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Iran Is The Thing That Keeps Me Up At Night: Former CIA Officer · Bloomberg Intelligence

0:06
Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
0:08
Speaker 1: Along with my co host Lisa A. Bramowitz. Each day
0:11
Speaker 1: we bring you the most important, noteworthy, and useful interviews
0:15
Speaker 1: for you and your money, whether you're at the grocery
0:17
Speaker 1: store or the trading floor. Find the Bloomberg P and
0:20
Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com,
0:32
Speaker 1: National security, trade tweets, Trump and Iran. Here to help
0:39
Speaker 1: us understand all of these different things is Jack Divine.
0:41
Speaker 1: He is the former acting director of the Central Intelligence Agency,
0:46
Speaker 1: and he is also the founding partner and the president
0:49
Speaker 1: of the security firm The Arkin Group. He joins us
0:52
Speaker 1: here in our eleven three oh studios. Jack, thank you
0:55
Speaker 1: very much for being here. Do you have a security clearance?
0:58
Speaker 1: I do. What is your reaction to the news reports
1:03
Speaker 1: about the potential for revoking the security clearances of several
1:09
Speaker 1: former administration security officials. I can understand why the presidents upset.
1:14
Speaker 1: I can unders stand um why it's painful to listen
1:20
Speaker 1: to them. But free speech is a big part of
1:23
Speaker 1: our critically important part of our system, and you can't.
1:28
Speaker 1: You have to be in the political rena. You have
1:30
Speaker 1: to live with it. UM. I do think there's questions
1:33
Speaker 1: about why we have so many people that have security clearance.
1:37
Speaker 1: Last time I looked at was the three millions why
1:39
Speaker 1: government officials carried into the private sector. I mean legitimate
1:44
Speaker 1: reasons is but to go after because you don't like
1:47
Speaker 1: what's being said, I think is wrong foot it well,
1:50
Speaker 1: and I don't think it has legs. If you'll use
1:51
Speaker 1: excuse the pun, I don't. I don't think there's gonna
1:54
Speaker 1: be a long lasting story. I don't think you're going
1:55
Speaker 1: to do it, but you know, it rattles everybody's cage.
2:00
Speaker 1: Another thing that's rattling everybody's cage right now is President
2:03
Speaker 1: Trump's rhetoric toward Iran UH, similar to the approach that
2:07
Speaker 1: he took with North Korea, basically threatening them and UH
2:12
Speaker 1: and and the idea of sanctions are definitely coming up.
2:15
Speaker 1: What's going on here? Well, I think there's the bigger
2:19
Speaker 1: picture of where we headed in Iran. But let's start
2:22
Speaker 1: with today's today's news, if you will, UH. I think
2:28
Speaker 1: the fact that Rohani, president in Iran, spoke out so
2:32
Speaker 1: forcedly and said if you do try and sanction, as
2:35
Speaker 1: you know, be the mother of all wars. I mean
2:37
Speaker 1: the predictable reaction. You don't have to be a rocket
2:40
Speaker 1: science to know that President Trump is going to come
2:43
Speaker 1: back and loves a good fight, and they're just going
2:44
Speaker 1: to come back as strong as you can, and says
2:47
Speaker 1: if you think that's the mother of all wars, what
2:50
Speaker 1: do you see what I have for you? So I
2:54
Speaker 1: was reading an article day where quoting someone saying, you
2:58
Speaker 1: know they're dealing with the for fish in this pond.
3:01
Speaker 1: Now you know what they might have gotten away with
3:04
Speaker 1: and passed with challenges. But if you know, if they
3:07
Speaker 1: really think they're going to use force the Iranians, then
3:11
Speaker 1: then I think they need to be prepared for a
3:13
Speaker 1: pretty harsh response. I mean, I don't think it's all bravado.
3:17
Speaker 1: So you think that we could have a military altercation
3:19
Speaker 1: with Theyran I've been concerned about the prospects. It used
3:22
Speaker 1: to be my concern about Pakistan having nuclear weapons that
3:25
Speaker 1: kept me awake. The thing that has troubled me, and
3:28
Speaker 1: I've written about this in my quarterlies for the past year.
3:31
Speaker 1: The Place to Watch. I mean, I'm obviously fixated on
3:34
Speaker 1: the Russian Helsinki meeting, but I would say the longer
3:38
Speaker 1: term issue where there's a real risk, is Iran an
3:41
Speaker 1: arm relationship with them. Jack, You've had a thirty two
3:45
Speaker 1: year career with the CIA. You're also the author of
3:49
Speaker 1: a book called Good Hunting, a spy Master's story based
3:54
Speaker 1: on what you know. Do you believe that the meeting
3:58
Speaker 1: that took place between Vladimir Huon and President Donald Trump
4:02
Speaker 1: was recorded? That's a good A good question. UM. I
4:11
Speaker 1: would I wouldn't bet a lot of money, but I
4:15
Speaker 1: think it was limited to the stenography. All right, now,
4:19
Speaker 1: they'd have to have an agreement, and I would think
4:22
Speaker 1: if I were either the participants, I would not want
4:25
Speaker 1: to record it because you're not sure how that meeting
4:27
Speaker 1: is going to go. I think it's too risky to
4:30
Speaker 1: have it recorded. I think they were prudent. Actually, if
4:33
Speaker 1: you want to have UM, you know, once in a while,
4:37
Speaker 1: you really do have to do one on one and Uh.
4:42
Speaker 1: I seriously doubt that it was recorded, but I wouldn't
4:45
Speaker 1: bet a lot of money on it. Do you think
4:47
Speaker 1: that President Trump's lack of uh castigation of Prussia for
4:54
Speaker 1: their involvement in the election, which is agreed by bipartisan groups,
4:58
Speaker 1: that there was meddling the Russian government in the US elections.
5:02
Speaker 1: Do you think that the president's tepid kind of approach
5:05
Speaker 1: to that puts US into greater danger? I think the UH.
5:11
Speaker 1: I think President Trump was on a roll, depending on
5:14
Speaker 1: how you look at it, up until he landed in
5:16
Speaker 1: the UK, and I thought something wheel fell off of
5:20
Speaker 1: the car in terms of the preparation and strategy of
5:23
Speaker 1: the meeting. And then I honestly must say Helsinki, I
5:26
Speaker 1: thought it was a huge setback for the president in
5:29
Speaker 1: terms of the exerting what looked like a very strong president.
5:33
Speaker 1: I mean, you may not like the policies that may
5:36
Speaker 1: not be popular. Eventually popular already cuts up with it.
5:39
Speaker 1: But it was strong, whether you liked it or not.
5:41
Speaker 1: I think the biggest and most troubling thing about that
5:45
Speaker 1: meeting it was a sense of of weakness and not
5:49
Speaker 1: coming out ahead, which is a very bad place for
5:52
Speaker 1: a president to be. I remember I was a kid,
5:55
Speaker 1: but I remember Khruschef meeting Kennedy on the first seven meeting,
5:59
Speaker 1: and they didn't want Kennedy to make the meeting, and
6:01
Speaker 1: he did. He being Kennedy and Khrushchov belf. It was
6:05
Speaker 1: a disaster for Kennedy after that meeting, Putin went off
6:09
Speaker 1: and decided he was going to push, push hard and
6:12
Speaker 1: put missiles in the Cuba. But he didn't realize that.
6:15
Speaker 1: Jack Kennedy at the same time realized he did poorly,
6:17
Speaker 1: and and and strengthen it. And then you had a
6:20
Speaker 1: confrontation as close as we've gotten a nuclear war. And
6:25
Speaker 1: fortunately for Kennedy, we had in his pocket inside intelligence
6:29
Speaker 1: from the spy Pankovski and was able to push back
6:33
Speaker 1: on Krushev. So I think there's a dynamic here and
6:36
Speaker 1: what is Alice Trump going to regain his strength? And
6:40
Speaker 1: does that come from pushing back? And um, I think
6:44
Speaker 1: that would be my recommendation. I am a bit befuddled
6:50
Speaker 1: by the call for a second summit in that context,
6:53
Speaker 1: I thought I had a pretty good grasp of what
6:54
Speaker 1: was going to happen next to now ambivalent Jack. One
6:59
Speaker 1: of you are various UH duties. You headed the CIA's
7:03
Speaker 1: Counter Narcotics Center. You also worked on the response to
7:08
Speaker 1: the United States to Russian incursions in Afghanistan. Do you
7:13
Speaker 1: believe that there's a casual relationship between human behavior and logic?
7:23
Speaker 1: That's that's a really interesting question, but I'm not sure
7:27
Speaker 1: where you're coming from, and I would say, yes, qualified,
7:32
Speaker 1: quite qualified. Well, I think we all think we're very logic,
7:37
Speaker 1: all right, But I do think that we all come
7:39
Speaker 1: out of the same place with a DNA and makeup
7:43
Speaker 1: that was somehow related to some uncle who was a
7:45
Speaker 1: little flaky. So maybe we're not. We're trying to be logical,
7:49
Speaker 1: but we do have personalities that are developed. Um so yeah,
7:55
Speaker 1: I'd like to be optimistic that mankind woman kind as
8:01
Speaker 1: well h are logical. Well, let's hope that logic prevails.
8:08
Speaker 1: Jack Divine, thank you so much for being with us.
8:11
Speaker 1: We could spend another hour talking. Uh so many questions,
8:15
Speaker 1: so we'll leaf to have you back. Let's start our
8:32
Speaker 1: focus to emerging markets, in particular Turkey assets are falling
8:36
Speaker 1: out of bed there after the central Bank unexpectedly held
8:41
Speaker 1: interest rates where they were despite the fact that inflation
8:44
Speaker 1: was spiraling out of concern and that many people were
8:46
Speaker 1: saying that they needed to support the currency. Of course, uh,
8:49
Speaker 1: the president's son in law is now helming the central bank.
8:52
Speaker 1: So Damian Sassour joins us. Now fixed income started just
8:55
Speaker 1: for Bloomberg Intelligence. Damien, Wow, Turkey, are you surprised by
8:59
Speaker 1: this or is this just uh, you know, an ongoing
9:02
Speaker 1: mess that just gets worse. Well, I'm not surprised than
9:04
Speaker 1: it is an ongoing mess, and it's it's one of
9:06
Speaker 1: his own making. It's one of it's one of one's
9:08
Speaker 1: own making, right. I mean, we have a country that's
9:10
Speaker 1: operating with a six point one percent current account deficit UM.
9:14
Speaker 1: It's debt is funded in external currencies and it's all
9:18
Speaker 1: short term portfolio flows, right, So how are they going
9:20
Speaker 1: to fund their debt? How are they going to fund
9:22
Speaker 1: the country's operations? I mean, the only way to do
9:24
Speaker 1: that is to raise rates and appeal to offshore creditors
9:27
Speaker 1: to continue, you know, basically making its economy more investable.
9:31
Speaker 1: And it did not do that today. And so now
9:33
Speaker 1: we've seen the lira the worst performer pretty much um
9:36
Speaker 1: outside of Argentina on the year down local currency, Turkish
9:41
Speaker 1: debt down twenty nine percent year to date in dollar terms.
9:45
Speaker 1: Uh yeah. Now you've got yields in the high teams
9:47
Speaker 1: now seventeen point eight percent five year yields and local currency.
9:51
Speaker 1: It's just it's getting bad, it's getting ugly. You've got
9:53
Speaker 1: inflation there of around fifteen percent I believe percent inflation
9:57
Speaker 1: that's right. I mean that was that was in June.
9:59
Speaker 1: It's average a eight and a half percent over the
10:01
Speaker 1: last five years. Just to give you a sense of
10:03
Speaker 1: just how far things have gone, I mean, think about
10:05
Speaker 1: p M I. P m I felt to its lowest
10:07
Speaker 1: level on record in May. That signals slower GDP growth.
10:11
Speaker 1: I mean, the only way that could possibly think they're gonna,
10:14
Speaker 1: you know, move their way out of this is to
10:16
Speaker 1: accelerate growth, right, is to grow their way out of it.
10:18
Speaker 1: But clearly that's not happening either. And so where does
10:21
Speaker 1: attention now shift. It shifts to the financial sector. And hey,
10:24
Speaker 1: we're an earning season, right, So you've got all the
10:25
Speaker 1: big Turkish banks reporting starting tomorrow and through next week,
10:30
Speaker 1: and they're also huge, huge issuers of US dollar debt
10:33
Speaker 1: and they're gonna have trouble rolling it over. When I
10:35
Speaker 1: talked to emerging markets investors, particularly the debt world, they say,
10:39
Speaker 1: you know, in general, we still find some things to
10:42
Speaker 1: like in emerging markets. Credit that's sold off a lot,
10:45
Speaker 1: but we're not touching Argentina or Turkey. Some people are
10:48
Speaker 1: actually tiptoeing back to Argentina Turkey off limits. I'm just
10:51
Speaker 1: wondering I mean, it's Turkey just a completely idiosyncratic story
10:55
Speaker 1: unto itself, with a government that just is getting itself
10:57
Speaker 1: deeper into mess. Or do you see signs of something
11:02
Speaker 1: more pervasive happening across the board and development more? I mean,
11:05
Speaker 1: and you know, I mean I I every time I
11:06
Speaker 1: think I've got emerging markets figured out, Lesta, they always
11:09
Speaker 1: another Turkey pops up. And you know, it's just unbelievable,
11:12
Speaker 1: the stubbornness. And look, it's it's not unprecedented. Right, We've
11:14
Speaker 1: seen in South in Brazil, we said Dilma, you know,
11:17
Speaker 1: you know, contesting the credibility of the of the Brazilian
11:19
Speaker 1: Central Bank a few years back. We've seen recently in
11:21
Speaker 1: South Africa something somewhere. We're seeing here in the US
11:23
Speaker 1: Trump saying he does think rates should continue to go up, right,
11:26
Speaker 1: So this is nothing new. But for a president to
11:28
Speaker 1: basically just shrug off the markets, um to install his
11:32
Speaker 1: son in law as the dual head of the Central
11:34
Speaker 1: Bank and the Finance Ministry and give him the control,
11:38
Speaker 1: it's basically he's I mean, now the markets believe he's
11:40
Speaker 1: a puppet, right, And so you know, Idawin's on the
11:42
Speaker 1: record is having said he does not think high rates
11:44
Speaker 1: are good for the economy. He wants rates lower, and
11:47
Speaker 1: we're seeing evidence of that here today. And it's just
11:50
Speaker 1: h yeah, No, I a a central bank that's um,
11:53
Speaker 1: that's sort of um, not independent, that's not targeting inflation,
11:56
Speaker 1: that's not targeting full employment. You know, the markets have
11:59
Speaker 1: a funny way of of showing them where the clearing rate,
12:03
Speaker 1: where the clearing prices and um. And I think that's
12:05
Speaker 1: what Turkey's undergoing right now, and we don't know where
12:07
Speaker 1: the bottom is. They mean, if you're an emerging markets
12:10
Speaker 1: investor for debt and you're looking for corporates, what sector
12:15
Speaker 1: I'm thinking commodities, maybe extractive industries, mining companies, oil companies.
12:22
Speaker 1: How are they doing? Yeah? No, I mean you're now
12:24
Speaker 1: now we're going to shift out of Turkey and we're
12:25
Speaker 1: getting to get into the fun stuff. So the fun
12:27
Speaker 1: stuff is this I happen to think that. I'm sorry,
12:30
Speaker 1: we don't think the data tells us that commodities are
12:34
Speaker 1: over sold. Right We're starting to see for the first time,
12:37
Speaker 1: we've seen copper short up, COMICX copper, we've seen a
12:41
Speaker 1: net short, a speculative interest moved, you know, it's moved short.
12:45
Speaker 1: It was, it was, it was long for as long
12:47
Speaker 1: as we can remember. It's now gone short. We're seeing
12:49
Speaker 1: the same thing in oil and other commodities, and what
12:51
Speaker 1: that tells us is that these markets are vulnerable to
12:53
Speaker 1: a short squeeze to a near term rebound which could
12:56
Speaker 1: be accentuated to the upside. So that's good for all
12:58
Speaker 1: of the commodity producers. Latin American specific, Peru, Colombia, and
13:03
Speaker 1: Chile are three that come to mind there um. But
13:05
Speaker 1: then you know, you've got You've got you've got Russia,
13:07
Speaker 1: who's a pretty big oil export over they have their
13:09
Speaker 1: own problems, and you've got a handful of other there's
13:11
Speaker 1: the Middle East and so forth. So so so yeah, I
13:13
Speaker 1: happen to agree with you. I think you know you're
13:14
Speaker 1: going to see a pivot on the corporate side and
13:16
Speaker 1: emerging markets toward commodity exporters. And we're seeing a little
13:20
Speaker 1: bit of evidence of that now, although you know, we'll
13:22
Speaker 1: see what happens. But I like your thoughts about copper
13:25
Speaker 1: very interesting because copper has dropped more than seventeen percent
13:30
Speaker 1: in price, not this year, just since the beginning of June.
13:35
Speaker 1: Absolutely now it's oversold. I mean, the red metal is oversold.
13:38
Speaker 1: If you would ask my colleague Mike mcglonany's actually on
13:41
Speaker 1: vacation now, we should get him up here. But yeah, no,
13:43
Speaker 1: he would agree with you completely. Vacation. I'm sorry, he's
13:47
Speaker 1: not a vacation. He's actually working from home. But yeah, right,
13:51
Speaker 1: But you know, broad commodity sell off, I mean, that's
13:53
Speaker 1: where we are, and we need to see that kind
13:54
Speaker 1: of rebound in order for emerging markets to catch a bid,
13:57
Speaker 1: I think and uh, and we might very well be
13:59
Speaker 1: on on the verge of that. Thanks very much, Damian Sassaur.
14:02
Speaker 1: We love having you on Fixed Income Strategist for Bloomberg Intelligence,
14:06
Speaker 1: telling us all about Turkey and commodity related emerging market debt.
14:27
Speaker 1: One of the biggest question marks right now is around oil,
14:31
Speaker 1: particularly are we heading much higher than seventy dollars a barrel?
14:35
Speaker 1: We're much lower? Uh, And a lot of this hinges
14:39
Speaker 1: on Iran. Joining us now Will Ryan, founder and chief
14:42
Speaker 1: executive officer of Granite Shares in New York. Well, I
14:45
Speaker 1: want to start with Iran because we've gotten this battle
14:47
Speaker 1: of words between President Trump uh and the Iranian leaders
14:51
Speaker 1: and I'm wondering do you think that the market is
14:54
Speaker 1: pricing in some kind of escalation here and the likelihood
14:58
Speaker 1: that Iranian oil fields would truly be taken out of
15:02
Speaker 1: service for the rest of the world. In short, no,
15:04
Speaker 1: I don't think so. Um. Iran is a huge producer,
15:08
Speaker 1: one of the largest opaque producing countries, and so if
15:11
Speaker 1: there was a disruption or an escalation that resulted in disruption,
15:15
Speaker 1: that would have a big effect on supply. And right
15:16
Speaker 1: now what you have is a situation where we have
15:20
Speaker 1: strong demand for oil and almost certainly you see the
15:23
Speaker 1: price being pushed higher. How much higher? Uh is impossible
15:27
Speaker 1: to say, but I mean give us a range. I mean,
15:29
Speaker 1: are we talking, you know, five dollars? Are we talking
15:31
Speaker 1: twenty dollars? I think you could see ten to twenty. Yeah, alright, Well,
15:37
Speaker 1: before we get into some details about commodity related funds,
15:40
Speaker 1: I want to talk just a second about granite shares because, UM,
15:44
Speaker 1: when I was young before I think almost just around
15:48
Speaker 1: the time they invented the telephone, UM, one of the
15:51
Speaker 1: ways to be interested in the world was to read
15:53
Speaker 1: annual reports, and it was quite exciting because you got
15:56
Speaker 1: to see how things operated, how companies created products are
16:00
Speaker 1: versus all over the world was one of the few
16:02
Speaker 1: ways to really access the excitement of what was happening
16:05
Speaker 1: in the world. Tell our listeners a little bit about
16:08
Speaker 1: granite shares and how you're trying to bring some of
16:10
Speaker 1: that excitement back. Thank you, um So, grantite Shares is really,
16:15
Speaker 1: you know, it's my expression of what a modern day
16:20
Speaker 1: E t F company should be about, or an asset
16:22
Speaker 1: manager should be about. So we specialize in E t
16:25
Speaker 1: F E t F so the new technology, if you will,
16:27
Speaker 1: in the asset management space. And really the reason why
16:31
Speaker 1: they're driving so much popularity and investor flows is because
16:34
Speaker 1: on the whole, lower cost, more transparent and liquid. And
16:39
Speaker 1: in terms of specifically why I started the business, I
16:43
Speaker 1: felt that there was an opportunity, or actually a rare
16:45
Speaker 1: opportunity to really do two things. One was to reinvent
16:49
Speaker 1: the way people access commodity markets in investment form. And too,
16:54
Speaker 1: I felt like the timing was right for a new
16:56
Speaker 1: sort of ball market in commodities. And when I took
16:59
Speaker 1: about reinvesting the commodity market, before investors had accessed or
17:05
Speaker 1: had access to commodities in two ways, either to buy
17:08
Speaker 1: partnerships that issued k ones, which can be pretty clunky
17:11
Speaker 1: for investors around tax time. Or they could buy notes
17:14
Speaker 1: from banks, and notes from banks have credit exposure to
17:18
Speaker 1: that particular issuing bank. So I thought, here's a way
17:21
Speaker 1: to actually change the way that investors get access improve
17:25
Speaker 1: the solution, so by offering it in a fund of
17:28
Speaker 1: forty act fund without k ones, but without the credit
17:31
Speaker 1: risk of the the issuing banks of notes, and provide
17:35
Speaker 1: that exposure to the broad commodity markets. Okay, thank you,
17:39
Speaker 1: that's a great definition. And now I want to turn
17:41
Speaker 1: to the actual way in which investors can speculate or invest,
17:46
Speaker 1: let's say in crude in oil markets. Is that a
17:50
Speaker 1: specific market and there are there specific challenges to doing that? Yes, So,
17:56
Speaker 1: so investors have a broad array of options when it
17:59
Speaker 1: comes to investing in either individual commodities or broad based commodities.
18:04
Speaker 1: Um and you can invest in gold, for example, something
18:07
Speaker 1: very specific. You can invest in other metals, you can
18:10
Speaker 1: invest in crude, or you can invest in in broad
18:14
Speaker 1: Now I would say just to just to be clear
18:16
Speaker 1: that when we're talking about precious metals, we're talking about
18:20
Speaker 1: owning exposure of fun. For example, we have the Granite
18:23
Speaker 1: Shares Gold Trust, the ticket code is bar and what
18:26
Speaker 1: that actually holds as physical bars of gold. So every
18:29
Speaker 1: share is backed by a tenth of announce of gold.
18:33
Speaker 1: Now that's fine for precious metals because the natural state
18:36
Speaker 1: is stored in a vault and we can do that,
18:39
Speaker 1: but when we go outside into other commodities that either
18:41
Speaker 1: decay or die over time, you have to obtain that
18:44
Speaker 1: exposure of your futures contracts. So when we're talking about oil,
18:47
Speaker 1: we're not talking about physical barrels of oil. We're talking
18:50
Speaker 1: about futures contracts are linked to the price of oil.
18:55
Speaker 1: So since we started with oil, I'm wondering, what have
18:57
Speaker 1: you seen recently with respect to the investors that have
19:00
Speaker 1: been using your e t f s in that space
19:04
Speaker 1: and do you find that they tend to be more
19:05
Speaker 1: speculators or more true investors. Well, we um We offer
19:12
Speaker 1: really two broad diversified commodity funds, so take us C O,
19:17
Speaker 1: m B, and CMG, and that's really for the investor
19:20
Speaker 1: that wants to take broad market exposure. So those people
19:24
Speaker 1: are really more longer term investors that are looking to
19:27
Speaker 1: to gain longer term exposure. So we don't offer some
19:30
Speaker 1: of the more racy individual commodities for example, Um, that
19:34
Speaker 1: may be something we do over time, but at the
19:36
Speaker 1: moment we have just the two broad based commodities, and
19:39
Speaker 1: then we have gold and platinum, and so really that's
19:43
Speaker 1: somebody that is looking to put five percent of the
19:45
Speaker 1: portfolio typically into commodities, and the decision making process that
19:50
Speaker 1: they're going to go through is really to evaluate how
19:52
Speaker 1: much energy exposure do I want within that particular fund,
19:56
Speaker 1: and that leads you to to the decision of whether
19:58
Speaker 1: you buy one or the other. Okay, the reason I
20:02
Speaker 1: was focusing on oil and futurist contracts is there is
20:05
Speaker 1: a natural seasonality not only to oil and other commodities,
20:09
Speaker 1: but there is a rollover effect because you have the
20:13
Speaker 1: expiration of those contracts. How do you avoid that natural
20:17
Speaker 1: decay of value when you're dealing with futurist contracts, great question.
20:22
Speaker 1: So you can't avoid it. That's a market structure issue.
20:26
Speaker 1: So by definition, when you're investing in futures contracts, the
20:30
Speaker 1: contract you own, depending on what expiry date it is,
20:34
Speaker 1: is going to expire at that expiry date. That is
20:36
Speaker 1: the whole point. And so by definition, to maintain that
20:40
Speaker 1: exposure we call it rolling, you have to sell that
20:42
Speaker 1: contract before it expires and buy the next contract, And
20:48
Speaker 1: that has a friction associated with it because you're selling
20:50
Speaker 1: one contract and buying another, and depending on whether that
20:55
Speaker 1: contract that you're buying is trading more expensive or cheaper
20:59
Speaker 1: in the money, you're out of the money. Exactly. That's
21:01
Speaker 1: either a positive or negative effect. I've been looking at
21:05
Speaker 1: comb as. You're one example, right, and this is it
21:09
Speaker 1: was trading right about twenty seven back in May, now
21:13
Speaker 1: trading at around twenty five s, a drop of about
21:16
Speaker 1: eight and a half percent. Do you believe that that's
21:18
Speaker 1: an accurate reflection of the overall commodity market? Yes, So
21:22
Speaker 1: what's happened actually, and this is this is a great
21:24
Speaker 1: point because I think you know, it's important for investors.
21:26
Speaker 1: You know, there are three components that make up what
21:29
Speaker 1: we call the total return of these kind of funds.
21:32
Speaker 1: So the first one is the spot price of the
21:34
Speaker 1: underlying futures naturally. The second one is what we're just
21:37
Speaker 1: talking about, which is the we call the roll yield,
21:40
Speaker 1: which is either positive or negative. The third one is
21:43
Speaker 1: the return on the collateral. Because when we invest in
21:46
Speaker 1: future as, we hold treasury bills as collateral and they
21:49
Speaker 1: generate an interest rate orbit not not a huge amount,
21:52
Speaker 1: but still generates an interest rate, and so those three
21:55
Speaker 1: make up the total return. What's actually happened is the
21:57
Speaker 1: market structure for the majority of commodities is shifted into backwardation,
22:02
Speaker 1: so people are being paid to be long that exposure
22:06
Speaker 1: and oil for example, Well done, Thanks very much, Will
22:09
Speaker 1: ryand he is the founder and the chief executive of
22:12
Speaker 1: Granted Shares. Talking about investing in commodities through E T
22:18
Speaker 1: F S Well, Verizon decided that it is going to
22:35
Speaker 1: seek to partner with either Google or Apple to provide
22:38
Speaker 1: television when it launches the first super fast five G
22:42
Speaker 1: service to homes in l A and Sacramento later this year.
22:46
Speaker 1: A big question, why didn't they go with Hollywood? Why
22:50
Speaker 1: didn't they go with the traditional television networks? And here
22:54
Speaker 1: to talk about that, John Butler, Senior Telecom Service as
22:57
Speaker 1: an equipment analyst with Bloomberg intell Agents, John, what happened here? So,
23:03
Speaker 1: first of all, Verizon just held its earnings call and
23:07
Speaker 1: the question didn't even come up about content really, so
23:12
Speaker 1: I think the and that reflects the fact that the
23:15
Speaker 1: company is focused on launching these new five G services. Uh,
23:21
Speaker 1: tell people what five G is so five G is
23:23
Speaker 1: sort of a next generation wireless technology. It is ultra fast.
23:28
Speaker 1: It's probably ten to a hundred times faster than the
23:32
Speaker 1: four G connection you get today. What's really important is
23:36
Speaker 1: you can as a carrier, you can begin to pars
23:39
Speaker 1: off or create these little slices of dedicated network for
23:44
Speaker 1: your business customers. And so Verizon is looking at that,
23:49
Speaker 1: going wow, an ultrafast dedicated connection. What appeal that's going
23:54
Speaker 1: to have for the business community. And so they're structuring
23:58
Speaker 1: this whole sort of commercial plan down the road, but
24:02
Speaker 1: the initial launch is going to be to over build
24:07
Speaker 1: your cable guy or in some cases, I guess your
24:10
Speaker 1: teleco providing broadband internet services to the home. But that
24:16
Speaker 1: is a first step. Okay, I'm just sorry to stop
24:21
Speaker 1: you there. I'm trying to sort of figure out what
24:24
Speaker 1: we're who's doing television, who's doing the tech part, who's
24:27
Speaker 1: doing what because it seems like there's ever merging of
24:31
Speaker 1: all of these things, of the content and the providing
24:34
Speaker 1: of the services, and this just sort of increases the confusion.
24:38
Speaker 1: So Verizon wants to provide television, uh, and it's going
24:42
Speaker 1: to use Google and Apple, which have their own maybe
24:47
Speaker 1: which have their own sort of content providers in various ways.
24:52
Speaker 1: I'm trying to struggle like who's doing what here. Well,
24:55
Speaker 1: there's a lot of convergence going on. So a lot
24:58
Speaker 1: of cable companies now can provide your telecom services. They
25:03
Speaker 1: provide internet, they provide videos. So does Verizon. I have
25:06
Speaker 1: Verizon FiOS at home. I don't get my telephone, I
25:10
Speaker 1: get pardon me. I get my telephone, my video, and
25:14
Speaker 1: my broadband internet all from Verizon. And I think the
25:18
Speaker 1: appeal for residential customer is bundling. You get service discounts
25:24
Speaker 1: across the board by going with one carrier. They sort
25:28
Speaker 1: of reward you for that in a lot of markets.
25:31
Speaker 1: For Rising doesn't have the infrastructure to compete with cable
25:35
Speaker 1: by bundling like that. They happen to in my neighborhood.
25:39
Speaker 1: But they only have seventeen million homes across the US
25:42
Speaker 1: wired to do that. So the plan is to use
25:46
Speaker 1: the ultra Fast five G to provide a last hundred
25:51
Speaker 1: foot connection to the home using wireless, so they don't
25:55
Speaker 1: have to dig trenches like they did in my front yard.
25:58
Speaker 1: They don't need to put five or in my basement
26:01
Speaker 1: they put an Antenta on my roof and provide service.
26:04
Speaker 1: So what would Google or Apple actually do and who's
26:09
Speaker 1: the loser here? Well, the punchline is do you want
26:11
Speaker 1: to I guess if you're Verizon, do you want to
26:14
Speaker 1: provide just the dumb pipe as it's called, or do
26:17
Speaker 1: you want to begin to fill it with sort of
26:20
Speaker 1: value added services? Uh in In this case, it would
26:25
Speaker 1: be video services coming from Apple, which doesn't currently have
26:29
Speaker 1: a streaming service, or Google, which has I believe it's
26:34
Speaker 1: a sixty channel service on YouTube. So by partnering with them,
26:39
Speaker 1: Verizon doesn't really need to get in the content game
26:42
Speaker 1: in a big way like a T and T is doing,
26:44
Speaker 1: for example. They can sort of stay out of it.
26:47
Speaker 1: But what they're offering in terms of the five G
26:50
Speaker 1: link over a cable operator or in competing with a
26:54
Speaker 1: cable operator, I should say they'll be able to come
26:57
Speaker 1: to customers and say, well, not only give you the
27:00
Speaker 1: pipe at a discount, but we have content that goes
27:03
Speaker 1: along with it. Wow, when you say value added services,
27:08
Speaker 1: all I see is an extra bill to pay at
27:13
Speaker 1: the end of the month. You have Apple, Amazon, Netflix, Spotify, Hulu, Pandora.
27:19
Speaker 1: Now you're telling me what I didn't even add in
27:22
Speaker 1: the mobile services, so that may be T Mobile or
27:25
Speaker 1: Sprint or whatever. If you've got Plus. Now you're telling
27:27
Speaker 1: me that a T T is going to offer something.
27:30
Speaker 1: Are they're really going to offer anything that you don't
27:33
Speaker 1: have to pay for? I think they'll have a very
27:37
Speaker 1: ultra low cost add supported tier on direct TV now,
27:41
Speaker 1: which is their streaming service. I will add with Verizon.
27:45
Speaker 1: By the way, the partnership with Google or Apple is
27:49
Speaker 1: rumored at this point, not the five ge services of course,
27:54
Speaker 1: but the content services to go along with it. So
27:58
Speaker 1: we'll see if it happens or not. Either way, I
28:01
Speaker 1: would say what you you're speaking to that that convergence
28:04
Speaker 1: between telecom and cable operators and now even Google and
28:09
Speaker 1: Apple is really happening and going to continue. By the way,
28:14
Speaker 1: I just don't want know why this convergence has to
28:16
Speaker 1: cost so much money every month, And meanwhile you have
28:20
Speaker 1: Verizon with its own content provider of oath Man. My
28:25
Speaker 1: head is spinning. Yeah, just keep writing the checks, all right.
28:28
Speaker 1: Thanks very much, John Butler, He's our expert when it
28:31
Speaker 1: comes to telecom services and equipment. He's our analyst for
28:35
Speaker 1: Bloomberg Intelligence. Thanks for listening to the Bloomberg P and
28:44
Speaker 1: L podcast. You can subscribe and listen to interviews at
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Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm
28:51
Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on
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Speaker 1: Twitter at Lisa Abramowits one before the podcast. You can
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Speaker 1: always catch us worldwide on Bloomberg Radio h