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Why China's Economy Is Best Revealed Through Credit Markets · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. You,
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  Speaker 1: along with my co host Lisa Brahma wits each day
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  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Boy. There has been a lot
• 0:21
  Speaker 1: of news on the tape as it relates to China
• 0:23
  Speaker 1: over the last week or so. Just today, White House
• 0:26
  Speaker 1: trade advisor Peter Navarro expects to US and China to
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  Speaker 1: sign a Phase one trade deal and then quote next
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  Speaker 1: week or so, you've got that. Plus Bloomberg News reported uh,
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  Speaker 1: last week about China thinking about launching a carrier aircraft
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  Speaker 1: carrier sized investment bank to compete against Goldman sachs Uh
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  Speaker 1: and Morgan Stanley. Bloomberg News also reporting, uh, just yesterday
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  Speaker 1: that China is really thinking about dismantling it's great financial
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  Speaker 1: wall allowing Western investment banks to come into China. So
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  Speaker 1: a lot to kind of unpack their as it relates
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  Speaker 1: to China. Let's start with the trade deal and we welcome,
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  Speaker 1: uh Shazad Kazi, he's a managing director China beige Book International.
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  Speaker 1: Just thanks so much for coming to our Bloomberg Gonna
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  Speaker 1: Act their broker studio. Thanks. Let's just go to trade first,
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  Speaker 1: kind of where do you think we are with trade
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  Speaker 1: and kind of what the next steps? Yeah, so you
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  Speaker 1: know what we've seen over here is you know, a
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  Speaker 1: phase one trade deal. Uh seems like all but a
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  Speaker 1: done deal at this point. This is definitely a much
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  Speaker 1: smaller deal than was originally being discussed. Right. But when
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  Speaker 1: the President first tried to go for a larger deal,
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  Speaker 1: which would have from the U. S side involved um,
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  Speaker 1: far bigger tiref rollbacks and what we're seeing in this
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  Speaker 1: particular instance, Um, there really just wasn't much support for that.
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  Speaker 1: So when as you know, people from the White House
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  Speaker 1: started calling up folks on Congress start to socialize the
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  Speaker 1: idea with other business uh unions, associations, etcetera, there really
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  Speaker 1: wasn't much appetite. So what we've ended up with is
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  Speaker 1: a much smaller deal. Um. The upside of course on
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  Speaker 1: on that is that a smaller deal is also a
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  Speaker 1: little bit more stable. The chances of things falling apart um,
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  Speaker 1: for for this particular, you know, the mini mini deal, Um,
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  Speaker 1: are are fewer The things I think we want to
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  Speaker 1: watch for now is what happens in So we do
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  Speaker 1: think this is going to get signed, But then you know,
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  Speaker 1: what are the factors which may start to create problems? Um,
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  Speaker 1: you know, especially as we get closer to elections. So, uh,
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  Speaker 1: if perhaps the Democratic contender criticizes the president for the
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  Speaker 1: fact that this deal really didn't do much for America much,
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  Speaker 1: you know, all the structural issues were left out, etcetera,
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  Speaker 1: how does the president react to that? Um? So those
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  Speaker 1: are things and things to look out for. When I
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  Speaker 1: knew that you were coming in, I got very excited
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  Speaker 1: because I feel like this is sort of one of
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  Speaker 1: the key pieces of that is it is kind of
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  Speaker 1: still a conundrum, the question of how much a trade
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  Speaker 1: deal will offer a support to the Chinese economy and
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  Speaker 1: how much that tailwind will be offset by the over
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  Speaker 1: leveraged sectors. I'm thinking of the housing market in particular,
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  Speaker 1: it showing signs of weakness certain areas of the industrial
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  Speaker 1: sector that are tied to the housing market. Uh, certainly
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  Speaker 1: some regional and small banks. How much is that going
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  Speaker 1: to play out in a negative way that will offset
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  Speaker 1: the benefit from a little more trade certainty. Yeah, so
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  Speaker 1: I mean on on the positive side. First, right, that
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  Speaker 1: this stiffs a Chinese some breathing room, which they've been
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  Speaker 1: wanting for a long time. The manufacturing sector, really the
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  Speaker 1: economy as a whole over the over over the course
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  Speaker 1: of two thousand and nineteen, UM has been receiving a
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  Speaker 1: lot of credit support. A ton of it was really
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  Speaker 1: targeted towards the manufacturing sector, as we saw in our
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  Speaker 1: data repeatedly UM and and so this is much needed
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  Speaker 1: breathing room from them. But as you said, now we've
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  Speaker 1: got other issues. Domestic demand is still pretty weak, Domestic
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  Speaker 1: orders are are still not doing as well. The ordered
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  Speaker 1: order growth itself is actually uh somewhat slow in China
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  Speaker 1: right now. You've got a property market that hash showing
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  Speaker 1: signs of slowing down. Now, we ourselves saw the Chinese
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  Speaker 1: property markets slowing down up until November. We saw it
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  Speaker 1: a bit of an upturn in December, but you know,
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  Speaker 1: one month is not a trend, right, So some of
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  Speaker 1: those factors remain. If you look at that commodities is
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  Speaker 1: struggling right now in China, which is which is not
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  Speaker 1: a very positive sign for the economy. Um. Yeah, so,
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  Speaker 1: so lots of other factors remain. The other problem. You know,
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  Speaker 1: you brought up issues with being over leverage. One of
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  Speaker 1: the things that we're starting to pick up on is
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  Speaker 1: a major spike in firms which are delinquent and debt repayments.
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  Speaker 1: Right then, this is at a time when credit and
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  Speaker 1: borrowing is surging, So that really sets up to be
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  Speaker 1: somewhat difficult for some of these firms just struggling. They're
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  Speaker 1: not seeing the growth, they're not seeing the revenues, they're
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  Speaker 1: falling behind on debt repayments, cash flows tied in general. Um,
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  Speaker 1: yet they're taking out more loans alright. So given that
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  Speaker 1: economic backdrop, is there a scenario from your perspective, that
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  Speaker 1: China would move forward meaningfully with a Phase two type
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  Speaker 1: of negotiation or maybe they just don't have the capacity
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  Speaker 1: right now? You know, I think the Phase to deal
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  Speaker 1: was supposed to be about larger structural issues, right and
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  Speaker 1: those really haven't been on the table all along as
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  Speaker 1: it is. What we may end up seeing really is
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  Speaker 1: that Phase one egg it's done now, and then what
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  Speaker 1: we see a discussions towards perhaps Phase one B where
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  Speaker 1: their additional tariff rollbacks. Perhaps the Chinese made good on
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  Speaker 1: their purchases, you know, for agricultural purchases, services a person
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  Speaker 1: of other goods and services, which by the way, is
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  Speaker 1: going to be very difficult for them to pull off.
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  Speaker 1: Those numbers are pretty high. Um So any type of
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  Speaker 1: phase two as we think about it in terms of
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  Speaker 1: talking about you know, larger structural issues, I don't first
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  Speaker 1: see there being any kind of meaningful progress from that
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  Speaker 1: in and I'm wondering, you know, one thing that Paul
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  Speaker 1: mentioned was the opening up of the financial sector in China.
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  Speaker 1: We saw that rate move overnight where they change the
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  Speaker 1: benchmark to a more market based kind of factor rather
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  Speaker 1: than a state operated benchmark rate. How much do you
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  Speaker 1: expect that to really take hold next year? Do you
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  Speaker 1: expect you know a lot of foreign firms to really
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  Speaker 1: make bigger in roads on the rate stuff. There's just
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  Speaker 1: the one quick comment I'll make is you know who
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  Speaker 1: pays the rate? Right? Who pays these age rates that
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  Speaker 1: are set out their state firms have preference of borrowing access,
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  Speaker 1: you know, interest rates close to zero sometimes adds zero.
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  Speaker 1: So perhaps you have the smaller private firms who end
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  Speaker 1: up being you know, charged. You know, high interest rates
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  Speaker 1: in John are ppressive to pay something closer to the benchmark.
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  Speaker 1: Um So, so some of those moves, uh, you know,
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  Speaker 1: might be more window dressing than anything else. As far
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  Speaker 1: as firms moving in, I think the proof proof is
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  Speaker 1: in the pudding. It's it's yet to be seen. I
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  Speaker 1: think it's way too early to tell. The financial sector
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  Speaker 1: is so strategically important for Beijing. Um that the idea
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  Speaker 1: there's going to be you know, uh, they're about to
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  Speaker 1: take a major step back. It's it's a little bit
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  Speaker 1: difficult to buy. And just real quickly here, I'm wondering
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  Speaker 1: what you're seeing in terms of the credit expansion, the
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  Speaker 1: idea that you've talked about, how the PBSC has been
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  Speaker 1: pumping a lot of liquidity into the market. Has that
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  Speaker 1: been effective from the preliminary data that you're looking at
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  Speaker 1: in December in re accelerating the economy. I think what
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  Speaker 1: is done is staunch the bleeding a little bit for sure.
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  Speaker 1: You know, Q three was pretty weak. It was the
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  Speaker 1: weakest data all year long. November was even November data
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  Speaker 1: was even worse on what we were observing over the
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  Speaker 1: Q three period. Um So, the decen b upturn tells
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  Speaker 1: you that has done something or the other to help
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  Speaker 1: staunch the bleeding a little bit. It has provided a
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  Speaker 1: little bit of relief, um, you know, But but has
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  Speaker 1: it Is it going to lead to a sort of
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  Speaker 1: necessarily a turnaround the economy? I don't. I don't think
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  Speaker 1: so necessarily. Especially again, as I said, when we're looking
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  Speaker 1: at things like weakness and domestic demand, we're looking at
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  Speaker 1: corporate health uh, deteriorating pretty significantly. It doesn't make me
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  Speaker 1: very confident about a major economic rebound on the horizon.
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  Speaker 1: She's that, Kazi, thank you so much for being here,
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  Speaker 1: Thanks so much for having me. She's that. Cazi is
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  Speaker 1: managing director at China beige Book International in New York,
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  Speaker 1: joining us here in our interactive Broger Studios. China kind
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  Speaker 1: of the key question mark when it comes to certainly
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  Speaker 1: commodity markets, which we're gonna be talking about coming up, uh,
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  Speaker 1: and the optimism in oil as the US and China
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  Speaker 1: are poised sign phase one A. I'm going to say
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  Speaker 1: of this trade deal because it is the beginning of
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  Speaker 1: a rolling series of agreements. I am sure. I'm so
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  Speaker 1: excited to talk about this. Paul Satellites, Yes, this is
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  Speaker 1: very cool. It's very cool. Well, I mean this is
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  Speaker 1: like what we talk about when the SpaceX Falcon UH launches.
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  Speaker 1: This is the purpose, right to get these satellites in
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  Speaker 1: and Aridium Communications is a company that has satellites attached
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  Speaker 1: to UH, say the recent SpaceX Falcon nine reusable rocket
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  Speaker 1: that went up in order to deposit them into space.
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  Speaker 1: And we luckily have the chief executive officer of the company,
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  Speaker 1: Matt Dash joining us from Washington, d C. Matt, I
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  Speaker 1: just want to start with how much you've seen your
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  Speaker 1: business grow as the emphasis on satellite, the emphasis on
• 8:47
  Speaker 1: expanding the network infrastructure has has grown increasingly important. Well,
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  Speaker 1: we have a very unique network, and we've been in
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  Speaker 1: operations now for almost twenty years. Now that we have
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  Speaker 1: a brand new net work, we've really sort of seen
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  Speaker 1: a and even increase in what has been really a
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  Speaker 1: very steady and strong growth rate for the last twenty
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  Speaker 1: years we've been in operation, especially since we moved from
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  Speaker 1: voice communications moving over to data transmission, say, to this
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  Speaker 1: thing called the Internet of Things where everything is getting connected,
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  Speaker 1: We've been really growing on the basis of that. Give
• 9:23
  Speaker 1: us a sense of what five G means for your business,
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  Speaker 1: if anything, Well, five G IS, you know, is the
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  Speaker 1: next iteration of applications that are coming to all of
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  Speaker 1: us around the world. And you know, one of the
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  Speaker 1: key areas that five G brings is connecting not just
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  Speaker 1: people to each other, but you know, every appliance and
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  Speaker 1: car and vehicle and drone. And you know, despite the
• 9:45
  Speaker 1: fact that five G IS is very exciting, it still
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  Speaker 1: only operates on about ten percent of the planet surface,
• 9:51
  Speaker 1: maybe a little bit more so the other whether you're
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  Speaker 1: in the oceans and the skies, on a mountain, even
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  Speaker 1: a lot of places here in the US, you know,
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  Speaker 1: it doesn't have connection that they won't have five G connections.
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  Speaker 1: So we're the things that make the bridge to bring
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  Speaker 1: those applications to the rest of the planet. I want
• 10:09
  Speaker 1: to talk a little bit about your use of SpaceX
• 10:12
  Speaker 1: rockets to get up to space. How important is the
• 10:16
  Speaker 1: private sector in space exploration in your business? I mean,
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  Speaker 1: I just I'm wondering about what you would be using otherwise. Yeah,
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  Speaker 1: when we when we selected our launch program ten years ago,
• 10:29
  Speaker 1: we were one of the first. We took a chance
• 10:31
  Speaker 1: on SpaceX before they'd even had a successful launch. It
• 10:35
  Speaker 1: wasn't as hard as you think, because my you know it.
• 10:38
  Speaker 1: You know, they for eight launches, they wanted to charge
• 10:41
  Speaker 1: for me about a half a billion dollars, which seems
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  Speaker 1: like a lot of money. But when the next the
• 10:46
  Speaker 1: next available rockets, save from the Russians or from the
• 10:51
  Speaker 1: French or from someone else, was one point to one
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  Speaker 1: point three billion dollars, it was less than half the cost.
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  Speaker 1: So it really helped help make our business case clothes.
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  Speaker 1: And I think they've really driven down the cost of
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  Speaker 1: launch for um for a lot of US satellite suppliers
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  Speaker 1: and have made it more possible for some of these
• 11:09
  Speaker 1: business cases to close. So Matt Bloomberg News is reporting,
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  Speaker 1: I guess about ten days ago or something that Apple
• 11:15
  Speaker 1: is said to be exploring satellites to beam data to
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  Speaker 1: its devices. What does that mean for your business in
• 11:20
  Speaker 1: your company, Well, it doesn't mean too much. It's a
• 11:24
  Speaker 1: different sort of service that they want to provide, and
• 11:27
  Speaker 1: many of these new new satellite companies really are supplying
• 11:32
  Speaker 1: very different services than what Oridium provides. But you know,
• 11:35
  Speaker 1: I think we've been a successful company, and I think
• 11:38
  Speaker 1: we've inspired others to believe it's a lot easier to
• 11:42
  Speaker 1: have your own network in space. Uh, they'll they'll realize
• 11:46
  Speaker 1: that it's very challenging and very expensive and takes a
• 11:49
  Speaker 1: lot of time and effort, as as has many other
• 11:52
  Speaker 1: billionaires and very large companies who are looking to launch
• 11:55
  Speaker 1: their networks, whether the Amazon or SpaceX themselves and others
• 11:59
  Speaker 1: are all looking to launch networks as well. So I
• 12:02
  Speaker 1: wish them all well, it doesn't really mean much to us.
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  Speaker 1: More than anything else, They're probably going to be partners
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  Speaker 1: of ours because you know, we can help um sort
• 12:09
  Speaker 1: of bridge service, especially as they're getting their networks up.
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  Speaker 1: So a Ridium Communications. You mentioned how it has a
• 12:15
  Speaker 1: twenty year operating history. It was the largest American bankruptcy
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  Speaker 1: prior to Enron. How have you recreated the company or
• 12:24
  Speaker 1: how's the company recreated itself over the past decade to
• 12:29
  Speaker 1: be the successful company that it is that provides uh,
• 12:33
  Speaker 1: you know, crucial satellite services. Yeah, it was. It was
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  Speaker 1: a challenging business case back in the nineties to spend
• 12:40
  Speaker 1: six billion dollars in expect you know, to compete with
• 12:43
  Speaker 1: cell phones right off the bat. Unfortunately, they put too
• 12:46
  Speaker 1: much dabt on the company and couldn't service it. But
• 12:48
  Speaker 1: over time we've just been able to generate more and
• 12:51
  Speaker 1: more products more and more partners to take us the
• 12:54
  Speaker 1: market and have steadily grown at ten on our subscribers
• 13:00
  Speaker 1: over the last twenty years. So I often say we're
• 13:03
  Speaker 1: like a thirty year overnight success story. It takes. It
• 13:07
  Speaker 1: takes some times sometimes in the satellite business because all
• 13:09
  Speaker 1: the capital required to make a success, but we finally
• 13:13
  Speaker 1: got there and really are a sort of an important
• 13:15
  Speaker 1: financial transformation right now. I just hope, I hope all
• 13:18
  Speaker 1: these new networks they're launching can go faster and turn
• 13:20
  Speaker 1: to their own success. I'm just looking real quickly at
• 13:23
  Speaker 1: your stock chart mid two eighteen. Your stock just started
• 13:26
  Speaker 1: a big ascension after being you know, kind of flatish
• 13:28
  Speaker 1: for the prior several years. What was that big event
• 13:30
  Speaker 1: there that turned investor sentiment around. Well, there were a
• 13:34
  Speaker 1: number of things. One, you know, completing the three billion
• 13:36
  Speaker 1: dollar new network and knowing that we weren't gonna have
• 13:38
  Speaker 1: to spend that kind of money for another ten years. Uh,
• 13:42
  Speaker 1: it meant that we could finally start generating significant cash.
• 13:46
  Speaker 1: In fact, we're deleveraging now and we'll you know, our
• 13:49
  Speaker 1: investors are starting to see the light that you know,
• 13:52
  Speaker 1: the dividends and and other things are possible. Really with
• 13:55
  Speaker 1: all the cash that we're going to be generating over
• 13:57
  Speaker 1: the next ten years. So I think it was just
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  Speaker 1: the patient of that that real financial transformation we've been through. Matt,
• 14:06
  Speaker 1: thanks so much. We appreciate your thoughts there. Matt Desh,
• 14:08
  Speaker 1: CEO of a Ridium Communications stock symbols I R d
• 14:12
  Speaker 1: M based in Washington, d C. It's had a long,
• 14:15
  Speaker 1: long history, a little bit north of twenty years in
• 14:18
  Speaker 1: the satellite business. Probably uh you know, went through that bankruptcy,
• 14:21
  Speaker 1: as Matt said, uh you know, probably not the right
• 14:23
  Speaker 1: capital structure for a company that needed to undergrow six
• 14:27
  Speaker 1: billion dollars or capex just to get their network in
• 14:29
  Speaker 1: the sky. But the coming out of the bankruptcy, the
• 14:31
  Speaker 1: company is doing much better again just by judging by
• 14:34
  Speaker 1: the stock price, and the real future of satellite communications
• 14:38
  Speaker 1: going forward in the country certainly seems bright. More competition
• 14:42
  Speaker 1: SpaceX of course from Elon Musk, and again news that
• 14:45
  Speaker 1: maybe Apple thinking about getting into the satellite business. We've
• 15:02
  Speaker 1: been talking about it all morning. There seems to be
• 15:04
  Speaker 1: an increasing divergence between the bulls and the bears within
• 15:08
  Speaker 1: the fixed income market heading into but some I'm thinking
• 15:11
  Speaker 1: about PREAMSRA in particular, seeing lower yields ahead for the
• 15:15
  Speaker 1: benchmark tenure, meaning lower yields, higher price given the fact
• 15:20
  Speaker 1: that perhaps the consumer will disappoint and others coming out
• 15:23
  Speaker 1: and saying we're gonna get fiscal stimulus that's gonna push
• 15:26
  Speaker 1: up yields, price down. Tad Ravel joining us now chief
• 15:30
  Speaker 1: investment officer for fixed income at TCW with a hundred
• 15:33
  Speaker 1: and seventy five billion dollars under management, joining from Los Angeles,
• 15:37
  Speaker 1: had I'd love to get your view on this. Where
• 15:40
  Speaker 1: do you think this sort of balance lies. What's the
• 15:43
  Speaker 1: bigger likelihood yields lower, yields higher in Well, I guess
• 15:49
  Speaker 1: the starting point with that lead in is to confess
• 15:52
  Speaker 1: that we're probably in the in the bear camp as
• 15:55
  Speaker 1: it relates to returns in the bond market, opportunities in
• 15:59
  Speaker 1: the bond market in terms of rates. It's our view
• 16:02
  Speaker 1: that we're in a very late cycle type of environment.
• 16:04
  Speaker 1: The FEDS doing everything it can through the kitchen sink
• 16:07
  Speaker 1: and five billion dollars behind that in order to stabilize
• 16:11
  Speaker 1: the credit markets in the second half of this year,
• 16:13
  Speaker 1: the repo market being part of that. If if, if,
• 16:17
  Speaker 1: if you put a gun to our heads, we'd tell
• 16:18
  Speaker 1: you that in time, you're probably going to be in
• 16:20
  Speaker 1: a lower yield environment simply because economic growth isn't going
• 16:24
  Speaker 1: to support the higher rate environment, and the FED probably
• 16:27
  Speaker 1: is going to initially try to fight it with every
• 16:30
  Speaker 1: weapon it knows knows how to. So it's intering. Ted.
• 16:33
  Speaker 1: What is your I guess, your fundamental economic backdrop as
• 16:36
  Speaker 1: it relates kind of supporting your view, Well, there are
• 16:41
  Speaker 1: many I mean, first of all, I think that if
• 16:43
  Speaker 1: if you're looking for signs that you're in a late
• 16:45
  Speaker 1: cycle type of environment, you could begin with manufacturing. That's uh.
• 16:49
  Speaker 1: The data this morning from from Dallas and from Chicago
• 16:52
  Speaker 1: is further confirmation that the manufacturing sector has been weak
• 16:56
  Speaker 1: for at least the last six to nine months. This
• 16:58
  Speaker 1: is further refer in the data that reveals activity as
• 17:05
  Speaker 1: it relates to movement in and out of ports, air
• 17:07
  Speaker 1: transport type of activity as well. You can look at
• 17:10
  Speaker 1: corporate profit margins that have been declining for several years.
• 17:13
  Speaker 1: You can look at an equity market, which, notwithstanding the
• 17:16
  Speaker 1: fact that it's got complete blinders on in terms of
• 17:19
  Speaker 1: the reality that enterprise profits have actually been fairly flat
• 17:23
  Speaker 1: for the last couple of years. Nonetheless, stay has stayed very,
• 17:26
  Speaker 1: very buoyant. I don't view that as a as a
• 17:28
  Speaker 1: positive sign. I view that as a late cycle type
• 17:30
  Speaker 1: of sign. You could throw the real estate market into
• 17:34
  Speaker 1: it as well. The residential real estate market certainly there
• 17:37
  Speaker 1: seems to be pushed back from the point of view
• 17:39
  Speaker 1: of affordability. I think that's rather clear in markets as
• 17:42
  Speaker 1: diverse as Manhattan or some parts of southern California. But
• 17:46
  Speaker 1: luxury markets generally speaking, I think have essentially run into
• 17:49
  Speaker 1: that to the to that wall. You've pushed prices about
• 17:52
  Speaker 1: as far as you're gonna take it. And if you
• 17:54
  Speaker 1: want to put the cherry on top of all of this,
• 17:56
  Speaker 1: you take a look at the credit markets, and you
• 17:58
  Speaker 1: look at the excesses in the leverage loan market as
• 18:01
  Speaker 1: it relates to covenants. This is a widely reported story.
• 18:03
  Speaker 1: It hardly bears worth going into. At this point. You're
• 18:06
  Speaker 1: either deaf to the warnings that are out there with
• 18:09
  Speaker 1: respect to the week underwriting in the corporate sector, or
• 18:12
  Speaker 1: you just don't think it matters at the end of
• 18:14
  Speaker 1: the day. So if you're deaf to it, that also
• 18:17
  Speaker 1: means you probably did really well this year. Because the
• 18:20
  Speaker 1: the sort of the riskiest assets. Within the credit world,
• 18:25
  Speaker 1: particularly near the end of the year, we're outperforming. I'm
• 18:27
  Speaker 1: thinking of even the triple cs starting to outperform UH
• 18:30
  Speaker 1: this month. I'm trying to figure out what's going to
• 18:33
  Speaker 1: trigger this you know, potential late cycle mess and create
• 18:38
  Speaker 1: some kind of opportunity at least, you know, repricing that
• 18:41
  Speaker 1: people are dying to see. I mean, honestly, they've they've
• 18:43
  Speaker 1: been talking about this for so long, they've been hating
• 18:45
  Speaker 1: on this rally. What's going to be the washout? Well,
• 18:49
  Speaker 1: you never know for sure, but I think that if
• 18:51
  Speaker 1: I were to put a couple of possible catalysts, I
• 18:53
  Speaker 1: think one catalyst that could be put forward would be
• 18:56
  Speaker 1: the China economy, which has been slowing for a long
• 18:59
  Speaker 1: period of time, and while the data is always okay,
• 19:02
  Speaker 1: so you can't really bring much in the way of
• 19:05
  Speaker 1: precision or clarity to that type of a of a situation,
• 19:08
  Speaker 1: I think that that's been one of the big drivers
• 19:11
  Speaker 1: of global growth over the course of this cycle. So
• 19:13
  Speaker 1: any type of a slowdown there is going to ripple
• 19:15
  Speaker 1: through the global economy. UM and China for what it's worth,
• 19:18
  Speaker 1: as UM by g d P component is about of
• 19:22
  Speaker 1: the emerging market, so China and the e M are
• 19:25
  Speaker 1: there's a lot of overlap there. A second place I
• 19:27
  Speaker 1: think that it could come from is the continuation of
• 19:31
  Speaker 1: loose fiscal policy in the US. I think those that
• 19:34
  Speaker 1: view that as a as a good thing are not
• 19:37
  Speaker 1: paying attention to the realities that you sooner or later
• 19:40
  Speaker 1: run into affordability issues with respect to being able to
• 19:44
  Speaker 1: finance trillion trillion and a half, and with any economic
• 19:47
  Speaker 1: slowdown in the US, you would expect those those deficits
• 19:51
  Speaker 1: potentially to move past two trillion. You would be in
• 19:54
  Speaker 1: terror incognito with that, and that would create an interesting
• 19:58
  Speaker 1: push pull in the terms of longer term rates would
• 20:01
  Speaker 1: want to rise, the FED would want to fight that
• 20:03
  Speaker 1: because of its impact on the housing market, etcetera. So uh,
• 20:07
  Speaker 1: the the the um imprudence of fiscal policy, I think
• 20:11
  Speaker 1: is a second and the third one is that it
• 20:13
  Speaker 1: might just happen indogenously with respect to the continuing piling
• 20:17
  Speaker 1: on of of leverage and credit in the corporate sector,
• 20:21
  Speaker 1: with an awareness or at least an ultimate awareness that
• 20:24
  Speaker 1: there isn't the ability to finance it. You alluded to
• 20:26
  Speaker 1: triple CS. I think that was a good place to look.
• 20:29
  Speaker 1: Is that except for the big catch up, this incredible
• 20:32
  Speaker 1: rally that we've seen in triple seas over the last month.
• 20:36
  Speaker 1: The situation a month ago, if we had this conversation,
• 20:40
  Speaker 1: what I would have said and would have been wrong, obviously,
• 20:42
  Speaker 1: is the equity markets up. Triple sees are up four percent.
• 20:46
  Speaker 1: Tell me what's wrong with this picture? And what's wrong
• 20:49
  Speaker 1: with the picture, of course, is that the market is
• 20:51
  Speaker 1: becoming more intelligent and more discriminating about the kind of
• 20:55
  Speaker 1: risk that it's sponsoring. So tad given the fact that
• 20:59
  Speaker 1: you very well made be right, but it hasn't happened yet.
• 21:02
  Speaker 1: What do you say to clients who come to you
• 21:04
  Speaker 1: and say, God, come on you like, the triple c
• 21:07
  Speaker 1: is totally killed it. You know, the hile bonds they
• 21:09
  Speaker 1: crushed it. You can talk about liquidity crisis. It hasn't happened.
• 21:12
  Speaker 1: What do you tell them, Well, I think first of
• 21:15
  Speaker 1: all our clients generally speaking, I think understand where we're
• 21:17
  Speaker 1: coming from. But the basic organizing premise is essentially this
• 21:22
  Speaker 1: is that rather than try to call the next rally
• 21:25
  Speaker 1: or whether or not corporate spreads are going to move
• 21:27
  Speaker 1: tighter over the course of the next six or twelve months,
• 21:30
  Speaker 1: approach it this way is the way we have always
• 21:32
  Speaker 1: approached it, which is that think of the economic cycle
• 21:36
  Speaker 1: as really an asset price credit cycle, because those are
• 21:39
  Speaker 1: essentially the key underpinnings of it. Um don't talk about
• 21:42
  Speaker 1: it like a conventional business cycle. If you think about
• 21:45
  Speaker 1: it as an asset price credit cycle, then think about
• 21:48
  Speaker 1: your game plan being this. In the first third of
• 21:51
  Speaker 1: the cycle, you have a big bay to trade all
• 21:53
  Speaker 1: risks basically gets lifted with a very low level of risk,
• 21:57
  Speaker 1: and everybody tells you to stay away from risk, so
• 22:00
  Speaker 1: you're supposed to be an enthusiastic risk taker, and let's
• 22:03
  Speaker 1: say the first third of the cycle. In the next
• 22:05
  Speaker 1: third of the cycle, you're not so much in a
• 22:08
  Speaker 1: beta type trade. You're in a more of an alpha
• 22:10
  Speaker 1: trade that you still want to be risked on, but
• 22:12
  Speaker 1: be more particular in the late stage of the cycle.
• 22:15
  Speaker 1: So if you accepted the thesis that you're in the
• 22:17
  Speaker 1: late stage of the cycle, you're really supposed to essentially
• 22:20
  Speaker 1: preserve the gains that you've made in the early part
• 22:23
  Speaker 1: and not worry about and not worry about the the
• 22:25
  Speaker 1: incremental return because it comes with more than incremental risk. Hey, Tad,
• 22:30
  Speaker 1: thanks so much for joining us. We appreciate your thoughts
• 22:32
  Speaker 1: on the credit markets. As always, Tad Raveled, chief investment
• 22:35
  Speaker 1: officer for fixed income at TCW dred seventy five billion
• 22:39
  Speaker 1: under management, so they've got a lot of experience in
• 22:42
  Speaker 1: the credit markets fixed to coome. They're based in Los Angeles,
• 22:45
  Speaker 1: and uh, you know, Tad has always been consistently since
• 22:48
  Speaker 1: we've been chatting with them here, consistently cautious as it
• 22:51
  Speaker 1: relates to some of the fixed income markets here. Given
• 22:54
  Speaker 1: where we are late in the stage right now, we're
• 23:10
  Speaker 1: seeing the Bloomberg's Commodities Index rise to the highest levels
• 23:14
  Speaker 1: since eighteen as people uh survey the land of the
• 23:19
  Speaker 1: trade talks and come back with a positive read. But
• 23:22
  Speaker 1: has the positivity gotten ahead of itself? Mike mclogan, who
• 23:26
  Speaker 1: covers all things commodities for us for Bloomberg Intelligence Choices
• 23:29
  Speaker 1: here in our Interactive Broker Studios, we were talking earlier
• 23:32
  Speaker 1: about how perhaps some of the optimism has gotten ahead
• 23:35
  Speaker 1: of itself when it comes to certainly the agricultural sector.
• 23:39
  Speaker 1: That's at least according to Karen you be heard, do
• 23:41
  Speaker 1: you think broadly that's the feeling that perhaps people are
• 23:44
  Speaker 1: a little too sanguine about the risks on the horizon. Yes,
• 23:47
  Speaker 1: I feel it's exact opposite of this time last year.
• 23:50
  Speaker 1: Remember Christmas Eve, you were just supposed to break out
• 23:52
  Speaker 1: the buy tickets and everything and take the risk. This year,
• 23:55
  Speaker 1: I feel it's the opposite. Crude oil is kind of
• 23:57
  Speaker 1: filing along industrial metals, coppers, following along the record breaking
• 24:01
  Speaker 1: stock market, and we have this record trade weighting broad
• 24:05
  Speaker 1: dollar UM. That's that's the dollars a problem, push, a
• 24:10
  Speaker 1: problem for commandities, but just following the stock market higher
• 24:13
  Speaker 1: and being w t I crudeil near you know, above
• 24:15
  Speaker 1: sixty versus last year this time is near forty is
• 24:18
  Speaker 1: at risk. I'm fearful of memor version for next year. Alright.
• 24:22
  Speaker 1: One of the things I'm just reading here you characterize
• 24:25
  Speaker 1: h for crude oil and natural gas the lost decade trends.
• 24:29
  Speaker 1: Why Why is that? What happened to oil and that
• 24:32
  Speaker 1: gas over the last decade? The number one issue is
• 24:36
  Speaker 1: US production. Yes, so this is where I like to say,
• 24:39
  Speaker 1: you know, the making America great is really not good
• 24:42
  Speaker 1: for commodity prices because US is a net exporter of
• 24:46
  Speaker 1: crude l beginning this year, first time since the essentially
• 24:49
  Speaker 1: world War two almost and that's a pressure in prices.
• 24:52
  Speaker 1: And the key thing to look forward to the next
• 24:54
  Speaker 1: year and the next decade is is that going to change?
• 24:56
  Speaker 1: And I don't see that happening. Then we see the carbon,
• 24:59
  Speaker 1: and carbon is a shan't happening. So there's less demand.
• 25:02
  Speaker 1: Supplies quite strong. So that's why I see crude and
• 25:04
  Speaker 1: also natural gas. There's just so much natural gas. I
• 25:08
  Speaker 1: kept thinking demand's going to catch up, but it's not now.
• 25:10
  Speaker 1: Right now, in the short term, natural guests positions are
• 25:13
  Speaker 1: very short, so you might get a pop. But natural
• 25:16
  Speaker 1: gas is trading around two twenty million b t u
• 25:20
  Speaker 1: s and the low has been near two in the
• 25:21
  Speaker 1: highst been near three. I think it's more likely continue
• 25:24
  Speaker 1: to gravitate towards two and lower. Interesting when you talk
• 25:27
  Speaker 1: about futures positioning, I want to just go back to
• 25:29
  Speaker 1: crude for a second, because futures positioning has gotten increasingly bullish,
• 25:32
  Speaker 1: with the net longs out weighing the net shorts by
• 25:35
  Speaker 1: the most I believe since March or April. I mean, basically,
• 25:38
  Speaker 1: they've they've been climbing, and I'm wondering if you think
• 25:41
  Speaker 1: that they are going to be right that we're going
• 25:43
  Speaker 1: to see at least a near term pop in the
• 25:45
  Speaker 1: price of crude, even if it fizzles out eventually. I
• 25:48
  Speaker 1: think we've had it. I look at that as a risk.
• 25:50
  Speaker 1: For instance, last year around this time it was way
• 25:53
  Speaker 1: too short and the market is way too bears, which
• 25:55
  Speaker 1: is I look at it's okay by and manage money
• 25:58
  Speaker 1: net positions being too long now at the upper end
• 26:00
  Speaker 1: of the range, and we all know the fundamentals. You
• 26:02
  Speaker 1: have to be betting on a substantial cut from OPEC
• 26:06
  Speaker 1: and sustained cut, which we all know is kind of
• 26:09
  Speaker 1: unlikely in the big pictures, so I don't see it. Also,
• 26:12
  Speaker 1: crude oils dependent on the stock market. We we're this year,
• 26:15
  Speaker 1: I can do that again. Yeah great, but we know
• 26:17
  Speaker 1: what that means. It typically doesn't continue that way. So
• 26:20
  Speaker 1: I'm really worried about crude. I'm actually more bullish on
• 26:23
  Speaker 1: the eggs at some point when when the dollar peaks,
• 26:26
  Speaker 1: and that's a big if, and Paul and I've discussed that.
• 26:29
  Speaker 1: It's just hard to ask the favorite question, pork bellies hawks.
• 26:35
  Speaker 1: Don't we still have a problem in China? And aren't
• 26:37
  Speaker 1: they buying a bunch of our hogs? We do but
• 26:39
  Speaker 1: if there's one commodity sector I have never been able
• 26:42
  Speaker 1: to find, not being able to find good high correlations too,
• 26:45
  Speaker 1: it's live stock. I just have not been able to
• 26:48
  Speaker 1: pin down live stock, so I can it helps me
• 26:50
  Speaker 1: determine the prices of corn, soy means, and wheat. There's
• 26:53
  Speaker 1: so many metaphors. It's like I have a hard time,
• 26:57
  Speaker 1: but I have to be kind of back off on
• 26:59
  Speaker 1: live stock. And and it's live cattle. The hawk, I'm
• 27:02
  Speaker 1: long port bellies. I'm gonna one day bring in just
• 27:05
  Speaker 1: a plateful of bacon freedom munch on for the rest
• 27:08
  Speaker 1: of the rest of the show. I am curious though
• 27:10
  Speaker 1: about the potential boost to the eggs sector from the
• 27:14
  Speaker 1: trade deal. Do you expect China buying to actually give
• 27:18
  Speaker 1: a true boost to some of the farms where we've
• 27:20
  Speaker 1: seen the highest bankruptcy rates in years, particularly not for Midwest. Well,
• 27:23
  Speaker 1: that's the key sign. It's it's about as bad as
• 27:25
  Speaker 1: it can get. And I think eggs are in certainly
• 27:27
  Speaker 1: grains are in a classic case. And we always say
• 27:30
  Speaker 1: in commodities is the cure for lower prices and low prices,
• 27:33
  Speaker 1: so stocks to use globe we are really peaking heading
• 27:35
  Speaker 1: lower we see that. The key issue. Yes, China starting
• 27:38
  Speaker 1: to get priced back in, which is good. The problem
• 27:42
  Speaker 1: is the dollar so high and so expensive. That's only
• 27:45
  Speaker 1: so long that we can sustain US grain prices in
• 27:48
  Speaker 1: the dollar at so such high levels until the dollar peak.
• 27:51
  Speaker 1: So we need the dollar to peak or else grains
• 27:53
  Speaker 1: exported from US the world I used soy being South America, Argentina,
• 27:58
  Speaker 1: a corn still will have a bit. We will have
• 28:00
  Speaker 1: a problem in the US boosting these grain prices until
• 28:03
  Speaker 1: the dollar peaks. Trade weighted broad dollar Bitcoin I'm looking
• 28:06
  Speaker 1: at the year to date chart. Started the year about
• 28:09
  Speaker 1: four thousand, peaked at above twelve thousand. Here we are
• 28:11
  Speaker 1: at seventy two hundred. What's just the call for bitcoin
• 28:15
  Speaker 1: in if there is one higher? Okay, bottom line simply
• 28:19
  Speaker 1: the simplistic weight I like to describe bitcoin is there's
• 28:22
  Speaker 1: only one key thing that matters, and that's basically adoption.
• 28:26
  Speaker 1: So supply demand price there's really supply is going is
• 28:30
  Speaker 1: limited this year of supply increasing around four percent, next
• 28:32
  Speaker 1: year three two percent, and it's going to coninue to
• 28:34
  Speaker 1: go down to zero who knows when. So the supply
• 28:37
  Speaker 1: is done and the adoption is kicking in so the
• 28:40
  Speaker 1: only thing that's gonna Why is it done? Can I
• 28:41
  Speaker 1: just go to my computer and print more? No, because
• 28:45
  Speaker 1: it's the cost of mining is greater than the cost
• 28:50
  Speaker 1: of each bitcoin. Right, Well, that's part of it. But
• 28:52
  Speaker 1: there's only gonna be twenty one million bitcoins ever produced
• 28:55
  Speaker 1: based on the code now that subject, and there's only
• 28:58
  Speaker 1: seven there's seventeen, almost eighteen, there's eighteen million now, so
• 29:01
  Speaker 1: there's only gonna be any one. Where did that come from?
• 29:02
  Speaker 1: So Toshia Namo the god, I shouldn't have asked it. Yeah, Well,
• 29:07
  Speaker 1: well that's the difference between bitcoin and the other cryptos.
• 29:09
  Speaker 1: There's unlimited supply of cryptos, but bitcoin is becoming more
• 29:12
  Speaker 1: and more like gold. Yeah. And there is also this
• 29:15
  Speaker 1: mining issue that when it reaches a certain point, it's
• 29:17
  Speaker 1: not profitable, and you've had China cracking down on some
• 29:20
  Speaker 1: of the mining. Uh. Anyway, I'm in with the bitcoin
• 29:23
  Speaker 1: knowledge there like well, and I will say that there's
• 29:26
  Speaker 1: another issue when you talk about cryptocurrencies. I was reading
• 29:29
  Speaker 1: about how China is planning there they're sort of sovereign cryptocurrency,
• 29:33
  Speaker 1: and how that could up end the entire structure. I'm
• 29:36
  Speaker 1: gonna just stuff right, now because Paul is giving me
• 29:38
  Speaker 1: this look like, oh my god, what do you do
• 29:40
  Speaker 1: in your free time? Mike mclogan, thank you so much
• 29:42
  Speaker 1: for being with us. Mike mclogan covers all things commodities
• 29:45
  Speaker 1: plus bitcoin for us here at Bloomberg Intelligence. Uh and
• 29:50
  Speaker 1: he's a frequent contributor to Bloomberg Radio. Thanks for listening
• 29:54
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 29:57
  Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
• 30:00
  Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
• 30:03
  Speaker 1: I'm Lisa Abram wohit's I'm on Twitter at Lisa Abram
• 30:06
  Speaker 1: whits one before the podcast, you can always catch us worldwide.
• 30:09
  Speaker 1: I'm Bloomberg Radio.