Latest / Bloomberg Intelligence / A Big Risk to Internet Companies

Transcript

A Big Risk to Internet Companies · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
0:08
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
0:11
Speaker 1: bring you the most important, noteworthy, and useful interviews for
0:15
Speaker 1: you and your money, whether you're at the grocery store
0:17
Speaker 1: or the trading floor. Find the Bloomberg p m L
0:20
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Lots
0:31
Speaker 1: of news overnight on a big tech and here to
0:34
Speaker 1: break it down with us as Shia overday, She's a
0:36
Speaker 1: Bloomberg gad Fly columnists covering all things technology. Uh, and
0:40
Speaker 1: she writes triffic columns. You definitely should read them Bloomberg
0:42
Speaker 1: dot Com slash god Fly Shira. I want to start
0:46
Speaker 1: actually with a development where you have big technology companies,
0:50
Speaker 1: namely Google and Facebook opposing a bill that was raised
0:54
Speaker 1: in US Congress to prevent child sex trafficking, which seems
0:59
Speaker 1: like not really that good of a thing to oppose,
1:02
Speaker 1: because it seems like you should want to oppose child
1:06
Speaker 1: sex trafficking. What's going on? Right? So there there's this
1:09
Speaker 1: some bill circulating about ads on backpage dot com, which
1:13
Speaker 1: is a website that is sometimes used for nefarious purposes.
1:17
Speaker 1: And look the backdrop here why Google and Facebook are
1:21
Speaker 1: opposing this and other measures and congresses. They are terrified
1:24
Speaker 1: of UH having legal responsibility for what their users do
1:28
Speaker 1: on their websites, and that can be child child sex
1:32
Speaker 1: trafficking or can be if I UM have Beyonce's latest
1:37
Speaker 1: album and post it on YouTube, right, Google doesn't want
1:42
Speaker 1: legal responsibility for that music piracy either. But this also
1:47
Speaker 1: raises a question of the access that government has to
1:52
Speaker 1: prevent some of these nefarious activities that are conducted via
1:56
Speaker 1: Google via Facebook. UM. If you know the company themselves
2:00
Speaker 1: won't do it because they have are concerned about privacy,
2:03
Speaker 1: does that open up the door to the government saying
2:06
Speaker 1: we want to weigh in, we want to do that. Well,
2:08
Speaker 1: I mean, I'll just stipulate that Google and Facebook do
2:12
Speaker 1: not want child sex trafficking on their websites. That is
2:16
Speaker 1: not good for anybody. It is illegal. They have large
2:19
Speaker 1: groups of people that try to weed out this stuff
2:22
Speaker 1: UM from popping up on on their websites and apps.
2:26
Speaker 1: So it's not like they're doing nothing. It's again they're
2:29
Speaker 1: trying to do something both because they want to be
2:31
Speaker 1: responsible and it's in their interest to do so to
2:34
Speaker 1: avoid UM regulation. Because that's what they're trying to prevent. Uh.
2:39
Speaker 1: And the regulation they're trying to prevent is not because
2:41
Speaker 1: of a child sex trafficking stuff, but it's for things
2:44
Speaker 1: that are less nefarious. Again, um, piracy of music and videos,
2:49
Speaker 1: things that happen more common, that are do not have
2:52
Speaker 1: a negative consequences, but still have business ramifications for Google
2:56
Speaker 1: and Facebook. When you say business ramifications, you mean they
2:59
Speaker 1: still want to make a lot of money and they
3:00
Speaker 1: don't want to take any responsibility for what goes on
3:03
Speaker 1: their sites. Yes, they do not want to be in
3:05
Speaker 1: a position where they are blocking people from posting stuff
3:10
Speaker 1: because it might have a clip from Beyonce's latest music. Right. Um, okay,
3:15
Speaker 1: so wait a minute here. The Internet was funded by
3:17
Speaker 1: the US tax pair when you pay your cable or
3:20
Speaker 1: your mobile bill, or any kind of bill that allows
3:22
Speaker 1: you access, whether it's WiFi or lte, whatever you want
3:26
Speaker 1: to talk about their attaxes in there, so we continue
3:28
Speaker 1: to subsidize the very platform that they use in order
3:31
Speaker 1: to make billions and billions of dollars selling ads to people. Right,
3:36
Speaker 1: that's probably fair. I mean there, so they want but
3:40
Speaker 1: they want to make all the money, Yes, I sure, Yes,
3:45
Speaker 1: I mean they take a lot of risk of their
3:48
Speaker 1: on their business too, and they're creating a lot of
3:50
Speaker 1: Internet infrastructure that didn't exist before. But I hear what
3:53
Speaker 1: you're saying, but it's like you know, being you know,
3:55
Speaker 1: being able to have access to the public trunk system.
3:58
Speaker 1: I mean, you used to have to have an FCC
3:59
Speaker 1: license in order to And look, the interesting phenomenon that's
4:03
Speaker 1: really happened in the last year or so is that
4:05
Speaker 1: you're seeing um political figures on the left and on
4:08
Speaker 1: the right, including people like Steve Bannon, making an argument
4:11
Speaker 1: for regulating these companies like telephone companies, basically like regulated
4:16
Speaker 1: monopolies like phone companies. And this is this is a
4:19
Speaker 1: crucial point because you have people on the right like
4:23
Speaker 1: Steve Bannon, and you have people on the left also saying,
4:27
Speaker 1: you know what, these companies are getting too big and
4:30
Speaker 1: a little bit frightening and we need to impose more regulations.
4:34
Speaker 1: Does that make it more likely that there will be
4:36
Speaker 1: some sort of anti trust movement or at least something
4:39
Speaker 1: that would undermine some of the profitability of of these companies.
4:43
Speaker 1: I think that's the biggest question for these Internet companies
4:46
Speaker 1: is what is the regulation um and potential anti trust
4:52
Speaker 1: or regulatory crackdown look like in coming years. I think
4:54
Speaker 1: that's the biggest potential risk if you're Google or Facebook
4:58
Speaker 1: or Amazon. So what are some of the ideas that
5:01
Speaker 1: have been stipulated to with respect to what that kind
5:04
Speaker 1: of regulates. Right, So there's the sort of Steve Bannon idea,
5:06
Speaker 1: let's regulate these companies like utilities. Um. You know, there's
5:11
Speaker 1: this interesting academic argument that's been making the rounds this
5:14
Speaker 1: year about particularly around Amazon, applies to other companies too,
5:19
Speaker 1: of basically looking at US anti trust law and saying
5:21
Speaker 1: that this has become too narrowly focused on prices, on
5:26
Speaker 1: whether you know, our companies so big that they have
5:29
Speaker 1: the power to raise prices. If you look at a
5:30
Speaker 1: company like Amazon, it's doing the opposite, right. So the
5:34
Speaker 1: academic argument that's making the rounds, um, a leftist academic
5:38
Speaker 1: argument is let's look at other aspects of how these
5:42
Speaker 1: companies are abusing their power beyond pricing. Um, are they
5:48
Speaker 1: squashing the ability of you know, smaller companies to compete
5:53
Speaker 1: or to sell their companies on platforms like Amazon at
5:56
Speaker 1: on the same terms as Amazon itself. So it's again
5:59
Speaker 1: there's really thing things happening. I do not know if
6:01
Speaker 1: anything is really going to happen, but I agree that
6:05
Speaker 1: this kind of political and regulatory scrutiny is a huge
6:09
Speaker 1: business risk for Internet companies. Sure, do you feel that
6:12
Speaker 1: public utility commissions at the state level would like to
6:16
Speaker 1: be responsible for setting the rules and regulations about access
6:21
Speaker 1: to the Internet via these companies? I don't know. I
6:25
Speaker 1: don't know what professional regulators want. I mean, I mean
6:29
Speaker 1: regulators like to regulate. Well, let me just ask it
6:31
Speaker 1: another way. Do you feel that these companies are public utilities?
6:36
Speaker 1: I don't know. I don't know. I mean, if you
6:38
Speaker 1: have a good argument, I mean, if you could, if
6:40
Speaker 1: you if someone pulled the plug on your Facebook or
6:42
Speaker 1: your Google, um, you'd miss them for sure, Okay, for sure.
6:47
Speaker 1: But I don't know if that's the definition of a utility.
6:49
Speaker 1: I'm not you know, I'm not going to try to
6:51
Speaker 1: make legal Yeah, I don't know. Is the fairest answer? Interesting?
6:57
Speaker 1: All right, Well, obviously this is not a topic that's
6:59
Speaker 1: going away anytime soon. Um. Interesting how the intersection, as
7:02
Speaker 1: you said, Lisa, business government, particularly when it comes to
7:06
Speaker 1: the Internet. And we didn't even talk about the latest development,
7:08
Speaker 1: which is that Google is investing in lift uh, and
7:12
Speaker 1: they already have an investment in ubers. They're just you know,
7:15
Speaker 1: going towards world domination that way. Yea. I wonder if
7:17
Speaker 1: they'll pay taxes for using all those roads. Yeah. Um.
7:20
Speaker 1: Shia Overday, thank you very much. Technology columnists for Bloomberg
7:23
Speaker 1: gad Fly. Follow her on Twitter at Shira Overday. I'm
7:38
Speaker 1: want to bring in Henry Peabody. He is a portfolio
7:41
Speaker 1: manager at Eaton Vance, helping to manage more than three
7:43
Speaker 1: hundred billion dollars. He is at the Harvard Science Lab
7:47
Speaker 1: today in Boston. And Uh, Henry, thank you for being
7:51
Speaker 1: with us. I wonder if you could begin by just
7:52
Speaker 1: talking a little bit about the concept of liquidity and
7:55
Speaker 1: how that plays into what you believe people experienced investors
8:01
Speaker 1: and knowledgeable investors will do if, indeed, we do not
8:05
Speaker 1: get an interest rate increase this year from the Federal Reserve. Well,
8:11
Speaker 1: you know, liquidity, in our minds is not only what
8:14
Speaker 1: the Federal Reserve and central banks provide to the market,
8:17
Speaker 1: but it's also um a function of the ability to
8:21
Speaker 1: get in and out of positions. And you know, when
8:23
Speaker 1: we think about the markets and the risk potentially to
8:28
Speaker 1: higher rates and really how crowded positioning has become UM
8:33
Speaker 1: in index like products in core bond in rates and
8:38
Speaker 1: duration UM. It's something to consider. And what we're seeing
8:41
Speaker 1: today and over the past few days at least in
8:43
Speaker 1: the credit markets has been a big flood into new issue,
8:47
Speaker 1: which signals to us that there's a lot of demand
8:51
Speaker 1: out there for relatively high quality paper, which when turned
8:55
Speaker 1: the other way, UM, we're not really sure how the
8:58
Speaker 1: market is going to behave and it's important to maintain
9:01
Speaker 1: a bit of a defensive posture against that. So Henry, Uh,
9:04
Speaker 1: you know, you're you're illuminating some issues that a number
9:08
Speaker 1: of big investors have been talking about recently. Gallop Capital
9:12
Speaker 1: chief executive officers said overnight in a Bloomberg television interview
9:15
Speaker 1: in Asia that investors are not getting paid for the
9:18
Speaker 1: risks they're taking, particularly in US boardinated debt. I'm wondering,
9:21
Speaker 1: how do you maintain a defensive posture when you're seeing
9:24
Speaker 1: this kind of flood of cash going into in particular
9:28
Speaker 1: the highest quality paper, arguably pushing up values there more
9:33
Speaker 1: than anywhere else. You know, you hit the nail, run
9:36
Speaker 1: the head, and I think that what you need to
9:38
Speaker 1: do is both maintain liquidity in the form of cash,
9:42
Speaker 1: and don't forget the cost of holding that cash in
9:45
Speaker 1: the form of drag or actually foregone income is relatively
9:49
Speaker 1: low today. UM. The other thing you need to do
9:51
Speaker 1: is stay very diversified. UM. There's a great opportunity today
9:55
Speaker 1: to spread risk out among various asset classes and taking
10:00
Speaker 1: manage your flexibility. UM. Diversifying to local denominated, emerging and
10:05
Speaker 1: developed market debt depending on where you look, is an
10:08
Speaker 1: attractive place. Diversifying into, for example, folding rate loans or
10:12
Speaker 1: the high yield space when valuations are attractive, It's it's
10:16
Speaker 1: good to spread those bets out because benchmark like strategies
10:22
Speaker 1: have gone very far, and when the tide turns, you
10:26
Speaker 1: need to know where that liquidity is going to be demanded,
10:30
Speaker 1: who's demanding it, and what the net result on the
10:32
Speaker 1: market is going to be. And it's it's wise to
10:34
Speaker 1: stay clear of much of that risk. Here. I just
10:37
Speaker 1: want to point out that you're eating vance Multi sector
10:39
Speaker 1: income fund, which you help to oversee. It's about five
10:42
Speaker 1: million dollar fund has performed better than ninety nine percent
10:46
Speaker 1: of its peers over the past year to date and
10:49
Speaker 1: including the past twelve months, so far this year, you're
10:52
Speaker 1: up almost ten percent UM. Interesting that you're saying to
10:57
Speaker 1: go more towards cash. What's your boldest bet right now?
11:01
Speaker 1: Right now, the biggest level we have pulled is the
11:04
Speaker 1: non dollar space, and that's responsible for roughly half of
11:07
Speaker 1: that performance this year. UM. The dollar, you take, take, positioning,
11:12
Speaker 1: you take valuation, UM, you think about the influence that
11:16
Speaker 1: the U S has globally or or or sometimes lack
11:19
Speaker 1: thereof UM growth in Asia and synchronized global growth, and
11:23
Speaker 1: it all paints to our points to a weaker dollar. UM.
11:28
Speaker 1: We've moved a long way, and we could very well pause.
11:30
Speaker 1: But if you're able to look at individual countries across
11:34
Speaker 1: the span of the globe, not necessarily allocate to those indices,
11:39
Speaker 1: because as many of your guests point out, there's a
11:42
Speaker 1: great deal of richness in some of those inducries and concentration.
11:46
Speaker 1: But look at reform stories, look at Asian growth, look
11:49
Speaker 1: at the lack of populism and Latin for example, and
11:52
Speaker 1: you can get exposure to very positive fundamentals away from
11:56
Speaker 1: US credit and interest rate risk. So that flexibility to
12:01
Speaker 1: go across geographies and industries UM is fairly important in
12:05
Speaker 1: fixed income where things are valued very dearly, Henry, do
12:08
Speaker 1: you ever feel that you're whistling in the wind when
12:10
Speaker 1: it comes to talking about individual bond issues in a
12:13
Speaker 1: world where exchange traded funds and indexes seem to be
12:17
Speaker 1: the flavor of the year. It seems it more and
12:22
Speaker 1: more these days. However, UM, we're getting to the point
12:25
Speaker 1: where we've shown with our results of active management as
12:29
Speaker 1: a is a powerful tool in fixed income where opportunities
12:32
Speaker 1: to differentiate yourself and take advantage of market and liquidity
12:36
Speaker 1: conditions can be a real lever to pulse. So we've
12:38
Speaker 1: shown that it works. UM. We also think that where
12:42
Speaker 1: the market is now, with that flood of capital into
12:46
Speaker 1: one way positioning UM is going to prove exceptionally beneficial
12:50
Speaker 1: to investors when those positions are unwound. We don't want
12:54
Speaker 1: to be in the way of a great deal of
12:56
Speaker 1: capital looking for liquidity. Okay, so let's talk about that unwy.
13:00
Speaker 1: First of all, how much have you boosted your cash
13:02
Speaker 1: holdings recently? Uh? And and second of all, what would
13:05
Speaker 1: prompt that kind of reversal of the crowded positions? So
13:10
Speaker 1: we maintain UM, you know, roughly ten to fifteen percent
13:15
Speaker 1: cash UM in the fund and it's been that way
13:19
Speaker 1: for the recent past. And as for what might cause that,
13:24
Speaker 1: looking historically, just look at, for example, the slope of
13:27
Speaker 1: the euro dollar curve against funds, and you see that
13:32
Speaker 1: the market tends to underappreciate the FED. That the market
13:36
Speaker 1: tends to project current conditions in the future. And today
13:40
Speaker 1: that's low ball, that's low rates, that's low inflation, that's
13:44
Speaker 1: crowded positioning. We like to project that into the future. Collectively,
13:48
Speaker 1: the market will underappreciate the FED. Now, we don't need
13:52
Speaker 1: for hikes to get some ugly numbers in the tenure note.
13:56
Speaker 1: The tenure note has a nine year duration, it trades
13:58
Speaker 1: to twenty and it's traded in a hundred basis point
14:00
Speaker 1: range over the past couple of years, so you don't
14:02
Speaker 1: need much to get some negative numbers and the mark
14:06
Speaker 1: the market is not appreciating what the FETE is saying.
14:09
Speaker 1: Yellen wants to get the qui unlined up going before
14:13
Speaker 1: she potentially loses office. That's a much harder thing to reverse,
14:16
Speaker 1: so she wants her legacy to be that to be
14:21
Speaker 1: starting to go. So when we see that move higher,
14:25
Speaker 1: it's not gonna take much. We could see some of
14:27
Speaker 1: this unlined. So right now I'm looking at a tenure
14:30
Speaker 1: treasury yield of two point How high would it have
14:33
Speaker 1: to go to it to cause some some serious pain
14:35
Speaker 1: and which as a class is most vulnerable? UM. Hard
14:39
Speaker 1: to judge how high it needs to go to cause pain. UM.
14:42
Speaker 1: Probably I think there's probably some technical selling you know,
14:46
Speaker 1: north of to something like that. As I speculate, UM,
14:51
Speaker 1: the most vulnerable places are that high quality UM space.
14:55
Speaker 1: You've seen a flood of of high quality new issuance
14:58
Speaker 1: we've seen recent in recent days, focus on hold co issuance,
15:03
Speaker 1: focus on Carrie trades, to focus on relative value instead
15:06
Speaker 1: of total return preferred you know, coming to get some
15:11
Speaker 1: equity treatments. This is very late credit cycle behavior. That
15:15
Speaker 1: doesn't mean growth can extend things, but you're starting to
15:19
Speaker 1: see behavior that shows UM that the market is getting
15:22
Speaker 1: a bit on the extended side. So it's that high
15:25
Speaker 1: quality area that is likely subject to some some some
15:29
Speaker 1: negative signs and investor disappointment. Henry Peatbuddy, thank you so
15:32
Speaker 1: much for joining us. We love talking with you. Henry
15:35
Speaker 1: Peabody is a portfolio manager at Eaton Vance, which oversee
15:38
Speaker 1: these three hundred billion dollars of assets and is based
15:42
Speaker 1: in Boston. All right, let's turn our attention now to
15:56
Speaker 1: the US dollar. Have ad buying dollars, selling treasures and
15:58
Speaker 1: then waiting for the US Congress and the administration to
16:01
Speaker 1: agree on tax cuts. Is that a strategy? Well, Vincent
16:05
Speaker 1: Signerella are FX strategist for Bloomberg News, joins us here
16:09
Speaker 1: in our studio eleven three oh, Vincent, So is that
16:13
Speaker 1: the strategy that you see a lot of professionals employing. No,
16:16
Speaker 1: not really the by dollar trade, the Trump trade that
16:21
Speaker 1: has been um revised, shall we say, with the with
16:25
Speaker 1: the excitement, they're trying to try, as David said, you're
16:31
Speaker 1: trying to breathe some life in it. There's optimism everywhere.
16:33
Speaker 1: There's a hopium going on in the market right now
16:36
Speaker 1: that on September, we want to get a tax plan
16:39
Speaker 1: that the Trump administration can put forward and get bipartisan support,
16:45
Speaker 1: and we will see fiscal stimulus in two thousand eighteen,
16:48
Speaker 1: early in two thousand eighteen. The reality of the situation is,
16:51
Speaker 1: from what I've read of it so far, is there's
16:54
Speaker 1: a very small chance this is going to be revenue neutral,
16:57
Speaker 1: and without a revenue neutral budget, this will pass even
17:01
Speaker 1: Mitch McConnell is said he will not vote for a
17:03
Speaker 1: budget that is not revenue neutral. Will never get the
17:05
Speaker 1: conservatives in the Republican Party on board, certainly won't get
17:08
Speaker 1: the Democrats on board. The thing is dead in the water.
17:10
Speaker 1: So we'll see this old reverse. Okay, So since we've
17:14
Speaker 1: seen the Trump bet just totally destroyed earlier this year
17:18
Speaker 1: with the dollar plunging uh the most for a period
17:21
Speaker 1: on record in some in some ways, um, I just
17:25
Speaker 1: have to wonder, you know, people, you start to get
17:27
Speaker 1: conspiracy theorist saying that the dollar isn't going to be
17:29
Speaker 1: used as a reserve currency as much, it's not as
17:31
Speaker 1: much of a haven currency because of all the uncertainty.
17:34
Speaker 1: We're not seeing that much of a surge in the
17:37
Speaker 1: dollar on the heels of the yet another nuclear test
17:41
Speaker 1: or another missile test anyway by North Korea. What's going
17:45
Speaker 1: on here. The reason for that is that every time
17:49
Speaker 1: we've seen the dollar rally and every time we have
17:51
Speaker 1: seen a treasury sell off this year, it's been a
17:55
Speaker 1: great trade to fade. So when you see the situation
17:59
Speaker 1: in North Korea and there there's there's not the appetite
18:03
Speaker 1: to buy dollars as there was before, because the trade
18:06
Speaker 1: tends to revert and and it doesn't hold. So it's
18:10
Speaker 1: a very very it has been a very very short
18:12
Speaker 1: term game trade not a long term winner. As you
18:15
Speaker 1: mentioned this year, it's been a horrible in response by
18:17
Speaker 1: the debt. Yeah, I gotta move on just to ask
18:21
Speaker 1: you this this and move away from the Pavlovian response concept.
18:25
Speaker 1: You mentioned revenue neutral right, having to do with the
18:28
Speaker 1: tax reform plan that may or may not actually get past.
18:33
Speaker 1: How is it? Is it re election neutral as well?
18:35
Speaker 1: I mean, because what I understand Mitch McConnell. You know
18:38
Speaker 1: sentiment jarity leader, what he says, but you know all
18:41
Speaker 1: these congressmen and women they have to run for re
18:44
Speaker 1: election and the president is still popular in the districts
18:50
Speaker 1: where a lot of these conservative Republicans represent. What if
18:55
Speaker 1: we do get some kind of tax reform plan, what
18:58
Speaker 1: does that do? Then you will see the doll rally
19:00
Speaker 1: I mean, and you will see a sell off and
19:01
Speaker 1: treasuries because there will be essentially a positive fiscal response
19:06
Speaker 1: that will happen in two thousand and eighteen. And what
19:08
Speaker 1: follows on that is the assumption then that given you'll
19:11
Speaker 1: see fiscal stimulus that gives the Fed more room to
19:13
Speaker 1: take rates. Now, okay, and I'm just wondering, do you
19:16
Speaker 1: also see the possibility that companies will have to take
19:19
Speaker 1: the money that they have been using for buy backs
19:21
Speaker 1: and uh dividend increases and in order to get increased
19:24
Speaker 1: productivity rather than hiring more people. They're going to invest
19:28
Speaker 1: it in technology. They're gonna spend it on capital projects.
19:30
Speaker 1: They may it depends on what their cost of capital is.
19:33
Speaker 1: And that's the whole story about bringing money back overseas.
19:35
Speaker 1: If you bring back money overseas, it has to be
19:37
Speaker 1: cheaper than your current cost of capital. Otherwise it doesn't
19:39
Speaker 1: pay to reinvest. I think that if the dollar does strengthen,
19:43
Speaker 1: it's going to tank markets because if you think about it, uh,
19:46
Speaker 1: there's exquies well yeah, equities, and wouldn't it also be um.
19:52
Speaker 1: I mean, I don't know, I might might. Just I'm
19:54
Speaker 1: just seeing all the leverage trades that have been built
19:57
Speaker 1: on a week dollar, whether it's emerging markets, currency, emerging markets,
20:02
Speaker 1: whether it's oil and gold and things that are priced
20:06
Speaker 1: in the dollar. I mean, gold won't do well if
20:08
Speaker 1: the dollar rise is no will emerging markets because a
20:10
Speaker 1: lot of foreign A lot of the emerging market countries
20:14
Speaker 1: have dollar denominated loans, so as the dollar increases, the
20:17
Speaker 1: debt becomes more expensive. So e M tends not to
20:20
Speaker 1: do well when the dollar relies. And also there's been
20:22
Speaker 1: so much money that goes into local currency emerging markets
20:25
Speaker 1: from hard currency investors, namely US investors. So if the
20:29
Speaker 1: dollar strengthens, that means that those emerging market currencies weekend
20:33
Speaker 1: and poof the go returns. Well, there wasn't There won't
20:36
Speaker 1: be an incentive to go into e M if the
20:37
Speaker 1: dollar strengthens, because you'll the dollar invested in assets will
20:42
Speaker 1: will flourish. It'll be very interesting to see how this rolls. Vincent,
20:47
Speaker 1: thank you so much, and can you can you give
20:48
Speaker 1: us just really quickly what's your bet? I think it's
20:51
Speaker 1: going to weaken to the year end the dollar. Yeah,
20:53
Speaker 1: I don't like the odds of fiscal reform of passing,
20:56
Speaker 1: and I think, um, I think there are other things
20:59
Speaker 1: that are to hold the hand of the Fed. So
21:01
Speaker 1: we're not going to see us and interest rates the
21:04
Speaker 1: dollar higher. All right, Vincent sc Nerella, He is not
21:08
Speaker 1: drinking the glass of opium. Vincent is our FX strategist
21:12
Speaker 1: for Bloomberg. Well, there is a big, big question right
21:26
Speaker 1: now among many investors, which is gold doesn't matter anymore?
21:30
Speaker 1: Is it a haven asset? And should you be buying
21:33
Speaker 1: it as a lot of people expect inflation to pick
21:36
Speaker 1: up and are concerned about inflated asset prices. Here to
21:40
Speaker 1: give us his view, as Frank Holmes. He is the
21:42
Speaker 1: chief executive officer and chief investment officer of US Global Investors,
21:46
Speaker 1: which is based in San Antonio, Texas, but he joins
21:48
Speaker 1: US here in New York. Frank, you are bullish on gold, Gold,
21:54
Speaker 1: Go gold? Why? Well, I think if you looked back
21:56
Speaker 1: since this the two thousand, the year two thousand, gold
21:59
Speaker 1: is far row perform the SMP five D, which shocks people. Uh.
22:04
Speaker 1: And then there's these short term runs which we're experiencing again,
22:07
Speaker 1: and that's predominantly because of negative real interest rates. And
22:10
Speaker 1: whenever negative has explained to your listeners is whatever the
22:13
Speaker 1: governments saying, bly, my bonds, my two year, my five
22:16
Speaker 1: year bonds. Take away the monthly CPI number gives you
22:20
Speaker 1: a positive or negative real rate of return. And whenever
22:23
Speaker 1: that is negative, gold goes up, dollar goes down. Whenever
22:26
Speaker 1: it's positive, dollar goes up, gold goes down. So gold
22:29
Speaker 1: is money for half of the world, and it shows
22:33
Speaker 1: up in reserves, shows up a significant factor. China is
22:36
Speaker 1: not gonna be floating a Wan bond and it's backed
22:40
Speaker 1: by gold for them to make it, so the credibility internationally,
22:44
Speaker 1: people don't want to turn they can remember just their paper.
22:46
Speaker 1: They say, well, it's not gonna be collaterized with gold.
22:49
Speaker 1: So I think that's that's important. Um. And the other
22:52
Speaker 1: part is more a significant long term is the rise
22:55
Speaker 1: and I call the love trade the rise of g
22:57
Speaker 1: d P per capita in Hindia China, India affectually known
23:01
Speaker 1: as the world's population. Their rising GDP has led to
23:05
Speaker 1: a continuous and it comes in waves of buying for gifts.
23:09
Speaker 1: They buy care of gold jewelry. Uh, it only has
23:12
Speaker 1: a ten markup, so you get to wear your wealth.
23:16
Speaker 1: Wearing your wealth, I guess wearing it on your sleeve
23:19
Speaker 1: is as well. You know you mentioned there is this
23:21
Speaker 1: idea about gold. But I'm wondering do people buy gold
23:25
Speaker 1: as investments because they think the world is going to
23:28
Speaker 1: come to an end or do they buy it because
23:31
Speaker 1: they recognize something about the way that currencies operate. That
23:36
Speaker 1: make gold just a great investment that you can buy
23:39
Speaker 1: and sell and make some money on. I think there's
23:42
Speaker 1: there's two parties to that, and I think that as
23:45
Speaker 1: I said earlier, that the biggest buyers that really shocks
23:48
Speaker 1: you is the love trade, not the fear trade. The
23:50
Speaker 1: short term spurts and rallies is the fear trade. Uh.
23:53
Speaker 1: And they're the more savvy currency players that are taking
23:56
Speaker 1: a look at what are the factors will drive a
23:58
Speaker 1: country's currency up or down, and they look at monetary policy,
24:03
Speaker 1: they look at CPI numbers, and they look at fiscal policy.
24:06
Speaker 1: So until there's really a pushback in fiscal policy that
24:09
Speaker 1: is streamlining all these regulations globally that are taking place,
24:13
Speaker 1: then you're going to have to live with cheap negative
24:15
Speaker 1: interest race. Frank, when when did you get most bullish? Uh?
24:19
Speaker 1: On gold? Well? I grew up in coming from Canada,
24:24
Speaker 1: originally in Toronto. You study geology and mining at a
24:28
Speaker 1: young age, and uh so I became fascinated on those
24:31
Speaker 1: on those drivers at a young age. But I mean
24:34
Speaker 1: as far as recent events, I mean, is there something
24:38
Speaker 1: about what's going on right now that makes you bullish
24:40
Speaker 1: on gold or are you just generally bullish on He's
24:46
Speaker 1: Canadian exactly. I mean, it's in your Canadian flood. You
24:49
Speaker 1: grew up learning about life hockey stick. Um. But I
24:52
Speaker 1: think the thing is I've always mentioned is that people
24:54
Speaker 1: should have a ten percent waiting in gold and rebalance
24:56
Speaker 1: each year because there's inherent volatility with currencies, and that's
25:00
Speaker 1: to protects you as an investor. So it's a form
25:03
Speaker 1: of insurance. Some people would say that bitcoin is the
25:06
Speaker 1: new gold with respect to that sort of uncorrelated asset
25:11
Speaker 1: class that does not have the same kind of correlations
25:15
Speaker 1: of some currencies. Do you agree, No, I think that
25:18
Speaker 1: it's the most incredible exercise and crowdfunding. If you go
25:23
Speaker 1: to TED talks, which have readers, I mean a hundred
25:25
Speaker 1: eighty countries, two million people a day watch TED talks
25:29
Speaker 1: and the educational blockchain technology cryptocurrency, etherory and bitcoin. It's
25:34
Speaker 1: all over the world by very intelligent people are learning
25:37
Speaker 1: about this space and the crowdfunding that has taken place.
25:40
Speaker 1: In the funding, I think it's got a control. There's
25:43
Speaker 1: eight hundred I c o s uh. There's no corporate
25:46
Speaker 1: governments with these these things. But the idea of bitcoin
25:49
Speaker 1: and etherorium and ripple. Uh, and there's about ten of them,
25:53
Speaker 1: but in particularly Etherorium, which is a contract. I think
25:56
Speaker 1: they're very significant and we're very early like we were
25:58
Speaker 1: in the Internet, of how you can do a transaction
26:02
Speaker 1: and have a contract and you can basically move money
26:06
Speaker 1: and you can do it every hour, uh twenty four seven.
26:10
Speaker 1: Trade and stocks, the arbitrage with currencies when you go
26:13
Speaker 1: here to Canada, the banks are going to charge from
26:15
Speaker 1: four percent to twelve pc on your currency. It's gonna
26:19
Speaker 1: cost you two percent. If someone came to you, Frank
26:22
Speaker 1: and said, look, I buy your analysis. I think this
26:25
Speaker 1: is something that I want to invest in, but I
26:26
Speaker 1: don't want to lose my shirt. What would you recommend
26:29
Speaker 1: that they do? Well, it's he just had to understand
26:33
Speaker 1: it's very cutting edge, as very volatile, especially what Jimmy
26:36
Speaker 1: Dan when he said, uh, the very aggressive statements that
26:40
Speaker 1: they've made. Uh. He's a great leader as a CEO,
26:43
Speaker 1: he's a phenomenal job. But at the same time, their
26:47
Speaker 1: bank and other banks have been charged and found in
26:50
Speaker 1: court system for manipulating the price of gold. So you
26:53
Speaker 1: hear from other people that write about this are saying, well,
26:56
Speaker 1: they must be short or they have another. But how
26:59
Speaker 1: would you invest? Is there a way to invest just quickly? Well,
27:01
Speaker 1: I don't think there's a clear way where Hopefully I've
27:04
Speaker 1: invested in a company is going to go public next week.
27:06
Speaker 1: That's the first mining company, uh and it's with the
27:10
Speaker 1: company called Genesis Mining, and it is a pure mind
27:14
Speaker 1: and minds these uh mint coins new coins. I can
27:17
Speaker 1: tell that mining is a theme, right. Mining goes from
27:19
Speaker 1: gold to Frank has cuff links that's say buy and sell. Awesome,
27:25
Speaker 1: you like that hunt. You know what the price of
27:27
Speaker 1: gold was in two thousand, two hundred and seventy three
27:30
Speaker 1: dollars announced today one dollars. Thanks very much, Frank Colmes.
27:34
Speaker 1: He is the chief executive chiefs investment Officer of US
27:37
Speaker 1: Global Investors based in San Antonio. Thanks for listening to
27:43
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
27:46
Speaker 1: listen to interviews at Apple Podcasts, SoundCloud or whatever podcast
27:50
Speaker 1: platform you prefer. I'm pim Fox. I'm on Twitter at
27:53
Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo wits one.
27:57
Speaker 1: Before the podcast, you can always catch us worldwide it
28:00
Speaker 1: on Bloomberg Radiom