 we're seeing in our businesses is with our smaller clients, 0:01:13.600 --> 0:01:16.560 particularly the private clients, M and A is very robust 0:01:16.600 --> 0:01:19.080 as as clients try to get some scale or maybe 0:01:19.080 --> 0:01:22.920 get repositioned to compete in the broader world economy. One 0:01:22.920 --> 0:01:25.399 thing that I thought was really interesting about Citizens is 0:01:25.480 --> 0:01:28.399 that on your commercial sides, you grew commercial loans by 0:01:28.400 --> 0:01:33.759 about twenty one percent over the past few years. Meanwhile 0:01:33.800 --> 0:01:37.440 piers grew only by ten percent. Why how so if 0:01:37.480 --> 0:01:40.119 you go back in our history, we did our public 0:01:40.160 --> 0:01:42.720 offering just about five years ago, and we'll celebrate our 0:01:42.720 --> 0:01:45.959 public offering uh this fall. Um. We had were owned 0:01:46.000 --> 0:01:48.160 by the Royal Bank of Scotland for eight years post 0:01:48.160 --> 0:01:51.840 the financial crisis, and it was quite a withdrawaling type 0:01:51.880 --> 0:01:54.400 of of event for Citizens Banks, so we spent eight 0:01:54.480 --> 0:01:57.280 years basically static. When we did the I p O, 0:01:57.400 --> 0:01:59.800 we decided to accelerate certain of our businesses which hadn't 0:01:59.800 --> 0:02:02.480 grown in the prior eight years, and we also expanded 0:02:02.480 --> 0:02:05.080 regionally into the southeast and into the Midwest and into 0:02:05.160 --> 0:02:07.400 the New York area. So most of our growth has 0:02:07.440 --> 0:02:10.880 been not necessarily within our traditional client base. It's been 0:02:10.880 --> 0:02:12.760 with new clients, which we're adding at a rate of 0:02:12.800 --> 0:02:15.280 about three hundred a year right now, so particularly in 0:02:15.320 --> 0:02:17.120 the higher growth parts of the country. So in the 0:02:17.160 --> 0:02:20.120 M n A front, I know you guys bought Bowstring Advisors. 0:02:20.160 --> 0:02:22.919 I guess it's a second boutique M and A advisory firm. 0:02:23.000 --> 0:02:25.960 So how do you view M and A opportunities in 0:02:26.040 --> 0:02:27.800 kind of the middle market where I think you guys 0:02:27.840 --> 0:02:30.000 tend to do. You know, it's it's terrific and Bowstring 0:02:30.040 --> 0:02:33.040 has been our latest, our latest acquisition, and it's really 0:02:33.080 --> 0:02:35.080 hit the ground running. As I said, a lot of 0:02:35.120 --> 0:02:39.519 private companies are going through ownership changes and and uh 0:02:39.639 --> 0:02:42.800 basically generational transitions. So we think it's a ripe area 0:02:42.880 --> 0:02:44.919 for M and A in general. What we've tried to 0:02:44.960 --> 0:02:47.280 do is we've added capability, is add firms that have 0:02:47.360 --> 0:02:50.040 specialties in certain industries and specialties in the middle market. 0:02:50.280 --> 0:02:52.600 And you probably see us continue to do that. And 0:02:52.880 --> 0:02:54.920 if I look at my client base, I've got about 0:02:54.960 --> 0:02:57.720 three thousand private companies at the core of my client base, 0:02:58.200 --> 0:03:00.600 and what we've been trying to do the last several 0:03:00.680 --> 0:03:03.520 years is bring a set of high quality solutions and 0:03:03.560 --> 0:03:06.560 advisory capabilities to those clients as they as they kind 0:03:06.560 --> 0:03:09.320 of change their the nature of their businesses. Where where 0:03:09.320 --> 0:03:10.799 are we in the M and A cycle? Was last 0:03:10.880 --> 0:03:12.960 year the peak? I don't think so, based on what 0:03:12.960 --> 0:03:15.520 we're seeing in our pipelines. UM it's our pipelines are 0:03:15.600 --> 0:03:17.960 much stronger this year than they were last year. UM 0:03:17.960 --> 0:03:19.920 and we think that again, it might be different when 0:03:19.960 --> 0:03:21.960 you're talking about large company m and A and mid 0:03:22.000 --> 0:03:23.680 sized company m and A. We think we've got several 0:03:23.760 --> 0:03:25.720 years to run on the mid company size. Are there 0:03:25.760 --> 0:03:28.919 any sectors in particular that you guys are focusing on anything? 0:03:28.960 --> 0:03:31.600 There might be areas of activity. We're seeing a lot 0:03:31.639 --> 0:03:34.320 of activity and business services, which is what boasting is 0:03:34.360 --> 0:03:37.160 at its core. We're seeing a lot of activity actually 0:03:37.240 --> 0:03:39.920 right now in gaming where we have a very strong presence, 0:03:39.920 --> 0:03:44.040 and we're seeing increasing amount of activity in anything tech. UM. So, 0:03:44.040 --> 0:03:45.680 so those are the three that we're really focused on. 0:03:45.800 --> 0:03:47.800 I want to go back to the idea of growing 0:03:48.040 --> 0:03:50.640 your loans and your customer base, and I'm wondering You're 0:03:50.640 --> 0:03:52.680 doing so at a time of a lot of competition, 0:03:52.760 --> 0:03:55.200 both from other regional banks as well as the big banks. 0:03:55.240 --> 0:03:57.640 They're looking to expand their loan books. So how do 0:03:57.720 --> 0:04:01.920 you win customers without loosening your standards to a degree 0:04:01.960 --> 0:04:03.600 that makes you con So the way the way we 0:04:03.640 --> 0:04:05.520 talk about it is Number one, we need to be 0:04:05.520 --> 0:04:07.440 better every day than any one of our competitors is, 0:04:07.440 --> 0:04:09.480 so we have to be intense around our coverage efforts 0:04:09.480 --> 0:04:13.160 and really be bringing those solutions to our clients. Number Two, 0:04:13.520 --> 0:04:15.920 I think we occupy an interesting part of the business. 0:04:16.000 --> 0:04:19.719 You know, our core customer, whether it evaluation or transaction 0:04:19.800 --> 0:04:22.919 size is three hundred million to seven hundred and fifty million. 0:04:23.200 --> 0:04:25.560 That frankly doesn't get the attention of the big guys 0:04:25.600 --> 0:04:28.200 because the transaction sizes are too small, and we think 0:04:28.200 --> 0:04:30.960 we have better experts against that that portion of the 0:04:30.960 --> 0:04:33.400 market that some of our other competitions. So we just 0:04:33.440 --> 0:04:35.600 think we we've been on a real talent hiring war 0:04:35.680 --> 0:04:37.480 for the last four years, brought a lot of very 0:04:37.520 --> 0:04:40.200 experienced people in and we're just covering the market in 0:04:40.240 --> 0:04:43.080 a really intense way. I remember seeing just maybe the 0:04:43.160 --> 0:04:45.760 last weekek or two and Actually, I've seen over the 0:04:45.839 --> 0:04:48.839 less several months articles about JP Morgan Goldman's acts, you know, 0:04:48.920 --> 0:04:52.320 hiring bankers and opening you know, offices, banking offices and 0:04:52.720 --> 0:04:55.800 secondary third tertertiary markets or they wouldn't you know, do 0:04:55.880 --> 0:04:58.599 business before. Are you seeing that at yr level? We are, 0:04:58.760 --> 0:05:02.120 But you know, we've can peted against all those companies forever. 0:05:02.200 --> 0:05:04.200 They're in all of our marketplaces and whether they're they're 0:05:04.200 --> 0:05:06.880 physically or whether they're flying bankers in who are industry experts, 0:05:07.160 --> 0:05:09.680 we go. We go against everybody. The regional is, the 0:05:09.720 --> 0:05:13.039 big investment banks, the small community banks every single day. 0:05:13.279 --> 0:05:16.960 So we haven't seen a real change in the individual 0:05:17.000 --> 0:05:20.200 competitors in the marketplaces. There's competition everywhere, as you said, 0:05:20.200 --> 0:05:23.160 and it's just it's just a brutal market, all right, 0:05:23.279 --> 0:05:26.320 Don mcgree, And he's speaking as a third year veteran 0:05:26.920 --> 0:05:30.440 and somebody who used to run corporate banking at JP Morgan's, 0:05:30.520 --> 0:05:32.560 so he knows what he's talking about when you're talking 0:05:32.600 --> 0:05:34.960 about some of your competitors. Don McCree, thank you so 0:05:35.040 --> 0:05:37.200 much for being with us here. Are really great to 0:05:37.200 --> 0:05:39.480 get your perspective. Don mccree's vice chairman and head of 0:05:39.520 --> 0:05:42.560 Commercial Banking, its Citizens Financial Group, which is based in 0:05:42.920 --> 0:05:45.239 I don't know. I'm gonna shrug. I mean it says Providence, 0:05:45.279 --> 0:06:01.960 Rhode Island, but I hear perhaps it's more Boston. I 0:06:01.960 --> 0:06:04.960 gotta say, Paul Crude is a confusing story right now. 0:06:05.000 --> 0:06:07.799 I'm looking at CREWD traded on the Nimax, down about 0:06:07.800 --> 0:06:09.840 three quarters of one percentage point. I'm just trying to 0:06:09.880 --> 0:06:13.080 figure out, though, what's the bigger influence here, the idea 0:06:13.200 --> 0:06:15.599 of trade wars being back on the table, the U 0:06:15.680 --> 0:06:17.880 S and China failing to come to some sort of agreement, 0:06:18.279 --> 0:06:21.720 or are we concerned about the Iranian sanctions and the 0:06:21.760 --> 0:06:25.360 contaminated oil from Russia here to way in, Dr ellen Wald, 0:06:25.480 --> 0:06:29.640 president of Transversal Consulting, also a nonresident Senior Fellow at 0:06:29.680 --> 0:06:32.400 the Atlantic Councils of Global Energy Center, and a Bloomberg 0:06:32.440 --> 0:06:35.920 Opinion calumnist. Dr Wall, thank you so much for joining us. 0:06:35.920 --> 0:06:39.360 So what is the dominant factor here over the next 0:06:39.440 --> 0:06:42.719 few weeks that will drive oil prices? I think the 0:06:42.800 --> 0:06:47.520 dominant factor in futures trading last night was definitely the 0:06:47.880 --> 0:06:51.400 terroriffts issue with China and fears that this could cause 0:06:51.400 --> 0:06:55.240 a recession and that that will take demand oil demand. 0:06:55.600 --> 0:06:58.800 But now I think we're seeing traders and and also 0:06:58.880 --> 0:07:01.920 computer algorithms to their senses and realize that there's a 0:07:01.960 --> 0:07:04.080 whole lot more going on in the soil market than 0:07:04.160 --> 0:07:07.120 just fears of a recession. And like you mentioned, we've 0:07:07.160 --> 0:07:10.120 got these sanctions on Iran which everyone knows are going 0:07:10.160 --> 0:07:12.840 to take some amount of oil off the market, but 0:07:12.960 --> 0:07:16.560 we're just not quite sure yet exactly how much part 0:07:16.600 --> 0:07:19.960 of that has to do with Iran's importers. Because this 0:07:20.040 --> 0:07:23.160 isn't an oil embargo. The United States is not sending ships, 0:07:23.200 --> 0:07:26.160 despite the fact they did just send several aircraft carriers 0:07:26.160 --> 0:07:28.760 to the Middle East. They're not sending ships h to 0:07:29.800 --> 0:07:33.200 basically embargo that oil. It all depends on whether Iran's 0:07:33.320 --> 0:07:38.000 importers decided to stop importing that oil. And right now 0:07:38.040 --> 0:07:41.200 it looks like the big ones in question are going 0:07:41.240 --> 0:07:44.040 to be India and China. Those are the biggest importers 0:07:44.120 --> 0:07:47.680 of Iranian oil, and India seems to have halted its 0:07:47.720 --> 0:07:50.880 imports for the month of May. But a lot I 0:07:50.880 --> 0:07:53.520 think those depend on what happens with the Indian election. 0:07:53.600 --> 0:07:58.000 If Moody loses the election of COMS party is more powerful. 0:07:58.040 --> 0:07:59.880 You know, they could have an impact on whether or 0:08:00.120 --> 0:08:02.480 they want to adhere to these U S nations. Right now, 0:08:02.720 --> 0:08:06.400 they've been very compliant and they've halted imports for me, 0:08:06.560 --> 0:08:09.920 but that's not necessarily a given going forward. Then with 0:08:10.000 --> 0:08:13.640 China will definitely see a decrease in some respects. But 0:08:13.760 --> 0:08:16.920 China's got a whole lot of Iranian oil actually stored 0:08:17.400 --> 0:08:21.360 in a port right near China, and they can basically 0:08:21.480 --> 0:08:24.480 tap into that oil. It's not it hasn't passed through 0:08:24.480 --> 0:08:27.800 customs yet, so it hasn't actually been imported to give 0:08:27.880 --> 0:08:31.080 me to China, and they could basically just tap into 0:08:31.120 --> 0:08:32.800 that at which they have been doing. But there's a 0:08:32.800 --> 0:08:36.840 lot of oil there, so we could see UH imports 0:08:36.840 --> 0:08:41.120 from China continue for some time. Um. Then we've got Venezuela. 0:08:41.440 --> 0:08:43.480 What in the world is going on there of the 0:08:43.559 --> 0:08:46.840 US leaning on India to try to get them to 0:08:46.840 --> 0:08:49.439 stop importing Venezuelan oil, but look, you can't ask them 0:08:49.440 --> 0:08:53.120 to stop importing Iranian and Venezuelan oil at the same time. 0:08:53.800 --> 0:08:57.080 Plus we've seen this, um, you know, we've seen a 0:08:57.160 --> 0:09:00.199 lot of uh, you know, action going on in Venezuela 0:09:00.280 --> 0:09:04.280 that hasn't reached the oil importing the oil producing areas yet, 0:09:04.520 --> 0:09:09.600 but it could, particularly if Guido isn't successful in in Caracas. 0:09:09.640 --> 0:09:12.560 There's definitely a possibility, and I think that the pdvs 0:09:12.640 --> 0:09:16.840 A people know this, that the tensions could move out 0:09:16.920 --> 0:09:21.520 of Caracas and into other areas, particularly the oil producing regions. 0:09:21.559 --> 0:09:24.440 So dr world, How much leverage does the United States 0:09:24.480 --> 0:09:27.440 have on some of these companies like China, like India 0:09:27.480 --> 0:09:31.640 about you know where they import their oil from. Yeah, 0:09:31.760 --> 0:09:35.400 it really depends, and um I think it really does depend. 0:09:35.640 --> 0:09:39.360 So some of the big importers in in India, We've 0:09:39.400 --> 0:09:43.000 got Naraya, which is actually owned by Rossnas mostly and 0:09:43.080 --> 0:09:45.319 so that's going to be very difficult to convince them 0:09:45.320 --> 0:09:48.520 to stop importing venezuela and oil because and in fact, 0:09:48.559 --> 0:09:51.720 what we've seen happen is that China and Russia are 0:09:51.720 --> 0:09:55.160 actually importing venezuela and oil and then reselling it. So, 0:09:55.520 --> 0:09:57.679 you know, we may not necessarily be able to even 0:09:57.720 --> 0:10:01.520 track whether India is bo buying venezuelan oil. That's just 0:10:01.640 --> 0:10:03.360 you know, it looks like they're buying from China or 0:10:03.360 --> 0:10:05.040 it looks like it's buying from Russia. But it's really 0:10:05.120 --> 0:10:08.720 Venezuelan and and this is a big issue, and so 0:10:08.760 --> 0:10:12.400 the US means a lot on its diplomatic influence. But um, 0:10:12.440 --> 0:10:15.440 you know, we know that the Commerce Secretary is actually 0:10:15.480 --> 0:10:20.120 in India right now for a um for finance confidence 0:10:20.240 --> 0:10:23.280 and part to state in a trade form. And you 0:10:23.280 --> 0:10:26.400 know he's saying, look, the US government cannot you know, 0:10:26.559 --> 0:10:29.880 make sure that you get oil at a discount. Just 0:10:29.920 --> 0:10:33.199 don't do that. That's not how it works. And India 0:10:33.200 --> 0:10:36.600 is really looking for some kind of They're saying, we'll 0:10:36.640 --> 0:10:39.679 look give us something. We want to comply with your sanctions, 0:10:39.720 --> 0:10:42.319 but you know we need something for from you. We're 0:10:42.320 --> 0:10:46.439 speaking with Dr eleen walda president of Transversal Consulting, and 0:10:46.559 --> 0:10:48.520 I just want to take a step back because there 0:10:48.559 --> 0:10:52.760 are all of these idiosyncratic stories, uh specific to nations 0:10:52.960 --> 0:10:58.760 and geopolitical battles. I'm trying to understand, are we at 0:10:58.800 --> 0:11:02.880 a greater risk of an oil glut or are we 0:11:03.040 --> 0:11:06.120 one crisis away from an oil shortage? Even this seems 0:11:06.120 --> 0:11:09.280 like a very basic question, and yet there are many 0:11:09.280 --> 0:11:12.680 different answers that I've gotten to this. It almost depends 0:11:12.679 --> 0:11:15.280 on the day that you ask that question. Because last week, 0:11:15.280 --> 0:11:17.640 when we got the e I A numbers that showed 0:11:17.640 --> 0:11:19.280 a huge bill that seemed like we're on the verge 0:11:19.320 --> 0:11:21.720 of a massive oil glut. And then if you look 0:11:21.840 --> 0:11:25.600 at um the demand side of the equation, then you're saying, well, look, 0:11:25.640 --> 0:11:28.520 we could be heading to a global recession and that's 0:11:28.559 --> 0:11:30.559 going to tak demand and then we're definitely going to 0:11:30.600 --> 0:11:33.400 be in an oil glut. So so so it really depends, 0:11:33.440 --> 0:11:35.360 I think what numbers you're looking at and on what 0:11:35.520 --> 0:11:37.600 day of the week. But if you're looking at what's 0:11:37.600 --> 0:11:41.480 coming from Iran, what's happening with Russia, what's happening with Venezuela, 0:11:41.800 --> 0:11:44.880 then you could say, look, we're heading towards a possible 0:11:44.920 --> 0:11:48.480 oil shortage because Iran could be could be down a 0:11:48.520 --> 0:11:52.160 million barrels. Venezuela could you know it could hold production 0:11:52.200 --> 0:11:55.200 at any point. You know, they're they're one oil upgrader 0:11:55.320 --> 0:11:58.920 or malfunction away from from barely putting any oil in 0:11:58.960 --> 0:12:02.080 the market. And then you've got Russia with this contaminated 0:12:02.080 --> 0:12:06.240 oil and they say that they have resumed clean oil sales, 0:12:06.280 --> 0:12:09.200 but but Belarus is saying, look, we're still getting contaminated oil, 0:12:09.280 --> 0:12:11.360 and we don't know what to do with it, So 0:12:11.720 --> 0:12:13.720 if you look at it from that respect, you're saying, well, 0:12:13.760 --> 0:12:16.440 we could be actually in a shortage. Plus, you've got 0:12:16.559 --> 0:12:20.959 Saudi Saudias, You've got a Ramco raising their pricing to 0:12:21.080 --> 0:12:24.960 Asia saying we are will sell you oil in June, 0:12:25.320 --> 0:12:27.040 but we're going to charge more for it because we 0:12:27.080 --> 0:12:29.360 think there's less oil out there. You've got fewer options. 0:12:30.320 --> 0:12:32.560 Dr ellen Wald, thank you so much for joining us. 0:12:32.640 --> 0:12:36.439 Dr walda's president Transversal Consulting. She's also a nonresident Senior 0:12:36.480 --> 0:12:39.480 Fellow at the Atlantic Council's Global Energy Center and a 0:12:39.559 --> 0:12:42.760 contributor to Bloomberg Opinion. Dr wall thank you so much. 0:13:00.080 --> 0:13:03.840 Joining us. Here is of course our very own Mike mcloane, 0:13:03.880 --> 0:13:06.240 who covers this sector and has for years. He is 0:13:06.280 --> 0:13:09.640 a commodity strategist for Bloomberg Intelligence. Mike, it seems like 0:13:09.840 --> 0:13:12.400 equity markets in the US are trying to shake off 0:13:12.440 --> 0:13:16.280 concerns of some sort of increase in trade tensions between 0:13:16.320 --> 0:13:19.000 the U S and China. Not the same in soft commodities. 0:13:19.040 --> 0:13:21.360 What's going on, at least not yet. The market is 0:13:21.400 --> 0:13:25.080 basically expecting this, hoping for and it was kind of 0:13:25.120 --> 0:13:27.719 the main hope for the support at the time, and 0:13:27.720 --> 0:13:30.200 in fact, hedge funds are records short. So right now 0:13:30.240 --> 0:13:32.640 we're giving hedge funds a gift. They're making money. Their 0:13:32.679 --> 0:13:35.360 record short corn, soybeans. I've never seen him that short 0:13:35.400 --> 0:13:38.080 before in the markets, working so forth. But it needs 0:13:38.120 --> 0:13:40.720 to be sustained. You know, this is the growing season, 0:13:40.720 --> 0:13:42.760 This is really what matters. In fact, what's down really 0:13:42.800 --> 0:13:45.840 the most days lean hawks, because we're expecting to export those. 0:13:46.280 --> 0:13:48.559 Wait a minute, lean hogs were not on my g 0:13:48.760 --> 0:13:50.560 l c O screen. I thought I had everything here. 0:13:50.760 --> 0:13:53.680 Well it's it's there in the Bloomberg Commodity Index. Not 0:13:53.840 --> 0:13:55.960 as widely traded, but that's been really one of the 0:13:55.960 --> 0:13:59.600 problems out of China is the African swine fever reducing 0:13:59.640 --> 0:14:02.360 their apply. They need to import more. We expected more 0:14:02.400 --> 0:14:04.240 to be from the US and okay, well that might 0:14:04.240 --> 0:14:07.079 be off the table. So you mentioned just where are 0:14:07.120 --> 0:14:10.680 we in the growing season, planting season? Where are we 0:14:10.720 --> 0:14:13.320 here for these commodity prime planting season right now? And 0:14:13.320 --> 0:14:15.880 this is the time of year you're usually pricing a 0:14:15.920 --> 0:14:18.800 little bit of production risk premium, meaning what if we 0:14:18.840 --> 0:14:21.000 don't get the best weather. For the last five years, 0:14:21.000 --> 0:14:23.120 we had some of the best weather in history, but 0:14:23.120 --> 0:14:25.160 we're not doing that yet this year. We're actually pricing 0:14:25.160 --> 0:14:27.120 in the discount, which is very rare and more so 0:14:27.200 --> 0:14:29.960 now and with record shorts, so the market is set 0:14:30.040 --> 0:14:32.680 up for potential massive rally, but it just needs a spark, 0:14:32.680 --> 0:14:35.040 and right now it's the wrong way. Well, I'm trying 0:14:35.080 --> 0:14:36.320 to understand. I want to go back to what you 0:14:36.360 --> 0:14:39.160 were talking about with respect to the hedge funds that 0:14:39.240 --> 0:14:42.640 are have record shorts. Is this because this is basically 0:14:42.720 --> 0:14:46.400 a hedge against a deal not getting done between the 0:14:46.440 --> 0:14:48.680 US and China, uh, you know, and that sort of 0:14:48.680 --> 0:14:52.440 offsetting long bets in equities. Or is this because they 0:14:52.480 --> 0:14:55.360 do expect some sort of risk with respect to the 0:14:55.360 --> 0:14:59.000 planting season or some other issue that will lead to 0:14:59.040 --> 0:15:01.960 a decline in prices much more of the former, And 0:15:01.960 --> 0:15:04.600 I think that's what we're most people are missing, is 0:15:04.680 --> 0:15:07.480 this is a very much macro picture interest and hedge 0:15:07.480 --> 0:15:12.120 funds are all especially being former macro hedge fund strategists, 0:15:12.200 --> 0:15:13.880 this makes a lot of sense. This is your short 0:15:13.880 --> 0:15:15.880 where you think it's going to matter the most and 0:15:16.000 --> 0:15:19.800 right here, but it's also when weather premiums gonna matter 0:15:19.840 --> 0:15:21.240 within a month, and that's really not gonna make a 0:15:21.280 --> 0:15:25.680 difference until really July. So, Mike, we talked about kind 0:15:25.680 --> 0:15:28.880 of exporting agricultural exports. Just give us a sense of 0:15:28.960 --> 0:15:32.160 how much of some of these soft commodities agricultural commodities 0:15:32.320 --> 0:15:35.680 are in fact exported to China. For example, first and 0:15:35.720 --> 0:15:39.720 foremost of soybeans. So before I guess we were exporting 0:15:39.720 --> 0:15:42.600 about sixty before last year, typically we were up the 0:15:42.600 --> 0:15:45.760 fifty percent of our total exports is a total production, 0:15:45.800 --> 0:15:49.280 soybeans were being exported most of them too um to China. 0:15:49.400 --> 0:15:51.640 That dropped down the forty percent last year, and now 0:15:51.680 --> 0:15:53.600 we're hoping to get that back up, but typically takes 0:15:53.600 --> 0:15:55.880 a little while. And now we have these massive supply. 0:15:55.960 --> 0:15:58.360 There's just these big bags of soybeans everywhere. We gotta 0:15:58.360 --> 0:16:00.800 get rid of that. Yeah, just waiting out to be sold. 0:16:01.320 --> 0:16:04.800 Really interesting. The idea that this soft commodities have become 0:16:04.840 --> 0:16:07.120 such sort of a macro bet. Is there any other 0:16:07.280 --> 0:16:11.520 period in history that's analogous to this where soft commodities 0:16:11.520 --> 0:16:15.800 have played such a central role in macro trading strategies? 0:16:16.120 --> 0:16:18.400 You have to go back. One of the first things 0:16:18.440 --> 0:16:20.120 I think of when you say that is the Great 0:16:20.280 --> 0:16:23.200 Grain Robbery, which was in the early I think it 0:16:23.200 --> 0:16:25.840 was seventy three or so. We exported a whole bunch 0:16:25.880 --> 0:16:28.600 of grain to the Soviet Union at the time because 0:16:28.640 --> 0:16:30.840 they were had a massive drought and had very little, 0:16:31.440 --> 0:16:34.680 um little production. I just remember four grain traders in 0:16:34.680 --> 0:16:36.240 the pits were talked about, Yeah, that's when I lost 0:16:36.240 --> 0:16:39.000 my job and I stopped trading into becoming a pit clerk. 0:16:39.040 --> 0:16:41.000 Because there's a lot of people who lost a lot 0:16:41.000 --> 0:16:42.960 and made a lot there in that period. So I 0:16:43.000 --> 0:16:45.200 have to go back, just real quick into the lean hogs. 0:16:45.440 --> 0:16:48.160 Are the prices going up or down? Well, they went 0:16:48.240 --> 0:16:50.480 up a lot and now they're mean reverting back down. 0:16:50.520 --> 0:16:53.040 So the market priced in this massive increase in demand 0:16:53.280 --> 0:16:55.360 with swine fever, and it's not getting it, at least 0:16:55.360 --> 0:16:57.280 it might not be getting it. With his latest tweet 0:16:58.160 --> 0:17:00.040 lean hoggs, I mean you heard it here first, that 0:17:00.160 --> 0:17:03.960 pork bellies. It's used to be used to bellies. Paul 0:17:04.000 --> 0:17:07.680 Sweeney is getting hungry. It is eleven oh eight a m. 0:17:07.920 --> 0:17:11.879 Wall Street time, and he is very interested in lean hoggs. 0:17:11.920 --> 0:17:14.080 Only with Mike mcglow, can you talk about lean hoggs. 0:17:14.160 --> 0:17:17.719 But Mike covers all things commodities. Mike mcglogne commodity strategies 0:17:17.760 --> 0:17:19.720 for Bloomberg Intelligence. Thanks so much for joining us. I mean, 0:17:19.760 --> 0:17:37.040 I think we'll probably talking to him a lot more. Well. 0:17:37.080 --> 0:17:39.359 The trade talks between the US and China hit a 0:17:39.400 --> 0:17:42.479 little bit of a speed bump yesterday as President Trump 0:17:42.520 --> 0:17:45.800 tweeted that he will consider raising a tariffs by the 0:17:45.880 --> 0:17:48.399 end of the week. To get the latest on what 0:17:48.600 --> 0:17:50.720 on this developing story, we turned to Mike McDonough. Mike 0:17:50.800 --> 0:17:53.320 is a chief economist for Financial Products of Bloomberg. He 0:17:53.440 --> 0:17:56.360 joins us live here in a Bloomberg eleven three oh studios. So, Mike, 0:17:56.400 --> 0:17:58.520 from your perspective and you're a reading of what's been 0:17:58.560 --> 0:18:00.439 going on over the last twenty four hour, do you 0:18:00.440 --> 0:18:03.879 think the trade negotion trade negotiations are in fact really 0:18:03.920 --> 0:18:05.760 at an impasse? Here? What you said, they hit a 0:18:05.800 --> 0:18:07.680 speed bump. I guess we're trying to figure out whether 0:18:07.680 --> 0:18:10.800 it's a speed bump or a wall. Right. Uh, you 0:18:10.840 --> 0:18:14.880 know this is a serious concern, right what what what drove? 0:18:15.640 --> 0:18:18.040 But what was the driver of this tweet? Is it 0:18:18.119 --> 0:18:20.600 just trying to squeeze out a couple of extra concessions 0:18:20.720 --> 0:18:23.960 or is it something more meaningful or structural? That they're 0:18:23.960 --> 0:18:28.399 trying to change with the potential agreement. I just have 0:18:28.480 --> 0:18:31.600 to say that is so two nine. What's driving that tweet? 0:18:31.640 --> 0:18:36.040 I mean, honestly, this is very, very very current. Mike McDonough, 0:18:36.200 --> 0:18:39.000 I am looking at a story just published on the 0:18:39.000 --> 0:18:43.000 Bloomberg that Robert lydhis or the top negotiator with China 0:18:43.119 --> 0:18:47.000 for the US, told President Trump that Beijing was backpedaling 0:18:47.280 --> 0:18:49.240 on the trade deal that they originally agreed with, saying 0:18:49.240 --> 0:18:51.879 that they would not change Chinese law as part of 0:18:51.920 --> 0:18:55.520 the agreement, which was part of the initial arrangement. If 0:18:55.560 --> 0:18:58.639 that's the case, President Trump's tweets aren't, what's to blame 0:18:58.840 --> 0:19:01.840 is that there is a structural problem in the negotiations 0:19:02.160 --> 0:19:03.760 that maill make it very hard to get a deal 0:19:03.760 --> 0:19:05.800 done in your term. Now agreed, that would be a 0:19:05.840 --> 0:19:09.760 major structural issue, structural issue, and it would be quite 0:19:09.800 --> 0:19:12.560 challenging the seats here. Trump has now also put on 0:19:12.600 --> 0:19:15.800 this deadline of Friday where he was increased tariffs. It's 0:19:15.920 --> 0:19:17.639 very hard for me to say, even if you have 0:19:17.720 --> 0:19:21.639 a low level delegation come from China to have these talks, 0:19:21.640 --> 0:19:24.000 I don't see how they get enough done by Friday 0:19:24.080 --> 0:19:27.119 to prevent these from being implemented, especially if that is 0:19:27.160 --> 0:19:30.880 the cause. You know, one one thing I've always talked 0:19:30.920 --> 0:19:33.520 about with you guys on the show is that you know, 0:19:34.400 --> 0:19:37.760 back in Q four, both economies were weakening, markets were 0:19:37.800 --> 0:19:39.879 selling off, and I think the bar for a trade 0:19:39.880 --> 0:19:43.880 deal on both sides had gone down. Subsequently, Kona's China's 0:19:43.880 --> 0:19:47.080 economy stabilizing, the US is doing much better. Markets are 0:19:47.080 --> 0:19:48.960 doing better, So I almost wonder if the bar for 0:19:49.040 --> 0:19:51.840 both sides has gone up, So maybe they regret a 0:19:51.880 --> 0:19:54.119 couple of the concessions they had made in the past, 0:19:54.440 --> 0:19:56.919 which would jive. I mean, that's just a theory I have, 0:19:57.040 --> 0:19:59.440 but it would jive with what you were saying about 0:19:59.520 --> 0:20:03.960 China pulling back some of the intellectual property I mean again, 0:20:04.080 --> 0:20:06.960 which brings us to the question that I always have. Um, 0:20:07.000 --> 0:20:09.080 you know, when we talk about this trade issue issue, 0:20:09.240 --> 0:20:11.560 who really needs it more? Would you guess? And even 0:20:11.600 --> 0:20:13.440 given you mentioned both economies tend to be doing a 0:20:13.480 --> 0:20:15.639 little bit better, what do you think who's which side 0:20:15.680 --> 0:20:18.600 needs a good deal more? You know, I mean, I 0:20:18.640 --> 0:20:21.840 think you know, it depends on if you're talking what 0:20:21.840 --> 0:20:24.600 what perspective you're talking from in short term or long term. 0:20:24.640 --> 0:20:28.359 But I think um, President Trump looking at you know, 0:20:28.640 --> 0:20:32.080 elections aren't that far away. I think he that victory 0:20:32.119 --> 0:20:34.000 would go a long way for him politically, and it 0:20:34.000 --> 0:20:36.800 would also do a lot for markets, which are kind 0:20:36.840 --> 0:20:38.919