Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Michael Purvas. He's a
Speaker 1: founder and CEO of Talbacan Capital Advisors.
Speaker 2: Michael, what are the conversations you're having with your clients
Speaker 2: these days?
Speaker 3: Is we all were going into week three of this
Speaker 3: Iran issue here, and it's been such a volatile time
Speaker 3: for financial markets, starting with the commodities markets.
Speaker 2: What are the conversations you're having with your clients these days.
Speaker 1: Well, one thing I think is that's I've certainly been
Speaker 1: doing is standing back and looking at sort of some
Speaker 1: of the cross asset correlations and how those are moving,
Speaker 1: because I think there was good clues as to what
Speaker 1: type of risk environment we're we're we're we're edging into there.
Speaker 1: And so one of the interesting things here, you know
Speaker 1: Thomas referencing the VIX at twenty one, which is really
Speaker 1: not that high a level there, that's right line with
Speaker 1: its long term average there. But at the same time,
Speaker 1: you know, you're seeing very high cross process of correlations
Speaker 1: the for example, like Crude's correlation with the VIX right now,
Speaker 1: over the last several days really since this attack, these
Speaker 1: attacks began, it's in the top two percent of all
Speaker 1: readings going back a decade. If you look at crude
Speaker 1: correlations with high yield spreads, those are also in the
Speaker 1: top two percent. And what's interesting about that is that
Speaker 1: high yield is now correlating with the VIX, which it
Speaker 1: had kind of decorrelated. It's supposed to be positively correlated, right,
Speaker 1: you know, spreads back up that kept you know, when
Speaker 1: risk off happens. That correlation kind of broke down over
Speaker 1: the last eighteen months for all sorts of interesting reasons.
Speaker 1: But now that correlation's coming back now as it relates
Speaker 1: to the VIX. What's interesting also is that, you know
Speaker 1: the fix of twenty one, Yes it's been correlating with
Speaker 1: the crude prices, but the across stock correlations are still
Speaker 1: really kind of muted. They've gone up a lot over
Speaker 1: the last couple of weeks, but they're not really high here, right,
Speaker 1: and you're still staying on any given day, one stock
Speaker 1: can be in the green and a bunch of other
Speaker 1: stocks and be in the red there, So we're not
Speaker 1: really in the sort of you know, sort of risk
Speaker 1: off environment, but we're you know, crude is clearly driving.
Speaker 2: The possum mark.
Speaker 1: So I think that gets to you know, sort of
Speaker 1: begs the questions about how are you really trying to
Speaker 1: contextualize what's been happening here? I think again you have
Speaker 1: to step back a little bit and just think. Look,
Speaker 1: you know, we had a great year last year in
Speaker 1: the equity market. A late winter malaise is kind of
Speaker 1: normal without iran, right, that's something that could be expected. Here.
Speaker 1: We had a bad jobs rapport with some really important
Speaker 1: questions that were begged by the complex the complexion of
Speaker 1: what jobs were being dropped, particularly in the you know,
Speaker 1: sort of those pillars of job growth the today.
Speaker 3: What do you do?
Speaker 1: I mean, Yeahully artfully dodged as many questions as you
Speaker 1: get to get off the stage. But seriously, I think
Speaker 1: it's it's interesting. I mean, Thomas referencing your your rea prices,
Speaker 1: solfare prices, helium prices, all these things will impact producer
Speaker 1: prices that will sort of weave its way.
Speaker 2: WHOA did you have.
Speaker 4: In organic chemist three freshman year in college?
Speaker 2: Did you go down in flames?
Speaker 3: Like I continue on, UEA, we need more methy continuous?
Speaker 1: Oh god, well so so. But all those things do
Speaker 1: you know, raise questions about I think what the FED
Speaker 1: has to deal with today is what I call inflation complexity.
Speaker 1: So you're gonna see you're gonna see producer producer prices
Speaker 1: right are once again, you know, in some way similar
Speaker 1: to post Ukraine, some some different, but those are going
Speaker 1: to linger and creep into into the inflation metrics we
Speaker 1: see a few months from now, right, and and maybe
Speaker 1: longer than that, we don't know, uh there. But at
Speaker 1: the same time, you've got companies laying off a whole
Speaker 1: bunch of workers with AI right, right, So that's that's
Speaker 1: part of the inflation complexity that the FED has to
Speaker 1: deal with. And then of course the other dimension of
Speaker 1: the FED has to contend with. There is this sort
Speaker 1: of K shaped economy and in a way, the auron
Speaker 1: attacks almost worse than you know, you have to rather
Speaker 1: than think about you know this, this this situation is
Speaker 1: like straight's on, Straight's off. It's really not that binary.
Speaker 1: Nor is the fact that is a procession on procession off.
Speaker 1: You if you understand that in terms of the K,
Speaker 1: you know there there will be many things that magnify
Speaker 1: the economic divergence.
Speaker 4: Michael Purvis with his charm besides a twelve vvacation in
Speaker 4: the summer, is he really truly mixes in analysis of equities, bonds,
Speaker 4: currencies and commodities. So I've plotted Aussie yen is a
Speaker 4: specific rim proxy.
Speaker 3: Back thirty years observation one, two, three, four, five, Six
Speaker 3: times in thirty years we've had two standard deviation plus
Speaker 3: strong Australia week yen.
Speaker 2: And the word I use is stochastic.
Speaker 4: They're point, they go up their stress and they turn
Speaker 4: around and come down.
Speaker 2: Why is this time any different?
Speaker 4: Where this is the mother of all opportunities at two
Speaker 4: point two standard devia and a long trend and you
Speaker 4: go against this.
Speaker 2: Gloom, this zite guide that's out there.
Speaker 1: Now, well, I'm going to pivot that back to the
Speaker 1: to maybe dollar yen and and dollar euro. I think
Speaker 1: one thing that's really apparent here is that when you
Speaker 1: look at relative hydrocarbon vulnerability that isn't obviously today the
Speaker 1: United States very different than it was in the nineteen
Speaker 1: seventies here, right, So we're not a petro currency the
Speaker 1: US dollar, but relative to the end and relative to
Speaker 1: the Euro, we are. And I think what you're referencing
Speaker 1: in Australia some version of that theme here, right, And
Speaker 1: so what have you seen you've seen? You know, I
Speaker 1: was before Iran, I was waiting for the Euro to
Speaker 1: break one twenty maybe go to one twenty five, worked
Speaker 1: out big til Iran right there. And now you're seeing
Speaker 1: that now if you measure say the US dollar relative
Speaker 1: to the Canadian dollar, that's really been very stable right there.
Speaker 1: So there are sort of petro currency and I don't
Speaker 1: like the term, but there are petrocurrency dynamics that are
Speaker 1: that are that are in that and it's also being
Speaker 1: reflected in the in the equity markets.
Speaker 2: I gotta wrap this up, but you're a young guy.
Speaker 2: Can you just state that usually these tensions are stochastic
Speaker 2: and they repeat and reverse always almost.
Speaker 1: The question is is yeah, classic golf oil spikes, you
Speaker 1: know their temporary. You know, gold shoots up, shoots back
Speaker 1: right right, the Australian dollar shoots up relative to the
Speaker 1: end and and falls back. But the the the the
Speaker 1: question we don't know is is and he saw this
Speaker 1: by the way in SPX options where the three months
Speaker 1: football ski finally caught up with a one month SKW
Speaker 1: just the other day there that this may be not
Speaker 1: a two week thing. Maybe they're this tension will persist
Speaker 1: for you know, a few months here and so following Ukraine.
Speaker 1: You know that was not a sort of straights on,
Speaker 1: straights off type of dynamic that just come to kept going,
Speaker 1: and yet it drove a lot of problems, for example
Speaker 1: within the Eurozone. Right relative to the S.
Speaker 2: Right, did you survive St Patrick's thing?
Speaker 1: Uh? Mostly putting together charts and I did have a
Speaker 1: green bagel though.
Speaker 4: So Michael Purvis, tall back and thank you so much,
Speaker 4: greatly appreciate it.