1
00:00:00,800 --> 00:00:04,040
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

2
00:00:04,040 --> 00:00:06,920
Speaker 1: my co host Matt Miller. Every business day, we bring

3
00:00:06,960 --> 00:00:11,520
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

4
00:00:11,560 --> 00:00:15,600
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

5
00:00:15,640 --> 00:00:18,479
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

6
00:00:18,480 --> 00:00:23,160
Speaker 1: at Bloomberg dot com slash podcast. Looking at the equity markets,

7
00:00:23,200 --> 00:00:25,959
Speaker 1: we are at or near all time highs, but there's

8
00:00:25,960 --> 00:00:28,520
Speaker 1: definitely some concerned building in this marketplace that maybe it

9
00:00:28,640 --> 00:00:31,280
Speaker 1: is overheated. You can look no further, maybe than some

10
00:00:31,320 --> 00:00:33,760
Speaker 1: of the blowups we've seen just recently, whether it's the

11
00:00:33,840 --> 00:00:37,240
Speaker 1: Archegos from last week, Melvin Capital on all the Reddit stocks,

12
00:00:37,240 --> 00:00:39,159
Speaker 1: and some others. Here to help us put it all

13
00:00:39,159 --> 00:00:41,839
Speaker 1: on perspective, we welcome Ben Hunt. He's co founder and

14
00:00:41,920 --> 00:00:45,320
Speaker 1: chief investment officer of Second Foundation Partners. He's also the

15
00:00:45,360 --> 00:00:49,600
Speaker 1: creator and author for Epsilon Theory newsletter and website based

16
00:00:49,600 --> 00:00:52,040
Speaker 1: in Reading, Connecticut. So Ben is, as you take a

17
00:00:52,080 --> 00:00:56,160
Speaker 1: look at you know, whether it's Greensial or Archegos or

18
00:00:56,320 --> 00:00:59,160
Speaker 1: Melvin Capital, what do you see when you see some

19
00:00:59,240 --> 00:01:02,080
Speaker 1: of those kind of blow ups in the market Yeah, well,

20
00:01:02,240 --> 00:01:04,360
Speaker 1: thanks for having me on to talk about this, Paul, I.

21
00:01:04,360 --> 00:01:08,840
Speaker 1: I appreciate that. You know, you know, I obviously all

22
00:01:08,880 --> 00:01:11,520
Speaker 1: three of these, right, So Melvine Capital, as you mentioned,

23
00:01:11,520 --> 00:01:14,039
Speaker 1: that's that's Gabe Plotkin's hedge fund that was at the

24
00:01:14,040 --> 00:01:20,560
Speaker 1: epicenter of the Game Stop robin Hood debacle. Right. You've

25
00:01:20,600 --> 00:01:26,120
Speaker 1: got Green Silk Capital with supposedly you know, supply chain

26
00:01:26,560 --> 00:01:31,080
Speaker 1: financing uh, and then most recently you've got Archagos UH

27
00:01:31,560 --> 00:01:36,400
Speaker 1: and and whatever that was. Right, And certainly these are

28
00:01:36,440 --> 00:01:38,319
Speaker 1: all a little different. I mean, I guess it was,

29
00:01:38,480 --> 00:01:41,679
Speaker 1: I forget who it was, the Tolstoy. Every unhappy family

30
00:01:41,800 --> 00:01:45,319
Speaker 1: is unhappy in its own way, right, so so you know,

31
00:01:45,400 --> 00:01:48,440
Speaker 1: they're they're clearly differences in the situation of all three

32
00:01:48,440 --> 00:01:53,560
Speaker 1: of these, but there's also really important similarity. And that similarity,

33
00:01:53,680 --> 00:01:59,360
Speaker 1: I think is that all three of these institutions were

34
00:02:00,080 --> 00:02:05,680
Speaker 1: levered to the hilt funded by other financial institutions. And

35
00:02:05,840 --> 00:02:10,040
Speaker 1: I and I think that sort of leverage is at

36
00:02:10,040 --> 00:02:13,480
Speaker 1: the heart of the demise, or, at least in the

37
00:02:13,520 --> 00:02:16,240
Speaker 1: case of Melvin, the misfortune that that that all three

38
00:02:16,280 --> 00:02:19,080
Speaker 1: of them have had ben Correct me if I'm wrong,

39
00:02:19,120 --> 00:02:21,920
Speaker 1: and if I'm stepping out a line. But it is

40
00:02:22,120 --> 00:02:24,880
Speaker 1: very easy in times like these to blame the Fed.

41
00:02:25,040 --> 00:02:30,519
Speaker 1: They've pumped up this market with unlimited quei, unlimited stimulus.

42
00:02:30,520 --> 00:02:33,960
Speaker 1: Everyone is fomo. We all have confetti emojis when we

43
00:02:34,040 --> 00:02:37,400
Speaker 1: make trades. How much of this is a problem because

44
00:02:37,560 --> 00:02:43,720
Speaker 1: money is too easy? Well, look, I mean this is

45
00:02:43,760 --> 00:02:46,240
Speaker 1: always this issue, right, I mean, this is the punch bowl.

46
00:02:46,880 --> 00:02:51,280
Speaker 1: And what happens when you've got uh an unlimited punch

47
00:02:51,320 --> 00:02:55,079
Speaker 1: bowl with spite with with with pure grade alcohol. Well,

48
00:02:55,200 --> 00:02:58,720
Speaker 1: you know, people get drunk and and I think that's

49
00:02:58,760 --> 00:03:02,640
Speaker 1: what we have being represented market today. But but look,

50
00:03:02,639 --> 00:03:05,400
Speaker 1: it's it's yes, you're you're so right easy to blame

51
00:03:05,400 --> 00:03:08,800
Speaker 1: the fat And frankly, I do think that zero interest

52
00:03:08,880 --> 00:03:13,239
Speaker 1: rate policy for so long has to have these sort

53
00:03:13,240 --> 00:03:16,240
Speaker 1: of consequences that we're seeing today. But but I think

54
00:03:16,240 --> 00:03:19,280
Speaker 1: it also goes beyond the fat Taylor. Honestly, I think

55
00:03:19,280 --> 00:03:21,240
Speaker 1: that one of the big reasons that that we are

56
00:03:21,280 --> 00:03:25,440
Speaker 1: in this situation is that the lenders, the people who

57
00:03:25,440 --> 00:03:29,080
Speaker 1: are extending the leverage that's being gobbled up by the

58
00:03:29,360 --> 00:03:31,760
Speaker 1: bill loongs of the world or the gay Plotkins of

59
00:03:31,800 --> 00:03:35,960
Speaker 1: the world. You know, it means something when we talk

60
00:03:36,040 --> 00:03:38,600
Speaker 1: about too big to fail. It means something when we

61
00:03:38,640 --> 00:03:45,400
Speaker 1: talk about these systemically import financial institutions. They can extend

62
00:03:45,520 --> 00:03:50,440
Speaker 1: this leverage. They can take these losses without frankly, taking

63
00:03:50,440 --> 00:03:54,360
Speaker 1: the consequences of bad risk management and bad decision making.

64
00:03:55,840 --> 00:04:00,360
Speaker 1: All right, so the bullmarket been for this market is

65
00:04:00,400 --> 00:04:03,200
Speaker 1: pretty clear for most investors. And then you know in

66
00:04:03,240 --> 00:04:05,960
Speaker 1: whether it's the FED with low low interest rates, fiscal stimulus,

67
00:04:06,000 --> 00:04:08,400
Speaker 1: the reopening trade, and we all know the bull case. Here,

68
00:04:09,320 --> 00:04:13,800
Speaker 1: where is the risk in that bulk case? From your perspective,

69
00:04:13,840 --> 00:04:16,280
Speaker 1: it seems it's pretty clear to a lot of investors.

70
00:04:16,360 --> 00:04:20,360
Speaker 1: But where do you see the risk in that bull call? Well, look,

71
00:04:20,400 --> 00:04:23,760
Speaker 1: the risk is is where the risk always is right,

72
00:04:23,800 --> 00:04:30,400
Speaker 1: which is the uh can the party go on forever?

73
00:04:31,080 --> 00:04:34,599
Speaker 1: The risk is always what happens as as we're seeing

74
00:04:34,640 --> 00:04:41,039
Speaker 1: some examples today of the enormous losses that are made

75
00:04:41,120 --> 00:04:45,400
Speaker 1: possible by the use of leverage. Uh. You know what

76
00:04:45,440 --> 00:04:49,479
Speaker 1: we're experiencing today, I think is a reversal and a

77
00:04:49,600 --> 00:04:53,719
Speaker 1: number of the I'll call them correlations, but but but

78
00:04:53,800 --> 00:04:58,640
Speaker 1: really what they are these gigantic economic barges that have

79
00:04:58,680 --> 00:05:00,960
Speaker 1: been sailing in the same direct action for like thirty

80
00:05:01,000 --> 00:05:05,160
Speaker 1: or forty years. I'm talking about inflation expectations, moving from

81
00:05:05,200 --> 00:05:09,760
Speaker 1: expectations of deflation to inflation. You're seeing that being reflected

82
00:05:09,760 --> 00:05:13,080
Speaker 1: in interest rates. I'm talking about the reversal and globalization,

83
00:05:13,680 --> 00:05:20,840
Speaker 1: this massive force for deflation, but also for these the

84
00:05:21,160 --> 00:05:26,200
Speaker 1: supply chains, supply finance, trade finance. It's been a one

85
00:05:26,240 --> 00:05:32,159
Speaker 1: way market in both inflation expectations and globalization for thirty

86
00:05:32,240 --> 00:05:34,880
Speaker 1: or forty years, and I think we're clearly seeing signs

87
00:05:34,880 --> 00:05:38,760
Speaker 1: that those one way bets are shifting. So that's why

88
00:05:38,800 --> 00:05:41,640
Speaker 1: I think that that well, that's what I think could

89
00:05:41,839 --> 00:05:45,320
Speaker 1: cause went to pay the piper. With the enormous amount

90
00:05:45,320 --> 00:05:48,200
Speaker 1: of leverage that's being extended to so many of these

91
00:05:48,440 --> 00:05:51,599
Speaker 1: investment firms, how much of this two comes down to

92
00:05:51,680 --> 00:05:54,839
Speaker 1: the need for transparency. I just watched that great I

93
00:05:54,839 --> 00:05:57,760
Speaker 1: think it was a PBS documentary about Brooksley Born and

94
00:05:57,839 --> 00:06:01,799
Speaker 1: long term capital management. And I met Taylor Riggs Capital Management,

95
00:06:01,800 --> 00:06:03,920
Speaker 1: and I know what I've lent you, and Paul Sweeney

96
00:06:03,920 --> 00:06:06,880
Speaker 1: at his Capital Management knows what he's lent you. But

97
00:06:07,040 --> 00:06:10,240
Speaker 1: he and I have no idea what we have combined

98
00:06:10,360 --> 00:06:16,680
Speaker 1: collectively lent you. And therein lies the problem. Well, I'll

99
00:06:16,680 --> 00:06:19,600
Speaker 1: say that that's a problem in two respects. One, it's

100
00:06:19,640 --> 00:06:25,120
Speaker 1: a problem that our regulators are are are not seemingly

101
00:06:25,320 --> 00:06:31,240
Speaker 1: able to provide or capture that that sort of of transparencies.

102
00:06:31,279 --> 00:06:33,400
Speaker 1: You're saying, that sort of visibilities that we can know

103
00:06:34,360 --> 00:06:38,280
Speaker 1: what risks exist in the market. But but I'll also

104
00:06:38,279 --> 00:06:40,159
Speaker 1: say it gets back to this this notion of being

105
00:06:40,160 --> 00:06:43,480
Speaker 1: too big to sail. You know, you know you're never

106
00:06:43,480 --> 00:06:47,680
Speaker 1: gonna stop investment banks or prime brokers from taking risk.

107
00:06:48,040 --> 00:06:50,120
Speaker 1: We wouldn't want to. We wouldn't want to stop that, right.

108
00:06:50,800 --> 00:06:52,839
Speaker 1: But I think it's very different. We live in a

109
00:06:52,880 --> 00:06:55,880
Speaker 1: world of today where I don't know that we can

110
00:06:56,000 --> 00:06:59,360
Speaker 1: have a Bear Stearns moment, right. I don't know that

111
00:06:59,440 --> 00:07:03,760
Speaker 1: it's paul sable for a prime broker today too, you know,

112
00:07:04,080 --> 00:07:08,080
Speaker 1: to extend so much leverage that that they get taken

113
00:07:08,080 --> 00:07:11,200
Speaker 1: out in the street and shot. Huh and and and

114
00:07:11,240 --> 00:07:14,600
Speaker 1: it's a yeah, right right, absolutely, we hope not. But

115
00:07:14,680 --> 00:07:18,480
Speaker 1: what I would say is that if if that ultimate

116
00:07:18,800 --> 00:07:24,200
Speaker 1: um penalty doesn't exist, then I think that takes away

117
00:07:24,280 --> 00:07:26,679
Speaker 1: kind of the motivation of the banks to say, hey,

118
00:07:26,760 --> 00:07:28,640
Speaker 1: let me let me do a little more digging here,

119
00:07:28,680 --> 00:07:31,000
Speaker 1: and let me let me have a conversation with other

120
00:07:31,040 --> 00:07:34,200
Speaker 1: banks about how much leverage they're extending to this guy

121
00:07:34,280 --> 00:07:36,440
Speaker 1: or that guy. I think it comes back to that

122
00:07:36,480 --> 00:07:38,920
Speaker 1: too big to sail notion. All right, Ben, thanks so

123
00:07:39,000 --> 00:07:41,480
Speaker 1: much for joining so we appreciate your thoughts here on

124
00:07:41,720 --> 00:07:45,280
Speaker 1: these markets. Ben Hunt, co founder and chief investment officer

125
00:07:45,360 --> 00:07:52,080
Speaker 1: of Second Foundation Partners. Let's all recent news that Goldman

126
00:07:52,120 --> 00:07:55,960
Speaker 1: Sachs called quit on a dollar short the currency team

127
00:07:55,960 --> 00:07:58,840
Speaker 1: closed it's recommended short green back position against a basket

128
00:07:58,840 --> 00:08:02,400
Speaker 1: of G ten come any currencies, including the Aussie and Kiwi,

129
00:08:02,600 --> 00:08:05,880
Speaker 1: in a note titled Tactical Retreat. Let's get some color

130
00:08:06,080 --> 00:08:09,160
Speaker 1: on those currency markets. We do that with Dr Win Thin,

131
00:08:09,480 --> 00:08:13,440
Speaker 1: global head Currency Strategy at Brown Brothers Harriman. Uh when

132
00:08:13,520 --> 00:08:15,160
Speaker 1: thanks so much for joining us here. What do you

133
00:08:15,200 --> 00:08:19,480
Speaker 1: make of that Goldman call there on the dollar? Oh,

134
00:08:19,520 --> 00:08:21,040
Speaker 1: first of all, thanks for having me. It's always it's

135
00:08:21,040 --> 00:08:23,880
Speaker 1: always a pleasure to be on here. Um. You know,

136
00:08:23,960 --> 00:08:26,240
Speaker 1: I think they pretty much had to acknoledge the inevitable.

137
00:08:26,320 --> 00:08:29,040
Speaker 1: Now I can't fault like the original call because think

138
00:08:29,080 --> 00:08:30,840
Speaker 1: about you know, this is anty history, but think about

139
00:08:30,840 --> 00:08:34,360
Speaker 1: where we started the year. January one, the US virus

140
00:08:34,440 --> 00:08:38,920
Speaker 1: numbers were exploding vaccines were nowhere being rolled out. Um,

141
00:08:39,240 --> 00:08:42,160
Speaker 1: most of the con was closed. Um, we're looking at

142
00:08:42,200 --> 00:08:44,480
Speaker 1: it at a split government and all of a sudden

143
00:08:44,600 --> 00:08:47,520
Speaker 1: June six have even changed. And you know that if

144
00:08:47,880 --> 00:08:49,319
Speaker 1: a lot of things happened that day, but the main

145
00:08:49,320 --> 00:08:51,400
Speaker 1: thing that happened was that was the day after the

146
00:08:51,440 --> 00:08:56,000
Speaker 1: Georgia send It runoffs and we got um, the Democrats swept,

147
00:08:56,679 --> 00:08:58,160
Speaker 1: and we're seeing the fruits to that right now. We

148
00:08:58,480 --> 00:09:02,240
Speaker 1: saw an aggressive fiscal package already, we're talking about another

149
00:09:02,520 --> 00:09:05,680
Speaker 1: two trillion infrastructure spending, another one coming after that. So

150
00:09:06,160 --> 00:09:09,120
Speaker 1: one onom line is that the US economic outlook is

151
00:09:09,280 --> 00:09:12,400
Speaker 1: much much better than it was when we started the year. UM.

152
00:09:12,480 --> 00:09:15,200
Speaker 1: The two twenty was clearly dollar negative. We did a

153
00:09:15,240 --> 00:09:17,920
Speaker 1: terrible job with the pandemic. But really we've seen one

154
00:09:17,960 --> 00:09:20,520
Speaker 1: eight over there over Q one, and I think the dollar,

155
00:09:20,960 --> 00:09:24,360
Speaker 1: equity market, spawn markets are all reflecting this. This really

156
00:09:24,480 --> 00:09:28,520
Speaker 1: a new outlook. UM. Effects is certainly part of that trade. Now,

157
00:09:28,920 --> 00:09:31,960
Speaker 1: how are you thinking about the impacts on e M.

158
00:09:31,960 --> 00:09:34,360
Speaker 1: Where we thought we were going to have big dollar weakness,

159
00:09:34,400 --> 00:09:36,720
Speaker 1: we ended up not. We had some dollar strength. You

160
00:09:36,760 --> 00:09:39,400
Speaker 1: have some rising yields here in the US. As you

161
00:09:39,440 --> 00:09:44,480
Speaker 1: think about capital flows and relative attractiveness. How then, does

162
00:09:44,520 --> 00:09:48,080
Speaker 1: this change the outlook for emerging markets. Yeah, that's a

163
00:09:48,120 --> 00:09:51,440
Speaker 1: great question because you know it's it's I think that

164
00:09:51,480 --> 00:09:54,400
Speaker 1: the drivers to e M are in stense constlickting right now.

165
00:09:54,440 --> 00:09:57,760
Speaker 1: So the global growth story again it's not just the US,

166
00:09:58,080 --> 00:09:59,960
Speaker 1: but you know, China is doing well, Japan is starting

167
00:10:00,000 --> 00:10:03,439
Speaker 1: pick up um. The global growth outlook is is very

168
00:10:03,480 --> 00:10:06,360
Speaker 1: positive for e M UM. You know, we're seeing strong exports,

169
00:10:06,400 --> 00:10:09,720
Speaker 1: have Taiwan, Korea, high commodity prices, and that's all great,

170
00:10:09,880 --> 00:10:13,559
Speaker 1: you know well and good for em UM. But in

171
00:10:13,679 --> 00:10:16,600
Speaker 1: terms of currency, the strong dollar definitely, you know, throws

172
00:10:16,600 --> 00:10:18,360
Speaker 1: a monkey you mentioned into it. You know, it's it's

173
00:10:18,679 --> 00:10:21,600
Speaker 1: there are times when the dollar can diverge against the majors,

174
00:10:21,640 --> 00:10:24,120
Speaker 1: against em but right now it seems to be sort

175
00:10:24,120 --> 00:10:26,880
Speaker 1: of you know, full on dollar strength UM. And that's

176
00:10:26,880 --> 00:10:29,400
Speaker 1: not to say that's bad for for em you know,

177
00:10:29,480 --> 00:10:32,880
Speaker 1: some your currency UM exchange ways is actually not bad

178
00:10:32,920 --> 00:10:35,160
Speaker 1: for e M. I think many of the policymakers in

179
00:10:35,360 --> 00:10:38,840
Speaker 1: the emerging markets were concerned about the week dollars strong

180
00:10:38,880 --> 00:10:40,920
Speaker 1: local currencies, and I think they're sort of getting almost

181
00:10:40,920 --> 00:10:43,600
Speaker 1: getting in a sweet spot. So I would say negative

182
00:10:43,640 --> 00:10:47,000
Speaker 1: on EM currencies, but positive on EM equities and e

183
00:10:47,200 --> 00:10:50,160
Speaker 1: M growth. All right, when how about you know, we

184
00:10:50,200 --> 00:10:52,920
Speaker 1: talked about dollar strength. Where do you see opportunities in

185
00:10:53,080 --> 00:10:56,120
Speaker 1: some G ten currencies here where some where are you

186
00:10:56,160 --> 00:10:59,880
Speaker 1: guys doing some work? Sure so, UM, I think the

187
00:11:00,000 --> 00:11:02,320
Speaker 1: all will will will really do best against sort of

188
00:11:02,320 --> 00:11:05,920
Speaker 1: the big the big three. That would be a sterling, euro, yen,

189
00:11:06,160 --> 00:11:08,800
Speaker 1: and we've seen that in the sort of the UH

190
00:11:08,880 --> 00:11:11,240
Speaker 1: you know REU to date performance. But where I see

191
00:11:11,240 --> 00:11:15,320
Speaker 1: some performance within the majors is the UM dollar block

192
00:11:15,400 --> 00:11:16,719
Speaker 1: and scandies. And it goes back to what I just

193
00:11:16,720 --> 00:11:18,800
Speaker 1: said about EM and that's the similar things would hold

194
00:11:18,800 --> 00:11:21,599
Speaker 1: for the sort of these growth sensitive major currency. You know,

195
00:11:21,640 --> 00:11:26,720
Speaker 1: obviously can the Cadian dollar, um naki are oil related

196
00:11:27,000 --> 00:11:32,160
Speaker 1: very positive there? Um you know, uh, Swedish krona um

197
00:11:32,320 --> 00:11:35,400
Speaker 1: AUSSI key we you know, kind of keyed into Chinese

198
00:11:35,400 --> 00:11:38,280
Speaker 1: and global growth. So those currencies can outperform. But again

199
00:11:38,280 --> 00:11:41,520
Speaker 1: it's would be very hard sort of um you know,

200
00:11:41,559 --> 00:11:44,440
Speaker 1: I think really gain against when the dollars is just

201
00:11:44,480 --> 00:11:47,120
Speaker 1: on such a tear. Um you know, I think you know,

202
00:11:47,160 --> 00:11:50,480
Speaker 1: the Q two outlook UH is really strong for growth

203
00:11:50,559 --> 00:11:52,360
Speaker 1: right now we're talking about seven percent. I think it's

204
00:11:52,400 --> 00:11:55,320
Speaker 1: key senses carrying over to seven percent in two three,

205
00:11:55,320 --> 00:11:58,320
Speaker 1: and that's when the rest of the you know, when

206
00:11:58,360 --> 00:12:00,200
Speaker 1: most of Europe is struggling. That you know, that's sort

207
00:12:00,200 --> 00:12:02,120
Speaker 1: of the other part of the equation. You know, France

208
00:12:02,160 --> 00:12:05,600
Speaker 1: just went back into lockdown, Germany Itaier extended there, you know,

209
00:12:05,640 --> 00:12:08,800
Speaker 1: the limited lockdown. So you know, the European outlook. Um,

210
00:12:08,840 --> 00:12:11,800
Speaker 1: you know x x UK is really quite poor right now,

211
00:12:11,800 --> 00:12:13,800
Speaker 1: and so you know, I think that we can really

212
00:12:13,800 --> 00:12:17,360
Speaker 1: see this performance against the euro and to lesser extent

213
00:12:17,960 --> 00:12:22,360
Speaker 1: agen sterling. But but you know, the growth sensitive majors

214
00:12:22,559 --> 00:12:26,120
Speaker 1: kind of holding up. Okay quickly here the yen hedge

215
00:12:26,120 --> 00:12:30,080
Speaker 1: funds boosting their short yen bets to the highest in

216
00:12:30,120 --> 00:12:33,640
Speaker 1: two years. Is this a traditional and still safe haven

217
00:12:33,720 --> 00:12:36,880
Speaker 1: or is there something else going on? Well no, I

218
00:12:36,920 --> 00:12:39,920
Speaker 1: think um really, uh, we're kind of unwinding that safe

219
00:12:39,960 --> 00:12:42,319
Speaker 1: haven right So the short sirred record high, So I

220
00:12:42,320 --> 00:12:44,160
Speaker 1: think people are so you know, I think we're seeing

221
00:12:44,240 --> 00:12:47,199
Speaker 1: similar price action in the swissy as well. We're moving

222
00:12:47,200 --> 00:12:49,040
Speaker 1: out of the safe havens and more into the sort

223
00:12:49,080 --> 00:12:52,920
Speaker 1: of you know growth um, you know, cyclical type currencies. UM,

224
00:12:52,960 --> 00:12:56,720
Speaker 1: so I think it's yen uh dollar yen rise again.

225
00:12:56,760 --> 00:13:00,400
Speaker 1: Weakness can continue. We've got to march high the eleven

226
00:13:00,559 --> 00:13:03,360
Speaker 1: one eleven seventy. I wanna go even further. We're looking

227
00:13:03,400 --> 00:13:06,120
Speaker 1: at a two eighteen higher on one five. But you know,

228
00:13:06,160 --> 00:13:08,640
Speaker 1: let's take things one steparate time. UM, let's go a

229
00:13:08,679 --> 00:13:10,880
Speaker 1: quarter by quarter. But right now to me this I

230
00:13:10,880 --> 00:13:13,600
Speaker 1: think this, you know, today's weakness. Not notwithstanding, I think

231
00:13:13,600 --> 00:13:15,839
Speaker 1: it's more of a technical move. I think the fundamental

232
00:13:15,920 --> 00:13:20,760
Speaker 1: drivers remain dollar positive. I should just add one quick thing, um.

233
00:13:20,920 --> 00:13:22,840
Speaker 1: One thing that I've noticed is that the set funds

234
00:13:22,880 --> 00:13:25,719
Speaker 1: futures are starting to move up. The fet tightning expectations.

235
00:13:25,920 --> 00:13:29,320
Speaker 1: Uh hike in two three is about almost half priced

236
00:13:29,360 --> 00:13:33,240
Speaker 1: in and almost fully priced in by end twenty two UM,

237
00:13:33,240 --> 00:13:34,720
Speaker 1: which is very much of the Hodes with the dot

238
00:13:34,720 --> 00:13:38,160
Speaker 1: plots saying steady rates three. So that's at the margin

239
00:13:38,200 --> 00:13:40,760
Speaker 1: also very thirty dollar positive. So all these things are

240
00:13:40,840 --> 00:13:42,280
Speaker 1: you know, sort of falling in the place of the

241
00:13:42,280 --> 00:13:45,760
Speaker 1: dollar really sort of reversal what we saw in so

242
00:13:46,080 --> 00:13:47,840
Speaker 1: here we are, you know, taking back your dollars short.

243
00:13:48,920 --> 00:13:51,240
Speaker 1: Dr Winton, thank you so much for joinings. We always

244
00:13:51,280 --> 00:13:54,240
Speaker 1: appreciate your thoughts on the global currency market's global head

245
00:13:54,240 --> 00:13:58,360
Speaker 1: currency strategy of Brown Brothers Herriman. Let's talk about this

246
00:13:58,440 --> 00:14:01,160
Speaker 1: reopening trade. We've got lots and lots of evidence that

247
00:14:01,240 --> 00:14:04,400
Speaker 1: this economy here is reopened, but we're also seeing some

248
00:14:04,640 --> 00:14:09,320
Speaker 1: bottlenecks in supply chains, in logistics. Let's get a sense

249
00:14:09,320 --> 00:14:11,200
Speaker 1: of kind of what's going on out there in corporate America.

250
00:14:11,280 --> 00:14:14,559
Speaker 1: We could do that with Chris Dansbury, CFO Arrow Electronics.

251
00:14:14,559 --> 00:14:18,160
Speaker 1: They are based in where are they Centennial, Colorado? So

252
00:14:18,240 --> 00:14:21,000
Speaker 1: there dangerously close to some of the best skiing in

253
00:14:21,040 --> 00:14:24,520
Speaker 1: the world. Chris, thanks so much for joining us here. Briefly,

254
00:14:24,760 --> 00:14:27,640
Speaker 1: just describe Arrow Electronics for our listeners who may not

255
00:14:27,680 --> 00:14:29,280
Speaker 1: be aware of it, and then give us a sense

256
00:14:29,280 --> 00:14:33,160
Speaker 1: of kind of what you're seeing in your business. Yeah.

257
00:14:33,200 --> 00:14:35,920
Speaker 1: Great to be with you this morning. Thanks for having me.

258
00:14:36,960 --> 00:14:43,360
Speaker 1: Arrow is a distributor of semiconductor and electronic component products

259
00:14:43,440 --> 00:14:46,480
Speaker 1: around the world. You've got a really broad line card,

260
00:14:46,520 --> 00:14:50,120
Speaker 1: so we represent a broad swath of suppliers and we

261
00:14:50,200 --> 00:14:53,600
Speaker 1: help customers choose the right parts for their products. Uh.

262
00:14:53,800 --> 00:14:59,880
Speaker 1: And that can include engineering designs for you know, semiconductor

263
00:15:00,120 --> 00:15:03,920
Speaker 1: board assemblies and whatnot. That go into finished products, so

264
00:15:03,960 --> 00:15:05,920
Speaker 1: that can be everything from your toaster to your car.

265
00:15:06,840 --> 00:15:10,640
Speaker 1: Um and uh as as more and more electronic content

266
00:15:10,720 --> 00:15:16,200
Speaker 1: goes into into products, we we do see abroad view

267
00:15:16,200 --> 00:15:20,360
Speaker 1: of the overall economy. So what's interesting about where we

268
00:15:20,400 --> 00:15:24,240
Speaker 1: sit today is that as we went into two thousand nineteen,

269
00:15:24,280 --> 00:15:26,360
Speaker 1: if we wanted to clock back a couple of years,

270
00:15:27,360 --> 00:15:30,880
Speaker 1: the market went into just a cyclical decline and so

271
00:15:31,040 --> 00:15:36,120
Speaker 1: people leaned out inventories, our customers leaned out inventories. Uh

272
00:15:36,280 --> 00:15:38,160
Speaker 1: that looked like it was about to recover at the

273
00:15:38,200 --> 00:15:41,720
Speaker 1: beginning of last year, and then the pandemic hit and

274
00:15:41,880 --> 00:15:47,080
Speaker 1: inventories came down again. So where we find ourselves right

275
00:15:47,080 --> 00:15:49,640
Speaker 1: now is in a situation where people are sitting on

276
00:15:49,720 --> 00:15:53,160
Speaker 1: lean inventories and there's really high demand for those products.

277
00:15:53,960 --> 00:15:56,520
Speaker 1: You know, it's interesting. It's going back and reviewing the

278
00:15:56,560 --> 00:15:59,120
Speaker 1: transcript from your earnings call that was really just two

279
00:15:59,160 --> 00:16:01,640
Speaker 1: months ago, and lot of questions of course about the

280
00:16:01,720 --> 00:16:06,320
Speaker 1: chip shortage and how big the difference is between supply

281
00:16:06,360 --> 00:16:09,600
Speaker 1: and demand. What has changed in the last two months.

282
00:16:09,680 --> 00:16:13,920
Speaker 1: Has it gotten any better? Uh? Now, I would say

283
00:16:13,960 --> 00:16:18,520
Speaker 1: it's continuing to progress along those lines. Again, It's we're

284
00:16:18,560 --> 00:16:22,720
Speaker 1: in unstarted territory here where the business does go through cycles.

285
00:16:22,800 --> 00:16:28,840
Speaker 1: But we're we're starting this ramp up following a cyclical

286
00:16:28,880 --> 00:16:32,480
Speaker 1: slowdown and a pandemic. So I think that the biggest

287
00:16:32,520 --> 00:16:35,120
Speaker 1: example that we see and we all hear about is

288
00:16:35,120 --> 00:16:38,080
Speaker 1: on the automotive side, right. Car dealers would love to

289
00:16:38,080 --> 00:16:42,000
Speaker 1: have more cars on lots um, and the automotive sector

290
00:16:42,880 --> 00:16:46,520
Speaker 1: leaned out inventories as they went into the pandemic, you know,

291
00:16:46,560 --> 00:16:50,280
Speaker 1: expecting things to really soften and and really what we

292
00:16:50,320 --> 00:16:53,480
Speaker 1: saw happen was, uh, you know, people spend less on

293
00:16:53,520 --> 00:16:56,000
Speaker 1: the things that they just physically couldn't spend money on

294
00:16:56,640 --> 00:17:00,240
Speaker 1: travel leisure restaurants, and they started to spend end it

295
00:17:00,560 --> 00:17:05,480
Speaker 1: on other areas, uh, you know, home improvement, electronics, uh,

296
00:17:05,520 --> 00:17:07,800
Speaker 1: you know, for for not just consumer products, but for

297
00:17:07,880 --> 00:17:11,439
Speaker 1: the home and car sales actually remained fairly strong. So

298
00:17:11,520 --> 00:17:14,439
Speaker 1: we we ended up in the latter part of uh

299
00:17:15,080 --> 00:17:20,040
Speaker 1: last year and into this year with just broad demand

300
00:17:20,080 --> 00:17:27,400
Speaker 1: across all industrial categories and that continues. So it's interesting, Chris,

301
00:17:27,480 --> 00:17:32,000
Speaker 1: I'm just looking at your stock all time high today

302
00:17:32,080 --> 00:17:36,960
Speaker 1: up about two d four dollars um. What's the market

303
00:17:37,000 --> 00:17:43,000
Speaker 1: discounting your stock price? Are you viewed as a reopening trade. Yeah.

304
00:17:43,040 --> 00:17:47,360
Speaker 1: I think really we UM were looked at as First

305
00:17:47,400 --> 00:17:50,640
Speaker 1: of all, we were very strong from a counter cyclical standpoint.

306
00:17:50,640 --> 00:17:52,800
Speaker 1: The stock held up well through the pandemic because we

307
00:17:52,840 --> 00:17:55,920
Speaker 1: generate a lot of cash in a downturn, right, We

308
00:17:56,240 --> 00:17:58,840
Speaker 1: we have a lot of inventory and working capital that

309
00:17:59,560 --> 00:18:02,399
Speaker 1: we re reduce in those windows, and it allows us

310
00:18:02,400 --> 00:18:05,280
Speaker 1: to paint on debt and buy stock a good prices.

311
00:18:05,359 --> 00:18:09,040
Speaker 1: And so we've done that. But now I think investors

312
00:18:09,040 --> 00:18:13,679
Speaker 1: are really seeing the earnings potential the growth from the

313
00:18:13,760 --> 00:18:17,760
Speaker 1: business as the economies around the world recover and uh

314
00:18:17,800 --> 00:18:22,760
Speaker 1: and more and more consumption of semiconductor product takes place. UM.

315
00:18:22,880 --> 00:18:25,080
Speaker 1: You know where we fit as interesting because the underlying

316
00:18:25,119 --> 00:18:28,239
Speaker 1: product that we sell has a deflationary value to it,

317
00:18:28,359 --> 00:18:32,200
Speaker 1: which which is a headwind UM. The tail wind is

318
00:18:32,200 --> 00:18:34,800
Speaker 1: is that UM more than offsets. That is, is that

319
00:18:35,200 --> 00:18:38,920
Speaker 1: there's more and more electronic consumption in everything that we

320
00:18:39,400 --> 00:18:44,400
Speaker 1: consume and use, and and certainly with environmental pressures and whatnot, uh,

321
00:18:44,680 --> 00:18:46,920
Speaker 1: you know, that will continue. So that's a that's a

322
00:18:47,520 --> 00:18:49,119
Speaker 1: much bigger tail wind for us. And I think the

323
00:18:49,160 --> 00:18:51,760
Speaker 1: market recognizes that we only have about a minute left.

324
00:18:51,800 --> 00:18:54,240
Speaker 1: Wanted to get your thoughts on some of the comments

325
00:18:54,280 --> 00:18:56,880
Speaker 1: we heard from the President last week in the infrastructure plan.

326
00:18:56,960 --> 00:19:01,080
Speaker 1: There's a lot of production of chips and that nationalism, right,

327
00:19:01,160 --> 00:19:06,480
Speaker 1: bringing that back to the US. How does that impact you?

328
00:19:06,480 --> 00:19:11,000
Speaker 1: You know, it's we we um distribute product all over

329
00:19:11,040 --> 00:19:14,680
Speaker 1: the world. We're buying it from from multiple geographic locations

330
00:19:14,680 --> 00:19:17,440
Speaker 1: and shipping it to other geographic locations. So I don't

331
00:19:17,480 --> 00:19:21,000
Speaker 1: think it really changes what we do. Uh. You know.

332
00:19:21,040 --> 00:19:24,239
Speaker 1: The reality is is that for the last you know,

333
00:19:24,440 --> 00:19:27,600
Speaker 1: five to ten years, there's there's obviously been an increase

334
00:19:27,600 --> 00:19:30,960
Speaker 1: in nationalistic tendencies around the world. Um, you know, I

335
00:19:31,880 --> 00:19:34,800
Speaker 1: think that has its challenges with trade, but certainly from

336
00:19:34,800 --> 00:19:39,760
Speaker 1: a a you know what we do standpoint, if there's

337
00:19:39,840 --> 00:19:42,680
Speaker 1: more made here, then we'll just be shipping more from

338
00:19:42,680 --> 00:19:45,520
Speaker 1: here and less from other places. So we're quite happy

339
00:19:45,560 --> 00:19:47,359
Speaker 1: to shift as the market ships. We had to do

340
00:19:47,359 --> 00:19:49,280
Speaker 1: that with teriffs, we've had to do it with other things,

341
00:19:50,000 --> 00:19:52,919
Speaker 1: and uh, you know, being nimble is part of the

342
00:19:53,000 --> 00:19:56,600
Speaker 1: value we bring our suppliers and customers. Hey, Chris, thanks

343
00:19:56,640 --> 00:19:59,040
Speaker 1: so much for joining us. We really appreciate chatting with you,

344
00:19:59,119 --> 00:20:02,000
Speaker 1: getting some update on your company and on some of

345
00:20:02,040 --> 00:20:04,199
Speaker 1: these global supply chain issues, which you guys are right

346
00:20:04,240 --> 00:20:08,440
Speaker 1: smack in the middle of Christiansbury Cevo of Arrow Electronics.

347
00:20:08,440 --> 00:20:14,040
Speaker 1: They are based in any suburb of Denver, Colorado. One

348
00:20:14,040 --> 00:20:17,920
Speaker 1: of the key pillars underneath the equity bull call has

349
00:20:17,960 --> 00:20:19,879
Speaker 1: been the reopening trade, and we certainly be getting some

350
00:20:19,960 --> 00:20:23,680
Speaker 1: data points that support that, whether it's the airlines, whether

351
00:20:23,760 --> 00:20:27,879
Speaker 1: it's the gaming companies or the UH some of the

352
00:20:27,920 --> 00:20:31,879
Speaker 1: other leisure businesses. And also we got last Friday that

353
00:20:32,119 --> 00:20:35,800
Speaker 1: very very strong jobs reports, So again, the reopening trade

354
00:20:35,840 --> 00:20:38,040
Speaker 1: seems to be in play. UH. Is that enough to

355
00:20:38,080 --> 00:20:40,360
Speaker 1: push this market higher? Let's check in with Phil Orlando,

356
00:20:40,760 --> 00:20:44,680
Speaker 1: chief equity market strategist and head of client portfolio Management

357
00:20:44,680 --> 00:20:46,760
Speaker 1: at Federated Herme's. Phil, thanks so much for joining us

358
00:20:46,800 --> 00:20:50,360
Speaker 1: once again. You've been a consistently bullish call on this

359
00:20:50,440 --> 00:20:54,600
Speaker 1: equity market. Are you still there? I am absolutely still there?

360
00:20:54,880 --> 00:20:57,280
Speaker 1: Um this UH? I don't know if you read in

361
00:20:57,359 --> 00:21:01,200
Speaker 1: my market commentary on Friday. I was working Friday because

362
00:21:01,280 --> 00:21:04,760
Speaker 1: the Bureau of Labor Statistics thought they'd released the jobs

363
00:21:04,760 --> 00:21:09,600
Speaker 1: report on Friday. Numbers were astounding, you know, aside from

364
00:21:09,600 --> 00:21:12,920
Speaker 1: the nine hundred and sixteen thousand jobs added and the

365
00:21:13,000 --> 00:21:17,760
Speaker 1: hundred and fifty six thousand revisions positive for January and February.

366
00:21:18,160 --> 00:21:22,359
Speaker 1: Getting under the hood exactly puts an exclamation mark on

367
00:21:22,400 --> 00:21:25,560
Speaker 1: the point you just made. So you look at the

368
00:21:25,880 --> 00:21:30,280
Speaker 1: household survey adding six hundred nine thousand jobs, triple the

369
00:21:30,400 --> 00:21:34,160
Speaker 1: prior month. Leisure and hospitality added two hundred and eighty

370
00:21:34,240 --> 00:21:38,440
Speaker 1: thousand jobs. State and local education schools are opening up

371
00:21:38,480 --> 00:21:42,159
Speaker 1: now added another hundred and one thousand jobs. All of

372
00:21:42,200 --> 00:21:46,040
Speaker 1: this is because the pace of vaccination is improving. We're

373
00:21:46,040 --> 00:21:48,840
Speaker 1: now up to like what two point seven million vacs

374
00:21:48,960 --> 00:21:51,560
Speaker 1: is a day. Uh. And as a result, now schools

375
00:21:51,600 --> 00:21:57,840
Speaker 1: are reopening bars, restaurants, stores, and end. These these lower skilled,

376
00:21:57,920 --> 00:22:01,840
Speaker 1: lower wage workers who were forced to the sidelines because

377
00:22:01,880 --> 00:22:05,160
Speaker 1: of these you know, lockdowns, are now flooding back into

378
00:22:05,200 --> 00:22:09,960
Speaker 1: the labor market. And um, this one statistic is will

379
00:22:10,000 --> 00:22:13,440
Speaker 1: blow your mind. If you have less than a high

380
00:22:13,480 --> 00:22:17,720
Speaker 1: school diploma, UM, your rate of unemployment in February was

381
00:22:17,800 --> 00:22:21,360
Speaker 1: ten point one percent. It improved in March from ten

382
00:22:21,400 --> 00:22:24,760
Speaker 1: point one percent to eight point two percent, roughly a

383
00:22:24,840 --> 00:22:29,520
Speaker 1: two percentage point decrease in the rate of unemployment. That's

384
00:22:29,560 --> 00:22:32,560
Speaker 1: telling us these people are coming back into the labor market.

385
00:22:32,840 --> 00:22:35,199
Speaker 1: And that's good for the overall economy and for the

386
00:22:35,240 --> 00:22:38,840
Speaker 1: financial market. Phil I'm typically on in the afternoons and remain.

387
00:22:38,920 --> 00:22:42,240
Speaker 1: Bostick and I are having a huge debate every day.

388
00:22:42,280 --> 00:22:45,080
Speaker 1: We fight it out. He does not believe in inflation.

389
00:22:45,480 --> 00:22:48,320
Speaker 1: I firmly believe in inflation. We see the I S

390
00:22:48,480 --> 00:22:52,320
Speaker 1: M services in March now the highest on record, prices paid,

391
00:22:52,600 --> 00:22:56,720
Speaker 1: the highest since two thousand and eight. When are inflationary

392
00:22:56,760 --> 00:23:00,600
Speaker 1: problems going to be an issue? Though? For the equity market, well,

393
00:23:00,920 --> 00:23:05,959
Speaker 1: it's a question of nominal versus core Romaine is uh.

394
00:23:06,119 --> 00:23:09,000
Speaker 1: You know, for those who are looking at inflation, if

395
00:23:09,000 --> 00:23:13,840
Speaker 1: you're focused upon the nominal numbers, Copper prices have quadrupled

396
00:23:13,840 --> 00:23:17,120
Speaker 1: over you know, doubled over the last year. Lumber prices

397
00:23:17,119 --> 00:23:23,000
Speaker 1: have quadrupled, Oil has doubled h corn wheat uh soybeans

398
00:23:23,000 --> 00:23:26,200
Speaker 1: are up seventy eight percent. So all of those nominal

399
00:23:26,240 --> 00:23:29,520
Speaker 1: prices are up sharply as the economy has recovered. But

400
00:23:29,640 --> 00:23:33,280
Speaker 1: remember the core inflation, the consumer price Index and the

401
00:23:33,320 --> 00:23:38,800
Speaker 1: Personal consumption expenditure index. They strip out the increases and

402
00:23:38,840 --> 00:23:42,280
Speaker 1: the food and energy prices, so those numbers look relatively

403
00:23:42,359 --> 00:23:45,080
Speaker 1: more muted. But something's going to happen over the next

404
00:23:45,119 --> 00:23:48,399
Speaker 1: three months what the Federal Reserve refers to as a

405
00:23:48,560 --> 00:23:52,080
Speaker 1: procedural base effect. To go back and look at the

406
00:23:52,080 --> 00:23:57,760
Speaker 1: inflation in in this time last year. Uh, you know, February, March,

407
00:23:57,920 --> 00:24:01,120
Speaker 1: April May, those numbers were negative. Well, we're gonna roll

408
00:24:01,200 --> 00:24:04,359
Speaker 1: those numbers off now progressively over the next three or

409
00:24:04,359 --> 00:24:07,920
Speaker 1: four months, so it's gonna look like core inflation is spiking.

410
00:24:08,280 --> 00:24:11,280
Speaker 1: But basically all we're doing is lopping off a negative

411
00:24:11,400 --> 00:24:14,960
Speaker 1: number and adding on a positive number. So core PC,

412
00:24:15,320 --> 00:24:17,560
Speaker 1: for example, we could see that number of two and

413
00:24:17,560 --> 00:24:20,960
Speaker 1: a half percent um over the summer, which is exactly

414
00:24:20,960 --> 00:24:23,480
Speaker 1: where the Fed wants to see it. The question is

415
00:24:23,480 --> 00:24:25,800
Speaker 1: is it going to keep going up to three, four

416
00:24:25,840 --> 00:24:29,080
Speaker 1: or five. We think the answer is no. We think

417
00:24:29,119 --> 00:24:30,720
Speaker 1: it's gonna stay in sort of that two two and

418
00:24:30,760 --> 00:24:34,080
Speaker 1: a half percent neighborhood on a core level, even though

419
00:24:34,119 --> 00:24:37,440
Speaker 1: the nominal numbers have moved up pretty strongly here. Alright,

420
00:24:37,480 --> 00:24:41,760
Speaker 1: So given that inflation backdrop in your overall bullish call,

421
00:24:42,359 --> 00:24:44,320
Speaker 1: what are the sectors that are you guys are doing

422
00:24:44,320 --> 00:24:47,560
Speaker 1: the most work on right now? Well, we were sticking

423
00:24:47,560 --> 00:24:50,320
Speaker 1: to our guns here that that the cyclical trade is

424
00:24:50,359 --> 00:24:52,800
Speaker 1: the one that's working. We we we took the r

425
00:24:52,880 --> 00:24:57,199
Speaker 1: overweight in technology back to neutral last August, and we

426
00:24:57,280 --> 00:25:01,639
Speaker 1: felt that the catalyst was in place that categories like

427
00:25:01,880 --> 00:25:07,800
Speaker 1: financials and industrials and consumer discretionary and energy, that those

428
00:25:07,920 --> 00:25:11,000
Speaker 1: categories were ready to catch a bid here because the

429
00:25:11,040 --> 00:25:13,919
Speaker 1: economy was was out of recession and was gonna was

430
00:25:13,920 --> 00:25:17,680
Speaker 1: gonna rebound very strongly. That's that's played out, but the

431
00:25:17,760 --> 00:25:22,400
Speaker 1: valuation gap hasn't hasn't been fully closed. So so domestic

432
00:25:22,480 --> 00:25:26,080
Speaker 1: large cap value is going to continue to do well. International,

433
00:25:26,320 --> 00:25:30,520
Speaker 1: particularly emerging markets and international SMID and the small caps,

434
00:25:30,640 --> 00:25:32,080
Speaker 1: those are the areas that I think you're going to

435
00:25:32,160 --> 00:25:34,639
Speaker 1: continue to do well. Okay, Hey Phil, thanks so much

436
00:25:34,640 --> 00:25:36,840
Speaker 1: for joining us. We always appreciate chatting with you. For

437
00:25:36,880 --> 00:25:39,920
Speaker 1: the Little WINDA chief equity market strategist for Federated Hermes,

438
00:25:41,359 --> 00:25:44,480
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can

439
00:25:44,480 --> 00:25:48,280
Speaker 1: subscribe and listen to interviews of Apple Podcasts or whatever

440
00:25:48,359 --> 00:25:52,000
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

441
00:25:52,280 --> 00:25:55,679
Speaker 1: at Matt Miller in three and on ball Sweeney I'm

442
00:25:55,720 --> 00:25:58,360
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can

443
00:25:58,400 --> 00:26:03,040
Speaker 1: always catch us worldwide at Lumberg Radio m