Latest / Bloomberg Intelligence / Venezuela Debt Gets China Support, AllianceBernstein's Khan Says

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Venezuela Debt Gets China Support, AllianceBernstein's Khan Says · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim
0:08
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0:32
Speaker 1: There was a report late yesterday in the Wall Street
0:34
Speaker 1: Journal talking about how JP Morgan, which operates the main
0:39
Speaker 1: benchmark that is used to invest in emerging markets debt,
0:42
Speaker 1: the JP Morgan may be forced to remove Venezuelan debt
0:46
Speaker 1: from its benchmark index as a result of U S sanctions,
0:50
Speaker 1: details of which are expected to be announced today. They
0:54
Speaker 1: may have already been announced. They want to check that
0:55
Speaker 1: because that was supposed to come at eleven. I want
0:57
Speaker 1: to bring in Shamila Khan. She is director of Emerging
0:59
Speaker 1: Market Debt and Alliance Bernstein in New York. And Shamila,
1:03
Speaker 1: I want to start by talking about the market response
1:06
Speaker 1: to some of the rumors. I have been very surprised
1:09
Speaker 1: to see no market response, and I would think that
1:12
Speaker 1: there would be a massive further decline in Venezuela bonds.
1:16
Speaker 1: Should there be a removal of this UH, this particular
1:19
Speaker 1: type of debt from benchmark indexes. What's going on here?
1:23
Speaker 1: So what's going on really is a lot of uncertainty
1:26
Speaker 1: in terms of what kind of sanctions are going to
1:28
Speaker 1: be announced. To the extent that the U. S. Treasury
1:32
Speaker 1: sticks to the kind of sanctions they employed at the
1:34
Speaker 1: time of the Russian invasion of Ukraine UH and only
1:38
Speaker 1: limit the sanctions to newly issued debt in the future
1:42
Speaker 1: of Venezuelan entities, then the impact on the index is
1:46
Speaker 1: going to be fairly negligible, which is why you're not
1:48
Speaker 1: saying as seeing a tremendous price response UM in the bonds. UH.
1:54
Speaker 1: In addition, there have been some humors, rumors in the
1:56
Speaker 1: last day or so off you know, Chinese involvement in
2:01
Speaker 1: helping the Venezuelan government make its Maartom payments UM, which
2:05
Speaker 1: are being negotiated in China by Venezuelan officials that have
2:08
Speaker 1: been further supportive of prices. Wow, that's really interesting. I
2:12
Speaker 1: just want to bring you some headlines related to this.
2:14
Speaker 1: So President Trump has just as we were introducing you,
2:18
Speaker 1: Trump signed an executive order on new Venezuela sanctions that
2:22
Speaker 1: include UH some ban in dealing in new debt and
2:26
Speaker 1: equity from the state run oil company which is trades
2:30
Speaker 1: under the tick Peta VESA, as well as Venezuela Venezuela
2:33
Speaker 1: government issued debt and equity UM. We had been hearing
2:38
Speaker 1: that this could be potentially nuanced so that it wouldn't
2:41
Speaker 1: necessarily affect people in the US trading existing bonds between
2:45
Speaker 1: each other. But we still need to parse through the
2:47
Speaker 1: details and we will bring them to you when we
2:49
Speaker 1: get them. But Shamila, what about from your perspective, does
2:53
Speaker 1: Alliance Bernstein own Venezuela and debt? Have you been selling
2:58
Speaker 1: your holdings of it? And now where do you expect
3:01
Speaker 1: to go from here with those holdings? So, Alliance Pornstein
3:04
Speaker 1: manages a number of funds that are benchmarked to emerging
3:07
Speaker 1: market solvereign in disease that include Venezuela debt. As such,
3:12
Speaker 1: we are holders of Venezuela debt. But our stance in
3:15
Speaker 1: Venezuela has been very defensive for some time, and the
3:19
Speaker 1: way we think about Venezuela is really take a very
3:22
Speaker 1: strong fundamental stance with respect to these country's um future
3:27
Speaker 1: with respect to ability to pay back its debt um.
3:30
Speaker 1: There is no real reason Venezuela should be in the
3:33
Speaker 1: economic situation it is in right now. Uh. It has
3:37
Speaker 1: a lot of resources and it definitely does not appear
3:41
Speaker 1: to us a solvency issue, but rather a liquidity issue
3:44
Speaker 1: and the fact that the country does not have a
3:46
Speaker 1: credible regime and has not been able to attract investment
3:49
Speaker 1: into the country. We do not see the current situation
3:52
Speaker 1: as a sustainable situation. We do believe that there will
3:55
Speaker 1: be a change in the future which will lead to
3:57
Speaker 1: a better economic situation in Venezuela. And when we are
4:01
Speaker 1: putting together our exposures, we keep this fundamental view in mind,
4:04
Speaker 1: because our investments are always forward looking as far as
4:08
Speaker 1: fundamentals are concerned. Well, Shamala, I just want to give
4:11
Speaker 1: you the opportunity. I mean, if you're talking about the
4:13
Speaker 1: country's ability to repay it stead or potential ability, what
4:17
Speaker 1: about the potential ability of the country to restructure itself.
4:21
Speaker 1: I mean, that doesn't look like it's going to happen,
4:22
Speaker 1: at least internally. And uh, have you had any pushback
4:26
Speaker 1: from investors who say, you know what, we really don't
4:28
Speaker 1: want our money being lent to any entity that is
4:32
Speaker 1: supported by such a repressive regime. That's absolutely true, and
4:36
Speaker 1: that is something that we don't think is sustainable. We
4:39
Speaker 1: do not believe that the repressive regime is a sustainable
4:42
Speaker 1: regime in the near future, uh and in the medium term,
4:47
Speaker 1: as a result of which we believe that there will
4:50
Speaker 1: be a change to a more credible regime which will
4:52
Speaker 1: be able to put together policies um and that is
4:56
Speaker 1: what we are looking for in order to be less
4:58
Speaker 1: defensive in our positioning in when as Allah. The other
5:01
Speaker 1: thing to keep in mind is that prices are already
5:03
Speaker 1: at very depressed levels. They are at all time lows
5:06
Speaker 1: and for many of the bonds, and they are treating
5:08
Speaker 1: below what has been historically the recovery rates on emerging
5:11
Speaker 1: market sovereigns. So to a great extent, this country is
5:15
Speaker 1: already pricing in a restructuring of its external debt, Shamila. So,
5:20
Speaker 1: given the fact that we are getting now new sanctions
5:23
Speaker 1: by the US on Venezuela debt and equity, do you
5:27
Speaker 1: have any sense of how this could affect your day
5:29
Speaker 1: to day? Does this change anything about the way you
5:33
Speaker 1: approach investing in Venezuela well? We were expecting sanctions from
5:38
Speaker 1: the United States, so this is something that we have
5:40
Speaker 1: taken into consideration when constructing our own portfolios, and at
5:45
Speaker 1: this point as we are really seeing the headlines come
5:49
Speaker 1: out as we speak. From what I can understand based
5:52
Speaker 1: on what I'm reading right now, it is a ban
5:55
Speaker 1: on dealing in new debt, which is debt which will
5:57
Speaker 1: be issued in the future, which would not impact any
6:00
Speaker 1: of the existing debt. There are some headlines about certain
6:03
Speaker 1: bonds possibly getting impacted. It's unclear to me which bonds
6:07
Speaker 1: those are, but what we have tried to do is
6:09
Speaker 1: limit our holdings to the Venezuelan bonds, which we believe
6:13
Speaker 1: will not be controversial with respect to payments and are
6:16
Speaker 1: generally accepted by the opposition as legal debt. Thank you
6:20
Speaker 1: very much for being with us. Shamaila Khan is the
6:22
Speaker 1: director of Emerging Market Debt for Alliance Bernstein And once again,
6:26
Speaker 1: President Donald Trump has signed an order that imposes new
6:31
Speaker 1: U S sanctions on Venezuela and debt. This is new
6:34
Speaker 1: debt from the government as well as from the state
6:37
Speaker 1: oil company Petasa. Well, how about ordering your dinner from Amazon.
6:52
Speaker 1: It doesn't seem too far of idea, and indeed, with
6:56
Speaker 1: the purchase of Whole Foods, it seems like something is
6:58
Speaker 1: going to happen at least next week and terms of
7:00
Speaker 1: prices here. To tell us more about the effect on
7:02
Speaker 1: the grocery store industry is Shira Overday are technology columnists
7:06
Speaker 1: are Bloomberg gad Fly. She follows all of this technology
7:09
Speaker 1: for our fast commentary section of Bloomberg and you can
7:13
Speaker 1: follow her on Twitter at Shira Overday. And also whether
7:16
Speaker 1: us we have Sarah Halzac, our retail columnist for Bloomberg
7:19
Speaker 1: gad Fly. It's all coming together and you can follow
7:21
Speaker 1: Sarah at on Twitter at Sarah Halzack. Um. You know, Sarah,
7:25
Speaker 1: maybe we should just start with you, as uh, someone
7:28
Speaker 1: that's following retail. What effect do you believe the move
7:33
Speaker 1: by Amazon to acquire Whole Foods? What do you think
7:35
Speaker 1: it will make the other grocery stores do, because they're
7:39
Speaker 1: not going to just sit back and wait for someone
7:41
Speaker 1: else to take their market share away. That's exactly right,
7:44
Speaker 1: and I think what it's gonna do is really put
7:46
Speaker 1: pressure on them to squeeze every bit of pricing they
7:48
Speaker 1: can out of what they're offering to customers. You know,
7:52
Speaker 1: Whole Foods for a long time now has had this
7:54
Speaker 1: reputation as whole paycheck. They really hadn't been competitive on
7:58
Speaker 1: a price front. And so as consumer gets more health
8:01
Speaker 1: minded and they want these organics, there's been a lot
8:04
Speaker 1: of room for other grocers to take share their Kroger, Walmart,
8:07
Speaker 1: all the legal they're offering these kinds of products at
8:10
Speaker 1: better prices. Now that Amazon is going to make Whole
8:13
Speaker 1: Foods get serious about being competitive in that way, it
8:15
Speaker 1: really throws down the gauntlet to the rest of the sector. Shira,
8:18
Speaker 1: I want to bring you in here from the Amazon perspective.
8:21
Speaker 1: It's not that novel of an idea. If you cut prices,
8:24
Speaker 1: people will be more interested in something, right, and this
8:26
Speaker 1: is sort of it's but it's business model. But I
8:29
Speaker 1: imagine that there are reasons that Whole Foods didn't have
8:32
Speaker 1: lower prices to begin with. In other words, that cuts
8:34
Speaker 1: into their margins and their profit margins. I mean, where
8:37
Speaker 1: is the long term goal here for Amazon and how
8:41
Speaker 1: profitable is this model? It's a fair quiesh. I mean,
8:44
Speaker 1: it's it's worth noting that even a grocer like Whole Foods,
8:48
Speaker 1: albeit an expensive grocer like Whole Foods has significantly better
8:52
Speaker 1: operating margins than Amazon. Right You're talking five percent in
8:55
Speaker 1: the last quarter for Whole Foods, a five percent operating
8:58
Speaker 1: margins and two percent operating margins for Amason. So it's
9:01
Speaker 1: weird when you acquire a grocer and you're buying a
9:03
Speaker 1: higher margin business than the what you already have. But look,
9:08
Speaker 1: you saw what Amazon did right away, which is really
9:10
Speaker 1: it just shows their ruthless genius, which is they set
9:14
Speaker 1: out on day one to change the perception of Whole
9:17
Speaker 1: Foods as this expensive place to buy fancy groceries that
9:22
Speaker 1: you know, they use the word savings and you know,
9:25
Speaker 1: organic foods for everyone, uh several times in their news
9:29
Speaker 1: announcement yesterday. And it's really about changing the perception and
9:33
Speaker 1: getting more people in the door and starting to steal
9:36
Speaker 1: that market share from other grocers. Well, you know these uh,
9:40
Speaker 1: this idea that there's going to be let's say, a
9:41
Speaker 1: membership program that would morph from Amazon Prime over to
9:46
Speaker 1: let's say a point of sales system at Whole Foods,
9:49
Speaker 1: is that something shure that you believe is just gonna,
9:53
Speaker 1: you know, normally going to happen. I mean they endicate
9:57
Speaker 1: I will say it's unclear exactly how that's gonna work, right.
9:59
Speaker 1: Amazon's said yesterday that they're going to essentially make Amazon Prime,
10:04
Speaker 1: their existing hundred dollar a year shopping club, into the
10:08
Speaker 1: sort of loyalty card program for Whole Foods, and we
10:11
Speaker 1: didn't get a lot of details, but you can sort
10:13
Speaker 1: of imagine that Amazon will try to make it worth
10:17
Speaker 1: Prime members time to shop at Whole Foods and not
10:20
Speaker 1: at other places. And that's a clever idea. Well, and
10:24
Speaker 1: just to follow up the idea about point of sale
10:26
Speaker 1: is that maybe you will be in a situation in
10:29
Speaker 1: which you will not have to actually give your credit
10:31
Speaker 1: card or your cash in order to make a transit
10:36
Speaker 1: a purchase at Whole Foods because you're a Prime customer,
10:39
Speaker 1: you're logged in, you're done, it goes into your Amazon ACA.
10:42
Speaker 1: Maybe I don't. I don't think we're there yet. We
10:44
Speaker 1: will see exactly how they integrate the sort of cash
10:47
Speaker 1: register system with Prime. But you can sort of imagine
10:50
Speaker 1: where you go to check out, if you're a Prime member,
10:52
Speaker 1: you get a better discount on those bananas or that
10:56
Speaker 1: jar of peanut butter than you would if you're not
10:58
Speaker 1: a Prime member. And again, it means that if your
11:01
Speaker 1: prime member, and a lot tens of millions of Americans are,
11:04
Speaker 1: that gives you an extra incentive to shop at Whole
11:06
Speaker 1: Foods and not at the Kroger or whatever down the street.
11:09
Speaker 1: And I just want to point out that Amazon shares
11:11
Speaker 1: have actually been down for a third consecutive day, so
11:15
Speaker 1: even though yes, Kroger shares and other grocery store shares
11:18
Speaker 1: have gone down, although Kroger's bouncing back a little bit today, Uh,
11:21
Speaker 1: you know, Amazon's down too with the question of profit margins.
11:25
Speaker 1: But Sarah, I want to bring you back in here.
11:27
Speaker 1: Amazon one in the retail war or is winning because
11:32
Speaker 1: not just on lowering prices, they also found a way
11:36
Speaker 1: to distribute goods efficiently and quickly as well as often cheap,
11:41
Speaker 1: more cheaply but not always. Um, I want to give
11:43
Speaker 1: you a chance to sort of argue the case for
11:47
Speaker 1: why this may not work in the grocery industry. In
11:51
Speaker 1: other words, does Amazon have to compete on a level
11:53
Speaker 1: that goes beyond just lowering prices? And what is the
11:57
Speaker 1: barrier to entry there? Yeah, so put some plea. A
12:00
Speaker 1: perishable supply chain is just a whole different ball game
12:04
Speaker 1: than the kind of supply chain the Amazon has built
12:06
Speaker 1: already for selling US laundry detergent and selling US sweaters
12:09
Speaker 1: and all that kind of stuff. Right, So, someone in
12:12
Speaker 1: the grocery business once told me, for example, when you're
12:14
Speaker 1: thinking about grocery delivery, you have to consider things like
12:17
Speaker 1: that when bananas ripen, they emit something that makes apples
12:21
Speaker 1: ripen at a different pace than if they were not
12:23
Speaker 1: next to that banana. Right. This is supply chain no
12:26
Speaker 1: how that the Walmarts and the Trader Joe's and Krogers
12:30
Speaker 1: of the world had been building for a really long time.
12:33
Speaker 1: The Amazon simply doesn't have. And so Whole Food certainly
12:36
Speaker 1: has some of that know how, But it'll be interesting
12:39
Speaker 1: to see how Amazon is able to kind of leverage
12:42
Speaker 1: that and expand it more widely. Sarah, I beg your pardon. No,
12:46
Speaker 1: I was just gonna say that. I mean, Sarah makes
12:48
Speaker 1: a good point, which is that Amazon has been in
12:50
Speaker 1: the grocery business for ten years. So they've had Amazon Fresh,
12:54
Speaker 1: which is their grocery delivery service, up and running starting
12:57
Speaker 1: in Seattle and in other market now to um for
13:02
Speaker 1: ten years and it really hasn't made much of a
13:04
Speaker 1: dent in the grocery industry, and that points to some
13:07
Speaker 1: of the issues that Sarah pointed out, that they haven't
13:10
Speaker 1: necessarily figured out the sort of logistical dynamics of the
13:14
Speaker 1: grocery business quite yet. You know, they're smart people, they
13:17
Speaker 1: can figure it out, but you know, ten years of
13:20
Speaker 1: experience has shown that they haven't necessarily cracked it yet. Well,
13:23
Speaker 1: and to your point, I just want to apply that
13:25
Speaker 1: to whole foods, because, you know, Sarah, it looks as
13:28
Speaker 1: though what the sales are perishable foods at whole foods, right,
13:34
Speaker 1: nonperishable items they fare pretty poorly at whole foods, they do.
13:38
Speaker 1: And I think that that sort of gets to this
13:40
Speaker 1: idea that you know, people are willing to spend a
13:43
Speaker 1: little bit more for the things they're putting inside their
13:45
Speaker 1: bodies for feeling like they're having grass fed beef and
13:48
Speaker 1: you know, chicken that's not treated with antibiotics. They're willing
13:52
Speaker 1: to plunk down more money for those kinds of things.
13:55
Speaker 1: The man for toilet paper, they're just not willing to
13:57
Speaker 1: pay a premium, and so that that's one challenging thing
14:01
Speaker 1: they'll have to contend with. You know, I think it's
14:02
Speaker 1: really interesting to note that back in two thousand nine,
14:05
Speaker 1: when Whole Foods had only two d seventy three stores. Uh.
14:09
Speaker 1: Some research from canter Retail shows that seven percent of
14:12
Speaker 1: shoppers said during that time period they visited Whole Foods
14:15
Speaker 1: on a monthly basis. Now they have over four hundred stores.
14:19
Speaker 1: The sheriff shoppers that visit them on a monthly basis
14:21
Speaker 1: is virtually unchanged. So they're really having trouble growing the
14:25
Speaker 1: base of customers who are interested in their product. And
14:29
Speaker 1: I think that that package dry goods uh price issue
14:33
Speaker 1: is a big one. Thank you so much for joining
14:35
Speaker 1: us great insight. Sarah how Zac and Shara over Day,
14:38
Speaker 1: both Godfly columnists, they don't jointly wrote a column on
14:42
Speaker 1: this issue that's fabulous. Check it out Bloomberg dot com
14:45
Speaker 1: slash god Fly, also on the Bloomberg at NI space
14:49
Speaker 1: god Fly. The National Hurricane Center says that the storm
15:06
Speaker 1: Hurricane Harvey has maximum sustained winds of a hundred and
15:10
Speaker 1: ten miles per hour and it is just below the
15:13
Speaker 1: category three level four A storm. Forecasters say the storm
15:16
Speaker 1: is expected to reach that mark before making landfall late
15:19
Speaker 1: today and early Saturday in Texas. And here to tell
15:23
Speaker 1: us more about this is Shenando Bassu. He is a
15:26
Speaker 1: meteorologist and gas analyst for Bloomberg New Energy Finance, and
15:30
Speaker 1: he joins us here in our studio. Shenando, thanks very
15:32
Speaker 1: much for being with us. Maybe just give everyone a
15:35
Speaker 1: detailed over you know, view of what what we can
15:37
Speaker 1: expect over the next let's says hey, Pam. Yeah, thanks
15:41
Speaker 1: so much for having me here. So of course we
15:44
Speaker 1: know that right now Hurricane Harvey is going to be
15:46
Speaker 1: strengthening up to a category three. But what's unusual about
15:49
Speaker 1: the storm really is how quickly it has intensified. It's
15:52
Speaker 1: intensified so rapidly over the last forty eight hours UM
15:57
Speaker 1: as of this morning, the central pressure down to about
15:59
Speaker 1: nine and seendy millibars, and of course those wind speeds
16:01
Speaker 1: making it up there to about ten. And the other
16:05
Speaker 1: big piece of this is the duration and the amount
16:07
Speaker 1: of rain that we're going to be getting. Um we're
16:10
Speaker 1: looking at up to thirty or even over thirty inches
16:13
Speaker 1: of rain in parts of the coastal part of Texas
16:17
Speaker 1: as a result of the storm and the trajectory it's
16:19
Speaker 1: expected to take, I mean even as late as next
16:22
Speaker 1: Monday or Tuesday, that storm, Hurricane Harvey just still kind
16:26
Speaker 1: of hovering over um the central and eastern part of
16:30
Speaker 1: coastal Texas there. Yeah, people have talked about how it's
16:33
Speaker 1: going to stall out over Texas and it's going to
16:36
Speaker 1: be stalling out over populated areas of the state. What
16:40
Speaker 1: have the evacuation order has been like and what is
16:43
Speaker 1: the expected damage supposed to be? Yeah, I mean the
16:46
Speaker 1: damage of course is a big part of this, certainly
16:48
Speaker 1: to coastal oil and gas infrastructure. We've already been seeing
16:53
Speaker 1: offshore platforms being evacuated on you know, all the major
16:56
Speaker 1: oil companies and all their smaller e nps as well
16:58
Speaker 1: evacuating their their oil platforms and UM as far as
17:04
Speaker 1: you know, the gas gas infrastructure is a little bit
17:06
Speaker 1: different though, because you know, we haven't seen that much
17:08
Speaker 1: of a price movement yet in gas, and that's because
17:11
Speaker 1: you know, ever since um, you know, two thousand and
17:14
Speaker 1: eight with Gustav and Ike, you know, a lot of
17:16
Speaker 1: that infrastructure has been beefed up, and also the gas
17:19
Speaker 1: production environment has changed substantially, with a lot of that
17:23
Speaker 1: production shifting over to the northeast. So as a result,
17:27
Speaker 1: you know, we're not going to be seeing a whole
17:29
Speaker 1: lot of movement in the gas markets from the supply side. Now,
17:32
Speaker 1: going back to your point about the effects and the
17:35
Speaker 1: demand is really the big story here. With um effects
17:38
Speaker 1: of course of the power markets with multiple power outages
17:41
Speaker 1: and that kind of thing, flooding impacting a lot of
17:44
Speaker 1: the power assets down there, and also the wind farms
17:47
Speaker 1: with the high winds that are expected tell us about
17:51
Speaker 1: how the demand will go down number one, because it's
17:54
Speaker 1: going to be a weekend and also you have the
17:57
Speaker 1: situation it's just gonna be less use of electricity, yeah,
18:00
Speaker 1: for sure, um. You know, with people evacuating the area,
18:03
Speaker 1: and of course also industry shutting down. You know a
18:06
Speaker 1: lot of the plants and and factories and so on
18:08
Speaker 1: and so far in that area shutting down. You know,
18:11
Speaker 1: we're expecting uh, just industrial demand alone to account for
18:16
Speaker 1: about two to mc f of gas per day um.
18:19
Speaker 1: So that that piece of it shutting down. Also, we
18:21
Speaker 1: have a major nuclear plant, South Texas Nuclear that is
18:25
Speaker 1: probably going to be shutting down maybe today or early tomorrow, um.
18:30
Speaker 1: And that going offline accounts for about two gig lots
18:32
Speaker 1: of power right there, so you know, and in the
18:35
Speaker 1: aftermath of the storm, you know, gas generation will have
18:39
Speaker 1: to fill in for that missing nuclear piece right there.
18:41
Speaker 1: You know, it's interesting we were talking about this right
18:44
Speaker 1: before the segment when we were talking about how gasoline
18:47
Speaker 1: prices have increased. That's probably where you've seen the biggest
18:51
Speaker 1: effect of this impending hurricane, with prices at one point
18:56
Speaker 1: rising to the highest levels since November. Yet this will
19:00
Speaker 1: not translate to higher prices that people end up paying
19:04
Speaker 1: at the gas station simply because of the production. You
19:07
Speaker 1: sort of touched on this, but can you give us
19:10
Speaker 1: a sense of how much production has moved away, frankly
19:13
Speaker 1: from this region in Texas and more up north to
19:16
Speaker 1: say North Dakota and the shell production. Yeah, yeah, sure,
19:20
Speaker 1: So I think there are a couple of pieces to that.
19:22
Speaker 1: So the first is, of course, with the number of
19:24
Speaker 1: refineries that have gone down just today, I think we're
19:27
Speaker 1: just in just around the eight mark that has gone offline,
19:30
Speaker 1: which is certainly higher than what you would see on
19:33
Speaker 1: a you know, on a day to day kind of basis.
19:34
Speaker 1: So that's what's taking a shot at the supply side
19:38
Speaker 1: of gasoline. That's why we're seeing a rise in the
19:40
Speaker 1: price there. As far as natural gas, however, um, because
19:44
Speaker 1: now we're seeing so much more production in in in
19:47
Speaker 1: the Marcellus regions up in Pennsylvania, and you know, the
19:50
Speaker 1: northeastern general Gulf production has declined significantly over the last
19:56
Speaker 1: you know, five to eight years, and so that air
20:00
Speaker 1: yet that region as a you know, production region, the
20:02
Speaker 1: importance of that has gone down real quick. Almost the
20:05
Speaker 1: last time that we saw a storm of this magnitude
20:07
Speaker 1: actually hit landfall in the US, UM in the US
20:12
Speaker 1: in Texas two thousand and eight. Was that was the
20:15
Speaker 1: last time we had a hurricane ike And was this
20:19
Speaker 1: Is this going to be more or is this gonna
20:21
Speaker 1: be weaker or stronger than I It's going to be
20:23
Speaker 1: about the same or a little bit stronger. Yeah, especially
20:26
Speaker 1: um with the precipitation in the rain. Yeah, definitely important
20:31
Speaker 1: to watch and anyone who's listening, who is in that area,
20:33
Speaker 1: please be safe. I am very concerned. It sounds like
20:36
Speaker 1: it's going to be a lot of rain and a
20:37
Speaker 1: lot of flooding and certainly very messy at the best
20:40
Speaker 1: and uh and potentially life threatening it worse. Shenando Basso,
20:44
Speaker 1: thank you so much for joining us. He's meteorologist and
20:46
Speaker 1: gas analysts for Bloomberg New Energy Finance. Talking about Hurricane Harvey.
21:04
Speaker 1: If you've noticed over the past couple of months, we've
21:07
Speaker 1: been talking a lot about range bound markets, sleepy markets,
21:11
Speaker 1: lack of volatility, lack of volumes, lack of impetus to sell,
21:15
Speaker 1: but bullish and here to explain whether we're gonna see
21:18
Speaker 1: anything that's going to break us out of this one
21:19
Speaker 1: way or another is David Ader. He's chief macro strategistic
21:22
Speaker 1: inform of financial intelligence. He is also a writer for
21:26
Speaker 1: our Bloomberg Profits UH section that's part of Bloomberg View
21:30
Speaker 1: and he also was the number one ranked US government
21:33
Speaker 1: bonds strategist by Institutional Investor magazine for ten years. David,
21:38
Speaker 1: thank you so much for joining us. You know I'd
21:40
Speaker 1: love to get your sins Right now. We are seeing
21:44
Speaker 1: treasury yields dip lower yet again, even as we see
21:48
Speaker 1: UH markets rally, stock markets rally, I'm looking at a
21:51
Speaker 1: ten year treasury yield UH that is lower than two
21:54
Speaker 1: point two percent. Where do you think we're headed with
21:57
Speaker 1: this treasury yield by the end of this year? Oh?
22:01
Speaker 1: I I think that there's a great chance we'll see
22:04
Speaker 1: two eleven. How's that for a traumatic call. I'm blown away,
22:11
Speaker 1: isn't it isn't it. I mean for the balance of
22:13
Speaker 1: the year, you know, I mean, I would like to think,
22:16
Speaker 1: um that we will get a little more activity other
22:20
Speaker 1: than these sort of six basis point weekly ranges. And
22:24
Speaker 1: if I you know, with a bit of a bias,
22:26
Speaker 1: I think that you know, we are going to say
22:28
Speaker 1: I hate to say this term uncertainty is going into
22:31
Speaker 1: the end of the year, as we get around the
22:32
Speaker 1: dead ceiling, as we get around the possibility the likelihood
22:36
Speaker 1: of a new FED chairman. And I think we're going
22:40
Speaker 1: to continue with low inflation. So I think that there's
22:42
Speaker 1: a risk that we could actually um take tens a
22:45
Speaker 1: little bit below two percent. But I would not get
22:49
Speaker 1: overly excited. I do not think the there's going to
22:53
Speaker 1: be a big directional play in in yields for for
22:57
Speaker 1: the balance of this year and and you know, very
23:00
Speaker 1: possibly into next year, which raises a whole new set
23:02
Speaker 1: of questions. Well, we've been getting a lot of warnings.
23:05
Speaker 1: I guess whatever things feel like they're getting stagnant, we
23:09
Speaker 1: start to get a lot of warnings of terrible things
23:11
Speaker 1: to come. And we've gotten quite a few of them
23:13
Speaker 1: from some pretty big investment managers that you know, the
23:16
Speaker 1: end is ny and that markets are going to collapse
23:18
Speaker 1: and that you know we're going to have a real correction. Um,
23:22
Speaker 1: do you agree that there is something that's imminent and
23:25
Speaker 1: and sort of uh bad, that's percolating under the surface.
23:30
Speaker 1: And if so, where is where are we most at
23:32
Speaker 1: risk of seeing some kind of problem? Where? Oh, I
23:37
Speaker 1: think there is. I think that there's a big, huge
23:39
Speaker 1: thing under the surface. I just don't know whether it's
23:42
Speaker 1: going to prove bullish or bearish for interest great, And
23:44
Speaker 1: I don't know what it is. I mean, um, the
23:48
Speaker 1: economy is, it doesn't seem to be accelerating, it doesn't
23:52
Speaker 1: seem to be decelerating. We're dealing with sort of this
23:55
Speaker 1: muddling that we've dealt with for a very long time.
23:58
Speaker 1: The maschinations out of Washington, the antics between the White
24:03
Speaker 1: House and the Congress, I mean, have have no I
24:06
Speaker 1: don't know if I want to use the term jump
24:07
Speaker 1: the shark. But I think finally, the risk markets, the
24:12
Speaker 1: risk markets are are losing their patients. So whether it's
24:15
Speaker 1: about some physical stimulus or whether it's about tax reform,
24:19
Speaker 1: and we start putting that off into um into next year,
24:22
Speaker 1: with the potential of a default certainly over the debt
24:27
Speaker 1: ceiling I think likely to reside with us, you know,
24:30
Speaker 1: through October UM. And then the question about what is
24:35
Speaker 1: what is the balanty reduction going to look like? And
24:37
Speaker 1: I think all those things are going to put more
24:39
Speaker 1: stressed on risk assets than on the treasury market. So
24:43
Speaker 1: I would say that's where, um, that's where the risk is.
24:47
Speaker 1: I mean valuations of course, are high credit spreads for example,
24:51
Speaker 1: are type buy backs have slowed down? So that is
24:54
Speaker 1: where I think we're going to we would feel it. Well, David,
24:58
Speaker 1: what are you recommending that clients do that? Oh? Do what?
25:02
Speaker 1: Cash under your mattress? Just you know, freeze, dride food
25:06
Speaker 1: for cash and hunker down. Wait wait, wait, wait, wait,
25:09
Speaker 1: hold on a second. How much cash? And when did
25:11
Speaker 1: you start? How much? And how much free drive and
25:15
Speaker 1: cans or packages that you know, but are you have
25:18
Speaker 1: you been recommending over the past few weeks that people
25:21
Speaker 1: build their cash stashes or is it over the past year?
25:25
Speaker 1: Or and and how much? No? And and and realistically
25:28
Speaker 1: I think that from a from a portfolio, from a
25:30
Speaker 1: fixed income now we're talking on the fixed income side, UM,
25:34
Speaker 1: I think I would you retain a fairly good front
25:38
Speaker 1: end cash position, and then I would have a barbelled
25:40
Speaker 1: portfolio with exposure at the long end. Again because I
25:43
Speaker 1: don't think that we're seeing any inflation problems. So the
25:47
Speaker 1: barbelled portfolio would allow me to if we, for example,
25:50
Speaker 1: were to see if that High court, if we were
25:53
Speaker 1: to see opportunities I want to hunk. I want to
25:55
Speaker 1: have some cash on hand to take advantage of it
25:57
Speaker 1: um in other asset classes. So I think that the
26:00
Speaker 1: Barbel portfolio for now is the one I would like.
26:03
Speaker 1: And I think also, um, you know, I don't think
26:06
Speaker 1: the Fed's going to hike this year, and I'm you know,
26:08
Speaker 1: next year we'll get I think we'll get a new
26:11
Speaker 1: FED chairman. Presumably there will be umdabish Trump like slow
26:15
Speaker 1: interest rates and I but I do think that there
26:19
Speaker 1: is still some risk at the front end. Is going
26:21
Speaker 1: to get UM a little bit nervous about the feed
26:24
Speaker 1: as we approached next year and we get past the
26:26
Speaker 1: debt ceiling situation. So I think the Barbel portfolio is
26:30
Speaker 1: the one that makes the most sense to me. And
26:32
Speaker 1: in terms of a duration exposure to a benchmark, I
26:35
Speaker 1: would be a little bit long duration. Now, well, David,
26:38
Speaker 1: when do you throw in the towel. I mean, I
26:39
Speaker 1: want to know because you know you'll be the last
26:41
Speaker 1: bear standing when I throw in the towel. Um. You know,
26:47
Speaker 1: I think in these in these coming weeks, in these
26:50
Speaker 1: coming months, you know, we will get obviously more information
26:54
Speaker 1: on inflation. The FET has always talked about that that
26:57
Speaker 1: that there has been talking that ultimately they'll reach their targets.
27:02
Speaker 1: I do not care about the dot pots. I don't
27:04
Speaker 1: really care about their their own expectations. I want to
27:07
Speaker 1: see what the data is going to look like, you know, David,
27:11
Speaker 1: I have to wonder. You know, people lament that this
27:14
Speaker 1: market has been newter, either by financial regulation or by
27:17
Speaker 1: so many years of Federal Reserve interference. But are we
27:21
Speaker 1: just seeing a market that's a normal, that's moving back
27:25
Speaker 1: to a model where people actually have to look at
27:27
Speaker 1: data and actually look at the companies and not just
27:29
Speaker 1: wait for what comes out of the lips of central bankers.
27:34
Speaker 1: You know, I know we always look at it, and
27:36
Speaker 1: if you're an economist or you're a strategist, you know
27:39
Speaker 1: you historically and academically we rely on the data. But
27:43
Speaker 1: you know, we've we've had data up, we've had it down,
27:45
Speaker 1: and the treasury market. Generally, the yields are staying in arrange,
27:50
Speaker 1: so we will get back to it. We still need
27:53
Speaker 1: to look at those factors because it will impact central
27:56
Speaker 1: bank policy here and around the world. But um, the
28:00
Speaker 1: the the quantitative easy that's still going on elsewhere, the
28:05
Speaker 1: continuing reinvestment which the FED is doing, even if they're
28:09
Speaker 1: going to be in tapering. I do think he's put um,
28:12
Speaker 1: you know, put restrictions on the volatility that you would
28:16
Speaker 1: otherwise be seeing in in in the fixed income markets
28:20
Speaker 1: that slowly, gradually, glacially is coming off. So I don't
28:25
Speaker 1: see drama, but I do think, you know, in a
28:27
Speaker 1: few years, will probably get ourselves back to a more
28:30
Speaker 1: normal environment. Having said that, I still think that that
28:34
Speaker 1: there's a generational issue that interest rates are going to
28:37
Speaker 1: be lower than we might otherwise have seen, just because
28:41
Speaker 1: we are in a sort of a muddling growth mode.
28:44
Speaker 1: I want to thank you very much for joining us.
28:46
Speaker 1: David Adder is the chief macro strategist for Inform of
28:49
Speaker 1: Financial Intelligence. He is also a Bloomberg profit. Bloomberg profits
28:54
Speaker 1: are professionals who offer actionable insights on markets, the economy,
28:58
Speaker 1: and monetary policy, and Bloomberg profits may actually have a
29:02
Speaker 1: steak in the areas in which they write about. Thanks
29:07
Speaker 1: for listening to the Bloomberg P and L podcast. You
29:10
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
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Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
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Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
29:21
Speaker 1: abramoids One before the podcast, you can always catch us
29:24
Speaker 1: worldwide on Bloomberg Radio.