Latest / Bloomberg Intelligence / Nike Down, Muni Check-In, Geopolitical Unrest

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Nike Down, Muni Check-In, Geopolitical Unrest · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market crows, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. I n go on
0:22
Speaker 1: your Bloomberg terminil that brings up the Bloomberg Index browser.
0:24
Speaker 1: It gives you all the total returns on a year
0:26
Speaker 1: to date basis for a lot of the fixed income
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Speaker 1: aggregates the U. Alright, so look at this, folks, The
0:31
Speaker 1: Bloomberg US aggregate fixed income return here to date minus
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Speaker 1: fourteen point three five. Yikes, that's sixty forty portfolio that
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Speaker 1: ain't working for you this year. Alfonso Peccatiello, author and
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Speaker 1: former head of Fixed Income Portfolio manage at I n
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Speaker 1: G Deutschland, he joins us here. Uh, Alfonso, thanks so
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Speaker 1: much for taking the time here. Boy, it has been
0:52
Speaker 1: a brutal year for fixed income investors. Nowhere to hide.
0:57
Speaker 1: What do you make of it? You've been doing this
0:58
Speaker 1: for a long time, what do you make of this? Well?
1:00
Speaker 1: Will that make of this is that basically central banks
1:03
Speaker 1: try to warn us that they were very serious about
1:06
Speaker 1: fighting inflation, but the bond market didn't want to listen
1:08
Speaker 1: at first, and they just had to double down to
1:11
Speaker 1: make sure that everybody understands it. This is not like
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Speaker 1: it does in an eighteen or nineteen, where you know
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Speaker 1: they can basically tighten a little bit and make sure
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Speaker 1: that they are respected by markets. Because inflation and inflation
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Speaker 1: expectations went out of control, the reaction function is not
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Speaker 1: linear anymore, and they need to get ahead of the curve.
1:29
Speaker 1: And that's what they're trying to do now, which obviously
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Speaker 1: hits the bond market. I find I'm looking at the
1:33
Speaker 1: volatility across treasuries and we're at a stage or at
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Speaker 1: a height that's even greater than what we saw in
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Speaker 1: this kind of crunch moments of the pandemic where none
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Speaker 1: of us knew what was going to happen. And what
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Speaker 1: I'm struggling to understand is why is this market struggling
1:48
Speaker 1: to price in the future path in terms of recession,
1:52
Speaker 1: in terms of where policymakers go next. Some things more
1:55
Speaker 1: certain now than they were in that early pandemic era.
2:00
Speaker 1: This is such a great point. And the problem with
2:03
Speaker 1: this is that central bankers told us they're going to
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Speaker 1: be pretty mechanical, So I'm gonna quote power. Basically, it
2:09
Speaker 1: told us that he wants to have a real fat
2:12
Speaker 1: funds rate at least in the one percent positive area
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Speaker 1: before it feels relatively satisfactory with the stunts. And that
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Speaker 1: means that even if inflation slows down a little bit,
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Speaker 1: and we all hope that next year, that fat funds
2:24
Speaker 1: rate will have to be in the four and a
2:25
Speaker 1: half five percent area. Now, if inflation doesn't slow down,
2:29
Speaker 1: on the other hand, that means that mechanically the Federal Reserve,
2:32
Speaker 1: to preserve the credibility, will need to have nominal fat
2:34
Speaker 1: funds rate even higher than that. So when new price volatility,
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Speaker 1: as a bond trader, obviously you left to look at
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Speaker 1: both the right end and the left end of your distribution,
2:44
Speaker 1: and at the moment, because of recession risks, the left
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Speaker 1: end is open, but the right end is also open
2:49
Speaker 1: because if inflation doesn't slow down, then central banks will
2:52
Speaker 1: just mechanically keep hiking rates. The last one I have
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Speaker 1: is that higher bond volatility actually deters investors from taking
3:00
Speaker 1: risks in other rest classes. The bond market is the
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Speaker 1: biggest market in the world, the most liquid and deep.
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Speaker 1: And if people can figure out and they have to
3:07
Speaker 1: price alativity is so wide in the most liquid us
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Speaker 1: at so ball, how can they take risks when it
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Speaker 1: comes to risk your uset classes. And that also has
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Speaker 1: implications for equities and credit spreads which are widening. Indeed,
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Speaker 1: so one of the things we hear about when we
3:20
Speaker 1: talked about fixing come folks, particularly on on the trading
3:23
Speaker 1: sign is poor liquidity in the marketplace. Can you define
3:27
Speaker 1: what that means to you and maybe how the practical
3:31
Speaker 1: implications day to day for investors. So how would define
3:35
Speaker 1: that is, if you're a market practitioner, if you try
3:38
Speaker 1: to trade anywhere above a hundred to two hundred millions
3:41
Speaker 1: of ten year treasuries, you would have big dusk quotes
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Speaker 1: which are much wider than you know, what you're used
3:47
Speaker 1: to be, you're used to have in the past. So
3:50
Speaker 1: when you have that kind of big dusk spreads that
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Speaker 1: tend to widen in the most liquid market doable, it's
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Speaker 1: a sign that the plumbing is not really working well.
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Speaker 1: And for plumbing, refer to the ability of market makers
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Speaker 1: to warehouse risk, and this ability was crippled from Great
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Speaker 1: Financial Pride, the post Great Financial Prices regulation, which effectively
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Speaker 1: made it much more capital expensive and inefficient for market
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Speaker 1: makers to provide liquidity to such a market. But the
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Speaker 1: real underlying problems actually happen when the report market doesn't
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Speaker 1: work because most of this balance sheet, the risk, the
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Speaker 1: risk taking ability out of market makers and hedge funds
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Speaker 1: actually happens to be balanche it heavy. So there are
4:28
Speaker 1: report transaction underlying the ability to provide liquidity. If the
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Speaker 1: report markets show some sign of stress, you immediately see
4:34
Speaker 1: that in the treasury market right now, That's really not
4:37
Speaker 1: the case yet. It also has to do with some
4:39
Speaker 1: facilities the Federal Reserve set up, like the standard reper facility.
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Speaker 1: But it is definitely something to ever look at. I
4:45
Speaker 1: want to look some other corners the market Europe corporate
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Speaker 1: bond September is kind of classically. I believe a great
4:50
Speaker 1: month for the bond market this year. It's not why well,
4:55
Speaker 1: this year is not because we saw an acceleration of inflation,
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Speaker 1: both in your up and in the US. And when
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Speaker 1: I'm in acceleration, guys, it is not only the level
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Speaker 1: of inflation which is undoubtedly very high. But it's the
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Speaker 1: momentum and the composition of these inflationary pressures which is
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Speaker 1: interesting if you look at the moving average of core
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Speaker 1: inflation x energy. So I'm looking like at the momentum
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Speaker 1: of the stickiest part of the inflationary basket, the one
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Speaker 1: that central bankers are the most worried about because they're
5:23
Speaker 1: tough to bring down. They're actually accelerating, both in the
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Speaker 1: US and in Europe, two levels last set in momentum
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Speaker 1: terms in the eighties. So no wonders that actually have
5:32
Speaker 1: to tighten the stands, which hits the bond market further. Alright,
5:35
Speaker 1: a fan, so great stuff. Really appreciate getting your thoughts
5:38
Speaker 1: on your perspective. Afonso Peccatillo, author and former head of
5:42
Speaker 1: fixed income portfolio management at I n G Deutschland. Looking
5:51
Speaker 1: at the shares of Nike down by ten and a
5:53
Speaker 1: half percent today eight change on agre day basis down
5:58
Speaker 1: almost fifty per sent here so uh, and they reported
6:02
Speaker 1: some numbers today that disappointed Wall Street. Let's get the
6:04
Speaker 1: latest with Bloomberg's Abigail Doolittle. Abigail, I guess they got,
6:08
Speaker 1: like a lot of other retailers. They got an inventory problem.
6:10
Speaker 1: They do. North American inventories up six overall global inventories
6:16
Speaker 1: up more than And what's interesting about this is a
6:18
Speaker 1: piece of it has to do with the supply chain
6:20
Speaker 1: kinks because they can't get what they have had made
6:24
Speaker 1: abroad where they needed to get it on time. By
6:26
Speaker 1: the time it gets to where it's needed, it's out
6:29
Speaker 1: of season and it's sort of rocks like bad food. So, yeah,
6:32
Speaker 1: bloated inventories like so many other UH companies and retailers.
6:36
Speaker 1: So that led to a miss and led to them
6:38
Speaker 1: cutting the outlook. Gross margins are real big problem. They're
6:41
Speaker 1: now going to be two two hundred and fifty basis
6:44
Speaker 1: points lower than expected. But it's not just the inventories.
6:47
Speaker 1: It's also those higher freight their freight issues, but the
6:50
Speaker 1: higher freight costs and of course for an exchange. Yeah,
6:52
Speaker 1: they had the kind of full potion cauldron of problems, right.
6:55
Speaker 1: And it's interesting. I'm gonna get some of the other
6:57
Speaker 1: stocks in the market that pays Lulu lemon for example,
6:59
Speaker 1: some of the shoemake is also lower. It's not getting better,
7:02
Speaker 1: is it? It's not getting better? And the sense that
7:06
Speaker 1: I get from this quarter because the miss actually wasn't
7:09
Speaker 1: that bad. They actually beat on sales sales three percent
7:11
Speaker 1: out of than estimates, and the earnings miss by less
7:14
Speaker 1: than one percent. Again, it's more the outlook. First of all,
7:18
Speaker 1: China was very weak because of the continued COVID outlook.
7:21
Speaker 1: But my sense is that there's not so much of
7:24
Speaker 1: a weak US consumer factored in here yet. It has
7:27
Speaker 1: more to do with these other issues. So if we
7:29
Speaker 1: are stumbling into some sort of a true recession, I
7:33
Speaker 1: think we can all agree that on some level the
7:34
Speaker 1: economy is slowing, it could really be a strong issue
7:38
Speaker 1: when you put it together with these other factors. And
7:41
Speaker 1: what I've learned from you know, reading the research of
7:42
Speaker 1: like Punham Goyle from Bloomberg Intelligence, for example, is when
7:46
Speaker 1: you got extra inventory in the pipeline, it's not like
7:49
Speaker 1: you just kind of keep there and I'll sell it
7:51
Speaker 1: next year. You gotta blow it out. You gotta blow
7:53
Speaker 1: it out. The way you do it is a discount,
7:54
Speaker 1: massive discounting. Well, I will admit the first time I
7:57
Speaker 1: was reading these discounts, as I told you, I'm in
7:59
Speaker 1: the the market for some new golf clothing. I was thinking, oh,
8:03
Speaker 1: but you know what the one thing I will say is,
8:05
Speaker 1: so we heard this. We've heard the story so many times,
8:07
Speaker 1: but we heard it in big time earlier this year.
8:10
Speaker 1: Probably the real the big company that started all this
8:14
Speaker 1: target I went to those stores and I didn't find
8:17
Speaker 1: any of the good deals, right, So I'm thinking that
8:19
Speaker 1: maybe some of the inventory problems are more regional. But
8:23
Speaker 1: I'm still going to try relative to Nike. Something relative
8:25
Speaker 1: to the stock though, to think about. So as we're
8:28
Speaker 1: mentioning Paul, it is down on the year, the worst
8:31
Speaker 1: year ever. The evaluation is still sky high. That they're
8:34
Speaker 1: trading at a pe of twenty four times forward, that
8:38
Speaker 1: is at the high end of the two year range,
8:41
Speaker 1: and it's also above the mean of eighteen point times
8:44
Speaker 1: for the rest of the group, and it's also high
8:46
Speaker 1: for all the other evaluation metrics. So you could make
8:49
Speaker 1: the case that fundamentally and technically this stock has more
8:51
Speaker 1: to go as high to most of them has some
8:54
Speaker 1: of the stretched chip covering day to day. It's actually
8:57
Speaker 1: astonishing to see that stats walking behind us. He made
9:00
Speaker 1: the point earlier that actually another intr entry issue. You
9:03
Speaker 1: go onto the website, you can't get the thing that
9:05
Speaker 1: you want anyway, and that speaks to the shipment issues.
9:08
Speaker 1: But you love golf, I love football, European football soccer
9:12
Speaker 1: to you out there. We have a World Cup here,
9:14
Speaker 1: and you do wonder if that event that catalyst helps
9:17
Speaker 1: a company like Nike later on in the year. Well,
9:20
Speaker 1: if it could, if they can make the product that
9:23
Speaker 1: is appealing to you and to John and to other folks,
9:25
Speaker 1: and then if they can actually get it to you,
9:27
Speaker 1: if you can order it and buy it. I mean
9:29
Speaker 1: to have these supply chain kinks. I remember these sorts
9:32
Speaker 1: of issues back in the tooth, that early two thousand area,
9:35
Speaker 1: that their bear market unrelated to uh this sort of
9:39
Speaker 1: factor was actually more about uh fashion wrong. So companies
9:42
Speaker 1: would make the fact, you know, whatever the style was,
9:44
Speaker 1: and then folks didn't want it, so kind of sit
9:46
Speaker 1: there and they would have to discount it. But it'll
9:48
Speaker 1: be interesting to see whether or not they'll be able
9:49
Speaker 1: to take advantage of it. That could that could be
9:51
Speaker 1: a nice opportunity for them to kind of come out
9:53
Speaker 1: of this hole. All right, So ed you mentioned this.
9:55
Speaker 1: The World Cup. English plans notably are good. They travel well,
10:01
Speaker 1: they do travel well. Are they going to go to cutter?
10:03
Speaker 1: It's really interesting there are lots of moral cultural issues.
10:10
Speaker 1: Football fans, I would say, tend to look past those.
10:13
Speaker 1: Qatar is an expensive place to go at the best
10:16
Speaker 1: of times if you're if you're a UK football fan.
10:20
Speaker 1: Remember also Whales are in that group as well. I'm
10:22
Speaker 1: proudly Welsh and I'm looking forward to that show down
10:25
Speaker 1: with the United States and h are on um. Do
10:28
Speaker 1: they travel? I have no idea, but they can drink
10:30
Speaker 1: I think now I saw news not twenty four hours
10:33
Speaker 1: a day, but maybe like eighteen or nineteen hours a day.
10:36
Speaker 1: They can, but only in like selected places. I mean
10:39
Speaker 1: football fans like that their adult beverage of choice they do.
10:43
Speaker 1: And also how big a factor is the pound right now?
10:45
Speaker 1: If you I mean, I'm hoping to go home in
10:48
Speaker 1: December for the holiday period and as a somebody that
10:52
Speaker 1: draws a salary in dollars, you know, it's not so
10:54
Speaker 1: bad for me but for my family. Yeah. Well it's
10:57
Speaker 1: interesting you're saying that because I've been thinking about winning
11:00
Speaker 1: a trip and somebody was saying, well, you should go
11:01
Speaker 1: to Europe, you know, because it's on ze um. So
11:04
Speaker 1: the same thing with UK. You know, looking at these
11:05
Speaker 1: Nike numbers, it kind of makes me think about and
11:08
Speaker 1: whenever we have these earnings issues, it kind of goes
11:11
Speaker 1: to show you that the earnings risk in this market.
11:15
Speaker 1: I think it's still there. Oh, I can't say. I
11:17
Speaker 1: think it's it's just starting. Yeah, And I just wonder
11:20
Speaker 1: how much you know earnings are going to come down
11:23
Speaker 1: in this period. Are our company is gonna kind of
11:25
Speaker 1: really throw in the kitchen sink? And if so, this
11:27
Speaker 1: market can't really make a bottom until we get through that. Yeah.
11:31
Speaker 1: I think that that's a great point. And to go
11:32
Speaker 1: back to that two thousand to two thousand three time
11:35
Speaker 1: period that was just a long, slow move lower for
11:38
Speaker 1: earnings and companies not being able to manage expectations and
11:41
Speaker 1: having to cut quarter after quarter after quarter, like the
11:43
Speaker 1: kitchen sink really didn't exist at that point. So now
11:46
Speaker 1: you see a company trying to do this but kind
11:48
Speaker 1: of get worse than this. Absolutely, if the consumers slows down,
11:51
Speaker 1: earnings expectations are coming down, but in a recession, historically,
11:54
Speaker 1: looking at the data, they get a mega reset right
11:57
Speaker 1: ten to depending on the sector. Is that happened yet? No?
12:01
Speaker 1: Absolutely not. And the other thing is this is a
12:03
Speaker 1: recession that will also come against with the FED raising
12:06
Speaker 1: I mean, I think a lot of people are. I
12:07
Speaker 1: saw something about like the FED pudd is coming back soon,
12:10
Speaker 1: because it's uh that personally, I don't agree with that.
12:13
Speaker 1: I think that every single UM FED official and you know,
12:16
Speaker 1: if you look at the dot plot, the average year
12:19
Speaker 1: end rate FED funds rate for the media and FED
12:22
Speaker 1: is four thirty seven. WARP has it at four twenty.
12:25
Speaker 1: That's a seventeen bit difference between what the FED is
12:28
Speaker 1: saying and what the markets are saying. If the FED serious,
12:31
Speaker 1: even just this year, there's some catchup. So to have
12:33
Speaker 1: that kind of liquidity pressure, uh, in addition to the
12:38
Speaker 1: fundamental slowdown, it's just it's something we haven't seen. I mean,
12:42
Speaker 1: I guess we sort of stow in the early eighties.
12:44
Speaker 1: I don't remember it, but wasn't that I was very small.
12:48
Speaker 1: Early eighties were very good for me. Thank you very much.
12:50
Speaker 1: All right, Abigail the little thank you so much. We
12:52
Speaker 1: appreciate it. She covers all things markets for Bloomberg Radio
12:55
Speaker 1: and Television. Let's talk geopolitics as we talk about these markets,
13:00
Speaker 1: because boy, there's a lot going on in the world
13:02
Speaker 1: with Russian, Ukraine and so on. We can do that
13:05
Speaker 1: with Nick stat Miller, Director of Emerging Markets at Medley
13:08
Speaker 1: Global Advisors. So, Nick, I mean emerging markets at a
13:11
Speaker 1: time when interest rates are rising, We've got geopolitical issues
13:16
Speaker 1: like we haven't seen since World War Two in Europe.
13:19
Speaker 1: How does that factor into what you guys do in
13:21
Speaker 1: your emerging market work there? Well, you know, one observation
13:25
Speaker 1: I've heard from a lot of a lot of our
13:27
Speaker 1: clients is that they feel like geopolitics is more relevant
13:31
Speaker 1: for the market now than it has been any time
13:34
Speaker 1: in the last thirty years, going back to the First
13:36
Speaker 1: Gulf War. So it obviously takes up a lot more
13:38
Speaker 1: of our bandwidth. And geopolitics is, by necessity, by definition,
13:43
Speaker 1: a very qualitative discipline, so it becomes very hard to
13:46
Speaker 1: quantify what the impact. You know, you can talk through
13:49
Speaker 1: all the scenarios and assigned probabilities, but figuring out what
13:53
Speaker 1: that's going to do to a currency or rates or
13:55
Speaker 1: stock markets is is really hard. So you have to
13:58
Speaker 1: spend a lot of time tracking the psycho oology of
14:00
Speaker 1: the market around those events. We're talking about Russia, but
14:04
Speaker 1: we're also thinking about Turkey. I find this fascinating that
14:08
Speaker 1: Riship tie Burdwan is kind of offering himself as a
14:11
Speaker 1: mediator in the conflict Russian Ukraine conflict. At the same time,
14:16
Speaker 1: the Turkish economy is suffering. I think I'm right and
14:18
Speaker 1: saying the trade deficit hit the worst on record in August, Right,
14:22
Speaker 1: So where do you look to in that scenario? Should
14:26
Speaker 1: should Turkey stay out of the way? What's going on there? Yeah,
14:30
Speaker 1: there are a lot of moving parts, and Turkey is
14:33
Speaker 1: on track to post a record current account deficit this year.
14:36
Speaker 1: It probably is going to be around fifty billion dollars.
14:39
Speaker 1: And the other problem they have is that their effects
14:42
Speaker 1: reserves are very low. Radwan is forcing the central Bank
14:45
Speaker 1: to keep interest rates low. They're at twelve percent when
14:48
Speaker 1: inflation is eighty percent and they're looking to cut more.
14:52
Speaker 1: So you know the energy markets that are a big
14:54
Speaker 1: factor in this, right absolutely, the the energy import bills
14:58
Speaker 1: is the biggest driver in that current account deficit, and
15:01
Speaker 1: uh in the high cost of energy. So everyone is
15:03
Speaker 1: in a very weak position economically, and He's tried to
15:07
Speaker 1: sort of balance his support for Ukraine and Russia and
15:10
Speaker 1: you know, play that sort of impartial mediator, but he
15:13
Speaker 1: frequently gets caught on the side. And then you've got
15:15
Speaker 1: Russia that has faced unprecedented unified sanctions from the West
15:21
Speaker 1: and really looking to figure out ways to do foreign
15:24
Speaker 1: trade and investment around those sanctions, and they're trying to
15:27
Speaker 1: do it in Turkey, and Turkey really needs the money,
15:31
Speaker 1: but the US really does not want Russia to subvert
15:34
Speaker 1: those sanctions, so it's really sort of becoming a pressure
15:38
Speaker 1: point in the confrontation between Russia and the West. So
15:42
Speaker 1: just broadly to find how do you think, how do
15:44
Speaker 1: you guys think about Turkey as a place to invest.
15:46
Speaker 1: Is it just too too risky at this point? You
15:49
Speaker 1: need more stability, whether it's from the government or just
15:51
Speaker 1: the fiscal side. It's it's wrong on all fronts. You
15:55
Speaker 1: have a lot of political instability and increasing repression, so
16:00
Speaker 1: you know, it doesn't score very well on policy predictability
16:03
Speaker 1: and stability. Monetary policy as a disaster, the central banks
16:08
Speaker 1: balance sheet is a mess, Fiscal policy is becoming increasingly
16:13
Speaker 1: not credible um, so it's very hard to see how
16:17
Speaker 1: anyone would want to firm make some firm commitments there
16:20
Speaker 1: until you see some serious policy changes. When we consider
16:23
Speaker 1: emerging markets, how has the war in Ukraine prompted the
16:29
Speaker 1: market to reshuffle where it places capital because of all
16:34
Speaker 1: the interlink between these nations and also of course because
16:36
Speaker 1: of the effects of sanctions. Right well, the big impact initially,
16:41
Speaker 1: of course, you know there's risk off whenever you have
16:44
Speaker 1: any sort of geo political uncertainty, you get this broad
16:46
Speaker 1: risk off, and emerging markets are always friends in the
16:49
Speaker 1: fire line. But then you had this price shock into
16:53
Speaker 1: commodities because particularly on grain and wheat and on the
16:57
Speaker 1: oil side. That's largely subside it since then. But then
17:01
Speaker 1: you have these lingering sort of regional problems. Great example
17:05
Speaker 1: is the cut off of Russian gas into europe Um,
17:09
Speaker 1: particularly in the emerging markets front. You have the central
17:12
Speaker 1: European economies, most notably hungry, very vulnerable to that. So
17:17
Speaker 1: it there is a global impact in terms of the
17:21
Speaker 1: you know, the commodities and the risk off sentiment, but
17:23
Speaker 1: then there's sort of this regional impact that you have
17:25
Speaker 1: to sort of suss out on a country by country basis.
17:29
Speaker 1: And again back to Turkey, higher energy prices really hurts
17:32
Speaker 1: them on the external account. Where are given all these
17:36
Speaker 1: uncertainties in the backdrop in whether it's interest rates, monetary policy,
17:40
Speaker 1: political issues, the least place I want to be as
17:44
Speaker 1: emerging markets, But you have to do it for a living.
17:47
Speaker 1: So what where are you and your clients kind of
17:50
Speaker 1: doing work and seeing opportunities in emerging markets? Yeah, I
17:53
Speaker 1: mean the strong dollars killing EM currencies, higher rates, and
17:58
Speaker 1: tighter liquidity globally are really tightening up their access to credit.
18:03
Speaker 1: I think at this point it's it's a relative value story.
18:06
Speaker 1: So you look for places, um, you know, where they're
18:10
Speaker 1: that could outperform others. And so you know, you have
18:13
Speaker 1: the Czech Republic which has you know, a stronger balance sheet,
18:16
Speaker 1: uh and um, you know, a very stable currency because
18:20
Speaker 1: of the central bank policies. You know, I think that
18:23
Speaker 1: has a really strong chance about performing Hungary. You know,
18:26
Speaker 1: if you look in Latin terms of trade, probably favor
18:29
Speaker 1: countries like Columbia that are oil exporters over places like
18:33
Speaker 1: Chile which are very exposed to copper prices which have
18:36
Speaker 1: really taken a plunge in recent months. So it's really
18:39
Speaker 1: sort of selective and it's more relative value than just hey,
18:43
Speaker 1: let's expand our exposure to EM as a whole. What's
18:46
Speaker 1: the biggest cat list for emerging markets in I think
18:52
Speaker 1: I'm gonna say two very interrelated things, which is how
18:55
Speaker 1: long this dollar strength persists, and I don't think it's
18:59
Speaker 1: so much a story about what the Fed does. You know,
19:01
Speaker 1: if it's fifty or seventy five and an individual meeting,
19:04
Speaker 1: But the overall structurally higher set of dollar rates that
19:08
Speaker 1: you're seeing, I think, um, those two and then I
19:11
Speaker 1: would say, secondarily is the extent to which inflation starts
19:15
Speaker 1: to normalize globally and this inflation shock recedes. All right, Nick,
19:19
Speaker 1: that's great stuff. Nick stad Miller, Director Emerging Markets at
19:22
Speaker 1: Medley Global Advisors. Joining us live in studio, so it
19:26
Speaker 1: gets a gold star for being in studio. We appreciate
19:28
Speaker 1: that today's focus on munities has brought to you by
19:37
Speaker 1: Built American Mutual. When the market is volatile, BAM provides stability.
19:41
Speaker 1: BAM insured municipal bonds delivered the fall protection, value, preservation,
19:45
Speaker 1: and a durable rating. Ask your broker about BAM in
19:48
Speaker 1: short municipal bonds. That that's a read that Matt Miller
19:53
Speaker 1: just loves to read. He goes all off on the
19:56
Speaker 1: BAM thing, and it's it's kind of embarrassing, but it's
19:58
Speaker 1: his thing, so I leave him to it. Yeah, I
20:01
Speaker 1: did not do it justice. Joe Mysac joins us here.
20:03
Speaker 1: Joe does all things municipals for Bloomberg News. Joe, we're
20:07
Speaker 1: you know, we're all kind of looking at the images
20:09
Speaker 1: in the video of the terrible tragedy down in Florida.
20:12
Speaker 1: Is it an issue for the missible bond market when
20:15
Speaker 1: you see that type of disruption and destruction, destruction, and
20:20
Speaker 1: you know, not just Florida. If it's kind of it
20:23
Speaker 1: back out in the ocean, it's winding up, it's going
20:25
Speaker 1: to South Carolina, more destruction there. But in answer your question,
20:30
Speaker 1: it's very surprising to most people that natural disasters tend
20:36
Speaker 1: not to be a credit issue for municipalities, for states
20:40
Speaker 1: and municipalities, purely because insurance money, you know, following the waves,
20:46
Speaker 1: following the actual water that comes in comes waves of cash,
20:51
Speaker 1: insurance money, federal assistance, rebuilding efforts get under way. So yes,
20:58
Speaker 1: you know, it's a tremendous agity, tremendous destruction and then
21:03
Speaker 1: this tremendous renewal, if you will. So unless a municipality
21:09
Speaker 1: goes kind of out of business. Uh, the the jet
21:13
Speaker 1: service is completely intact. Things occur um just as they
21:20
Speaker 1: normally would, and natural disasters are really just uh, you know,
21:25
Speaker 1: something that the market, shrugs off. The only thing that
21:30
Speaker 1: I could think of otherwise is, uh, you know, a
21:33
Speaker 1: couple of those towns that were destroyed by wildfire in California,
21:37
Speaker 1: they missed debt service because the whole town was wiped
21:40
Speaker 1: out and records were lost and things like that. But otherwise, no,
21:44
Speaker 1: it's not really a credit event. Interesting, all right, you've
21:48
Speaker 1: got let's move from South Florida up to preppy island
21:52
Speaker 1: of Nantucket. Are you trying to tell me, Joe that
21:56
Speaker 1: Nantuckett is going into the bond market? Are they gonna
22:00
Speaker 1: do an issuance here? They did? They, they did it. Yes,
22:04
Speaker 1: they sold this week. And most of the issue is
22:07
Speaker 1: for affordable housing because Nantucket, like uh, your nearby island,
22:14
Speaker 1: Martha's Vineyard. Um, like I want to say Aspen, I
22:19
Speaker 1: think Veil as well. Uh. These are places that people
22:24
Speaker 1: love and they're charming and they're enchanting, and there's no
22:28
Speaker 1: room for the people who are essential service providers to live.
22:33
Speaker 1: They're being priced out of their own homes. So you
22:36
Speaker 1: know you're seeing police and fire, nurses and teachers. Uh,
22:41
Speaker 1: that's who's going to benefit from this affordable housing bond issue.
22:45
Speaker 1: And Nantucket, let's face it, and Martha's vene your two
22:48
Speaker 1: there's really you can't say, well, you ought the community
22:51
Speaker 1: from the suburbs because you just know the ocean. This
22:55
Speaker 1: sting in your column, which you wrote beautifully by the way,
22:57
Speaker 1: you paint an idyllic picture of Nantucket, Massachusetts. But ultimately
23:02
Speaker 1: they're issuing this debt for affordable housing, and in the
23:06
Speaker 1: prospectives they're very much not focused on affordable housing. They're
23:10
Speaker 1: just trying to sell the vision of the town. Well, yes,
23:13
Speaker 1: and it's you know, the kind of the amazing factoid
23:19
Speaker 1: I think I discovered there was that the median house
23:23
Speaker 1: price on Nantucket is three million dollars. Interesting, you know,
23:28
Speaker 1: so who funds it? Who pays this bond? Like is
23:31
Speaker 1: it gonna be property taxes or is it going to
23:34
Speaker 1: be this is a general obligation bond, so full faith
23:37
Speaker 1: and credit of Nantucket. Uh, you know that includes all
23:42
Speaker 1: the money they bring in, including this tax on hotel rooms,
23:48
Speaker 1: that size taxes, and that has that's been a bowman
23:53
Speaker 1: since the pandemic because people really wanted to get out
23:56
Speaker 1: there and they couldn't go abroad. It couldn't you know, uh,
24:01
Speaker 1: go to London, Like we're talking about so like, well,
24:03
Speaker 1: let's you know, go domestically equisode Nantucket. Let's go there
24:08
Speaker 1: so that the money has been coming in over the guddals.
24:12
Speaker 1: If I were going to ever buy a house in
24:14
Speaker 1: Nantucket and I'm not in the market, you have to
24:16
Speaker 1: factor in the cost of an ownership of a plane,
24:19
Speaker 1: because there's no way you're doing that fery thing. That's
24:21
Speaker 1: a crazy trip. So if I can't afford a plane
24:26
Speaker 1: and the house, I'm not buying the house. What do
24:28
Speaker 1: you think of that strategy? Not a boat? Come on? Yeah? No, No,
24:32
Speaker 1: I need to take off from you know, like Marshtown
24:35
Speaker 1: and just jet up to Nantucket. If I can't afford
24:37
Speaker 1: that, that that doesn't fit into talking about a little propeller
24:39
Speaker 1: plane or what. Yeah, I could do that, but no,
24:41
Speaker 1: I probably need a jet because the weather gets kind
24:43
Speaker 1: of funky up there, you know. So the last person,
24:46
Speaker 1: you know, John F. Kenny Jr. Flew a plane up
24:48
Speaker 1: there and propeller. That didn't work out so well. Well no,
24:51
Speaker 1: all right, So Nantucket in the bond market raising money.
24:54
Speaker 1: I'm assuming it's a top rated bond, right triple, A
24:58
Speaker 1: rated triple because Nantucket has the money coming in and
25:02
Speaker 1: they also got money from the federal government, the ARPO
25:06
Speaker 1: funds and things like that. So uh N, tuxs doing
25:10
Speaker 1: very well, and these bonds sold at very you know,
25:13
Speaker 1: good prices for them, so they'll be able to uh
25:17
Speaker 1: you know. The building of affordable housing is something that
25:20
Speaker 1: they have been doing, so it's not as though this
25:22
Speaker 1: is brand new. They have been trying to keep up
25:26
Speaker 1: with this, and yet the demand is fabulous because they
25:30
Speaker 1: haven't sold enough. They haven't built enough affordable housing. All right, Joe,
25:34
Speaker 1: good stuff. No, that's it. That's it, Joe Mysa, Editor.
25:38
Speaker 1: Bloomberg brief are weekly overview of all things municipal bond.
25:43
Speaker 1: We go from all of America in Secaucus, New Jersey,
25:47
Speaker 1: all the way up to Nantucket for affordable housing. The
25:49
Speaker 1: municipal bond market is everywhere, and it is triple tax free.
25:52
Speaker 1: ED has no idea about the US municipal bond market,
25:55
Speaker 1: but what we'll school them on it here. It's triple
25:58
Speaker 1: tax free. That's what I know. Let's check you with
26:02
Speaker 1: Dr Quincy Crosby, chief Global Strategist for LPL Financial LP.
26:06
Speaker 1: L A is the stock symbol to put into your
26:08
Speaker 1: Bloomberg terminal. I'm looking at it. It's a seventeen billion
26:11
Speaker 1: dollar market cap company, stocks up thirty nine year to date.
26:15
Speaker 1: Go figure one of the big strong names out there. Uh, Quincy,
26:19
Speaker 1: thanks so much for joining us here. Why is your
26:21
Speaker 1: company stock up? This is a great company with the
26:24
Speaker 1: largest we're the largest independent UH broker dealer in the country,
26:31
Speaker 1: and it's also growing at at a rapid pace and
26:35
Speaker 1: very well manage as you can imagine in this environment
26:38
Speaker 1: to see the share price up, you know, in that trajectory. Yeah,
26:43
Speaker 1: you can't say that. It's also a great company to work.
26:47
Speaker 1: All right, good stuff, all right, we got a little
26:49
Speaker 1: green on the screen today. But this has been just
26:51
Speaker 1: a brutal year. What's the view from LPL Financial? With
26:55
Speaker 1: your stock up thirty percent? What are you guys thinking
26:57
Speaker 1: about this market? Well? Yeah, I mean this it's a
27:00
Speaker 1: market that is is chopping. There's tremendous uncertainty. And you
27:04
Speaker 1: know what's interesting about this is we we've seen the
27:07
Speaker 1: volatility index climb, the vix UH as the said began
27:11
Speaker 1: raising rates. The next sape fairly dormant, fairly quiet. It
27:16
Speaker 1: was understood what the Fed was doing. It was, you know, clear.
27:20
Speaker 1: But what has happened as other central banks are raising
27:24
Speaker 1: the rates and as their concerns grow that the FEDS
27:28
Speaker 1: um aggressive campaign maybe pushing us into a recession. And also, uh,
27:33
Speaker 1: you know, just what happened in the UK that perhaps
27:36
Speaker 1: there are other thought lines lurking in the global global system. Uh,
27:42
Speaker 1: you know, the vix is climbing because there's more uncertainty.
27:46
Speaker 1: There's uncertainty regarding where this is taking us, and how
27:50
Speaker 1: does the set actually bring us to price stability, which
27:53
Speaker 1: out as the proverbial breaking something. You know what happened
27:58
Speaker 1: in the UK with the pension fund issues and the
28:02
Speaker 1: Bank of England having to go out and um, you know,
28:05
Speaker 1: buy bonds again. It could happen anywhere and it does
28:09
Speaker 1: and it does when financial conditions tighten. So that's the uncertainty.
28:13
Speaker 1: And also, you know we're going into third quarter earning
28:16
Speaker 1: season and the questions are what are those companies saying
28:20
Speaker 1: not only their bottom line but their margins, But what's
28:23
Speaker 1: the guidance? How are they seeing things? Are they all
28:26
Speaker 1: going to be giving us the same guidance as set
28:28
Speaker 1: Ex did on that Friday that you know the market
28:31
Speaker 1: melted down. We don't know. So this is the uncertainty,
28:34
Speaker 1: and we've got to just navigate through this. And it
28:37
Speaker 1: looks as if the market wants to go lower and
28:40
Speaker 1: find a you know, a level that has discounted all
28:45
Speaker 1: of the headwinds, all of the problems. But you know,
28:48
Speaker 1: most likely we're not there yet, so that that's what's
28:50
Speaker 1: going to gone, but more defensive quincy. In periods of recession,
28:55
Speaker 1: earnings expectations come down. Right, have earnings expectations come down
29:00
Speaker 1: enough that we're reflecting that recession risk? Probably not? No,
29:04
Speaker 1: no, no no, And that's that's the that's the other issue
29:07
Speaker 1: for the market. It probably hasn't. But until we hear
29:11
Speaker 1: from companies, either before they actually come out and you know,
29:15
Speaker 1: have their official earnings call, but perhaps with pre announcements,
29:20
Speaker 1: will have a will have an understanding of what they
29:23
Speaker 1: are seeing, and the market then has to adjust. And
29:26
Speaker 1: by the way, you know, no one knows if there
29:29
Speaker 1: will be a recession. If there is, will it be
29:31
Speaker 1: a shallow one, will be a growth recession, or just
29:33
Speaker 1: an earnings recession. The market right now is trying to
29:37
Speaker 1: figure that out, and until it does, expect more chopped
29:41
Speaker 1: So I mean this federal reserve, I mean, are you
29:44
Speaker 1: in the camp that says this Federal Reserve is likely
29:47
Speaker 1: to go too far, too fast, too high, and and
29:49
Speaker 1: in fact pushes into recession. That seems to be the consensus.
29:54
Speaker 1: It is, it is the consers. Clearly, it's the consensus.
29:57
Speaker 1: I mean, they've made it very clear. They don't want
30:00
Speaker 1: to wait and watch to see how, you know, things
30:04
Speaker 1: are turning out. They want to frontload it. And by
30:07
Speaker 1: doing that, at least they have the luxuries. You can
30:09
Speaker 1: see from the from the data, people are still spending.
30:13
Speaker 1: Retail spending is still is still maybe not stellar, but
30:17
Speaker 1: it's still solid. The labor market remains solid, probably too
30:21
Speaker 1: much for the Fed. But the point is it's not
30:25
Speaker 1: denting the economy in the way they want. Surely the
30:29
Speaker 1: housing market is slowing, but they need rents that come down.
30:33
Speaker 1: That's number one. The second thing is they need proofs
30:36
Speaker 1: food prices to pull back, along with gasoline prices which
30:40
Speaker 1: have obviously started moving back, and they need to have overall, uh,
30:45
Speaker 1: the entire economy and demand to decrease, to decrease to
30:50
Speaker 1: the point it's not going to push prices higher. I
30:53
Speaker 1: just have to mention, you know, I saw the announcement
30:55
Speaker 1: from Amazon. They're raising wages for those who work in
31:00
Speaker 1: factories and the driver's nine. Amazon is going to pass
31:06
Speaker 1: that along somewhere along the line. They're not. They're not
31:09
Speaker 1: going to sit there and say do we we'll we'll
31:11
Speaker 1: take care of this somewhere that is going to be
31:14
Speaker 1: passed along to consumers, either to the companies on their
31:18
Speaker 1: platform or yeah. So that's what the set is fighting.
31:22
Speaker 1: This is the irony of this whole thing. I doesn't
31:25
Speaker 1: want to see this private wage price spiral. It's a difficulty,
31:30
Speaker 1: all right, Quincy, great stuff. Really appreciate getting your insight
31:33
Speaker 1: this morning. Quincy Crosby, cheap Global strategist for LPL Financial Again.
31:39
Speaker 1: It trades on the nastac lp l A is the
31:42
Speaker 1: ticker to put into your Bloomberg Professional Service. It's got
31:45
Speaker 1: a seventeen point seven billion market cap stock up. There's
31:48
Speaker 1: a winner for you in Thanks for listening to the
31:51
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
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32:00
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller three On
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32:07
Speaker 1: you can always catch us worldwide at Bloomberg radio