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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day, we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. We've been talking about

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Speaker 1: four months. The Cow's e t F CEO w Z

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Speaker 1: is the ticker, and a lot of people have been

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Speaker 1: opting to get into this e t F concerned about inflation.

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Speaker 1: We got a heck of an inflation print. Let's talk

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Speaker 1: to Sean O'Hara. He um runs the Cow's e t

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Speaker 1: F as president of Pacer E t F S. Sean,

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Speaker 1: thanks so much for joining us. Give me first your

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Speaker 1: reaction to this inflation print. Well, first off, thanks for

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Speaker 1: having me, and thanks for telling everybody the cow story.

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Speaker 1: I'm not shocked by the number. Um. I was speaking

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Speaker 1: to some folks over the weekend and I had said

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Speaker 1: I thought it would be a print over nine. You know,

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Speaker 1: it's sort of a time issue, you know, towards the

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Speaker 1: end of the month, you know, gasoline prices came down

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Speaker 1: a little bit, and oil prices sort of fell a

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Speaker 1: little bit earlier in the month. We're still were under

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Speaker 1: some great, great deal of pressure. And I don't really

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Speaker 1: feel that that that the inflation number is going to

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Speaker 1: subside very much going forward, just because we haven't really

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Speaker 1: addressed the supply side of the inflation equation. I know,

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Speaker 1: the Fed, uh, you know, is really determined to just

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Speaker 1: hammer down the economy to try to work on the

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Speaker 1: demand side. But you know that in my view, that's

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Speaker 1: just causing more pain to cure some pain. I'd rather

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Speaker 1: see us be more focused on the supply side of this.

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Speaker 1: I mean, I think that would take care of everything,

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Speaker 1: and then we wouldn't necessarily be in this position where

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Speaker 1: we have to continually worry about rates going up and

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Speaker 1: and the FED being so committed to their path going forward. Well,

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Speaker 1: and I've I've heard sean so many very smart people

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Speaker 1: who made a lot of money in the past with

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Speaker 1: growth companies, with startups, with tech. Who have you know,

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Speaker 1: said to me in the last six months, you know what,

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Speaker 1: I'm just looking to get into busines. This is that

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Speaker 1: spin awful lot of cash. Um, Well, what's the connection there? Why? Why? Why?

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Speaker 1: Are we seeing people make this switch? Now, it's a

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Speaker 1: pretty simple equation. When you buy growth, you're buying future earnings,

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Speaker 1: and when you buy companies that produce current cash, so

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Speaker 1: you're getting a current return. So those future earnings must

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Speaker 1: be discounted by inputs, and those inputs are inflation and

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Speaker 1: interest rates, and so if I was going to buy

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Speaker 1: a dollar's worth the future earnings UM, i'd have to

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Speaker 1: discount that back and so that sort of trickles down

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Speaker 1: into PE ratios. When you buy companies to give you

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Speaker 1: a high current return on cash or on your investments,

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Speaker 1: you're less bothered by the higher interest rates and higher

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Speaker 1: inflation numbers. And so in an environment like this, what's

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Speaker 1: going on really is that there's a shift in sentiment

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Speaker 1: away from growth and towards companies that are giving you

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Speaker 1: a much higher return. And that's because when we have

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Speaker 1: rising interest rates and rising inflation and then god forbid,

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Speaker 1: the threat of slowing earnings, PE multiples on the overall

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Speaker 1: market have to contract, and that to where all of

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Speaker 1: the big growth returns where in companies that had high pvs.

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Speaker 1: And we're starting to see the pain of staying in

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Speaker 1: that trade as opposed to repositioning your portfolio to get

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Speaker 1: a high current return on your money that's less damaged

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Speaker 1: by those higher input costs. So Sean, I understand that

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Speaker 1: in principle, with the discount rate and all of that,

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Speaker 1: that's why you see tech sensitive to so much of

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Speaker 1: the yields picture. But I'm curious if that perhaps definition

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Speaker 1: or that categories should change in that Tech perhaps isn't

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Speaker 1: the growth play anymore, it's non defensive play anymore, and

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Speaker 1: perhaps it's actually a value play, just given how much

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Speaker 1: fundamentally it's become a part of our lives, but also

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Speaker 1: how much fundamentally it's become a part of say even

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Speaker 1: the SMP five. I'm curious, is there an argument to

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Speaker 1: where say, a name like Apple is the new Coca Cola.

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Speaker 1: There's definitely it's a great point. You know, if we

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Speaker 1: look at the history on the cow zt F, We've

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Speaker 1: owned Apple at different periods from points in time, but

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Speaker 1: that's only when the price of the stock came down

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Speaker 1: enough to warrant it having a high enough free cash

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Speaker 1: flow yield. We own Meta in cows you know, that's

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Speaker 1: a tech play. We've always had a little bit of

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Speaker 1: a tech exposure, mostly on the chip side, like with

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Speaker 1: a name like an Intel or even on IBM. I

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Speaker 1: would be very very happy to see that happen. And

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Speaker 1: that's sort of in the pattern if we look sort

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Speaker 1: of historically at you know, the methodology that we've built

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Speaker 1: is when you see these big reversals and you see

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Speaker 1: peeps come down, high high quality names that would were

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Speaker 1: growth names have a tendency from time to time to

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Speaker 1: fall into our screen, and and so we would be

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Speaker 1: very excited to see what you said happened. The thing

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Speaker 1: you have to worry about is that how long that

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Speaker 1: that transition is. You know, if you look at a

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Speaker 1: Microsoft in the nineties that went nowhere for almost a decade,

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Speaker 1: even though it was a profitable company, and that was

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Speaker 1: because it was going from a regime or had a

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Speaker 1: high p and their growth slowed enough to where they

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Speaker 1: had to adjust to it. So I would expect to

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Speaker 1: see some of that happening in the text basin. And

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Speaker 1: by rebalancing the COWS portfolio on a quarterly basis and

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Speaker 1: can attation to the free cash flow and free cash

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Speaker 1: flow yield, we might actually avail ourselves as some of

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Speaker 1: those opportunities. I see, you have a lot of healthcare holding.

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Speaker 1: He's just got thirty seconds left, but I'm looking at

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Speaker 1: Moderna here, Bristol Meyers Squib guilelead visor. Um, these healthcare

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Speaker 1: businesses are just kind of recession proof. Is that the idea? Well,

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Speaker 1: it's it's following the free cash flow. But you're you're

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Speaker 1: actually correct on that. Healthcare as a sector has grown

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Speaker 1: its earnings almost as fast as tech has, but their

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Speaker 1: stock prices haven't gone up as much as their earnings.

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Speaker 1: For as tech stock prices went up like two or

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Speaker 1: two and a half times they're earning. So as a

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Speaker 1: as a safety play, if you will, as a way

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Speaker 1: to be less susceptible to pe contraction, healthcare looks like

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Speaker 1: a great place to be because those stocks never got

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Speaker 1: too expensive relative to their earnings and their free cash flow. Sean,

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Speaker 1: thanks so much for joining us. Great talking to you

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Speaker 1: and uh UM great to get the voice behind the

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Speaker 1: e t F that we've been talking about here for

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Speaker 1: so long. The cows e t F c o w

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Speaker 1: Z one e t F of the Year from with

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Speaker 1: Intelligence Mutual Fund and e F Awards last month, and

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Speaker 1: it's one that we high it on our E t

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Speaker 1: F show as well. So Sean we gotta get you

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Speaker 1: on the E T F I Q show. Um that

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Speaker 1: we run Monday's at one pm. Dream Team here while

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Speaker 1: Paul Sweeney is out surfing and bonfires on the beach,

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Speaker 1: He's at a lu ow and he's listening to the

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Speaker 1: slide guitar. Man. I wish I was in why you

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Speaker 1: right now? We should take a little Bloomberg Markets field trip.

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Speaker 1: In the meantime, though, to do that field trip, we

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Speaker 1: would have to get on a plane board it. Try

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Speaker 1: to get to buy a ticket. Yeah, we have to.

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Speaker 1: The flight would have to not be canceled, pack snacks

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Speaker 1: because we don't want to pay. It would be expensive.

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Speaker 1: You know, I can't fly economy. I'm six three and

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Speaker 1: forty years old. So oh really see, I was gonna say,

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Speaker 1: I can very easily fit into like, um, what's the

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Speaker 1: cargo cabin below? I could do that if they would

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Speaker 1: just decrease the air fare. Um. Maybe Peter McNally, our

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Speaker 1: next guests, can help us with that prospect, especially on

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Speaker 1: a data like today where we did get those Delta earnings.

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Speaker 1: Peter McNally, the global lead of Industrials, Materials and Energy

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Speaker 1: at Third Bridge, joins us and I should say my

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Speaker 1: former employers. I'm extra excited about this guest. Peter, thank

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Speaker 1: you as always for joining us. Well, Matt and I

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Speaker 1: just put out a few suggestions. How are we going

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Speaker 1: to afford airfare? And is that really an issue right now?

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Speaker 1: Given everyone wants to travel, It's not like there's any

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Speaker 1: shortage of demand. So what is wrong with these airline earnings? Well, Creedy,

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Speaker 1: I think we'll be pretty sure that those costs are

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Speaker 1: not coming down, you know, I mean there are three

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Speaker 1: issues in there, all into related, right. It's capacity, it's

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Speaker 1: the cruise, and it's the costs. And airlines would a

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Speaker 1: more capacity if they could. They just can't get enough

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Speaker 1: people to staff these plants. Now they've been aggressively hiring,

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Speaker 1: but to pay people a lot more money to work

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Speaker 1: on these plants. And you know, it's like it's like

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Speaker 1: other industries, but even more so from what our experts

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Speaker 1: have been seeing than uh than in other places. But

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Speaker 1: you know, people who work in these airlines are making

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Speaker 1: more money today than they were a year ago and

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Speaker 1: what they were pre pandemic, and people costs for the

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Speaker 1: single highest cost for you know, for any airline you know, anywhere.

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Speaker 1: So while there is that demand Um, it's it hasn't

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Speaker 1: been able to be met because we can't get enough

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Speaker 1: planes with people, so they can't get enough planes out

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Speaker 1: there to meet demand. But they also can't raise prices

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Speaker 1: enough to um keep margins where they want them. Is

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Speaker 1: that the case? Yes, yes, I mean, look, it's fundamentally

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Speaker 1: a less profitable business than it was pre pandemic, but

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Speaker 1: they're they're still making money. Um, we just probably would

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Speaker 1: have expected a bit more, you know at this point.

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Speaker 1: Some of that does have to do, you know, with

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Speaker 1: the oil price, and some of it does have to

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Speaker 1: do with the lag. Right, they're any people, you know,

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Speaker 1: but the people have to be trained, so they're not

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Speaker 1: necessarily generating revenue for these companies just yet. UM that

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Speaker 1: will turn you know, in the future. And Delta's talking

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Speaker 1: you know that in about a year's time they should

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Speaker 1: be back to twenty nineteen levels of capacity. Now, that's

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Speaker 1: not going to help anyone in in this summer's travel season,

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Speaker 1: and you've seen all the delays and the cancelations of

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Speaker 1: the results of of these shortages. But you know that's

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Speaker 1: where we stand today. I mean, had they been able

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Speaker 1: to really do something on prices because um, I recall

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Speaker 1: flying out to see the Dead at Giant Stadium in

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Speaker 1: from here, and then I went out to see the

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Speaker 1: Dead at Giants Stadium in two thousand and fifteen from here,

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Speaker 1: and my airfare was basically the same. You know, even

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Speaker 1: though it was twenty years later. Have they been able

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Speaker 1: to really move the needle on prices? Well, you know

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Speaker 1: some of that twenty fifteen was one of the you know,

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Speaker 1: the low years for fuel prices. You know that did

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Speaker 1: that did have you know, have a factor um and

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Speaker 1: you know, as you guys have you know discusses like

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Speaker 1: you know, oil prices are are high, and they're probably

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Speaker 1: going to be staying high, at least relative to history,

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Speaker 1: according you know, according to our experts. But there's also

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Speaker 1: a lot more competition, um, you know, particularly on the

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Speaker 1: leisure side of the industry today. I look at this

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Speaker 1: fight over spirit you know airlines. This is the ultimate

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Speaker 1: low cost airline, you know that you have for a

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Speaker 1: company like Delta where the upside is still yet to

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Speaker 1: come as in the business and international side, and that's

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Speaker 1: that's the big driver for them, for United for Americans, UM,

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Speaker 1: So their market is going to be a little bit different,

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Speaker 1: and those profits have been slower to come than what

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Speaker 1: we've seen on the leisure side. But Peter, there's also

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Speaker 1: a bunch of labor issues that play here. I think

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Speaker 1: American airlines had increased their pilot salaries. I think Going

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Speaker 1: United did the same. I think about four increase. Delta,

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Speaker 1: Alaska Southwest correct me if I'm wrong, But they're still

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Speaker 1: in negotiations. And that doesn't even take into account flight attendant, crew,

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Speaker 1: baggage handlers. We know as an issue abroad in London,

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Speaker 1: for example, even Heathrow now capping their passenger account to

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Speaker 1: a hundred thousand labor is a major problem. Is this

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Speaker 1: a problem that is solvable in the next two years? Well,

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Speaker 1: you know, for a company like Delta, who you know

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Speaker 1: is in negotiations with their their pilots now, it is,

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Speaker 1: you know, our experts believe is a bit more managable.

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Speaker 1: They've got a great balance sheet, it's well capitalized, plenty

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Speaker 1: of plenty of liquidity, and they are profitable. The carriers

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Speaker 1: that are going to struggle a bit, you know, in

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Speaker 1: our view, or these regional carriers where they have seen

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Speaker 1: their pilots poached by these major carriers and pilot it's

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Speaker 1: like to fly new planes, you know, and and to

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Speaker 1: the roots they want and that's usually not something that

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Speaker 1: regional airlines are able to offer. So look, there is

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Speaker 1: serious wage inflation in this, you know, in this industry,

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Speaker 1: and it is leading to higher fairs. But you know,

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Speaker 1: as we saw from the inflation data today, it doesn't

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Speaker 1: seem like it's gonna be easy anytime soon. All right, Peter,

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Speaker 1: thanks so much for joining us. Peter McNally, Uh there

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Speaker 1: he is the lead analysts for Industrials over at Third

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Speaker 1: Bridge talking to us about the airline story. Oh actually, wait, Peter,

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Speaker 1: before you go, I gotta ask about Heathrow and rationing

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Speaker 1: and is that the kind of thing that's going to

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Speaker 1: happen at more airports. Well, I think we've seen you know,

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Speaker 1: we've seen it from the airlines. He's even starting right,

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Speaker 1: I mean, Delton got in front of this before July

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Speaker 1: fourth weekend and trying to discourage people from taking the

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Speaker 1: flights that they had booked. Um. Yes, they're going to

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Speaker 1: be some airports that are just going to struggle, um

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Speaker 1: with getting the right step and handling you know, all

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Speaker 1: this demand. We've got a few more weeks left to

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Speaker 1: go in the summer. Things should ease up in the

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Speaker 1: fall on that front. Um. But it's tough all over

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Speaker 1: on this industry, all right. I'm glad I got that

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Speaker 1: in because I was shocked at that story yesterday. And

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Speaker 1: the concern is that that spreads and we get rationing

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Speaker 1: everywhere because of a shortage of not just flights, but uh,

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Speaker 1: you know gas in Europe, electricity in Texas. I mean,

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Speaker 1: it's all over the place. In any case, Peter, thanks

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Speaker 1: so much for joining us. Peter McNally, they're global lead

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Speaker 1: for industrial materials and energy. Over at the third bridge,

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Speaker 1: we have an interesting move going on in markets, not

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Speaker 1: anything like what we saw on June two, when inflation

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Speaker 1: came out at eight point six percent. That was three

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Speaker 1: tents of percent higher than the analysts estimate UM in

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Speaker 1: a survey ducted by Bloomberg. At that time, the NASDAC,

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Speaker 1: the big text docs dropped three and a half percent

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Speaker 1: right away. Today we had a print at nine point

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Speaker 1: one percent, also three tenths of a percent higher than

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Speaker 1: the analysts estimate UM in a survey by Bloomberg. And

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Speaker 1: yet the NASDAK is gaining. What's the difference. Matt Winkler

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Speaker 1: is here, Bloomberg editor in chief Amertius to talk to

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Speaker 1: us about why the market isn't tanking the way we

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Speaker 1: saw it due last month, Matt, Matt Um, As you

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Speaker 1: just said, just about everybody UH knows inflation as measured

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Speaker 1: by the CPI is hovering at this forty year high

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Speaker 1: and seemingly out of control. But when you look at

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Speaker 1: combined in less conspicuous metrics on inflation, you see that consumers, economists,

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Speaker 1: and investors all are in sync and they're anticipating a

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Speaker 1: gradual return to stability and moderation. And that seems quite

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Speaker 1: surprising obviously right now. But when you look at the

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Speaker 1: data closely, you see that, for example, in the bond market,

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Speaker 1: what we call to break even rates, UH, they actually

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Speaker 1: plummeted on June and have stayed stayed at that level since.

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Speaker 1: And then when you look at consumer behavior, consumers, even

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Speaker 1: as pistomistic as they are, they're not UM struggling to

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Speaker 1: make ends meet. Actually UH. If you look at personal income,

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Speaker 1: for example, UM, it's higher than at any point prior

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Speaker 1: to UH. And then when you go to economists and

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Speaker 1: ask them what what are you seeing? They're all forecasting.

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Speaker 1: And we you know, talk to dozens of economists and

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Speaker 1: get their forecast quarterly. They're all seeing a moderation inflation too.

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Speaker 1: So you put that all together, add to the fact

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Speaker 1: that lumber is way down this year from its highs

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Speaker 1: of twenty one. Same thing with copper. You mentioned or

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Speaker 1: somebody mentioned oil and gasoline, and gasoline is actually down,

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Speaker 1: uh to the level of April. So even the aggs,

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Speaker 1: I mean, if you look at the chart, the eggs

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Speaker 1: are down, the metals are down, the oils are down

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Speaker 1: from their highs, and so that's why, I mean, this

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Speaker 1: is obviously a backwards looking number to some extent. But

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Speaker 1: I loved the point you made in your piece with Roger,

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Speaker 1: which Robert Burgos made um in a piece this month

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Speaker 1: that consumers spend three and a half percent of their

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Speaker 1: disposable income I guess on gasoline, and that compares to

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Speaker 1: a three point six percent average, which which drives with

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Speaker 1: the higher personal income for it. And I was gonna say, Unfortunately,

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Speaker 1: what happens too often when our profession is reporting on

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Speaker 1: the economy is the context is missing. And I would

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Speaker 1: say in the inflation narrative, a lot of it is

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Speaker 1: driven by politics, of course, and that gets picked up

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Speaker 1: right away because everybody's writing about politics, but the context

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Speaker 1: of the economy and inflation is often missing, and that

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Speaker 1: is definitely the case, UH with today's numbers. That you

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Speaker 1: can look at the CPI as we are UH and

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Speaker 1: draw a conclusion. But if you look at every other

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Speaker 1: number that's related to the cp I and you look

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Speaker 1: at what the FED looks at itself, the personal consumption

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Speaker 1: Expenditure Index, that's three to four percentage points below the

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Speaker 1: current CPI depending on when you look at it. Well,

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Speaker 1: I think the key point that you made just moments

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Speaker 1: ago was that people are still spending. I just got

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Speaker 1: a text message from a friend in London. We're figuring

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Speaker 1: out vacation dates and she said, I just looked at

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Speaker 1: prices coming out of New York. Is it's going to

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Speaker 1: be too expensive for you? And what I'm saying, I mean, yes,

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Speaker 1: but I still want to take this trip. It's something

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Speaker 1: that Greg McNally over at Third Bridge was talking about

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Speaker 1: as well. It feels like you pull the trigger now

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Speaker 1: right because you're afraid that prices are going to go

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Speaker 1: higher later. I'm buying tickets for October for December, because

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Speaker 1: isn't that something that happening. No, No, what you just

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Speaker 1: described is that's to run right, that's the that's the

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Speaker 1: runaway inflation scenario. And in fact, that uh stampede is

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Speaker 1: that people think of to get something today because the

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Speaker 1: price of it will be much higher tomorrow. It's just

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Speaker 1: not showing up in the data. Is there any evidence

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Speaker 1: that we're actually seeing demand destruction? We're talking about rationing,

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Speaker 1: but I feel like it's skipping the step of demand destruction.

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Speaker 1: We see some rationing. For example, the bitcoin miners have

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Speaker 1: shut down their machines in Texas, but that's because the

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Speaker 1: grid is weak, or heathrow um has ration the flights

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Speaker 1: that they're gonna sell, but that's because they don't have

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Speaker 1: the labor that they need. Well, there's a whole set

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Speaker 1: of a store of goods and services um, but goods

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Speaker 1: in particular like washing machines where the prices actually are

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Speaker 1: not going inexorably higher UM. And you would expect that

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Speaker 1: if we were having running, running away inflation, you would

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Speaker 1: expect people to say, oh my god, I have to

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Speaker 1: buy this now because the price a month from now

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Speaker 1: is gonna be so much higher. And that's not really

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Speaker 1: happening yet. It kind of about thirty seconds here kind

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Speaker 1: of sounds like you're saying we're not in a vulcaresque moment?

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Speaker 1: Would you agree? The seventies was extremely painful and that was,

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Speaker 1: you know, a decade it's worth of, if you like,

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Speaker 1: not inflation going straight up, but trending higher, ever higher.

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Speaker 1: And we're talking only about a couple of years now,

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Speaker 1: and so it's very Uh, if you will early in

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Speaker 1: this cycle to say where where Paul Wolker was in well,

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Speaker 1: I mean, if the Fed raises rates now points, it'll

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Speaker 1: keep its credibility and the next inflation print we see

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Speaker 1: should be much lower than nine. That would be welcome.

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Speaker 1: All right. Matt Winkler, Bloomberg Editor in Chief emeritus, talking

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Speaker 1: to us about inflation. You can check out his column

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Speaker 1: on the Bloomberg terminal type n I Winkler Um. If

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Speaker 1: you want to see it on the website, you'll see

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Speaker 1: it there as well. Bloomberg dot com is the best

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Speaker 1: way to access that. Now. Speaking of growing thriving business

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Speaker 1: as we have involng here in Bloomberg, Interactive Broker Studios,

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Speaker 1: chairman and CEO of Garrison Fathom and Uh, it's great

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Speaker 1: talking to you. Um. We have you have a number

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Speaker 1: of businesses that you incubate and grow and UM focused

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Speaker 1: on in different areas. We want to talk about the crypto,

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Speaker 1: the blockchain side of things. UM. Right now, what's your

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Speaker 1: main focus when it comes to uh, you know, fintech

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Speaker 1: or crypto? Right? Are man focus right now is really

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Speaker 1: educating world leaders. We're establishing a global association to really

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Speaker 1: educate lawmakers. And should we draw a fine line? I

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Speaker 1: think the issue right now is that cryptocurrency, in my opinion,

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Speaker 1: is practically a Ponzi scheme. Right, It's it's it's the

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Speaker 1: greater good so and so, but it relies on on

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Speaker 1: on the on the other persons and no offense. That's

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Speaker 1: the next idiot to to pole on top of that, Right,

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Speaker 1: no offense, You're an idiot. No offense, I said, no offense,

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Speaker 1: right to pole on top of that, because there's no

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Speaker 1: actual value being delivered on cryptocurrency. The real value is

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Speaker 1: really blockchain and Web three, the actual technology and applications.

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Speaker 1: Now explain Web three because not everyone knows exactly what

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Speaker 1: Web three is. We hear the the phrase all the time. Yeah,

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Speaker 1: I mean the Web three is pretty much the decentral

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Speaker 1: light decentralization of the Internet, right, is the ability to

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Speaker 1: be able to have your own control of the Internet

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Speaker 1: and your own privacies, right, um, and your own chain.

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Speaker 1: So that's really the important side. The web three and

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Speaker 1: that's to us really brings value as well as blockchain

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Speaker 1: because and and n f t s as well. The

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Speaker 1: code for n f t s can be used for contracts.

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Speaker 1: Blockchains can be used to make trading more efficient. But

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Speaker 1: the cryptocurrency, I have to keep coming back to it.

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Speaker 1: It has no value. It's a Ponzi scheme. We actually

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Speaker 1: look into it and it actually delivers um to me,

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Speaker 1: a very scary moment in history because consumers are getting

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Speaker 1: off did negatively and we can't let this happen. A

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Speaker 1: really good example is defy, right, Defy is the biggest

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Speaker 1: and the latest thing. You look at defy. Our world

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Speaker 1: was practically liked defied before. If you look at before

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Speaker 1: nineteen thirty three. Um, you know the investment banks are

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Speaker 1: running rapid with the central banks. Everyone was defied, right,

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Speaker 1: Ponzi schemes everywhere, But then our government, to be fair,

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Speaker 1: you could call gold of Ponzi scheme as well. But

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Speaker 1: at least gold is an actual value that you actually

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Speaker 1: touch and feel it. Now I agree where it depends

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Speaker 1: on your opinion on goal. But I mean, we don't

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Speaker 1: invest in gold. Um, but if you look at equities, commodities,

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Speaker 1: and bonds, it's actually something that's producing something. But but

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Speaker 1: bitcoin has the same kind of scarcity. I'm just making

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Speaker 1: the argument for the other side, is it, though, right?

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Speaker 1: I mean what is bitcoin? I mean bitcoin to me,

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Speaker 1: like I asked you, has a hundred different people. They're

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Speaker 1: sounding a bunch of Amway salesman, right. Um, But if

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Speaker 1: you if you look at bitcoin, freedom man. But but

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Speaker 1: it's not attached to anything either. Right, when when you

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Speaker 1: own a stock, or when you own commodities, or when

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Speaker 1: you own goal, at least have something that could be

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Speaker 1: can be traded. Um. But bitcoin is just putting out

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Speaker 1: false hope. And we really want to make sure that

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Speaker 1: our regulators understand the difference between the blockchain technology and

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Speaker 1: cryptocurrencies that bitcoin And I hope Twitter is not listening

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Speaker 1: now because we're gonna get We're gonna get here now

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Speaker 1: now just real quickly, though, you know, we want regulators

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Speaker 1: to heavily regulate cryptocurrency just like the financial markets. Right again,

427
00:23:26,560 --> 00:23:29,440
Speaker 1: back to the Glass Deegel Act. They pass that act

428
00:23:29,800 --> 00:23:32,840
Speaker 1: under FDR because of the Great Depression and how financial

429
00:23:32,960 --> 00:23:36,439
Speaker 1: folks are running rampant with Ponzi's. Unfortunately, it was overturned

430
00:23:36,440 --> 00:23:39,879
Speaker 1: by the Graham Leach Blindly Act in nine and that

431
00:23:39,920 --> 00:23:42,320
Speaker 1: practically led to oh eight. So the current system has

432
00:23:42,359 --> 00:23:44,760
Speaker 1: already learned, and why it's the best system right now

433
00:23:44,800 --> 00:23:47,240
Speaker 1: in the United States is because it's learned. It is evolved.

434
00:23:47,560 --> 00:23:50,960
Speaker 1: Now cryptocurrency and deflies is running rampant, and we need

435
00:23:51,000 --> 00:23:56,600
Speaker 1: to make sure we heavily regulate cryptocurrencies. Meanwhile, blockchain technology

436
00:23:56,600 --> 00:23:58,879
Speaker 1: and web three, they shouldn't touch that yet because the

437
00:23:59,280 --> 00:24:02,399
Speaker 1: amount of innovation there it's gonna be remarkable. Wait, so

438
00:24:02,440 --> 00:24:06,000
Speaker 1: I'm confused. Where does this place. Things like the digital dollar,

439
00:24:06,160 --> 00:24:10,080
Speaker 1: the digital euro, digital you want if you have this

440
00:24:11,680 --> 00:24:14,520
Speaker 1: there you go. I think those are fantastic because those

441
00:24:14,560 --> 00:24:18,479
Speaker 1: are actually utilizing blockchain with real currencies, right, real value.

442
00:24:18,960 --> 00:24:21,240
Speaker 1: Um So, so to me, you know, and and the

443
00:24:21,280 --> 00:24:23,600
Speaker 1: folks we work with, we see value in that because

444
00:24:23,880 --> 00:24:26,720
Speaker 1: the dollar, for example, is actually the currency of the world,

445
00:24:26,800 --> 00:24:29,399
Speaker 1: right is actually backed by treasuries and all that kind

446
00:24:29,440 --> 00:24:35,080
Speaker 1: of sorts. But but does that mean then that the

447
00:24:35,119 --> 00:24:38,160
Speaker 1: introduction of say a digital dollar or digital euro for example,

448
00:24:38,520 --> 00:24:42,000
Speaker 1: that's not necessarily equal to cryptocurrencies have No, it's not

449
00:24:42,040 --> 00:24:44,159
Speaker 1: equal at all yet because because all they're taking is

450
00:24:44,160 --> 00:24:47,520
Speaker 1: actual real world currencies that have value on the blockchain

451
00:24:47,560 --> 00:24:50,480
Speaker 1: to make it more efficient effective. Right. Meanwhile, you have

452
00:24:50,560 --> 00:24:54,560
Speaker 1: these tokens running around that have no absolute value. The

453
00:24:54,600 --> 00:24:59,160
Speaker 1: only value I see is again for listeners, understand, tokens

454
00:24:59,160 --> 00:25:01,880
Speaker 1: for blockchains like a theereum, do have some value because

455
00:25:01,920 --> 00:25:04,240
Speaker 1: tokens are like a stock to Ethereum. Right, You're owning

456
00:25:04,280 --> 00:25:07,040
Speaker 1: a stock of a blockchain, and blockchains are very important.

457
00:25:07,280 --> 00:25:09,920
Speaker 1: So blockchains will evolve and these platforms will evolve to

458
00:25:09,960 --> 00:25:11,600
Speaker 1: be more efficient. Let me just ask you one final

459
00:25:11,680 --> 00:25:13,280
Speaker 1: question on this, because we don't have much time left.

460
00:25:13,359 --> 00:25:17,200
Speaker 1: I'm excited for the day when property deeds, birth certificates,

461
00:25:17,240 --> 00:25:19,040
Speaker 1: when my driver's license can be on the blockchain and

462
00:25:19,040 --> 00:25:21,639
Speaker 1: I have to carry in my pockets. See that's actual value. Yes,

463
00:25:21,800 --> 00:25:26,240
Speaker 1: But as Ethereum switches to proof of steak from proof

464
00:25:26,280 --> 00:25:28,960
Speaker 1: of work, I'm worried that the network is going to

465
00:25:29,040 --> 00:25:31,280
Speaker 1: be weaker unless I said, the theoms haven't last. In

466
00:25:31,280 --> 00:25:33,520
Speaker 1: my opinion, if there's don't last, Bitcoin is gonna drop

467
00:25:33,560 --> 00:25:35,960
Speaker 1: to ten thousand. The theorems have gonna last, because there's

468
00:25:35,960 --> 00:25:38,560
Speaker 1: gonna be another blockchain platform that's gonna be much more

469
00:25:38,600 --> 00:25:41,679
Speaker 1: efficient effective, um and actually going to be you know,

470
00:25:41,720 --> 00:25:44,280
Speaker 1: in my opinion, some of the larger companies you see

471
00:25:44,560 --> 00:25:47,479
Speaker 1: that are embracing blockchain are gonna wipe them out. For example,

472
00:25:47,560 --> 00:25:50,840
Speaker 1: JP Morgan real quick. They're already starting to utilize blockchain

473
00:25:50,920 --> 00:25:53,399
Speaker 1: for training here soon. So imagine how that's going to

474
00:25:53,440 --> 00:25:55,880
Speaker 1: affect the whole world. And these other projects are backed

475
00:25:55,920 --> 00:25:59,679
Speaker 1: by nobody. Okay, not nobody's but people have no expertise

476
00:25:59,680 --> 00:26:02,360
Speaker 1: in fly and answer anything, and and most of the time,

477
00:26:02,400 --> 00:26:04,959
Speaker 1: like three complo arrows, the runaway and go hiding when

478
00:26:05,040 --> 00:26:07,760
Speaker 1: things go wrong turns into a rug pole exactly. Been

479
00:26:08,200 --> 00:26:11,159
Speaker 1: great having you in the studio. I'm afraid about the

480
00:26:11,200 --> 00:26:13,199
Speaker 1: reaction we're gonna get on Twitter, but I guess we

481
00:26:13,200 --> 00:26:15,080
Speaker 1: can deal with it. We have thick skin here. Vin Volng,

482
00:26:15,160 --> 00:26:17,040
Speaker 1: chairman and CEO of Garrison Fathom, hope to have you

483
00:26:17,080 --> 00:26:20,440
Speaker 1: back on because the uh Garrison Fathom business I find

484
00:26:20,480 --> 00:26:25,720
Speaker 1: absolutely fascinating. Let's get over to Hugh Johnson. I hope

485
00:26:25,720 --> 00:26:29,440
Speaker 1: he doesn't get it from us via satellite. Hugh, thanks

486
00:26:29,480 --> 00:26:33,000
Speaker 1: so much for joining us. Chairman of Hugh Johnson Economics,

487
00:26:33,280 --> 00:26:36,080
Speaker 1: And let's just is it fair to say a legend

488
00:26:36,280 --> 00:26:39,760
Speaker 1: in the UH? In the markets? I think that's fair. Um, Hugh,

489
00:26:39,800 --> 00:26:42,800
Speaker 1: we've been talking to you for years and years, and

490
00:26:42,880 --> 00:26:46,280
Speaker 1: you all always offer us insight that's so valuable. What

491
00:26:46,359 --> 00:26:48,920
Speaker 1: do you think about the inflation print that we saw today?

492
00:26:48,920 --> 00:26:51,159
Speaker 1: It's shocking at first, but it doesn't seem like the

493
00:26:51,240 --> 00:26:55,160
Speaker 1: markets are really that moved by it. Yeah, and they

494
00:26:55,240 --> 00:26:57,840
Speaker 1: and they really shouldn't be. And I certainly appreciate you're

495
00:26:58,000 --> 00:27:00,080
Speaker 1: referring to me as a legend. You could do that.

496
00:27:00,119 --> 00:27:03,160
Speaker 1: I want to do that, but nevertheless, thank you very much.

497
00:27:03,200 --> 00:27:06,240
Speaker 1: But no, Uh. The reason for that is that, first

498
00:27:06,280 --> 00:27:07,840
Speaker 1: of all, if you take a look at the reaction

499
00:27:07,880 --> 00:27:10,920
Speaker 1: of the response to this news, and just about any news,

500
00:27:11,000 --> 00:27:15,200
Speaker 1: there's usually an overreaction from the financial markets. Investors tend

501
00:27:15,240 --> 00:27:18,080
Speaker 1: to be a little bit, so we say, excitable when

502
00:27:18,119 --> 00:27:20,800
Speaker 1: you get numbers, and especially when you get numbers that

503
00:27:20,840 --> 00:27:24,000
Speaker 1: are the extent of the surprise that we saw today.

504
00:27:24,040 --> 00:27:26,000
Speaker 1: But I think when you look carefully at the numbers

505
00:27:26,320 --> 00:27:28,320
Speaker 1: and you start to crunch down on the numbers and

506
00:27:28,400 --> 00:27:32,120
Speaker 1: ask yourself, really, what does this mean for federal reserve policy?

507
00:27:32,200 --> 00:27:35,040
Speaker 1: Number one. Number two, If it means such and such

508
00:27:35,080 --> 00:27:38,000
Speaker 1: for federal reserve policy, what does it mean for longer

509
00:27:38,119 --> 00:27:41,320
Speaker 1: term interest rates? Because they're tied to federal reserve policy?

510
00:27:41,760 --> 00:27:44,080
Speaker 1: And therefore, what does it mean to price earnings ratios

511
00:27:44,080 --> 00:27:46,879
Speaker 1: and stocks? And the answer to the questions that I

512
00:27:47,000 --> 00:27:50,760
Speaker 1: just posed is, well, they mean something, but they don't

513
00:27:50,800 --> 00:27:53,119
Speaker 1: mean nearly as much as everybody thinks. In other words,

514
00:27:53,640 --> 00:27:56,040
Speaker 1: maybe the Federal Reserve will be a little bit more aggressive.

515
00:27:56,080 --> 00:27:58,240
Speaker 1: We have to worry a little bit more about the

516
00:27:58,440 --> 00:28:01,399
Speaker 1: September number for the federal funds rate or what the

517
00:28:01,400 --> 00:28:04,639
Speaker 1: Federal Reserve decides to do in September. Certainly not July.

518
00:28:04,760 --> 00:28:08,080
Speaker 1: July looks like seventy five basis points, and that's pretty

519
00:28:08,160 --> 00:28:10,760
Speaker 1: much what we're gonna live with. The second thing, it

520
00:28:10,840 --> 00:28:13,480
Speaker 1: probably means that longer term interest rates when we get

521
00:28:13,480 --> 00:28:16,280
Speaker 1: out to I'll say that December time frame might be

522
00:28:16,320 --> 00:28:19,160
Speaker 1: a little bit higher, maybe up the three to three

523
00:28:19,160 --> 00:28:22,639
Speaker 1: point two percent, and therefore priceings ratios a little bit lower. Therefore,

524
00:28:22,920 --> 00:28:26,320
Speaker 1: the upside potential for stocks not quite as great, but

525
00:28:26,440 --> 00:28:29,200
Speaker 1: it doesn't meet as much as the markets initial reactions

526
00:28:29,240 --> 00:28:32,120
Speaker 1: seem to convey. It means a little bit I'm still

527
00:28:32,160 --> 00:28:34,200
Speaker 1: a little bit I'm a little bit on the positive

528
00:28:34,240 --> 00:28:36,920
Speaker 1: side for the equity markets, but maybe a little bit

529
00:28:36,960 --> 00:28:40,160
Speaker 1: less positive, but still on the positive side. So basically,

530
00:28:40,160 --> 00:28:43,160
Speaker 1: when you crunch the numbers, it doesn't mean as much

531
00:28:43,440 --> 00:28:47,360
Speaker 1: as some markets initially said. Well, I'm curious about let's

532
00:28:47,400 --> 00:28:50,080
Speaker 1: let's bring it back to today's data, in particular the

533
00:28:50,080 --> 00:28:53,800
Speaker 1: CPI report. It doesn't even feel like the consensus reaction

534
00:28:54,000 --> 00:28:56,920
Speaker 1: is that this is the peak by any measure. So

535
00:28:56,960 --> 00:28:59,960
Speaker 1: I'm curious about how the market is supposed to price

536
00:29:00,080 --> 00:29:01,960
Speaker 1: this in. I mean, we're looking at an SP five

537
00:29:02,000 --> 00:29:04,840
Speaker 1: hundred that was down over one percent, almost down one

538
00:29:04,880 --> 00:29:08,120
Speaker 1: a half percent, on this inflation print of nine point

539
00:29:08,200 --> 00:29:11,360
Speaker 1: one percent, only to turn around. I feel like the

540
00:29:11,400 --> 00:29:13,800
Speaker 1: market to some extent has I don't want to say

541
00:29:13,800 --> 00:29:17,000
Speaker 1: priced in, but perhaps become complacent to bad data. Would

542
00:29:17,040 --> 00:29:20,720
Speaker 1: you agree, Uh? Yeah, for the next couple of months,

543
00:29:20,760 --> 00:29:22,520
Speaker 1: that might be the case. In other words, that the

544
00:29:22,560 --> 00:29:26,040
Speaker 1: consumer price index on a year over year basis might

545
00:29:26,120 --> 00:29:28,560
Speaker 1: stay elevated not only for the month of June, but

546
00:29:28,680 --> 00:29:31,360
Speaker 1: for say July and August. It's really hard to time

547
00:29:31,440 --> 00:29:34,040
Speaker 1: these things, but you know, you've got to look at

548
00:29:34,120 --> 00:29:37,040
Speaker 1: some of the leading indicators of inflations that tell us

549
00:29:37,040 --> 00:29:40,800
Speaker 1: where inflation might be going, and what they all tell me,

550
00:29:40,880 --> 00:29:42,840
Speaker 1: and especially if you look at things like the purchasing

551
00:29:42,880 --> 00:29:46,280
Speaker 1: manager surveys, which told you that purchasing managers are not

552
00:29:46,320 --> 00:29:48,760
Speaker 1: seeing bottlenecks to the extent that they've seen before, they're

553
00:29:48,800 --> 00:29:51,360
Speaker 1: not paying higher prices to the extent that they saw before.

554
00:29:51,920 --> 00:29:54,080
Speaker 1: Is starting to see that the year over year gain

555
00:29:54,200 --> 00:29:57,240
Speaker 1: in wages from the employment report not quite as bad

556
00:29:57,280 --> 00:29:59,840
Speaker 1: as it was, coming down slowly but still coming down.

557
00:30:00,120 --> 00:30:01,960
Speaker 1: When you look at those things that tell you where

558
00:30:01,960 --> 00:30:04,440
Speaker 1: the rate of inflation, the consumer price index and a

559
00:30:04,520 --> 00:30:07,760
Speaker 1: year over year basis is going, they kind of tell you,

560
00:30:07,800 --> 00:30:10,120
Speaker 1: and I think they tell you pretty clearly that we're

561
00:30:10,120 --> 00:30:11,880
Speaker 1: going to be lower when we get to the fourth

562
00:30:11,960 --> 00:30:14,800
Speaker 1: quarter of two thousand twenty two, and especially when we

563
00:30:14,840 --> 00:30:17,000
Speaker 1: get to the fourth quarter of two thousand twenty three.

564
00:30:17,040 --> 00:30:20,280
Speaker 1: So where we are is not good. Yes, you're right,

565
00:30:20,320 --> 00:30:22,840
Speaker 1: it's hard to time this thing, and maybe another couple

566
00:30:22,840 --> 00:30:26,960
Speaker 1: of months of elevated rates of year over year consumer prices,

567
00:30:27,000 --> 00:30:29,040
Speaker 1: but in time these things are going to start to

568
00:30:29,080 --> 00:30:31,120
Speaker 1: come down. At least that's what the numbers tell me.

569
00:30:31,560 --> 00:30:33,880
Speaker 1: Everybody can disagree on that, but that's what the numbers

570
00:30:33,920 --> 00:30:37,440
Speaker 1: are telling me. So I'm not accepting it or complacent

571
00:30:37,680 --> 00:30:40,560
Speaker 1: or relaxed about it at all, but I'm I'm a

572
00:30:40,600 --> 00:30:43,600
Speaker 1: little more optimistic about two thousand and twenty two of

573
00:30:43,640 --> 00:30:46,840
Speaker 1: the late late partitutes twenty two and twenty three, So

574
00:30:46,960 --> 00:30:50,080
Speaker 1: I can I can manage this emotionally. All right, Well

575
00:30:50,120 --> 00:30:53,280
Speaker 1: we'll we'll call you back after earning season, Hugh, and

576
00:30:53,320 --> 00:30:55,880
Speaker 1: then see what kind of margin compression we got, because

577
00:30:55,880 --> 00:30:58,880
Speaker 1: I think that's the big concern here right, Yes, it is.

578
00:30:58,960 --> 00:31:02,080
Speaker 1: It's very clearly. I really think those numbers, like you know,

579
00:31:02,120 --> 00:31:04,960
Speaker 1: what we've been talking about, are really in the cake

580
00:31:05,240 --> 00:31:07,400
Speaker 1: right now, and I think really the issue that focus

581
00:31:07,480 --> 00:31:10,200
Speaker 1: is going to start to shift very much to earnings

582
00:31:10,240 --> 00:31:13,840
Speaker 1: and very much the margins. That's that's gonna hold the outcome,

583
00:31:13,920 --> 00:31:16,440
Speaker 1: the key to the outcome for the equity markets. Very

584
00:31:16,480 --> 00:31:19,400
Speaker 1: clearly that shift is going on. All right, Hugh, Great

585
00:31:20,000 --> 00:31:22,280
Speaker 1: talk to you. I really appreciate you joining us. Hugh

586
00:31:22,360 --> 00:31:26,560
Speaker 1: Johnson there, he's the chairman of Hugh Johnson Economics talking

587
00:31:26,560 --> 00:31:29,840
Speaker 1: to us about the inflation print and how we should

588
00:31:29,840 --> 00:31:34,600
Speaker 1: be reading it. Thanks for listening to the Bloomberg Markets podcast.

589
00:31:35,000 --> 00:31:38,200
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts

590
00:31:38,320 --> 00:31:42,240
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm

591
00:31:42,280 --> 00:31:46,320
Speaker 1: on Twitter at Matt Miller three. Pet on bal Sweeney.

592
00:31:46,320 --> 00:31:48,960
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you

593
00:31:49,000 --> 00:31:51,400
Speaker 1: can always catch us worldwide at Bloomberg Radio