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The Fed, Markets, Oil, And Baby Formula (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, 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
0:18
Speaker 1: at Bloomberg dot com slash podcast. Let's get to our
0:22
Speaker 1: next guest right away, Bangs. The next guest is in
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Speaker 1: our Bloomberg Interactive Broker studio down from Boston this morning. Um,
0:29
Speaker 1: where the Celtics lost last night. So Mike Vocuson, Chief
0:33
Speaker 1: Investment Officer Managing Director, Cap Trust joins us. Mike, sorry
0:36
Speaker 1: for your Celtics last night. Let's talk about the markets.
0:39
Speaker 1: We got red and green on the tape here on
0:41
Speaker 1: the screen. Last two days have seen some serious selling,
0:45
Speaker 1: some serious moves in this market. You know, just kind
0:48
Speaker 1: of putting a you know, underline under what's been a
0:50
Speaker 1: tremendous underperformance this year in bonds and inequities. What are
0:55
Speaker 1: you guys doing, a Cap Trust? Yeah, like everyone, we're
0:58
Speaker 1: surprised by the sort of negativity in the in the
1:01
Speaker 1: inflation print last week. And uh, I think the markets
1:04
Speaker 1: just coming to terms with the reality that no, we're
1:06
Speaker 1: not at peak inflation. Uh and uh, you know, the
1:09
Speaker 1: terminal rate on interest rates could be much higher than
1:12
Speaker 1: expectations a week ago. And so you know we're where
1:15
Speaker 1: are we three three on the tenure today? That the
1:19
Speaker 1: two year has just gone through the roof? Um? And
1:22
Speaker 1: I think the equity markets just trying to figure out
1:24
Speaker 1: what the new discount rate is going to be. And
1:25
Speaker 1: and so you know, we're down what for the last
1:29
Speaker 1: few days? Um. You know, by the way swings like
1:31
Speaker 1: that in treasuries, somebody on a bond desk was like,
1:35
Speaker 1: I wish I was trading cryptos, you know, because when
1:39
Speaker 1: is the last time you saw moves like that in yields? Well,
1:43
Speaker 1: let's just tells you how far the market was off
1:45
Speaker 1: from reality. And and you know, don't forget, guys, we
1:48
Speaker 1: haven't seen I mean I joined I joined the business
1:51
Speaker 1: in eighty three, eight four, and no one has seen
1:55
Speaker 1: rising inflation right effectively, I meant that sort of reasonably
1:59
Speaker 1: close to the talent of my career. And so no
2:01
Speaker 1: one in this business has lived through a rising inflationary environment.
2:05
Speaker 1: And so I think that's playing into some of the surprise. Wait,
2:08
Speaker 1: this was supposed to peak last fall or maybe this spring,
2:12
Speaker 1: or maybe this summer, and it just keeps on coming.
2:15
Speaker 1: It's the gift that keeps giving. Yeah, I mean, I look,
2:17
Speaker 1: I don't know what to make of this. I'm an
2:18
Speaker 1: equity guy, but I look at the two year, the tenure,
2:21
Speaker 1: and the thirty year all yielding about three point three
2:24
Speaker 1: five three, So I'm not sure that's what I call again,
2:28
Speaker 1: not being a fixed income geek. That's a flat yield curve.
2:30
Speaker 1: That's very good. You got some insight there. It's the
2:36
Speaker 1: it's the the two year. Of course, it's trying to
2:39
Speaker 1: anticipate where the next peak in the FED cycle will be, Right,
2:42
Speaker 1: That's what the two years telling you. Um, the ten
2:44
Speaker 1: year is just trying to figure out what the right
2:46
Speaker 1: discount rate should be. And I just don't think the
2:49
Speaker 1: market knows. Um, by the way, does it? I mean,
2:52
Speaker 1: are you disappointed in the Federal Reserve? Does it hurt
2:56
Speaker 1: you to the core? I mean, they really drop to
3:00
Speaker 1: the ball on this, right. It's really it's really hard
3:03
Speaker 1: to blame him, you know. Um, I think it was.
3:05
Speaker 1: The Wall Street Journal had a really good article on
3:07
Speaker 1: on sort of the mistake they made right, and and
3:09
Speaker 1: why and how and what led to it? I think
3:12
Speaker 1: the fact is that, Um, the the the game plan.
3:17
Speaker 1: The last wars we had were the global financial crisis
3:20
Speaker 1: and COVID, And the challenge we had there is we
3:24
Speaker 1: had we had the federal reserve, we had to put
3:26
Speaker 1: right on the equity market, so we had low interest rates,
3:28
Speaker 1: we had dropping inflation. We were in a deflationary environment,
3:31
Speaker 1: not inflationary. And as a result, the game plan is
3:34
Speaker 1: different this time. We've never had had COVID, we've never
3:37
Speaker 1: had a pandemic, we've never had Obviously, an incredible was
3:42
Speaker 1: of economic activity was given away in in in fiscal stimulus.
3:46
Speaker 1: You know, the FED dropped an equivalent nuclear bomb in
3:50
Speaker 1: monetary policy. UM. I just don't think we have people
3:53
Speaker 1: who've been through an inflationary cycle before. I know I haven't. Alright,
3:57
Speaker 1: So Tom Keane, Tom, he was there, He was in
4:01
Speaker 1: the Republic, he was in the Civil War. So I'll
4:07
Speaker 1: ask Matt's question, Um, capitulation. Should we even waste our
4:11
Speaker 1: time looking trying to identify capitulation or not? I don't.
4:15
Speaker 1: I don't think so. I think, Um, what what's really
4:18
Speaker 1: different about this? I think this time around, and the
4:20
Speaker 1: last handful of them is uh that everyone is looking
4:24
Speaker 1: for capitulation. Everyone started to find the right sign. Everyone
4:27
Speaker 1: is looking for the one data point that's going to
4:28
Speaker 1: tell them when the market's going to bottom and whether
4:30
Speaker 1: it's fixed, or whether it's breaking through certain particular moving
4:33
Speaker 1: averages or or you know, fear or consumer I think
4:36
Speaker 1: what's odd here is you see investor sentiment plumbing lows
4:40
Speaker 1: we've never seen before, and yet the market is just
4:42
Speaker 1: sort of very carefully and I think methodically going down.
4:46
Speaker 1: We've had a couple of active days the last last
4:48
Speaker 1: few but this has not been panic um and so
4:53
Speaker 1: so I just think when everybody's waiting for it, you're
4:55
Speaker 1: not gonna see it. So what that means maybe we'll
4:58
Speaker 1: get a panic day the COVID was, but that wasn't
5:01
Speaker 1: a financial panic. That was a health panic. Am I
5:03
Speaker 1: gonna get sick and I'm gonna die? Right? Is my
5:05
Speaker 1: family going to be open? Is that why? Um? Okay,
5:08
Speaker 1: that aspect of COVID is different than I thought. You're
5:10
Speaker 1: talking to the market. The thing is, we had this
5:12
Speaker 1: huge drop in the market, and the weirdest thing of
5:15
Speaker 1: all economic times happen where every country around the globe
5:20
Speaker 1: shut down and then restarted, and we dropped and bounced,
5:24
Speaker 1: and then by the dip has been the mantra even
5:26
Speaker 1: before that and after by the dip, everyone seems to
5:30
Speaker 1: expect something to come come along and save us, right,
5:33
Speaker 1: But in real bear markets, they don't stop at they
5:36
Speaker 1: go even further and it hurts. So why aren't people panicking?
5:40
Speaker 1: This is the first time we've not had the FED
5:43
Speaker 1: put active. It's right, the Fed. The FED is in
5:46
Speaker 1: a box. The FED got behind the curve. Now they
5:48
Speaker 1: have to fight. Inflation has become a political issue. There's
5:51
Speaker 1: pressure from from from the politicians. Of course, there's no
5:54
Speaker 1: chance that the FED is going to bail out the
5:56
Speaker 1: equity markets with lower interest rates. That's the first time
5:59
Speaker 1: we've had that in a long time. So, hey, when
6:01
Speaker 1: when the feed is, when the feed is got your back,
6:03
Speaker 1: you're gonna buy the dips because it works. Today we don't,
6:06
Speaker 1: so the FED is not not going to help, and
6:09
Speaker 1: buying the dips hasn't worked, and people are getting blown up.
6:11
Speaker 1: The world changed back, you know, And whenever it was
6:15
Speaker 1: February when they basically when when when j Pow came
6:18
Speaker 1: out and said we're targeting inflation. We're gonna be after it.
6:23
Speaker 1: I thought the most important thing there was that he
6:25
Speaker 1: talked about his great and deep respect for Paul Vulgar,
6:29
Speaker 1: and we all know what Vulker did, so not what
6:32
Speaker 1: not what we've had from pal though so far. Right,
6:34
Speaker 1: he seems very much Arthur Burns right now because he's
6:37
Speaker 1: not gonna do anything that doesn't surprise the markets. He's
6:40
Speaker 1: always going to tell them ahead of time, whether it's
6:42
Speaker 1: through a Wall Street Journal article or guidance, what's coming.
6:45
Speaker 1: I agree. Look, we're never going to get the transparency
6:48
Speaker 1: back in the box, right, We're never going to have
6:50
Speaker 1: a federal Reserve. They can't be transparent. But what we
6:53
Speaker 1: what we can have is a resolute Fed Reserve chairman
6:56
Speaker 1: who says we're going after inflation and we've got us
7:00
Speaker 1: stop it. And by the way, the guy who last
7:02
Speaker 1: did this I respect greatly and I kind of want
7:04
Speaker 1: to be like him, right, I mean, that's sort of
7:06
Speaker 1: what he was saying in his in his remarks. All right,
7:08
Speaker 1: so what are you looking for tomorrow when we hear
7:10
Speaker 1: from this Fed chairman? Yeah? Um, um, you know, I
7:15
Speaker 1: think the script is set. I think we're gonna hear
7:18
Speaker 1: uh that inflation print this past week was too high.
7:21
Speaker 1: I think that we we we have to get our
7:24
Speaker 1: arms around it. My my concern is that, um, they
7:27
Speaker 1: can control the parts of inflation that they can control,
7:30
Speaker 1: which is which is end demand here in the States.
7:32
Speaker 1: But this is this is a this is supply lead
7:35
Speaker 1: in a lot of ways. They can't control COVID in China,
7:37
Speaker 1: they can't control what putin does in Ukraine, and and
7:40
Speaker 1: as a result oil prices. So there's a whole big
7:43
Speaker 1: chunk of of inflation that is going to effectively be
7:46
Speaker 1: irrelevant at what the Fed does. So the risk is
7:49
Speaker 1: that the Fed over tightens, we get runaway inflation or
7:52
Speaker 1: seven where stays where it is, and you kill the economy.
7:55
Speaker 1: Right's the old Vietnam war, right, deal you we had
7:58
Speaker 1: to destroy the village to save it, and so that
8:00
Speaker 1: and and yet nothing gets accomplished because the thing that's
8:03
Speaker 1: driving inflation is is other stuff. So that's that's our worry.
8:06
Speaker 1: I'm That's what I'll be watching for to see what
8:08
Speaker 1: how he plays that particular dynamic. Alright, my good stuff,
8:12
Speaker 1: Thanks for easy. Nothing easy. It was easy since the
8:15
Speaker 1: mid eighties and then it got a little bit tough here,
8:17
Speaker 1: all right. Mikeae Vocason, chief investment Officer Managing director at
8:20
Speaker 1: Cap Trust, joining us live here in on our Bloomberg
8:22
Speaker 1: Interactive Broker studio as we prepare for a important meeting,
8:26
Speaker 1: as they tend to be most times, from our foot
8:29
Speaker 1: to reserve tomorrow afternoon. Bloomberg Radio and Television will bring
8:33
Speaker 1: you full coverage as we tend to do. All right,
8:39
Speaker 1: we got interest rates on the rise. We're gonna hear
8:41
Speaker 1: from the Fed tomorrow. One of the concerns, obviously, is
8:43
Speaker 1: what does that mean for the economy? Um Our next
8:46
Speaker 1: guest gives us a really good look at what small
8:48
Speaker 1: and midsized businesses are doing. Frank Sorrentino, chairman and CEO
8:52
Speaker 1: of connect One Bank that has a publicly traded UH
8:55
Speaker 1: stock on the nastack C n o B is articular
8:58
Speaker 1: you can put into your Bloomberg terminal. Frank, thanks so
9:01
Speaker 1: much for joining us here. You know, I know you
9:03
Speaker 1: guys have a big construction portfolio. As interest rates have
9:09
Speaker 1: been rising here, what are you hearing, uh from your
9:12
Speaker 1: clients who have been pretty busy over the last several years.
9:16
Speaker 1: Good to be back all in that great too, great
9:19
Speaker 1: to be here. Uh. You know, our construction clients that
9:22
Speaker 1: connect one bank are seeing a pretty strong economy going forward.
9:27
Speaker 1: As you can well imagine, house pricing has been moving up, uh.
9:32
Speaker 1: You know recently rents are have been moving up over
9:36
Speaker 1: the last year or two. The you know, some of
9:39
Speaker 1: the challenges there have been some of the inflation related issues. Um.
9:43
Speaker 1: First off, getting product marketplace and the cost of that product.
9:48
Speaker 1: A lot of UM energy inflation that creeps into the
9:53
Speaker 1: construction industry, so is driving up costs. But overall, you know,
9:58
Speaker 1: as a as a country, we are underdeveloped relative to
10:01
Speaker 1: our housing. We're probably somewhere in the two to three
10:04
Speaker 1: million houses short of what's needed for replacement. And so
10:09
Speaker 1: it's a pretty good environment for construction in general. Um,
10:13
Speaker 1: But there are definitely some storm clouds out there relative
10:16
Speaker 1: to the rising interest rates, the lack of liquidity, and
10:19
Speaker 1: some of the trends that are happening. Is it still
10:21
Speaker 1: a good environment, Frank if mortgage rates go up from here.
10:24
Speaker 1: I mean, I'm looking right now at the bank rate
10:26
Speaker 1: thirty year average at five point eight seven percent. And
10:30
Speaker 1: while I recognize that mortgage rates were much higher when
10:34
Speaker 1: my parents bought a house in the late seventies, early eighties. Um,
10:39
Speaker 1: this is increasing costs, It's hurting affordability. It's going to
10:44
Speaker 1: be problematic for people that need to buy this year
10:47
Speaker 1: and next. Right, Yes, so I do think that the
10:51
Speaker 1: rise in interest rates will definitely slow things down. But
10:54
Speaker 1: you do make a good point. I mean, my first
10:56
Speaker 1: mortgage in was at thirteen and three quarters percent, and so, um,
11:01
Speaker 1: these rates look pretty attractive to me. Let's keep in
11:04
Speaker 1: mind we've gone from a near zero rate environment, or
11:08
Speaker 1: actually at a zero rate environment for a very long time.
11:12
Speaker 1: There's almost an entire generation here that doesn't know what
11:14
Speaker 1: high interest rates are. These are not high interest rates.
11:18
Speaker 1: These are more normalized interest rates. So we've gone from
11:22
Speaker 1: extremely low zero interest rates to what I would still
11:25
Speaker 1: consider to be somewhat low interest rates. Um. Yes, there
11:30
Speaker 1: will be a general slow down. Um, there's I think
11:33
Speaker 1: going to be a lot less speculation in the marketplace.
11:36
Speaker 1: They will be potentially less investing investing um in some
11:41
Speaker 1: of these asset classes. But overall, the ability to afford
11:46
Speaker 1: a home today is still good. Think about consumers balance sheet.
11:50
Speaker 1: That mean, Frank, we've seen prices, prices, prices may come
11:53
Speaker 1: down a bit, right we we we will definitely see.
11:56
Speaker 1: And it depends on what we're talking about. If we're
11:58
Speaker 1: talking about, you know, a builder that we have that's
12:01
Speaker 1: got ray land and is constructing a new home and
12:03
Speaker 1: putting it for sale. Uh, that's one thing. If we're
12:06
Speaker 1: talking about prices in markets where houses are being flipped,
12:11
Speaker 1: you would expect those prices to come down. So Frank,
12:15
Speaker 1: aside from construction, what are some small and midsized businesses
12:19
Speaker 1: clients that you have, What are they saying? I mean,
12:20
Speaker 1: I have to admit, like where I am in some
12:23
Speaker 1: of New Jersey and surrounding towns, there are a lot
12:25
Speaker 1: of vacant stores. But I'm starting to see more and more,
12:28
Speaker 1: you know, science saying coming soon a certain business. You know,
12:32
Speaker 1: what are you hearing from your clients? Look, I think again,
12:35
Speaker 1: you know, notwithstanding all the noise we hear in the
12:37
Speaker 1: marketplace and the news that's out there about a potential
12:40
Speaker 1: recession or whatever, if we look at what our clients
12:43
Speaker 1: are telling us, and we look at the positions that
12:45
Speaker 1: they're in. They have strong balance sheets, they have good liquidity.
12:49
Speaker 1: Business is good. People want to go out and shop.
12:52
Speaker 1: You know, we're coming at it. We came out of
12:53
Speaker 1: this pandemic. Uh, people are returning to retail. Uh. Restaurants
12:59
Speaker 1: are full. Uh. There's just a lot of positive impetus
13:03
Speaker 1: in the marketplace today, which is part of the you know,
13:06
Speaker 1: part of the equation as to why we have some
13:08
Speaker 1: of the inflation we have. But overall, I think our
13:12
Speaker 1: clients are probably in the best position they've been in
13:15
Speaker 1: in quite a while, and certainly in the best position
13:18
Speaker 1: in the lead up to any thought of a recession
13:22
Speaker 1: when you think about both where our clients are, where
13:25
Speaker 1: consumers are, where small businesses are today, um, relative to profitability,
13:30
Speaker 1: relative to their ability to take advantage of the marketplace. Uh,
13:34
Speaker 1: it's it's still a pretty good environment out there. Thank.
13:36
Speaker 1: If I want to start to grow up and sell
13:38
Speaker 1: weed in New Jersey, can I get financing at the bank?
13:43
Speaker 1: I don't think so. Um, most banks today still are
13:49
Speaker 1: not able to provide that financing because it's still illegal
13:52
Speaker 1: at the federal level. So certainly not a connect One bank.
13:57
Speaker 1: All right, Well, I have to think of a different
13:58
Speaker 1: career path then, Yeah, are different funding sources, And in
14:03
Speaker 1: New Jersey y relatively high interest, there are alternative funding
14:08
Speaker 1: sources for sure. In my in my home state, all right,
14:11
Speaker 1: Frank Sorrentino, Chairman and CEO of Connect One Bank. Again
14:14
Speaker 1: it is a NASAC listed traded security. C n o B.
14:22
Speaker 1: Has been a year where stocks down, corporate bonds down
14:26
Speaker 1: twelve but one area that continues to go higher is
14:30
Speaker 1: energy and commodities in general, but energy in particular. Just
14:33
Speaker 1: confound bitcoin. Oh yeah, bitcoin down, Thank you for identifying percent?
14:39
Speaker 1: Why not? It's not another four percent today? But oil
14:42
Speaker 1: just keeps going up. And I know it's a commodity,
14:44
Speaker 1: so it's supplying demand. So I guess there's more demand
14:46
Speaker 1: and supply, but I need to get a little bit
14:48
Speaker 1: more colored on that. Fortunately, Julie Fence Haras she joins
14:51
Speaker 1: us here. She's an oils futures reporter from Bloomberg News
14:53
Speaker 1: joining us in studio, which I always appreciate. So, Julie,
14:56
Speaker 1: is it just simply more demanded supply? That's exactly le
15:00
Speaker 1: at No, Yeah, that's it. Okay, we're good to wrap up.
15:03
Speaker 1: But the problem is, even as the FED and all
15:06
Speaker 1: markets are being dropped down by the FED, in this
15:08
Speaker 1: possible interest rate hi, I have trader saying even seventy
15:12
Speaker 1: five basis points is not going to harm crude. But
15:15
Speaker 1: if you get to one percent hike and continuously seeing that,
15:18
Speaker 1: then that could have the impact of a stronger US dollar,
15:21
Speaker 1: and that could slow down the economy so much so
15:23
Speaker 1: that then it could impact crude prices. But of course
15:27
Speaker 1: we don't expect that, so um, the administration is going
15:31
Speaker 1: to have to do a little work on its own, right.
15:35
Speaker 1: President Biden is going to head to Saudi Arabia. We've
15:39
Speaker 1: just heard too um attempt. I guess he's gonna attempt
15:44
Speaker 1: to convince them to boost production, although that's not the
15:47
Speaker 1: official reason for the visit. I think that's not the
15:50
Speaker 1: official reason for the visit. But oil historian that was
15:53
Speaker 1: on Bloomberg TV yesterday Dan Jr. Again he said that
15:56
Speaker 1: it looks like Saudi Arabia was just waiting to be
15:58
Speaker 1: acknowledged and that if Biden goes there, they will be
16:01
Speaker 1: willing to put in more oil, but that's still not
16:04
Speaker 1: going to be enough to make up for the supply
16:06
Speaker 1: and demand. And the problem is supplies are so razor
16:10
Speaker 1: thin and Saudie and you are the last security blanket
16:14
Speaker 1: that the market has that if they tap in and
16:16
Speaker 1: deplete their oil inventories, then that's going to be a
16:19
Speaker 1: real problem. For the market, and the markets are going
16:21
Speaker 1: to be even more nervous then talking about capacity, why
16:24
Speaker 1: can't I just I'm going down at Texas today. Why
16:27
Speaker 1: can't I just go out find some guy to sell
16:29
Speaker 1: me a rig and just start drilling. What's a big deal?
16:32
Speaker 1: Big deal, really expensive, super expensive well bucks of barrel.
16:36
Speaker 1: I think my cost is only forty or fifty bucks
16:38
Speaker 1: done in the Permian. It's crazy because keeping up these
16:41
Speaker 1: wells has Also there are there are refiners that are
16:44
Speaker 1: saying we might even have to shut down one of
16:46
Speaker 1: the wells because it's too expensive to upkeep, and even
16:49
Speaker 1: refining it is not going to make up for it.
16:51
Speaker 1: And so that's the issue there for refining capacities down
16:54
Speaker 1: and it's too expensive to even start. Also, it's going
16:56
Speaker 1: to take weeks for you to create a well to
16:58
Speaker 1: restart a well, so it's going to take time. And
17:00
Speaker 1: even though you can bet on oil prices staying up,
17:02
Speaker 1: which a lot of traders are doing in the next
17:04
Speaker 1: six months, it's not something that producers necessarily want to do.
17:08
Speaker 1: Um what about the capacity that the Saudis have? Do
17:11
Speaker 1: they have more spare capacity and anybody else? No? Peck
17:14
Speaker 1: yes in the sense that they do have the most
17:18
Speaker 1: spare capacity, but the problem is, well, the A also
17:21
Speaker 1: has a lot of sporic pathy and run and Iran.
17:24
Speaker 1: But Iran has some issues right now, and obviously right now,
17:27
Speaker 1: right now I was born. Technically the U A has
17:31
Speaker 1: as much spirit pacity, but Saddy probably is the one.
17:33
Speaker 1: They are the ones that are most likely to tap
17:35
Speaker 1: into that. But that's still not going to solve the
17:38
Speaker 1: issues that we don't have these Russian barrels that we
17:40
Speaker 1: once had in the market, and that demand is so
17:42
Speaker 1: high right now. Why does the U A E have
17:44
Speaker 1: so much spirit capacity? Why don't we go over to
17:46
Speaker 1: the Emirates? I guess I'm guessing that the President Biden
17:48
Speaker 1: is going to go there too. But I mean, you
17:50
Speaker 1: have to remember that OPEC was trying not to put
17:53
Speaker 1: as much a supply in the market because they were afraid,
17:55
Speaker 1: as they were in fourteen, that prices were going to drop.
17:58
Speaker 1: So they've been really slow and purposeful putting more output
18:01
Speaker 1: on the market. That was OPEC plus, right, That was
18:04
Speaker 1: OPEC and friends. Now the President is going to try
18:08
Speaker 1: and convince them there is no plus so they don't
18:11
Speaker 1: have to worry as much about prices falling right, especially
18:14
Speaker 1: if China opens up again. Well, what they actually said
18:17
Speaker 1: recently is they put out an output and they revised it,
18:19
Speaker 1: and they said that it is possible that the demand
18:22
Speaker 1: growth is actually going to slow in the second half
18:24
Speaker 1: of this year. Why because China has not emergent. That
18:27
Speaker 1: just came out today, and so even though it's not
18:29
Speaker 1: necessarily a very barish report, it is revising that demand
18:33
Speaker 1: growth down and it's saying that if we continue to
18:35
Speaker 1: see these lockdowns in China, we may not see the
18:38
Speaker 1: huge demand BUDE and continued demand for crew that we've
18:41
Speaker 1: been seeing. It just feels like the next demand data
18:44
Speaker 1: point is stronger to me because I kind of feel
18:46
Speaker 1: like it's kind of going to be the next data point.
18:49
Speaker 1: Material movement out of China I would think would be
18:52
Speaker 1: a net opening versus kind of where we are now.
18:55
Speaker 1: So I can see. If I'm a trader, I think
18:57
Speaker 1: the demand story is pretty good. What I don't get
19:01
Speaker 1: is this lack of supply. I was unaware that there
19:03
Speaker 1: wasn't more spare capacity out there. I was unaware that,
19:07
Speaker 1: and I didn't think the US men drillers would be
19:10
Speaker 1: so disciplined and not just rushed you know, like they
19:14
Speaker 1: have in the past, but they're disciplined in terms of
19:16
Speaker 1: doing what they said they were going to do, which
19:17
Speaker 1: is return cash. And I mean, think about it. There
19:19
Speaker 1: has not been investment in this industry. That's what everyone's
19:22
Speaker 1: been saying. And that's why we don't have this capacity
19:24
Speaker 1: to ramp up when we need to, because if there
19:26
Speaker 1: wasn't any investment, we can't just do it in a
19:28
Speaker 1: drop of a hat when prices come. Why hasn't there
19:30
Speaker 1: I mean, I know I recently saw a clip where
19:32
Speaker 1: President Biden, as candidate Biden said oil executive should be jailed. Yeah,
19:38
Speaker 1: that's not Is that attitude part of the reason that
19:41
Speaker 1: there hasn't been so much investment in this industry? Absolutely,
19:44
Speaker 1: and think about that. I mean the Green Transition, these
19:47
Speaker 1: oil executives and the oil industry was very scared that
19:50
Speaker 1: they were going to be out of jobs. And so this,
19:52
Speaker 1: I mean now the old industry is very excited with
19:53
Speaker 1: these high prices. But of course, the way that the
19:56
Speaker 1: administration has talked about the oil industry, it has not
20:01
Speaker 1: helped producers want to help Biden with rising oil costs
20:05
Speaker 1: and energy costs in general. All Right, I'm gonna see
20:07
Speaker 1: what I can do down there, Matt, So you know,
20:08
Speaker 1: just give me a couple of days down there in Dallas.
20:10
Speaker 1: I'm sure I could do. I know exactly what you're
20:12
Speaker 1: gonna do down there. You're gonna jack up the air conditioning. Right.
20:16
Speaker 1: It is hot in Texas. You're gonna need to use
20:19
Speaker 1: electricity to cool yourself down. And you're probably not going
20:22
Speaker 1: to go outside wildcatting. And I think they have a
20:24
Speaker 1: big pool there, all right. Julia Fanzaris, thanks so much
20:27
Speaker 1: for joining us oil futures reporter for Bloomberg News. But
20:33
Speaker 1: June it is Pride month and a month when we're
20:36
Speaker 1: focusing on equality issues here at Bloomberg. Today, we like
20:39
Speaker 1: to welcome back Laura Mody, CEO and founder of Bobby,
20:43
Speaker 1: the female founded in formula company. Today she's gonna talk
20:46
Speaker 1: about the shortage of baby formula in the US, and
20:49
Speaker 1: she's the only female CEO in the baby formula space.
20:53
Speaker 1: That's an interesting there, Laura, thanks so much for joining
20:56
Speaker 1: us here. I'm not really sure how we got to
20:59
Speaker 1: this portage thing. I know there's a recall on all that.
21:02
Speaker 1: Can you give us an update of kind of where
21:04
Speaker 1: we are today? It's kind of faded a little bit
21:07
Speaker 1: from the news flow. Love to get an update. Yeah,
21:10
Speaker 1: lovely to be back chatting with you guys. You know, look,
21:14
Speaker 1: we're not out of the woods. Yes, Look then, and
21:16
Speaker 1: to be blownt there's probably too much speculation and still
21:19
Speaker 1: a lot of uncertainty to know when this is really
21:22
Speaker 1: going to be over. And you're right, I think the
21:24
Speaker 1: error has been taken out of the room from a
21:26
Speaker 1: news cycle. But when you look at the numbers, I
21:29
Speaker 1: mean early June data assembly reportion reported that five states
21:34
Speaker 1: were still out of stock. So we're definitely not out
21:38
Speaker 1: of this and we're going to see continue for a while.
21:41
Speaker 1: So what about you and Bobby, I know you had
21:45
Speaker 1: um I guess has the right way to put it,
21:48
Speaker 1: scaled back on new orders, just to focus on existing
21:51
Speaker 1: clients so that you could serve your customer base best.
21:55
Speaker 1: What does it look like for you? So we're still
21:58
Speaker 1: in that situation on it. And you probably remember when
22:02
Speaker 1: we made the decision, our customer count doubled the same
22:07
Speaker 1: week that there was a recall. Our customer count double,
22:09
Speaker 1: so we have more mouths defeat. So while we've been
22:12
Speaker 1: producing more, we're still in a position where we're serving
22:15
Speaker 1: seventies thou babies all across the country. We expect the
22:18
Speaker 1: next few weeks we'll be able to start rolling people
22:20
Speaker 1: off the waitlist, but still prioritizing customers. Overgrown the business
22:24
Speaker 1: right now, By the way, Laura, how sticky is that business?
22:27
Speaker 1: I mean, after this shortage is dealt with and people
22:31
Speaker 1: can go back to whatever, I don't want to say
22:33
Speaker 1: cheap store brand, but whatever kind of mainstream producer they've
22:38
Speaker 1: previously shot with, are they going to stay with Bobby
22:40
Speaker 1: you think? I mean, I do certainly hopeful for that.
22:45
Speaker 1: There's something else that this recall has done. What it
22:48
Speaker 1: has done is kind of raised more awareness for quality,
22:52
Speaker 1: for safety, and honestly even convenience. What parents have been
22:56
Speaker 1: going through over the last few months is getting in
22:58
Speaker 1: their car. They've been drive hours to find formula. What
23:02
Speaker 1: convenience does, especially for a director, consumer brand means you
23:06
Speaker 1: get your product whenever you need it, wherever you need it.
23:10
Speaker 1: Um So, I do think that there is stickyness associated
23:14
Speaker 1: with this, and honestly, there's nothing more predictable and repeatable
23:18
Speaker 1: than infant formula. Laura. Probably the economic slash financial topic
23:23
Speaker 1: that's at the forefront of every of his mind over
23:24
Speaker 1: the last several months has been inflation. Talk to us
23:27
Speaker 1: about how you're feeling inflation in your business and your
23:31
Speaker 1: cost structure, and to what extent you're able to pass
23:33
Speaker 1: that along to your customers. You know, I think because
23:38
Speaker 1: we're in the middle of the crisis right now, the
23:40
Speaker 1: priorities just get as much formula on shelves as possible.
23:44
Speaker 1: I don't think any industry is immune to inflation. I mean,
23:47
Speaker 1: we're seeing it with some of our raw ingredients. But
23:50
Speaker 1: to watch the entire industry, from suppliers to manufacturing all
23:55
Speaker 1: just get behind producing as much formula and getting it
23:58
Speaker 1: into hands the parents which haven't yet felt it or
24:01
Speaker 1: passed it over to consumers. That may change when we
24:04
Speaker 1: started seating stabilized before the moment we're in loc spots. Well,
24:08
Speaker 1: what are your raw ingredients? You know, I always think
24:13
Speaker 1: of milk, but I guess it's probably not a big
24:17
Speaker 1: part of the input into into Bobby's formula. What do
24:20
Speaker 1: you what do you make it with and how do
24:22
Speaker 1: you differentiate yourself from the mainstream kind of Similac and
24:26
Speaker 1: Famille players. Yeah, I mean, you're not wrong. Milk plays
24:29
Speaker 1: a very large role in it. So you know, the
24:33
Speaker 1: majority of the product does come from dairy sources, and
24:37
Speaker 1: in in most infant formulas, that dairy source comes directly
24:41
Speaker 1: from a cow. How we differentiate is that we get
24:44
Speaker 1: our milk from pasture raised cows from organic valley farms.
24:49
Speaker 1: And you know, just differentiating even your milk source is
24:52
Speaker 1: a really big deal. But on top of that, it's
24:55
Speaker 1: vitamins and minerals and making sure that it has the
24:59
Speaker 1: right balance of harves proteins and facts. But you got
25:02
Speaker 1: to write it's essentially milk. Talk to us about, you know, Laura,
25:07
Speaker 1: as the co founder and CEO of one of your
25:09
Speaker 1: responsibilities presumably is you know, properly capitalizing your company. And
25:13
Speaker 1: you've experienced so much growth, probably turbo charged by the pandemic.
25:18
Speaker 1: Talk to us about access to capital for your company
25:21
Speaker 1: kind of what it may be your future plans. So
25:25
Speaker 1: right before the yeah, right before the crisis hit, we
25:29
Speaker 1: actually close our Series B of fifty million, and we've
25:33
Speaker 1: just been on the market now for about eighteen months.
25:35
Speaker 1: And that fifty million was to put behind more R
25:39
Speaker 1: and D and innovation. And you know, ironically, being hit
25:42
Speaker 1: with this moment in the crisis, it's woken us up
25:45
Speaker 1: now more than ever, it's it's critical to make sure
25:47
Speaker 1: that we get more innovation going. So we've launched Bobby Labs,
25:51
Speaker 1: really a center of excellence for more innovation and more
25:54
Speaker 1: product development. And I do think that we're watching more
25:58
Speaker 1: capital be put into the and of companies that are
26:02
Speaker 1: having impact like Bobby changing culture and feeding babies. So
26:08
Speaker 1: I'm I'm very hopeful that this isn't the last time
26:10
Speaker 1: we're going to see capital come into this market. What
26:12
Speaker 1: about labor, how are you dealing with the shortage in labor,
26:19
Speaker 1: especially in our industry labor we want we want to
26:23
Speaker 1: see parents who are we want to see people who
26:25
Speaker 1: represent this industry. So we're also going after and trying
26:29
Speaker 1: to hire parents over a five percent of our company
26:33
Speaker 1: or parents today. So far we haven't had much issue,
26:37
Speaker 1: but there is a strain. There is a strain, and
26:41
Speaker 1: fortunately we are a mission driven business and it's attracted
26:44
Speaker 1: attracted some great talent. All right, laur great stuff. Really
26:47
Speaker 1: appreciate it. Laura Modi, CEO and co founder of the
26:51
Speaker 1: firm Bobby Uh. It is, you know, a baby formula
26:55
Speaker 1: delivery startup that sells directed the consumer and office a
26:58
Speaker 1: subscription service. So and it's on the high and and
27:00
Speaker 1: to me it's so fascinating, not just because I just
27:03
Speaker 1: had a baby, but uh, I've learned so much through
27:07
Speaker 1: that process about the difficulty of breastfeeding and then the
27:13
Speaker 1: sort of there are standouts in the formula products as well,
27:17
Speaker 1: and very big difference between what you can get in
27:19
Speaker 1: Europe we can get in the US. I just think
27:20
Speaker 1: it's really fascinating industry. Yeah, and it's just one of
27:23
Speaker 1: those things you never thought how that there would be
27:26
Speaker 1: a shortage of baby for me. You just don't even
27:28
Speaker 1: think about it until you have to think about it.
27:31
Speaker 1: So hopefully that that can be addressed soon. Thanks for
27:36
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
27:39
Speaker 1: listen to interviews with Apple Podcasts or whatever podcast platform
27:43
Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller.
27:49
Speaker 1: On ball Sweeney, I'm on Twitter at pt Sweeney. Before
27:51
Speaker 1: the podcast, you can always catch us worldwide at Bloomberg Radio.