WEBVTT - Markets And Investing Amid War In Ukraine 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.320 at Bloomberg dot com Slash podcast. Looking at the g 0:00:22.800 --> 0:00:26.760 l CEO go, that's your global commodity screen here, I'm 0:00:26.840 --> 0:00:29.600 looking at wheat trading in Chicago. It was blow eight 0:00:29.640 --> 0:00:32.080 hundred just a couple of weeks ago, and here we 0:00:32.120 --> 0:00:35.600 are at thirty four for wheat. So that goes to bread, 0:00:36.200 --> 0:00:38.800 that goes to beer, that goes to a lot of stuff. 0:00:38.800 --> 0:00:40.919 Commodities are ripping, So we figured we need to check 0:00:40.960 --> 0:00:45.200 in with Mike mcloon, Senior Commodity Strategies for Bloomberg Intelligence. Mike, 0:00:45.479 --> 0:00:47.800 what are we seeing in your space these days? What's 0:00:47.800 --> 0:00:51.239 going on? Hey, Paul, bread and beer? I like that. 0:00:51.280 --> 0:00:53.760 With The key thing is it's it's there's only one 0:00:53.760 --> 0:00:57.520 thing that matters. It's this war and the potential supply disruption. 0:00:57.760 --> 0:00:59.840 And you mentioned wheat. I'm glad you didn't because to me, 0:01:00.040 --> 0:01:02.120 that's part of the key thing. I fully expected probably 0:01:02.280 --> 0:01:05.040 have some sustained issues with SURVID disruptions, but it's an 0:01:05.040 --> 0:01:08.039 absolute boom for the corn belt US farmers. That's the 0:01:08.040 --> 0:01:10.800 good side, but that will come on. And expect massive 0:01:10.840 --> 0:01:13.520 supply coming from the US this year, most notably corn 0:01:13.840 --> 0:01:16.840 and soybeans. But the big kit picture is crude oil. 0:01:16.840 --> 0:01:19.759 And what's unique about Rudel It looked almost exactly that's 0:01:19.880 --> 0:01:23.920 the same as it did this time March two eight. 0:01:23.920 --> 0:01:26.360 It crossed above a hundred dollars and five and the 0:01:26.440 --> 0:01:28.880 end of the year round forty. I suspect that's the 0:01:28.959 --> 0:01:31.800 risk of a rhyme, and it means similar for other 0:01:31.880 --> 0:01:34.200 risk assets like the dock market. By the way, I 0:01:34.200 --> 0:01:36.119 was thinking about this, and I was thinking about you 0:01:36.680 --> 0:01:40.679 the other day. If corn is it becomes so valuable 0:01:41.080 --> 0:01:44.520 that we decide to use it solely for food, is 0:01:44.560 --> 0:01:46.959 it possible you guys can take it out of my gasoline? 0:01:48.280 --> 0:01:51.040 I have benue you'd go there. Well, that's very unlikely 0:01:51.080 --> 0:01:53.919 because the problem is it's still well below the highs 0:01:53.960 --> 0:01:56.560 all time highs. And about the crop, they're just going 0:01:56.600 --> 0:01:58.960 to produce much more corn. Remember this country in a 0:01:58.960 --> 0:02:01.360 lot of countries still pay there we do, we pay 0:02:01.400 --> 0:02:03.880 our producers not to produce. So I think that's going 0:02:03.920 --> 0:02:06.160 to change. This is a war economy now and means 0:02:06.160 --> 0:02:08.280 if the US can pick up its supply of commands, 0:02:08.320 --> 0:02:10.239 which I fully expect there will, it's going to help 0:02:10.320 --> 0:02:13.480 save the world from the oppressive government in Russias. How 0:02:13.480 --> 0:02:16.200 do you how do you guys in the Midwest square 0:02:16.240 --> 0:02:20.960 that circle? Because everybody I know out in fly Over Country, 0:02:21.080 --> 0:02:23.320 including you know, I'm from there, my family is from there. 0:02:23.520 --> 0:02:30.040 Um is very you know, traditionally conservative, free market capitalist, 0:02:30.880 --> 0:02:34.000 and yet that they all get behind these like communist 0:02:34.080 --> 0:02:38.720 subsidies of farmers. How is that Okay, it's survival, Um, 0:02:38.720 --> 0:02:41.000 it's survival, because that's the problem with Cornville. He's just 0:02:41.040 --> 0:02:43.160 like the average price of corn for the last five 0:02:43.240 --> 0:02:45.600 years was on four three or four hours of bushel. 0:02:45.600 --> 0:02:48.200 Now it's up near seven eight, and barren farmers were 0:02:48.240 --> 0:02:50.920 just barely breaking even. Thank God for the ethanol mandate 0:02:50.960 --> 0:02:53.240 because it helped them make some money. Now they're making 0:02:53.280 --> 0:02:55.480 real money. So I think a lot of subsidies come back. Well, 0:02:55.480 --> 0:02:58.840 this is just part of that major transmocrification of society. 0:02:58.840 --> 0:03:03.560 When you know, humans juice to feed the others everybody else. 0:03:03.560 --> 0:03:05.480 Now it's only one percent, and it's still cont declined 0:03:05.520 --> 0:03:09.040 because of rapidly fanti technology. But the corn belt is 0:03:09.080 --> 0:03:12.440 going to crush it in this situation, and so will shale, 0:03:12.880 --> 0:03:16.760 US liquid fied, the US energy looquified natural gas. To me, 0:03:16.840 --> 0:03:19.040 that whole area is going to do very well to 0:03:19.160 --> 0:03:21.839 help save the world for democracy. All right, Mike, thanks 0:03:21.880 --> 0:03:24.240 so much for joining us. As always, always appreciate getting 0:03:24.240 --> 0:03:28.000 your perspective. Mike mcgloon. Longer I had many more. I know, 0:03:28.120 --> 0:03:30.920 I know we got a busy skype A trust issue 0:03:31.160 --> 0:03:33.560 right for farmers, the small family farms should be growing 0:03:33.560 --> 0:03:36.560 the food. We should bust down these big monopolies. And 0:03:36.800 --> 0:03:38.880 I wanted to ask him because you were talking about wheat. 0:03:39.440 --> 0:03:43.320 When are we gonna see weed weed traded on the 0:03:43.400 --> 0:03:46.120 Chicago in the Chicago pits. I don't know, but Mike, 0:03:46.280 --> 0:03:53.560 if it's there, Mike will trade it for sure. All right, 0:03:53.600 --> 0:03:55.440 let's switch gears. Let's take a look at these markets here. 0:03:55.440 --> 0:03:57.320 I want to bring in Ted Oakley, founder and managing 0:03:57.360 --> 0:04:01.160 partner of Oxbell Advisors. Ted um give us a sense 0:04:01.160 --> 0:04:03.120 of kind of how you guys there at Oxford we're 0:04:03.160 --> 0:04:06.760 thinking about trading and investing in a world where we've 0:04:06.800 --> 0:04:09.280 got a real shooting war over in your How do 0:04:09.320 --> 0:04:12.880 you think about that? Well, for us right now, I mean, 0:04:12.920 --> 0:04:15.360 you know't been carrying quite a bit of cash now 0:04:15.520 --> 0:04:18.120 for some time, and we still have it. We think 0:04:18.120 --> 0:04:21.280 it's a bit early. Uh, you know, we really feel 0:04:21.320 --> 0:04:23.200 like the markets or will be coming at you the 0:04:23.200 --> 0:04:26.240 next three or four months. And so just between everything 0:04:26.360 --> 0:04:28.719 going on between the FED and just what you mentioned 0:04:28.720 --> 0:04:33.560 over there. Uh. And the real point is that if 0:04:33.600 --> 0:04:36.680 you look at energy and food there, they spiked to 0:04:36.720 --> 0:04:39.160 a point that they were like only two other times, 0:04:39.760 --> 0:04:41.839 at both times we went in a recession. So we 0:04:41.920 --> 0:04:45.279 run a fairly high risk right now of of moving 0:04:45.279 --> 0:04:48.479 into the recession. Especially talking about your former guests, they 0:04:48.520 --> 0:04:52.440 were commodities and energy in the in the light. So 0:04:52.640 --> 0:04:55.320 how does the how does the FED handle that? Do 0:04:55.360 --> 0:04:57.560 we expecting about face? They raised rates a couple of 0:04:57.560 --> 0:05:01.920 times and then go back. Well, unfortunately, you know, I've 0:05:01.920 --> 0:05:04.840 watched the fit since Paul Poker. So the thing about 0:05:04.880 --> 0:05:08.839 it is that probably more than likely they're always looking backwards. 0:05:09.240 --> 0:05:11.920 Unfortunately they don't. They don't deserve with them to look 0:05:11.960 --> 0:05:14.000 forward because they can't get out on a limb on it. 0:05:14.080 --> 0:05:16.599 So that's the problem. And my guess is you're going 0:05:16.640 --> 0:05:19.359 to have a you know, your prints and obviously in 0:05:19.440 --> 0:05:22.800 January February going to be you know, fairly high inflation numbers, 0:05:22.800 --> 0:05:26.040 but you get into base effects in April, May, June, July, 0:05:26.200 --> 0:05:28.360 they won't be that high. But I think the bigger 0:05:28.400 --> 0:05:32.760 thing is when they're headed to say, uh, when you're 0:05:32.760 --> 0:05:35.800 going into situation where you have a slowing economy and 0:05:35.839 --> 0:05:39.000 they're raising rates, that's that's sort of a disaster. So 0:05:39.240 --> 0:05:42.320 I'm expecting now that by the end, by the last 0:05:42.360 --> 0:05:44.119 half of the year, that there will be at least 0:05:44.200 --> 0:05:48.120 changing uh, changing their rhetoric. They may not be I 0:05:48.160 --> 0:05:50.800 can't see them ever getting to six point six races 0:05:50.839 --> 0:05:55.560 this year. All Right, Given that backdrop there said, how 0:05:55.560 --> 0:05:59.599 are you positioning your portfolios here? Um, given the geopolitical 0:05:59.600 --> 0:06:02.279 issues have risen over the past couple of weeks, given 0:06:02.279 --> 0:06:04.800 what we've heard from this Federal Reserve UH and this 0:06:04.920 --> 0:06:06.680 president in the State of the Union address, how are 0:06:06.680 --> 0:06:11.360 you thinking about your portfolios? Well, in a couple of ways, 0:06:11.360 --> 0:06:14.800 I'll just split them between our income portfolios and in 0:06:14.960 --> 0:06:17.919 growth portfolios. But on the on the income side, we 0:06:18.040 --> 0:06:21.120 have just over the last few weeks, well excuse me, 0:06:21.400 --> 0:06:25.000 we've taken up a fairly large position in the twenty 0:06:25.040 --> 0:06:28.920 and thirty year treasury. UM. We we really, we really 0:06:28.920 --> 0:06:31.880 feel like that there'll those rates will all come down 0:06:32.720 --> 0:06:35.719 eventually over the next six to twelve months, particularly the 0:06:35.760 --> 0:06:38.680 next six months, and we think people are really positioned 0:06:38.680 --> 0:06:41.000 wrong on that. So we've for the first time in 0:06:41.000 --> 0:06:43.960 a long time, we've pushed out and bought a fairly 0:06:44.080 --> 0:06:46.800 large position in the twenty and thirty year treasury. And 0:06:46.839 --> 0:06:49.359 in addition, uh, if you look at two year and 0:06:49.360 --> 0:06:51.359 three year and meek munities, they've finally gone to a 0:06:51.400 --> 0:06:53.840 point where you can move out a money market fund 0:06:54.400 --> 0:06:56.479 and buy that for you know, one and a quarter 0:06:56.560 --> 0:06:59.279 or so for so that's changing things. And then on 0:06:59.320 --> 0:07:02.320 the equities, IID we just have quite a bit of liquidity. 0:07:02.400 --> 0:07:04.440 It's a bit early for us. Even on the growth 0:07:04.440 --> 0:07:08.680 companies we own, they're going to have to get um 0:07:08.720 --> 0:07:11.600 at least a bigger discount than they are for us 0:07:11.680 --> 0:07:14.080 to be able to use that cash. Right now. We 0:07:14.200 --> 0:07:17.680 think UM, but we think there's probably you know, just 0:07:17.680 --> 0:07:20.800 get back to normal excuse me, normal multiple I would 0:07:20.840 --> 0:07:23.120 guess you would have to go, you know, at least 0:07:23.120 --> 0:07:27.520 another ten or fift I just wondered quickly, only about 0:07:27.560 --> 0:07:30.640 twenty three seconds. But um, I know you're very active 0:07:30.760 --> 0:07:34.920 in charity work. Um down there. What do you think 0:07:34.960 --> 0:07:38.920 about what we see now in Ukraine? You know, it's 0:07:38.920 --> 0:07:42.720 really sad for me because I know I always think 0:07:42.720 --> 0:07:45.400 about the kids, you know, because that's what the kids are, 0:07:45.440 --> 0:07:49.120 what your next you know, that's that's your future. And 0:07:49.240 --> 0:07:51.840 I always worry about not only their future, but the 0:07:51.880 --> 0:07:54.720 future they would have for somebody else. And I know 0:07:54.760 --> 0:07:56.520 a lot of people really want to help them, and 0:07:57.000 --> 0:08:00.000 uh and and my I would do that as well. 0:08:00.000 --> 0:08:03.000 All but I I just think that's a sad situation. 0:08:03.040 --> 0:08:05.280 I wish it was different for the for the for 0:08:05.400 --> 0:08:08.880 the mothers and the kids and the families. Um. And 0:08:09.000 --> 0:08:11.360 to sort of see how it's gotting in it's too bad. Yeah, 0:08:11.520 --> 0:08:13.120 all right, Ted, thank you so much for joining us. 0:08:13.160 --> 0:08:16.120 We always appreciate getting your perspective. Ted Oakley, Founder and 0:08:16.200 --> 0:08:23.400 managing partner of Oxbow Advisers. All Right, we've got the 0:08:23.400 --> 0:08:28.600 waning period hopefully of this pandemic. We've got rising inflation. Now, 0:08:28.640 --> 0:08:32.360 we also have geopolitical uncertainty in the form of the 0:08:32.440 --> 0:08:35.880 invasion of Ukraine by Russia. UM, A lot of folks 0:08:35.880 --> 0:08:37.640 are trying to get a sense of what that means 0:08:37.840 --> 0:08:40.720 for the outlook for these markets. Let's bring in Anahn, 0:08:41.000 --> 0:08:44.800 vice president equity strategist at Wells Fargo. So, and how 0:08:44.840 --> 0:08:49.439 does this war in Ukraine affect your calculus if at all, 0:08:49.520 --> 0:08:53.559 as you think about where these markets can go. So absolutely, 0:08:53.600 --> 0:08:56.680 I think it really shifts the picture here. The direct 0:08:56.880 --> 0:09:00.360 impact of the situation between Russia and Ukraine the US 0:09:00.480 --> 0:09:02.920 is not that explodes when you look at corporates in 0:09:02.960 --> 0:09:05.520 the US. We don't have that much earnings exposure to them. 0:09:05.720 --> 0:09:08.319 But it's more the ripple effects that we're concerned about. 0:09:08.480 --> 0:09:10.640 So you think about how the FED looks to be 0:09:10.679 --> 0:09:14.640 more conservative due to that geopolitical uncertainty, and that brings 0:09:14.640 --> 0:09:18.480 in the point of probably longer term inflationary pressures due 0:09:18.559 --> 0:09:20.520 to the crude oil and the natural gas supply that 0:09:20.600 --> 0:09:23.760 Russia supplies. So you put that all together and that's 0:09:23.760 --> 0:09:26.400 going to impact yields. So you see nominals coming down 0:09:26.440 --> 0:09:29.760 eighteen BIPs, the real yields are down forty basis points 0:09:29.800 --> 0:09:32.000 from their peak. I think that's the picture here that 0:09:32.040 --> 0:09:35.600 we need to focus on how much longer do you 0:09:35.600 --> 0:09:37.520 think we're going to see this kind of inflation Because 0:09:37.520 --> 0:09:40.840 we've been talking to supply chain people for months and um, 0:09:41.000 --> 0:09:43.679 you know, they thought maybe in the first half things 0:09:43.720 --> 0:09:45.760 would get a little better. Now the second half. Now 0:09:45.760 --> 0:09:49.360 we're seeing some people say out in and that just 0:09:49.440 --> 0:09:54.959 threatens um prices out that long as well. So you 0:09:55.000 --> 0:09:57.120 bring up a great point when it comes to supply chain. 0:09:57.200 --> 0:10:00.480 In lead times, we did see hints that perhaps the 0:10:00.480 --> 0:10:03.080 worst was over, that you know, it wasn't going to 0:10:03.400 --> 0:10:06.600 suddenly all you know, funnel through, but that the bottlenecks 0:10:06.600 --> 0:10:10.480 were easing. But inflationary pressures are not just a supply chain. 0:10:10.720 --> 0:10:14.200 It's energy prices. It's the excess demand that we've been having. 0:10:14.520 --> 0:10:17.480 So perhaps the rate hike would address that demand directly, 0:10:17.760 --> 0:10:20.320 but energy prices and supply chains are things that even 0:10:20.320 --> 0:10:24.000 if the Fed hikes, it's not gonna attack directly to 0:10:24.080 --> 0:10:27.400 ease those pressures. I think that these inflationary pressures could 0:10:27.480 --> 0:10:30.400 last a bit longer than we initially suspected coming into 0:10:30.400 --> 0:10:34.520 the situation. And with that, again, yields are reacting to that. 0:10:34.600 --> 0:10:37.240 The equity markets are reacting to that. So I think 0:10:37.480 --> 0:10:39.480 that's where you see sort of this give back in 0:10:39.520 --> 0:10:42.560 the value versus growth trade. So what are you telling 0:10:42.600 --> 0:10:45.319 your clients now, and are you telling them to kind 0:10:45.320 --> 0:10:49.120 of favor some core underlying growth stories or sticking perhaps 0:10:49.160 --> 0:10:51.480 with that cyclical trade that's worked so well over the past, 0:10:51.679 --> 0:10:55.760 you know, not eighteen months or so. I would say, 0:10:56.040 --> 0:10:58.960 first and foremost always depends on the time frame of 0:10:59.000 --> 0:11:02.079 my client. If you're looking more longer term, like a 0:11:02.320 --> 0:11:04.840 twelve twenty four months, I still think that there is 0:11:04.880 --> 0:11:07.760 a cyclical trade to be played here, but for the 0:11:07.840 --> 0:11:11.439 short term, more tactical and more nimble folks, I wouldn't 0:11:11.440 --> 0:11:14.680 tell them to chase this market. We're down, uh, you know, 0:11:14.720 --> 0:11:17.080 about ten percent or so. That's something that we called 0:11:17.200 --> 0:11:19.760 very coming into the year that it was a possibility. 0:11:20.000 --> 0:11:22.839 I wouldn't chase a market. But at the same time, 0:11:22.880 --> 0:11:25.960 I do think that's sort of stalling in nominal yields 0:11:25.960 --> 0:11:28.679 and especially the pullback in real yields could be an 0:11:28.679 --> 0:11:31.839 opportunity for small cap growth. Small cap growth has been 0:11:31.960 --> 0:11:35.800 very oversold technical balance as possible, and especially with some 0:11:35.880 --> 0:11:38.439 of the small cap short covering that we might see 0:11:38.840 --> 0:11:42.600 and the fed U being a little less Hawckets or 0:11:42.720 --> 0:11:45.680 you know, somewhat doblins. Given the geopolitical situation, I think 0:11:45.679 --> 0:11:47.680 all that could bode well for a tactical trade and 0:11:47.720 --> 0:11:52.120 small cap growth. How do you model in the geopolitics? 0:11:52.160 --> 0:11:55.920 I mean, um, you strike me as someone who is 0:11:56.320 --> 0:12:01.840 very scientific. Um. Just look. And you know, Anna, by 0:12:01.840 --> 0:12:04.319 the way, spent the last few years at Yale studying 0:12:05.440 --> 0:12:10.400 what was it, supermassive black hole. Really yeah, um, which 0:12:10.440 --> 0:12:13.560 sounds totally cool. But I'm guessing that you model things 0:12:13.720 --> 0:12:16.840 a lot. And how do you factor in this kind 0:12:16.840 --> 0:12:20.559 of stuff? I think the important thing expects you when 0:12:20.559 --> 0:12:24.200 there's uncertainty is to consider your scenarios. Uh and and 0:12:24.240 --> 0:12:26.760 also put a probability to that as best you can. 0:12:27.160 --> 0:12:29.560 So you know, our main base case. We had a 0:12:29.600 --> 0:12:32.920 guest speaker who was a former NATO Supreme Allied Commander, 0:12:33.240 --> 0:12:35.000 and some of the base cases he laid out were 0:12:35.080 --> 0:12:37.960 very interesting, one of them being the main possibility was 0:12:38.000 --> 0:12:41.640 we get this Balkan style compromise with Russia. In other words, 0:12:41.800 --> 0:12:44.280 they're going to gain some portion of Ukraine in exchange 0:12:44.280 --> 0:12:48.120 for stability. Another case, a little less likely is that 0:12:48.559 --> 0:12:53.240 putting backs down following some strong Ukrainian resistance even less 0:12:53.240 --> 0:12:56.160 likely Ukraine has bombed into submissions, leading to this cold 0:12:56.200 --> 0:13:01.040 war to scenario with massive sanctions. And then the least likely, 0:13:01.120 --> 0:13:03.520 as he laid out, was that perhaps potent is removed 0:13:03.559 --> 0:13:06.240 from power, is the fight drags on and sanctions really 0:13:06.280 --> 0:13:10.240 just frontal Russia? And now again the most the biggest 0:13:10.280 --> 0:13:13.480 probability that he laid out was the Balkan style compromise. 0:13:13.720 --> 0:13:16.280 So that's what I do. I look at the possible scenarios, 0:13:16.480 --> 0:13:19.160 whatever is most likely, and from there we can assign 0:13:19.240 --> 0:13:21.439 really what do we believe or measured to be the 0:13:21.520 --> 0:13:24.959 equity reaction. And I think here is the question that 0:13:25.040 --> 0:13:28.040 really inflation a pressure slowing down the said and how 0:13:28.200 --> 0:13:31.640 the yield move is going to uh affect equity markets. 0:13:31.640 --> 0:13:33.480 I think that's our focus for now and also on 0:13:33.559 --> 0:13:36.199 equity risk. All right, Anna, thank you so much for 0:13:36.280 --> 0:13:39.960 joining us. Really appreciate getting your perspective there. Anahn, vice 0:13:39.960 --> 0:13:43.599 president equity strategist at Wells Fargo. Yeah, I don't know 0:13:43.640 --> 0:13:47.599 how you model in war. I mean, I guess it 0:13:48.040 --> 0:13:51.839 just kind of goes to global GDP demand, And you know, 0:13:51.960 --> 0:13:54.400 I don't know how either, But I also don't know 0:13:54.480 --> 0:13:56.760 how you figure out what's going on in a supermassive 0:13:56.800 --> 0:14:00.480 black hole. Yes, and that's why Annas seems like the 0:14:00.480 --> 0:14:04.240 perfect person to ask that question, and probably that's why 0:14:04.280 --> 0:14:06.319 Wells Fargo thought she was the perfect person to hire 0:14:06.400 --> 0:14:12.280 for the job to be equity strategist at the Wells Fargo. 0:14:13.760 --> 0:14:15.960 It is that time of the day, that time of 0:14:16.000 --> 0:14:19.800 the week we bring Barry rich Holds on to talk about, um, 0:14:19.840 --> 0:14:24.640 what's going on in markets and many other things. Um, Barry, 0:14:25.000 --> 0:14:27.240 I think you know we're kind of focused on the 0:14:27.240 --> 0:14:30.480 FED right now, although yesterday, you know, the smartest people 0:14:30.480 --> 0:14:32.600 in Washington question him. Now he's going in front of 0:14:32.600 --> 0:14:37.280 the Senate. What do you take from the the position 0:14:37.280 --> 0:14:39.440 that he's in. It's not enviable, right, they were behind 0:14:39.520 --> 0:14:42.200 the curve and now the curve has changed. Were they 0:14:42.240 --> 0:14:47.880 really so behind the curve? I would challenge your premise because, well, 0:14:47.920 --> 0:14:53.080 we have inflation at more than seven and it's probably 0:14:53.120 --> 0:14:55.120 gonna be an eight percent print the next time we 0:14:55.200 --> 0:14:58.200 see it. But what is raising rate's gonna do to 0:14:58.320 --> 0:15:01.360 make more semiconductors of it? Eleble? What is raising rates 0:15:01.400 --> 0:15:05.920 going to do to untangle the supply chain? The most 0:15:06.760 --> 0:15:10.800 important thing that we can do to bring the demand 0:15:10.880 --> 0:15:14.960 supply balance back into normal is to get people out 0:15:15.000 --> 0:15:18.440 of their houses and and get people, you know, reopen 0:15:18.480 --> 0:15:21.360 the economy so we're not just buying stuff. We go 0:15:21.440 --> 0:15:28.320 back to the service versus goods economy. The pandemic and 0:15:28.360 --> 0:15:32.480 the lockdown forced us all to become goods consumers instead 0:15:32.480 --> 0:15:36.640 of service consumers. So yes, for sure, there's been wage increases. 0:15:36.680 --> 0:15:39.640 There'sn't been a lot of things that have taken place 0:15:39.680 --> 0:15:43.200 where the FED has some impact, but you know, the 0:15:43.320 --> 0:15:47.200 best estimates are around two thirds of these increases. The 0:15:47.200 --> 0:15:49.320 FED is not going to do anything about it. When 0:15:49.360 --> 0:15:53.400 when people are buying homes by liquidating crypto, you're not 0:15:53.600 --> 0:15:56.480 which by the way, eleven percent of new home buyers 0:15:56.520 --> 0:16:02.240 are doing. You're not gonna stifle inflation with higher rates. 0:16:02.480 --> 0:16:04.400 That's not to say we shouldn't see the FED move 0:16:04.480 --> 0:16:08.960 towards more normalization, but it's still a very different situation 0:16:09.000 --> 0:16:12.920 than normal times. When the FED raises rates eventually causes 0:16:12.920 --> 0:16:17.200 a recession and we end up with things going back 0:16:17.200 --> 0:16:21.120 to normal. Barry, we now have a hot war in 0:16:21.520 --> 0:16:25.920 r What does that mean for equities? So historically, and 0:16:25.960 --> 0:16:28.160 I'm assuming you're referring to the Business Week piece that 0:16:28.200 --> 0:16:34.200 we published yesterday. Historically, when we see these geopolitical events, 0:16:34.800 --> 0:16:38.080 sometimes it's a war, sometimes it's terrorism. Sometimes it's an 0:16:38.080 --> 0:16:43.080 assassination attempt or successful or not, there tends to be 0:16:43.200 --> 0:16:46.520 this emotional spasm. There tends to be this knee jerk 0:16:46.600 --> 0:16:50.520 reaction and investors panic a little bit. And going back 0:16:50.560 --> 0:16:53.920 to Pearl Harbor attack that brought the United States into 0:16:53.960 --> 0:16:58.080 World War two, historically we learned that that's a terrible strategy. 0:16:58.160 --> 0:17:02.080 That what typically happens is that markets wobble a little 0:17:02.120 --> 0:17:05.520 bit and then they go about back to doing what 0:17:05.560 --> 0:17:09.560 they were doing, uh the prior trend before the event 0:17:09.640 --> 0:17:13.600 took place. The worst of these events, the World War two, 0:17:13.680 --> 0:17:17.640 the one of the worst wars in human history. Markets 0:17:17.640 --> 0:17:21.359 sold off for It took about six months before markets bottomed, 0:17:21.960 --> 0:17:25.280 and less than a year later markets were back to 0:17:25.320 --> 0:17:28.479 their US markets were back to their prior high. So 0:17:28.560 --> 0:17:31.840 if the worst case scenario was World War two and 0:17:31.920 --> 0:17:35.359 it's a year year and a half later, think about 0:17:35.359 --> 0:17:39.880 the GDP of Ukraine, think about the economic impact of Russia. 0:17:39.920 --> 0:17:43.760 The reason these events don't really affect markets is because 0:17:44.400 --> 0:17:48.399 they're too small in terms of global GDP to really 0:17:48.480 --> 0:17:53.240 impact corporate revenue and profits, and and so the markets 0:17:53.520 --> 0:17:56.560 kind of shake them off and hope we stay hopefully, uh, 0:17:56.600 --> 0:18:00.480 they stay that small, right, And the concern is um 0:18:00.840 --> 0:18:04.440 and that not just the war in Ukraine is hot, 0:18:04.480 --> 0:18:08.119 but um that the Cold War between the US and 0:18:08.160 --> 0:18:12.199 Russia becomes a hot war. That's I guess the nuclear option. Um, 0:18:12.240 --> 0:18:16.240 there's no playbook for that. That well, you know, if 0:18:16.280 --> 0:18:18.920 there's a nuclear war, I think the value of your 0:18:18.960 --> 0:18:23.119 long term stocks and bonds becomes quite secondary at that point. 0:18:23.400 --> 0:18:26.600 I mean, look, did you read um Stravites's book. Uh? 0:18:28.000 --> 0:18:31.480 I thought it was awesome and there worse. I don't 0:18:31.480 --> 0:18:34.280 want to spoil it for anyone who hasn't read it, 0:18:34.720 --> 0:18:37.840 but there are some nuclear strikes in there. Yeah. No, 0:18:37.960 --> 0:18:40.600 it's it's certainly an option. Look to me, the bigger 0:18:40.640 --> 0:18:45.560 concern is not the idea of a nuclear conflagration, because 0:18:45.600 --> 0:18:49.359 that means, you know, my my equity portfolio is irrelevant. 0:18:49.880 --> 0:18:53.520 The bigger concern, for the more realistic, we're probable concern 0:18:54.240 --> 0:18:59.600 is that this spills from Ukraine into Belarus into Eastern Europe, 0:19:00.080 --> 0:19:02.199 and if you have boots on the ground and a 0:19:02.280 --> 0:19:06.040 hot war between Europeans and Russia. Well, at that point 0:19:06.600 --> 0:19:10.280 that can really become very, very problematic. And I think 0:19:11.000 --> 0:19:15.200 the uncertainty around war isn't that we don't know what's 0:19:15.200 --> 0:19:18.280 going to happen, it's that things can happen that just 0:19:18.359 --> 0:19:21.600 are not imaginable. Well, I mean, even if we don't 0:19:21.640 --> 0:19:24.040 get that far, did you I know that Masters of 0:19:24.080 --> 0:19:27.760 Business is probably the most successful podcast that we have here, 0:19:28.040 --> 0:19:30.320 But there's another podcast, Odd Lots and they had Zold 0:19:30.320 --> 0:19:32.359 Times Calls are on the other day. Did you hear 0:19:32.400 --> 0:19:34.639 that he was talking about the possibility of the dollar 0:19:34.920 --> 0:19:41.480 no longer remaining the world reserve currency. Um, you know, uh, 0:19:41.640 --> 0:19:45.480 send me all of your worthless US dollars for proper disposal. 0:19:45.680 --> 0:19:48.320 I will take care of them. I have been literally 0:19:48.400 --> 0:19:52.439 hearing that my entire adult life. So let's stop and 0:19:52.480 --> 0:19:55.040 consider your alternatives. Well, but but, but but you you 0:19:55.040 --> 0:19:58.800 will understand why, right, because no, I don't. I've you know, 0:19:58.840 --> 0:20:00.800 we've kind of have been wrong for half a century. 0:20:00.840 --> 0:20:03.359 You have to stop and say, you know, a large 0:20:04.200 --> 0:20:06.320 like twice a year, if large economies like and I'll 0:20:06.359 --> 0:20:08.480 go ahead and say the Soviet Union even though I 0:20:08.520 --> 0:20:12.080 know it's not that right or the People's Republic of China, 0:20:12.359 --> 0:20:15.880 if they realize that the currency they rely on UM 0:20:15.960 --> 0:20:19.760 can just be turned off by another country or another culture, 0:20:20.200 --> 0:20:22.439 they might decide to try and use something else. All 0:20:22.440 --> 0:20:24.479 of a sudden, These rubles are backed by dollars, all 0:20:24.480 --> 0:20:27.720 of a sudden, UM. You know, the yuan is digital, 0:20:27.840 --> 0:20:31.040 so you know, maybe we see some some change there. 0:20:31.200 --> 0:20:34.479 So so change is constant that you can assume that 0:20:34.600 --> 0:20:38.880 change is always gonna always gonna happen. However, so when 0:20:38.920 --> 0:20:40.960 we look out and I don't like to look out 0:20:41.000 --> 0:20:44.800 twenty thirty years because events have a tendency of getting 0:20:44.800 --> 0:20:46.760 in the way of those forecasts. But just stop and 0:20:46.800 --> 0:20:50.800 think about this for a second. Your alternatives are the 0:20:51.080 --> 0:20:54.160 end where no one's really talking about that because Japan's 0:20:54.200 --> 0:20:57.680 economy and markets have been, you know, doing so poorly 0:20:57.720 --> 0:21:02.480 since nine the row, which is problematic holding that group 0:21:02.520 --> 0:21:07.119 of very disparate countries UM together is really a challenge 0:21:07.640 --> 0:21:11.320 the Chinese one who who when China is not happy 0:21:11.440 --> 0:21:15.199 with UM, how their corporate sector is doing, they just 0:21:15.240 --> 0:21:17.520 demolished them. Look what they did to Ali Baba, what 0:21:17.560 --> 0:21:20.960 they did to ten Cent. Who is gonna willingly say, oh, sure, 0:21:21.040 --> 0:21:24.840 I trust the dictators and the communists in China, and 0:21:25.520 --> 0:21:30.360 you know, we people talk about bitcoin um obviously all 0:21:30.400 --> 0:21:32.879 over the map over the past couple of days. To me, 0:21:33.080 --> 0:21:37.639 the most interesting challenge to the dollar is going to 0:21:37.760 --> 0:21:40.840 be a stable coin, not a bitcoin, but a stable 0:21:40.880 --> 0:21:47.480 coin that's backed by some consortium of central banks, uh like, 0:21:47.480 --> 0:21:51.119 like a combination of the old Trilateral Commission, like the EU, 0:21:51.280 --> 0:21:54.240 Japan and the United States. If a group of those 0:21:54.280 --> 0:21:59.240 three country areas say we're gonna allow a free translation 0:21:59.320 --> 0:22:04.240 of the stable coin into dollars again, and I think 0:22:04.240 --> 0:22:08.679 what that does is that tracks Look, if you're an 0:22:08.720 --> 0:22:11.560 expert in central bank behavior, if you're an expert in 0:22:11.720 --> 0:22:16.040 global monetary systems, which clearly pooping is not. He might 0:22:16.080 --> 0:22:21.000 have thought he was, but he's not. There's nothing different 0:22:21.040 --> 0:22:22.800 that was done. It was just the first time since 0:22:22.800 --> 0:22:25.800 World War Two. Then everybody got together and said, oh, 0:22:25.840 --> 0:22:31.080 that country is a rogue nation like Iran, like North Korea, 0:22:31.440 --> 0:22:33.600