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Speaker 1: Searched Bloomberg clovel News Well it shares of Hewlett Packard
Speaker 1: Enterprise HP hired by more than eleven percent, having their
Speaker 1: best day in nearly two years. The Harbormakers, saying yesterday
Speaker 1: was raising its annual profit forecast and it's strong demand
Speaker 1: for products. The company also beating on gross margin despite
Speaker 1: a tough supply environment. So let's get into it. Joining
Speaker 1: us now is Antonio Nary, President and CEO of HPE.
Speaker 1: He joins us via zoom in Houston. Antonio, It's it's
Speaker 1: good to have you with us. Um what is it?
Speaker 1: Specifically as you look out over the current year, gave
Speaker 1: you the confidence to increase your profit forecast. Well, thank
Speaker 1: you for having me today in your show. We are
Speaker 1: very excited about our performance in Q one. We had
Speaker 1: a robust demand and very very strong profitability. And the
Speaker 1: couple with the moment that we have around our strategy
Speaker 1: to become an h to cloud company for our customers
Speaker 1: and partners that they can consume us a service and
Speaker 1: the incredible backlog we have, we give us the confidence
Speaker 1: to raise once again five out of six quarters our
Speaker 1: net earnest per share the lieutenant and pres share for
Speaker 1: the full fiscal year by seven cents, with now the
Speaker 1: midpoint being two dollars and ten cents. So um, this
Speaker 1: is driven by customer demand, is driven by our strategy
Speaker 1: that's resonating with customers and honestly a great execution of
Speaker 1: what I team. Because obviously we are balancing the revenue
Speaker 1: and the profitability of the business. We want to dig
Speaker 1: into that demand a little bit more because what stuck
Speaker 1: out to me was that you had a growth in orders,
Speaker 1: which was your third consecutive quarter of at least increase.
Speaker 1: Breakdown that demand a little bit more. Where is it
Speaker 1: coming from? What's driving that. That's actually exactly right. So
Speaker 1: this is the third consecutive quarter of twenty plus percent
Speaker 1: or the growth, and it was across all businesses. You know,
Speaker 1: our compute business, with obviously people believe is commoditized um,
Speaker 1: you know, grow, our edge business, which is all about
Speaker 1: secure connectivity with a subscription model, grew an excess of.
Speaker 1: Our storage business including data services, grew an excess of
Speaker 1: fift and even our high performance computing an AI business
Speaker 1: grew in excess of I will say the shining star though,
Speaker 1: is we bring it all together in a platform, which
Speaker 1: we call it h Pig Green Lake, which you can
Speaker 1: consumers a service grew a hundred and thirty six percent
Speaker 1: year of the year. So it's across all businesses. But
Speaker 1: the momentum we have is because we're bringing all our
Speaker 1: solutions in an integrated, unified experience under the hpgree like
Speaker 1: Umbrella Antonio. We've learned on the call yesterday you said
Speaker 1: that supply and logistics challenges they may last through two
Speaker 1: It's it's somewhat different than from some of the companies
Speaker 1: we've heard from thus far in recent weeks as they've
Speaker 1: reported earnings. Are you just being conservative. What's going to
Speaker 1: improve first here? Is it going to be logistics challenges
Speaker 1: or is it going to be chip components and availability here? Well,
Speaker 1: my message has been consistent for several quarters, always said
Speaker 1: that this supply chain and logistics overload situation will continue
Speaker 1: well into phisically two, and we still see it that way.
Speaker 1: The majority of the challenge that actually are in what
Speaker 1: are called low level components and not on the high
Speaker 1: value commodities. And think think about it now, stuff that
Speaker 1: people don't think about, a voltage, regulators, capacitors, things that
Speaker 1: you need to build a system at the low level
Speaker 1: before you can build actually the full integrated system. And
Speaker 1: that has to deal with the with the fact that
Speaker 1: the demand is very strong and the availability of substrates
Speaker 1: particularly you know, these components are what we call in
Speaker 1: the old generation of technologies like twenty eight meters and stuff,
Speaker 1: and a lot of the fabrication has moved to the
Speaker 1: newer technologies like fourteen and below. So I think, um,
Speaker 1: you know, the supplier of the substrate god called a
Speaker 1: little bit in between because of the huge demand that
Speaker 1: they are seeing and now they need to catch up.
Speaker 1: And this takes time because when you start bringing new
Speaker 1: capacity is complicated systems processes, and we said all along
Speaker 1: will take well under twenty the end of two. However,
Speaker 1: I will say we have never seen any noticeable customer cancelation,
Speaker 1: which again give us the confidence the demand is there
Speaker 1: is very robust, and it's also driven by the data
Speaker 1: explosion we see around us above in a personal life
Speaker 1: and in probably in a in a business side. Well, Antono,
Speaker 1: even with those supply chain and those logistical challenges, you
Speaker 1: did see gross margin increased by thirty or rather at
Speaker 1: gross margin. And what I'm curious about is whether that's sustainable. Yes, absolutely,
Speaker 1: it is sustainable, and I think he points to the
Speaker 1: quality of earnings of how we're driving our company forward. Obviously,
Speaker 1: we are driving higher mix of software and services. If
Speaker 1: you look at one particular slide our CFO Tirek Robiety
Speaker 1: show the yesterday and commented on it was the fact
Speaker 1: that our green Lake offer drives more software and services
Speaker 1: in fact now is almost two thirds of the offer
Speaker 1: that drives higher gross margins, higher gross operating margins. Obviously,
Speaker 1: the edge business comes with higher gross margins too, also
Speaker 1: because it's driven by a subscription model to software before
Speaker 1: you actually deploy some sort of support and access point
Speaker 1: or or a switching point. So all of that comes
Speaker 1: with higher margins. And remember that we were one of
Speaker 1: the first through the pandemic at the beginning of the
Speaker 1: pandemic to enact what we call our real locational resources
Speaker 1: into the future areas of growth that's also pay enough
Speaker 1: for us. So the margin are sustainable. And I will
Speaker 1: say really proud of what the team had done managing
Speaker 1: prioritization of borders and margins. And listen, if you look
Speaker 1: at a compute business again in the market is being
Speaker 1: seen as a commoditized business. The operative margins of the
Speaker 1: business was thirteen point eight percent. There is no vendor
Speaker 1: out there and drive the level of profitability in a
Speaker 1: commoditized business. Antonio, I want to talk a little bit
Speaker 1: about the demand environment here. You did mention some really
Speaker 1: positive you made some positive comments when it came to
Speaker 1: lack of cancelations from from clients. I'm wondering about, though,
Speaker 1: is this a reopening play here? How much was was
Speaker 1: actually pulled forward during covid um and driven by the
Speaker 1: need for corporations to actually transform their I T infrastructure
Speaker 1: to support new services like digital transformation. Well, I think
Speaker 1: them is a combination of many things. When the pandemic
Speaker 1: head obviously everyone including herself went into preservation mode internal liquidity.
Speaker 1: Second is that through the pandemic we saw a massive
Speaker 1: acceleration of the digital transformation. In many ways, the digital
Speaker 1: economy flourish even further because everybody was ordering food and
Speaker 1: other services from their mobile phones. And so what we
Speaker 1: see is a combination of people needed to modernize, obviously,
Speaker 1: apply these new technologies in a cloud oriented way um
Speaker 1: and obviously the acceleration of the digital transformation. And at
Speaker 1: the core of that is data. Data. Data, data in
Speaker 1: data is now the most precious asset customers have. In fact,
Speaker 1: I predict at one time in the future, no long
Speaker 1: distance enterprises like us, we have to recognize the value
Speaker 1: that data in the balance sheets of their companies because
Speaker 1: it's not different. They're recognized and another intelligible asset. And
Speaker 1: customers need to move faster and extracting the insight from
Speaker 1: the data. And that's why I said we have entered
Speaker 1: now what I called the new age of insights. And
Speaker 1: those brands who can extract value data fasters are winning
Speaker 1: and you can see it, you know, when they become
Speaker 1: more digital, more data driven they actually create new experiences,
Speaker 1: new business models, and more and more opportunities for their companies.
Speaker 1: And Antonio, let's talk a little bit about intelligent edge here,
Speaker 1: because you are going head to head with Cisco, but
Speaker 1: clearly you're growing in this area. And I'm curious whether
Speaker 1: that's a function of you taking market share, whether the
Speaker 1: pie is just getting bigger. Well, we've definitely taking market share. Um.
Speaker 1: At the same time, the own ramp to digitize your
Speaker 1: business is through connectivity. You know, we call the edge
Speaker 1: the next frontier in the edges where we live and work, um.
Speaker 1: You know, that's where the vast majority of the data
Speaker 1: is created, not in a in a cloud of sorts,
Speaker 1: but really what the action is and that first step
Speaker 1: is to be connected in One of the concerns I
Speaker 1: have while this is all good, is the fact that
Speaker 1: connectivity is an essential service, not different than water and electricity.
Speaker 1: And and that's why it's important as we go forward
Speaker 1: and we deployed this new massive distributed enterprise and this
Speaker 1: new way of working, connectivity needs to be available everywhere.
Speaker 1: So we are taking share, We are creating new opportunities.
Speaker 1: But we have a differentiated strategy is called UBA Services
Speaker 1: Platform as a part of each pigree lake in that
Speaker 1: cloud or ented approach. In a mobile first approach, you
Speaker 1: can procure, provision and manage any aspect of your connectivity,
Speaker 1: whether it's a WiFi connectivity, whether it's a land port
Speaker 1: connectivity or a one connectivity. Remember that a lot of
Speaker 1: the old system, you know, whether it's a data center,
Speaker 1: campus and branch, we are connected through fixed networks. As
Speaker 1: more and more cloud native applications, particularly your phone gets developed,
Speaker 1: the traffic gets routed through the Internet, and therefore you
Speaker 1: have to connect these millions of endpoints in a very
Speaker 1: sustainable way. And hp Aruba Services Platform provide that integrated
Speaker 1: experience for our customers in a subscription model, and that's
Speaker 1: why we're growing so so fast. Antonio. In the last
Speaker 1: minute that we have with you, I want to try
Speaker 1: to understand what it's been like for your team over
Speaker 1: the least last couple of years. How you've had to
Speaker 1: raise wages at Hewlett Packard Enterprise to attract and retain
Speaker 1: talent um. How do you see cost being affected there? Well,
Speaker 1: no question that today one of the biggest challenges all
Speaker 1: of us have is attract, retained and developed the right warforce,
Speaker 1: and that warforce is changing, right and the pandemic, you know,
Speaker 1: enable people to think differently, to work differently, and so
Speaker 1: I always said, you know, we had as good as
Speaker 1: the innovation of the technology and the people we have
Speaker 1: in this company. So that's a top priority for me,
Speaker 1: and that's why I pad a lot of emphasis on
Speaker 1: the culture. Culture is everything in the end, and I
Speaker 1: have to say really proud of what this company does
Speaker 1: for customers and partners, aligned to a very clear purpose
Speaker 1: to amunce the way people in a work. When you
Speaker 1: talk to uhcurrent employee or prospect, emply they want to
Speaker 1: understand what you stand for. They want to make an impact.
Speaker 1: Obviously they come in because the field, the job provides
Speaker 1: for their family. But I also want to grow, you know,
Speaker 1: not different than I did when I became, um, you know,
Speaker 1: an employee hp T. Three years later, I became the
Speaker 1: precedency of the company career mobility and opportunity and diversity
Speaker 1: and inclusion, sustainability all place. So definitely, you know, we
Speaker 1: are making great progress. We have a lot to work
Speaker 1: to be done, particularly diversity, but I think this company
Speaker 1: is absolutely the right path with the sun Sholder value
Speaker 1: and you can see it through the results we deliver
Speaker 1: in Q one. Antonio Nary, President and CEO of Hewlett
Speaker 1: Packard Enterprise, running us via zoom from Houston, Texas. Thanks
Speaker 1: so much, Antonio. This is Bloomberg Business Week with Carol
Speaker 1: Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: Well a story that's featured in the upcoming issue of
Speaker 1: Bloomberg Business Week magazine that you can read now on
Speaker 1: the Bloomberg terminal and of course also at Bloomberg dot
Speaker 1: com Slash business Week. It's all about an heir to
Speaker 1: a billionaire who's hanging up his healing crystal to fix capital.
Speaker 1: I think a lot of our audience is familiar with
Speaker 1: Thomas Petterfee. According to the Bloomberg Billionaires Index, he's one
Speaker 1: of the wealthiest people in the world. He's the seventies
Speaker 1: second richest person on the globe. His son, though, William Petterfee,
Speaker 1: is the only son of the billionaire, and he cycled
Speaker 1: through a lifetimes worth of occupations in just thirty two years.
Speaker 1: Annie Massa wrote the story. She's invested reporter for Bloomberg News.
Speaker 1: Joel Webber is editor at Bloomberg Business Week. Interactive Brokers
Speaker 1: is a sponsor of Bloomberg Radio and Bloomberg Television. Joel,
Speaker 1: I want to start with you, um, who is William
Speaker 1: petterfe Well? His uh dad is the founder and formerly
Speaker 1: CEO of UM Interactive Broker. And I think in some
Speaker 1: ways you could probably define him as the son of
Speaker 1: Right and I think it's an important place to start.
Speaker 1: And like many sons and fathers, like sometimes the son
Speaker 1: you know, rejects the father's profession. And that's sort of
Speaker 1: what's happened for a lot of Will's life. Only just
Speaker 1: recently he's basically coming coming from the cold, took on
Speaker 1: a version of of something to that resembles of his
Speaker 1: dad's UM progression and as part of the inter Interactive
Speaker 1: Broker world now, which an he's gonna tell us more about.
Speaker 1: It's also like in my mind and why I was
Speaker 1: excited about it as a Business Week story, it's like
Speaker 1: a real life six session story with its own version
Speaker 1: of the drama. And it's also got E. S G.
Speaker 1: Which sort of is part of what makes it all
Speaker 1: interesting because that was the thing that brought Will into
Speaker 1: the fold. So any who is Will, Yeah, that's right.
Speaker 1: It is like a succession story. But it's a succession
Speaker 1: story in reverse basically because you have Thomas Petterfie, this
Speaker 1: billionaire who founded Interactive Brokers giant trading platform, and his
Speaker 1: son and his two sisters always rejected the business and
Speaker 1: kind of their dad's role on Wall Street. So if
Speaker 1: you think about logan roy and succession and all the
Speaker 1: kids are vying for control of that business, this is
Speaker 1: a case where all the kids are like, we don't
Speaker 1: want anything to do with capitalism. And now what's happening.
Speaker 1: The change that the story really centers on is Will
Speaker 1: has made peace with the fact that he can come
Speaker 1: work for Interactive Brokers like his dad always wanted, as
Speaker 1: long as he works in E s G and sustainable
Speaker 1: and sting. So what does that look like ESG and
Speaker 1: sustainable investing for for interactive Brokers and for Will's position here.
Speaker 1: And this is a guy who you know, he was
Speaker 1: a ranch hand as you right, among other things, among
Speaker 1: among many other things. And the longest he'd worked in
Speaker 1: finance before this was what less than a year at
Speaker 1: a couple different firms, right, So he really he didn't
Speaker 1: have much of a background in finance, and he had
Speaker 1: done so many different things. He worked on a documentary
Speaker 1: on archetypal astrology, UM, you know, talking kind of was
Speaker 1: talking about how different alignments of planets affect moments of
Speaker 1: revolutionary change on Earth. So then he comes to Interactive
Speaker 1: Brokers and his role there. It's interesting because Interactive Brokers,
Speaker 1: just to name one example, UM has a very homogeneous board.
Speaker 1: For example, UM pretty much all white men, including Will
Speaker 1: who's now a board member UM and and it now
Speaker 1: has recently UM added one woman. So he's trying to
Speaker 1: make changes around the edges to make Interactive Brokers more
Speaker 1: of a UM sustainable company. And he's built an app
Speaker 1: that can kind of let you invest your values. As
Speaker 1: they would say, how does his dad feel about his app?
Speaker 1: His dad had some really uh funny comments about the app.
Speaker 1: He kind of when we were doing the interview, showed
Speaker 1: me that he had downloaded it and he said that
Speaker 1: he how much does he have in the account? He
Speaker 1: said only four hundred and eighties six thousand dollars and
Speaker 1: then he kind of paused and he said, which is
Speaker 1: pretty good. H So, so he does have some money
Speaker 1: on some marginal amount of money on the app, and
Speaker 1: the things that he invested in were more environmentally focused,
Speaker 1: and he does, um, you know, like the environment and
Speaker 1: sort of conservation efforts. But then when I asked him
Speaker 1: more about the social side of e s G. He said,
Speaker 1: that's not really my thing. That's not that's not what
Speaker 1: I prioritize. Okay, So forget the forget the s sounds
Speaker 1: like um. So you have so many great details in
Speaker 1: this story, including where Will's change of heart actually happened,
Speaker 1: what happened in Costa Rica. So Will was attending a
Speaker 1: party at an eco village in Costa Rica, and he
Speaker 1: said that he kind of had this aha moment that
Speaker 1: he had been he had been working on this documentary
Speaker 1: about astrology. He had been, you know, in New Mexico,
Speaker 1: trying to absorb the healing powers of the desert there
Speaker 1: because he had been really um burned by his small
Speaker 1: foray into into hedge funds basically. So, so he had
Speaker 1: been out in New Mexico working on this documentary and
Speaker 1: he's in Costa Rica, and he said that he had
Speaker 1: this aha moment where he thought, well, I could go
Speaker 1: to work for my dad. But because his dad always
Speaker 1: since he was a teenager, wanted him to work for
Speaker 1: Interactive Brokers, but he said, but I could do it
Speaker 1: in a way that's kind of true to my values,
Speaker 1: and I could uh work in sustainability at Interactive Brokers.
Speaker 1: So he has this dramatic moment where he flat and
Speaker 1: he knew that his dad was going to step down
Speaker 1: as CEO. He flies to this company party in Manhattan
Speaker 1: and uh, you know, shortly thereafter, he tells his dad,
Speaker 1: I'm on board as long as I can work on
Speaker 1: sustainability at your company. So he's gonna be the next
Speaker 1: CEO of the company. Uh. No. One thing that these
Speaker 1: two men definitely agreed on, and I asked them both um,
Speaker 1: was that Will Will not be CEO. Will said, he's
Speaker 1: too interested in his other pursuits. He's got other stuff
Speaker 1: going on. He's a poet. He likes to go out
Speaker 1: into the forest where he lives in Boulder and kind
Speaker 1: of um go out there without a tent or any
Speaker 1: food and test his willpower. Um. His dad also said,
Speaker 1: you know, I don't think he's going to be the CEO.
Speaker 1: He's too interested in traveling in nature in South America
Speaker 1: to do something like that. So they were they were
Speaker 1: in agreement that that's not really in the in the
Speaker 1: pathway for Well, this is one of those features that
Speaker 1: has it all. He's a poet, he's quoting experts in
Speaker 1: Hallucinogen's Annie masa investing reporter at Bloomberg News. Check out
Speaker 1: her story. It's featured in the upcoming issue of Bloomberg
Speaker 1: Business Week magazine. You can read it now in the
Speaker 1: Bloomberg and at Bloomberg dot com Slash business Week also
Speaker 1: also with a Joe Weber, editor at Bloomberg business Week.
Speaker 1: Interacted Brokers is a sponsor of Bloomberg Radio and at
Speaker 1: Bloomberg Television. This is Bloomberg Business Week with Carol Massier
Speaker 1: and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well,
Speaker 1: a lot of our Bloomberg audience is certainly familiar with
Speaker 1: our next guests. They are the host of the Odd
Speaker 1: Lots podcast, not other than Bloomberg News executive editors Joe
Speaker 1: Wisenthal and Tracy Allaway. On this week's episode of Odd Lots,
Speaker 1: they speak with Credit Suite short term interest rate strategists
Speaker 1: Zoltan posts Are. The podcast is the subject of today's
Speaker 1: Bloomberg Big Take. It's all about Russia's FX reserves following
Speaker 1: sanctions against the country for their invasion of Ukraine. Here's
Speaker 1: an excerpt from the podcast. The present situation has elements
Speaker 1: of a little bit of everything. I think it has,
Speaker 1: you know, definitely a local currency crisis, a local bank
Speaker 1: funding crisis, you know a little bit of crisis of
Speaker 1: FX reserves where typically we are used to situations where
Speaker 1: central banks that show they have something, they don't have it,
Speaker 1: and then you know, the market gets surprised by it.
Speaker 1: For example, you know Southeast Asia this time around, you know,
Speaker 1: the central bank, you've had a lot of reserves, but
Speaker 1: then these were seized. So I think it's, uh, it's
Speaker 1: it's pretty uncharted territories, and it's and it's hard to
Speaker 1: tell which fadus is going to go from here. That
Speaker 1: was credits We short term interest rate strategist Zoltan post
Speaker 1: Are speaking with the host of the Bloomberg Abots podcast,
Speaker 1: Bloomberg News executive editors Joe Wisenthal and Tracy Alloway, who
Speaker 1: joined Katie and Me right now. Tracy, I want to
Speaker 1: start with you, what does what does Postar mean when
Speaker 1: he says that the bank band threatens the dollars status? Sure, well,
Speaker 1: I mean it sounds very dramatic, but at this point are,
Speaker 1: I think our perceptions of drama have probably changed a
Speaker 1: little bit. And Salton isn't the only one saying something
Speaker 1: along these lines, but he's basically arguing that there are
Speaker 1: a lot of central banks out in the world that
Speaker 1: hold their reserves in dollar denominated assets, and typically these
Speaker 1: dollars nominated assets are held by another central bank or
Speaker 1: another financial institution. And when you get these types of
Speaker 1: tensions that explode into very extreme saying auctions, suddenly those
Speaker 1: dollar denominated assets that you thought actually belonged to you
Speaker 1: might not no longer, might no longer be accessible, and
Speaker 1: might essentially not be yours anymore. And this seems to
Speaker 1: be not just what's happened with Russia, but also what
Speaker 1: we saw with Afghanistan when the US said that actually,
Speaker 1: the Taliban isn't going to have access to those reserves.
Speaker 1: And so naturally, if you're a central bank, thinking well,
Speaker 1: at some point, maybe I might have a problem with
Speaker 1: the US, you might be rethinking what you're actually going
Speaker 1: to hold your reserves in. Okay, So I have some
Speaker 1: ancient history to bring up, because in April I wrote
Speaker 1: for Business Week magazine for the first time in a decade,
Speaker 1: the world central banks are looking beyond the dollar for
Speaker 1: their currency reserves. And I remember I was a baby
Speaker 1: currency reporter at the time, and all the strategists told me,
Speaker 1: you know, you're going to write the story every five years.
Speaker 1: But for better or for worse, it feels like, especially
Speaker 1: central banks reserve managers, they can't quit the dollar. I mean,
Speaker 1: what truly is different this time around? And I that's
Speaker 1: a ridiculous question to ask, but is this an enough No,
Speaker 1: it's a it's a great question to ask. And the
Speaker 1: interesting thing is, you know, for a long time, I
Speaker 1: think people have talked about this idea of the dollars demises,
Speaker 1: like a warning like oh, if the US spends too
Speaker 1: much or too much qui or something like that, and
Speaker 1: the you know this, this could be trouble for the dollar.
Speaker 1: But the problem has been the opposite. It's not that
Speaker 1: the dollars, but week the problem is that it continues
Speaker 1: to be too strong and no one can get off
Speaker 1: of it. But I think, look, if you have this
Speaker 1: sort of like forced break where Russia isn't a massive economy,
Speaker 1: but you know it's a fairly rich country with substantial
Speaker 1: effets reserves, and you have a country being told what
Speaker 1: you thought was your own currency, or with what you
Speaker 1: thought is your own money is no longer your own money.
Speaker 1: Then I do think like that is a sort of
Speaker 1: big thing. That's what you know, that's at least you know.
Speaker 1: In Sulton's argument, that's new, that's different, and it's not
Speaker 1: gonna happen overnight. It's not gonna happen over year. Someone's
Speaker 1: gonna write that story five years from now. But if
Speaker 1: you think, like, well, what could star the process of
Speaker 1: a rethink, maybe it's something like this. So Tracy, what
Speaker 1: replaces the dollar for central banks? Well, I mean this
Speaker 1: is the key question. And this kind of gets back
Speaker 1: to the point that Katie was making. There aren't that
Speaker 1: many alternatives. So Russia does hold a lot of gold reserves,
Speaker 1: and this is also something to remember. When they have
Speaker 1: the physical gold in Russia, they do. I think it's
Speaker 1: supposed to be in a bank fault somewhere in Moscow.
Speaker 1: But I'm just parroting um what Sultan said, and he
Speaker 1: was parroting a report as well. But I mean this
Speaker 1: is a key thing to understand. Right we say like, oh,
Speaker 1: it's crazy, people would get off the dollar and the
Speaker 1: dollar's dominance would be threatened in this way. But to
Speaker 1: some extent, this is something that Russia already understood. They
Speaker 1: kind of prepared for this moment. They did shift out
Speaker 1: of a lot of dollar denominated assets, including treasuries. They
Speaker 1: did accumulate a lot of gold, seeing that as an alternative,
Speaker 1: a type of money that the U. S couldn't necessarily affect.
Speaker 1: But you're absolutely right, there aren't that many assets. You know,
Speaker 1: there's a problem of a safe haven asset short even
Speaker 1: though we it seems like the world's drowning in debt,
Speaker 1: but to some extent, we actually don't have a lot
Speaker 1: of really safe collateral, and most of what's out there
Speaker 1: is probably things like U S treasuries, coin maybe. You know.
Speaker 1: The other element that makes this hard is any country
Speaker 1: or any company that sells anything wants to sell to
Speaker 1: the US. Because the US is the richest country in
Speaker 1: the world, and it has this uh, you know, massive
Speaker 1: consuming class, the US middle class, and so you know,
Speaker 1: it's nice to say like, oh, like put in you know,
Speaker 1: have our money somewhere else, but that you know, that
Speaker 1: still raises the problem. You want to sell to the US.
Speaker 1: Anyone does you want to sell oil to the US?
Speaker 1: You want to sell refined products, commodities, physical goods, uh,
Speaker 1: consumer goods. You're gonna get dollars, and so you know
Speaker 1: that someone is going to have to hold them. You know,
Speaker 1: there's you could have this sort of like hotpitat or
Speaker 1: you send them to someone else. But the other thing is,
Speaker 1: you know, the other obvious currency that people talk about,
Speaker 1: of course is the Chinese un. But right now there
Speaker 1: aren't enough and the Chinese eun is not international enough,
Speaker 1: it's not convertible enough, it's uh, the China doesn't run
Speaker 1: a significant enough current account deficit to create lots of
Speaker 1: uns denominated assets. So while it's a big country with
Speaker 1: a very large consuming class, the financial assets aren't there. Guys,
Speaker 1: We're gonna have to leave it there. Joe Wisenthal and
Speaker 1: Tracy Halloway. They are the co host of the Bloomberg
Speaker 1: Aubots podcast. Check out their podcast at Bloomberg dot com
Speaker 1: or wherever get you get your podcast. Check out Today's
Speaker 1: Big Take two. It's at Bloomberg dot com. Yeah, I'll
Speaker 1: bet you let me drive. Oh no, no, no no, no, honey, please,
Speaker 1: I'll do the ride. I want to drive. It's a
Speaker 1: good question. This is the drive to the clothes on
Speaker 1: Bloomberg Radio. All right, less than ten minutes until the
Speaker 1: market clos on this Wednesday, March Sewod. Let's go to
Speaker 1: one of our go to voices, Amanda Gotti, chief investment
Speaker 1: officer at p n C Asset Management Group. She joins
Speaker 1: us once again on the phone from Philadelphia. Amanda, how
Speaker 1: are you. I'm doing well. How are you doing? We're
Speaker 1: doing well. Um, We're trying to make sense of the
Speaker 1: risk on mood today. Obviously a lot of that has
Speaker 1: to do with j Pal's commentary to the House Financial
Speaker 1: Services Committee earlier in the day. But wow, quite a
Speaker 1: reversal from what we saw yesterday. The volatility uh certainly
Speaker 1: continues to royal markets. Um, how are you reading into it, Amanda? Well,
Speaker 1: I think that you you hit the head uh for
Speaker 1: sure on in terms of Pal's testimony and commentary that
Speaker 1: that is the single biggest driver in terms of the
Speaker 1: positive and more optimistic mood today for the market and
Speaker 1: just a really continued period of heightened uncertainty. We finally
Speaker 1: got some semblance of certainty coming out of Powell. And
Speaker 1: we've been saying really all along over the course of
Speaker 1: this year so far. You know, absent what's happening with
Speaker 1: Russia and Ukraine. That said policy was going to be
Speaker 1: the key to the market pass forward, and you know,
Speaker 1: we have been all over the place as a market
Speaker 1: and as a consensus in terms of trying to figure
Speaker 1: out what that March rate hike was going to look at.
Speaker 1: There was a commentary about, you know, doing something before
Speaker 1: the March meeting. Then the market had priced in a
Speaker 1: foregone conclusion of a fifty basis point hike, and so
Speaker 1: getting some clarity around what action the Fed is most
Speaker 1: likely to take I think is really important in terms
Speaker 1: of the pass forward. They have to take a step,
Speaker 1: they have to you know, tighten policy here. But this
Speaker 1: is very digestible as the first step for the market
Speaker 1: and you're seeing that in the release rally today. Well, Amanda,
Speaker 1: all over the place when it comes to market. Uh,
Speaker 1: that definitely feels like what we've been watching. And I'm
Speaker 1: curious to hear what you make of the reaction that
Speaker 1: we saw in the bond markets to Palace testimony, because
Speaker 1: I mean, I see the two year treasury up, yield
Speaker 1: up a lot, I see the ten year treasury yield
Speaker 1: up a lot. Uh. Could we say that there were
Speaker 1: any hawkish undertones here. What's going on? Well, I think
Speaker 1: volatile is the equity markets have been the bigger story
Speaker 1: in terms of volatility continues to be in fixed income markets,
Speaker 1: even in the face of no moves on the policy front.
Speaker 1: Market driven interest rates have been all over the map,
Speaker 1: not only this year but since the onset of the pandemic.
Speaker 1: We've been on a roller coaster ride these last two weeks.
Speaker 1: In particular, Pen, you're peaked out. I think it's two
Speaker 1: oh four just in the last two weeks, and so
Speaker 1: we've been up and down really significant, if not record
Speaker 1: breaking moves on an intra day basis. I think a
Speaker 1: lot of market participants were reading following yields as the
Speaker 1: you know, dramatic flights of safety. Our take on is
Speaker 1: it's just the market wrestling with trying to reprice um,
Speaker 1: the policy backdrop and what the set is ultimately going
Speaker 1: to do on a day by day basis. And so
Speaker 1: we think today, you know, the move higher in yields
Speaker 1: is reversing what happened yesterday. UM And again it's the
Speaker 1: function of what Powell said. Again, it's not a dent,
Speaker 1: sir and t but a lot more clarity around what's
Speaker 1: likely to happen in two weeks, since I think the
Speaker 1: fixed income market, bond market really just trying to price
Speaker 1: that in or just accordingly in advance of the meeting. Man,
Speaker 1: I'm going through the notes that you were kind enough
Speaker 1: to send our producer Paul Brennan here, and it just
Speaker 1: goes to show how quickly oil has risen. Because your
Speaker 1: notes here say that brun Brent is at one oh five,
Speaker 1: but Brent today topped one fift after the market closed
Speaker 1: for the first time since two thousand eight. What's going on? Yeah,
Speaker 1: we're we're in this. I have to laugh, but we're
Speaker 1: in this mode where I'm like putting notes together and
Speaker 1: ripping them up and throwing them in the trash on
Speaker 1: an hourly basis here. So so yeah, these were notes
Speaker 1: from from this morning, and of course it's been a
Speaker 1: very wild ride. I mean, I think the net effect
Speaker 1: here is a lot of concern across the energy complex
Speaker 1: about potential structural impairment, meaningful disruption to the energy complex
Speaker 1: and oil production. I think, you know, you're seeing the
Speaker 1: fixation on it, certainly from policymakers, and that they're trying
Speaker 1: to do everything they can in terms of messaging in
Speaker 1: terms of implementing sanctions to get around that and not
Speaker 1: fully shut off Russian oil production to the rest of
Speaker 1: the globe, because they know how disruptive, how systemic that
Speaker 1: that can ultimately be. That being said, you know, we
Speaker 1: haven't gotten a lot of clarity and certainty on the
Speaker 1: ripple effect what that might ultimately look like. I mean,
Speaker 1: the swifts in that's going into effect isn't a blanket,
Speaker 1: it's much more targeted. I think in that way that helps, uh,
Speaker 1: you know, frame out that we're not going to shut
Speaker 1: off Russian oil production completely here, but we're not getting
Speaker 1: a lot of other clarity in terms of levers that
Speaker 1: are likely to be pulled. The i A releasing sixty
Speaker 1: million barrels yesterday certainly served to help to a degree.
Speaker 1: Ope OPEC plus meeting this morning didn't move the needle
Speaker 1: at all. It was basically irrelevant that that production agreement
Speaker 1: was well in effect prior to what's happening with Russia
Speaker 1: and Ukraine. And so my take on this is they
Speaker 1: probably could have done more. They should have done more,
Speaker 1: that is OPEC plus, And so I think you're seeing
Speaker 1: you know, prices move in response and not getting that
Speaker 1: offset there from earlier today, and Amanda, when we talk
Speaker 1: about energy and oil markets, clearly thoughts go to energy stocks,
Speaker 1: but I also think about the high yeld credit market
Speaker 1: because if you look at those indexes, there's a lot
Speaker 1: of energy exposure there. What are we seeing in that market?
Speaker 1: It doesn't seem like there's been a ton of stress.
Speaker 1: There has not been, and that actually is a fundamental
Speaker 1: bright spot, I think as it relates to the broader
Speaker 1: economy and the broader backdrop. We've seen credit spread specifically
Speaker 1: for high yield wide and but we've been sitting at
Speaker 1: record lows, you know, over the course of the last
Speaker 1: twelve to eighteen months, and so widening on a relative
Speaker 1: basis doesn't mean all that much. If that TOBE last week,
Speaker 1: high yield spreads narrow, believe it or not, just despite
Speaker 1: all of the turmoil, and so our read on this is, yes,
Speaker 1: there is a significant component as it relates to energy,
Speaker 1: but we're not seeing signs of acute dress showing up
Speaker 1: in US credit markets. That is, volatility is very significant
Speaker 1: in the short run, but it's likely to settle um
Speaker 1: longer term. It's not a fundamental breakdown as of yet.
Speaker 1: Amanda Gotti, chief investment Officer at p NC Asset Management Group.
Speaker 1: She joins us on the phone from Philadelphia. Amanda, always
Speaker 1: great to speak with you. Thank you so much for
Speaker 1: taking the time. Thanks for listening to Bloomberg Business Week.
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