Latest / Bloomberg Intelligence / 100-Year Bonds Could Alter How Rate Risk Is Traded

Transcript

100-Year Bonds Could Alter How Rate Risk Is Traded · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you,
0:05
Speaker 1: along with my co host Lisa Brahma wits. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money. Whether at the grocery store or
0:12
Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Every six months or so, the
0:23
Speaker 1: debate about whether the U s should sell fifty two
0:25
Speaker 1: a hundred year bonds emerges, and once again we have
0:29
Speaker 1: that battle raging, Treasury Secretary Steve Manuchin weighing in and
0:33
Speaker 1: saying that it seemed really like a logical thing to
0:37
Speaker 1: do for the US to sell ultralong dated bonds in
0:40
Speaker 1: the face of just how low interest rates have gone,
0:42
Speaker 1: and his advisers are looking into it and are expected
0:45
Speaker 1: to recommend against it. But Paul, it really raises this question,
0:49
Speaker 1: you know, again and again, what is the hold up?
0:52
Speaker 1: If the borrowing costs are so low, and if the
0:55
Speaker 1: hold up is that compelling, why do we have this
0:57
Speaker 1: debate every six months? Joining us at a discussed Marcus
1:00
Speaker 1: Ashworth columnists covering European markets, as well as bond markets
1:03
Speaker 1: globally for Bloomberg opinion joining us from London. So Marcus,
1:08
Speaker 1: let's just start with why did Treasury Secretary Stephen mcnuchin
1:12
Speaker 1: revive this debate that seems to sort of bubble up
1:15
Speaker 1: every six months or so because he was told to
1:20
Speaker 1: behind you, behind you, behind the curtain. Who knows? Um.
1:24
Speaker 1: The great thing is is that the Treasury Borrowing Advisory
1:27
Speaker 1: Committee the key word they're being advisory m keeps on
1:30
Speaker 1: trying to push this back because look, and I've been
1:32
Speaker 1: a years Treasury pod dealer, and it's difficult enough trying
1:36
Speaker 1: to trade thirty years. Can you imagine trying to trade
1:38
Speaker 1: hundred years or even stripped hundred years. All of a
1:41
Speaker 1: sudden someone comes along lets you out of five hundred million,
1:44
Speaker 1: you have no hope of getting them back, and cleep
1:46
Speaker 1: paying five points higher. It's a disaster to try and
1:49
Speaker 1: manage this type of risk from a dealer market maker
1:52
Speaker 1: put point of view. They know also that of a
1:55
Speaker 1: client buys this stuff, they're gonna look it away not
1:57
Speaker 1: come back for what hundred years, So you know it
2:01
Speaker 1: kills liquidity, it kills their sense of controlling risk. It can,
2:05
Speaker 1: of course created a whole bunch of other stuff. I mean, look,
2:08
Speaker 1: to make this sort of sector work, you'd have to
2:10
Speaker 1: have hundred your futures, uh and options and all after
2:13
Speaker 1: other stuff. It could be great, It could really stretch
2:16
Speaker 1: the way that the people trade risk and trade duration convexity,
2:20
Speaker 1: and it could do all sorts of things. But the U. S.
2:22
Speaker 1: Treasury has to be committed to it for a longer
2:24
Speaker 1: term clear plan. This trouble is that Trump could be
2:28
Speaker 1: out of office in little every years time and then
2:30
Speaker 1: new treasure secretary could do the opposite. So that's what
2:34
Speaker 1: scares people, because you know, once you go down this route,
2:36
Speaker 1: you've got to stay committed to it and there has
2:38
Speaker 1: to be a rational reason for it. Now they can
2:40
Speaker 1: be wrong. Yield are incredibly low. It makes sense for
2:42
Speaker 1: as far as the government's concerned. But you have to
2:44
Speaker 1: have your client base and pensions funds with you. And
2:48
Speaker 1: though they may be in Europe and sent in the
2:50
Speaker 1: UK because of actual eril and different reasons, there's less
2:53
Speaker 1: demand and requirement in the US because you already have
2:57
Speaker 1: strip thirty years, which give you a duration of final
2:59
Speaker 1: exactly thirty years. Its coomed to a fifty year regular bond,
3:02
Speaker 1: so there's less real need for it. But still this
3:05
Speaker 1: is a government intent on doing different things. So Marcus,
3:09
Speaker 1: are there other developed markets that have longer dated bonds
3:13
Speaker 1: years and can we take anything away from those? Sure? Okay,
3:17
Speaker 1: Look so in Europe, Germany doesn't go over thirty years. Um,
3:21
Speaker 1: we were starting to see other countries around it go there.
3:25
Speaker 1: So we know austri has done a one hundred year bond, uh,
3:28
Speaker 1: Italy has done a fifty year bond, tapped it again, um,
3:32
Speaker 1: France has done fifty years. UK goes out as far
3:34
Speaker 1: as as fifty years, Sweden's about to look at possibly
3:38
Speaker 1: doing a hundred years, Ireland in Belgium just a private
3:41
Speaker 1: places the last couple of years in one hundred years.
3:44
Speaker 1: But they're so like one offs, so they really and
3:47
Speaker 1: you can look at maybe Italy toward certain degree, UK
3:50
Speaker 1: definitely and possibly France of having any form of liquidity
3:54
Speaker 1: further out. But it's becoming more and more popular because
3:57
Speaker 1: there is a huge, huge hunt for yield in your
4:00
Speaker 1: much more extreme than you see in your in the US.
4:03
Speaker 1: And then you're on it's definitely there. But but Marcus,
4:06
Speaker 1: I mean, how much is the obstacle for the US,
4:09
Speaker 1: the fact that US rates are such an important benchmark,
4:12
Speaker 1: and that you know, a shift in the whole curve
4:15
Speaker 1: creates a much more challenging situation than say in some
4:19
Speaker 1: of these nations in Europe that where there's more of
4:22
Speaker 1: a composite type rate that is sort of the benchmark
4:26
Speaker 1: for a lot of other debt. In other words, it
4:27
Speaker 1: won't matter as much to the whole structure of of
4:30
Speaker 1: a huge debt market if they issue longer dated debt
4:33
Speaker 1: as it would in the US. Lisa, you've clearly been
4:36
Speaker 1: doing bonds and fixes quite a while. Spots on exactly right,
4:39
Speaker 1: and that is that is the number of the argument.
4:41
Speaker 1: I couldn't put it better. You know, look it does
4:44
Speaker 1: he cares if Ireland does it all think good for
4:45
Speaker 1: them Austria. Likewise, that the reason why Germany hasn't done it.
4:49
Speaker 1: Perhaps in Europe they don't really need the money and
4:52
Speaker 1: that all and not have the potential sort of liquidity
4:55
Speaker 1: out there. And this is that this is exactly the point.
4:57
Speaker 1: If you go out to a hundred years, you've got
4:59
Speaker 1: to be convinced it's it's it's a worthwhile thing. There
5:03
Speaker 1: is huge demand for it, and it's gonna be sudden,
5:05
Speaker 1: it's hangs around, and you're gonna be able to issue
5:07
Speaker 1: them courtly, you know, for decent amounts of money, and
5:10
Speaker 1: you're gonna be able to create a features market and
5:12
Speaker 1: blah blah blah. You are the world's interest rate benstion mark.
5:16
Speaker 1: Do you mess with that? At your peril? You have
5:18
Speaker 1: a fantastic thirty liquid um bond which has strips off it,
5:23
Speaker 1: which has tips off it, It's everything works perfectly. Why
5:27
Speaker 1: mess for something which is perfection in liquidity terms? And
5:31
Speaker 1: and you know for what benefit? Yeah? Okay, I get
5:33
Speaker 1: the point that it's looking at very low rates for
5:35
Speaker 1: a long, very long while. But you know, thirty years
5:38
Speaker 1: not enough here, alright. So my my, my takeaway, Lisa's
5:41
Speaker 1: Marcus is not a big fan of Nike, unlikely want
5:45
Speaker 1: to trade it. I will never want to be you know.
5:47
Speaker 1: Please make me make me a market a hundred million
5:51
Speaker 1: Marcus Ashur, thank you so much for joining us. Marcus
5:53
Speaker 1: is the Calamus covering European markets for Bloomberg Opinion from London.
5:57
Speaker 1: You can read more on this and other stories from
5:58
Speaker 1: Bloomberg Opinion at Bloomberg dot com, slash Opinion and on
6:03
Speaker 1: the terminotorl by typing O P I n go. Well,
6:21
Speaker 1: as investors come back next week from the long holiday weekend,
6:25
Speaker 1: they're gonna take a look at their portfolios and they're
6:27
Speaker 1: gonna say, hey, we're ten plus years into this economic cycle.
6:30
Speaker 1: Trade uncertainty is out there weighing on my portfolio. But
6:33
Speaker 1: I've got a dubbish fed What should I do? Uh?
6:36
Speaker 1: Maybe to get some answers, we welcome our next guest,
6:37
Speaker 1: Deepak Puri, chief investment Officer for the Americas for Deutsche
6:41
Speaker 1: Bank Wealth Management, joins us here in O Bloomberg Interacted
6:43
Speaker 1: Broker Studio. Deepak, thanks so much for joining us. So again,
6:47
Speaker 1: we kind of look at the SMP and it's kind
6:49
Speaker 1: of flat over the last twelve months. We've had a
6:50
Speaker 1: great rally this year, but again if you look at
6:53
Speaker 1: it over the trailing twelve months, kind of flat. What
6:56
Speaker 1: are you telling the Deutsche Bank Wealth investors how should
7:00
Speaker 1: be position a portfolio right now? Great? Thank you, Paul.
7:04
Speaker 1: I think a couple of things. A what we have
7:06
Speaker 1: seen over the last one year, especially year to date
7:09
Speaker 1: is primarily driven by what we would call a PE expansion.
7:13
Speaker 1: You know, it's not really driven by corporate earnings going up,
7:16
Speaker 1: so keep that in mind as you've positioned yourself for
7:19
Speaker 1: the next few quarters. Um. Having said that, I think
7:23
Speaker 1: there's certain things for the next couple of months that
7:25
Speaker 1: makes us take a little bit of a cautious stance.
7:28
Speaker 1: You know, you look at the trade war that's going on.
7:30
Speaker 1: Even though there was an olive branch yesterday from the Chinese,
7:34
Speaker 1: we feel this is a you know, protracted sort of
7:38
Speaker 1: give and take one step forward, two steps back kind
7:41
Speaker 1: of situation, and we really don't expect a comprehensive trade
7:44
Speaker 1: deal anytime soon. On top of that, the next couple
7:47
Speaker 1: of quarters, the third quarter is going to be by
7:50
Speaker 1: far the worst quarter for this calendar year, for the
7:53
Speaker 1: earning season, and then the fourth quarter could be the
7:56
Speaker 1: low watermark for the g d P. So the next
7:59
Speaker 1: couple of course, are definitely something to keep an eye on.
8:03
Speaker 1: Having said that, I think a longer term, uh, you know,
8:06
Speaker 1: things look much better for equities, especially we haven't seen
8:09
Speaker 1: a top. You know, when you look at how the
8:11
Speaker 1: equity markets end, they usually end up with the bank.
8:14
Speaker 1: You know, last twelve months, as you just pointed out,
8:17
Speaker 1: has been relatively flattished. So this is not really a
8:20
Speaker 1: very top heavy kind of an equity market. We still
8:24
Speaker 1: see legs in this markets are twelve month forecast remains
8:27
Speaker 1: around three thousand, but that is primarily drivened by a
8:30
Speaker 1: little bit better earnings than a pe expansion that we
8:33
Speaker 1: have seen them more recently. One counterpoint is that a
8:37
Speaker 1: lot of the bearishness that you talk about has been
8:41
Speaker 1: baked into valuations currently, and we've seen a sell off
8:44
Speaker 1: that really has stemmed from the recognition of some of
8:48
Speaker 1: those pesstomistic kind of developments that you were talking about.
8:51
Speaker 1: Bank of America came out this morning and recommends buying
8:54
Speaker 1: stocks right now because they say that the bearishness has
8:56
Speaker 1: gotten so extreme that it makes sense. What do you
9:00
Speaker 1: day to that. I wouldn't say that the bearishness is
9:03
Speaker 1: to an extreme. I think there's you know, and you
9:06
Speaker 1: have to take into account what the other asset classes
9:08
Speaker 1: are telling your signaling. So I think the bearishness is
9:11
Speaker 1: really at an extreme. When you look at the fixed
9:13
Speaker 1: income markets, you know, they are really highlighting a really
9:17
Speaker 1: pessimistic scenario for the for inflation, for growth, and so forth.
9:22
Speaker 1: On the equity market side, you know, currently you're trading
9:24
Speaker 1: at seventeen eighteen times multiple, which is to my mind,
9:28
Speaker 1: is pretty much where it should be. Um. You know,
9:30
Speaker 1: when you look at how to assign a PE multiple
9:34
Speaker 1: on markets, you have to look at both what I
9:36
Speaker 1: would call structural forces at play and then the technical trend.
9:40
Speaker 1: The cyclical trend is what we call earning s curve.
9:43
Speaker 1: You know, there's a lot of talk about yield curves
9:45
Speaker 1: and yield curve inversion, but I see a lot less
9:47
Speaker 1: focus on earning s curve, which is simply put next
9:51
Speaker 1: twelve month earning, subtracting the trailing twelve months earning, and
9:54
Speaker 1: what's the trajectory for that earning scurve? And that still
9:57
Speaker 1: is positive. So that's a I think to extent a
10:00
Speaker 1: positive take on the PE. On the other side, when
10:03
Speaker 1: you look at the more structural forces at work, that
10:07
Speaker 1: could be a little bit of a downside. UM. So
10:11
Speaker 1: that is, you know, you're looking at inflation, prognosis and
10:13
Speaker 1: so forth. So overall, that seventeen and a half multiple
10:17
Speaker 1: seems reasonably fair to us, and that's what we're saying
10:21
Speaker 1: that for the next round months it stays where it's at. UM.
10:24
Speaker 1: I would be recommending a little bit of an underweight
10:27
Speaker 1: position to your neutral at this stage, given the next
10:30
Speaker 1: couple of quarters could be a little bit shaky, as
10:33
Speaker 1: I said earlier. So you know, if you have a
10:37
Speaker 1: fifty percent neutral allocation to equity, maybe this is the
10:40
Speaker 1: time you take some profits of the table markets are
10:43
Speaker 1: up fifteen sixt and reallocate or keep some extra money
10:48
Speaker 1: in cash. So in your scenario, in your outlook for
10:52
Speaker 1: the markets, how aggressive do you think the Fed is
10:55
Speaker 1: going to be and how aggressive do you think they
10:57
Speaker 1: need to be to kind of support your outlook. So
11:00
Speaker 1: I think there is a little bit of a disconnect
11:02
Speaker 1: in terms of what the FED futures market is saying
11:05
Speaker 1: and what the reality is. You know, you look at
11:07
Speaker 1: the numbers, especially from the consumers coming in yesterday today.
11:11
Speaker 1: You know, yesterday's the revision on the GDP side. You know,
11:14
Speaker 1: you see the consumer spending number at four point seven
11:18
Speaker 1: multi year high. This morning we saw the core pc
11:21
Speaker 1: E number, you know, inching a little bit upwards. I
11:24
Speaker 1: think the FED has has to act given the Jackson
11:29
Speaker 1: Old speech and also the preemptive insurance rate cut that
11:32
Speaker 1: they started the July meeting with UM so they probably
11:36
Speaker 1: go for a cut here in September meeting. But after that,
11:40
Speaker 1: I think the incoming data dictates and um, you know,
11:42
Speaker 1: our viewers to rate cuts for the next twelve months,
11:45
Speaker 1: which is a little bit uh, you know, not as
11:47
Speaker 1: aggressive at what the STEAD is expecting. And primarily our
11:51
Speaker 1: take is dependent on the fact that we see consuming
11:54
Speaker 1: a much better health than what the FED is looking at.
11:58
Speaker 1: I think the FED is very myopically looking at and
12:01
Speaker 1: it's maybe not asthmiopic, but they're really concerned about the
12:05
Speaker 1: overseas market. You know, what's the other central banks doing
12:08
Speaker 1: the manufacturing slump in the global economy, and that's creating
12:12
Speaker 1: some level of anxiety. On top of that the trade
12:15
Speaker 1: war that has the potential of really you know, having
12:19
Speaker 1: a second, a third derivative effect that no one really
12:21
Speaker 1: has the policy measures to counteract. So I think that's
12:24
Speaker 1: really where the FED comes into play. But we still
12:27
Speaker 1: think of this as a sort of an insurance policy
12:29
Speaker 1: cut phase. So two to three rate cuts or all
12:32
Speaker 1: similar to and not really start off an easing cycle,
12:37
Speaker 1: which would be two thousand, two thousand two or two
12:39
Speaker 1: thousand eight. Deepa poor thank you so much for being
12:43
Speaker 1: with us. Debak Pouri is chief investment officer for the
12:45
Speaker 1: America's at Deutsche Bank Wealth Management joining us here in
12:48
Speaker 1: our Bloomberg Inactive broker studios, talking about a bit of
12:52
Speaker 1: cautiousness heading into the next few months. Right now, we're
12:55
Speaker 1: seeing a bit of cautiousness clawing back some of the
12:58
Speaker 1: earlier games that we saw in the US equities nazdac
13:01
Speaker 1: up now just four basis points, so almost flat on
13:05
Speaker 1: the day after starting solidly in the green. We are
13:07
Speaker 1: seeing bond yields coming off their earlier highs as well.
13:11
Speaker 1: It seems like people are getting a little more skeptical
13:14
Speaker 1: ahead of trade talks this weekend. Art investing should it
13:32
Speaker 1: be a part of your portfolio? Our next guest thinks
13:35
Speaker 1: maybe it should be. Dr Carvey Manus. He is an
13:38
Speaker 1: art collector, board member of the namesake and the namesake
13:42
Speaker 1: of the Manace Art and Education Center at the Nassau
13:44
Speaker 1: County Museum of Art. Dr Manis, thanks so much for
13:47
Speaker 1: joining us here in a Bloomberg Interactive broker studio. So again,
13:52
Speaker 1: we've heard about it from time, like when I think
13:53
Speaker 1: about investing in art, I think about these big hedge
13:55
Speaker 1: fund managers going out and spending you know, gazillions of
13:57
Speaker 1: dollars on art. Do you think it should be part
14:00
Speaker 1: of maybe the average investors portfolio. Well, thank you for
14:04
Speaker 1: inviting me, and uh, I think it's a good a
14:07
Speaker 1: good investment. As a matter of fact, that the Wall
14:09
Speaker 1: Street Journal came out a couple of months ago stating
14:13
Speaker 1: that art was the best investment for two thousand eighteen.
14:17
Speaker 1: Art work was up uh ten point six percent while
14:20
Speaker 1: the SMP was down five And through the years, art
14:24
Speaker 1: has been quite a good investment. I've been collecting for
14:27
Speaker 1: over forty years and I've I've purchased pieces that were
14:31
Speaker 1: let's say one thousand, five thousand, ten thousand, and they've
14:34
Speaker 1: increased twenty and thirtyfold. And during uh good times, people
14:40
Speaker 1: have money and they can they can buy art. And
14:43
Speaker 1: and if you look at the graph of prices of art,
14:46
Speaker 1: it continues to rise. Very rarely does it go down.
14:49
Speaker 1: All right, let's let's start with how you got into
14:51
Speaker 1: this in the first place. You're an orthopedic surgeon by day,
14:56
Speaker 1: investor by night, and then perhaps if you have a
14:59
Speaker 1: few then your back at your carpentry roots. So how
15:03
Speaker 1: did you get into this sort of art in casting world? Well,
15:05
Speaker 1: I always love art. As a as a child, I
15:08
Speaker 1: would my father would take me to the Brooklyn Museum.
15:11
Speaker 1: And uh, I I lived in a kind of a
15:13
Speaker 1: rough area, a rough neighborhood. It was Crown Heights, and uh,
15:17
Speaker 1: and my friends were not interested in museums. Nobody around
15:21
Speaker 1: they was interested in museums except when my father would
15:23
Speaker 1: take me. I loved looking around at the old Masters
15:26
Speaker 1: and the Impressionists and and and the different paintings. I
15:29
Speaker 1: just loved art. And when I went to college, I
15:33
Speaker 1: was a pre med major, but I actually majored in
15:35
Speaker 1: art history. So I took a lot of art history classes. Uh.
15:39
Speaker 1: Then when I finished medical school and I was able
15:42
Speaker 1: to save a few shekels, I started buying art. So
15:47
Speaker 1: how would you suggest that someone gets started in the
15:53
Speaker 1: art business and the kind of art investing in art? Okay,
15:58
Speaker 1: that's a very good question. There are many anyways to
16:00
Speaker 1: buy art. You can buy art at the auctions, you
16:03
Speaker 1: can buy at galleries art fairs, you can buy online. Now,
16:07
Speaker 1: buying online is is a very good venue. Uh. And
16:10
Speaker 1: you don't have to spend a lot of money. Of course,
16:13
Speaker 1: you can spend hundreds of millions like some of the
16:15
Speaker 1: Matisse and Picassos. And actually, couldn't excuse me that you
16:19
Speaker 1: who bought that the Da Vinci looked like that person
16:24
Speaker 1: a little bit back at my records. Anyway, carryout, so
16:28
Speaker 1: you can buy a lithograph. A lithograph, let's say, from Chicalo, Picasso,
16:32
Speaker 1: famous artists that I just happened to mention, could be
16:35
Speaker 1: between one thousand and a hundred thousand. So if you
16:39
Speaker 1: have a you know, just a few thousand dollars to invest,
16:42
Speaker 1: buy a litho from one of the famous artists. Now, Uh,
16:46
Speaker 1: there are certain parts of an areas of art that
16:49
Speaker 1: go up faster than other areas. So we have the
16:52
Speaker 1: old masters that increase in value maybe four or five
16:55
Speaker 1: percent a year. We have the modern artists like Picasso
16:58
Speaker 1: and Uh and Jay and Dolly that increase in value
17:02
Speaker 1: I don't know, six seven, eight percent per year. And
17:05
Speaker 1: then you have the contemporary. The contemporary market is hot,
17:08
Speaker 1: as am I llowed to say hell and say that
17:12
Speaker 1: is really hot. And we have artists like Damien Hurst
17:15
Speaker 1: and Jeff Coon's and especially well Walhole Lichtenstein. The pop
17:20
Speaker 1: artists are still very hot, but the graffiti artists are
17:23
Speaker 1: doing amazingly well. Artists like Basku, Yacht, Keith, Harry, Kenny Scharff, Uh,
17:31
Speaker 1: and now fellow called cause k A W S they
17:35
Speaker 1: are so hot. Uh. You buy a piece now and
17:38
Speaker 1: within a year or two it they will definitely increase
17:41
Speaker 1: in value. So if you if it, let's say it's
17:43
Speaker 1: not one of the top names. How do you determine
17:47
Speaker 1: whether something's good? Also a good question. First of all,
17:51
Speaker 1: you're gonna this is a collection, and you have to
17:54
Speaker 1: really like what you buy. You just can't buy because
17:58
Speaker 1: you think it's an investment. You're gonna have to hold
18:00
Speaker 1: onto these pieces for a while. It's not a flip
18:03
Speaker 1: type of thing. Let's say like real estate or or stocks.
18:07
Speaker 1: You have to hold onto it so you're gonna live
18:08
Speaker 1: with it. So you have to find a piece that
18:11
Speaker 1: you really like, uh, the color of the design, whatever,
18:14
Speaker 1: a piece that you like. Then and then as far
18:17
Speaker 1: as I'm sorry, what what I but how did you know?
18:22
Speaker 1: I was thinking? I'm just thinking about you know, if
18:24
Speaker 1: you ask, you asked the dealer, you you asked the
18:27
Speaker 1: auction house, You get prices, you do due diligence. You
18:31
Speaker 1: do your due diligence. Go online, put the artist name in.
18:35
Speaker 1: Let's say the artist is John Smith. Put it online
18:38
Speaker 1: and you'll see the prices uh if he's sold in
18:42
Speaker 1: galleries and auctions. But if you if you're talking about
18:44
Speaker 1: an up and coming artist that has not had any
18:48
Speaker 1: UH sales at auctions or or major galleries, then it's difficult.
18:53
Speaker 1: Then it's a crapshoot. But I try to buy like stocks.
18:57
Speaker 1: I try to buy blue chip artists and UH and
19:00
Speaker 1: and and occasionally I'll buy like an overd uh what
19:04
Speaker 1: did they call us? The pink sheets? Occasionally I'll buy
19:06
Speaker 1: an artist like on a pink sheet. But that's then
19:09
Speaker 1: you're taking a risk. So all right, how about for
19:11
Speaker 1: someone like me with little too absolutely no experience, how
19:15
Speaker 1: do I spot fakes? Or is that a risk that
19:18
Speaker 1: I have to really deal with something that's just you know,
19:20
Speaker 1: it's it's not it's a fake, it's not authentic. Well,
19:24
Speaker 1: Thomas Hoving, the director of the Modern Art Museum UH,
19:29
Speaker 1: said that of the art and museums are fake. So
19:32
Speaker 1: it's very hard to really stay away from fakes. But
19:35
Speaker 1: what you need is provenance. You buy a piece, and
19:38
Speaker 1: you need the papers from the gallery, from the auction,
19:42
Speaker 1: provenance that this is an authentic piece. Where is the
19:46
Speaker 1: bid coming from? That keeps prices continually marching higher. Is
19:50
Speaker 1: there sort of the Chinese buyer that's been coming in
19:53
Speaker 1: or the European buyer, or is it you know, everywhere,
19:56
Speaker 1: And just the more that it becomes sort of you know,
19:59
Speaker 1: pop pularised online, etcetera, the more everything is worth well,
20:05
Speaker 1: you you have people who buy art who are very
20:08
Speaker 1: wealthy and it's kind of a prestige type of thing.
20:12
Speaker 1: Uh So that that pushes the prices up as well.
20:15
Speaker 1: But there are more museums opening up every year, more
20:19
Speaker 1: people are educated, more people are going to museums every year,
20:24
Speaker 1: and people want to you know, have art in their
20:28
Speaker 1: in their life. It's beautiful to be surrounded by, you know,
20:31
Speaker 1: wonderful pieces of art. Besides the fact that it's a
20:34
Speaker 1: very good investment. So if I go to an auction,
20:37
Speaker 1: just real quickly, what do I need to know? Do
20:39
Speaker 1: I just wave my little paddle when I like something? Well, yeah,
20:44
Speaker 1: I guess no. You that's a big paddle, okay, but
20:52
Speaker 1: uh you are that you look before you bid? You
20:56
Speaker 1: have to you look up the artists and the auction
20:59
Speaker 1: catalog will have a low estimate and a high estimate,
21:03
Speaker 1: so they they do a lot of the due diligence
21:06
Speaker 1: for you. Uh. Let's say a piece is estimated between
21:09
Speaker 1: ten and twenty thousand, so you know, you you look
21:12
Speaker 1: it up and and and online and see if this is, uh,
21:15
Speaker 1: you know, within your price range. And if you see
21:18
Speaker 1: if it's you think it's fair. And you could call
21:20
Speaker 1: the auction or the gallery and ask for previous prices
21:24
Speaker 1: and asked them how they came up with this particular estimate.
21:27
Speaker 1: Dr Harvey Mannus, thank you so much for spending time
21:30
Speaker 1: with us. My book collected. We're going to get there.
21:34
Speaker 1: Don't worry. Dr Harvey man This is an art collector
21:37
Speaker 1: of board member and the namesake of the Mannis Art
21:39
Speaker 1: and Educations that are at the Nassau County Museum of Art.
21:42
Speaker 1: And he has a book collecting Art for Pleasure and
21:45
Speaker 1: a profit that he is holding up and you can
21:48
Speaker 1: find it on Amazon and others. Hurricane Dorian continues to
22:07
Speaker 1: bear down on the state of Florida, expected to make
22:10
Speaker 1: landfall perhaps Monday of next week. The question really is
22:13
Speaker 1: where will it make landfall. To help us get the latest,
22:17
Speaker 1: we welcome Matthew Polozola, Senior annalys covering Property and Casualty
22:21
Speaker 1: insurance for Bloomberg Intelligency joints us here in our Bloomberg
22:23
Speaker 1: Interactive Broker studio and Brian Sullen, Energy and Commodities reporter
22:27
Speaker 1: for Bloomberg News and our Bloomberg one oh six one
22:29
Speaker 1: studio in Boston. Brian, let's start with you. Can you
22:32
Speaker 1: just give us the latest on what we know about
22:35
Speaker 1: the storm. So, the storm is um on the verge
22:38
Speaker 1: of becoming a Category three, which will make it a
22:40
Speaker 1: major hurricane, and it is potentially going to be a
22:42
Speaker 1: category four when it finally gets to the Florida coast
22:45
Speaker 1: um late Monday early Tuesday. Right now, the current thinking
22:50
Speaker 1: is that it will be somewhere between Fort Lauderdale and
22:52
Speaker 1: Port Lucy in Florida's um southeast coast. So, Matthew, given
22:58
Speaker 1: the fact that you focus on insurance companies and that
23:01
Speaker 1: they're expected to have potentially billions of dollars of losses
23:04
Speaker 1: with this hurricane, I'm wondering, where do you see which
23:08
Speaker 1: companies are going to be most affected? Which what are
23:10
Speaker 1: you watching? Sure? So, the market share of homeowners insurance
23:15
Speaker 1: in Florida is mostly dominated by smaller regional companies, large
23:20
Speaker 1: mutual non public insurance companies, and the state run insurance
23:24
Speaker 1: company so the large national companies like A I G.
23:27
Speaker 1: Chub Um, All State Progressive, they will have exposure, but
23:31
Speaker 1: they're kind of in the bottom half of the top
23:33
Speaker 1: ten of market share. Not only that, but they're pretty
23:35
Speaker 1: significantly protected by reinsurance. So in the event of a really,
23:39
Speaker 1: really large storm, it's probably the smaller regional companies who
23:42
Speaker 1: are most in jeopardy. So, Brian, I guess the question
23:46
Speaker 1: is if comes across as it makes landfall as a
23:48
Speaker 1: category for obviously major, major storm. I know one of
23:52
Speaker 1: the things I've been reading about and hearing about this
23:54
Speaker 1: storm is kind of the the speed at which the
23:56
Speaker 1: storm is moving, i e. It's not going very fast.
23:59
Speaker 1: So that suggest said there could be some significant damage.
24:01
Speaker 1: Well what are you hearing? Um, Yeah, So there's two
24:04
Speaker 1: things that are gonna happen. One is it's going to
24:05
Speaker 1: come ashore and you're gonna have that that initial burst
24:08
Speaker 1: of really intense winds in a small area plus the
24:11
Speaker 1: storm surge, and that's gonna cause you most of your
24:13
Speaker 1: damage right along the coast. But as you point out,
24:16
Speaker 1: then it's gonna stall out and it's gonna sit over
24:18
Speaker 1: Florida for maybe a couple of days. And this is
24:20
Speaker 1: a situation similar but not exactly the same as what
24:24
Speaker 1: happened in Texas with Harvey, where it just came out
24:26
Speaker 1: and it just wrung itself out. So, um, I've been
24:29
Speaker 1: watching the rainfall totals just keep going up, and right
24:32
Speaker 1: now we're in the six to fifteen inch range. This
24:37
Speaker 1: is really interesting to me from an insurance point of view, Matt,
24:41
Speaker 1: because the more rain there is, the more relief there
24:45
Speaker 1: Probably isn't some of these insurance companies right because it
24:47
Speaker 1: isn't flood insurance covered by the government and not necessarily
24:51
Speaker 1: their per view. Isn't that correct? That is true? So
24:53
Speaker 1: the federal government basically backstops most of the private flood insurance.
24:58
Speaker 1: There is commercial flood insurance, so you could see private
25:01
Speaker 1: companies should UH see some of those losses, but for
25:05
Speaker 1: the most part, a lot of flood uh doesn't impact
25:09
Speaker 1: these companies. But one thing that I find really interesting,
25:12
Speaker 1: so there were some estimates of fifty three billion dollars
25:15
Speaker 1: for the potential losses for this storm. Is that correct?
25:18
Speaker 1: That that's insured values of where it was aiming towards well?
25:21
Speaker 1: But so so, what I'm struggling to understand is just
25:23
Speaker 1: in a larger context, these slow moving storms seem to
25:26
Speaker 1: be increasingly common. So how do insurance companies change their
25:32
Speaker 1: calculus as this increasingly happens? I mean, basically, are our
25:37
Speaker 1: insurance premiums going up dramatically as each storm happens? I
25:41
Speaker 1: probably say not not as each storm happens, but certainly
25:44
Speaker 1: over time. Insurers are definitely reacting to higher catastrophe prone
25:48
Speaker 1: areas like California and wildfire and Florida with hurricanes. So
25:52
Speaker 1: not only are they pulling back capacity, but they're buying
25:55
Speaker 1: more protection for these areas as well. So Brian, Yeah,
25:59
Speaker 1: I know you cover commodities for Bloomberg News. What's been
26:04
Speaker 1: the projected impact on some of the citrus and other
26:08
Speaker 1: you know kind of produce and so on for the
26:10
Speaker 1: state of Florida. Um, it could it could get very
26:13
Speaker 1: bad um in that situation, especially if um the storm
26:17
Speaker 1: kind of drags its way northward up the peninsula. UM.
26:21
Speaker 1: You know, the area where it's going to come in
26:23
Speaker 1: and make landfall is not necessarily a heavy um citrus producer,
26:27
Speaker 1: But uh, that's further north up the peninsula, and as
26:30
Speaker 1: as the storm goes up there and you get these
26:31
Speaker 1: flooding rains, that that is. UM, it's going to add up, Brian,
26:36
Speaker 1: since you cover the weather so well, and I love
26:39
Speaker 1: reading your stories because I've always interested in what's going
26:41
Speaker 1: to be happening. How much more frequently are we seeing
26:45
Speaker 1: these big, slow moving storms that just sort of dump
26:47
Speaker 1: a lot of rain and create a whole host of problems. Yeah,
26:51
Speaker 1: there's been a lot of discussion back and forth about
26:53
Speaker 1: that with UM. People who have study climate change, for instance,
26:57
Speaker 1: are saying that these things are becoming more common because
26:59
Speaker 1: the jet stream itself is getting stuck. And in Dorian's situation,
27:02
Speaker 1: what we're gonna have here is two very large high
27:04
Speaker 1: pressure systems, one over the western Atlantic in one over
27:07
Speaker 1: the Great Planes in the United States. And because hurricanes
27:11
Speaker 1: don't move under their own power, these two two monsters
27:14
Speaker 1: basically are gonna pin Dorian down and that's what's going
27:17
Speaker 1: to create it and make it such a slow mover. UM.
27:20
Speaker 1: And like I said, some people point to climate change
27:22
Speaker 1: is saying that, you know, these big high pressure systems
27:24
Speaker 1: are getting stuck more often because of UM the problems
27:28
Speaker 1: related with that. So, Matthew, you mentioned earlier reinsurance. That's
27:32
Speaker 1: one of the many areas of insurance I don't understand,
27:35
Speaker 1: um explain to us kind of how the reinsurance market
27:38
Speaker 1: works and kind of how that might how they might
27:41
Speaker 1: be affected here in Florida. Sure, So it's insurance for
27:45
Speaker 1: insurance companies. So like let's say you're all state and
27:47
Speaker 1: you write a lot of homeowners insurance in this in Florida,
27:50
Speaker 1: you might say you go to a re insurance company, say,
27:53
Speaker 1: if we have losses over one billion dollars, you take
27:55
Speaker 1: a certain percentage of that reinsurance company. So it's increasing
28:00
Speaker 1: looking like this storm is probably gonna be worse than
28:02
Speaker 1: last year's Hurricane Michael in terms of insured losses, maybe
28:05
Speaker 1: closer to IRMA in two thousand seventeen. So when you
28:07
Speaker 1: start to get into those like dollar storm losses, uh,
28:12
Speaker 1: it starts to go through the reinsurance coverage of companies. So, Brian,
28:17
Speaker 1: how would you rank this season that we have coming
28:20
Speaker 1: up in terms of how active the hurricanes are going
28:23
Speaker 1: to be? How are people sort of talking about it
28:25
Speaker 1: versus previous years. So we're right now we're entering the
28:30
Speaker 1: most active period of the hurricane season, and that typically
28:33
Speaker 1: happens around this time of year, like say from August
28:36
Speaker 1: twenty October one, so we're just getting going. Um, there's
28:40
Speaker 1: two more potential storms out in the Atlantic following this one,
28:43
Speaker 1: and they may take a similar track. So you know,
28:45
Speaker 1: we could be back here in a week or two
28:47
Speaker 1: weeks talking again about Florida taking a hit. I wouldn't
28:50
Speaker 1: be surprised if that was the case. Um, the early
28:53
Speaker 1: part of the season was kind of slow, but you
28:55
Speaker 1: can't really judge the rest of the season by what
28:57
Speaker 1: happens in the early part of the season, so we
28:59
Speaker 1: could be in for a very active period here well.
29:02
Speaker 1: And we wish the best to everybody who is in
29:04
Speaker 1: the regions that are squarely in the target of Hurricane Dorian. Uh, Matt,
29:09
Speaker 1: Paul Zilla, thank you so much for being with us.
29:11
Speaker 1: Brian Sullivan, thank you as well, both of them for
29:14
Speaker 1: Bloomberg covering from the insurance side as well as the
29:18
Speaker 1: weather and commodity side. What we can be expecting definitely, Uh.
29:22
Speaker 1: The human aspect is important, honestly, Paul, though, I'm actually
29:27
Speaker 1: expecting the debate to emerge once again about the US
29:31
Speaker 1: government's program to ensure against flood damage, because it's not
29:37
Speaker 1: they don't have enough money to make it sustainable given
29:41
Speaker 1: the payouts that we've seen in recent years, and so
29:43
Speaker 1: there's going to be a big question of what you
29:45
Speaker 1: do with this program. And it always sort of strikes me,
29:47
Speaker 1: as you know, the bulk of the of the damage
29:50
Speaker 1: gets caused by flooding, and so then it ends up
29:53
Speaker 1: squarely in the government's hands. Very interesting. Well, I'm sure
29:56
Speaker 1: I'll be talking more about that. Thanks for listening to
29:59
Speaker 1: the Bloomberg Piano All podcast. You can subscribe and listen
30:01
Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
30:05
Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm
30:08
Speaker 1: Lisa Abram Woyds. I'm on Twitter at Lisa abram woits one.
30:11
Speaker 1: Before the podcast, you can always catch us worldwide. I'm
30:13
Speaker 1: Bloomberg Radio.