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Another headline that caught my eye, and it's a fun one. Avian flu oh yeah, spreads to second farm in Australia's Victoria State. So apparently, Mike, that's a fun one for you. No, it's not. Hundreds of thousands of egg laing chickens are reported to have been called in australia Southeast as quarantine measures are put in place to contain outbreaks of highly pathogenic avian influenza. And I feel like we've been hearing a lot about this too, China.
Yeah, And I'm a hypochondriac, so I never like to hear about these things. You know, I'm gonna think I have it probably by the end of the weekend.
So right, It just so was like, you know, I was emailing Sam Fazelli Boomberg Intelligence earlier and I'm like, do we have to worry about this yet? He's like not yet. It's like thanks especially a lot better anyway. I want to give some time to talk about this, like what is the bird flu? What is the avian flu? How do we get it? What does that look like? Lisa Jarvis is joining US Boomberg opinion columnists. She covers biotech, healthcare,
and the pharmaceutical industry. She was previously executive editor of Chemical and Engineering News, and she joins US. Now, Lisa, can you give us like the four to one one on like what the avian flu is?
Right?
So thank you for having me. It's an infection that you know, you can tell by its name, primarily has been affecting wild birds and poultry up until now. You know, I think in recent years we've been seeing a lot more species with evidence that they can be infected. And in the US, the thing that's been alarming about this is that we've suddenly seen an outbreak in cows.
That's new.
We've never seen this species infected before. So for the last few months, increasingly we're seeing more herds with evidence that there's bird flu in their milk. And you know, the worry, of course, is that the more that the spreads, the more that this could cause infections in humans, which you know, we don't want another pandemic.
At all.
I'm sure all of us here.
Yeah, I'll suck with that, Lisa. One thing that worries me about this story, Lisa, is, from what I've read, many farmers are very reluctant to agree to testing to see how prevalent it is. Is there anything that can be done to that? I mean, I suppose you can't really just force a farmer to take a test or have his animals tested. Is there is there any sort of workaround for that?
You know?
I think we've seen in each week a new set of incentives trying to get the farmers to buy into testing. Because you're right, it's very worrying because we don't actually know how widespread this outbreak is among dary hurds. We know, I think as of today you know that nine states have herds that have been infected, but it could be much more than that. Certainly, when we see the data showing that there's you know, bird flu, pieces of bird flu found in milk and states that don't have infections,
it worries us. You know, I think USC has been a little slow in how they've rolled out some of the incentives. One of the things I think that could help is you know, just making sure that farmers understand very clearly what happens after one of their cows tests positive. One of their worries is they don't know when they can go back to normal operations. And then there's a lot of hesitancy on the part of farm workers, which is very understandable. A lot of them don't get sick time.
This is a largely migrant population that may be distrustful. They don't have health insurance many of them, so there's a lot of challenges to overcome, and I think trying to find ways to draw people into this process is the only way that we're going to know have a good handle on in real time on what's happening.
Just to be clear, it's zoonic. It can jump from animals to humans, and then can it go from human to human transmission.
Well, right now we don't have any evidence that's happening, and in fact, the good news this is very good news and we should focus on that piece to feel better, is that the two cases in humans we've seen in the US, one in Texas and one in Michigan, are both in dairy farm workers too. Their only symptom is a conjunctivitis. So likely what's happening is a cow's not
breathing on them. They're not being exposed to cows. Not cows are actually very snotty, I hear, But it's they're getting this through exposure, likely from the milking equipment, because there is so much bird flu in the milk of
infected cows. But you know what, that's the thing we want to look for when it gets easier for a human to be infected from a cow, when it gets easier for a human to infect another human, And that's why it's so important to have a handle on the you know, breadth of the outbreak and in real time where infections are happening.
This time of year, I'm pretty snotty myself, so I can I can sympathize with the calcy.
I understand, Yeah, it's the allergy season. I was interested though. There was a piece on the Bloomberg this week that shares of vaccine stocks that we're moving on this apparently Maderna shares were up. Visor shares were up. There was a report that companies aren't talks with the US government about the development of vaccines for bird flu. Shares of cure vac for example, they have a bird flu vaccine
in early stage testing. What did you Is this just like memestock hype or is this a real thing?
You know, I think investors are getting a little ahead of themselves. However, you know, ASPER, which is the kind of part of AHHS that takes care of, you know, preparedness and manages our stockpiles, did say this week that they had moved the ingredients for making four point eight doses of vaccines to manufacture and to put those into viles so that we would have them just in case. I mean that doesn't mean that even the justin case would be everybody. Probably if a just in case happened,
it would be farm workers. But they also said that they were in talks with Buyser and Maderna. Now, the good thing about mRNA is that if the virus changed to more easily infect humans, it might be that the vaccine we have in our stockpiles isn't quite the right match in mRNA, as we know from the pandemic, allows
some flexibility there. But I do think folks are getting ahead of themselves and you know, maybe getting excited that there could be a way to fill some of that capacity that no longer is making COVID vaccines, you.
Know, Lisa, I wonder obviously for financial markets, inflation is such a big issue still food inflation especially. Are we at risk of seeing a situation where massive amounts of cows or chickens are slaughtered just to stop the spread of this virus?
I don't think so well, certainly with poultry. That's kind of the Darian poultry industries very differently, and poultry farmers are well, very familiar with bird flu, and they have a lot of biosecurity in place, and part of it, part of the reason they have biosecurity in places that USDA has put a lot of you know, kind of rules around how they can be reimbursed in order to
contain a bird flu outbreak. When it comes to the cattle, you know, so far infections are mild, and so I think what we need to understand is how long an
outbreak will be disruptive in a particular hurd. It's sort of amazing to think about how many different states cows travel to and dairy cows travel to in their lifetime, and so that I would the only worry I think, and this is part of the reason farmers that have not been participating in testing, to be honest with you, I think is that they can kind of create a backup. But I don't think there's right now, there's no reason to think that there's a risk to the food supply.
I think it's just more or just thinking about that movement of cows and how to make sure that we can ensure that that continues to happen.
Lisa, fantastic. You are awesome, Lisa Jarvis, Bloomberg opinion columnist, joining us on the bird flu and giving us sort of the low down on the risks and the non risks. So do you feel better now, Mike or all?
I think I have it.
I think I have it.
Okay, great. Definitely want to spread.
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Hi.
Eric Adelberg is chief mortgage backed securities strategist. There we go for Bloomberg Intelligence. Help us understand what's a mortgage backed security for those who are listening, and then sort of where are we right now? I mean, that's gonna be tied to the mortgage market. How's it going, hy, Alex.
And Mike, thanks for having me, and happy Memorial Day weekend almost to everybody. So, mortgage backed security is a security that a bank or non bank lender creates out of the loans that they've lent to the homeowner. They pull up these mortgage loans into these massive securities. It's about almost a nine trillion dollar mortgage market for the agency MBS market, and much bigger if you include portfolio
loans and non agencies, so it's a massive market. It really helps fuel the entire housing economy, which in turn helps fuel a lot of the economy. So it's a really important sector to keep an eye on, and it's been suffering a little bit recently because it's because it's
so important to the economy. When the economy went into free fall both back in two thousand and eight and then various times since, including joining the pandemic, the Federal Reserve has purchased massive amounts of these mortgage backed securities, and with the inflation going rampant, and they fed actually trying to put the brakes a little bit on the economy.
They've been letting that portfolio run off. So the mortgage backed securities has been really hurting as a result, because a lot of buyers have backed investors have backed away from that market. But at the same time, because the housing market has slowed down so much and so many people own rates so far above current market rates, there's not a lot of business for mortgage originators to do right now.
So you know, I feel like I keep getting emails from like mortgage brokers being like, call me, we can do stuff, and I'm like, dude, I got two point seventy or fixed nothings, Eric, I.
Wanted to ask you about that exact topic. They should Alex Refinance Now, that's that's not it.
But it's never happened.
It's not happening in this rate environment. But you write in a recent piece elevated mortgage rates and home prices have depressed housing turnover and mortgage lending, as Alex points out, and then you go on to say this has begun spurring quote innovations in mortgage lending.
I get a.
Little nervous when I hear about quote unquote innovations in mortgage lending. You know, thinking back to the financial crisis and what happened in the MBS market and the housing market unpacked for us a little bit what some of these innovations are and are they as risky as the innovations that brought us two thousand and eight.
That's an excellent question. And I had the honor of attending the Mortgage Banker Association Secondary Market Conference this week where they touched on a lot of that exact topic. And you know, the good news is, even though memories tend to be short in the financial world, the memory is the scars from the two thousand and eight financial crisis cut very deep. So as a result, if you look at credit standards, for instance, they're still almost as
high as they've ever been. You know, both banks and non banks really drew in their clause and the agencies Fanny, Freddie and Jenny may have all made a big effort to both expand perhaps the potential market for whom credit can be offered mortgage credit, that is, loans, but at the same time doing it ainable fashion. You know, their mantra is not only to make mortgages available to as many people as possible, but to keep as many people
in their homes as possible. So it's become a dual mandate ever since two thousand and eight, and it really is the north star, I think for most of the people in the mortgage industry, because even non bank lenders, who theoretically have a little less skin in the game, they do have to repurchase mortgages if they violate repon warrants and you know, do other types of predatory lending practices.
So on the good news, everybody's trying to work within those constraints to try to come up with new ideas. I mean, I will say that, for instance, fred one of the areas that is possible growth area is always first time borrowers, especially with millennials coming into that window
for the first time, which is the largest demographic. So while they're having problems finding homes to buy, there are also sometimes having problems coming up with the down payments that maybe repeat borrower could come up with because they don't have home equity built up in the first place. So housing market is relatively on a four. So what
a lot of different areas are doing. In particular, both the GCS and Ginny May is they are trying to improve access to down payment assistance, but it's for people with positive good credit scores, so that if that happen, like where do you get that? Well, there's actually a big educational program to try to tell people where this can come from. And usually that down payment assistance comes with, you know, a lot of insurance, extra insurance costs and
things like that. But literally, I don't know the exact amount, but I think it's a twenty five thousand dollars credit towards down payments for instance, that Fanny and Freddie can tap into and Ginny May for instance, for FHA and VA both allow up to ninety five to one hundred percent of the loan to be financed. Again, that comes
with extra mortgage insurance costs. But if getting your foot in the door is the difference between having a down payment or not, especially for first generation homeowners for instance, who don't have that generational wealth, then finding ways to get those people down payments is a is you know,
is perhaps the game changer. The problem is, you know, if the homeowner therefore has no skin in the game because they haven't put down to down payment, are they more willing and likely to walk away, which is why they get charged extra insurance homeowner insurance costs to.
Be in that.
You know, with mortgage rates the way they are, my guess would be that it yields on MBS are looking pretty attractive. But I'm wondering what you're seeing as far as spreads, you know, is the lack of issuance sort of keeping those spreads down. How are you sort of sussing out the opportunities in the MBS market.
Right, That's a very good question. And supply low supply has been a tailwind for the sector, but because volatility in the market has been so high, it's actually pressured mortgage spreads much wider than usual and you don't have somebody like the FED or even banks have been kind of stepping away as well recently coming in as the
buyer last resort. You're relying on relative value investors who care a lot about risk return, they care a lot about he So as a result, spread's actually went all the way out to like one hundred and ninety basis points for the Kart coupon for new issue to treasuries back in October. They've since come in. They're around one hundred and forty basis points. But like when the FED was buying in twenty twenty one, there were was tit
to seventy basis points for new issue. So there's still very wide relative to history, especially relative to the fifteen years since the FED started buying securities.
Erica really appreciate it, Thank you so very much. I learned a ton. Eric Adelberg, Bloomberg Intelligence, Cheap Mortgage Backed Securities strategist, on mortgage lending, on the market and all the new rules and everything going into it, and how to make a good investment out of it.
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Let's get more insight here, Ben a senior portfolio manager, head of fixed Income at New Edge. Well, but what's so great about Ben? It's his daily notes he does to today are so helpful in connecting different trends to the market. It's not just a fixed income thing. It's more like here's a trend, here's how it plays in today's market action, which is so valuable to someone like me. Ben, thanks so much for joining us.
Great to be here, Alex, Mike, good to see you again.
Do you have your white pants and suit ready for post Memorial Day?
I'm a Miami vice guy this Friday night, eight thirty crocoded top. So I got your flannel shirt, all that my mom made for me. I can say, shoes without socks, and yeah, let's go.
We're good wicker shoes. They're important, all right, Ben, I we just sort of set this up. Vince was saying no cut this year. Apoulo says the same thing. Goldman socks pushing back their cut. Where are you on this?
So I was on that for some time of Like, you know, I think many people realized that seven cuts was just a really I think esoteric type of pricing in the markets. You know, people very quickly rushing on the FETs language that they are ready to move sooner, and then realizing that, you know, we do have an economy that stays above the trend and is really slowing down to that trend, and as a result, you're getting price pressures and so yes, it that be my data.
For example, if you get prices paid start to move up even further, there's not much room for the FED to do anything really, And that I think is the process we're going through, which is pushing a very cut further out in the future. Whatever become a RAID hike, that is to be seen. I think I'm not sure when that camp yet, but I think that with this year, we're just going to be unchanged on the FED flows rate, you know.
But I want to shift gears a little bit because I know you've been thinking and writing a lot recently about artificial intelligence, you know, obviously in videos the big market story of the year. I'm curious how you're thinking about AI from a macro perspective. I mean, obviously there is the potential for vast improvements in productivity, but a lot of that type of technology driven productivity gains can
be a little weird when they happen. You know, it could wake up some morning to read about a lot of job cuts because of AI is what I keep raising for. So how are you thinking about this transition into sort of a really AI driven economy from a macro level.
Yeah, let's start with investment First, you know, I did some research on the data centers that are being built across the United States. Virginia obviously is the hotbed right now, but it's moving to other states. It's enormous. It's like, there's an estimated two on a fifty to four and a billion of investment planned into twenty twenty five. There's a resulting group out there that attracts the exactly square meters you talk about millions and milliones of square meters
of data centers develops or in the planning. That's I think the productivity aspect of AI, Curry, it's about investment. Then you have, of course technology companies are spending on AI, so I think that's fueling the investment and then leading to productivity. Well, your point is about, you know, once we get this productivity research, we're going to get automation, We're going to get other things developing that maybe certain parts of labor become obsolete so to speak, they're not
you know, being used, and that could effect productivity. I would say though that if you go back in the nineties when I started working, they're just as rolled out of Microsoft in a new sort of like Office version and the Bloomberg terminal, by the way, at the time was upgraded, and I was sitting there as a young kid like, wow, okay, I was able to navigate much faster than my older colleague. But yet you know what did that lead to a productivity search? Apparently the search
happened the years before. Of all the investment that was put into this to get to that point of Microsoft rolling out and Bloomberg upgrading is terminal. I think that's what we're in right now. We're in the in the initial stage of investing. I think this is part of what the economy is currently reacting to. If you look at Durbal Good State again today, all the elements about computer chips and computers and all this type of equipment
that's all up in new orders. I think that's what's going on it.
Which I really appreciated your note on when when day when Nvidia did come out, because you talked about how to relate that to say the neutral rate. And then if you wind up having all this investment, does that raise the neutral rate? And does it make it harder for the bed to cut it had to keep because
it just raises all that growth potential. Can you talk me a little bit more about that thinking, Yeah, there's a question is to like when that money is really going to materialize with like shovels in the ground kind of thing.
Yeah, exactly, because you know, the shovels in the ground are ultimately I think, in fact the economy really significantly and that's obviously to an extent happening. So you know, wal Art has dropped speech this morning about the r star discussion, and I think about it this way, right, like the idea of that the economy is at a certain level cur and they say four percent, and the trend says it two percent. So if potential to say it two percent, this is what they say neutral rate
should be around that number. In real terms, add on what we're just seeing with inflation expectations, you actually talk about a nominal neutral rate is maybe higher, right, maybe to four to five percent range. And if we're then looking at where the fete is journey, then we're not as restrictive if you compare it to the fat funds rate.
Where that estimated neutral rate is. Now where the company comes into play, or actually the AI really because it's really not so much the company, it's more the effect that it has an AI investment. One key factor obviously we talked about is that if the investment in the economy picks up so substantially, the productivity gains that you
get from that, Yeah, it does lift potential outputs. And I think this is the link between something of the AI development that we're seeing to this idea of neutral rates, and I think the fetters start to acknowledge it because I noticed in the minutes there are different snippets in there where the FAT members are talking about, like the enhancements of technology and the productivity efficiencies lead them to
think that the economy could accelerate, could improve. And now that's where that neutralis discussion comes in.
Yeah.
Bet, I'm smiling reading your interview notes here because it says Ben does not opine on crypto cannabis, which is kind of refreshing because I feel like I've heard enough takes on both. But without opening crypto though, I would say, let's instead of talk about meme stocks kind of the same issue as crypto. This exuberant risk appetites. Right now, we used to think this was a low interest rate excess savings phenomenon, appears not to be the case this time.
What do you think is going on with all this?
Yeah, I mean so in twenty twenty one, we had just simply a massive search of money coming in and people were training and doing it all right, and and in fact that a lot of different parts of the market. Why the same phenomenon comes back is not one hundred percent clear, but I do think it's as part of the environment we have the VIX being really low. We are again maybe in a period where we experienced twenty six or twenty seventeen, where we had a I would
call it a dry spell of the vix. It doesn't move a whole lot, even if the market sells off one day but two three percent, And I think that has to do with that. The market, I think, is very clear on where the economy currently is. There's not much uncertainty about that. And second, that also ties int that there's probably not much concerned to anymore about the fat itself. They can just stay on hold, they don't
have to do anything. And lastly, any type of geopolitical tension or political tension that's out there is being viewed as okay, that could derail this scenario, but it isn't really doing that. So therefore there's no reason to have any volativity. So I think this is what it's say.
All right, Ben, we appreciate you. Thank you so much for coming. Ben Emmons, Senior portfolio manager, head of fixed Income at New Edge. Welcome.
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So as of tomorrow, it will mark the fourth year anniversary of George Floyd's death, a forty six year old Black American man that was murdered in Minneapolis by Derek Chauvin, a forty four year old white police officer. Just to remind you, Flord had been arrested after a store clerk a left that he made a purchase using a counterfeit
twenty dollars bill. In His death sparked numerous protests across the country on race relations between African American community and law enforcement and the excessive use of force by the police. And soon after George Floyd's murder, Minneapolis declared several changes like bands on choke hold neck restraints and other requirements that police tried to de escalate and avoid using improper force. It's worth taking a moment to check in then on where we are four years later. Mark Murrial is CEO
of National Urban League. National Urban League is a non partisan, historic civil rights organization based in New York City that advocates on behalf of economic and social justice for African Americans and against racial discrimination in the United States. Mark, it's a true pleasure. Thank you for joining us on this Friday. What we saw four years ago was a true awakening in the United States on race relations. Where is that awakening now?
So thanks for having me. So a couple of quick things we saw in the wake of George Floyd's tragic murder, an uprising, an awakening, a consciousness in this nation.
And I believe that that consciousness is still strong.
I believe that the intentionality of many to overcome the legacy of racial justice and build in America for everyone in the future is still strong. But I would be less than candid if I did not say that now. What has emerged is an orchestrated backlash movement. It manifests itself in attacks on voting through voter suppression. It manifests itself in attacks on African American in LGBTQ history, through book bands and alterations of curriculum, politicians interfering in what takes.
Place in schools.
It manifests itself in the new attack on corporate and university d E and I I have to tell you the will, the determination, the fight by many of us, and I think, I say for the majority of the American people to continue to push towards a more just
future remains extremely strong. The only other point I would add is that in the case of George Floyd, the offending officer, the accused officer who is now a convicted felon, Derek Chauvan was convicted in both the state and federal courts, and in that case, justice was done and someone was held accountable. But George Floyd's murder, but the need in this country for a national police accountability measure, we called it the George Floyd Justice and Policing Measure, is still elusive.
It didn't get through the Congress because of the filibuster in the Senate, but the will and the support and the intention and the work that we're going to do it was re entered was yesterday in the House.
Remains strong. We will not give up, you know.
Mark, speaking of that backlash that you're talking about. Obviously, it's campaign season in the US right now. Donald Trump gave a rally in the Bronx s Burrow of New York last night and he said, quote, I'm going to indemnify all police officers and law enforcement officials throughout the US to protect them from being destroyed by the radical left for taking strong actions on crime.
Now, I don't.
Can't quite wrap my head around whether he'd be able to actually do that or what that would look like. But I'm curious if you heard those remarks, what you think of them and what you think his chances of being able to do that.
Say, they're reprehendson, No America, no public employee should be indemnified and.
Not be accountable or wrongdoing. What will you do next?
Indemnify all in indemnify all murderers, indemnify all sexual offenders. This is Donald Trump making extreme promises. But what Americans should be aware of is that he has the if you will, gall to say these sorts of things in an effort to animate voting, in an effort to appeal to his base. It this America is not. No one is above the law. So now he's saying, let's place law enforcement above the law, even when they indiscriminately take
the life of an innocent American. No, the badge and basically a certificate to be a police officer should not place you above accountability, because no one should be placed above accountability. And I hope Americans recognize that what he said is offensive. It certainly would be resisted. But I do not nothing. Mister Trump does no extreme statements. He does surprises me anymore. Yeah, and Americans should be very aware of what that statement really means.
Mark, when you talk about D and I, particularly in the workplace here, what it seems like is that you said the backlash and a calculated backlash. What I've anecdotally noticed is you wind up promoting people or hiring them, but then the voice isn't heard. And I'm wondering how we solve for that problem. Sorry, we have about a minute left, and that's a big ask about a mission.
Leadership and companies have to work on including people ensuring that their voices is heard. This is how people get if you will assignments, how they get appointed to internal committees within the workplace. Look, leadership can make a difference. I've been I've led organizations now for most of my life. I lead a large institution today nationally, we have almost three thousand employees.
I ran a city that had some fifteen thousand employees.
This is leadership can set a tone that when I bring people in, I'm going to make sure they're included. I'm going to make sure their voices are heard and create that kind of tone and atmosphere. And there are companies that are bucking those sorts of trends, but you're right to point it out as one of what I call.
The continuing challenges. This is ongoing work.
Mark.
We really appreciate it. It's an important message and it's important work, as you state, and we appreciate you checking in with us four years on Mark Merrill, a CEO of National Urban, on the fourth anniversary of George Floyd's death that is coming tomorrow on May twenty fifth.
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