Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. We've been talking about
Speaker 1: four months. The Cow's e t F CEO w Z
Speaker 1: is the ticker, and a lot of people have been
Speaker 1: opting to get into this e t F concerned about inflation.
Speaker 1: We got a heck of an inflation print. Let's talk
Speaker 1: to Sean O'Hara. He um runs the Cow's e t
Speaker 1: F as president of Pacer E t F S. Sean,
Speaker 1: thanks so much for joining us. Give me first your
Speaker 1: reaction to this inflation print. Well, first off, thanks for
Speaker 1: having me, and thanks for telling everybody the cow story.
Speaker 1: I'm not shocked by the number. Um. I was speaking
Speaker 1: to some folks over the weekend and I had said
Speaker 1: I thought it would be a print over nine. You know,
Speaker 1: it's sort of a time issue, you know, towards the
Speaker 1: end of the month, you know, gasoline prices came down
Speaker 1: a little bit, and oil prices sort of fell a
Speaker 1: little bit earlier in the month. We're still were under
Speaker 1: some great, great deal of pressure. And I don't really
Speaker 1: feel that that that the inflation number is going to
Speaker 1: subside very much going forward, just because we haven't really
Speaker 1: addressed the supply side of the inflation equation. I know,
Speaker 1: the Fed, uh, you know, is really determined to just
Speaker 1: hammer down the economy to try to work on the
Speaker 1: demand side. But you know that in my view, that's
Speaker 1: just causing more pain to cure some pain. I'd rather
Speaker 1: see us be more focused on the supply side of this.
Speaker 1: I mean, I think that would take care of everything,
Speaker 1: and then we wouldn't necessarily be in this position where
Speaker 1: we have to continually worry about rates going up and
Speaker 1: and the FED being so committed to their path going forward. Well,
Speaker 1: and I've I've heard sean so many very smart people
Speaker 1: who made a lot of money in the past with
Speaker 1: growth companies, with startups, with tech. Who have you know,
Speaker 1: said to me in the last six months, you know what,
Speaker 1: I'm just looking to get into busines. This is that
Speaker 1: spin awful lot of cash. Um, Well, what's the connection there? Why? Why? Why?
Speaker 1: Are we seeing people make this switch? Now, it's a
Speaker 1: pretty simple equation. When you buy growth, you're buying future earnings,
Speaker 1: and when you buy companies that produce current cash, so
Speaker 1: you're getting a current return. So those future earnings must
Speaker 1: be discounted by inputs, and those inputs are inflation and
Speaker 1: interest rates, and so if I was going to buy
Speaker 1: a dollar's worth the future earnings UM, i'd have to
Speaker 1: discount that back and so that sort of trickles down
Speaker 1: into PE ratios. When you buy companies to give you
Speaker 1: a high current return on cash or on your investments,
Speaker 1: you're less bothered by the higher interest rates and higher
Speaker 1: inflation numbers. And so in an environment like this, what's
Speaker 1: going on really is that there's a shift in sentiment
Speaker 1: away from growth and towards companies that are giving you
Speaker 1: a much higher return. And that's because when we have
Speaker 1: rising interest rates and rising inflation and then god forbid,
Speaker 1: the threat of slowing earnings, PE multiples on the overall
Speaker 1: market have to contract, and that to where all of
Speaker 1: the big growth returns where in companies that had high pvs.
Speaker 1: And we're starting to see the pain of staying in
Speaker 1: that trade as opposed to repositioning your portfolio to get
Speaker 1: a high current return on your money that's less damaged
Speaker 1: by those higher input costs. So Sean, I understand that
Speaker 1: in principle, with the discount rate and all of that,
Speaker 1: that's why you see tech sensitive to so much of
Speaker 1: the yields picture. But I'm curious if that perhaps definition
Speaker 1: or that categories should change in that Tech perhaps isn't
Speaker 1: the growth play anymore, it's non defensive play anymore, and
Speaker 1: perhaps it's actually a value play, just given how much
Speaker 1: fundamentally it's become a part of our lives, but also
Speaker 1: how much fundamentally it's become a part of say even
Speaker 1: the SMP five. I'm curious, is there an argument to
Speaker 1: where say, a name like Apple is the new Coca Cola.
Speaker 1: There's definitely it's a great point. You know, if we
Speaker 1: look at the history on the cow zt F, We've
Speaker 1: owned Apple at different periods from points in time, but
Speaker 1: that's only when the price of the stock came down
Speaker 1: enough to warrant it having a high enough free cash
Speaker 1: flow yield. We own Meta in cows you know, that's
Speaker 1: a tech play. We've always had a little bit of
Speaker 1: a tech exposure, mostly on the chip side, like with
Speaker 1: a name like an Intel or even on IBM. I
Speaker 1: would be very very happy to see that happen. And
Speaker 1: that's sort of in the pattern if we look sort
Speaker 1: of historically at you know, the methodology that we've built
Speaker 1: is when you see these big reversals and you see
Speaker 1: peeps come down, high high quality names that would were
Speaker 1: growth names have a tendency from time to time to
Speaker 1: fall into our screen, and and so we would be
Speaker 1: very excited to see what you said happened. The thing
Speaker 1: you have to worry about is that how long that
Speaker 1: that transition is. You know, if you look at a
Speaker 1: Microsoft in the nineties that went nowhere for almost a decade,
Speaker 1: even though it was a profitable company, and that was
Speaker 1: because it was going from a regime or had a
Speaker 1: high p and their growth slowed enough to where they
Speaker 1: had to adjust to it. So I would expect to
Speaker 1: see some of that happening in the text basin. And
Speaker 1: by rebalancing the COWS portfolio on a quarterly basis and
Speaker 1: can attation to the free cash flow and free cash
Speaker 1: flow yield, we might actually avail ourselves as some of
Speaker 1: those opportunities. I see, you have a lot of healthcare holding.
Speaker 1: He's just got thirty seconds left, but I'm looking at
Speaker 1: Moderna here, Bristol Meyers Squib guilelead visor. Um, these healthcare
Speaker 1: businesses are just kind of recession proof. Is that the idea? Well,
Speaker 1: it's it's following the free cash flow. But you're you're
Speaker 1: actually correct on that. Healthcare as a sector has grown
Speaker 1: its earnings almost as fast as tech has, but their
Speaker 1: stock prices haven't gone up as much as their earnings.
Speaker 1: For as tech stock prices went up like two or
Speaker 1: two and a half times they're earning. So as a
Speaker 1: as a safety play, if you will, as a way
Speaker 1: to be less susceptible to pe contraction, healthcare looks like
Speaker 1: a great place to be because those stocks never got
Speaker 1: too expensive relative to their earnings and their free cash flow. Sean,
Speaker 1: thanks so much for joining us. Great talking to you
Speaker 1: and uh UM great to get the voice behind the
Speaker 1: e t F that we've been talking about here for
Speaker 1: so long. The cows e t F c o w
Speaker 1: Z one e t F of the Year from with
Speaker 1: Intelligence Mutual Fund and e F Awards last month, and
Speaker 1: it's one that we high it on our E t
Speaker 1: F show as well. So Sean we gotta get you
Speaker 1: on the E T F I Q show. Um that
Speaker 1: we run Monday's at one pm. Dream Team here while
Speaker 1: Paul Sweeney is out surfing and bonfires on the beach,
Speaker 1: He's at a lu ow and he's listening to the
Speaker 1: slide guitar. Man. I wish I was in why you
Speaker 1: right now? We should take a little Bloomberg Markets field trip.
Speaker 1: In the meantime, though, to do that field trip, we
Speaker 1: would have to get on a plane board it. Try
Speaker 1: to get to buy a ticket. Yeah, we have to.
Speaker 1: The flight would have to not be canceled, pack snacks
Speaker 1: because we don't want to pay. It would be expensive.
Speaker 1: You know, I can't fly economy. I'm six three and
Speaker 1: forty years old. So oh really see, I was gonna say,
Speaker 1: I can very easily fit into like, um, what's the
Speaker 1: cargo cabin below? I could do that if they would
Speaker 1: just decrease the air fare. Um. Maybe Peter McNally, our
Speaker 1: next guests, can help us with that prospect, especially on
Speaker 1: a data like today where we did get those Delta earnings.
Speaker 1: Peter McNally, the global lead of Industrials, Materials and Energy
Speaker 1: at Third Bridge, joins us and I should say my
Speaker 1: former employers. I'm extra excited about this guest. Peter, thank
Speaker 1: you as always for joining us. Well, Matt and I
Speaker 1: just put out a few suggestions. How are we going
Speaker 1: to afford airfare? And is that really an issue right now?
Speaker 1: Given everyone wants to travel, It's not like there's any
Speaker 1: shortage of demand. So what is wrong with these airline earnings? Well, Creedy,
Speaker 1: I think we'll be pretty sure that those costs are
Speaker 1: not coming down, you know, I mean there are three
Speaker 1: issues in there, all into related, right. It's capacity, it's
Speaker 1: the cruise, and it's the costs. And airlines would a
Speaker 1: more capacity if they could. They just can't get enough
Speaker 1: people to staff these plants. Now they've been aggressively hiring,
Speaker 1: but to pay people a lot more money to work
Speaker 1: on these plants. And you know, it's like it's like
Speaker 1: other industries, but even more so from what our experts
Speaker 1: have been seeing than uh than in other places. But
Speaker 1: you know, people who work in these airlines are making
Speaker 1: more money today than they were a year ago and
Speaker 1: what they were pre pandemic, and people costs for the
Speaker 1: single highest cost for you know, for any airline you know, anywhere.
Speaker 1: So while there is that demand Um, it's it hasn't
Speaker 1: been able to be met because we can't get enough
Speaker 1: planes with people, so they can't get enough planes out
Speaker 1: there to meet demand. But they also can't raise prices
Speaker 1: enough to um keep margins where they want them. Is
Speaker 1: that the case? Yes, yes, I mean, look, it's fundamentally
Speaker 1: a less profitable business than it was pre pandemic, but
Speaker 1: they're they're still making money. Um, we just probably would
Speaker 1: have expected a bit more, you know at this point.
Speaker 1: Some of that does have to do, you know, with
Speaker 1: the oil price, and some of it does have to
Speaker 1: do with the lag. Right, they're any people, you know,
Speaker 1: but the people have to be trained, so they're not
Speaker 1: necessarily generating revenue for these companies just yet. UM that
Speaker 1: will turn you know, in the future. And Delta's talking
Speaker 1: you know that in about a year's time they should
Speaker 1: be back to twenty nineteen levels of capacity. Now, that's
Speaker 1: not going to help anyone in in this summer's travel season,
Speaker 1: and you've seen all the delays and the cancelations of
Speaker 1: the results of of these shortages. But you know that's
Speaker 1: where we stand today. I mean, had they been able
Speaker 1: to really do something on prices because um, I recall
Speaker 1: flying out to see the Dead at Giant Stadium in
Speaker 1: from here, and then I went out to see the
Speaker 1: Dead at Giants Stadium in two thousand and fifteen from here,
Speaker 1: and my airfare was basically the same. You know, even
Speaker 1: though it was twenty years later. Have they been able
Speaker 1: to really move the needle on prices? Well, you know
Speaker 1: some of that twenty fifteen was one of the you know,
Speaker 1: the low years for fuel prices. You know that did
Speaker 1: that did have you know, have a factor um and
Speaker 1: you know, as you guys have you know discusses like
Speaker 1: you know, oil prices are are high, and they're probably
Speaker 1: going to be staying high, at least relative to history,
Speaker 1: according you know, according to our experts. But there's also
Speaker 1: a lot more competition, um, you know, particularly on the
Speaker 1: leisure side of the industry today. I look at this
Speaker 1: fight over spirit you know airlines. This is the ultimate
Speaker 1: low cost airline, you know that you have for a
Speaker 1: company like Delta where the upside is still yet to
Speaker 1: come as in the business and international side, and that's
Speaker 1: that's the big driver for them, for United for Americans, UM,
Speaker 1: So their market is going to be a little bit different,
Speaker 1: and those profits have been slower to come than what
Speaker 1: we've seen on the leisure side. But Peter, there's also
Speaker 1: a bunch of labor issues that play here. I think
Speaker 1: American airlines had increased their pilot salaries. I think Going
Speaker 1: United did the same. I think about four increase. Delta,
Speaker 1: Alaska Southwest correct me if I'm wrong, But they're still
Speaker 1: in negotiations. And that doesn't even take into account flight attendant, crew,
Speaker 1: baggage handlers. We know as an issue abroad in London,
Speaker 1: for example, even Heathrow now capping their passenger account to
Speaker 1: a hundred thousand labor is a major problem. Is this
Speaker 1: a problem that is solvable in the next two years? Well,
Speaker 1: you know, for a company like Delta, who you know
Speaker 1: is in negotiations with their their pilots now, it is,
Speaker 1: you know, our experts believe is a bit more managable.
Speaker 1: They've got a great balance sheet, it's well capitalized, plenty
Speaker 1: of plenty of liquidity, and they are profitable. The carriers
Speaker 1: that are going to struggle a bit, you know, in
Speaker 1: our view, or these regional carriers where they have seen
Speaker 1: their pilots poached by these major carriers and pilot it's
Speaker 1: like to fly new planes, you know, and and to
Speaker 1: the roots they want and that's usually not something that
Speaker 1: regional airlines are able to offer. So look, there is
Speaker 1: serious wage inflation in this, you know, in this industry,
Speaker 1: and it is leading to higher fairs. But you know,
Speaker 1: as we saw from the inflation data today, it doesn't
Speaker 1: seem like it's gonna be easy anytime soon. All right, Peter,
Speaker 1: thanks so much for joining us. Peter McNally, Uh there
Speaker 1: he is the lead analysts for Industrials over at Third
Speaker 1: Bridge talking to us about the airline story. Oh actually, wait, Peter,
Speaker 1: before you go, I gotta ask about Heathrow and rationing
Speaker 1: and is that the kind of thing that's going to
Speaker 1: happen at more airports. Well, I think we've seen you know,
Speaker 1: we've seen it from the airlines. He's even starting right,
Speaker 1: I mean, Delton got in front of this before July
Speaker 1: fourth weekend and trying to discourage people from taking the
Speaker 1: flights that they had booked. Um. Yes, they're going to
Speaker 1: be some airports that are just going to struggle, um
Speaker 1: with getting the right step and handling you know, all
Speaker 1: this demand. We've got a few more weeks left to
Speaker 1: go in the summer. Things should ease up in the
Speaker 1: fall on that front. Um. But it's tough all over
Speaker 1: on this industry, all right. I'm glad I got that
Speaker 1: in because I was shocked at that story yesterday. And
Speaker 1: the concern is that that spreads and we get rationing
Speaker 1: everywhere because of a shortage of not just flights, but uh,
Speaker 1: you know gas in Europe, electricity in Texas. I mean,
Speaker 1: it's all over the place. In any case, Peter, thanks
Speaker 1: so much for joining us. Peter McNally, they're global lead
Speaker 1: for industrial materials and energy. Over at the third bridge,
Speaker 1: we have an interesting move going on in markets, not
Speaker 1: anything like what we saw on June two, when inflation
Speaker 1: came out at eight point six percent. That was three
Speaker 1: tents of percent higher than the analysts estimate UM in
Speaker 1: a survey ducted by Bloomberg. At that time, the NASDAC,
Speaker 1: the big text docs dropped three and a half percent
Speaker 1: right away. Today we had a print at nine point
Speaker 1: one percent, also three tenths of a percent higher than
Speaker 1: the analysts estimate UM in a survey by Bloomberg. And
Speaker 1: yet the NASDAK is gaining. What's the difference. Matt Winkler
Speaker 1: is here, Bloomberg editor in chief Amertius to talk to
Speaker 1: us about why the market isn't tanking the way we
Speaker 1: saw it due last month, Matt, Matt Um, As you
Speaker 1: just said, just about everybody UH knows inflation as measured
Speaker 1: by the CPI is hovering at this forty year high
Speaker 1: and seemingly out of control. But when you look at
Speaker 1: combined in less conspicuous metrics on inflation, you see that consumers, economists,
Speaker 1: and investors all are in sync and they're anticipating a
Speaker 1: gradual return to stability and moderation. And that seems quite
Speaker 1: surprising obviously right now. But when you look at the
Speaker 1: data closely, you see that, for example, in the bond market,
Speaker 1: what we call to break even rates, UH, they actually
Speaker 1: plummeted on June and have stayed stayed at that level since.
Speaker 1: And then when you look at consumer behavior, consumers, even
Speaker 1: as pistomistic as they are, they're not UM struggling to
Speaker 1: make ends meet. Actually UH. If you look at personal income,
Speaker 1: for example, UM, it's higher than at any point prior
Speaker 1: to UH. And then when you go to economists and
Speaker 1: ask them what what are you seeing? They're all forecasting.
Speaker 1: And we you know, talk to dozens of economists and
Speaker 1: get their forecast quarterly. They're all seeing a moderation inflation too.
Speaker 1: So you put that all together, add to the fact
Speaker 1: that lumber is way down this year from its highs
Speaker 1: of twenty one. Same thing with copper. You mentioned or
Speaker 1: somebody mentioned oil and gasoline, and gasoline is actually down,
Speaker 1: uh to the level of April. So even the aggs,
Speaker 1: I mean, if you look at the chart, the eggs
Speaker 1: are down, the metals are down, the oils are down
Speaker 1: from their highs, and so that's why, I mean, this
Speaker 1: is obviously a backwards looking number to some extent. But
Speaker 1: I loved the point you made in your piece with Roger,
Speaker 1: which Robert Burgos made um in a piece this month
Speaker 1: that consumers spend three and a half percent of their
Speaker 1: disposable income I guess on gasoline, and that compares to
Speaker 1: a three point six percent average, which which drives with
Speaker 1: the higher personal income for it. And I was gonna say, Unfortunately,
Speaker 1: what happens too often when our profession is reporting on
Speaker 1: the economy is the context is missing. And I would
Speaker 1: say in the inflation narrative, a lot of it is
Speaker 1: driven by politics, of course, and that gets picked up
Speaker 1: right away because everybody's writing about politics, but the context
Speaker 1: of the economy and inflation is often missing, and that
Speaker 1: is definitely the case, UH with today's numbers. That you
Speaker 1: can look at the CPI as we are UH and
Speaker 1: draw a conclusion. But if you look at every other
Speaker 1: number that's related to the cp I and you look
Speaker 1: at what the FED looks at itself, the personal consumption
Speaker 1: Expenditure Index, that's three to four percentage points below the
Speaker 1: current CPI depending on when you look at it. Well,
Speaker 1: I think the key point that you made just moments
Speaker 1: ago was that people are still spending. I just got
Speaker 1: a text message from a friend in London. We're figuring
Speaker 1: out vacation dates and she said, I just looked at
Speaker 1: prices coming out of New York. Is it's going to
Speaker 1: be too expensive for you? And what I'm saying, I mean, yes,
Speaker 1: but I still want to take this trip. It's something
Speaker 1: that Greg McNally over at Third Bridge was talking about
Speaker 1: as well. It feels like you pull the trigger now
Speaker 1: right because you're afraid that prices are going to go
Speaker 1: higher later. I'm buying tickets for October for December, because
Speaker 1: isn't that something that happening. No, No, what you just
Speaker 1: described is that's to run right, that's the that's the
Speaker 1: runaway inflation scenario. And in fact, that uh stampede is
Speaker 1: that people think of to get something today because the
Speaker 1: price of it will be much higher tomorrow. It's just
Speaker 1: not showing up in the data. Is there any evidence
Speaker 1: that we're actually seeing demand destruction? We're talking about rationing,
Speaker 1: but I feel like it's skipping the step of demand destruction.
Speaker 1: We see some rationing. For example, the bitcoin miners have
Speaker 1: shut down their machines in Texas, but that's because the
Speaker 1: grid is weak, or heathrow um has ration the flights
Speaker 1: that they're gonna sell, but that's because they don't have
Speaker 1: the labor that they need. Well, there's a whole set
Speaker 1: of a store of goods and services um, but goods
Speaker 1: in particular like washing machines where the prices actually are
Speaker 1: not going inexorably higher UM. And you would expect that
Speaker 1: if we were having running, running away inflation, you would
Speaker 1: expect people to say, oh my god, I have to
Speaker 1: buy this now because the price a month from now
Speaker 1: is gonna be so much higher. And that's not really
Speaker 1: happening yet. It kind of about thirty seconds here kind
Speaker 1: of sounds like you're saying we're not in a vulcaresque moment?
Speaker 1: Would you agree? The seventies was extremely painful and that was,
Speaker 1: you know, a decade it's worth of, if you like,
Speaker 1: not inflation going straight up, but trending higher, ever higher.
Speaker 1: And we're talking only about a couple of years now,
Speaker 1: and so it's very Uh, if you will early in
Speaker 1: this cycle to say where where Paul Wolker was in well,
Speaker 1: I mean, if the Fed raises rates now points, it'll
Speaker 1: keep its credibility and the next inflation print we see
Speaker 1: should be much lower than nine. That would be welcome.
Speaker 1: All right. Matt Winkler, Bloomberg Editor in Chief emeritus, talking
Speaker 1: to us about inflation. You can check out his column
Speaker 1: on the Bloomberg terminal type n I Winkler Um. If
Speaker 1: you want to see it on the website, you'll see
Speaker 1: it there as well. Bloomberg dot com is the best
Speaker 1: way to access that. Now. Speaking of growing thriving business
Speaker 1: as we have involng here in Bloomberg, Interactive Broker Studios,
Speaker 1: chairman and CEO of Garrison Fathom and Uh, it's great
Speaker 1: talking to you. Um. We have you have a number
Speaker 1: of businesses that you incubate and grow and UM focused
Speaker 1: on in different areas. We want to talk about the crypto,
Speaker 1: the blockchain side of things. UM. Right now, what's your
Speaker 1: main focus when it comes to uh, you know, fintech
Speaker 1: or crypto? Right? Are man focus right now is really
Speaker 1: educating world leaders. We're establishing a global association to really
Speaker 1: educate lawmakers. And should we draw a fine line? I
Speaker 1: think the issue right now is that cryptocurrency, in my opinion,
Speaker 1: is practically a Ponzi scheme. Right, It's it's it's the
Speaker 1: greater good so and so, but it relies on on
Speaker 1: on the on the other persons and no offense. That's
Speaker 1: the next idiot to to pole on top of that, Right,
Speaker 1: no offense, You're an idiot. No offense, I said, no offense,
Speaker 1: right to pole on top of that, because there's no
Speaker 1: actual value being delivered on cryptocurrency. The real value is
Speaker 1: really blockchain and Web three, the actual technology and applications.
Speaker 1: Now explain Web three because not everyone knows exactly what
Speaker 1: Web three is. We hear the the phrase all the time. Yeah,
Speaker 1: I mean the Web three is pretty much the decentral
Speaker 1: light decentralization of the Internet, right, is the ability to
Speaker 1: be able to have your own control of the Internet
Speaker 1: and your own privacies, right, um, and your own chain.
Speaker 1: So that's really the important side. The web three and
Speaker 1: that's to us really brings value as well as blockchain
Speaker 1: because and and n f t s as well. The
Speaker 1: code for n f t s can be used for contracts.
Speaker 1: Blockchains can be used to make trading more efficient. But
Speaker 1: the cryptocurrency, I have to keep coming back to it.
Speaker 1: It has no value. It's a Ponzi scheme. We actually
Speaker 1: look into it and it actually delivers um to me,
Speaker 1: a very scary moment in history because consumers are getting
Speaker 1: off did negatively and we can't let this happen. A
Speaker 1: really good example is defy, right, Defy is the biggest
Speaker 1: and the latest thing. You look at defy. Our world
Speaker 1: was practically liked defied before. If you look at before
Speaker 1: nineteen thirty three. Um, you know the investment banks are
Speaker 1: running rapid with the central banks. Everyone was defied, right,
Speaker 1: Ponzi schemes everywhere, But then our government, to be fair,
Speaker 1: you could call gold of Ponzi scheme as well. But
Speaker 1: at least gold is an actual value that you actually
Speaker 1: touch and feel it. Now I agree where it depends
Speaker 1: on your opinion on goal. But I mean, we don't
Speaker 1: invest in gold. Um, but if you look at equities, commodities,
Speaker 1: and bonds, it's actually something that's producing something. But but
Speaker 1: bitcoin has the same kind of scarcity. I'm just making
Speaker 1: the argument for the other side, is it, though, right?
Speaker 1: I mean what is bitcoin? I mean bitcoin to me,
Speaker 1: like I asked you, has a hundred different people. They're
Speaker 1: sounding a bunch of Amway salesman, right. Um, But if
Speaker 1: you if you look at bitcoin, freedom man. But but
Speaker 1: it's not attached to anything either. Right, when when you
Speaker 1: own a stock, or when you own commodities, or when
Speaker 1: you own goal, at least have something that could be
Speaker 1: can be traded. Um. But bitcoin is just putting out
Speaker 1: false hope. And we really want to make sure that
Speaker 1: our regulators understand the difference between the blockchain technology and
Speaker 1: cryptocurrencies that bitcoin And I hope Twitter is not listening
Speaker 1: now because we're gonna get We're gonna get here now
Speaker 1: now just real quickly, though, you know, we want regulators
Speaker 1: to heavily regulate cryptocurrency just like the financial markets. Right again,
Speaker 1: back to the Glass Deegel Act. They pass that act
Speaker 1: under FDR because of the Great Depression and how financial
Speaker 1: folks are running rampant with Ponzi's. Unfortunately, it was overturned
Speaker 1: by the Graham Leach Blindly Act in nine and that
Speaker 1: practically led to oh eight. So the current system has
Speaker 1: already learned, and why it's the best system right now
Speaker 1: in the United States is because it's learned. It is evolved.
Speaker 1: Now cryptocurrency and deflies is running rampant, and we need
Speaker 1: to make sure we heavily regulate cryptocurrencies. Meanwhile, blockchain technology
Speaker 1: and web three, they shouldn't touch that yet because the
Speaker 1: amount of innovation there it's gonna be remarkable. Wait, so
Speaker 1: I'm confused. Where does this place. Things like the digital dollar,
Speaker 1: the digital euro, digital you want if you have this
Speaker 1: there you go. I think those are fantastic because those
Speaker 1: are actually utilizing blockchain with real currencies, right, real value.
Speaker 1: Um So, so to me, you know, and and the
Speaker 1: folks we work with, we see value in that because
Speaker 1: the dollar, for example, is actually the currency of the world,
Speaker 1: right is actually backed by treasuries and all that kind
Speaker 1: of sorts. But but does that mean then that the
Speaker 1: introduction of say a digital dollar or digital euro for example,
Speaker 1: that's not necessarily equal to cryptocurrencies have No, it's not
Speaker 1: equal at all yet because because all they're taking is
Speaker 1: actual real world currencies that have value on the blockchain
Speaker 1: to make it more efficient effective. Right. Meanwhile, you have
Speaker 1: these tokens running around that have no absolute value. The
Speaker 1: only value I see is again for listeners, understand, tokens
Speaker 1: for blockchains like a theereum, do have some value because
Speaker 1: tokens are like a stock to Ethereum. Right, You're owning
Speaker 1: a stock of a blockchain, and blockchains are very important.
Speaker 1: So blockchains will evolve and these platforms will evolve to
Speaker 1: be more efficient. Let me just ask you one final
Speaker 1: question on this, because we don't have much time left.
Speaker 1: I'm excited for the day when property deeds, birth certificates,
Speaker 1: when my driver's license can be on the blockchain and
Speaker 1: I have to carry in my pockets. See that's actual value. Yes,
Speaker 1: But as Ethereum switches to proof of steak from proof
Speaker 1: of work, I'm worried that the network is going to
Speaker 1: be weaker unless I said, the theoms haven't last. In
Speaker 1: my opinion, if there's don't last, Bitcoin is gonna drop
Speaker 1: to ten thousand. The theorems have gonna last, because there's
Speaker 1: gonna be another blockchain platform that's gonna be much more
Speaker 1: efficient effective, um and actually going to be you know,
Speaker 1: in my opinion, some of the larger companies you see
Speaker 1: that are embracing blockchain are gonna wipe them out. For example,
Speaker 1: JP Morgan real quick. They're already starting to utilize blockchain
Speaker 1: for training here soon. So imagine how that's going to
Speaker 1: affect the whole world. And these other projects are backed
Speaker 1: by nobody. Okay, not nobody's but people have no expertise
Speaker 1: in fly and answer anything, and and most of the time,
Speaker 1: like three complo arrows, the runaway and go hiding when
Speaker 1: things go wrong turns into a rug pole exactly. Been
Speaker 1: great having you in the studio. I'm afraid about the
Speaker 1: reaction we're gonna get on Twitter, but I guess we
Speaker 1: can deal with it. We have thick skin here. Vin Volng,
Speaker 1: chairman and CEO of Garrison Fathom, hope to have you
Speaker 1: back on because the uh Garrison Fathom business I find
Speaker 1: absolutely fascinating. Let's get over to Hugh Johnson. I hope
Speaker 1: he doesn't get it from us via satellite. Hugh, thanks
Speaker 1: so much for joining us. Chairman of Hugh Johnson Economics,
Speaker 1: And let's just is it fair to say a legend
Speaker 1: in the UH? In the markets? I think that's fair. Um, Hugh,
Speaker 1: we've been talking to you for years and years, and
Speaker 1: you all always offer us insight that's so valuable. What
Speaker 1: do you think about the inflation print that we saw today?
Speaker 1: It's shocking at first, but it doesn't seem like the
Speaker 1: markets are really that moved by it. Yeah, and they
Speaker 1: and they really shouldn't be. And I certainly appreciate you're
Speaker 1: referring to me as a legend. You could do that.
Speaker 1: I want to do that, but nevertheless, thank you very much.
Speaker 1: But no, Uh. The reason for that is that, first
Speaker 1: of all, if you take a look at the reaction
Speaker 1: of the response to this news, and just about any news,
Speaker 1: there's usually an overreaction from the financial markets. Investors tend
Speaker 1: to be a little bit, so we say, excitable when
Speaker 1: you get numbers, and especially when you get numbers that
Speaker 1: are the extent of the surprise that we saw today.
Speaker 1: But I think when you look carefully at the numbers
Speaker 1: and you start to crunch down on the numbers and
Speaker 1: ask yourself, really, what does this mean for federal reserve policy?
Speaker 1: Number one. Number two, If it means such and such
Speaker 1: for federal reserve policy, what does it mean for longer
Speaker 1: term interest rates? Because they're tied to federal reserve policy?
Speaker 1: And therefore, what does it mean to price earnings ratios
Speaker 1: and stocks? And the answer to the questions that I
Speaker 1: just posed is, well, they mean something, but they don't
Speaker 1: mean nearly as much as everybody thinks. In other words,
Speaker 1: maybe the Federal Reserve will be a little bit more aggressive.
Speaker 1: We have to worry a little bit more about the
Speaker 1: September number for the federal funds rate or what the
Speaker 1: Federal Reserve decides to do in September. Certainly not July.
Speaker 1: July looks like seventy five basis points, and that's pretty
Speaker 1: much what we're gonna live with. The second thing, it
Speaker 1: probably means that longer term interest rates when we get
Speaker 1: out to I'll say that December time frame might be
Speaker 1: a little bit higher, maybe up the three to three
Speaker 1: point two percent, and therefore priceings ratios a little bit lower. Therefore,
Speaker 1: the upside potential for stocks not quite as great, but
Speaker 1: it doesn't meet as much as the markets initial reactions
Speaker 1: seem to convey. It means a little bit I'm still
Speaker 1: a little bit I'm a little bit on the positive
Speaker 1: side for the equity markets, but maybe a little bit
Speaker 1: less positive, but still on the positive side. So basically,
Speaker 1: when you crunch the numbers, it doesn't mean as much
Speaker 1: as some markets initially said. Well, I'm curious about let's
Speaker 1: let's bring it back to today's data, in particular the
Speaker 1: CPI report. It doesn't even feel like the consensus reaction
Speaker 1: is that this is the peak by any measure. So
Speaker 1: I'm curious about how the market is supposed to price
Speaker 1: this in. I mean, we're looking at an SP five
Speaker 1: hundred that was down over one percent, almost down one
Speaker 1: a half percent, on this inflation print of nine point
Speaker 1: one percent, only to turn around. I feel like the
Speaker 1: market to some extent has I don't want to say
Speaker 1: priced in, but perhaps become complacent to bad data. Would
Speaker 1: you agree, Uh? Yeah, for the next couple of months,
Speaker 1: that might be the case. In other words, that the
Speaker 1: consumer price index on a year over year basis might
Speaker 1: stay elevated not only for the month of June, but
Speaker 1: for say July and August. It's really hard to time
Speaker 1: these things, but you know, you've got to look at
Speaker 1: some of the leading indicators of inflations that tell us
Speaker 1: where inflation might be going, and what they all tell me,
Speaker 1: and especially if you look at things like the purchasing
Speaker 1: manager surveys, which told you that purchasing managers are not
Speaker 1: seeing bottlenecks to the extent that they've seen before, they're
Speaker 1: not paying higher prices to the extent that they saw before.
Speaker 1: Is starting to see that the year over year gain
Speaker 1: in wages from the employment report not quite as bad
Speaker 1: as it was, coming down slowly but still coming down.
Speaker 1: When you look at those things that tell you where
Speaker 1: the rate of inflation, the consumer price index and a
Speaker 1: year over year basis is going, they kind of tell you,
Speaker 1: and I think they tell you pretty clearly that we're
Speaker 1: going to be lower when we get to the fourth
Speaker 1: quarter of two thousand twenty two, and especially when we
Speaker 1: get to the fourth quarter of two thousand twenty three.
Speaker 1: So where we are is not good. Yes, you're right,
Speaker 1: it's hard to time this thing, and maybe another couple
Speaker 1: of months of elevated rates of year over year consumer prices,
Speaker 1: but in time these things are going to start to
Speaker 1: come down. At least that's what the numbers tell me.
Speaker 1: Everybody can disagree on that, but that's what the numbers
Speaker 1: are telling me. So I'm not accepting it or complacent
Speaker 1: or relaxed about it at all, but I'm I'm a
Speaker 1: little more optimistic about two thousand and twenty two of
Speaker 1: the late late partitutes twenty two and twenty three, So
Speaker 1: I can I can manage this emotionally. All right, Well
Speaker 1: we'll we'll call you back after earning season, Hugh, and
Speaker 1: then see what kind of margin compression we got, because
Speaker 1: I think that's the big concern here right, Yes, it is.
Speaker 1: It's very clearly. I really think those numbers, like you know,
Speaker 1: what we've been talking about, are really in the cake
Speaker 1: right now, and I think really the issue that focus
Speaker 1: is going to start to shift very much to earnings
Speaker 1: and very much the margins. That's that's gonna hold the outcome,
Speaker 1: the key to the outcome for the equity markets. Very
Speaker 1: clearly that shift is going on. All right, Hugh, Great
Speaker 1: talk to you. I really appreciate you joining us. Hugh
Speaker 1: Johnson there, he's the chairman of Hugh Johnson Economics talking
Speaker 1: to us about the inflation print and how we should
Speaker 1: be reading it. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
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Speaker 1: on Twitter at Matt Miller three. Pet on bal Sweeney.
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