WEBVTT - Equity Push amid Bond Warnings 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.480 --> 0:00:29.400 Time to frame things up, we do that from the 0:00:29.400 --> 0:00:33.479 physicists from Morgan Stanley. James Karen joins us this morning 0:00:33.800 --> 0:00:38.760 on price down, yield up, Jim Karen's CIO process of solutions. 0:00:38.800 --> 0:00:42.320 Morgan Stanley is the bond move over. Jim, do you 0:00:42.479 --> 0:00:47.120 acquire bonds, notes, and bills today looking for a lower 0:00:47.200 --> 0:00:48.680 yield a higher price? 0:00:50.360 --> 0:00:51.840 Good morning, Tom. 0:00:52.440 --> 0:00:55.240 I think currently right now in the markets, I think 0:00:55.280 --> 0:00:58.560 bond yields have entered into a zone where they're probably 0:00:58.560 --> 0:00:59.639 gonna it's probably gonna. 0:00:59.400 --> 0:01:00.400 Be relatively sticky. 0:01:00.680 --> 0:01:04.880 I don't see that inflation is going to come down dramatically, 0:01:05.319 --> 0:01:08.320 at least over the near term. Could there have been 0:01:08.360 --> 0:01:11.959 some you know, stress higher of a release in bond 0:01:12.000 --> 0:01:14.600 yields higher? Yeah, you know that certainly happened. I don't 0:01:14.600 --> 0:01:17.000 think that we're necessarily going to get that either. But 0:01:17.720 --> 0:01:20.080 in order for bond yields to come down, we'd really 0:01:20.120 --> 0:01:24.160 start to need to see the disinflationary pressures of lower 0:01:24.160 --> 0:01:26.680 oil prices. Now today's are going to start, but we'd 0:01:26.680 --> 0:01:29.240 have to stay at these low oil prices, and they'd 0:01:29.240 --> 0:01:32.080 have to even decline further for bond yields to meaningfully 0:01:32.080 --> 0:01:33.319 move down and stay lower. 0:01:33.640 --> 0:01:37.560 Talk to me about the partial differentials, the dynamics of 0:01:37.720 --> 0:01:42.880 equities and bonds wrapped around a conventional sixty forty split. 0:01:43.400 --> 0:01:47.080 Describe those dynamics right now, given the chaos of news 0:01:47.160 --> 0:01:47.800 slow we have. 0:01:49.000 --> 0:01:51.760 Yeah, this is this is probably the most topical thing 0:01:51.800 --> 0:01:53.840 that's out there, at least something I focus on quite 0:01:53.840 --> 0:01:58.120 a bit, because essentially we are in a higher nominal 0:01:58.160 --> 0:02:02.480 growth world with above tar get inflation, which is not 0:02:02.640 --> 0:02:06.400 necessarily bond friendly. So that what that means is that 0:02:06.520 --> 0:02:10.440 if you're using fixed incompassively to hedge your equities, you 0:02:10.480 --> 0:02:12.960 may be disappointed, meaning that we're just not in a 0:02:13.080 --> 0:02:16.560 lower trending world of lower interest rates where bond returns 0:02:16.680 --> 0:02:19.880 just perpetually move higher steadily year after year. So when 0:02:19.919 --> 0:02:22.959 we think about bonds hedging equities today, we have to 0:02:23.040 --> 0:02:25.959 say we have to recognize that the correlation of returns 0:02:26.000 --> 0:02:28.839 between fixed income and equities is as high as it's 0:02:28.880 --> 0:02:31.919 been in the past one hundred and years. What that 0:02:32.040 --> 0:02:35.320 means is that bonds today are not a very good 0:02:35.360 --> 0:02:39.280 hedge to equities if you but if you use your 0:02:39.320 --> 0:02:41.800 bonds efficiently and you think about Carrie, and you think 0:02:41.840 --> 0:02:44.440 about spread, and you think about credit, then you can 0:02:44.520 --> 0:02:47.000 use your bonds as a source of alpha and a 0:02:47.080 --> 0:02:51.160 hedge against your against your equities. So there is a 0:02:51.200 --> 0:02:53.200 place for it, but it's not as traditional as it was. 0:02:53.360 --> 0:02:56.680 And what's great about Jim caaren Folks is all that complexity. 0:02:56.680 --> 0:03:00.520 He actually puts it into English, which is a gift to 0:03:00.560 --> 0:03:05.560 say the least. So if you're not hedging traditionally sixty forty, 0:03:06.160 --> 0:03:07.680 where's your equity hedge? 0:03:09.080 --> 0:03:12.919 So it really becomes a question of how you diversify 0:03:12.960 --> 0:03:16.240 across the equity market. So clearly you want to have 0:03:16.280 --> 0:03:18.120 some growth, you want to have some value. You also 0:03:18.120 --> 0:03:20.640 want to have some high quality and defensives mixed in 0:03:20.680 --> 0:03:24.480 there too. The reality though, is that you can still 0:03:24.600 --> 0:03:28.560 use bonds as a hedge, but you should have less 0:03:28.639 --> 0:03:32.480 than index duration in your bond portfolio. So I think 0:03:32.680 --> 0:03:34.720 I think that most people are making is that they 0:03:34.760 --> 0:03:37.560 say that their neutral allocation of fixed income is just 0:03:37.600 --> 0:03:39.280 to be neutral the index and just to have the 0:03:39.320 --> 0:03:42.560 same duration as the index. I would argue that having 0:03:42.800 --> 0:03:46.240 about a year's less one year less of duration in 0:03:46.240 --> 0:03:49.880 your fixingcome portfolio would do a better job at hedging 0:03:50.000 --> 0:03:53.000 your overall your overall equity exposure. 0:03:53.760 --> 0:03:58.040 Jim latest Offspring is doing his semester broad in Japan. 0:03:58.200 --> 0:04:01.920 So now Japan is all over my social media feed 0:04:01.960 --> 0:04:03.960 for some reason. You like Japan. 0:04:04.080 --> 0:04:05.840 Why do you like Japan? I? 0:04:06.120 --> 0:04:08.440 Yeah, so this is structurally one of our top picks, 0:04:09.080 --> 0:04:11.520 you know, in our in our ascid allocation and in 0:04:11.600 --> 0:04:14.920 our portfolios. So Japan is you know, we've left the 0:04:15.040 --> 0:04:18.799 zero lower bound rate in Japan. Japan has some inflation, 0:04:18.839 --> 0:04:20.920 They have a lot of fiscal stimulus coming through. This 0:04:20.960 --> 0:04:24.200 is a really really big push from not just this administration, 0:04:24.279 --> 0:04:28.200 not just from Takeiichi, but also from previous administrations. So 0:04:28.680 --> 0:04:32.800 this movement towards higher fiscal stimulus, a higher fiscal impulse, 0:04:33.400 --> 0:04:37.680 better corporate governance. Uh, you know, shareholder returns. There's a 0:04:37.720 --> 0:04:40.760 lot more caring about the equity investor. 0:04:40.440 --> 0:04:42.480 Within within Japan. 0:04:42.800 --> 0:04:46.200 That makes it much more viable for investors, and Japanese 0:04:46.200 --> 0:04:50.119 equities have done extremely well over the past few years. 0:04:50.160 --> 0:04:50.320 Now. 0:04:50.360 --> 0:04:53.239 The issue with Japan though, in your portfolio, and everybody 0:04:53.279 --> 0:04:55.240 needs to take note of this, is that it is 0:04:55.279 --> 0:04:58.200 a very volatile market. It a five percent move in 0:04:58.320 --> 0:05:01.120 Japan and Japanese equities and why day is not a 0:05:01.120 --> 0:05:01.520 big deal. 0:05:01.520 --> 0:05:02.920 I mean that happens quite a bit. 0:05:03.360 --> 0:05:06.880 So you have to right side in your portfolio. So 0:05:06.920 --> 0:05:08.880 it's a good investment, but you have to have the 0:05:08.960 --> 0:05:11.680 right size and be mindful of that and be mindful 0:05:11.680 --> 0:05:12.520 of that volatility. 0:05:13.200 --> 0:05:15.600 All right, I'll go with you in Japan, but I 0:05:15.640 --> 0:05:17.640 was there. I lived there in eighty seven eighty eight. 0:05:17.680 --> 0:05:19.560 Then you couldn't buy. 0:05:19.360 --> 0:05:21.479 A story on Japan for the next thirty years. But 0:05:21.680 --> 0:05:22.520 I guess it's back. 0:05:23.640 --> 0:05:24.480 How about Europe. 0:05:25.080 --> 0:05:27.960 Europe seems to be filling the brunt tier of some 0:05:28.040 --> 0:05:30.200 of the disruption we're seeing coming out of Iran. 0:05:29.960 --> 0:05:33.160 With just raw materials. What's the thought there in Europe? 0:05:33.680 --> 0:05:36.760 Yeah, so from our perspective, we are underweight Europe. We're 0:05:36.800 --> 0:05:39.799 more cautious. And the reason is is, as you mentioned, 0:05:40.120 --> 0:05:44.239 higher energy prices, some fiscal strains that are coming through 0:05:44.360 --> 0:05:47.200 on the European side. I think it's going to be 0:05:47.240 --> 0:05:48.600 a head win. So I mean, just look at the 0:05:48.640 --> 0:05:52.080 FED versus the ECB. The ECB is very aggressive about 0:05:52.080 --> 0:05:54.479 telling you that they're probably going to high grates in June, 0:05:54.839 --> 0:05:57.279 whereas the FED is more likely to be on hold 0:05:57.320 --> 0:05:58.600 for an extended period of time. 0:05:59.000 --> 0:06:00.720 So there were just elements here. 0:06:00.760 --> 0:06:03.919 And the reason is is because inflation cuts deeper in 0:06:04.040 --> 0:06:07.000 Europe than it does actually in the US. And the 0:06:07.080 --> 0:06:10.360 reason for that is because European economies are more structurally 0:06:10.480 --> 0:06:13.960 rigid and they can't necessarily adjust to inflation very well. 0:06:14.360 --> 0:06:17.440 In fact, the investor class in Europe is mainly a 0:06:17.480 --> 0:06:20.839 fixed income investor class, whereas the investor class US is 0:06:20.839 --> 0:06:25.440 mainly in equity investor class. So higher inflation, we all 0:06:25.480 --> 0:06:27.839 know what that does to bond returns, so that in 0:06:27.920 --> 0:06:30.680 terms of your wealth effect, you know, it can be 0:06:30.760 --> 0:06:33.960 much more detrimental in Europe than in the US. So 0:06:34.000 --> 0:06:36.320 a lot of the fiscal stimulus that was supposed to 0:06:36.360 --> 0:06:38.920 be coming through in Europe is now really becoming more 0:06:39.000 --> 0:06:42.360 support to try to you know, hold up the you know, 0:06:42.600 --> 0:06:44.760 to hold up the broader economy. So we are a 0:06:44.760 --> 0:06:47.159 little bit more cautious. We're not abandoning Europe. I mean, 0:06:47.200 --> 0:06:49.560 we still think that there's a lot of positives, but 0:06:49.600 --> 0:06:53.240 for right now we think that the investments better in 0:06:53.240 --> 0:06:54.039 the US in Japan. 0:06:54.200 --> 0:06:57.159 Shoe Karen, thank you so much. Always with Margen Stanley 0:06:57.480 --> 0:06:58.680 and investment. 0:06:58.800 --> 0:06:59.480 Stay with us. 0:06:59.720 --> 0:07:02.960 More from Bloomberg Surveillance coming up after this. 0:07:10.240 --> 0:07:13.800 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:07:13.880 --> 0:07:17.040 weekday afternoons from seven to ten am Eastern Listen on 0:07:17.120 --> 0:07:20.760 Applecarplay and Android Auto with the Bloomberg Business app, or 0:07:20.920 --> 0:07:22.440 watch us live on YouTube. 0:07:22.640 --> 0:07:24.880 And well, what's great about this is Windin and I 0:07:24.880 --> 0:07:28.440 haven't had a driver's license since time began, like teen 0:07:28.680 --> 0:07:32.920 years ago. He's Chief Economists Bank of nwsaw Windin this 0:07:32.960 --> 0:07:37.800 morning as well. When the financial stability of the EMS system, 0:07:37.840 --> 0:07:40.440 it's like a Bill Lee question when he was, you know, 0:07:40.480 --> 0:07:43.840 at milking. You know, what does the financial system EM 0:07:43.880 --> 0:07:46.080 look given the shocks of this war. 0:07:47.000 --> 0:07:50.440 Well, you have so have and have nots as always right, 0:07:50.480 --> 0:07:52.640 So the the first of all again, thanks for having me. 0:07:52.640 --> 0:07:55.800 It's voice a pleasure to be with you guys. The 0:07:55.880 --> 0:07:59.520 energie exports are doing okay. The energy importers and sort 0:07:59.520 --> 0:08:03.080 of the frontier countries are not. So it's we have 0:08:03.120 --> 0:08:05.240 to go back to how this oil shock, how much 0:08:05.280 --> 0:08:06.240 longer it lasts. 0:08:06.800 --> 0:08:08.640 We'll see how this rolls out. 0:08:08.760 --> 0:08:10.400 I think I've talked about some million times, but I 0:08:10.400 --> 0:08:13.280 think we are in what the IMF calls the adverse scenario, 0:08:13.360 --> 0:08:14.200 and that's when things get. 0:08:14.040 --> 0:08:14.480 A little dice. 0:08:14.480 --> 0:08:18.640 You get slower global growth, higher inflation, merging markets or 0:08:18.720 --> 0:08:22.760 some You have Columbia, Sri Lanka, Pakistan and Philippine central 0:08:22.760 --> 0:08:25.600 banks already high rates to defend the currencies and to 0:08:25.680 --> 0:08:28.760 sort of tamp down inflation. So it's going to be 0:08:28.840 --> 0:08:32.240 a i'd say stressful time ahead. I don't see any big, 0:08:32.840 --> 0:08:35.000 huge blow ups, but it's going to be very challenging 0:08:35.080 --> 0:08:36.240 for merging markets. 0:08:36.400 --> 0:08:38.199 I think it's gonna be pretty challenging for our new 0:08:38.840 --> 0:08:41.760 FED chairman, mister Walsh. I mean, coming in presumably he's 0:08:41.800 --> 0:08:46.240 got feel some pressure to lower rates, yet the data 0:08:46.280 --> 0:08:47.520 doesn't seem to support that at all. 0:08:47.679 --> 0:08:51.040 No, it's you're absolutely right, Paul. He's inheriting a very 0:08:51.040 --> 0:08:53.720 different situation than he saw I think six months even 0:08:53.760 --> 0:08:57.720 three months ago. So he's one of twelve people on FMC. 0:08:58.440 --> 0:09:02.679 His job is chairs to cajole and to discuss and corral. 0:09:02.840 --> 0:09:04.319 But there is a huge. 0:09:05.200 --> 0:09:07.880 Contingent of hawks right now on the FED. So I 0:09:07.880 --> 0:09:10.319 think right now, well, it's the Fed is on hole 0:09:10.400 --> 0:09:13.320 for the foreseeable future until these rates the inflation comes down. 0:09:13.360 --> 0:09:16.320 But the market's pricing fifty base points of tightening over 0:09:16.320 --> 0:09:18.000 the next twelve months, which seems litt aggressive. 0:09:18.360 --> 0:09:19.480 But let's see how the data comes on. 0:09:19.920 --> 0:09:22.120 How sticky do you think this inflation is going to be? 0:09:22.280 --> 0:09:25.000 Is if like if we have some agreement today, which 0:09:25.040 --> 0:09:27.640 could certainly happen given the actors here. 0:09:28.040 --> 0:09:30.480 Oil comes back down? Is that it? 0:09:30.640 --> 0:09:32.200 Or do we have something underneath that. 0:09:32.880 --> 0:09:35.040 I do feel there's some lingering effects. 0:09:35.120 --> 0:09:37.600 I think if you listen to the oil industry experts, 0:09:37.679 --> 0:09:40.840 you know, the sort of normal production isn't really going 0:09:40.880 --> 0:09:43.480 to come back in the Gulf for any three to 0:09:43.559 --> 0:09:45.559 six months, may even longer. We're talking about all the 0:09:45.559 --> 0:09:48.360 backlogs as well as the destruction of the infrastructure there, so. 0:09:48.400 --> 0:09:49.200 It's going to take a while. 0:09:49.200 --> 0:09:51.000 And obviously oil prices have a huge had a huge 0:09:51.040 --> 0:09:53.040 risk premium, and that's what's coming down. 0:09:53.320 --> 0:09:54.760 We don't I don't think anyone has a feel be. 0:09:54.760 --> 0:09:57.199 Where the sort of the fair value is given all 0:09:57.200 --> 0:09:58.880 the destruction we've seen in the oil sector. 0:09:59.400 --> 0:09:59.920 It's a risk. 0:10:00.120 --> 0:10:02.439 Yeah, I don't know, we say that, but this is 0:10:02.600 --> 0:10:05.320 US consumer. You cannot keep this consumer down. 0:10:05.440 --> 0:10:06.800 What do you make of the US consumer? 0:10:06.960 --> 0:10:09.120 So I'm starting to see some cracks. 0:10:09.440 --> 0:10:11.000 If you look at the real numbers, you know, the 0:10:11.040 --> 0:10:12.640 nominal numbers look great because if you look at the 0:10:12.679 --> 0:10:16.680 retail sales, the personal spending, the headlines are all nominal. 0:10:16.720 --> 0:10:18.800 So remember we're in a high inflation environment. If you 0:10:18.800 --> 0:10:22.440 can dig deeper the real it's the real spending, the 0:10:22.480 --> 0:10:25.280 real consumptions. A little bit on the soft side, we'll 0:10:25.280 --> 0:10:28.200 get personal spending, real personal spending this Thursday, along with 0:10:28.240 --> 0:10:31.400 the PCE. I think it's I think it's gonna show 0:10:31.400 --> 0:10:34.360 the dilemma that the phase we're in high inflation, sort 0:10:34.360 --> 0:10:36.680 of slow in growth environment. That's that's always sort of 0:10:37.280 --> 0:10:40.240 the challenge for for policymakers around the world, the sort 0:10:40.280 --> 0:10:42.560 of stackflationary environment. There's no easy answer. 0:10:43.480 --> 0:10:45.120 How long does stagflation last? 0:10:45.679 --> 0:10:50.000 Typically well so, and it seems like you could. 0:10:49.840 --> 0:10:51.120 Bump along that road for a while. 0:10:51.200 --> 0:10:54.400 Yeah, so there's a lot of in some ways, there's 0:10:54.400 --> 0:10:57.000 some parallels obviously the seventies and a lot, but really 0:10:57.080 --> 0:10:58.520 the main thing right now is that the US is 0:10:58.720 --> 0:11:00.640 in a world exporter, so that's the one thing I 0:11:00.679 --> 0:11:03.559 really has cushioned us. But physically, you know, we got 0:11:03.559 --> 0:11:06.160 back to what you said, the consumer seventy percent of 0:11:06.200 --> 0:11:08.760 the US economy, and we're getting squeezed by high grass prices, 0:11:08.800 --> 0:11:10.440 high energy prices, high food prices. 0:11:10.880 --> 0:11:12.160 The lamrockets stabilizing. 0:11:12.200 --> 0:11:13.679 But I don't think it was out the breaking the 0:11:13.720 --> 0:11:17.319 Champagne open. You know. I know that this graduating college 0:11:17.320 --> 0:11:20.400 class had a really tough time. So I see some 0:11:20.840 --> 0:11:25.360 signs of nervousness within the consumer, and it's again to 0:11:25.400 --> 0:11:25.960 be determined. 0:11:26.240 --> 0:11:29.319 I haven't written on this yet, folks, because it's too difficult, 0:11:29.400 --> 0:11:32.040 and also I got to find his magnificant speech. Let's 0:11:32.080 --> 0:11:36.040 do it for the first time with Winthin of Columbia University. 0:11:36.480 --> 0:11:41.800 We've lost Ned Phelps, ninety two years old, a giant, argumentative, 0:11:41.880 --> 0:11:46.200 giant of economics. I loved what Olivier Blanchard said. He said, 0:11:46.200 --> 0:11:50.280 we didn't agree. Basically to paraphrase, Professor Blanchard said, Ned 0:11:50.320 --> 0:11:52.840 and I didn't agree. And if the sun came up 0:11:52.840 --> 0:11:55.800 in the ease, but there it was. I want you 0:11:55.880 --> 0:12:01.400 to define his work on dynamism in this time of AI. 0:12:02.280 --> 0:12:05.640 Well, Unfortunately I did not have the pleasure of having 0:12:05.640 --> 0:12:07.440 any classes with him, but he was there during my 0:12:07.480 --> 0:12:10.520 time when we had quite a few giants there that 0:12:10.600 --> 0:12:12.880 are unfortunate rest in peace there many are gone. Now 0:12:13.000 --> 0:12:16.640 that sort of tells you how old I am. But 0:12:16.640 --> 0:12:20.800 but you know, the Columbia University was a real incubator 0:12:20.800 --> 0:12:24.000 for just just great growth. I think a lot of 0:12:24.000 --> 0:12:26.280 the sort of the neoclassical and classic comments would have 0:12:26.320 --> 0:12:29.440 a hard time, uh, trying to figure what's going on 0:12:29.480 --> 0:12:31.920 in AI. I mean, obviously there's a whole boost to 0:12:32.000 --> 0:12:34.440 labor productivity that's great for the economy. 0:12:34.440 --> 0:12:35.120 But you know, Paul and I. 0:12:35.120 --> 0:12:39.560 Always discussed this, what does this mean for labored overall? 0:12:40.080 --> 0:12:42.760 Is this going to be a net job creator or 0:12:42.800 --> 0:12:46.360 not a net job destroyer. I don't think we've seen 0:12:46.400 --> 0:12:48.480 this sort of technological innovation. 0:12:48.040 --> 0:12:49.640 Over in this short period of time. 0:12:50.720 --> 0:12:53.360 So I think be great right now to be a 0:12:53.360 --> 0:12:56.240 PhD student. There's so much to write about in terms 0:12:56.280 --> 0:13:01.280 of the impact of AI on productivity, labor demand, favorite destruction. 0:13:01.559 --> 0:13:04.520 But but to go to el Arian, the unknown unknown 0:13:04.679 --> 0:13:07.839 is real, that's right, I mean it's hugely real. 0:13:08.000 --> 0:13:10.800 Yeah, you know, that's way about my pay grad I 0:13:10.840 --> 0:13:13.679 do know that right now we're benefiting this huge investment 0:13:13.679 --> 0:13:18.000 in all the infrastructure. We're finally seeing some payoffs. But 0:13:18.679 --> 0:13:21.640 you know what, who if all these people are being 0:13:22.040 --> 0:13:23.920 being proud of work, who's going to buy these goods? 0:13:23.920 --> 0:13:25.439 Who's going to buy Who's in consume? 0:13:25.720 --> 0:13:26.880 And that's what Paul says. 0:13:27.200 --> 0:13:28.000 I'm a Paul on this. 0:13:28.080 --> 0:13:30.040 I'm I'm gonna be a bit pessimistic, but you know, 0:13:30.080 --> 0:13:32.360 I'm you know, someone's being a lud eyed. 0:13:32.800 --> 0:13:34.920 The bank, the Bank of Nassa went in there. 0:13:35.080 --> 0:13:36.000 Stay with us. 0:13:36.040 --> 0:13:39.280 More from Bloomberg Surveillance coming up after this. 0:13:46.520 --> 0:13:50.120 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:13:50.160 --> 0:13:53.160 weekday afternoons from seven to ten a m. Eastern Listen 0:13:53.240 --> 0:13:56.800 on Apple, Karplay and Android Atto with the Bloomberg Business app, 0:13:57.000 --> 0:13:58.720 or watch us live on YouTube. 0:13:58.960 --> 0:14:04.000 We're gonna go QUI, how about commodity analysis from another 0:14:04.120 --> 0:14:06.200 time in place we can do that with are going 0:14:06.240 --> 0:14:10.160 to work in a city group VP of researching commodities 0:14:10.160 --> 0:14:13.880 and actually looking for trends and commodities in the last 0:14:13.920 --> 0:14:19.760 six months, which commodity has trended, appropriately trended in order 0:14:19.880 --> 0:14:20.560 in a good way. 0:14:21.600 --> 0:14:24.880 Well in the act sector and the one to look at. 0:14:25.640 --> 0:14:28.160 All of them are starting to trend in a proper way, 0:14:28.200 --> 0:14:31.000 and it's all kind of been in the sort of 0:14:31.080 --> 0:14:34.640 low price environment from which they were coming out as 0:14:34.800 --> 0:14:39.560 we started learning more about the conflict, the disruption in 0:14:39.640 --> 0:14:41.720 the strait of hormones and how long will it take? 0:14:42.640 --> 0:14:48.160 So I would say corn wheat, soybeans on the grain side. 0:14:48.320 --> 0:14:53.720 As we say that, fertilizer impact being the most relevant 0:14:53.200 --> 0:14:55.000 for those type of commodities. 0:14:55.080 --> 0:14:57.200 Robs Carolyn just emailed and he wants to know about 0:14:57.240 --> 0:15:00.880 Aldino in the drought is a drought based moving prices 0:15:00.960 --> 0:15:02.800 rot Paul ready for this. 0:15:02.920 --> 0:15:05.640 Yeah, go in the softs, softs, that's how we do 0:15:05.640 --> 0:15:06.120 it well. 0:15:06.240 --> 0:15:10.000 Al Nina is another risk that developed in the last 0:15:10.120 --> 0:15:14.680 two months or three months where meteorologic agency started to 0:15:14.840 --> 0:15:19.120 be very confident about this coming in the next month 0:15:19.920 --> 0:15:22.880 and then getting gaining some strength over the period of 0:15:22.880 --> 0:15:28.720 the next six months. Some meteorologic agencies are expecting very 0:15:28.720 --> 0:15:32.120 strong or record Almina and El Nina. Just to clarify, 0:15:32.360 --> 0:15:37.320 it's the level of sea surface in the Pacific Ocean, 0:15:37.600 --> 0:15:40.680 the degree of it, and whenever it reaches to two degrees, 0:15:41.080 --> 0:15:43.560 that's where we kind of say that there is an 0:15:43.560 --> 0:15:45.880 al Nina, and if there's deviation, if there's more than 0:15:45.960 --> 0:15:49.440 two degree warming happening in the Pacific Ocean, then that 0:15:49.680 --> 0:15:53.040 will characterize it as a strong Alminia. Now, what al 0:15:53.120 --> 0:15:57.160 Nina brings with it is this abnormal weather patterns. Abnormal 0:15:57.200 --> 0:16:01.760 weather patterns across the globe where you can see drought 0:16:01.960 --> 0:16:07.080 in the in the India, around India, around Southeast Asia, Australia, 0:16:07.480 --> 0:16:10.160 and you typically see some sort of high level of 0:16:10.160 --> 0:16:15.600 precipitation in South America, in Brazil and Columbia in those countries. 0:16:16.120 --> 0:16:21.360 So the bottom line because software very much concentrated around 0:16:21.560 --> 0:16:25.800 the production of softs are very much concentrated around the equator, right, 0:16:26.000 --> 0:16:30.600 and they would have kind of this bigger impact on 0:16:30.640 --> 0:16:34.680 the yields coming from this strong or moderate on Ninia. 0:16:35.200 --> 0:16:39.280 It's really early to tell what how how how strong 0:16:39.360 --> 0:16:42.800 this is significant the sweat pattern would be, but as 0:16:42.800 --> 0:16:45.960 it's developing, but from we know what we know now. 0:16:46.000 --> 0:16:49.800 The factual data is that the temperature in the Pacific 0:16:49.800 --> 0:16:52.960 Ocean is the warmest at the moment when we compare 0:16:52.960 --> 0:16:56.600 it with any observable history historical port in the past, 0:16:57.560 --> 0:17:01.040 at this at this moment. So that probably tells us 0:17:01.080 --> 0:17:04.639 that there's a relatively high probability and likelihood that this 0:17:04.800 --> 0:17:09.160 system will develop over the summer months and going forward. 0:17:09.200 --> 0:17:10.679 A look at some of the eggs here. 0:17:10.720 --> 0:17:13.920 I can do that my GLCO screen, the Global Commodity screen, 0:17:13.960 --> 0:17:14.520 it's my savior. 0:17:14.560 --> 0:17:15.679 It's the only thing I know about commodity. 0:17:15.800 --> 0:17:18.720 I soweteans up fifteen percent year to date. I got 0:17:18.720 --> 0:17:22.520 weed up twenty three percent, cottons up eighteen percent, Sugar 0:17:22.840 --> 0:17:23.800 down five percent. 0:17:23.960 --> 0:17:24.919 What's going on with sugar? 0:17:25.640 --> 0:17:28.200 Yeah, and we think that's the lagger in this case. 0:17:28.240 --> 0:17:29.360 I think sugar. 0:17:29.800 --> 0:17:34.639 There is a lot of news and expectations about the 0:17:34.680 --> 0:17:37.200 crop and sugar, especially. 0:17:38.320 --> 0:17:38.800 In Brazil. 0:17:38.840 --> 0:17:43.000 Brazil is the largest producer, marginal producer. About two thirds 0:17:43.000 --> 0:17:46.119 of what Brazil produces is being exported. The second biggest 0:17:46.119 --> 0:17:50.640 producer is India. However, in India about everything that's being 0:17:50.680 --> 0:17:54.920 produced in India is being consumed domestically. Whenever there is 0:17:54.960 --> 0:17:58.560 a bumper crop, that's where India gets into the market 0:17:58.680 --> 0:18:02.480 starts exporting. The risk there is that in the last 0:18:02.520 --> 0:18:05.480 strong on Nino, which was in twenty fifteen twenty sixteen, 0:18:06.400 --> 0:18:10.439 production in India fell by about thirty percent, and India 0:18:10.520 --> 0:18:14.760 came into the market aggressively importing sugar and that kind 0:18:14.840 --> 0:18:15.760 of spiked the preceures. 0:18:16.200 --> 0:18:17.879 Just a minute here, I'm going to take a chance 0:18:18.400 --> 0:18:22.120 from your Armenia, Georgia down to Armenia over to Azerbaijan. 0:18:22.720 --> 0:18:26.399 I think Americans are clueless about the importance of the 0:18:26.440 --> 0:18:31.159 Caspian Sea. We're absolutely clueless about it. It means I 0:18:31.200 --> 0:18:33.400 think it's a lake wall I don't know, but it's 0:18:33.400 --> 0:18:38.080 not like lake your ear. It's it's like ginormous tell 0:18:38.160 --> 0:18:41.280 us the importance of the Caspian Sea to the eastern 0:18:41.320 --> 0:18:43.800 Mediterranean and the stand nations. 0:18:44.160 --> 0:18:47.080 Well, it's a little bit of seguey, but yes, Caspian 0:18:47.119 --> 0:18:48.000 Sea is very important. 0:18:48.359 --> 0:18:51.360 Yeah, we call them sui for. 0:18:51.600 --> 0:18:54.880 It's it's very much relevant, but more for the energy complex. 0:18:56.200 --> 0:19:00.399 And part of my research agenda that I look is 0:19:00.680 --> 0:19:04.000 we're going in the segways. I look at the uranium 0:19:04.359 --> 0:19:07.480 and Kazakhstan is the biggest producer of uranium. 0:19:07.800 --> 0:19:10.040 And over the last. 0:19:09.880 --> 0:19:13.719 Four years, since twenty twenty two, really the development of 0:19:13.760 --> 0:19:17.440 the trans Caspian kind of route has developed as an 0:19:17.440 --> 0:19:23.199 alternative root rather than exporting uranium through Russia as typically 0:19:23.240 --> 0:19:27.439 Kazakstan would do that. But as Aerba, John is a 0:19:27.440 --> 0:19:31.200 big oil and gas producer, and so the Caspian importance 0:19:31.280 --> 0:19:33.439 is there and it kind of connects. 0:19:33.480 --> 0:19:35.119 Yeah, I can just see you in a meeting with 0:19:35.200 --> 0:19:39.200 Jane Fraser. He starts sting in the Caspian uranium. She's 0:19:39.240 --> 0:19:43.840 taken notes. This has been wonderful. This is like old school. 0:19:44.080 --> 0:19:44.879 I mean, I'm loving it. 0:19:44.880 --> 0:19:45.199 I love it. 0:19:45.320 --> 0:19:48.840 This has been great, Arkady, Thank you so much, Arcady Gevorkian. 0:19:48.960 --> 0:19:51.840 He's with City Group. That was absolutely brilliant to stay 0:19:51.880 --> 0:19:55.720 with us. More from Bloomberg Surveillance coming up after this. 0:20:03.000 --> 0:20:06.560 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:20:06.640 --> 0:20:09.800 weekday afternoons from seven to ten am Eastern Listen on 0:20:09.880 --> 0:20:13.560 Applecarplay and Android Auto with the Bloomberg Business app, or 0:20:13.680 --> 0:20:26.360 watch us live on YouTube. 0:20:27.080 --> 0:20:29.520 What a wonderful time quickly, or Carol Striker with us 0:20:29.840 --> 0:20:34.520 with KPMG Deal Advisory Strategy Service at Leader. Call it 0:20:34.600 --> 0:20:38.280 the exuberance out there right now. What is the character 0:20:38.480 --> 0:20:41.160 of exuberance the KPMGCS. 0:20:41.600 --> 0:20:45.200 Yeah, I mean from an exciting perspective around deals and 0:20:45.320 --> 0:20:48.639 just the pent up demand for deals. There is a 0:20:48.680 --> 0:20:54.200 private equity space. There are thirty three thousand portfolio companies 0:20:54.240 --> 0:20:58.000 that are wanting to trade over three trillion dollars in 0:20:58.800 --> 0:21:03.639 those assets, and so there is a demand to be 0:21:03.760 --> 0:21:05.520 trading within the private equity space. 0:21:05.800 --> 0:21:07.840 So this year, I mean, we're going to get some 0:21:08.000 --> 0:21:11.880