WEBVTT - Surveillance: Block Trade Fallout 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.600 and of course on the Bloomberg terminal. John I just 0:00:30.640 --> 0:00:33.479 put on on Twitter the definitive story of this morning, 0:00:33.520 --> 0:00:37.400 particularly for our global Wall Street audience. Tracy Halloway Behu 0:00:37.479 --> 0:00:41.199 and Sophia Hardy Acosta with the definitive article on the 0:00:41.240 --> 0:00:45.000 derivative strategies that have led to this margin callum its. 0:00:45.040 --> 0:00:48.800 Halloway joins us right now, Bloomberg Markets Managing Editor. Down 0:00:48.840 --> 0:00:51.919 at the bottom, Tracy of your article, you remind us 0:00:52.040 --> 0:00:57.400 in two thousand and eight, Financial Ireland almost collapsed over 0:00:57.480 --> 0:01:01.280 a margin call a busted derivatives to strategy. Is there 0:01:01.320 --> 0:01:04.600 any sense in this two thousand twenty one of the 0:01:04.640 --> 0:01:09.399 Irish agony of two thousand eight. Well, I think you 0:01:09.480 --> 0:01:11.880 and Jonathan just laid out the scene pretty well there. 0:01:11.959 --> 0:01:14.760 So far, we haven't seen signs that this is really 0:01:15.319 --> 0:01:19.160 unnerving the wider market. Uh. Most investors seem to be 0:01:19.200 --> 0:01:21.760 taking it in stride. I guess the question is when 0:01:21.800 --> 0:01:25.600 you're looking at these kind of interlinkages in the financial system, 0:01:26.080 --> 0:01:30.600 like where well, there are going to be more losses, right, 0:01:31.000 --> 0:01:33.679 we think there's more exposure out there. And then the 0:01:33.760 --> 0:01:38.399 question is why did the prime brokers have this different reaction? 0:01:38.480 --> 0:01:41.000 So Jonathan alluded to that, you know, Nomura and Credit 0:01:41.080 --> 0:01:44.040 Chice start saying that they have bosses. Morgan Stanley hasn't 0:01:44.080 --> 0:01:47.480 said anything. Gold Minty to have managed it quite well. 0:01:48.320 --> 0:01:52.280 What did the prime brokers do differently that resulted in 0:01:52.440 --> 0:01:56.440 all these different um well results, Trice is it's still 0:01:56.480 --> 0:01:58.560 too early to tell about the way they've handled this. 0:01:58.600 --> 0:02:00.280 Is it's still too early to draw and conclude, gents. 0:02:02.800 --> 0:02:05.640 I think that's right. I mean, one of the big 0:02:05.680 --> 0:02:09.720 outcomes of this might be additional scrutiny on derivatives deployed 0:02:09.720 --> 0:02:13.080 by hedge funds and institutional investors. So this was a 0:02:13.120 --> 0:02:16.720 family office that seems to have built up these huge positions. 0:02:16.760 --> 0:02:20.040 We're talking billions of dollars worth of total return swaps 0:02:20.160 --> 0:02:24.760 and contracts for difference, but no one seemed to have 0:02:25.080 --> 0:02:27.800 really known about it or connected the dots, certainly not 0:02:27.919 --> 0:02:31.840 the prime brokers. Most hedge funds are required to disclose 0:02:32.160 --> 0:02:35.880 their holdings um if they're actually buying the stop, but 0:02:35.919 --> 0:02:38.880 if you're doing it through derivatives, it's basically a loophole 0:02:38.919 --> 0:02:42.280 that allows you to get tons of exposure without having 0:02:42.360 --> 0:02:45.320 to declare it. And so the question I think for 0:02:45.400 --> 0:02:49.079 regulators is going to be how endemic is this in 0:02:49.120 --> 0:02:52.800 the financial system and is there a possibility that it 0:02:53.040 --> 0:02:57.040 can be a disturbing force on the wider market. And 0:02:57.080 --> 0:03:00.920 of course we've seen additional appearing on hedge funds already 0:03:01.080 --> 0:03:04.280 because of the Robin Hood and game stop scenario. So 0:03:04.400 --> 0:03:09.680 this is another unflattering spotlight cast on hedge fund slash 0:03:09.760 --> 0:03:12.760 family offices. It's tracy from your perspective so far, and 0:03:12.800 --> 0:03:14.520 I asked this in a way that gives you enough 0:03:14.560 --> 0:03:16.520 room just to say I simply don't know. But from 0:03:16.680 --> 0:03:19.360 what you're looking at the moment, do you find it 0:03:19.520 --> 0:03:22.320 strange about the amount of ropes so to speak, that 0:03:22.400 --> 0:03:28.400 this particular investment firm was given Bryan Prime Brokers. Um, Well, 0:03:28.440 --> 0:03:32.680 there is a question about risk management here. It seems 0:03:32.680 --> 0:03:35.560 to have been very very large positions and again possibly 0:03:35.600 --> 0:03:38.920 positions in single stock. So there's a sort of whale 0:03:38.960 --> 0:03:42.960 effect there. The other question is Bill Wang, of course, 0:03:43.080 --> 0:03:46.360 is famous for insider trading. I think back in two 0:03:46.400 --> 0:03:50.200 thousand and twelve or two thousand fourteen, I want to say, um, 0:03:50.240 --> 0:03:52.680 it was a long time since then, but lots of 0:03:52.680 --> 0:03:56.320 people are asking why the prime brokers fret comfortable extending 0:03:56.520 --> 0:03:59.560 this kind of financing. I mean, Tracy, I know that 0:03:59.600 --> 0:04:03.160 you've done interviews with Bobby exel Rod before a billions 0:04:03.640 --> 0:04:05.760 and it's all great and fine, but you make the 0:04:05.840 --> 0:04:11.040 distinction between billions is entertainment, hedge funds and a family office? 0:04:11.160 --> 0:04:15.160 Did this occur because the family office is different? That 0:04:15.240 --> 0:04:18.200 there isn't more of a community that can brace itself 0:04:18.480 --> 0:04:21.640 and break against too much leverage? Is what we're really 0:04:21.640 --> 0:04:27.040 talking about. One guy made this happen. I mean, I 0:04:27.160 --> 0:04:30.240 think there's a point to be made there, but ultimately, 0:04:30.240 --> 0:04:36.120 a family office isn't that different to a hedge fund? Right? Um, 0:04:36.200 --> 0:04:39.400 but there is a question. Yeah, sorry, go ahead. No, 0:04:39.880 --> 0:04:43.360 it's just that, you know west Tricy, Tom just jumps 0:04:43.400 --> 0:04:45.040 in and says things and you've just got to carry on, Toll. 0:04:45.320 --> 0:04:47.440 We just keep on talking, Tracy. You know you're allowed 0:04:47.480 --> 0:04:51.920 to be rude. I mean, the family office, a family 0:04:51.920 --> 0:04:55.280 office is fairly identical to a hedge fund. It just 0:04:55.440 --> 0:05:01.480 that it can't really take outside capital. So the disclosure requirements, 0:05:01.680 --> 0:05:05.000 you know that regulators are going to be looking at. Yeah, 0:05:05.120 --> 0:05:10.280 the idea that it acted by itself, I'm not too 0:05:10.360 --> 0:05:12.760 sure about that. I mean, what if true is that 0:05:12.800 --> 0:05:16.280 you have this big fund that seems to have all 0:05:16.320 --> 0:05:20.240 these interconnections with the rest of the market. Trice Halloway, 0:05:20.320 --> 0:05:22.839 it's going to see it as always blue back markets managing. 0:05:22.880 --> 0:05:29.960 Get it set. If you are a black bear from Maine, 0:05:30.040 --> 0:05:32.320 you get a job in accounting out of the University 0:05:32.320 --> 0:05:36.120 of Maine forty years ago. That's what Gerard Cassidy did. 0:05:36.120 --> 0:05:39.680 He is legendary at RBC Capital Markets and we are 0:05:39.880 --> 0:05:42.880 thrilled to get his perspective because in my rolodex, he's 0:05:42.920 --> 0:05:46.799 the only one that remembers the collapse of Continental Illinois 0:05:47.000 --> 0:05:50.320 in Chicago. Girard, let's cut to the chase. You and 0:05:50.400 --> 0:05:54.080 I have seen this before. Why is this tobacco of 0:05:54.120 --> 0:05:58.840 this hedge fund different? I think, thank you for having 0:05:58.880 --> 0:06:01.479 me on the program, man. I would say, first, it's 0:06:01.520 --> 0:06:05.200 the size. I mean, this is an enormous size hedge fund. 0:06:05.240 --> 0:06:08.599 When you put it into perspective over the last thirty years. 0:06:08.960 --> 0:06:11.520 So when you think about long term capital and what 0:06:11.640 --> 0:06:14.680 happened to them, and back in the late nineties, you 0:06:14.760 --> 0:06:17.520 might remember, you know, they weren't as large as what 0:06:17.560 --> 0:06:20.719 we're just saying from this one situation developed on Friday. 0:06:20.960 --> 0:06:24.520 And so to me, that's the implication is that you know, 0:06:24.600 --> 0:06:28.880 we allowed or companies grow very quickly into the billions 0:06:28.920 --> 0:06:31.960 of dollars and they get their watch amounts of leverage, 0:06:32.200 --> 0:06:35.520 and as you know, leverage leafs to problems when asset 0:06:35.560 --> 0:06:38.480 prices moved very quickly. We've seen this lesson so many 0:06:38.480 --> 0:06:41.960 times before, and again the leverage is extraordinary, Gerard. What 0:06:42.040 --> 0:06:46.679 does a bank actually do when this event occurs? What's 0:06:46.720 --> 0:06:50.839 happening this morning for Mr Gorman? What's happening for the 0:06:50.920 --> 0:06:54.839 leadership of Nomura, the new management of credit suites? How 0:06:54.839 --> 0:06:58.120 do they unwind a trade in tobacco, a prime brokerage 0:06:58.120 --> 0:07:02.839 tobacco like this? Well, hopefully Tom that the assets involved 0:07:02.839 --> 0:07:06.599 but have to be liquidated aren't very illiquid, because the 0:07:06.680 --> 0:07:10.240 more liquidity that these assets may have, the greater the 0:07:10.360 --> 0:07:13.280 losses will be. We'll find out more this week. Is 0:07:13.320 --> 0:07:17.160 this story unfolds? What exactly happened here. But the first 0:07:17.160 --> 0:07:20.560 thing that these obviously management teams will do, we'll go 0:07:20.640 --> 0:07:25.720 to seize collateral, liquidate positions, and then unfortunately in cases 0:07:25.760 --> 0:07:28.320 and in some of these cases, you're going to see 0:07:28.400 --> 0:07:31.600 losses as I think No More may have already announced 0:07:31.760 --> 0:07:34.200 as well as Credit Swiss. So the first thing they 0:07:34.200 --> 0:07:38.040 do is seize the collateral, liquidate the account, and then 0:07:38.480 --> 0:07:41.800 follow up hopefully by seizing other assets if there are 0:07:41.800 --> 0:07:44.600 any other assets that they're permitted to go after, to 0:07:44.680 --> 0:07:47.480 cover those losses, and try and price this dedicately. Because 0:07:47.480 --> 0:07:49.400 some of these banks don't fall under your conference, so 0:07:49.520 --> 0:07:51.760 let's keep things as general as possibly if I can, 0:07:51.800 --> 0:07:54.280 so you're able to comment them on them in detail. 0:07:54.840 --> 0:07:57.400 What would it be that would take say, a couple 0:07:57.400 --> 0:08:00.760 of banks to face significant loss is and a couple 0:08:00.760 --> 0:08:03.120 of other banks that seem to say it's immaterial. Would 0:08:03.120 --> 0:08:04.800 it just be the size of exposure or is it 0:08:04.880 --> 0:08:07.480 something about the way they handled it when things started 0:08:07.520 --> 0:08:11.040 to blow up? John, I think it's it's it's both. 0:08:11.080 --> 0:08:13.680 But your first point is very well said, the size 0:08:13.680 --> 0:08:17.000 of exposure, so that that, to me is probably going 0:08:17.040 --> 0:08:21.040 to be one of the real distinguishing uh. Factors between 0:08:21.600 --> 0:08:25.760 companies that have your material losses versus multibillion dollar losses. 0:08:25.960 --> 0:08:28.800 But second, it's also the controls and procedures and the 0:08:28.920 --> 0:08:32.520 level of skill and experience of the people involved in 0:08:32.760 --> 0:08:35.760 handling the account. And so you may have people that 0:08:35.840 --> 0:08:39.720 have fifteen twenty years of experience handling this account and 0:08:39.760 --> 0:08:43.440 therefore can move quicker, or you have, see the science 0:08:43.440 --> 0:08:47.440 more clearly, the inexperienced person. Well, let's talk about this account. 0:08:47.440 --> 0:08:50.439 There's something about this particular account that generated a lot 0:08:50.440 --> 0:08:53.000 of competition, a lot of demand to have this client 0:08:53.040 --> 0:08:55.280 on the book's chair, and that includes government sax and 0:08:55.280 --> 0:08:58.760 our latest reporting saying that compliance basically rejected this client 0:08:58.800 --> 0:09:01.360 again and again and again. And that's something changed a 0:09:01.400 --> 0:09:03.800 couple of years ago. Jed, what's you'll take as an 0:09:03.800 --> 0:09:08.040 analyst to here that this morning? That's a little disturbing that, 0:09:08.240 --> 0:09:12.120 you know, when you hear about an account opening that 0:09:12.200 --> 0:09:15.160 has been rejected more than once by the compliance department 0:09:15.400 --> 0:09:18.240 and eventually they can get to open the account, you know, 0:09:18.280 --> 0:09:23.000 obviously shows how aggressive certain companies are in trying to 0:09:23.160 --> 0:09:26.640 you know, win new business. Obviously, to grow their business, 0:09:27.200 --> 0:09:29.840 you grow with existing customers. We all know that but 0:09:29.920 --> 0:09:33.480 also adding new customers into the fold is very important 0:09:33.480 --> 0:09:36.040 as well. Gerard a question, and I don't want to 0:09:36.120 --> 0:09:38.120 get you in trouble with OURBC, but I think you 0:09:38.160 --> 0:09:40.040 know we've known each other long enough where we can 0:09:40.080 --> 0:09:43.520 ask us for our audience worldwide. The heart of the 0:09:43.600 --> 0:09:47.679 matter is a meeting where a manager says, we're number 0:09:47.760 --> 0:09:50.680 four in blah blah blah, and we need to be 0:09:50.800 --> 0:09:54.800 numbered two by September so we can bonus out and 0:09:54.880 --> 0:09:57.880 keep our jobs. Isn't that the heart of the matter 0:09:58.280 --> 0:10:02.679 in this repetitive reality of too much leverage leading to 0:10:02.880 --> 0:10:07.680 difficult losses. Tom, I think that has a real influence 0:10:07.720 --> 0:10:11.000 on it, no doubt about it. The so called league tables, 0:10:11.040 --> 0:10:13.960 which are more in the investment banking area than the 0:10:13.960 --> 0:10:18.000 trading area. But these companies to pride themselves and being 0:10:18.040 --> 0:10:20.480 at the top of those stables. And I know when 0:10:20.480 --> 0:10:22.880 you look at the big broker dealers here in the 0:10:22.960 --> 0:10:26.640 United States, clearly they're not going to be happy being 0:10:26.679 --> 0:10:29.520 at the bottom or the lower portion of those tables. 0:10:29.559 --> 0:10:31.959 So there's that pressure there, no doubt about it. I 0:10:32.280 --> 0:10:34.800 don't disagree with you. Would you change by old cell 0:10:34.920 --> 0:10:39.680 on Golden Sex or Morgan Stanley not on this news alone. 0:10:39.880 --> 0:10:42.840 You know, this comes with the territory, and it sounds 0:10:42.920 --> 0:10:46.000 kind of glib, but it's truly the case because when 0:10:46.080 --> 0:10:48.880 when you think about what they're doing every day, this 0:10:48.960 --> 0:10:51.240 type of risk is there and if you have the 0:10:51.320 --> 0:10:55.040 controls and procedures in place to mitigate the risk, which 0:10:55.280 --> 0:10:57.560 again we'll find out if that's the case, and we'll 0:10:57.640 --> 0:11:00.839 really could separate these broke the dealers like a more 0:11:00.840 --> 0:11:04.720 constiling in golden from the others. If they are exposed 0:11:04.760 --> 0:11:08.360 and there's minimal loss or no loss, then that's obviously 0:11:08.400 --> 0:11:11.160 sets them apart from the people that super sizeable losses. 0:11:11.559 --> 0:11:13.400 Do you know what question will be asked that this morning? 0:11:13.400 --> 0:11:15.120 One of the many questions is just how many bill 0:11:15.160 --> 0:11:18.120 flanks around there right now? And if you're overseeing the 0:11:18.120 --> 0:11:20.440 prime brokerage unit any of these banks that fall under 0:11:20.480 --> 0:11:22.400 your coverage, what do you think they're doing right now? 0:11:22.400 --> 0:11:24.640 We do a full scale rep price of every single 0:11:24.679 --> 0:11:26.120 client on the books that we're looking for more bill 0:11:26.160 --> 0:11:28.120 flanks out there that we need to actually trim exposure 0:11:28.160 --> 0:11:32.160 to Johnathan, I think they're definitely gonna do deep dives 0:11:32.200 --> 0:11:34.600 to make sure that their books are in order. Um 0:11:35.040 --> 0:11:37.200 as you pointed out, Um, they want to make sure 0:11:37.240 --> 0:11:41.359 that you know there's not exposures like this to other customers, 0:11:41.480 --> 0:11:43.760 So you're right, there will always be. But I would 0:11:43.800 --> 0:11:45.920 also point out they do this regularly. You know, it's 0:11:45.960 --> 0:11:49.120 not one and done, so they're constantly monitoring their brain 0:11:49.200 --> 0:11:52.640 rug Ridge accounts. But maybe a more in depth review 0:11:53.040 --> 0:11:56.240 is warranted considering what happened on Friday. To be rude 0:11:56.280 --> 0:11:57.800 of me to let you go without getting its help 0:11:57.800 --> 0:12:00.480 pick what is it right now? Uh done? Them was 0:12:00.559 --> 0:12:03.480 still we're importing to Bank America. I think you guys 0:12:03.520 --> 0:12:07.959 talked about how strongly vaccinations were for this best week. 0:12:08.240 --> 0:12:11.679 Also the employment members coming out Friday, which means this 0:12:11.960 --> 0:12:14.920 U S economy is really geared up for some real 0:12:14.960 --> 0:12:17.560 strong growth. Bank America is the best way to play that. 0:12:17.800 --> 0:12:20.240 Jared a cash up, so I gotta see it. John Cassidy, 0:12:20.240 --> 0:12:27.320 that of Obvious Capital Markets, head of US Bank Equity Strategy. 0:12:28.440 --> 0:12:31.200 Away from the story, David Kelly will join US. He's 0:12:31.240 --> 0:12:35.520 the JP Morgan Asset Management as their chief global strategists. 0:12:35.800 --> 0:12:38.600 He wouldn't know a derivative strategy if it hit him 0:12:38.600 --> 0:12:41.120 over the head, so he's lucky this morning. He doesn't 0:12:41.160 --> 0:12:44.120 have to talk about this. What you can talk about, David, 0:12:44.120 --> 0:12:48.240 this is so important is given a boom economy, how 0:12:48.280 --> 0:12:53.240 your allocation, how your temperament at JP Morgan asset Management changes, 0:12:53.480 --> 0:12:57.040 How do you adapt to a boom economy? Well, I 0:12:57.040 --> 0:12:59.880 think the first thing is you recognize that people have 0:13:00.000 --> 0:13:02.360 not fully priced in what's going on here. I mean, 0:13:02.360 --> 0:13:05.360 this is the calm before the surge. We're still looking 0:13:05.400 --> 0:13:08.600 at about four GDP growth in the first quarter. Nothing 0:13:08.679 --> 0:13:11.920 terribly exciting going on. But what we're seeing is this 0:13:12.000 --> 0:13:13.760 road out of vaccines. We're seeing this road out of 0:13:13.800 --> 0:13:16.800 fiscal stimulus. You've got the President about to announce another 0:13:16.800 --> 0:13:21.000 proposal UM in this week in Pittsburgh, and this is 0:13:21.000 --> 0:13:22.800 going to build to a lot of momentum as this 0:13:22.880 --> 0:13:25.679 year goes on. So UM, I think the environment is 0:13:25.679 --> 0:13:27.719 going to heat up a lot more than is really 0:13:27.760 --> 0:13:30.600 pricing into markets. That means higher interest rates, and what 0:13:30.679 --> 0:13:33.400 that really means is the rotation probably continues, the rotation 0:13:33.559 --> 0:13:36.839 from growth to value, rotation from large cap growth to 0:13:36.880 --> 0:13:40.920 small cap value, the ROA, and perhaps uh some continued 0:13:41.360 --> 0:13:44.160 rotation to international I think all of that is still 0:13:44.240 --> 0:13:46.560 on the table. Given the heating up in the in 0:13:46.640 --> 0:13:49.280 the economy that we expect over the next nine months. 0:13:49.360 --> 0:13:51.320 What you just said. I've also heard of black Rock 0:13:51.520 --> 0:13:54.480 David that maybe this is all under appreciated still, that 0:13:54.559 --> 0:13:56.600 this data are about to get it is still going 0:13:56.640 --> 0:13:59.080 to be unexpected to some people. How do you gauge 0:13:59.120 --> 0:14:02.480 that in this market at the moment? Well, I think 0:14:02.600 --> 0:14:05.400 the real point is that people have not seen this before. 0:14:05.440 --> 0:14:08.000 I mean, we have not seen this magnitude of fiscal 0:14:08.000 --> 0:14:11.280 stimuls along with a full pandemic recovery. It's it's completely 0:14:11.360 --> 0:14:13.880 unknown territory, So I don't think people have a good 0:14:13.880 --> 0:14:16.320 way of measuring what this is likely to do. But 0:14:16.360 --> 0:14:18.040 I think the important point is if you've got all 0:14:18.040 --> 0:14:20.160 the stimulus, it's can only go in one of two places. 0:14:20.240 --> 0:14:23.240 It's either going to get push up real output or 0:14:23.280 --> 0:14:26.000 it's going to push up inflation um and either of 0:14:26.040 --> 0:14:31.000 those you know scenarios, uh you know does benefitsypnical stocks, 0:14:31.120 --> 0:14:33.400 does suggest higher interest rates. So I think one way 0:14:33.480 --> 0:14:35.040 the other we're going to get higher interest rates out 0:14:35.040 --> 0:14:36.960 of this. And I think that it's just because this 0:14:37.040 --> 0:14:40.080 is so new and there's still such uncertainty about how 0:14:40.120 --> 0:14:42.600 an economy recovers from a pandemic. I think that's why 0:14:42.640 --> 0:14:45.480 people are under appreciating it right now. That's the mystery 0:14:45.480 --> 0:14:46.840 of what's about to happen in the next couple of 0:14:46.840 --> 0:14:49.520 months is how people respond to the data we're about 0:14:49.520 --> 0:14:51.640 to see. What's your game plan? How do you think 0:14:51.680 --> 0:14:53.600 people will respond to the data were about to see 0:14:53.600 --> 0:14:56.120 the payroll sprint which could be huge this coming Friday, 0:14:56.360 --> 0:14:59.320 inflation print when the base effects start a kick in 0:14:59.320 --> 0:15:02.600 this month and next. Well, obviously know you know people 0:15:02.600 --> 0:15:04.760 have to keep an eye on on their tax exposure. 0:15:04.760 --> 0:15:06.840 But if you can rebounce to make sure you're not 0:15:07.000 --> 0:15:10.080 underweight value, to make sure you're not underweighted international, to 0:15:10.160 --> 0:15:13.320 make sure you're not overweight the most you know, the 0:15:13.400 --> 0:15:16.160 highest pe and the most exuberant sectors of the economy. 0:15:16.200 --> 0:15:18.760 Because you know what we what we're seeing right now, 0:15:19.000 --> 0:15:21.440 you know in the story you're just covering is to 0:15:21.560 --> 0:15:23.920 something said part of a much broader story, which is, 0:15:23.960 --> 0:15:27.280 if you have a mismatch of lots of exuberance and 0:15:27.360 --> 0:15:29.800 lots of liquidity, you end up with excess leverage and 0:15:29.800 --> 0:15:32.080 bad things happen. And you can think of plenty of 0:15:32.160 --> 0:15:35.640 various markets where people are too exuberant and that exuberance 0:15:35.720 --> 0:15:38.200 is being fed by low interest rates, and those low 0:15:38.240 --> 0:15:40.680 interest rates are going to go away over time, and 0:15:40.760 --> 0:15:43.280 I think that's what people really need to pay attention to. Here, 0:15:43.520 --> 0:15:47.200 walk down the income statement. Dr Kelly, I'm gonna get revenue. 0:15:47.240 --> 0:15:49.760 I'm going to get organic revenue growth like I've never 0:15:49.760 --> 0:15:53.760 seen before. And into Q two, Q three, Q four, 0:15:54.560 --> 0:15:57.840 do we get margin compression down the balance sheet or 0:15:57.880 --> 0:16:01.520 does revenues just drift away? Which is I think the 0:16:01.560 --> 0:16:04.440 margin compression comes a little later. I mean, we're going 0:16:04.480 --> 0:16:07.520 to have such a surgeon demand over the second third, 0:16:07.600 --> 0:16:10.960 fourth quarters, first quarter of next year. At the same time, 0:16:11.040 --> 0:16:13.040 you know, I think the Fed has put out this 0:16:13.120 --> 0:16:16.400 forward guidance which forces them to be, you know, easier 0:16:16.440 --> 0:16:18.600 than they really should be. And so I think rates 0:16:18.640 --> 0:16:21.560 will rise, but just a little slower. And and particularly 0:16:21.600 --> 0:16:23.440 because you know so many companies have locked in long 0:16:23.520 --> 0:16:26.440 term financing, I don't think that squeezes margins too much. 0:16:26.680 --> 0:16:28.880 And we'll also see wage growth pick up, but again 0:16:29.160 --> 0:16:31.160 it's going to take a while these things lack of it. 0:16:31.240 --> 0:16:33.680 So I think the real margin pressure is going to 0:16:33.800 --> 0:16:37.360 come in two particularly as the economy then slows down again. 0:16:37.440 --> 0:16:38.920 I mean, what we've got right now is a crull, 0:16:39.280 --> 0:16:42.600 then a surgeon, and then a normalization. It's that normalization 0:16:42.920 --> 0:16:44.840 later on in twenty twenty two, which I think will 0:16:44.960 --> 0:16:47.240 so down Profit group. But right now profit growth looks 0:16:47.240 --> 0:16:50.000 extremely strong for this year. It's the eight point on 0:16:50.080 --> 0:16:52.600 my dashboard. David. When is David get back to the office. 0:16:52.840 --> 0:16:56.160 When does that happen? I'm thinking the middle of summer, 0:16:57.400 --> 0:17:03.840 summer twenty one three one, and I want, want, want 0:17:03.840 --> 0:17:05.800 to get back to and we say good morning to 0:17:05.920 --> 0:17:09.480 Mr Diamond, David, Thank you, David Kenny J F. Mulganasid Management, 0:17:09.480 --> 0:17:19.480 Shape Glove Strategists. Right now on Suez and our assumptions 0:17:19.480 --> 0:17:22.359 of hydrocarbon's is Stephen Shork of the Shork Report. He 0:17:22.400 --> 0:17:27.880 writes a hyper detailed inside Baseball Hydrocarbon Report. I don't 0:17:27.960 --> 0:17:30.720 understand two thirds of it, but I do understand that 0:17:30.800 --> 0:17:35.840 Stephen short is encyclopedic and how oil moves around this world, 0:17:36.359 --> 0:17:40.440 how open seas Steve Shark are are open seas right 0:17:40.480 --> 0:17:44.000 now when we see Suez shut down or the tensions 0:17:44.040 --> 0:17:47.760 of the South China Sea. Absolutely, Tom, it's great to 0:17:47.760 --> 0:17:50.120 be here. Thank you, and indeed with what we're looking 0:17:50.160 --> 0:17:52.960 at with Suez. We're talking about one tenth of the 0:17:52.960 --> 0:17:57.600 global trade in seaborn oil transits through the Suez Canal. 0:17:58.080 --> 0:18:01.359 A good deal about oil coming out of the Middle East, 0:18:01.440 --> 0:18:05.640 Saudi Arabia, create so forth going to markets in Europe 0:18:05.800 --> 0:18:09.760 and in the United States. So with the blockage, some 0:18:09.960 --> 0:18:12.440 I I understand, are papusing it. They're saying it's only 0:18:12.520 --> 0:18:15.919 ten percent, it's a minimus amount relative to the global trade. 0:18:16.560 --> 0:18:20.280 I will disagree. Uh. So the question now is that 0:18:20.720 --> 0:18:24.200 in a market that is as tightly traded as oil, 0:18:24.320 --> 0:18:27.960 any sort of disruption, let alone every ten barrels is 0:18:28.000 --> 0:18:33.520 not an in comparing contrasts to self China, see wrapping 0:18:33.880 --> 0:18:36.159 around the Straits of Malacca and up north of the 0:18:36.160 --> 0:18:41.040 Pacific rim with Suez Canal. Yeah, these are are significantly 0:18:41.800 --> 0:18:45.119 those two points at they're very narrow waterways where and 0:18:45.200 --> 0:18:48.240 they're global trade routes. Uh And there are two of 0:18:48.440 --> 0:18:51.960 the most important potential choke points with the global trade, 0:18:52.000 --> 0:18:54.640 not just in oil, but of course in all commodities. 0:18:54.880 --> 0:18:57.640 And I think that is really the story here when 0:18:57.640 --> 0:18:59.960 it comes to oil, whether it's at Suez or South. 0:19:00.040 --> 0:19:02.159 Trying to see South, trying to see straits, and the 0:19:02.200 --> 0:19:04.720 lock of course, is extremely important because all of your 0:19:04.760 --> 0:19:08.359 demand growth for oil and for consumer goods is primarily 0:19:08.400 --> 0:19:12.640 being driven by Asia. So to that standpoint, this while 0:19:12.760 --> 0:19:15.719 the headline of Suez and so forth is a supply 0:19:15.840 --> 0:19:19.600 side story, the overarching story in the oil market has 0:19:19.640 --> 0:19:22.280 been and will continue to be for the psillable future 0:19:22.600 --> 0:19:25.600 on the demand side. And this is where the issue 0:19:25.920 --> 0:19:30.480 really persist, because we forgot a bibrocated demand scenario here 0:19:30.480 --> 0:19:33.520 in the United States. The macro economic headlines we've been 0:19:33.520 --> 0:19:37.040 seeing have been very positive. Now keep in mind that 0:19:37.200 --> 0:19:39.800 over the next month, when we get the the ice 0:19:39.800 --> 0:19:41.760 storms and the debacle that we saw in the Mid 0:19:41.800 --> 0:19:44.760 Continent and the power markets last month, that's going to 0:19:44.800 --> 0:19:47.400 be factored into the next batch of numbers. But overall, 0:19:47.480 --> 0:19:50.520 that's a one off event, and the general trend is 0:19:50.560 --> 0:19:53.640 extremely positive for demands here in the US, and that's 0:19:53.640 --> 0:19:56.720 a great story, and it's bullish for commodities. On the 0:19:56.720 --> 0:20:00.040 other hand, you have the kind of sloppy rollout of 0:20:00.040 --> 0:20:02.640 the vaccinations in Europe. You have parts of the European 0:20:02.680 --> 0:20:06.720 economy once again shutting down the fear of actintagent spreading. 0:20:07.200 --> 0:20:10.560 So regardless of the supply, the supply situation will be 0:20:10.760 --> 0:20:14.119 fixed in the foreseeable future. The big question now remains 0:20:14.160 --> 0:20:16.119 under the demand side, Stephen. I hope you can indulge 0:20:16.200 --> 0:20:18.000 me just a little bit. When it comes to commodities 0:20:18.000 --> 0:20:20.360 and all we're talking about tankers going through the Suez. 0:20:20.400 --> 0:20:22.320 Can we talk about container shipping just for a moment. 0:20:22.320 --> 0:20:23.640 I hope you could just weigh in on this, because 0:20:23.640 --> 0:20:25.680 I think it's so important. Beyond what's happened in the 0:20:25.760 --> 0:20:27.600 last couple of weeks, what we saw coming into the 0:20:27.600 --> 0:20:30.680 new year was container shipping costs absolutely go through the roof. 0:20:31.080 --> 0:20:34.120 We've seen the same with air freight as well. Clearly, 0:20:34.280 --> 0:20:36.640 there was a massive demand slump twelve months ago, then 0:20:36.680 --> 0:20:39.440 a huge inventory rebuild and increased demand off the back 0:20:39.440 --> 0:20:41.359 of that. In your mind, Stephen, how long does it 0:20:41.359 --> 0:20:43.000 take to work out some of these kings in the 0:20:43.040 --> 0:20:45.359 supply chain, work out some of this demand to be 0:20:45.400 --> 0:20:48.960 met with supply in the months to come. Yeah, absolutely, Jonathan. 0:20:49.000 --> 0:20:51.280 And to your point, the numbers that we're seeing out 0:20:51.280 --> 0:20:53.600 of your DADA being kept by the Federal Reserve Bank 0:20:53.600 --> 0:20:56.320 of Saint Louis. With regard to your point air freight 0:20:56.359 --> 0:20:59.800 travel and in shipping channels, I mean the amount of 0:21:00.000 --> 0:21:03.160 goods being shipped on US waterways on US flagged barges 0:21:03.760 --> 0:21:06.320 UH is surging right now. And again this goes to 0:21:06.359 --> 0:21:08.840 my thesis of a very strong demand picture here in 0:21:08.880 --> 0:21:12.160 the United States. But to your point, demand is strong, 0:21:12.320 --> 0:21:15.160 but there's only so much of an ability of capacity 0:21:15.520 --> 0:21:18.479 to move these cargoes. For instance, when we look at 0:21:18.480 --> 0:21:21.520 the ports of Long Beach in Los Angeles in southern California, 0:21:21.840 --> 0:21:24.399 those are the two largest container points for t e 0:21:24.680 --> 0:21:28.120 U S t e U s or twenty foot equivalent units. Basically, 0:21:28.160 --> 0:21:30.280 those are the metal boxes that you see on top 0:21:30.359 --> 0:21:34.040 of the Evergreen ship stuck in the Suez. That is 0:21:34.080 --> 0:21:37.040 a picture or a snapshot of the global trade. And 0:21:37.080 --> 0:21:39.720 when we look at these numbers UH, and these numbers 0:21:39.720 --> 0:21:41.399 are very important here in the United States in the 0:21:41.440 --> 0:21:44.200 months of July and August because that's all the goods 0:21:44.200 --> 0:21:48.080 coming into the ports of Southern California coming from Asia 0:21:48.440 --> 0:21:50.520 and this is always a great bell weather for retail 0:21:50.600 --> 0:21:53.159 demand in the fourth quarter going into the holidays. And 0:21:53.160 --> 0:21:55.960 so when we look at these numbers, we've been smashing 0:21:56.080 --> 0:21:59.119