Latest / Bloomberg Intelligence / Fed Warnings on Asset Prices Could Sour Market, Maley Says

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Fed Warnings on Asset Prices Could Sour Market, Maley Says · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
0:08
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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Speaker 1: bring you the most important, noteworthy, and useful interviews for
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Speaker 1: or the trading floor. Find the Bloomberg p m L
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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Tomorrow,
0:33
Speaker 1: Jenny Ellen, the Federal Reserve Chair, is going to be
0:36
Speaker 1: beginning her testimony in front of Congress. Uh, and this
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Speaker 1: is going to be somewhat more important than it has
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Speaker 1: potentially in the past. I want to bring in Matt Malee,
0:46
Speaker 1: managing director and equity strategist at Miller ta Back and Company. Uh. Matt,
0:51
Speaker 1: you know, I want to talk a little bit about
0:53
Speaker 1: something that you pointed out in a recent recent note
0:56
Speaker 1: where you said that aside from just balance sheet considerations
1:00
Speaker 1: and when the Fed may raise rates next, one of
1:03
Speaker 1: the most important things that Chair Yelling could talk about
1:07
Speaker 1: is asset prices. Can you give us a little bit
1:09
Speaker 1: of color around that. Well, you know, she came out
1:12
Speaker 1: and you know, said talked about stretch valuations, and that
1:15
Speaker 1: took people a little bit back. I'm saying, well, jeez,
1:18
Speaker 1: if she's worried about it, should we be worried about it?
1:21
Speaker 1: And uh and and usually when when things are misinterpreted
1:24
Speaker 1: by by the public or by the uh financial press
1:27
Speaker 1: with them or the markets. Uh, they quickly marched somebody
1:31
Speaker 1: out from the FED to say, oh, no, no no, no,
1:32
Speaker 1: she didn't mean to say that. Well, she said the
1:34
Speaker 1: exact opposite happened. She had some more people came up
1:37
Speaker 1: from the FED, including vice the vice chair saying that,
1:40
Speaker 1: you know, kind of reiterating what she was saying. So
1:42
Speaker 1: the reason why I worry about that a little bit
1:44
Speaker 1: is that, you know, people have felt that the FED
1:47
Speaker 1: has had their backs for quite some time now, and
1:49
Speaker 1: I'm not saying that that you know, it is suddenly
1:51
Speaker 1: going to be you know, they're they're looking to the
1:53
Speaker 1: stock market to go down in this to give it way.
1:55
Speaker 1: But people have a lot of leverages we see in
1:57
Speaker 1: the margin debt numbers, and if uh, people start to say, Jesus,
2:01
Speaker 1: the said doesn't have our back to the same degree,
2:03
Speaker 1: maybe I've got to unwind some of that leverage. So
2:06
Speaker 1: it brings into a back up for one second. So
2:10
Speaker 1: you're saying, if the FED doesn't have our back. Why
2:12
Speaker 1: does that relate to them saying, yeah, well things look
2:15
Speaker 1: a little stretched, because you know, in fairness, things do
2:18
Speaker 1: look a little stretched. Yes, but it's it's it's for
2:23
Speaker 1: for some of these leverage players and and momentum players.
2:26
Speaker 1: And we all know it was interesting Barons this weekend
2:28
Speaker 1: had this uh you know, the cover story was about,
2:31
Speaker 1: you know, the machine trading and a lot of that
2:32
Speaker 1: is very much momentum based. And if that momentum is
2:35
Speaker 1: going to slow down a little bit, uh, it might
2:37
Speaker 1: cause the market roll over. No, that's not the worst
2:39
Speaker 1: thing in the world. I mean, you know, it's funny
2:42
Speaker 1: when we talk about seven to ten percent pullbacks um
2:45
Speaker 1: and they was like, well, jeez, I don't know will
2:46
Speaker 1: be that bad. Well, jeez, we've had one of those
2:49
Speaker 1: every single year since. So it wouldn't be the worst
2:52
Speaker 1: thing in the world at all. But if if Janet
2:55
Speaker 1: Yellen starts talking about some of these continues to talk
2:57
Speaker 1: about some of these things, I should say, it could
2:59
Speaker 1: cause people pull pull on their horns a little bit.
3:01
Speaker 1: And to be honest with you, I think that would
3:03
Speaker 1: be number one to be normal, but it'll also be
3:04
Speaker 1: healthy for the market. Do you think people will buy
3:06
Speaker 1: that dip. Matt, Well, the big question is going to be, uh,
3:11
Speaker 1: I think odd, right, I mean, just isn't it odd that? How?
3:14
Speaker 1: You know, stocks are always an opportunity, whether if they
3:18
Speaker 1: fall there you know, it's by the dip, if they
3:20
Speaker 1: go up, it's a momentum trade. It doesn't seem to
3:23
Speaker 1: be any point along the way where people say, you know,
3:26
Speaker 1: this is just too expensive and uh, I don't I
3:28
Speaker 1: don't want any part of it. Well, that's why I
3:31
Speaker 1: think what we're seeing right now because not only from
3:34
Speaker 1: what the FED chair yelling and and the vice chair
3:38
Speaker 1: and the pred sorry San Francisco FED presidents have been
3:41
Speaker 1: saying about asset levels, but also the coordinated effort uh
3:44
Speaker 1: talking about you know, shrinking the balance seat raising the rates.
3:49
Speaker 1: And we're starting to see that creep out into the
3:51
Speaker 1: e c B, the B the Bank of England, the
3:53
Speaker 1: Bank of Canada, and even a little chatter about the
3:55
Speaker 1: B O J. So when you get this kind of
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Speaker 1: coordinated effort that seems to be coming out of this
4:00
Speaker 1: central the global central banks, uh, some of those stretched valuations,
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Speaker 1: I think people will have to change their thinking. This
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Speaker 1: is not an insignificant change. In instance, and as we
4:09
Speaker 1: heard today from uh, you know, Jamie Diamond talking about how,
4:13
Speaker 1: you know, we we think we could see a pickup
4:15
Speaker 1: of votility because we really don't know. We don't know
4:19
Speaker 1: what will happen when when they start pulling back on
4:20
Speaker 1: this keew weik. Yeah, you know what Jamie Diamond was
4:23
Speaker 1: talking about was that the market may not be adequately
4:27
Speaker 1: prepared right as yeah, as potentially the Federal Reserve starts
4:31
Speaker 1: in winding its balance sheet and the ECB starts tapering
4:34
Speaker 1: its bond purchases. What do they what do they want though?
4:36
Speaker 1: Do they do they want like a postcard in the mail?
4:39
Speaker 1: Do they want a little you know? Basically that's my point,
4:44
Speaker 1: more other than you know, getting in a biplane and
4:47
Speaker 1: flying along the beach with this, you know, a sign.
4:49
Speaker 1: I mean, what else do you need to tell people?
4:52
Speaker 1: They don't know? Clearly they're not telling that. It's not
4:54
Speaker 1: like they have some super secret sauce. I mean, they're
4:56
Speaker 1: waiting to see what's going on in the economy as well.
4:58
Speaker 1: I think that people I mean not to speak for you, Matt,
5:01
Speaker 1: but it seems like people are looking for what is
5:03
Speaker 1: really the guiding factor for the Fed because they have
5:06
Speaker 1: said it's you know, inflation, but that's not really the case.
5:10
Speaker 1: They have said employment, but that's not really the case
5:12
Speaker 1: because the employment rate plunge. There. Then you know, people
5:15
Speaker 1: are saying, well, financial stability, but you know, is that
5:18
Speaker 1: really the case because they don't want to discrapt the
5:19
Speaker 1: markets or is it uh, you know, making sure that
5:22
Speaker 1: there's not another bubble. I mean, so it's just because
5:25
Speaker 1: they keep moving the goal post both back, you don't
5:27
Speaker 1: know what what's gonna come next. Well, the other thing
5:30
Speaker 1: too is you have to work. I mean, and again
5:32
Speaker 1: this is I'm not saying because they're not saying this
5:34
Speaker 1: the boy at some point, I mean back in the
5:36
Speaker 1: in the day. This is kind of going back to
5:38
Speaker 1: the very beginning I reread after the crisis, when Ben
5:40
Speaker 1: Bernanki came out and said, hey, listen, we can do
5:42
Speaker 1: all this monetary policy and provide all this liquidity, but
5:46
Speaker 1: it's only a kind of a stock cat measure or
5:48
Speaker 1: a bridge to, you know, to where we can get
5:50
Speaker 1: we need some help on the fiscal side. Well, we
5:52
Speaker 1: look like we're finally going to get some help on
5:54
Speaker 1: the fiscal side at the beginning of the year, and
5:55
Speaker 1: now we're not going to get it. And it's almost
5:57
Speaker 1: I wonder if if the FED is throwing their hands
5:59
Speaker 1: up and said, hey, we can't. We can't be the
6:02
Speaker 1: parents that you know, you know, you're the thirty year
6:04
Speaker 1: old who is still living off the You need to
6:06
Speaker 1: get out there and do your thing. And uh, you know,
6:09
Speaker 1: it's about time that Washington stepped to the plate. And
6:12
Speaker 1: we see more and more examples that they're not. So
6:16
Speaker 1: maybe they're finally saying, hey, you can't rely on us anymore.
6:18
Speaker 1: You need to step to the place. So we'll see
6:20
Speaker 1: what happened with the millennial market. Another thing that that
6:23
Speaker 1: might have a pretty significant effect on markets is bank earnings,
6:26
Speaker 1: which begin on Friday. And I'm wondering, you know, we
6:29
Speaker 1: have seen an expectation that fixed income trading revenues are
6:31
Speaker 1: gonna be down six in the second quarter for the
6:34
Speaker 1: five biggest US banks, trading in general down about uh
6:38
Speaker 1: Is there anything in particular within the bank earnings that
6:42
Speaker 1: are going to potentially have a material effect on market movements. Well,
6:48
Speaker 1: the thing that's going to be interesting is that is
6:49
Speaker 1: that obviously after these uh uh numbers, that of the
6:52
Speaker 1: c car numbers that give a lot of people allowed confidence.
6:58
Speaker 1: I'm sorry, And and they've rallied nicely off of that,
7:00
Speaker 1: and and and be honest that they're getting a little
7:02
Speaker 1: over bought on a technical basis. It's interesting. If you'd
7:05
Speaker 1: asked me this question a couple of weeks ago, I
7:07
Speaker 1: would have said, geez, this is this is gonna be
7:08
Speaker 1: a big problem because you worry about guidance because she's
7:11
Speaker 1: look at the way interest rates are, and look how
7:13
Speaker 1: flat the yield curve is. Well, in the last two
7:15
Speaker 1: weeks that has actually improved a little bit. It's only
7:17
Speaker 1: a two week move, but it will be interesting to
7:20
Speaker 1: see if if that gives them enough enough of impetus
7:23
Speaker 1: to to to give a little bit better guidance than
7:25
Speaker 1: I've been thinking, because, to be honest with you, I
7:27
Speaker 1: was getting a little worried that it was going to
7:28
Speaker 1: be one of those sell the news situations where we
7:31
Speaker 1: have all this good news, everybody's bullish on the group.
7:33
Speaker 1: Everybody said we should be uh, you know, overweight in
7:36
Speaker 1: the financial stocks. So I thought we were getting a
7:38
Speaker 1: little too frothy there. And and maybe this change in
7:41
Speaker 1: the yield curve, the spread and from the two years
7:43
Speaker 1: in the tenure uh has widened out nicely, but it's
7:46
Speaker 1: still quite low. So my concern is that we're we're
7:49
Speaker 1: not going to get quite the same kind of uh
7:52
Speaker 1: boost that we got out of the stress test results.
7:54
Speaker 1: But uh uh, it's not as bad as I was
7:56
Speaker 1: was thinking, you know, just two or three weeks ago. One.
8:00
Speaker 1: Thank you very much, Matt Maylee. He is Managing director
8:02
Speaker 1: equity strategist at Miller tay Back. Lack of daisical. So
8:16
Speaker 1: we've had languid, We've had list lists, and we've had
8:19
Speaker 1: lack of daisical. I'm on toucher hooks waiting for the
8:22
Speaker 1: next synonym. I don't have one for you. I'm sorry,
8:25
Speaker 1: but let's just go right on to the long awaited
8:29
Speaker 1: repeal replaced? How about repair? When it comes to healthcare. Republicans,
8:34
Speaker 1: of course, returned to Washington this week and they wanted
8:37
Speaker 1: to produce a revised version of the Senate healthcare bill,
8:40
Speaker 1: but none of the expected changes so far appear to
8:44
Speaker 1: win sufficient support from at least the ten GOP senators
8:49
Speaker 1: who have publicly opposed the bill. Here to tell us
8:52
Speaker 1: more about what is happening, if anything, is Max Neeson.
8:56
Speaker 1: He is our Bloomberg Gadfly columnist. He knows everything and
9:00
Speaker 1: others to know about the healthcare on the pharmaceutical industry. Max,
9:04
Speaker 1: go ahead, I want to launch your comments here with
9:09
Speaker 1: all good wishes go for What what is going on
9:12
Speaker 1: here with this healthcare bill? So? Um, you know we
9:16
Speaker 1: have the centers back they're working on a new bill,
9:19
Speaker 1: UH that that's set to be released I believe on Thursday.
9:22
Speaker 1: We do not yet know what's going to be in it. Um.
9:26
Speaker 1: It seems to be one of those situations that we've
9:28
Speaker 1: gotten pretty used to where they're kind of last minute
9:31
Speaker 1: tweaks and negotiations, horse trading all of that. Um. So
9:35
Speaker 1: what's going on right now is you know, the eternal
9:39
Speaker 1: uh kind of tug of war between moderates and conservatives
9:42
Speaker 1: on the bill. Moderates UH ted Cruz and likely one.
9:47
Speaker 1: Basically a proposal added that would allow insurers to sell
9:50
Speaker 1: much skinnier, much less generous insurance plans as long as
9:55
Speaker 1: those insurers also offered a c A compliant plans. The
9:58
Speaker 1: issue with that is that it makes insurance a lot
10:00
Speaker 1: more expensive when it's a compliant, like a lot more expensive.
10:05
Speaker 1: Just can you just give an example because I know
10:07
Speaker 1: some of the details here because the having to understand that,
10:11
Speaker 1: you know, the cost of the premium outweighs the deductible
10:16
Speaker 1: on in many cases that is rather ordinary, but this
10:19
Speaker 1: is even more exceptional. Yeah, I mean, you know, it's
10:22
Speaker 1: hard to tell unless insurers are actually putting out premiums
10:26
Speaker 1: in in kind of this alternative universe. But um, you know,
10:30
Speaker 1: this proposal seems sort of designed to to send them skyrocketing.
10:34
Speaker 1: Anyone who's not sick is going to pick the cheaper
10:38
Speaker 1: or not a month, right, Yeah, okay, but that comes
10:45
Speaker 1: out to a premium that is going to actually be
10:48
Speaker 1: costing you more than the deductible I and and also
10:52
Speaker 1: deductibles are gonna rise to because that's another another part
10:55
Speaker 1: of the plans. So not only do you have these
10:58
Speaker 1: these escalaiming premium, also deductibles, and especially for low income people,
11:04
Speaker 1: if you have a deductible that's you know, several thousand dollars,
11:07
Speaker 1: that's a substantial portion portion of your income, you can't
11:10
Speaker 1: really quite call that healthcare coverage. So that's another difficulty
11:13
Speaker 1: to the bill. So, Max, you know, the tenor of
11:16
Speaker 1: your discussion and your comments is somewhat negative. But that's
11:20
Speaker 1: surprising because you recently wrote probably the most positive piece
11:25
Speaker 1: you've ever written about how there's actually some silver lining
11:28
Speaker 1: and some of the back and forth that's going on,
11:30
Speaker 1: Can you uh give us a little sense of what
11:33
Speaker 1: this sort of gridlock among Republicans could mean for the
11:37
Speaker 1: bill and why this could be potentially a positive for
11:40
Speaker 1: at least the people in the health care industry. Absolutely, so,
11:43
Speaker 1: it's I'll preface this by saying that, you know, we've
11:45
Speaker 1: been here before. The House bill looked dead with a
11:48
Speaker 1: similar kind of in past, and that ended up getting done.
11:51
Speaker 1: But we've heard over the past couple of days and
11:54
Speaker 1: even last week for Mitch McConnell, is the idea of
11:56
Speaker 1: being floated of bipartisan fix of some kind. And and
12:00
Speaker 1: I want to emphasize that this is a remote possibility,
12:03
Speaker 1: um that just hasn't been you know what's happened lately
12:05
Speaker 1: in Congress. But I think the potential positive here is
12:10
Speaker 1: that from everything we we know, it wouldn't take all
12:13
Speaker 1: that much to stabilize the individual insurance market. It would
12:18
Speaker 1: take some pretty minor tweaks, a bit of extra spending,
12:21
Speaker 1: but but nothing you know, as as disruptive or kind
12:24
Speaker 1: of impactful as what we're seeing in this bill. Um,
12:27
Speaker 1: Some things like a permanent reinsurance market, promising to to
12:31
Speaker 1: fund cost sharing subsidies, just things that make it a
12:34
Speaker 1: little easier for people to stay on insurance and for
12:37
Speaker 1: insurance to stay in the market, but go a really
12:39
Speaker 1: long way. So if that is a possibility, and it
12:43
Speaker 1: seems a little closer now that that probably could be
12:46
Speaker 1: good for the market. Do you find max, though, that
12:48
Speaker 1: these kinds of discussions on on sort of strategy and
12:52
Speaker 1: philosophy of the actual system that really don't matter at
12:55
Speaker 1: this point because it's just about these ten g OP
12:58
Speaker 1: senators and in fact, one them. Senator Susan Collins, Republican
13:03
Speaker 1: from Maine, UH commented about the UH likely insertion of
13:08
Speaker 1: forty five billion dollars in funding to fight the opioid epidemic.
13:12
Speaker 1: Correct forty billion dollars. Her quote is that's helpful, but
13:16
Speaker 1: it's by no means sufficient. So if that's her issue,
13:20
Speaker 1: you're gonna have to solve that before you get to
13:23
Speaker 1: any of these other lofty philosophical resolutions. Yeah. Absolutely so.
13:27
Speaker 1: A lot of individual senators have their issues. For a
13:30
Speaker 1: lot of them, it's opioids. For others, in medicaid Expecsion
13:33
Speaker 1: states it's a little bit of a ratcheting back in
13:36
Speaker 1: in how much impact that is. But it's hard to
13:39
Speaker 1: fulfill ten of those desires all at once. Uh that
13:42
Speaker 1: there is a substantial pool of money with which they
13:45
Speaker 1: can do so. Uh. The Senate bill scored is saving
13:48
Speaker 1: a more than d billion dollars more against the deficit
13:51
Speaker 1: than the House bill, so that can be spent. And
13:53
Speaker 1: also the twenty years right, yeah, over over ten years,
13:56
Speaker 1: ten years, I beg And there's also some talk ab
14:00
Speaker 1: out ending the repeal of attacks on high income Americans.
14:04
Speaker 1: That adds another more than two billion dollars. So the
14:07
Speaker 1: question is can you buy it, you know, kind of
14:10
Speaker 1: give enough funding to various pet projects. But at the
14:13
Speaker 1: end of the day, it's really hard to fix the
14:15
Speaker 1: kind of fundamentally here, which is, you know, more than
14:17
Speaker 1: twenty million people scored to lose health insurance. It's it's
14:20
Speaker 1: hard to vote for that, and uh, it's it's hard
14:22
Speaker 1: to fix that. Well, we're gonna watch what happens. They've
14:25
Speaker 1: got this week and they've got next week, I believe
14:27
Speaker 1: in order to do this before the break, Well, this
14:31
Speaker 1: is what we don't have time. But that I gotta say,
14:33
Speaker 1: it just seems odd that you would have such an
14:35
Speaker 1: important piece of legislation done in such a I don't know,
14:40
Speaker 1: rush rush, thank you, rushed, okay, rushed manner. Thank you
14:45
Speaker 1: very much. Lisa Bramwit No, thank you very much for
14:48
Speaker 1: joining us. Max Needson is our Bloomberg gad Fly columnist.
14:51
Speaker 1: Are expert when it comes to all things healthcare. Well,
15:07
Speaker 1: if you have not been living in the Midwest, that
15:10
Speaker 1: particularly in places that depend heavily on harvesting wheat and grain, uh,
15:16
Speaker 1: you might not know, but there has been a drought
15:20
Speaker 1: that has been decimating the US wheat crop. And here
15:23
Speaker 1: to tell us more about it, as Sal GILBERTI. He
15:26
Speaker 1: is the president and the founder of two Cream Trading.
15:29
Speaker 1: Also with us, our guide to everything commodities is Mike McGlone.
15:33
Speaker 1: Here's our commodity strategist for Bloomberg Intelligence. Mike, do you
15:37
Speaker 1: want to maybe just set up what's been going on?
15:39
Speaker 1: I mean, I've been following it in detail just because
15:40
Speaker 1: I'm interested in the topic. But this is a really
15:43
Speaker 1: uh un sung saga right now. Tell us about the
15:49
Speaker 1: what's happening? Well, I think you nailed the main part
15:52
Speaker 1: of it. Pain, but I look at that as more
15:53
Speaker 1: than the shorter term granular situation. Yes, we're having a
15:57
Speaker 1: bit of a I would say more of a normal
15:59
Speaker 1: weather event. It's it's drought in kind of the planes
16:01
Speaker 1: in the US, it's in Dakotas in the Minnesota. It's
16:05
Speaker 1: really affected the wheat crop. But the bigger pictures, it's
16:07
Speaker 1: potentially trickling down to the rest of the crops. And
16:11
Speaker 1: the way I look at it in terms of real
16:12
Speaker 1: the real big picture is we've had significant about four
16:16
Speaker 1: five years of down years in the grain markets, corn
16:19
Speaker 1: beans and wheat. In fact, last year wheat was at
16:22
Speaker 1: a ten year low and then plantings were at a
16:23
Speaker 1: hundred year low. So what's happening is to me is
16:26
Speaker 1: the markets just normalizing, Weather's not so perfect, and prices
16:30
Speaker 1: are coming back, and this might just be the beginning
16:33
Speaker 1: with wheat leading. So sal I want to bring you
16:36
Speaker 1: in here. Do you think that the backdrop has been
16:39
Speaker 1: set for a surge in these commodities in the prices
16:44
Speaker 1: or do you think that simply efficiencies and farming and
16:48
Speaker 1: other sort of sorts of technological developments have increased production
16:52
Speaker 1: capability to such an extent that prices are going to
16:56
Speaker 1: remain subdued for the foreseeable future. Um, that's a great point.
16:59
Speaker 1: But I think what has atually happen is demand has
17:01
Speaker 1: increased so steadily that we are fortunate that these technological
17:05
Speaker 1: advantages have kept pace with the demand. And in general,
17:08
Speaker 1: supplies do keep pace with demand in terms of grain
17:11
Speaker 1: production and grain demand. But grain demand is continually rising,
17:15
Speaker 1: which means if it doesn't rain somewhere, people aren't going
17:18
Speaker 1: to stop using it. That you're not gonna let yourself
17:20
Speaker 1: be hungry just because it doesn't rain in some far
17:22
Speaker 1: away place. And that is the perfect setup right now.
17:24
Speaker 1: We've had uh, wheat prices at lows. We've had corn
17:28
Speaker 1: prices sitting at or near the cost of production now
17:30
Speaker 1: for a good part of three or four years. And
17:33
Speaker 1: what happens is again, no matter what the news is,
17:35
Speaker 1: today is a great day as an example for that,
17:37
Speaker 1: And no wonder what the stock market is doing, no
17:39
Speaker 1: matter what technology is doing, people are going to use grains.
17:42
Speaker 1: They don't stop using them. And so when there's a
17:45
Speaker 1: supply disruption mostly due to weather, and weather does affect
17:48
Speaker 1: even the new technology and new new new grains that
17:51
Speaker 1: are out there, drought resistance things like that, you do
17:53
Speaker 1: have an almost immediate reaction in prices, which is understandable.
17:57
Speaker 1: And it's happening now and wheat, and it could, as
17:59
Speaker 1: my says, be a precursor to what's to come in corn.
18:02
Speaker 1: And not to harp on the weather, but because Mike
18:05
Speaker 1: knows has just I love the learning about the weather.
18:07
Speaker 1: But what's going okay, but this it's interesting. But what's
18:11
Speaker 1: happening right now to the spring wheat crop. I think
18:15
Speaker 1: the U s d A says something like only thirty
18:17
Speaker 1: seven of the wheat crop is in good or excellent condition.
18:21
Speaker 1: And that particular wheat crop, to your point, is high
18:23
Speaker 1: in protein, and so it isn't in higher demand, It
18:26
Speaker 1: isn't constant higher demand. That's exactly correct, and in fact,
18:30
Speaker 1: poor protein we if it's so poort, they'll throw it
18:33
Speaker 1: in an ethanol exactly. So what happens is grains are
18:37
Speaker 1: going to get used one way or another, and people
18:40
Speaker 1: need to understand that farmers will drive the price of
18:42
Speaker 1: grains down to their cost of production because they're going
18:45
Speaker 1: to plant as many seeds as they can to make
18:47
Speaker 1: as much money as they can. But when it stops raining,
18:50
Speaker 1: people don't stop using, and in fact, people are using
18:53
Speaker 1: more over time, the the the global consumption of corn,
18:57
Speaker 1: soybis in wheat is rising, making records hies almost every
19:00
Speaker 1: single year. That doesn't stop even when it stops raining.
19:03
Speaker 1: So um. Not to not to go real macro here,
19:06
Speaker 1: but when we talk about the weather, we're also getting
19:08
Speaker 1: a heat wave. Yes, weather hasn't been perfect, but we're
19:11
Speaker 1: having quite a substantial heatwave in the South and in
19:14
Speaker 1: parts of the Midwest. And I'm just wondering, you know,
19:17
Speaker 1: on a broader level, if there is a persistent heat wave,
19:21
Speaker 1: call it whatever you will. I don't want to get
19:23
Speaker 1: into any political debates, but call it whatever you will. Well,
19:27
Speaker 1: this crimp the supply of some of these commodities or
19:32
Speaker 1: is that something that is peripheral and neither here. No, No,
19:35
Speaker 1: it's a it's a key, key point in the bigger picture.
19:38
Speaker 1: We all know what's happening in global warming. The good
19:40
Speaker 1: news is the last few years it's heated up in
19:42
Speaker 1: the grain belt, but we've had more rain. Weather it's
19:44
Speaker 1: been but I've had more rain. It's that precipitation. If
19:47
Speaker 1: that starts to decline a little, which is historically always
19:50
Speaker 1: has you know, you get these cycles of a lot
19:53
Speaker 1: of precipitation and less so, which seems to be kicking
19:55
Speaker 1: in now. Um that will be a big difference. But
19:58
Speaker 1: oh well, overall heat you hot and dry in the Midwest,
20:02
Speaker 1: that generally means less production. Even though we have these
20:05
Speaker 1: great you know, you know, advances in technology, just you
20:07
Speaker 1: can't grow without water, and you can only arrogate so much.
20:10
Speaker 1: And I will say that this is a critical time
20:13
Speaker 1: period basically post July four that week after July you
20:16
Speaker 1: can see the extended forecast, you have about four weeks
20:19
Speaker 1: where it really needs to rain and or at least
20:21
Speaker 1: be cool where the corn can survive. This is a
20:23
Speaker 1: very critical time for pollination. If you look back the
20:26
Speaker 1: last ten years, corn prices have doubled twice from their
20:29
Speaker 1: cost of production, both times it started in July. Both
20:33
Speaker 1: times it's because it did not rain post fourth of July.
20:35
Speaker 1: It was very hot in the critical poll nation time
20:39
Speaker 1: which you're at now, and so you've been sitting across
20:41
Speaker 1: the production for nearly four years. There there could be
20:44
Speaker 1: some very serious opportunity. I'm only going to give you
20:46
Speaker 1: one word. Would this be a trade you'd put on now?
20:49
Speaker 1: It would be an investment I would consider strongly. Alright,
20:53
Speaker 1: well said, yeah, fascinating, really really fascinating. Thank you so
20:56
Speaker 1: much for joining us. Sal Gioberti, President, chief investment officer
21:00
Speaker 1: and co founder of two Cream Trading, LLC, which is
21:03
Speaker 1: based in Brattleboro, Vermont. Also our sincere thanks to Mike mcgloan,
21:08
Speaker 1: our commodity strategist here at Bloomberg Intelligence and an expert
21:12
Speaker 1: on all things uh, whether actually grain and other commodities.
21:29
Speaker 1: So we have been touching on a bit the fact
21:32
Speaker 1: that bank earnings will start on Friday and that we're
21:35
Speaker 1: expecting somewhat lower trading volumes. Laura Keller, a financial reporter
21:40
Speaker 1: for Bloomberg News, had a wonderfully colorful take on sort
21:44
Speaker 1: of the effects of slower trading activity at banks, including
21:49
Speaker 1: lots of swiping on Tinder and leaving early for a
21:53
Speaker 1: variety of events. Laura, before we get into the color
21:56
Speaker 1: of it all, I want to just get a sense
21:58
Speaker 1: of where the slow down is happening most. I mean,
22:01
Speaker 1: we heard yesterday, um from Jim Bianco of Bianco Research,
22:05
Speaker 1: that a lot of traders have trading apps on their phones.
22:08
Speaker 1: It's not just that they're leaving and going to the beach. Sure, sure,
22:11
Speaker 1: and definitely we know any traders listening out there. We
22:14
Speaker 1: don't want to accuse you of not been able to
22:15
Speaker 1: do your job when you're out in the golfers or
22:17
Speaker 1: because of course that's always part of your job, right, Um,
22:20
Speaker 1: But no, at least, I mean, it is not about
22:21
Speaker 1: necessarily not being in the office. It's the reason that
22:24
Speaker 1: people are not in the office is because there's not
22:26
Speaker 1: much going on. So certainly it's it's a volume problem.
22:29
Speaker 1: You know, if you look at treasuries, if you look
22:31
Speaker 1: at equities, if you look at the corporate bond market,
22:34
Speaker 1: there really is just all down. And that's kind of
22:37
Speaker 1: what we're seeing. I think there are certain markets, um,
22:40
Speaker 1: that are a little bit better off. I you know,
22:42
Speaker 1: I'm talking some rage traders the other day, and you
22:44
Speaker 1: know they're saying for the third quarter anyway, the last
22:47
Speaker 1: week or so, things have picked up somewhat. So certainly
22:51
Speaker 1: there are pockets. But we are waiting for the big
22:53
Speaker 1: banks to kind of let us know when we hear
22:56
Speaker 1: on all these earnings calls, you know what they are seeing.
22:58
Speaker 1: Is it going to be something like Jeffreys that said, hey,
23:01
Speaker 1: emerging markets was a little bit slow for us. Leverage
23:04
Speaker 1: credit where we're big that was slow or or are
23:07
Speaker 1: is it going to be different, because as we know,
23:08
Speaker 1: every one of these big five banks has a bit
23:11
Speaker 1: of a different kind of trading franchise and specialized in
23:14
Speaker 1: different products. You know, I I had a really big
23:17
Speaker 1: laugh this morning when I was reading Matt Levine's Money Stuff,
23:20
Speaker 1: his daily UH compilation of stories, and he quoted a
23:25
Speaker 1: passage from your story Uh in particular, one bond trader
23:28
Speaker 1: says he's been slipping out early to watch his kids
23:30
Speaker 1: play sports. And Matt framed this as this is apparently bad,
23:35
Speaker 1: and then it talked about how people are saying, well,
23:37
Speaker 1: you know, there's a lot of potential influences that could
23:40
Speaker 1: shake up markets like North Korea and and or terrorist attack,
23:43
Speaker 1: and he said, uh, you know, you can see why
23:46
Speaker 1: this kind of cast some shade over Wall Street because
23:49
Speaker 1: the framing here is basically, quote, boy, I hope there
23:52
Speaker 1: is a terrorist attack so I can spend less time
23:54
Speaker 1: with my children. Is that is that accurate? No? I
23:57
Speaker 1: don't think that's true at all. I mean there's compete desires.
24:00
Speaker 1: I mean you have family men who definitely want to
24:02
Speaker 1: be able to go to their kids sports practices and
24:04
Speaker 1: would enjoy doing that on a Dailey basis, and then
24:07
Speaker 1: you know, of course you do have traders who you know,
24:09
Speaker 1: are here to have a career, and certainly a terrorist event,
24:13
Speaker 1: while I don't think that's anyone's wish, um, you know,
24:16
Speaker 1: would create some kind of small but they do tend
24:18
Speaker 1: to do that. But I mean, no one that I'm
24:20
Speaker 1: talking to is saying, hey, I would love to have
24:22
Speaker 1: some kind of you know, something happening in Syria, um,
24:25
Speaker 1: maybe another London attack. No one that I talked to
24:28
Speaker 1: was actually hoping for something like that. Lord. Just on
24:30
Speaker 1: a more general note, the bond trading that is going
24:33
Speaker 1: on at these big banks. How much are they doing
24:36
Speaker 1: now versus how much they were doing let's say ten
24:39
Speaker 1: years ago, And is there a strategic decision that banks really,
24:43
Speaker 1: or at least some banks, they don't want to be
24:45
Speaker 1: in this business. It's not profitable and there's no real
24:48
Speaker 1: reason for because they're just middlemen. They're not really putting
24:50
Speaker 1: up their own money. They're not holding any of this
24:51
Speaker 1: on their balance sheets, are they. Well, I think payment
24:54
Speaker 1: is a bit of a structural change. I mean, if
24:56
Speaker 1: you talk to traders who've been on the street for
24:58
Speaker 1: you know, ten, fifteen years, twenty years, they do talk
25:00
Speaker 1: about how it used to be in the old days.
25:03
Speaker 1: You know, there was more volume, there were a lot
25:04
Speaker 1: more people on the desk, less automation and trading. Um.
25:08
Speaker 1: Certainly different kinds of markets have a little bit more
25:11
Speaker 1: of that in a sense of almost more custom markets
25:14
Speaker 1: in a way that you knew as an a holder
25:17
Speaker 1: of inventory what you had. And then the game or
25:21
Speaker 1: the challenge was to figure out whether you've got a
25:23
Speaker 1: match for someone out there who's looking for something that
25:26
Speaker 1: would fit what you've got, and maybe not even a match,
25:29
Speaker 1: you know, not even necessarily talking about you know, appointment
25:31
Speaker 1: type trading, PIM you have something where you have something
25:34
Speaker 1: and I'm the guy in the middle. But also sort
25:36
Speaker 1: of this more with a lot of traders talk about
25:38
Speaker 1: it's fun trading, which is the prep trading, so they
25:40
Speaker 1: also got to play their own sort of book. So
25:43
Speaker 1: certainly things have changed. But if we bring it back
25:46
Speaker 1: to present day, I mean, Morgan Stanley, take a look
25:48
Speaker 1: at them. They you know, James Gorman has talked about
25:51
Speaker 1: fixed income and changing there. I mean, they're not even
25:54
Speaker 1: really trading commodities anymore, which is obviously a large part
25:57
Speaker 1: of that C in f I C C fixed income
25:59
Speaker 1: um in the the acronym there. But you know, Morgan Stanley,
26:04
Speaker 1: what was it? Was it the fourth quarter? I can't
26:06
Speaker 1: even remember anymore, but there was one quarter when we
26:08
Speaker 1: had such a very you know, it's a clobberine at
26:11
Speaker 1: Morgan Stanley, so something like that. You know they've gone
26:15
Speaker 1: through that transition. I don't know that you can say
26:18
Speaker 1: that for some of the other bulls. Bracket bag well
26:20
Speaker 1: asset management does have some of its uh positive characteristics
26:24
Speaker 1: when it's other people's money. Thank you very much, Laura Keller,
26:27
Speaker 1: financial reporter for Bloomberg News. You can follow her on
26:29
Speaker 1: Twitter at Laura J. Keller. Thanks for listening to the
26:35
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
26:38
Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
26:42
Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
26:46
Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast.
26:50
Speaker 1: You can always catch us worldwide on Bloomberg Radio.