WEBVTT - Local Currency EM Debt Is A Good Play On Weaker Dollar: Stein 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.600 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.800 you and your money, whether you're at the grocery store 0:00:17.920 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:28.639 Podcast on Apple Podcasts, SoundCloud and Bloomberg dot com. You're 0:00:28.680 --> 0:00:32.080 listening to Bloomberg Markets with Bim Fox and Lisa A. 0:00:32.200 --> 0:00:37.080 Bramowitz on Bloomberg Radio. If you're looking for international exposure 0:00:37.080 --> 0:00:39.600 when it comes to your bond portfolio, you want to 0:00:39.640 --> 0:00:42.560 ask Eric Stein. He is portfolio manager and co director 0:00:42.600 --> 0:00:46.120 of Global Fixed Income for eating Vance, the whole company 0:00:46.120 --> 0:00:48.360 helping to manage more than four hundred and thirty billion 0:00:48.400 --> 0:00:52.680 dollars of company of of customer assets, and they're of 0:00:52.720 --> 0:00:55.000 course based in Boston, home to Bloomberg one O six 0:00:55.000 --> 0:00:58.200 one Boston, Newburyport and thirty in Metro West and the 0:00:58.200 --> 0:01:01.520 South Shore. We welcome all of our listeners in Boston 0:01:01.680 --> 0:01:04.320 and around the world. And Uh, Eric, well, maybe just 0:01:04.360 --> 0:01:06.960 talk a little bit about this new fund. This is 0:01:07.000 --> 0:01:12.600 the Eaton Vance International Emerging Markets Local Income Fund and 0:01:12.720 --> 0:01:18.199 it is UH focused not only on on a quorum 0:01:18.280 --> 0:01:20.160 bonds that are outside the United States. What I'm getting 0:01:20.160 --> 0:01:23.560 at is it's in local currency, correct, correct. So you know, 0:01:23.600 --> 0:01:26.600 we've been running a local currency strategy for for US 0:01:26.640 --> 0:01:29.520 investors dating back actually the June of two thousand seven. 0:01:29.560 --> 0:01:32.600 We just launched a version of that for overseas investors, 0:01:32.640 --> 0:01:36.120 but it's dominated um it's denominated, i should say, in 0:01:36.240 --> 0:01:39.240 local currency. So there's two different types of emerging market debt. 0:01:39.319 --> 0:01:42.800 There's dollar debt, which trades that has spread to treasuries 0:01:42.800 --> 0:01:45.440 like US HIEL bonds or US corporates, and then there's 0:01:45.560 --> 0:01:48.800 locally denominated emerging market debt. And so that's debt issued 0:01:48.880 --> 0:01:51.480 let's say, by the government of Brazil, but not issued 0:01:51.480 --> 0:01:54.400 in US dollars, issued in Brazilian ray ice. And it's 0:01:54.400 --> 0:01:57.640 certainly a more volatile part of the emerging market debtast class, 0:01:57.640 --> 0:02:00.600 but I also think it's one where return potentials also greater. 0:02:00.880 --> 0:02:04.800 It's also one that relies heavily on emerging market currency 0:02:04.880 --> 0:02:08.360 performance against the dollar. And I'm wondering, you know this, 0:02:08.360 --> 0:02:10.760 this implies to me that you see a weaker dollar 0:02:10.880 --> 0:02:14.120 going forward against these emerging markets currencies. What's giving you 0:02:14.120 --> 0:02:17.400 that confidence so you're exactly right. It's certainly based on 0:02:17.480 --> 0:02:20.639 emerging market currency strength or emerging market currencies just being 0:02:20.639 --> 0:02:22.519 flat and you're earning a higher rate of interest. And 0:02:22.560 --> 0:02:24.880 if you go back to two thousand, thirteen, fourteen or fifteen, 0:02:24.880 --> 0:02:27.400 when emerging market currencies were weak and the dollar was strong, 0:02:27.919 --> 0:02:29.760 that would be a headwind for a strategy like this. 0:02:29.800 --> 0:02:32.240 So I always tell people, you know, it's it's certainly 0:02:32.240 --> 0:02:34.079 one of my favorite parts of the fixed income markets, 0:02:34.080 --> 0:02:35.720 but I caution people that if you can't have a 0:02:35.800 --> 0:02:38.120 draw down in your fixed income, this probably isn't the 0:02:38.200 --> 0:02:40.239 right sector for you. I always caution you because of 0:02:40.280 --> 0:02:42.560 the currency component. As you mentioned. The other thing we 0:02:42.639 --> 0:02:46.320 had Bloomberg Intelligence is Damien Sassauer on yesterday and he 0:02:46.400 --> 0:02:49.000 was talking about liquidity and emerging markets credit and he 0:02:49.080 --> 0:02:52.919 was saying he's watching the bid asks spreads widen out. 0:02:53.000 --> 0:02:55.560 This is sort of a measure of the difference between 0:02:55.560 --> 0:02:57.720 what the prices that people are asking for on bonds 0:02:57.760 --> 0:03:00.280 and what they're actually able to get. Um are you 0:03:00.320 --> 0:03:02.280 concerned about that? And how do you sort of plan 0:03:02.360 --> 0:03:04.160 around that in a fun like this? So I think 0:03:04.200 --> 0:03:06.040 when you know, when you talk about a bit offer spreads. 0:03:06.080 --> 0:03:07.919 I think in em credit, I think of that more 0:03:07.919 --> 0:03:10.600 a sovereign credit. You know, certainly all fixed income markets 0:03:10.600 --> 0:03:12.680 have their liquidity challenges. I think you know, on our 0:03:12.720 --> 0:03:16.079 Advanced Global Income team, we put a big focus on trading. 0:03:16.120 --> 0:03:18.120 We have a twenty four hour trading desk based not 0:03:18.160 --> 0:03:20.680 only out of Boston, but London and Singapore, and we're 0:03:20.680 --> 0:03:23.320 always looking for different liquidity sources. So the interesting thing 0:03:23.360 --> 0:03:26.560 about local markets is it's not only trading with large banks. 0:03:26.600 --> 0:03:29.480 There's also local players on shore UH and some of 0:03:29.480 --> 0:03:32.160 these countries that we invest in, So liquidity is just 0:03:32.400 --> 0:03:34.720 different than I'd say it would be in US high 0:03:34.760 --> 0:03:37.400 yel bonds or even emerging market dollar bonds. What are 0:03:37.440 --> 0:03:39.760 some of the characteristics of the bonds that would go 0:03:39.760 --> 0:03:44.120 into this portfolio. So they would be issued by governments 0:03:44.120 --> 0:03:46.760 of emerging market countries, so you know countries and let's 0:03:46.760 --> 0:03:50.040 say Latin America, Eastern Europe, Africa, Asia, UH, and they'd 0:03:50.080 --> 0:03:53.680 be issued in local currency, so Brazilian RAI ICE, Turkish lyra, 0:03:53.760 --> 0:03:55.760 Indonesian RUPEA, And we think of them as having two 0:03:55.800 --> 0:03:59.040 main risks. You have local interest rate or local duration risk, 0:03:59.320 --> 0:04:01.760 and you also have currency risk as well. Okay, But 0:04:01.840 --> 0:04:05.040 in that in that context of risk, what do you 0:04:05.360 --> 0:04:09.560 susset as parameters? Are you looking at shorter duration longer duration? 0:04:10.160 --> 0:04:12.840 I mean in debt can be funded in a variety 0:04:12.880 --> 0:04:15.080 of different ways and secured in different ways. Yes, so 0:04:15.160 --> 0:04:18.360 certainly there is duration. There's local duration to these assets. 0:04:18.360 --> 0:04:20.560 So it's okay, how do Brazilian interest rates move or 0:04:20.560 --> 0:04:23.520 Indonesian interest rates move? And sometimes there can be correlations 0:04:23.520 --> 0:04:25.480 with US interest rates. We have seen that in the past. 0:04:25.520 --> 0:04:27.720 We saw that in two thousand thirteen. I actually think 0:04:27.760 --> 0:04:29.880 what's interesting is this year here, in two thousand eighteen, 0:04:29.920 --> 0:04:33.440 despite all the volatility we've seen in US treasuries, higher 0:04:33.520 --> 0:04:36.960 US yields, negative return, let's say on the Barkley's agg 0:04:37.480 --> 0:04:39.599 you know, yield in some of these emerging market countries 0:04:39.600 --> 0:04:42.680 continue to come down. They sold off a bunch and thirteen. 0:04:42.680 --> 0:04:44.919 Their central banks have the high rates of defend currencies 0:04:44.960 --> 0:04:46.280 and now they've been able to cut rates for the 0:04:46.279 --> 0:04:49.840 past couple of years. What's your most recent high conviction 0:04:49.960 --> 0:04:52.800 bet so, So maybe one I can talk about is India. 0:04:52.920 --> 0:04:56.039 So India as a country, you know, not without risk. 0:04:56.120 --> 0:04:58.200 There's always things that that that go on sometimes that 0:04:58.279 --> 0:05:00.240 are frustrating to those of us that that's send a 0:05:00.240 --> 0:05:02.200 lot of time following India. But you know, you get 0:05:02.200 --> 0:05:04.240 seven and a half or seven points six percent on 0:05:04.360 --> 0:05:06.760 government bond yield, it's not in the index. So I 0:05:06.760 --> 0:05:09.680 think that's kind of a specialty of our whole team 0:05:09.800 --> 0:05:12.680 is looking for bonds that are not necessarily in the index. 0:05:12.680 --> 0:05:15.560 In India, despite being a really large country, isn't in 0:05:15.600 --> 0:05:18.360 the index. And real quick, what's your biggest contrarian bet 0:05:18.920 --> 0:05:22.000 biggest contrarian bet? Um? You know, we're starting to like 0:05:22.400 --> 0:05:25.279 the Philippines paso. It's actually one of the currencies in 0:05:25.360 --> 0:05:28.280 Asia that people like to short a lot, and there 0:05:28.279 --> 0:05:30.360 are certainly issues. They used to have a current account 0:05:30.360 --> 0:05:32.560 surplus and then it went to deficit. We think their 0:05:32.560 --> 0:05:34.560 important number is actually gonna be very high in the 0:05:34.600 --> 0:05:37.320 fourth quarter because of a new tax regime and people 0:05:37.320 --> 0:05:39.320 are gonna get all flustered about that and the currency 0:05:39.360 --> 0:05:42.000 is selling off, but ultimately there's some inflation there. We 0:05:42.040 --> 0:05:44.200 think the central bank, the BSP is what they call 0:05:44.240 --> 0:05:46.880 the central bank in Philippines, they'll have to raise rates 0:05:47.400 --> 0:05:49.800 that should lead the currency strength. Thank you so much 0:05:49.839 --> 0:05:52.039 for being with us. Truly a pleasure speaking with you. 0:05:52.160 --> 0:05:55.080 Eric Stein, portfolio manager and codirector of Global fixed Income 0:05:55.360 --> 0:05:58.080 at Eaton a Vance, which manages about four hundred and 0:05:58.120 --> 0:06:01.520 thirty billion dollars and is based in Boston, but he 0:06:01.600 --> 0:06:05.320 joins us here in our Bloomberg eleven three oh studios. 0:06:07.560 --> 0:06:11.600 This is Bloomberg Markets with Pim Fox and Lisa Abramowitz 0:06:11.720 --> 0:06:17.320 on Bloomberg Radio. Obamacare is getting a pretty profound test 0:06:17.520 --> 0:06:21.200 with a move by an Idaho based ensure. Here to 0:06:21.240 --> 0:06:25.120 talk about that is Max Neeson, who covers the pharmaceutical 0:06:25.160 --> 0:06:28.680 industry and all things healthcare for Bloomberg gad Fly, and 0:06:28.680 --> 0:06:31.679 he joins us here in our Bloomberg eleven three oh studios. Max, 0:06:31.680 --> 0:06:34.839 this is a fascinating story because it really goes to 0:06:34.920 --> 0:06:38.200 the heart of the issue that UH insurers are looking 0:06:38.240 --> 0:06:41.240 at whether they will be able to offer people lower 0:06:41.320 --> 0:06:47.040 cost UH insurance plans if they're healthier and they'll get 0:06:47.120 --> 0:06:50.679 less coverage, but that means higher premiums for sicker people. 0:06:50.720 --> 0:06:54.839 Tell us about this place. Yeah, absolutely so. Um, what 0:06:54.839 --> 0:06:58.440 what Blue Cross in Idaho is doing is is pretty 0:06:59.320 --> 0:07:03.480 clearly in blatantly in violation of a number of of 0:07:03.600 --> 0:07:07.159 statutes in the Affordable Care Act, namely UH no, no 0:07:07.320 --> 0:07:10.880 limits on spending UM having to provide the same variety 0:07:10.880 --> 0:07:13.400 of coverage people not denying coverage for sick people for 0:07:13.520 --> 0:07:16.880 plans UM. And the issue is that if you offer 0:07:16.960 --> 0:07:20.400 that kind of insurance and a c A compliant insurance 0:07:20.440 --> 0:07:23.559 at the same time, inevitably healthy people are gonna flock 0:07:23.640 --> 0:07:26.680 to those cheaper plans, leaving sicker people in the a 0:07:26.800 --> 0:07:30.880 c A compliant plans skyrocketing premiums. So you can't really 0:07:30.920 --> 0:07:33.640 have it both ways, and and that seems to be 0:07:33.800 --> 0:07:36.880 what they're trying to do an Idaho. The question is 0:07:36.920 --> 0:07:40.720 whether it will actually happen UM, you know, due to 0:07:40.920 --> 0:07:44.280 legal threat or or action by the government. Max, could 0:07:44.280 --> 0:07:48.080 you outline what this plan would look like for someone 0:07:48.200 --> 0:07:52.800 that is shopping for health insurance. Yeah, so I think 0:07:52.800 --> 0:07:55.960 they're gonna offer UM a bunch of different plans, But 0:07:56.360 --> 0:07:59.280 the general idea basically is that you know, if you're 0:07:59.320 --> 0:08:02.400 someone who's young and healthy, you might pick a plan 0:08:02.800 --> 0:08:06.679 UM that, for example, doesn't cover certain types of drug, 0:08:06.760 --> 0:08:10.760 doesn't cover certain types of care. UM offers more kind 0:08:10.760 --> 0:08:14.640 of limited in basic skeletal care as opposed to the 0:08:14.720 --> 0:08:17.640 sort of comprehensive benefits the under the C A Okay, 0:08:17.640 --> 0:08:19.560 but but what I mean I'm looking here. For example, 0:08:19.560 --> 0:08:22.160 it says the proposed plans have a one million dollar 0:08:22.360 --> 0:08:26.000 annual per person limit to how much care the ensurer 0:08:26.160 --> 0:08:28.400 will pay for. So if you're not gonna get any, 0:08:28.480 --> 0:08:30.120 if you're not going to be ill, or you think 0:08:30.120 --> 0:08:31.680 you're not going to be ill or need more than 0:08:31.720 --> 0:08:35.200 a million dollars, what do we know what the premium is, 0:08:35.200 --> 0:08:38.280 for example, on a monthly basis um. I don't know yet, 0:08:38.280 --> 0:08:41.040 but I imagine that it would be substantially lower than 0:08:41.160 --> 0:08:44.720 something on the c A because those plans literally, you know, 0:08:44.720 --> 0:08:46.679 they have a set of ten essential health benefits that 0:08:46.679 --> 0:08:49.880 they're required to cover um things like you know, for example, 0:08:49.960 --> 0:08:53.280 maternity care. Um. Someone who doesn't want that, doesn't plan 0:08:53.320 --> 0:08:55.640 on having a kid, um, they won't be paying for that. 0:08:55.720 --> 0:08:59.240 So that's the appeal theoretically. But the problem is, you know, 0:08:59.320 --> 0:09:01.280 the idea upon a C is that you make everyone 0:09:01.320 --> 0:09:03.400 pay for that. I understand that. I mean, that's the 0:09:03.520 --> 0:09:05.480 that's the whole idea of insurance, right, I mean, you've 0:09:05.520 --> 0:09:07.160 got this bigger pool. But I'm just trying to look 0:09:07.160 --> 0:09:09.600 at it from the consumer's point of view that someone 0:09:09.800 --> 0:09:12.160 is currently faced let's say with you know, paying six 0:09:12.640 --> 0:09:15.800 or seven a month for a plan when they have 0:09:15.880 --> 0:09:18.800 a high deductible, they kind of look at it and a, 0:09:18.920 --> 0:09:21.560 g Why am I paying six seven hundred bucks a 0:09:21.600 --> 0:09:24.160 month when I've got this really high deductible. So I'll 0:09:24.160 --> 0:09:28.480 never really end up using the unless unless something well. 0:09:28.480 --> 0:09:31.360 But but of course you don't know that in the future, right, 0:09:31.360 --> 0:09:32.680 you don't know whether you're going to be ill or 0:09:32.720 --> 0:09:35.080 not well. I think that there's a big question, Max. 0:09:35.120 --> 0:09:39.400 You're talking about the legal challenge to this, and to me, 0:09:39.480 --> 0:09:42.280 that's the most interesting part because, as you said, this 0:09:42.400 --> 0:09:48.720 is im blatant violation of the Obamacare plan. Who which 0:09:48.920 --> 0:09:51.760 legal agency would be the one to go after them? 0:09:51.840 --> 0:09:56.040 And since President Trump has voiced support for this type 0:09:56.080 --> 0:10:00.160 of structure of a plan, will they go after them? 0:10:00.200 --> 0:10:03.200 So that that's really the question. Um. So, alexas are 0:10:03.320 --> 0:10:06.600 the new Secretary of Health and Human Services had said that, 0:10:06.640 --> 0:10:08.680 you know, you have to enforce the rule of law. 0:10:09.280 --> 0:10:11.760 The question is what exactly that means from him whether 0:10:11.800 --> 0:10:14.679 they'll do it because HHS, you know, is the regulatory 0:10:14.720 --> 0:10:18.000 agency that oversees this. It's their job to enforce the 0:10:18.080 --> 0:10:21.120 law of the land. Um. But you know, as we've 0:10:21.160 --> 0:10:25.040 seen in other areas, they have a certain amount of latitude, 0:10:25.280 --> 0:10:27.640 but the amount of legal risk he is really acute. 0:10:27.679 --> 0:10:30.200 You know, the insurer is likely to get suited if 0:10:30.240 --> 0:10:33.600 they offer plans that UM sick people are inteligible before 0:10:33.679 --> 0:10:37.160 they impose this lifetime limit. Idaho is likely to get 0:10:37.200 --> 0:10:39.000 sued for allowing them to do it. And then if 0:10:39.120 --> 0:10:43.120 HHS isn't informing in enforcing the law, there's legal risk 0:10:43.120 --> 0:10:45.680 of the Trump administration as well. Okay, well, let's say 0:10:45.880 --> 0:10:49.800 they don't enforce it. Do you expect other health insurance 0:10:49.800 --> 0:10:54.120 companies to follow suit? UM at a minimum? You know, 0:10:54.280 --> 0:10:58.280 just about every insurer on the exchanges in Idaho is 0:10:58.360 --> 0:11:01.439 likely to to jump in as well, because if they 0:11:01.440 --> 0:11:04.719 don't and they only offer a c A compliant insurance UM, 0:11:04.760 --> 0:11:08.440 basically everyone's gonna get siphoned off into this third party UM, 0:11:08.440 --> 0:11:10.880 into the blue Cross plane at this point that's offering 0:11:10.880 --> 0:11:13.839 this type of insurance. So that's just a losing situation 0:11:13.880 --> 0:11:16.720 for them. They'll have to balance basically the legal risk 0:11:16.760 --> 0:11:20.360 of offering those plans against the possibility that they'll only 0:11:20.400 --> 0:11:23.160 have UM, you know, a very sick and expensive to 0:11:23.160 --> 0:11:25.880 cover population left for them. UM and be forced to 0:11:25.960 --> 0:11:27.840 jack up premiums, but maybe not be able to keep 0:11:27.920 --> 0:11:30.079 up anyway because they have no idea how to price 0:11:30.160 --> 0:11:32.920 this market because you've never seen anything like it before. 0:11:33.480 --> 0:11:35.520 Thanks very much for bringing this to our attention and 0:11:35.760 --> 0:11:39.800 giving us this detail very interesting. Max Neeson is our biotechnology, 0:11:39.800 --> 0:11:44.200 pharmaceutical and healthcare columnist for Bloomberg Gadfly, and you can 0:11:44.280 --> 0:11:48.560 follow Max on Twitter at Max Neeson and I S 0:11:48.920 --> 0:11:52.200 E and much appreciative. Coming up on a Bloomberg Markets, 0:11:52.200 --> 0:11:54.439 we're gonna be speaking with Oxo Murky as the president 0:11:54.440 --> 0:11:57.760 and the chief investment officer of Murk Investments, talk about 0:11:57.800 --> 0:12:00.480 the volatility in the value of the US dollar and 0:12:00.600 --> 0:12:04.280 whether gold would be something to buy for your portfolio. 0:12:06.920 --> 0:12:10.520 You're listening to Bloomberg Markets with Pim Fox and Lisa 0:12:10.559 --> 0:12:14.480 Abramowitz on Bloomberg Radio. Bloomberg Markets is brought to by 0:12:14.520 --> 0:12:17.600 Commonwealth Financial Network, the broker dealer r i A who 0:12:17.640 --> 0:12:20.920 has been putting relationships first since nineteen seventy nine. Find 0:12:20.920 --> 0:12:24.080 out why the industry's most satisfied advisors are head over 0:12:24.160 --> 0:12:29.160 heels about them. Visit Commonwealth dot com. We'll just taking 0:12:29.200 --> 0:12:31.720 a look at the value of gold since the beginning 0:12:31.760 --> 0:12:34.400 of the year, it has increased about four percent. Is 0:12:34.440 --> 0:12:37.959 that really a way to diversify your portfolio away from 0:12:37.960 --> 0:12:40.600 the risk of stocks and bonds. Here to help us 0:12:40.640 --> 0:12:43.240 answer this and many other questions is Axill Murky as 0:12:43.280 --> 0:12:47.080 the president and the chief investment Officer of MRK Investments, 0:12:47.360 --> 0:12:50.400 and he can be followed on Twitter at axel Mark 0:12:50.480 --> 0:12:52.840 based in San Francisco. Oxell, thanks very much for being 0:12:52.840 --> 0:12:55.600 with us. Talk a little bit about diversification and when 0:12:55.600 --> 0:12:59.200 people diversify, but really they're not doing a good job 0:12:59.240 --> 0:13:02.040 at it. Yeah, great to be with you. Well, let's 0:13:02.040 --> 0:13:05.000 answer the second part of your question. First, the markets 0:13:05.000 --> 0:13:08.839 have moved relentlessly higher, and obviously if you've done anything 0:13:08.840 --> 0:13:12.280 other than by buying the SMP, you underperformed. And so 0:13:12.440 --> 0:13:16.040 some people say they diversified to bonds, but in truth, 0:13:16.200 --> 0:13:18.600 many of them have been grabbing yield and when you 0:13:18.720 --> 0:13:21.160 when you buy junk bonds as a more extreme example 0:13:21.200 --> 0:13:24.160 of that, they tend to be highly correlated with risk assets. 0:13:24.200 --> 0:13:27.599 So it's been very, very difficult to get proper diversification. 0:13:27.840 --> 0:13:30.560 And of course why should you diversified? And volatility is low? 0:13:30.840 --> 0:13:33.120 The problem with that of causes at some point and 0:13:33.160 --> 0:13:36.160 we saw it in recent weeks. Volatility edges higher, and 0:13:36.280 --> 0:13:40.079 as that happens, people realize their misallocated and that sets 0:13:40.160 --> 0:13:44.400 in motion this grinding process that they're struggling to find diversification. 0:13:44.559 --> 0:13:47.400 And as people are realizing in recent weeks that's not 0:13:47.520 --> 0:13:50.360 so easy. Um, And you mentioned gold in the beginning. 0:13:50.800 --> 0:13:53.520 Gold has historically had a correlation of zero to the 0:13:53.640 --> 0:13:57.360 SMP in the long run. Um. And in the context 0:13:57.360 --> 0:14:00.520 of volatility, if I can continue here, um, gold doesn't 0:14:00.520 --> 0:14:03.240 have cash flow, and that's a good thing because when 0:14:03.280 --> 0:14:07.880 volatility rises, cash flows get discounted. More so all risk 0:14:07.920 --> 0:14:11.880 assets tend to get banged on the head. Everything else 0:14:11.920 --> 0:14:16.320 equal anyway, whereas gold in comparison does well because it 0:14:16.360 --> 0:14:18.720 doesn't have the cash flow. So when risk premier rise, 0:14:19.040 --> 0:14:21.320 gold does well. And that is the reason why every 0:14:21.320 --> 0:14:23.440 baire market since the early seventies gold has done well, 0:14:23.480 --> 0:14:25.760 with the big exception, of course, of the early eighties 0:14:25.880 --> 0:14:29.320 where real interest rates when they very high. Okay axel 0:14:29.520 --> 0:14:33.560 uh full disclosure. Gold I find incredibly confusing and I 0:14:33.600 --> 0:14:37.200 always thought of it as an inflation hedge, and exactly 0:14:37.200 --> 0:14:40.880 as you're saying, you know it should do well in 0:14:41.400 --> 0:14:46.600 times of inflation and growth, possibly even better than say 0:14:46.640 --> 0:14:49.600 a fixed income instrument, especially tied to risk your credit. 0:14:49.800 --> 0:14:52.040 And yet you really haven't seen that substantial of a 0:14:52.120 --> 0:14:54.720 rally in gold on the heels of the sell off. 0:14:55.000 --> 0:14:57.320 And yesterday we had a guest on who is saying 0:14:57.360 --> 0:15:00.200 this is because interest rates are rising in the u US, 0:15:00.400 --> 0:15:03.960 people are able to actually get more income. Uh so 0:15:04.080 --> 0:15:07.440 because it's not interest producing security. Uh, it's sort of 0:15:07.480 --> 0:15:11.560 being punished. Make make this make sense for me, please? Well, 0:15:11.680 --> 0:15:14.400 is that incredible? This this this brick, this piece shiny 0:15:14.440 --> 0:15:18.200 piece of metal that doesn't do anything, doesn't ever change. 0:15:18.360 --> 0:15:20.800 Is so confusing because it's the one thing that's constant. 0:15:20.800 --> 0:15:23.600 It's the world around it that's so confusing. And and 0:15:23.920 --> 0:15:26.880 so um and and obviously the price of gold is 0:15:26.880 --> 0:15:30.000 determined just like everything else by supply and demand, and 0:15:30.040 --> 0:15:32.960 so the question is is there reason to to have 0:15:33.040 --> 0:15:35.720 more of gold than this or that? And and clearly 0:15:35.760 --> 0:15:38.160 the other things that are also quote unquote inflation hedges, 0:15:38.240 --> 0:15:41.480 but neither of those perfect heades. People have historically said, right, 0:15:41.560 --> 0:15:45.640 buying um real estate, buying equities might be inflation hedges. 0:15:46.040 --> 0:15:48.640 And so um I tried to put it into this 0:15:48.960 --> 0:15:53.440 is volatility framework, because that one I think makes perfect sense. 0:15:53.520 --> 0:15:56.000 It doesn't have cash flow, and therefore the discounting works 0:15:56.000 --> 0:15:59.800 differently now um in the context of higher inflation. First 0:15:59.800 --> 0:16:02.480 of all, inflation is still very low and and so 0:16:02.640 --> 0:16:05.160 there's fear of it ticking up um And we're not 0:16:05.200 --> 0:16:07.360 talking about hyper inflation here, we're talking about the Federal 0:16:07.360 --> 0:16:11.840 reserve potentially being attacked more assertive. And if there's one 0:16:12.000 --> 0:16:15.680 big competition to gold, it is higher real interest rates. 0:16:15.720 --> 0:16:18.360 And so if you get compensated for holding cash while 0:16:18.400 --> 0:16:20.720 you don't need to hold something that doesn't throw off cash. 0:16:21.080 --> 0:16:24.120 And the reason why gold has held up very well anyway, 0:16:24.360 --> 0:16:26.880 in my view any way, is because people think that 0:16:26.920 --> 0:16:29.440 there's a limit to how much tightening the Federal Reserve 0:16:29.520 --> 0:16:32.200 can do, and so and when it was also seen 0:16:32.240 --> 0:16:35.440 the dollar has been weakening despite higher rates, and of 0:16:35.480 --> 0:16:36.840 course a lot of that has to do with how 0:16:36.920 --> 0:16:39.120 much has been priced in. But just for the kind 0:16:39.120 --> 0:16:42.400 of in the context of the reason about a volatility 0:16:42.440 --> 0:16:45.680 and tandem we had in the market, I take something 0:16:45.680 --> 0:16:48.680 that's kind of boring any time over something that moves 0:16:48.680 --> 0:16:51.760 a thousand points in in in a few minutes, and 0:16:51.840 --> 0:16:54.840 so it does play its role as a diversifier. But 0:16:55.560 --> 0:16:58.160 but this is an environment I think where everybody, no 0:16:58.200 --> 0:17:00.320 matter what your hold you're going to be tested. Um. 0:17:00.480 --> 0:17:03.960 Correlations are breaking down, have been breaking down, and so 0:17:04.200 --> 0:17:06.000 you're going to be tested with whatever view you have 0:17:06.119 --> 0:17:08.520 on whatever I as said. You've got to have a 0:17:08.560 --> 0:17:10.760 long term framework to think about what you want to do, 0:17:10.960 --> 0:17:13.639 how much allocate the stocks, bonds, gold, or whatever it 0:17:13.720 --> 0:17:16.560 might be. Because if you just look at any one 0:17:16.600 --> 0:17:19.520 data point, any one day, UM, I think people will 0:17:19.560 --> 0:17:23.000 be rightfully confused. Oxville. If you go back about five 0:17:23.080 --> 0:17:25.840 years and you look at the value of gold, it 0:17:25.920 --> 0:17:29.240 was trading it around sixteen hundred and five dollars four 0:17:29.240 --> 0:17:34.320 an ounce. Right now we're hundred and fifty two. What 0:17:34.359 --> 0:17:38.000 do you say to people that maybe bought gold then 0:17:39.000 --> 0:17:42.080 and now look at their holdings and say, gee, I 0:17:42.119 --> 0:17:45.960 can't buy the same amount in dollar terms that I 0:17:46.080 --> 0:17:49.800 bought back then, And the value of the US dollar 0:17:49.880 --> 0:17:52.600 may have even declined since then, so as a result, 0:17:52.960 --> 0:17:56.439 I even have less money. Is gold a means to 0:17:56.560 --> 0:18:00.359 an end or is it an end in itself? Actually 0:18:00.440 --> 0:18:02.240 just got a message from somebody who said, oh, I 0:18:02.280 --> 0:18:04.960 loaded up on too much gold and got burned during 0:18:04.960 --> 0:18:06.960 those days that you're just a reference. And so even 0:18:06.960 --> 0:18:09.240 when the price of gold goes higher, they might have 0:18:09.359 --> 0:18:12.440 to sell some of it, and uh and and you 0:18:12.440 --> 0:18:15.200 you get that from time to time. It comes down 0:18:15.240 --> 0:18:18.960 to investment process. Right. If you take take if you 0:18:19.080 --> 0:18:21.440 bought stocks in two thousand seven and two thousand eight 0:18:21.480 --> 0:18:24.960 and and and and had were fully loaded in the stocks, 0:18:25.240 --> 0:18:27.160 well you lose a lot of money, and then people 0:18:27.200 --> 0:18:29.480 tell you to double down at the bottom. That is 0:18:29.520 --> 0:18:32.480 completely irresponsible because you lost half of your net worth 0:18:32.560 --> 0:18:34.760 and you lost more than you could afford to lease do. 0:18:34.840 --> 0:18:37.240 So you've got to pay down your risk profile. So similarly, 0:18:37.320 --> 0:18:39.480 if you loaded up on too much of anything, including 0:18:39.520 --> 0:18:44.280 gold on the top and haven't diversified as as prices 0:18:44.320 --> 0:18:47.080 were moving, well, odds are that you lost more than 0:18:47.119 --> 0:18:49.840 you could afford to lose. But that doesn't make the 0:18:49.880 --> 0:18:52.320 investment in bad investment. It means that you don't have 0:18:52.359 --> 0:18:55.520 a discipline to rebalance your portfolio and and to to 0:18:55.840 --> 0:18:58.399 understand the risks and and what happened in gold at 0:18:58.400 --> 0:19:01.480 the time, volatility was too low and people weren't the 0:19:01.520 --> 0:19:04.200 way of the risk. While anybody who buys anything, including gold, 0:19:04.200 --> 0:19:06.520 should be aware these things can be very volatile and 0:19:06.600 --> 0:19:09.320 people only realize that on the way down when volatility 0:19:09.359 --> 0:19:12.400 spikes and doesn't make the investment worth But it does 0:19:12.600 --> 0:19:15.640 remind people that the human and I'm not following the process. 0:19:15.640 --> 0:19:18.040 And notably they didn't take chips off the table now 0:19:18.040 --> 0:19:20.719 either um during the the bull market and hopefully they 0:19:20.800 --> 0:19:22.560 got the wake up call of Laton in the market. 0:19:22.600 --> 0:19:24.919 Shield axell Mark, thank you so much for joining us. 0:19:24.960 --> 0:19:27.480 A pleasure having you on. Axel Mark is President, chief 0:19:27.560 --> 0:19:32.560 investment officer of Mark Investments in San Francisco, California. It's 0:19:32.600 --> 0:19:39.480 not gold that's confusing, it's the world around it. Let's 0:19:39.520 --> 0:19:43.840 turn to farming equipment Deer and Company, which focuses on 0:19:43.920 --> 0:19:48.639 supplying farmers and their infrastructure. Their shares are up nearly 0:19:48.680 --> 0:19:52.760 four percent after beating estimates with their earnings. Karen yubile 0:19:52.800 --> 0:19:56.560 Heart joins us now our industrials analysts for Bloomberg Intelligence. 0:19:56.600 --> 0:19:58.679 Always full of insight. Karen, We're so happy to have 0:19:58.760 --> 0:20:01.280 you here. So what's going on here? I just sort 0:20:01.320 --> 0:20:05.000 of set the stage for why why the outlook in 0:20:05.080 --> 0:20:08.200 general for farming is turning up? Uh, you know, it's 0:20:08.320 --> 0:20:12.240 it's largely replacement demand. Um. They are in both construction 0:20:12.480 --> 0:20:16.040 and agg and medals are surging um so and the 0:20:16.080 --> 0:20:19.719 construction business is surging. But you know, grain commodity prices 0:20:19.720 --> 0:20:23.119 have not really done anything. But the farmers have not bought, 0:20:23.200 --> 0:20:26.640 particularly the large farmers for about three years, and they 0:20:26.720 --> 0:20:30.080 there's the technology has changed a lot. Um. You know, 0:20:30.119 --> 0:20:32.360 their equipment is getting a little old, and I think 0:20:32.400 --> 0:20:34.560 they've just and they have enough confidence to get out 0:20:34.600 --> 0:20:37.919 there and start buying. Well, the company already said, what 0:20:38.000 --> 0:20:41.679 sales are up like the quarter? Yeah, yeah, um, And 0:20:41.720 --> 0:20:43.920 well there's two things happening there. The end markets are 0:20:43.960 --> 0:20:47.119 not up that much, but deer underproduced for three years, 0:20:47.320 --> 0:20:50.280 so they get a kick, uh, an extra kick from 0:20:50.480 --> 0:20:53.760 ramping back up to uh, you know, retail demand. So 0:20:54.040 --> 0:20:55.840 internally they're going to do a lot better than the 0:20:55.920 --> 0:20:58.600