Latest / Bloomberg Intelligence / Argentina Selloff Is A Buying Opportunity, Turkey Not So Much

Transcript

Argentina Selloff Is A Buying Opportunity, Turkey Not So Much · 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. Let's
• 0:32
  Speaker 1: turn our attention now to Argentina or the central Bank
• 0:36
  Speaker 1: has risen interest rates three times in the past week
• 0:40
  Speaker 1: just to support its currency. The result it is not working.
• 0:44
  Speaker 1: Joining us now, Paul McNamara, investment director for Emerging Markets
• 0:47
  Speaker 1: at gam UK Limited, overseeing about eleven billion dollars in
• 0:51
  Speaker 1: developing world assets. Paul, thank you so much for being here.
• 0:55
  Speaker 1: We're looking at a lira that is tanking. We're looking
• 0:58
  Speaker 1: at that yields are absolutely skyrocketing on Argentinean bonds. Is
• 1:04
  Speaker 1: this a buying opportunity? We think it is. Sorry you
• 1:09
  Speaker 1: said lira. The lira is the one that we don't
• 1:12
  Speaker 1: think is buying opportunity. Turkey has quite similar problems to Argentina. Sorry,
• 1:17
  Speaker 1: I'm getting my troubles back. Confused, Sorry, no, no, the
• 1:20
  Speaker 1: different the differences really favor Argentina. Argentina is a much
• 1:24
  Speaker 1: less indebted economy. So you know, the the Argentines did
• 1:29
  Speaker 1: three percent last Friday, they did three percent yesterday, they
• 1:32
  Speaker 1: did six and three quarter percent today. But you know,
• 1:35
  Speaker 1: this is an economy with a very low level of leverage,
• 1:37
  Speaker 1: where the burden of hiking rates is much less severe
• 1:41
  Speaker 1: on the real economy. Um, it's you know, it's something
• 1:43
  Speaker 1: that can translate relatively smoothly to currency strength, unlike you know,
• 1:48
  Speaker 1: most countries in the developed world, almost countries in e M,
• 1:51
  Speaker 1: where you know, obviously the conflicts between the damage done
• 1:54
  Speaker 1: by higher rates and the damage done by a weaker currency.
• 1:57
  Speaker 1: In Argentina, I think it's fairly here that that all
• 2:01
  Speaker 1: the all the burden, all the damage comes from a
• 2:03
  Speaker 1: weaker paco. Um, so everything favors that the the the
• 2:07
  Speaker 1: Argentine authorities doing everything they possibly can to keep the
• 2:10
  Speaker 1: paco in place. Well, just to push back a little bit,
• 2:13
  Speaker 1: because if you see, this is a buying opportunity for
• 2:16
  Speaker 1: the Argentine paco or perhaps some of the debt that's
• 2:18
  Speaker 1: selling off. I'm just wondering about the root of the
• 2:21
  Speaker 1: weakness here, which is the fear that the right leaning
• 2:24
  Speaker 1: leadership isn't doing as much as it needs to be
• 2:27
  Speaker 1: doing to support the nation's economy and its finances. What's
• 2:31
  Speaker 1: your take on that. No, I mean, you know, we've
• 2:34
  Speaker 1: got right wing governments or populist governments all over the
• 2:37
  Speaker 1: world sort of not supporting the economy. The economy, you know,
• 2:40
  Speaker 1: if you look at Russia, if you look at Poland,
• 2:42
  Speaker 1: if you look pretty much everywhere. I mean, the reason
• 2:46
  Speaker 1: that Argentina and again Turkey are getting hammered is not
• 2:50
  Speaker 1: so much to do with economic strength. It's to do
• 2:52
  Speaker 1: with the external balances. These are both countries where imports
• 2:56
  Speaker 1: are are rising much faster than exports. You know, that
• 2:59
  Speaker 1: the currency has become competitive, um, you know, and the
• 3:02
  Speaker 1: way to address that is to you know, is to
• 3:04
  Speaker 1: bring import demands down a bit and give people a
• 3:07
  Speaker 1: reason to hold their money in local currency, which I
• 3:10
  Speaker 1: think higher rates will help with. Um. You know, growth
• 3:14
  Speaker 1: growth in Argentina is respectable. It's you know, it's not
• 3:18
  Speaker 1: outrageously high, but I think it's you know, it's it's
• 3:21
  Speaker 1: positive that the authorities are willing to hike rates and
• 3:24
  Speaker 1: looking for stability ahead of a dash for growth. Paul,
• 3:28
  Speaker 1: why did this happen. I mean, what's the reason. Doesn't
• 3:30
  Speaker 1: this go back to something that happened in December? I
• 3:35
  Speaker 1: think the rate hikes at the end of last year
• 3:37
  Speaker 1: and the start of this year. Yes, that that that
• 3:38
  Speaker 1: there was a perception that the you know that that
• 3:42
  Speaker 1: the Argentines were kind of engaging in this dash for growth,
• 3:46
  Speaker 1: that you know that stability and lower inflation had taken
• 3:48
  Speaker 1: second place. But you know, the rate cuts that they did,
• 3:52
  Speaker 1: you know, across the turn of the year have been
• 3:53
  Speaker 1: more than reversed since then. So I think it would
• 3:57
  Speaker 1: be fair to say that the Argentines has got the
• 3:59
  Speaker 1: message gay. So you think it's a buying opportunity, what's
• 4:02
  Speaker 1: the best opportunity? Is it the paco? Is it a
• 4:05
  Speaker 1: certain bond issuance? I mean, you know, as ever, if
• 4:09
  Speaker 1: you say something something is a buy, I mean, as
• 4:12
  Speaker 1: somebody who's running an e M portfolio, we think relative
• 4:14
  Speaker 1: to other emerging markets, it looks like goodbye. We think
• 4:18
  Speaker 1: you know that the pacer has overshot here, that you're
• 4:20
  Speaker 1: getting an interest interest rates up at around on Argentine
• 4:25
  Speaker 1: paco assets. We prefer paco assets here. Yes, okay, what
• 4:29
  Speaker 1: about let's talk about Turkey because that's the other big,
• 4:33
  Speaker 1: big name in the news, and you're saying that you
• 4:35
  Speaker 1: are not positive on the lira there, which is tanking.
• 4:39
  Speaker 1: I believe in some measures to its weakest levels, uh
• 4:43
  Speaker 1: in near history. What's your take on what's happening there? Well,
• 4:48
  Speaker 1: I beat the problems in Turkey look to us fairly severe.
• 4:52
  Speaker 1: You know. Above all, you know, the one thing you
• 4:54
  Speaker 1: don't want to see an emerging market is a huge
• 4:57
  Speaker 1: build up of foreign debt to support ought activity, which
• 5:01
  Speaker 1: only generates local currency. You know, we saw its an Asia,
• 5:06
  Speaker 1: We've seen it in lots of countries along the way,
• 5:08
  Speaker 1: because what happens is as the currency falls, the ability
• 5:12
  Speaker 1: of the banks and the core protector to to pay
• 5:15
  Speaker 1: that debt falls um. You know. And unlike Argentina, you know,
• 5:21
  Speaker 1: the level of foreign debt in Turkey is extremely high
• 5:25
  Speaker 1: and at the same time activity in business activity in
• 5:30
  Speaker 1: Turkey is falling very slowly. Plus you have political changes
• 5:33
  Speaker 1: which I think militates in favor of capital flight and
• 5:36
  Speaker 1: moving money out of the country, and a very low
• 5:39
  Speaker 1: level of foreign exchange reserves. If you take that mix together, uh,
• 5:43
  Speaker 1: you know, we think that there's a real possibility of
• 5:45
  Speaker 1: a major economic crisis in Turkey this year, So what
• 5:48
  Speaker 1: would you do? Go short Turkey, go along Argentina. Would
• 5:51
  Speaker 1: that be a good trade? I think we'd find it
• 5:55
  Speaker 1: an attractive trade. But it's it's definitely one for the brave,
• 6:00
  Speaker 1: you know, this is this is not one for widows
• 6:02
  Speaker 1: and orphans. Just really quick. I'm wondering just in general,
• 6:06
  Speaker 1: we've seen two weeks of outflows from emerging market funds,
• 6:09
  Speaker 1: the most since December. Are you concerned about general broader
• 6:13
  Speaker 1: weakness due to the stronger dollar? M Well, yeah, I
• 6:17
  Speaker 1: mean if somebody, you know, kind of makes their living
• 6:19
  Speaker 1: in this market, I think we have to be concerned.
• 6:23
  Speaker 1: I mean, what we've seen is, you know, after two
• 6:25
  Speaker 1: years of quite a week dollar, we've seen the dollars
• 6:28
  Speaker 1: snap back. And it's always been the case that, you
• 6:30
  Speaker 1: know that when the dollar rallies against d M, it
• 6:33
  Speaker 1: rallies stronger against EM and everything we've seen since then
• 6:37
  Speaker 1: has been in line with that. Unlike you know, say
• 6:40
  Speaker 1: two thousand and thirteen or two thousand and eight, we
• 6:42
  Speaker 1: don't see weakness in EM We're not seeing external deficits,
• 6:45
  Speaker 1: so we think that the fundamentals in them this time
• 6:48
  Speaker 1: are much more supportive. Thanks very much. Paul McNamara, Investment
• 6:52
  Speaker 1: director for Emerging Markets for gam UK, helping to manage
• 6:56
  Speaker 1: about eleven billion dollars in developing world assets, earning us
• 7:00
  Speaker 1: on the phone from London. Right now, let's turn our
• 7:17
  Speaker 1: attention to the jobs data that we got out from
• 7:20
  Speaker 1: the US this morning. Yes, we saw the jobless rate
• 7:24
  Speaker 1: fall to three point nine percent, the lowis and April
• 7:26
  Speaker 1: two thousand, but wages did not increase as much as
• 7:31
  Speaker 1: many people had expected. Tom Gimble joins US now. He
• 7:34
  Speaker 1: is founder and chief executive officer of LaSalle Network. And Tom,
• 7:38
  Speaker 1: I'm really glad you're here. You're the person I want
• 7:40
  Speaker 1: to speak with. I want to talk about why we
• 7:43
  Speaker 1: are not seeing bigger increases in what we earn. Well.
• 7:48
  Speaker 1: Right now, we've got a labor market that um is,
• 7:53
  Speaker 1: as you said, the best labor market we've had since
• 7:55
  Speaker 1: two thousand, with unemployment below four. So the question is
• 7:59
  Speaker 1: we're bringing in the hourly wages reflecting the service wages.
• 8:03
  Speaker 1: So we haven't seen the influx from the municipalities increasing
• 8:07
  Speaker 1: minimum wage, and I think we'll start to see that
• 8:10
  Speaker 1: as that minimum wage continues to grow, But the service
• 8:13
  Speaker 1: positions are still not are still driving the unemployment ranked down,
• 8:17
  Speaker 1: and what we're not seeing is when people get hired
• 8:19
  Speaker 1: in white collar jobs and someone goes from making fifty
• 8:22
  Speaker 1: thousand to sixty thousand, they're also being replaced by people
• 8:26
  Speaker 1: coming in at lower salaries. So it's not as easy
• 8:29
  Speaker 1: as saying, oh, well, if unemployments low, then everybody's making
• 8:33
  Speaker 1: more money. That's not where the markets at right now.
• 8:36
  Speaker 1: And that's because of the global economy in a sense
• 8:38
  Speaker 1: as well, that we can there's so much production being
• 8:42
  Speaker 1: done around the globe that we're not competing against the
• 8:45
  Speaker 1: neighbor and that we're not getting more money tomorrow than
• 8:47
  Speaker 1: we were yesterday. That's the channel. But the good news
• 8:50
  Speaker 1: is there's more jobs, but there's there's no one should
• 8:53
  Speaker 1: be out of work right now. Well okay, but but Tom,
• 8:55
  Speaker 1: I want to push back a little bit because you're
• 8:57
  Speaker 1: saying that that basically people don't have to pay more.
• 9:00
  Speaker 1: Companies don't have to pay more unless the minimum wage
• 9:03
  Speaker 1: rules are are changed. But aren't a lot of ceo
• 9:07
  Speaker 1: is saying that they have trouble finding qualified workers right now,
• 9:10
  Speaker 1: and wouldn't they have an easier time if they just
• 9:12
  Speaker 1: offered more money. No, So, so paying more doesn't get
• 9:17
  Speaker 1: somebody more qualified, So to pay more with the vision
• 9:20
  Speaker 1: of most CEOs and CFOs are not the vision. The
• 9:22
  Speaker 1: reality is they're not going to pay more for the
• 9:26
  Speaker 1: exact same person they can get. This is what happened
• 9:30
  Speaker 1: in two thousand and two until two thousand and eight,
• 9:33
  Speaker 1: is that that boom was fueled by companies were paying
• 9:37
  Speaker 1: more for people just for the sake of saying we
• 9:40
  Speaker 1: need more people, We're gonna pay outrageous amounts of money,
• 9:43
  Speaker 1: and it didn't work. Right now, I'm not saying that
• 9:45
  Speaker 1: the housing market wasn't the driver for that crash, but
• 9:48
  Speaker 1: we have now is a more responsible group of lead
• 9:50
  Speaker 1: corporate leaders, and they're saying that we're not going to
• 9:54
  Speaker 1: pay more just for the sake of paying more unemployment
• 9:57
  Speaker 1: at three point to go hire some who's unemployed and
• 10:01
  Speaker 1: just pay them more, that doesn't make fiscal sense. Tom uh.
• 10:06
  Speaker 1: There are five point nine million open jobs in the
• 10:09
  Speaker 1: United States at least that's according to Lasal Network. Right, Okay,
• 10:14
  Speaker 1: where are the most Where's the most demand? And I
• 10:17
  Speaker 1: mean demand, not that you need a PhD in you know,
• 10:20
  Speaker 1: astrophysics or mathematics. Where's the biggest demand? Right now? So
• 10:25
  Speaker 1: the biggest demand is in sales in computer and technology developers,
• 10:30
  Speaker 1: coders and programmers, and then in healthcare, right and that's
• 10:34
  Speaker 1: been the same way going on for half a decade.
• 10:36
  Speaker 1: Now that those are the drivers sales really more in
• 10:39
  Speaker 1: the past three years. To keep fueling this economy, corporations
• 10:43
  Speaker 1: want to increase revenue. Where I think we're gonna get
• 10:45
  Speaker 1: at births. I think the July numbers and the August
• 10:48
  Speaker 1: numbers are going to be really good because you're gonna
• 10:50
  Speaker 1: see it's a great time to be graduating college right now,
• 10:54
  Speaker 1: all right, And that's why, Well, I'm glad you mentioned
• 10:56
  Speaker 1: graduating college because I'm wondering these entry level positions or
• 11:00
  Speaker 1: these positions for which you need a lot of experience,
• 11:02
  Speaker 1: or would even internships qualify you. Yeah, no, it's it's
• 11:06
  Speaker 1: it's it's for all of the above. And so that's
• 11:08
  Speaker 1: the big difference is that companies would love to hire
• 11:11
  Speaker 1: some experienced people. However, the ones who are unemployed, that's
• 11:15
  Speaker 1: where the skills gap exists. The long term unemployed don't
• 11:18
  Speaker 1: have the skills to be hired in this market. So
• 11:20
  Speaker 1: what companies do is they hire younger people out of college,
• 11:24
  Speaker 1: and that doesn't increase the wages because those people are
• 11:27
  Speaker 1: coming in at entry level salaries, and so we'll see
• 11:29
  Speaker 1: as a boost. My guess is July, August, September numbers
• 11:32
  Speaker 1: are gonna be well over two hundred thousand a month
• 11:34
  Speaker 1: because this economy engine is gonna keep going, and you're
• 11:37
  Speaker 1: gonna see higher volumes of people being hired because they're
• 11:40
  Speaker 1: more available. So what do you think the unemployment rate
• 11:43
  Speaker 1: will be by the end of the year. I think
• 11:46
  Speaker 1: it stays around the same. It really the Even if
• 11:49
  Speaker 1: the FED raises interest rates by another quarter of a point,
• 11:53
  Speaker 1: I don't think that moves the needle on hiring. I
• 11:55
  Speaker 1: think it can't really get much lower. What what used
• 11:57
  Speaker 1: to be a rule of thumb twenty years ago that
• 12:00
  Speaker 1: two and a half to three percent was the acceptable
• 12:02
  Speaker 1: unemployment rate. That's that there's just a certain number of
• 12:05
  Speaker 1: people that are unemployable. I think that number today is
• 12:08
  Speaker 1: probably right around three to three and a half. So
• 12:11
  Speaker 1: I don't think we get much lower than three nine,
• 12:13
  Speaker 1: maybe three eight. Tom. The cover story of Bloomberg Business
• 12:17
  Speaker 1: Week this week, Just Out, is about the workplace. It
• 12:19
  Speaker 1: says the workplaces complicated the business of equality. What a
• 12:23
  Speaker 1: graduates want out of their jobs. The number one thing
• 12:28
  Speaker 1: that it's really been a change is that and this
• 12:30
  Speaker 1: is one thing that will probably they could go counter
• 12:33
  Speaker 1: to what I just said, is that graduates now are
• 12:35
  Speaker 1: seeing the market and they're seeing that they can probably
• 12:38
  Speaker 1: get a higher wage. So more than ever before since
• 12:42
  Speaker 1: pre crash in two thousand and eight, you're seeing graduates
• 12:45
  Speaker 1: not accepting jobs early into their senior year. So they're
• 12:48
  Speaker 1: waiting until after graduation and see how the market. The
• 12:51
  Speaker 1: market checks out, so they want compensation, They want location,
• 12:55
  Speaker 1: so they want to work in cities, major metropolitan areas
• 12:58
  Speaker 1: of where they want to go. So death the Nation
• 13:00
  Speaker 1: is number two. And really culture continues to be. They
• 13:03
  Speaker 1: want to work in a plant that the company appreciates
• 13:06
  Speaker 1: the employees, We appreciate you being with us. Tom Gimble,
• 13:09
  Speaker 1: the founder, the chief executive a list solum that we're
• 13:11
  Speaker 1: talking about today's non farm paywall report. Two days of
• 13:31
  Speaker 1: US and China trade discussions ended in Beijing with little accomplished.
• 13:36
  Speaker 1: Here to talk about the sort of escalating rhetoric between
• 13:40
  Speaker 1: the US and China, at what point it will tip
• 13:42
  Speaker 1: into a more severe trade war is Mike McDonough, chief
• 13:46
  Speaker 1: economist for Financial Products here at Bloomberg LP. Mike, you
• 13:51
  Speaker 1: you pend an opinion piece that I thought was fascinating
• 13:55
  Speaker 1: looking at how a bankruptcy of a major tech company
• 14:00
  Speaker 1: in China could be the real tipping point for a
• 14:03
  Speaker 1: true trade war. Can you explain? Yeah, I think you know,
• 14:06
  Speaker 1: every everyone's focusing on the trade delegation that just visited Beijing,
• 14:11
  Speaker 1: and I think very few people thought we would get
• 14:14
  Speaker 1: something meaningful out of this visit. Right, at best, you
• 14:17
  Speaker 1: would get an agreement to keep talking, and that's more
• 14:20
  Speaker 1: or less what we got, UH. And I think everyone's
• 14:23
  Speaker 1: missing the real front line of a potential trade war,
• 14:26
  Speaker 1: which was the decision the US government made UH in
• 14:29
  Speaker 1: mid April to ban the exports of any US products
• 14:32
  Speaker 1: to z T the telecommunications maker. It's one of the
• 14:35
  Speaker 1: biggest telecommunications equipment makers and it's definitely one of the
• 14:38
  Speaker 1: biggest in China, and it's a very important, very important company. Now.
• 14:42
  Speaker 1: You know, if you know the U S World implements,
• 14:45
  Speaker 1: you know there's some tariff and tariffs on alluminum and steel.
• 14:49
  Speaker 1: They're mostly inconsequential in the global scheme of things, especially
• 14:52
  Speaker 1: when you look at all the countries that had gotten exemptions. UM,
• 14:55
  Speaker 1: there's a list of tariffs that could be put on
• 14:57
  Speaker 1: on Chinese goods. They're a bit more meaningful, but again
• 15:00
  Speaker 1: in the scheme of things, not not that pertinent. Where
• 15:04
  Speaker 1: China is going to be troubled is if U S
• 15:07
  Speaker 1: policy leads to the bankruptcy of a Chinese technology company.
• 15:12
  Speaker 1: This is a critical sector in China. They have big
• 15:15
  Speaker 1: plans for the technology sector. It's an important part of
• 15:18
  Speaker 1: the future. So if if the US government starts implementing
• 15:21
  Speaker 1: policy that's going to bankrupt these companies or meaningfully disrupt
• 15:25
  Speaker 1: these companies, that is what could actually trigger a trade ward,
• 15:28
  Speaker 1: not these tariffs. Mike McDonough looking at the most recent
• 15:33
  Speaker 1: issue of China Daily dot Com, one of the stories
• 15:38
  Speaker 1: is headlined China US agree on some trade issues. Indeed,
• 15:43
  Speaker 1: they even mentioned ZTE Corps. They say China made solemn
• 15:47
  Speaker 1: representations to the U S side regarding the case of
• 15:50
  Speaker 1: z t E and that the U S side expressed
• 15:53
  Speaker 1: that they will pay attention to these representations and will
• 15:56
  Speaker 1: report China's position to the President of the United States.
• 16:00
  Speaker 1: That sounds a little bit concilius, where it doesn't. I
• 16:02
  Speaker 1: I the first headline I saw about the trade talks
• 16:05
  Speaker 1: where they agreed on some things and disagreed on other things,
• 16:08
  Speaker 1: which is not incredibly useful. UH. You know, sure, if
• 16:12
  Speaker 1: they go back to the President and the President changes
• 16:15
  Speaker 1: as rhetoric or or they change the ruling on ZT,
• 16:19
  Speaker 1: that would be quite positive. But at the same time,
• 16:21
  Speaker 1: there's UH it's been reported that they're working on executive
• 16:24
  Speaker 1: orders that would ban the sale of telecom equipment in
• 16:27
  Speaker 1: the US by other Chinese firms. UH. And the most
• 16:30
  Speaker 1: important telecom communications maker in China is Hawei. UH. And
• 16:34
  Speaker 1: there's I think the Wall Street Journal first reported that
• 16:37
  Speaker 1: they have opened a similar investigation against Hawei that they
• 16:41
  Speaker 1: had on ZT that led to this band UH. A
• 16:44
  Speaker 1: similar move against Hawei would have I think pretty significant repercussions.
• 16:48
  Speaker 1: I mean. The other thing to think about is it's
• 16:51
  Speaker 1: an important part of China's economy. China is leading the
• 16:54
  Speaker 1: world right now when it comes to mobile payments these
• 16:58
  Speaker 1: you know, this telecom equipment is an important part of that. UH.
• 17:01
  Speaker 1: So this could be very disruptive for the entire Chinese economy,
• 17:05
  Speaker 1: which has the UH. You know, you could see a
• 17:08
  Speaker 1: rise in sort of nationalistic tendencies against the US. When
• 17:12
  Speaker 1: when you do have this disruption the ZT stock, for example,
• 17:15
  Speaker 1: has been I halted I believe in Hong Kong and
• 17:17
  Speaker 1: Shenzen since April seventeen. So if you're a shareholder of ZT,
• 17:21
  Speaker 1: you right now don't know what's going on and you
• 17:23
  Speaker 1: can't get out, and that's the US fault. Well, that's
• 17:25
  Speaker 1: exactly what I was going to ask about. I mean,
• 17:27
  Speaker 1: using z T E as sort of a poster child
• 17:30
  Speaker 1: of what could happen, and just give a little more. Caller,
• 17:31
  Speaker 1: we were talking. You said, uh that the ban on
• 17:35
  Speaker 1: their gun selling goods to them and selling their goods
• 17:38
  Speaker 1: came from they're providing goods North Korean arm. They are
• 17:42
  Speaker 1: not an innocent victim, right, Okay, So this is this
• 17:44
  Speaker 1: is part of what's going on. But do we have
• 17:46
  Speaker 1: any sense of the financial impact on z T E
• 17:50
  Speaker 1: so far and whether they have any recourse to overturn
• 17:54
  Speaker 1: this ban? Uh? You know, one of the recourses they
• 17:57
  Speaker 1: had the conversation with the trade delegation to bring message
• 18:00
  Speaker 1: to the president. Uh, you know, in terms of long
• 18:03
  Speaker 1: term health, I can't speak to that as well. There's
• 18:05
  Speaker 1: various reports of like ranging from they'll be okay, so
• 18:08
  Speaker 1: they could potentially go bankrupt to I think they have
• 18:11
  Speaker 1: some loans that are are coming due in the near future.
• 18:13
  Speaker 1: But can you give a sense of just how vast
• 18:15
  Speaker 1: this band is and who it could affect the US? Well,
• 18:18
  Speaker 1: I mean, you know, Intel is a big provider, Micron
• 18:21
  Speaker 1: Technologies is a big provider. Microsoft. Um, there's one company
• 18:25
  Speaker 1: I'm not sure how to pronounce it as communication about
• 18:28
  Speaker 1: forty of their revenue comes from ZT. So this does
• 18:32
  Speaker 1: have a pretty big impact on this. You know, I
• 18:36
  Speaker 1: don't know the full number. I think there's something like
• 18:38
  Speaker 1: fifties fifty or so suppliers that we have on the
• 18:41
  Speaker 1: Bloomberg Terminal SPLC go for anyone listening where you could
• 18:45
  Speaker 1: actually go see all those suppliers UH and and their
• 18:47
  Speaker 1: exposure to ZT. So you get an idea. And then
• 18:50
  Speaker 1: that's on the input side. And then of course there's
• 18:52
  Speaker 1: the UH stores that sell ZT equipment, right, that actually
• 18:55
  Speaker 1: sell their phones UH and sell the phones of other
• 18:58
  Speaker 1: Chinese technology company is that pending how this goes could
• 19:01
  Speaker 1: also be impacted just quickly, you go to China, you
• 19:05
  Speaker 1: don't use your own mobile phone, and you don't use
• 19:07
  Speaker 1: your corporate laptop, right, I use my my corporate lab
• 19:12
  Speaker 1: I have my phone in my laptop. When I go
• 19:13
  Speaker 1: to China and you use it, I use it and
• 19:15
  Speaker 1: you don't worry about it being hacked. I'm not I'm
• 19:18
  Speaker 1: not doing anything that I'm okay. I'm just saying because
• 19:21
  Speaker 1: you know, no, no, but I'm serious. I mean, pretty
• 19:23
  Speaker 1: substantial corporate policy is around the United States. Beware when
• 19:28
  Speaker 1: you go to places like that and be careful with
• 19:31
  Speaker 1: your I try to remain aware everywhere honestly nowadays. All right,
• 19:35
  Speaker 1: we'll leave it there. Well done. Mike McDonough he's an
• 19:38
  Speaker 1: expert in all things economic, chief economist Financial Products for
• 19:42
  Speaker 1: Bloomberg LP. Check out his column about the trade in
• 19:46
  Speaker 1: China how China has a decided advantage. The value of
• 20:03
  Speaker 1: gold has dropped about four percent since mid April. Indeed,
• 20:07
  Speaker 1: at thirteen hundred and eleven dollars an ounced, gold is
• 20:10
  Speaker 1: pretty where near it was at the beginning of the year.
• 20:13
  Speaker 1: Here to tell us about the precious metal and more
• 20:16
  Speaker 1: commodities is Will Ryan. He is the founder and the
• 20:18
  Speaker 1: chief executive of Granite Chairs. He joins us here in
• 20:21
  Speaker 1: our eleven three oh studios. Well, thanks for coming in.
• 20:24
  Speaker 1: Why has gold fallen in value since so, let's say
• 20:28
  Speaker 1: mid April. Is it because of dollar strength? Primarily from
• 20:32
  Speaker 1: the dollar strength, yes, um, there there haven't really been
• 20:35
  Speaker 1: any catalysts to speak of that would have driven the
• 20:38
  Speaker 1: price higher. You know, the potential geopolitical tensions that people
• 20:44
  Speaker 1: were expecting to blow up have actually gone in the
• 20:46
  Speaker 1: other direction, namely North Korea, and so the Korean penincia
• 20:50
  Speaker 1: now looking to be much safer than a proposition than
• 20:53
  Speaker 1: it was a year ago. So that that's sort of
• 20:55
  Speaker 1: taken the shine off gold a little bit. How about
• 20:57
  Speaker 1: the fact that inflation expectations also have kind of tempered
• 21:01
  Speaker 1: a little bit, given the fact that we haven't seen
• 21:03
  Speaker 1: the wage increases that many people were expecting. I think
• 21:05
  Speaker 1: a little bit. But there's still kind of bubbling under
• 21:08
  Speaker 1: the surface that you know, we have the strongest inflationary
• 21:11
  Speaker 1: platform for last ten years, and so while in the
• 21:14
  Speaker 1: short term, you know, the numbers off of you know,
• 21:17
  Speaker 1: the February numbers weren't as strong as as people expected,
• 21:20
  Speaker 1: there are more kind of forces at work that are
• 21:23
  Speaker 1: giving people pause on the inflation side. So is there
• 21:27
  Speaker 1: a bullish case to be made for goal at eleven
• 21:30
  Speaker 1: dollars an ounce? I think yes, because in my view,
• 21:34
  Speaker 1: this the dollar strength is temporary. Um that this is
• 21:37
  Speaker 1: not a longer term thing. UM. I think that you know,
• 21:40
  Speaker 1: in an environment of rising interest rates and you know,
• 21:43
  Speaker 1: increasing inflation expectations UM, plus the higher volatility, the gold
• 21:48
  Speaker 1: and commodities more broadly are a a place to be.
• 21:51
  Speaker 1: And you know, people are looking at uncorrelated or low
• 21:54
  Speaker 1: correlated assets right now in order to take some risk
• 21:58
  Speaker 1: out of the equity or bomb market, and gold is
• 22:01
  Speaker 1: one of those places. I want to shift focus to
• 22:04
  Speaker 1: oil simply because prices there have risen to the highest
• 22:07
  Speaker 1: since and there's a big question of how much higher
• 22:11
  Speaker 1: they can possibly go, nearly at the seventy barrel mark.
• 22:16
  Speaker 1: What's your taken on that, well, I mean this is
• 22:19
  Speaker 1: a very interesting story. And you know, if you go
• 22:24
  Speaker 1: back to last summer when I launched granite shares in
• 22:27
  Speaker 1: the market, I mean some of our ETFs have oil exposure,
• 22:30
  Speaker 1: and a common thing I would hear from people as
• 22:33
  Speaker 1: oil is never going to go above forty dollars again.
• 22:35
  Speaker 1: And that was just last summer, and since then we've
• 22:38
  Speaker 1: had this huge rally, and really the main reason is
• 22:41
  Speaker 1: because there's been a huge amount of demand synchronized global
• 22:44
  Speaker 1: economic growth. But these opeque cuts that they've put in
• 22:48
  Speaker 1: place have really kind of bitten back on the supply.
• 22:51
  Speaker 1: And then I think more recently, the dollar weakness and
• 22:55
  Speaker 1: tensions again in the Middle East, particularly with Syria and Iran,
• 22:59
  Speaker 1: have sort of kept momentum going right, But but to
• 23:02
  Speaker 1: some degree that's already being all baked in. Should those
• 23:05
  Speaker 1: tensions ease, should the dollar strengthen as we're seeing it
• 23:08
  Speaker 1: do so today it's actually at the highest levels of
• 23:10
  Speaker 1: the year. Now, I'm just trying to understand at what
• 23:13
  Speaker 1: point do people start to say, wait a second, this
• 23:15
  Speaker 1: seems unsustainable. At some point production from from from shale
• 23:19
  Speaker 1: drillers and from you know, Iraq you've been, you know,
• 23:23
  Speaker 1: might might off set this. Yeah, I mean I think
• 23:25
  Speaker 1: people thought that at fifty dollars, they thought that at
• 23:27
  Speaker 1: sixty dollars, and I thinking it's seventy dollars. And yeah.
• 23:30
  Speaker 1: The point is that a lot of you know, when
• 23:32
  Speaker 1: commodity moves happen, a lot of its momentum driven. And
• 23:35
  Speaker 1: you know what's different about oil is that there is
• 23:38
  Speaker 1: there is a strong fundamental demand there the markets and vaquidation,
• 23:42
  Speaker 1: which means that people are willing to pay a premium
• 23:45
  Speaker 1: for oil of the delivery now versus in the future.
• 23:47
  Speaker 1: And so there's a real strong underpinning underpinning for gold
• 23:50
  Speaker 1: demand right now. And you know how far it can go. Obviously,
• 23:54
  Speaker 1: who knows, but certainly it's a market that's caught a
• 23:56
  Speaker 1: lot of people by surprise. All right. But the same
• 23:58
  Speaker 1: reason that you said the goal was down in price
• 24:01
  Speaker 1: since mid April, wouldn't that apply all sort of oil?
• 24:03
  Speaker 1: Couldn't you just say that oil has reached a sort
• 24:06
  Speaker 1: of near term peak at seventy dollars a barrel, particularly
• 24:08
  Speaker 1: when you know you have, as Lisa said, you've got
• 24:10
  Speaker 1: share producers who can turn on this bigot and they
• 24:13
  Speaker 1: can produce as much oil as you want. The only
• 24:16
  Speaker 1: constraint is actually the pipeline system and the logistics of
• 24:19
  Speaker 1: getting it to the marketplace. Yeah, I think that's true.
• 24:22
  Speaker 1: But the lesson that they've learned from last time is
• 24:24
  Speaker 1: that if they do that, that that's one shore fire
• 24:27
  Speaker 1: way to make the price go lower again, which reticent
• 24:30
  Speaker 1: to do after what happened in the can make a
• 24:33
  Speaker 1: lot of shell producers can make money, can make pretty
• 24:36
  Speaker 1: good money at forty and fifty dollars a barrel. Well,
• 24:38
  Speaker 1: I'd say if fifty. Most people are making good money now,
• 24:41
  Speaker 1: so it's seventy seventy dollars a barrel. They're making really
• 24:43
  Speaker 1: good money. Um, And I think people are just a
• 24:46
  Speaker 1: bit more cautious. Certainly the bigger producers about increasing production.
• 24:51
  Speaker 1: I think, well you may see production coming on board.
• 24:53
  Speaker 1: Is actually the small or startup producers who are thinking
• 24:56
  Speaker 1: exactly what you were saying. Hang on a minute, if
• 24:58
  Speaker 1: we put the money in that we can get capital,
• 25:00
  Speaker 1: we can start drilling, and we can produce and we
• 25:02
  Speaker 1: can make money. That's I think where there's a potential risk.
• 25:06
  Speaker 1: How do you think it could go? Um, honestly, no idea.
• 25:10
  Speaker 1: All right, fair enough, let's let's move to aluminum, because
• 25:14
  Speaker 1: that's been in the news very much recently. It was
• 25:16
  Speaker 1: huge run up as Roussel came into the crosshairs of
• 25:21
  Speaker 1: US regulators. I'm wondering your view given the tremendous rally here,
• 25:26
  Speaker 1: do you think that, uh, you don't really want to
• 25:28
  Speaker 1: be holding aluminium right now? Yeah, I mean I think that,
• 25:31
  Speaker 1: like a lot of these things, there was a big
• 25:33
  Speaker 1: hype um when the sanctions you know, came in um
• 25:37
  Speaker 1: and aluminum, steel, palladium. To a lesser extent, but the
• 25:42
  Speaker 1: Russia metals, if you want to call them, that got
• 25:46
  Speaker 1: bit up a lot and a lot of analysts we're
• 25:48
  Speaker 1: talking about you know, I'm still talking about you very
• 25:51
  Speaker 1: very high prices for aluminum and some of the other metals.
• 25:54
  Speaker 1: I think it's probably a little bit overblown at the
• 25:55
  Speaker 1: moment um, but certainly there was a lot of fever
• 25:58
  Speaker 1: because by definition and all these sanctions when they happen,
• 26:01
  Speaker 1: they're inflationary for the underlying commodity markets. Well, we're gonna
• 26:05
  Speaker 1: have to sort of see what happens because the European
• 26:07
  Speaker 1: Union is also negotiating with the United States on steel
• 26:10
  Speaker 1: and aluminum tariffs as well, right, so that would affect
• 26:13
  Speaker 1: not necessarily the price as much as the Russian issue,
• 26:17
  Speaker 1: but it would certainly affect the supply in the United States. Correct,
• 26:22
  Speaker 1: But a lot of that comes from outside of the States.
• 26:24
  Speaker 1: You know, Canada is obviously a big producer for the
• 26:26
  Speaker 1: for the States, um as is Brazil career as well.
• 26:31
  Speaker 1: But yeah, of course, any kind of trade war affects
• 26:35
  Speaker 1: the baseline commodities or whatever piece of legislation is being
• 26:39
  Speaker 1: talked about at that time. Now, I know that you
• 26:42
  Speaker 1: were talking to Lisa offline, about platinum, right, you want
• 26:44
  Speaker 1: to give us your thoughts on platinum, another precious metal
• 26:47
  Speaker 1: used particularly in the automobile industry and also in fuel
• 26:51
  Speaker 1: cell technology. Correct, So one one story that you know
• 26:55
  Speaker 1: doesn't get talked about a lot because the conversation here
• 26:58
  Speaker 1: around future metals and largely tends itself or lends itself
• 27:02
  Speaker 1: to lithium and cobalt, manganese, other sort of components of
• 27:07
  Speaker 1: the lithium ion battery. And of course that there's a
• 27:10
  Speaker 1: big ground swell of support and a huge momentum around
• 27:13
  Speaker 1: battery technology, particularly for cars, but a lot of people
• 27:17
  Speaker 1: don't necessarily realize that there's also a lot of technology
• 27:20
  Speaker 1: around hydrogen fuel cell vehicles. Now it's not happening in
• 27:25
  Speaker 1: the US, the same extent is happening in China and
• 27:28
  Speaker 1: other places. But the battery argument sort of goes to
• 27:32
  Speaker 1: the point where it's binary. You believe that the market
• 27:34
  Speaker 1: becomes all electric, and therefore there's huge demand for battery
• 27:38
  Speaker 1: and the metals associated with it, but there's no demand
• 27:40
  Speaker 1: for any other technology. I believe that there will be
• 27:44
  Speaker 1: a market for hydrogen fuel cells, and you don't have
• 27:47
  Speaker 1: to increase that by much for that to dramatically increased
• 27:50
  Speaker 1: demand for platinum for example. Thanks very much. Yeah, this
• 27:53
  Speaker 1: is really fabulous. We really appreciated. Thank well. Ryan Founder,
• 27:56
  Speaker 1: Chief executive Granted shares interesting conversation issue. Thanks for listening
• 28:04
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 28:07
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 28:10
  Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter
• 28:14
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 28:18
  Speaker 1: one before the podcast. You can always catch us worldwide
• 28:21
  Speaker 1: on Bloomberg Radio