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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. Looking at the g

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Speaker 1: l CEO go, that's your global commodity screen here, I'm

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Speaker 1: looking at wheat trading in Chicago. It was blow eight

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Speaker 1: hundred just a couple of weeks ago, and here we

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Speaker 1: are at thirty four for wheat. So that goes to bread,

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Speaker 1: that goes to beer, that goes to a lot of stuff.

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Speaker 1: Commodities are ripping, So we figured we need to check

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Speaker 1: in with Mike mcloon, Senior Commodity Strategies for Bloomberg Intelligence. Mike,

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Speaker 1: what are we seeing in your space these days? What's

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Speaker 1: going on? Hey, Paul, bread and beer? I like that.

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Speaker 1: With The key thing is it's it's there's only one

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Speaker 1: thing that matters. It's this war and the potential supply disruption.

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Speaker 1: And you mentioned wheat. I'm glad you didn't because to me,

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Speaker 1: that's part of the key thing. I fully expected probably

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Speaker 1: have some sustained issues with SURVID disruptions, but it's an

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Speaker 1: absolute boom for the corn belt US farmers. That's the

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Speaker 1: good side, but that will come on. And expect massive

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Speaker 1: supply coming from the US this year, most notably corn

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Speaker 1: and soybeans. But the big kit picture is crude oil.

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Speaker 1: And what's unique about Rudel It looked almost exactly that's

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Speaker 1: the same as it did this time March two eight.

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Speaker 1: It crossed above a hundred dollars and five and the

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Speaker 1: end of the year round forty. I suspect that's the

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Speaker 1: risk of a rhyme, and it means similar for other

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Speaker 1: risk assets like the dock market. By the way, I

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Speaker 1: was thinking about this, and I was thinking about you

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Speaker 1: the other day. If corn is it becomes so valuable

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Speaker 1: that we decide to use it solely for food, is

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Speaker 1: it possible you guys can take it out of my gasoline?

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Speaker 1: I have benue you'd go there. Well, that's very unlikely

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Speaker 1: because the problem is it's still well below the highs

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Speaker 1: all time highs. And about the crop, they're just going

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Speaker 1: to produce much more corn. Remember this country in a

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Speaker 1: lot of countries still pay there we do, we pay

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Speaker 1: our producers not to produce. So I think that's going

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Speaker 1: to change. This is a war economy now and means

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Speaker 1: if the US can pick up its supply of commands,

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Speaker 1: which I fully expect there will, it's going to help

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Speaker 1: save the world from the oppressive government in Russias. How

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Speaker 1: do you how do you guys in the Midwest square

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Speaker 1: that circle? Because everybody I know out in fly Over Country,

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Speaker 1: including you know, I'm from there, my family is from there.

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Speaker 1: Um is very you know, traditionally conservative, free market capitalist,

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Speaker 1: and yet that they all get behind these like communist

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Speaker 1: subsidies of farmers. How is that Okay, it's survival, Um,

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Speaker 1: it's survival, because that's the problem with Cornville. He's just

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Speaker 1: like the average price of corn for the last five

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Speaker 1: years was on four three or four hours of bushel.

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Speaker 1: Now it's up near seven eight, and barren farmers were

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Speaker 1: just barely breaking even. Thank God for the ethanol mandate

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Speaker 1: because it helped them make some money. Now they're making

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Speaker 1: real money. So I think a lot of subsidies come back. Well,

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Speaker 1: this is just part of that major transmocrification of society.

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Speaker 1: When you know, humans juice to feed the others everybody else.

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Speaker 1: Now it's only one percent, and it's still cont declined

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Speaker 1: because of rapidly fanti technology. But the corn belt is

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Speaker 1: going to crush it in this situation, and so will shale,

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Speaker 1: US liquid fied, the US energy looquified natural gas. To me,

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Speaker 1: that whole area is going to do very well to

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Speaker 1: help save the world for democracy. All right, Mike, thanks

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Speaker 1: so much for joining us. As always, always appreciate getting

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Speaker 1: your perspective. Mike mcgloon. Longer I had many more. I know,

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Speaker 1: I know we got a busy skype A trust issue

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Speaker 1: right for farmers, the small family farms should be growing

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Speaker 1: the food. We should bust down these big monopolies. And

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Speaker 1: I wanted to ask him because you were talking about wheat.

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Speaker 1: When are we gonna see weed weed traded on the

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Speaker 1: Chicago in the Chicago pits. I don't know, but Mike,

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Speaker 1: if it's there, Mike will trade it for sure. All right,

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Speaker 1: let's switch gears. Let's take a look at these markets here.

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Speaker 1: I want to bring in Ted Oakley, founder and managing

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Speaker 1: partner of Oxbell Advisors. Ted um give us a sense

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Speaker 1: of kind of how you guys there at Oxford we're

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Speaker 1: thinking about trading and investing in a world where we've

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Speaker 1: got a real shooting war over in your How do

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Speaker 1: you think about that? Well, for us right now, I mean,

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Speaker 1: you know't been carrying quite a bit of cash now

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Speaker 1: for some time, and we still have it. We think

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Speaker 1: it's a bit early. Uh, you know, we really feel

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Speaker 1: like the markets or will be coming at you the

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Speaker 1: next three or four months. And so just between everything

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Speaker 1: going on between the FED and just what you mentioned

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Speaker 1: over there. Uh. And the real point is that if

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Speaker 1: you look at energy and food there, they spiked to

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Speaker 1: a point that they were like only two other times,

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Speaker 1: at both times we went in a recession. So we

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Speaker 1: run a fairly high risk right now of of moving

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Speaker 1: into the recession. Especially talking about your former guests, they

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Speaker 1: were commodities and energy in the in the light. So

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Speaker 1: how does the how does the FED handle that? Do

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Speaker 1: we expecting about face? They raised rates a couple of

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Speaker 1: times and then go back. Well, unfortunately, you know, I've

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Speaker 1: watched the fit since Paul Poker. So the thing about

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Speaker 1: it is that probably more than likely they're always looking backwards.

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Speaker 1: Unfortunately they don't. They don't deserve with them to look

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Speaker 1: forward because they can't get out on a limb on it.

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Speaker 1: So that's the problem. And my guess is you're going

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Speaker 1: to have a you know, your prints and obviously in

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Speaker 1: January February going to be you know, fairly high inflation numbers,

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Speaker 1: but you get into base effects in April, May, June, July,

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Speaker 1: they won't be that high. But I think the bigger

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Speaker 1: thing is when they're headed to say, uh, when you're

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Speaker 1: going into situation where you have a slowing economy and

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Speaker 1: they're raising rates, that's that's sort of a disaster. So

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Speaker 1: I'm expecting now that by the end, by the last

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Speaker 1: half of the year, that there will be at least

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Speaker 1: changing uh, changing their rhetoric. They may not be I

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Speaker 1: can't see them ever getting to six point six races

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Speaker 1: this year. All Right, Given that backdrop there said, how

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Speaker 1: are you positioning your portfolios here? Um, given the geopolitical

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Speaker 1: issues have risen over the past couple of weeks, given

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Speaker 1: what we've heard from this Federal Reserve UH and this

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Speaker 1: president in the State of the Union address, how are

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Speaker 1: you thinking about your portfolios? Well, in a couple of ways,

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Speaker 1: I'll just split them between our income portfolios and in

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Speaker 1: growth portfolios. But on the on the income side, we

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Speaker 1: have just over the last few weeks, well excuse me,

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Speaker 1: we've taken up a fairly large position in the twenty

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Speaker 1: and thirty year treasury. UM. We we really, we really

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Speaker 1: feel like that there'll those rates will all come down

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Speaker 1: eventually over the next six to twelve months, particularly the

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Speaker 1: next six months, and we think people are really positioned

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Speaker 1: wrong on that. So we've for the first time in

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Speaker 1: a long time, we've pushed out and bought a fairly

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Speaker 1: large position in the twenty and thirty year treasury. And

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Speaker 1: in addition, uh, if you look at two year and

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Speaker 1: three year and meek munities, they've finally gone to a

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Speaker 1: point where you can move out a money market fund

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Speaker 1: and buy that for you know, one and a quarter

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Speaker 1: or so for so that's changing things. And then on

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Speaker 1: the equities, IID we just have quite a bit of liquidity.

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Speaker 1: It's a bit early for us. Even on the growth

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Speaker 1: companies we own, they're going to have to get um

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Speaker 1: at least a bigger discount than they are for us

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Speaker 1: to be able to use that cash. Right now. We

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Speaker 1: think UM, but we think there's probably you know, just

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Speaker 1: get back to normal excuse me, normal multiple I would

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Speaker 1: guess you would have to go, you know, at least

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Speaker 1: another ten or fift I just wondered quickly, only about

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Speaker 1: twenty three seconds. But um, I know you're very active

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Speaker 1: in charity work. Um down there. What do you think

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Speaker 1: about what we see now in Ukraine? You know, it's

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Speaker 1: really sad for me because I know I always think

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Speaker 1: about the kids, you know, because that's what the kids are,

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Speaker 1: what your next you know, that's that's your future. And

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Speaker 1: I always worry about not only their future, but the

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Speaker 1: future they would have for somebody else. And I know

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Speaker 1: a lot of people really want to help them, and

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Speaker 1: uh and and my I would do that as well.

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Speaker 1: All but I I just think that's a sad situation.

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Speaker 1: I wish it was different for the for the for

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Speaker 1: the mothers and the kids and the families. Um. And

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Speaker 1: to sort of see how it's gotting in it's too bad. Yeah,

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Speaker 1: all right, Ted, thank you so much for joining us.

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Speaker 1: We always appreciate getting your perspective. Ted Oakley, Founder and

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Speaker 1: managing partner of Oxbow Advisers. All Right, we've got the

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Speaker 1: waning period hopefully of this pandemic. We've got rising inflation. Now,

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Speaker 1: we also have geopolitical uncertainty in the form of the

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Speaker 1: invasion of Ukraine by Russia. UM, A lot of folks

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Speaker 1: are trying to get a sense of what that means

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Speaker 1: for the outlook for these markets. Let's bring in Anahn,

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Speaker 1: vice president equity strategist at Wells Fargo. So, and how

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Speaker 1: does this war in Ukraine affect your calculus if at all,

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Speaker 1: as you think about where these markets can go. So absolutely,

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Speaker 1: I think it really shifts the picture here. The direct

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Speaker 1: impact of the situation between Russia and Ukraine the US

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Speaker 1: is not that explodes when you look at corporates in

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Speaker 1: the US. We don't have that much earnings exposure to them.

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Speaker 1: But it's more the ripple effects that we're concerned about.

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Speaker 1: So you think about how the FED looks to be

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Speaker 1: more conservative due to that geopolitical uncertainty, and that brings

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Speaker 1: in the point of probably longer term inflationary pressures due

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Speaker 1: to the crude oil and the natural gas supply that

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Speaker 1: Russia supplies. So you put that all together and that's

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Speaker 1: going to impact yields. So you see nominals coming down

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Speaker 1: eighteen BIPs, the real yields are down forty basis points

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Speaker 1: from their peak. I think that's the picture here that

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Speaker 1: we need to focus on how much longer do you

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Speaker 1: think we're going to see this kind of inflation Because

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Speaker 1: we've been talking to supply chain people for months and um,

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Speaker 1: you know, they thought maybe in the first half things

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Speaker 1: would get a little better. Now the second half. Now

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Speaker 1: we're seeing some people say out in and that just

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Speaker 1: threatens um prices out that long as well. So you

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Speaker 1: bring up a great point when it comes to supply chain.

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Speaker 1: In lead times, we did see hints that perhaps the

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Speaker 1: worst was over, that you know, it wasn't going to

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Speaker 1: suddenly all you know, funnel through, but that the bottlenecks

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Speaker 1: were easing. But inflationary pressures are not just a supply chain.

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Speaker 1: It's energy prices. It's the excess demand that we've been having.

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Speaker 1: So perhaps the rate hike would address that demand directly,

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Speaker 1: but energy prices and supply chains are things that even

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Speaker 1: if the Fed hikes, it's not gonna attack directly to

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Speaker 1: ease those pressures. I think that these inflationary pressures could

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Speaker 1: last a bit longer than we initially suspected coming into

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Speaker 1: the situation. And with that, again, yields are reacting to that.

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Speaker 1: The equity markets are reacting to that. So I think

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Speaker 1: that's where you see sort of this give back in

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Speaker 1: the value versus growth trade. So what are you telling

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Speaker 1: your clients now, and are you telling them to kind

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Speaker 1: of favor some core underlying growth stories or sticking perhaps

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Speaker 1: with that cyclical trade that's worked so well over the past,

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Speaker 1: you know, not eighteen months or so. I would say,

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Speaker 1: first and foremost always depends on the time frame of

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Speaker 1: my client. If you're looking more longer term, like a

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Speaker 1: twelve twenty four months, I still think that there is

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Speaker 1: a cyclical trade to be played here, but for the

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Speaker 1: short term, more tactical and more nimble folks, I wouldn't

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Speaker 1: tell them to chase this market. We're down, uh, you know,

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Speaker 1: about ten percent or so. That's something that we called

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Speaker 1: very coming into the year that it was a possibility.

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Speaker 1: I wouldn't chase a market. But at the same time,

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Speaker 1: I do think that's sort of stalling in nominal yields

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Speaker 1: and especially the pullback in real yields could be an

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Speaker 1: opportunity for small cap growth. Small cap growth has been

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Speaker 1: very oversold technical balance as possible, and especially with some

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Speaker 1: of the small cap short covering that we might see

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Speaker 1: and the fed U being a little less Hawckets or

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Speaker 1: you know, somewhat doblins. Given the geopolitical situation, I think

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Speaker 1: all that could bode well for a tactical trade and

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Speaker 1: small cap growth. How do you model in the geopolitics?

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Speaker 1: I mean, um, you strike me as someone who is

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Speaker 1: very scientific. Um. Just look. And you know, Anna, by

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Speaker 1: the way, spent the last few years at Yale studying

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Speaker 1: what was it, supermassive black hole. Really yeah, um, which

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Speaker 1: sounds totally cool. But I'm guessing that you model things

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Speaker 1: a lot. And how do you factor in this kind

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Speaker 1: of stuff? I think the important thing expects you when

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Speaker 1: there's uncertainty is to consider your scenarios. Uh and and

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Speaker 1: also put a probability to that as best you can.

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Speaker 1: So you know, our main base case. We had a

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Speaker 1: guest speaker who was a former NATO Supreme Allied Commander,

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Speaker 1: and some of the base cases he laid out were

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Speaker 1: very interesting, one of them being the main possibility was

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Speaker 1: we get this Balkan style compromise with Russia. In other words,

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Speaker 1: they're going to gain some portion of Ukraine in exchange

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Speaker 1: for stability. Another case, a little less likely is that

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Speaker 1: putting backs down following some strong Ukrainian resistance even less

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Speaker 1: likely Ukraine has bombed into submissions, leading to this cold

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Speaker 1: war to scenario with massive sanctions. And then the least likely,

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Speaker 1: as he laid out, was that perhaps potent is removed

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Speaker 1: from power, is the fight drags on and sanctions really

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Speaker 1: just frontal Russia? And now again the most the biggest

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Speaker 1: probability that he laid out was the Balkan style compromise.

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Speaker 1: So that's what I do. I look at the possible scenarios,

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Speaker 1: whatever is most likely, and from there we can assign

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Speaker 1: really what do we believe or measured to be the

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Speaker 1: equity reaction. And I think here is the question that

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Speaker 1: really inflation a pressure slowing down the said and how

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Speaker 1: the yield move is going to uh affect equity markets.

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Speaker 1: I think that's our focus for now and also on

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Speaker 1: equity risk. All right, Anna, thank you so much for

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Speaker 1: joining us. Really appreciate getting your perspective there. Anahn, vice

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Speaker 1: president equity strategist at Wells Fargo. Yeah, I don't know

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Speaker 1: how you model in war. I mean, I guess it

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Speaker 1: just kind of goes to global GDP demand, And you know,

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Speaker 1: I don't know how either, But I also don't know

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Speaker 1: how you figure out what's going on in a supermassive

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Speaker 1: black hole. Yes, and that's why Annas seems like the

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Speaker 1: perfect person to ask that question, and probably that's why

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Speaker 1: Wells Fargo thought she was the perfect person to hire

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Speaker 1: for the job to be equity strategist at the Wells Fargo.

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Speaker 1: It is that time of the day, that time of

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Speaker 1: the week we bring Barry rich Holds on to talk about, um,

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Speaker 1: what's going on in markets and many other things. Um, Barry,

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Speaker 1: I think you know we're kind of focused on the

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Speaker 1: FED right now, although yesterday, you know, the smartest people

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Speaker 1: in Washington question him. Now he's going in front of

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Speaker 1: the Senate. What do you take from the the position

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Speaker 1: that he's in. It's not enviable, right, they were behind

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Speaker 1: the curve and now the curve has changed. Were they

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Speaker 1: really so behind the curve? I would challenge your premise because, well,

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Speaker 1: we have inflation at more than seven and it's probably

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Speaker 1: gonna be an eight percent print the next time we

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Speaker 1: see it. But what is raising rate's gonna do to

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Speaker 1: make more semiconductors of it? Eleble? What is raising rates

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Speaker 1: going to do to untangle the supply chain? The most

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Speaker 1: important thing that we can do to bring the demand

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Speaker 1: supply balance back into normal is to get people out

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Speaker 1: of their houses and and get people, you know, reopen

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Speaker 1: the economy so we're not just buying stuff. We go

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Speaker 1: back to the service versus goods economy. The pandemic and

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Speaker 1: the lockdown forced us all to become goods consumers instead

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Speaker 1: of service consumers. So yes, for sure, there's been wage increases.

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Speaker 1: There'sn't been a lot of things that have taken place

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Speaker 1: where the FED has some impact, but you know, the

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Speaker 1: best estimates are around two thirds of these increases. The

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Speaker 1: FED is not going to do anything about it. When

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Speaker 1: when people are buying homes by liquidating crypto, you're not

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Speaker 1: which by the way, eleven percent of new home buyers

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Speaker 1: are doing. You're not gonna stifle inflation with higher rates.

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Speaker 1: That's not to say we shouldn't see the FED move

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Speaker 1: towards more normalization, but it's still a very different situation

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Speaker 1: than normal times. When the FED raises rates eventually causes

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Speaker 1: a recession and we end up with things going back

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Speaker 1: to normal. Barry, we now have a hot war in

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Speaker 1: r What does that mean for equities? So historically, and

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Speaker 1: I'm assuming you're referring to the Business Week piece that

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Speaker 1: we published yesterday. Historically, when we see these geopolitical events,

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Speaker 1: sometimes it's a war, sometimes it's terrorism. Sometimes it's an

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Speaker 1: assassination attempt or successful or not, there tends to be

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Speaker 1: this emotional spasm. There tends to be this knee jerk

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Speaker 1: reaction and investors panic a little bit. And going back

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Speaker 1: to Pearl Harbor attack that brought the United States into

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Speaker 1: World War two, historically we learned that that's a terrible strategy.

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Speaker 1: That what typically happens is that markets wobble a little

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Speaker 1: bit and then they go about back to doing what

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Speaker 1: they were doing, uh the prior trend before the event

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Speaker 1: took place. The worst of these events, the World War two,

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Speaker 1: the one of the worst wars in human history. Markets

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Speaker 1: sold off for It took about six months before markets bottomed,

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Speaker 1: and less than a year later markets were back to

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Speaker 1: their US markets were back to their prior high. So

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Speaker 1: if the worst case scenario was World War two and

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Speaker 1: it's a year year and a half later, think about

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Speaker 1: the GDP of Ukraine, think about the economic impact of Russia.

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Speaker 1: The reason these events don't really affect markets is because

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Speaker 1: they're too small in terms of global GDP to really

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Speaker 1: impact corporate revenue and profits, and and so the markets

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Speaker 1: kind of shake them off and hope we stay hopefully, uh,

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Speaker 1: they stay that small, right, And the concern is um

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Speaker 1: and that not just the war in Ukraine is hot,

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Speaker 1: but um that the Cold War between the US and

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Speaker 1: Russia becomes a hot war. That's I guess the nuclear option. Um,

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Speaker 1: there's no playbook for that. That well, you know, if

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Speaker 1: there's a nuclear war, I think the value of your

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Speaker 1: long term stocks and bonds becomes quite secondary at that point.

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Speaker 1: I mean, look, did you read um Stravites's book. Uh?

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Speaker 1: I thought it was awesome and there worse. I don't

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Speaker 1: want to spoil it for anyone who hasn't read it,

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Speaker 1: but there are some nuclear strikes in there. Yeah. No,

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Speaker 1: it's it's certainly an option. Look to me, the bigger

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Speaker 1: concern is not the idea of a nuclear conflagration, because

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Speaker 1: that means, you know, my my equity portfolio is irrelevant.

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Speaker 1: The bigger concern, for the more realistic, we're probable concern

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Speaker 1: is that this spills from Ukraine into Belarus into Eastern Europe,

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Speaker 1: and if you have boots on the ground and a

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Speaker 1: hot war between Europeans and Russia. Well, at that point

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Speaker 1: that can really become very, very problematic. And I think

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Speaker 1: the uncertainty around war isn't that we don't know what's

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Speaker 1: going to happen, it's that things can happen that just

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Speaker 1: are not imaginable. Well, I mean, even if we don't

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Speaker 1: get that far, did you I know that Masters of

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Speaker 1: Business is probably the most successful podcast that we have here,

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Speaker 1: But there's another podcast, Odd Lots and they had Zold

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Speaker 1: Times Calls are on the other day. Did you hear

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Speaker 1: that he was talking about the possibility of the dollar

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Speaker 1: no longer remaining the world reserve currency. Um, you know, uh,

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Speaker 1: send me all of your worthless US dollars for proper disposal.

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Speaker 1: I will take care of them. I have been literally

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Speaker 1: hearing that my entire adult life. So let's stop and

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Speaker 1: consider your alternatives. Well, but but, but but you you

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Speaker 1: will understand why, right, because no, I don't. I've you know,

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Speaker 1: we've kind of have been wrong for half a century.

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Speaker 1: You have to stop and say, you know, a large

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Speaker 1: like twice a year, if large economies like and I'll

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Speaker 1: go ahead and say the Soviet Union even though I

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Speaker 1: know it's not that right or the People's Republic of China,

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Speaker 1: if they realize that the currency they rely on UM

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Speaker 1: can just be turned off by another country or another culture,

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Speaker 1: they might decide to try and use something else. All

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Speaker 1: of a sudden, These rubles are backed by dollars, all

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Speaker 1: of a sudden, UM. You know, the yuan is digital,

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Speaker 1: so you know, maybe we see some some change there.

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Speaker 1: So so change is constant that you can assume that

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Speaker 1: change is always gonna always gonna happen. However, so when

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Speaker 1: we look out and I don't like to look out

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Speaker 1: twenty thirty years because events have a tendency of getting

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Speaker 1: in the way of those forecasts. But just stop and

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Speaker 1: think about this for a second. Your alternatives are the

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Speaker 1: end where no one's really talking about that because Japan's

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Speaker 1: economy and markets have been, you know, doing so poorly

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Speaker 1: since nine the row, which is problematic holding that group

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Speaker 1: of very disparate countries UM together is really a challenge

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Speaker 1: the Chinese one who who when China is not happy

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Speaker 1: with UM, how their corporate sector is doing, they just

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Speaker 1: demolished them. Look what they did to Ali Baba, what

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Speaker 1: they did to ten Cent. Who is gonna willingly say, oh, sure,

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Speaker 1: I trust the dictators and the communists in China, and

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Speaker 1: you know, we people talk about bitcoin um obviously all

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Speaker 1: over the map over the past couple of days. To me,

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Speaker 1: the most interesting challenge to the dollar is going to

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Speaker 1: be a stable coin, not a bitcoin, but a stable

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Speaker 1: coin that's backed by some consortium of central banks, uh like,

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Speaker 1: like a combination of the old Trilateral Commission, like the EU,

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Speaker 1: Japan and the United States. If a group of those

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Speaker 1: three country areas say we're gonna allow a free translation

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Speaker 1: of the stable coin into dollars again, and I think

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Speaker 1: what that does is that tracks Look, if you're an

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Speaker 1: expert in central bank behavior, if you're an expert in

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Speaker 1: global monetary systems, which clearly pooping is not. He might

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Speaker 1: have thought he was, but he's not. There's nothing different

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Speaker 1: that was done. It was just the first time since

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Speaker 1: World War Two. Then everybody got together and said, oh,

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Speaker 1: that country is a rogue nation like Iran, like North Korea,

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Speaker 1: and so we're gonna put them into the penalty box.

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Speaker 1: This isn't, this isn't. It goes back to Cuba. We're

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Speaker 1: gonna We're gonna have to leave it there, my friend,

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Speaker 1: because of time, we always appreciate getting your thoughts. Will

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Speaker 1: pick up on Cuba next time you have Bloomberg opinion columnists.

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Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can

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Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever

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Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

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Speaker 1: at Matt Miller three at on False Sweeney. I'm on

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Speaker 1: Twitter at p T Sweeney. Before the podcast, you can

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Speaker 1: always catch us worldwide at Bloomberg Radio