WEBVTT - Leverage 'Party' Is At Root of Fund Blowups: Ben Hunt 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.160 at Bloomberg dot com slash podcast. Looking at the equity markets, 0:00:23.200 --> 0:00:25.959 we are at or near all time highs, but there's 0:00:25.960 --> 0:00:28.520 definitely some concerned building in this marketplace that maybe it 0:00:28.640 --> 0:00:31.280 is overheated. You can look no further, maybe than some 0:00:31.320 --> 0:00:33.760 of the blowups we've seen just recently, whether it's the 0:00:33.840 --> 0:00:37.240 Archegos from last week, Melvin Capital on all the Reddit stocks, 0:00:37.240 --> 0:00:39.159 and some others. Here to help us put it all 0:00:39.159 --> 0:00:41.839 on perspective, we welcome Ben Hunt. He's co founder and 0:00:41.920 --> 0:00:45.320 chief investment officer of Second Foundation Partners. He's also the 0:00:45.360 --> 0:00:49.600 creator and author for Epsilon Theory newsletter and website based 0:00:49.600 --> 0:00:52.040 in Reading, Connecticut. So Ben is, as you take a 0:00:52.080 --> 0:00:56.160 look at you know, whether it's Greensial or Archegos or 0:00:56.320 --> 0:00:59.160 Melvin Capital, what do you see when you see some 0:00:59.240 --> 0:01:02.080 of those kind of blow ups in the market Yeah, well, 0:01:02.240 --> 0:01:04.360 thanks for having me on to talk about this, Paul, I. 0:01:04.360 --> 0:01:08.840 I appreciate that. You know, you know, I obviously all 0:01:08.880 --> 0:01:11.520 three of these, right, So Melvine Capital, as you mentioned, 0:01:11.520 --> 0:01:14.039 that's that's Gabe Plotkin's hedge fund that was at the 0:01:14.040 --> 0:01:20.560 epicenter of the Game Stop robin Hood debacle. Right. You've 0:01:20.600 --> 0:01:26.120 got Green Silk Capital with supposedly you know, supply chain 0:01:26.560 --> 0:01:31.080 financing uh, and then most recently you've got Archagos UH 0:01:31.560 --> 0:01:36.400 and and whatever that was. Right, And certainly these are 0:01:36.440 --> 0:01:38.319 all a little different. I mean, I guess it was, 0:01:38.480 --> 0:01:41.679 I forget who it was, the Tolstoy. Every unhappy family 0:01:41.800 --> 0:01:45.319 is unhappy in its own way, right, so so you know, 0:01:45.400 --> 0:01:48.440 they're they're clearly differences in the situation of all three 0:01:48.440 --> 0:01:53.560 of these, but there's also really important similarity. And that similarity, 0:01:53.680 --> 0:01:59.360 I think is that all three of these institutions were 0:02:00.080 --> 0:02:05.680 levered to the hilt funded by other financial institutions. And 0:02:05.840 --> 0:02:10.040 I and I think that sort of leverage is at 0:02:10.040 --> 0:02:13.480 the heart of the demise, or, at least in the 0:02:13.520 --> 0:02:16.240 case of Melvin, the misfortune that that that all three 0:02:16.280 --> 0:02:19.080 of them have had ben Correct me if I'm wrong, 0:02:19.120 --> 0:02:21.920 and if I'm stepping out a line. But it is 0:02:22.120 --> 0:02:24.880 very easy in times like these to blame the Fed. 0:02:25.040 --> 0:02:30.519 They've pumped up this market with unlimited quei, unlimited stimulus. 0:02:30.520 --> 0:02:33.960 Everyone is fomo. We all have confetti emojis when we 0:02:34.040 --> 0:02:37.400 make trades. How much of this is a problem because 0:02:37.560 --> 0:02:43.720 money is too easy? Well, look, I mean this is 0:02:43.760 --> 0:02:46.240 always this issue, right, I mean, this is the punch bowl. 0:02:46.880 --> 0:02:51.280 And what happens when you've got uh an unlimited punch 0:02:51.320 --> 0:02:55.079 bowl with spite with with with pure grade alcohol. Well, 0:02:55.200 --> 0:02:58.720 you know, people get drunk and and I think that's 0:02:58.760 --> 0:03:02.640 what we have being represented market today. But but look, 0:03:02.639 --> 0:03:05.400 it's it's yes, you're you're so right easy to blame 0:03:05.400 --> 0:03:08.800 the fat And frankly, I do think that zero interest 0:03:08.880 --> 0:03:13.239 rate policy for so long has to have these sort 0:03:13.240 --> 0:03:16.240 of consequences that we're seeing today. But but I think 0:03:16.240 --> 0:03:19.280 it also goes beyond the fat Taylor. Honestly, I think 0:03:19.280 --> 0:03:21.240 that one of the big reasons that that we are 0:03:21.280 --> 0:03:25.440 in this situation is that the lenders, the people who 0:03:25.440 --> 0:03:29.080 are extending the leverage that's being gobbled up by the 0:03:29.360 --> 0:03:31.760 bill loongs of the world or the gay Plotkins of 0:03:31.800 --> 0:03:35.960 the world. You know, it means something when we talk 0:03:36.040 --> 0:03:38.600 about too big to fail. It means something when we 0:03:38.640 --> 0:03:45.400 talk about these systemically import financial institutions. They can extend 0:03:45.520 --> 0:03:50.440 this leverage. They can take these losses without frankly, taking 0:03:50.440 --> 0:03:54.360 the consequences of bad risk management and bad decision making. 0:03:55.840 --> 0:04:00.360 All right, so the bullmarket been for this market is 0:04:00.400 --> 0:04:03.200 pretty clear for most investors. And then you know in 0:04:03.240 --> 0:04:05.960 whether it's the FED with low low interest rates, fiscal stimulus, 0:04:06.000 --> 0:04:08.400 the reopening trade, and we all know the bull case. Here, 0:04:09.320 --> 0:04:13.800 where is the risk in that bulk case? From your perspective, 0:04:13.840 --> 0:04:16.280 it seems it's pretty clear to a lot of investors. 0:04:16.360 --> 0:04:20.360 But where do you see the risk in that bull call? Well, look, 0:04:20.400 --> 0:04:23.760 the risk is is where the risk always is right, 0:04:23.800 --> 0:04:30.400 which is the uh can the party go on forever? 0:04:31.080 --> 0:04:34.599 The risk is always what happens as as we're seeing 0:04:34.640 --> 0:04:41.039 some examples today of the enormous losses that are made 0:04:41.120 --> 0:04:45.400 possible by the use of leverage. Uh. You know what 0:04:45.440 --> 0:04:49.479 we're experiencing today, I think is a reversal and a 0:04:49.600 --> 0:04:53.719 number of the I'll call them correlations, but but but 0:04:53.800 --> 0:04:58.640 really what they are these gigantic economic barges that have 0:04:58.680 --> 0:05:00.960 been sailing in the same direct action for like thirty 0:05:01.000 --> 0:05:05.160 or forty years. I'm talking about inflation expectations, moving from 0:05:05.200 --> 0:05:09.760 expectations of deflation to inflation. You're seeing that being reflected 0:05:09.760 --> 0:05:13.080 in interest rates. I'm talking about the reversal and globalization, 0:05:13.680 --> 0:05:20.840 this massive force for deflation, but also for these the 0:05:21.160 --> 0:05:26.200 supply chains, supply finance, trade finance. It's been a one 0:05:26.240 --> 0:05:32.159 way market in both inflation expectations and globalization for thirty 0:05:32.240 --> 0:05:34.880 or forty years, and I think we're clearly seeing signs 0:05:34.880 --> 0:05:38.760 that those one way bets are shifting. So that's why 0:05:38.800 --> 0:05:41.640 I think that that well, that's what I think could 0:05:41.839 --> 0:05:45.320 cause went to pay the piper. With the enormous amount 0:05:45.320 --> 0:05:48.200 of leverage that's being extended to so many of these 0:05:48.440 --> 0:05:51.599 investment firms, how much of this two comes down to 0:05:51.680 --> 0:05:54.839 the need for transparency. I just watched that great I 0:05:54.839 --> 0:05:57.760 think it was a PBS documentary about Brooksley Born and 0:05:57.839 --> 0:06:01.799 long term capital management. And I met Taylor Riggs Capital Management, 0:06:01.800 --> 0:06:03.920 and I know what I've lent you, and Paul Sweeney 0:06:03.920 --> 0:06:06.880 at his Capital Management knows what he's lent you. But 0:06:07.040 --> 0:06:10.240 he and I have no idea what we have combined 0:06:10.360 --> 0:06:16.680 collectively lent you. And therein lies the problem. Well, I'll 0:06:16.680 --> 0:06:19.600 say that that's a problem in two respects. One, it's 0:06:19.640 --> 0:06:25.120 a problem that our regulators are are are not seemingly 0:06:25.320 --> 0:06:31.240 able to provide or capture that that sort of of transparencies. 0:06:31.279 --> 0:06:33.400 You're saying, that sort of visibilities that we can know 0:06:34.360 --> 0:06:38.280 what risks exist in the market. But but I'll also 0:06:38.279 --> 0:06:40.159 say it gets back to this this notion of being 0:06:40.160 --> 0:06:43.480 too big to sail. You know, you know you're never 0:06:43.480 --> 0:06:47.680 gonna stop investment banks or prime brokers from taking risk. 0:06:48.040 --> 0:06:50.120 We wouldn't want to. We wouldn't want to stop that, right. 0:06:50.800 --> 0:06:52.839 But I think it's very different. We live in a 0:06:52.880 --> 0:06:55.880 world of today where I don't know that we can 0:06:56.000 --> 0:06:59.360 have a Bear Stearns moment, right. I don't know that 0:06:59.440 --> 0:07:03.760 it's paul sable for a prime broker today too, you know, 0:07:04.080 --> 0:07:08.080 to extend so much leverage that that they get taken 0:07:08.080 --> 0:07:11.200 out in the street and shot. Huh and and and 0:07:11.240 --> 0:07:14.600 it's a yeah, right right, absolutely, we hope not. But 0:07:14.680 --> 0:07:18.480 what I would say is that if if that ultimate 0:07:18.800 --> 0:07:24.200 um penalty doesn't exist, then I think that takes away 0:07:24.280 --> 0:07:26.679 kind of the motivation of the banks to say, hey, 0:07:26.760 --> 0:07:28.640 let me let me do a little more digging here, 0:07:28.680 --> 0:07:31.000 and let me let me have a conversation with other 0:07:31.040 --> 0:07:34.200 banks about how much leverage they're extending to this guy 0:07:34.280 --> 0:07:36.440 or that guy. I think it comes back to that 0:07:36.480 --> 0:07:38.920 too big to sail notion. All right, Ben, thanks so 0:07:39.000 --> 0:07:41.480 much for joining so we appreciate your thoughts here on 0:07:41.720 --> 0:07:45.280 these markets. Ben Hunt, co founder and chief investment officer 0:07:45.360 --> 0:07:52.080 of Second Foundation Partners. Let's all recent news that Goldman 0:07:52.120 --> 0:07:55.960 Sachs called quit on a dollar short the currency team 0:07:55.960 --> 0:07:58.840 closed it's recommended short green back position against a basket 0:07:58.840 --> 0:08:02.400 of G ten come any currencies, including the Aussie and Kiwi, 0:08:02.600 --> 0:08:05.880 in a note titled Tactical Retreat. Let's get some color 0:08:06.080 --> 0:08:09.160 on those currency markets. We do that with Dr Win Thin, 0:08:09.480 --> 0:08:13.440 global head Currency Strategy at Brown Brothers Harriman. Uh when 0:08:13.520 --> 0:08:15.160 thanks so much for joining us here. What do you 0:08:15.200 --> 0:08:19.480 make of that Goldman call there on the dollar? Oh, 0:08:19.520 --> 0:08:21.040 first of all, thanks for having me. It's always it's 0:08:21.040 --> 0:08:23.880 always a pleasure to be on here. Um. You know, 0:08:23.960 --> 0:08:26.240 I think they pretty much had to acknoledge the inevitable. 0:08:26.320 --> 0:08:29.040 Now I can't fault like the original call because think 0:08:29.080 --> 0:08:30.840 about you know, this is anty history, but think about 0:08:30.840 --> 0:08:34.360 where we started the year. January one, the US virus 0:08:34.440 --> 0:08:38.920 numbers were exploding vaccines were nowhere being rolled out. Um, 0:08:39.240 --> 0:08:42.160 most of the con was closed. Um, we're looking at 0:08:42.200 --> 0:08:44.480 it at a split government and all of a sudden 0:08:44.600 --> 0:08:47.520 June six have even changed. And you know that if 0:08:47.880 --> 0:08:49.319 a lot of things happened that day, but the main 0:08:49.320 --> 0:08:51.400 thing that happened was that was the day after the 0:08:51.440 --> 0:08:56.000 Georgia send It runoffs and we got um, the Democrats swept, 0:08:56.679 --> 0:08:58.160 and we're seeing the fruits to that right now. We 0:08:58.480 --> 0:09:02.240 saw an aggressive fiscal package already, we're talking about another 0:09:02.520 --> 0:09:05.680 two trillion infrastructure spending, another one coming after that. So 0:09:06.160 --> 0:09:09.120 one onom line is that the US economic outlook is 0:09:09.280 --> 0:09:12.400 much much better than it was when we started the year. UM. 0:09:12.480 --> 0:09:15.200 The two twenty was clearly dollar negative. We did a 0:09:15.240 --> 0:09:17.920 terrible job with the pandemic. But really we've seen one 0:09:17.960 --> 0:09:20.520 eight over there over Q one, and I think the dollar, 0:09:20.960 --> 0:09:24.360 equity market, spawn markets are all reflecting this. This really 0:09:24.480 --> 0:09:28.520 a new outlook. UM. Effects is certainly part of that trade. Now, 0:09:28.920 --> 0:09:31.960 how are you thinking about the impacts on e M. 0:09:31.960 --> 0:09:34.360 Where we thought we were going to have big dollar weakness, 0:09:34.400 --> 0:09:36.720 we ended up not. We had some dollar strength. You 0:09:36.760 --> 0:09:39.400 have some rising yields here in the US. As you 0:09:39.440 --> 0:09:44.480 think about capital flows and relative attractiveness. How then, does 0:09:44.520 --> 0:09:48.080 this change the outlook for emerging markets. Yeah, that's a 0:09:48.120 --> 0:09:51.440 great question because you know it's it's I think that 0:09:51.480 --> 0:09:54.400 the drivers to e M are in stense constlickting right now. 0:09:54.440 --> 0:09:57.760 So the global growth story again it's not just the US, 0:09:58.080 --> 0:09:59.960 but you know, China is doing well, Japan is starting 0:10:00.000 --> 0:10:03.439 pick up um. The global growth outlook is is very 0:10:03.480 --> 0:10:06.360 positive for e M UM. You know, we're seeing strong exports, 0:10:06.400 --> 0:10:09.720 have Taiwan, Korea, high commodity prices, and that's all great, 0:10:09.880 --> 0:10:13.559 you know well and good for em UM. But in 0:10:13.679 --> 0:10:16.600 terms of currency, the strong dollar definitely, you know, throws 0:10:16.600 --> 0:10:18.360 a monkey you mentioned into it. You know, it's it's 0:10:18.679 --> 0:10:21.600 there are times when the dollar can diverge against the majors, 0:10:21.640 --> 0:10:24.120 against em but right now it seems to be sort 0:10:24.120 --> 0:10:26.880 of you know, full on dollar strength UM. And that's 0:10:26.880 --> 0:10:29.400 not to say that's bad for for em you know, 0:10:29.480 --> 0:10:32.880 some your currency UM exchange ways is actually not bad 0:10:32.920 --> 0:10:35.160 for e M. I think many of the policymakers in 0:10:35.360 --> 0:10:38.840 the emerging markets were concerned about the week dollars strong 0:10:38.880 --> 0:10:40.920 local currencies, and I think they're sort of getting almost 0:10:40.920 --> 0:10:43.600 getting in a sweet spot. So I would say negative 0:10:43.640 --> 0:10:47.000 on EM currencies, but positive on EM equities and e 0:10:47.200 --> 0:10:50.160 M growth. All right, when how about you know, we 0:10:50.200 --> 0:10:52.920 talked about dollar strength. Where do you see opportunities in 0:10:53.080 --> 0:10:56.120 some G ten currencies here where some where are you 0:10:56.160 --> 0:10:59.880 guys doing some work? Sure so, UM, I think the 0:11:00.000 --> 0:11:02.320 all will will will really do best against sort of 0:11:02.320 --> 0:11:05.920 the big the big three. That would be a sterling, euro, yen, 0:11:06.160 --> 0:11:08.800 and we've seen that in the sort of the UH 0:11:08.880 --> 0:11:11.240 you know REU to date performance. But where I see 0:11:11.240 --> 0:11:15.320 some performance within the majors is the UM dollar block 0:11:15.400 --> 0:11:16.719 and scandies. And it goes back to what I just 0:11:16.720 --> 0:11:18.800 said about EM and that's the similar things would hold 0:11:18.800 --> 0:11:21.599 for the sort of these growth sensitive major currency. You know, 0:11:21.640 --> 0:11:26.720 obviously can the Cadian dollar, um naki are oil related 0:11:27.000 --> 0:11:32.160 very positive there? Um you know, uh, Swedish krona um 0:11:32.320 --> 0:11:35.400 AUSSI key we you know, kind of keyed into Chinese 0:11:35.400 --> 0:11:38.280 and global growth. So those currencies can outperform. But again 0:11:38.280 --> 0:11:41.520 it's would be very hard sort of um you know, 0:11:41.559 --> 0:11:44.440 I think really gain against when the dollars is just 0:11:44.480 --> 0:11:47.120 on such a tear. Um you know, I think you know, 0:11:47.160 --> 0:11:50.480 the Q two outlook UH is really strong for growth 0:11:50.559 --> 0:11:52.360 right now we're talking about seven percent. I think it's 0:11:52.400 --> 0:11:55.320 key senses carrying over to seven percent in two three, 0:11:55.320 --> 0:11:58.320 and that's when the rest of the you know, when 0:11:58.360 --> 0:12:00.200 most of Europe is struggling. That you know, that's sort 0:12:00.200 --> 0:12:02.120 of the other part of the equation. You know, France 0:12:02.160 --> 0:12:05.600 just went back into lockdown, Germany Itaier extended there, you know, 0:12:05.640 --> 0:12:08.800 the limited lockdown. So you know, the European outlook. Um, 0:12:08.840 --> 0:12:11.800 you know x x UK is really quite poor right now, 0:12:11.800 --> 0:12:13.800 and so you know, I think that we can really 0:12:13.800 --> 0:12:17.360 see this performance against the euro and to lesser extent 0:12:17.960 --> 0:12:22.360 agen sterling. But but you know, the growth sensitive majors 0:12:22.559 --> 0:12:26.120 kind of holding up. Okay quickly here the yen hedge 0:12:26.120 --> 0:12:30.080 funds boosting their short yen bets to the highest in 0:12:30.120 --> 0:12:33.640 two years. Is this a traditional and still safe haven 0:12:33.720 --> 0:12:36.880 or is there something else going on? Well no, I 0:12:36.920 --> 0:12:39.920 think um really, uh, we're kind of unwinding that safe 0:12:39.960 --> 0:12:42.319 haven right So the short sirred record high, So I 0:12:42.320 --> 0:12:44.160 think people are so you know, I think we're seeing 0:12:44.240 --> 0:12:47.199 similar price action in the swissy as well. We're moving 0:12:47.200 --> 0:12:49.040 out of the safe havens and more into the sort 0:12:49.080 --> 0:12:52.920 of you know growth um, you know, cyclical type currencies. UM, 0:12:52.960 --> 0:12:56.720 so I think it's yen uh dollar yen rise again. 0:12:56.760 --> 0:13:00.400 Weakness can continue. We've got to march high the eleven 0:13:00.559 --> 0:13:03.360 one eleven seventy. I wanna go even further. We're looking 0:13:03.400 --> 0:13:06.120 at a two eighteen higher on one five. But you know, 0:13:06.160 --> 0:13:08.640 let's take things one steparate time. UM, let's go a 0:13:08.679 --> 0:13:10.880 quarter by quarter. But right now to me this I 0:13:10.880 --> 0:13:13.600 think this, you know, today's weakness. Not notwithstanding, I think 0:13:13.600 --> 0:13:15.839 it's more of a technical move. I think the fundamental 0:13:15.920 --> 0:13:20.760 drivers remain dollar positive. I should just add one quick thing, um. 0:13:20.920 --> 0:13:22.840 One thing that I've noticed is that the set funds 0:13:22.880 --> 0:13:25.719 futures are starting to move up. The fet tightning expectations. 0:13:25.920 --> 0:13:29.320 Uh hike in two three is about almost half priced 0:13:29.360 --> 0:13:33.240 in and almost fully priced in by end twenty two UM, 0:13:33.240 --> 0:13:34.720 which is very much of the Hodes with the dot 0:13:34.720 --> 0:13:38.160 plots saying steady rates three. So that's at the margin 0:13:38.200 --> 0:13:40.760 also very thirty dollar positive. So all these things are 0:13:40.840 --> 0:13:42.280 you know, sort of falling in the place of the 0:13:42.280 --> 0:13:45.760 dollar really sort of reversal what we saw in so 0:13:46.080 --> 0:13:47.840 here we are, you know, taking back your dollars short. 0:13:48.920 --> 0:13:51.240 Dr Winton, thank you so much for joinings. We always 0:13:51.280 --> 0:13:54.240 appreciate your thoughts on the global currency market's global head 0:13:54.240 --> 0:13:58.360 currency strategy of Brown Brothers Herriman. Let's talk about this 0:13:58.440 --> 0:14:01.160 reopening trade. We've got lots and lots of evidence that 0:14:01.240 --> 0:14:04.400 this economy here is reopened, but we're also seeing some 0:14:04.640 --> 0:14:09.320 bottlenecks in supply chains, in logistics. Let's get a sense 0:14:09.320 --> 0:14:11.200 of kind of what's going on out there in corporate America. 0:14:11.280 --> 0:14:14.559 We could do that with Chris Dansbury, CFO Arrow Electronics. 0:14:14.559 --> 0:14:18.160 They are based in where are they Centennial, Colorado? So 0:14:18.240 --> 0:14:21.000 there dangerously close to some of the best skiing in 0:14:21.040 --> 0:14:24.520 the world. Chris, thanks so much for joining us here. Briefly, 0:14:24.760 --> 0:14:27.640 just describe Arrow Electronics for our listeners who may not 0:14:27.680 --> 0:14:29.280 be aware of it, and then give us a sense 0:14:29.280 --> 0:14:33.160 of kind of what you're seeing in your business. Yeah. 0:14:33.200 --> 0:14:35.920 Great to be with you this morning. Thanks for having me. 0:14:36.960 --> 0:14:43.360 Arrow is a distributor of semiconductor and electronic component products 0:14:43.440 --> 0:14:46.480 around the world. You've got a really broad line card, 0:14:46.520 --> 0:14:50.120 so we represent a broad swath of suppliers and we 0:14:50.200 --> 0:14:53.600 help customers choose the right parts for their products. Uh. 0:14:53.800 --> 0:14:59.880 And that can include engineering designs for you know, semiconductor 0:15:00.120 --> 0:15:03.920 board assemblies and whatnot. That go into finished products, so 0:15:03.960 --> 0:15:05.920 that can be everything from your toaster to your car. 0:15:06.840 --> 0:15:10.640 Um and uh as as more and more electronic content 0:15:10.720 --> 0:15:16.200 goes into into products, we we do see abroad view 0:15:16.200 --> 0:15:20.360 of the overall economy. So what's interesting about where we 0:15:20.400 --> 0:15:24.240 sit today is that as we went into two thousand nineteen, 0:15:24.280 --> 0:15:26.360 if we wanted to clock back a couple of years, 0:15:27.360 --> 0:15:30.880 the market went into just a cyclical decline and so 0:15:31.040 --> 0:15:36.120 people leaned out inventories, our customers leaned out inventories. Uh 0:15:36.280 --> 0:15:38.160 that looked like it was about to recover at the 0:15:38.200 --> 0:15:41.720 beginning of last year, and then the pandemic hit and 0:15:41.880 --> 0:15:47.080 inventories came down again. So where we find ourselves right 0:15:47.080 --> 0:15:49.640 now is in a situation where people are sitting on 0:15:49.720 --> 0:15:53.160 lean inventories and there's really high demand for those products. 0:15:53.960 --> 0:15:56.520 You know, it's interesting. It's going back and reviewing the 0:15:56.560 --> 0:15:59.120 transcript from your earnings call that was really just two 0:15:59.160 --> 0:16:01.640 months ago, and lot of questions of course about the 0:16:01.720 --> 0:16:06.320 chip shortage and how big the difference is between supply 0:16:06.360 --> 0:16:09.600 and demand. What has changed in the last two months. 0:16:09.680 --> 0:16:13.920 Has it gotten any better? Uh? Now, I would say 0:16:13.960 --> 0:16:18.520 it's continuing to progress along those lines. Again, It's we're 0:16:18.560 --> 0:16:22.720 in unstarted territory here where the business does go through cycles. 0:16:22.800 --> 0:16:28.840 But we're we're starting this ramp up following a cyclical 0:16:28.880 --> 0:16:32.480 slowdown and a pandemic. So I think that the biggest 0:16:32.520 --> 0:16:35.120 example that we see and we all hear about is 0:16:35.120 --> 0:16:38.080 on the automotive side, right. Car dealers would love to 0:16:38.080 --> 0:16:42.000 have more cars on lots um, and the automotive sector 0:16:42.880 --> 0:16:46.520 leaned out inventories as they went into the pandemic, you know, 0:16:46.560 --> 0:16:50.280 expecting things to really soften and and really what we 0:16:50.320 --> 0:16:53.480 saw happen was, uh, you know, people spend less on 0:16:53.520 --> 0:16:56.000 the things that they just physically couldn't spend money on 0:16:56.640 --> 0:17:00.240 travel leisure restaurants, and they started to spend end it 0:17:00.560 --> 0:17:05.480 on other areas, uh, you know, home improvement, electronics, uh, 0:17:05.520 --> 0:17:07.800 you know, for for not just consumer products, but for 0:17:07.880 --> 0:17:11.439 the home and car sales actually remained fairly strong. So 0:17:11.520 --> 0:17:14.439 we we ended up in the latter part of uh 0:17:15.080 --> 0:17:20.040 last year and into this year with just broad demand 0:17:20.080 --> 0:17:27.400 across all industrial categories and that continues. So it's interesting, Chris, 0:17:27.480 --> 0:17:32.000 I'm just looking at your stock all time high today 0:17:32.080 --> 0:17:36.960 up about two d four dollars um. What's the market 0:17:37.000 --> 0:17:43.000 discounting your stock price? Are you viewed as a reopening trade. Yeah. 0:17:43.040 --> 0:17:47.360 I think really we UM were looked at as First 0:17:47.400 --> 0:17:50.640 of all, we were very strong from a counter cyclical standpoint. 0:17:50.640 --> 0:17:52.800 The stock held up well through the pandemic because we 0:17:52.840 --> 0:17:55.920 generate a lot of cash in a downturn, right, We 0:17:56.240 --> 0:17:58.840 we have a lot of inventory and working capital that 0:17:59.560 --> 0:18:02.399 we re reduce in those windows, and it allows us 0:18:02.400 --> 0:18:05.280 to paint on debt and buy stock a good prices. 0:18:05.359 --> 0:18:09.040 And so we've done that. But now I think investors 0:18:09.040 --> 0:18:13.679 are really seeing the earnings potential the growth from the 0:18:13.760 --> 0:18:17.760 business as the economies around the world recover and uh 0:18:17.800 --> 0:18:22.760 and more and more consumption of semiconductor product takes place. UM. 0:18:22.880 --> 0:18:25.080 You know where we fit as interesting because the underlying 0:18:25.119 --> 0:18:28.239 product that we sell has a deflationary value to it, 0:18:28.359 --> 0:18:32.200 which which is a headwind UM. The tail wind is 0:18:32.200 --> 0:18:34.800 is that UM more than offsets. That is, is that 0:18:35.200 --> 0:18:38.920 there's more and more electronic consumption in everything that we 0:18:39.400 --> 0:18:44.400 consume and use, and and certainly with environmental pressures and whatnot, uh, 0:18:44.680 --> 0:18:46.920 you know, that will continue. So that's a that's a 0:18:47.520 --> 0:18:49.119 much bigger tail wind for us. And I think the 0:18:49.160 --> 0:18:51.760 market recognizes that we only have about a minute left. 0:18:51.800 --> 0:18:54.240 Wanted to get your thoughts on some of the comments 0:18:54.280 --> 0:18:56.880 we heard from the President last week in the infrastructure plan. 0:18:56.960 --> 0:19:01.080 There's a lot of production of chips and that nationalism, right, 0:19:01.160 --> 0:19:06.480 bringing that back to the US. How does that impact you? 0:19:06.480 --> 0:19:11.000 You know, it's we we um distribute product all over 0:19:11.040 --> 0:19:14.680 the world. We're buying it from from multiple geographic locations 0:19:14.680 --> 0:19:17.440 and shipping it to other geographic locations. So I don't 0:19:17.480 --> 0:19:21.000 think it really changes what we do. Uh. You know. 0:19:21.040 --> 0:19:24.239 The reality is is that for the last you know, 0:19:24.440 --> 0:19:27.600 five to ten years, there's there's obviously been an increase 0:19:27.600 --> 0:19:30.960 in nationalistic tendencies around the world. Um, you know, I 0:19:31.880 --> 0:19:34.800 think that has its challenges with trade, but certainly from 0:19:34.800 --> 0:19:39.760 a a you know what we do standpoint, if there's 0:19:39.840 --> 0:19:42.680 more made here, then we'll just be shipping more from 0:19:42.680 --> 0:19:45.520 here and less from other places. So we're quite happy 0:19:45.560 --> 0:19:47.359 to shift as the market ships. We had to do 0:19:47.359 --> 0:19:49.280 that with teriffs, we've had to do it with other things, 0:19:50.000 --> 0:19:52.919 and uh, you know, being nimble is part of the 0:19:53.000 --> 0:19:56.600 value we bring our suppliers and customers. Hey, Chris, thanks 0:19:56.640 --> 0:19:59.040 so much for joining us. We really appreciate chatting with you, 0:19:59.119 --> 0:20:02.000 getting some update on your company and on some of 0:20:02.040 --> 0:20:04.199 these global supply chain issues, which you guys are right 0:20:04.240 --> 0:20:08.440 smack in the middle of Christiansbury Cevo of Arrow Electronics. 0:20:08.440 --> 0:20:14.040 They are based in any suburb of Denver, Colorado. One 0:20:14.040 --> 0:20:17.920 of the key pillars underneath the equity bull call has 0:20:17.960 --> 0:20:19.879 been the reopening trade, and we certainly be getting some 0:20:19.960 --> 0:20:23.680 data points that support that, whether it's the airlines, whether 0:20:23.760 --> 0:20:27.879 it's the gaming companies or the UH some of the 0:20:27.920 --> 0:20:31.879 other leisure businesses. And also we got last Friday that 0:20:32.119 --> 0:20:35.800 very very strong jobs reports, So again, the reopening trade 0:20:35.840 --> 0:20:38.040 seems to be in play. UH. Is that enough to 0:20:38.080 --> 0:20:40.360 push this market higher? Let's check in with Phil Orlando, 0:20:40.760 --> 0:20:44.680 chief equity market strategist and head of client portfolio Management 0:20:44.680 --> 0:20:46.760 at Federated Herme's. Phil, thanks so much for joining us 0:20:46.800 --> 0:20:50.360 once again. You've been a consistently bullish call on this 0:20:50.440 --> 0:20:54.600 equity market. Are you still there? I am absolutely still there? 0:20:54.880 --> 0:20:57.280 Um this UH? I don't know if you read in 0:20:57.359 --> 0:21:01.200 my market commentary on Friday. I was working Friday because 0:21:01.280 --> 0:21:04.760 the Bureau of Labor Statistics thought they'd released the jobs 0:21:04.760 --> 0:21:09.600 report on Friday. Numbers were astounding, you know, aside from 0:21:09.600 --> 0:21:12.920 the nine hundred and sixteen thousand jobs added and the 0:21:13.000 --> 0:21:17.760 hundred and fifty six thousand revisions positive for January and February. 0:21:18.160 --> 0:21:22.359 Getting under the hood exactly puts an exclamation mark on 0:21:22.400 --> 0:21:25.560 the point you just made. So you look at the 0:21:25.880 --> 0:21:30.280 household survey adding six hundred nine thousand jobs, triple the 0:21:30.400 --> 0:21:34.160 prior month. Leisure and hospitality added two hundred and eighty 0:21:34.240 --> 0:21:38.440 thousand jobs. State and local education schools are opening up 0:21:38.480 --> 0:21:42.159 now added another hundred and one thousand jobs. All of 0:21:42.200 --> 0:21:46.040 this is because the pace of vaccination is improving. We're 0:21:46.040 --> 0:21:48.840 now up to like what two point seven million vacs 0:21:48.960 --> 0:21:51.560 is a day. Uh. And as a result, now schools 0:21:51.600 --> 0:21:57.840 are reopening bars, restaurants, stores, and end. These these lower skilled, 0:21:57.920 --> 0:22:01.840 lower wage workers who were forced to the sidelines because 0:22:01.880 --> 0:22:05.160 of these you know, lockdowns, are now flooding back into 0:22:05.200 --> 0:22:09.960 the labor market. And um, this one statistic is will 0:22:10.000 --> 0:22:13.440 blow your mind. If you have less than a high 0:22:13.480 --> 0:22:17.720 school diploma, UM, your rate of unemployment in February was 0:22:17.800 --> 0:22:21.360 ten point one percent. It improved in March from ten 0:22:21.400 --> 0:22:24.760 point one percent to eight point two percent, roughly a 0:22:24.840 --> 0:22:29.520 two percentage point decrease in the rate of unemployment. That's 0:22:29.560 --> 0:22:32.560 telling us these people are coming back into the labor market. 0:22:32.840 --> 0:22:35.199 And that's good for the overall economy and for the 0:22:35.240 --> 0:22:38.840 financial market. Phil I'm typically on in the afternoons and remain. 0:22:38.920 --> 0:22:42.240 Bostick and I are having a huge debate every day. 0:22:42.280 --> 0:22:45.080 We fight it out. He does not believe in inflation. 0:22:45.480 --> 0:22:48.320 I firmly believe in inflation. We see the I S 0:22:48.480 --> 0:22:52.320 M services in March now the highest on record, prices paid, 0:22:52.600 --> 0:22:56.720 the highest since two thousand and eight. When are inflationary 0:22:56.760 --> 0:23:00.600 problems going to be an issue? Though? For the equity market, well, 0:23:00.920 --> 0:23:05.959 it's a question of nominal versus core Romaine is uh. 0:23:06.119 --> 0:23:09.000 You know, for those who are looking at inflation, if 0:23:09.000 --> 0:23:13.840 you're focused upon the nominal numbers, Copper prices have quadrupled 0:23:13.840 --> 0:23:17.120 over you know, doubled over the last year. Lumber prices 0:23:17.119 --> 0:23:23.000 have quadrupled, Oil has doubled h corn wheat uh soybeans 0:23:23.000 --> 0:23:26.200 are up seventy eight percent. So all of those nominal 0:23:26.240 --> 0:23:29.520 prices are up sharply as the economy has recovered. But 0:23:29.640 --> 0:23:33.280 remember the core inflation, the consumer price Index and the 0:23:33.320 --> 0:23:38.800