Bonds, Markets, And ETFs (Podcast)

at Bloomberg dot com slash podcast. Matt was just calling out here in an I end screen the Bloomberg Index browser Bloomberg US corporate total return value year to date minus fourteen points six treasuries to minus fourteen point eight. I mean, what's going on? And that does inlets total return So not that it would have mattered because the coupons are so low. Yes, um, but it's harsh. And look, my mom and dad just retired this like month, and uh,

I feel for them. I guess I'm gonna have to step up because they're broke now, you know, all right, Liz McCormick, Global Fixed Income and far In Exchange reporter joins us live here in a Bloomberg and after Broker studio. So Liz, again, these are numbers, these are performance numbers. You know your friends in the fixed income market have ever seen, never seen. Yeah, I mean some of the data how you splice and dice it is like at least the worst first half and kind of modern times

call it. I was mentioning to Matt that Deutsche Bank had some great data back to the seventeen hundreds, like how bad it was. I mean, people just aren't Most people aren't used to this kind of beating up in bonds. I mean, do people in fixtion come to they try to call the bottom, like we hear equity trying to call the Yeah. And this is where I feel like I see the same dichotomy going on as you guys are talking all about in stocks. You know, is this like a bear rally? Is it over? The same thing

in bonds? People saying, oh, we've seen the peak and yields, you know, all the FED pricing for hikes is in there. The worst is over. And then other people saying, wait a minute. You know, like three point five on the tenure was the highest we've seen. But like listen, you know, I've been around for a while. Like the folks of Bridgewater said to me a few times, we think rates can go a lot higher. Ten years, could go to four percent or more. You know, FED has just got

a lot more tightening to do. So there is these battles, I think in both asset classes. You know, we'll see who wins in the end, right, maybe next year or sometime. I met a guy over the weekend, eighty three years old, fascinating guy, and he watches and listens to us every day. He trades bonds every night. So at the end of the day he'll make a trade, put on a position, and then the next day. No one nobody does that, right,

nobody does that. My father, who I've been doing this for so long, still says to me, can you explain to me again what a bond is? You know what I mean? All the bond traders I know, all the guys I know who worked in firms on the street

have long since retired or quit, right exactly. I remember my old boss, Ward McCarthy saying, years back when there was yield, saying, I bought you know, zero coupons ages ago and that put my kids through college, you know, like it used to be such great rates and those are just gone. Well. Actually, Scott Miner did say he's buying the strips right twenty years, which is um kind

of jargony. But I guess that's when you strip out the coupon, you can trade the maturities and then you can also trade the each due date of the coupon. It's like a bullet, you know, it's it's just like a single coupon in a sense, just what you get at the end. But yeah, they're stripping and I saw that, and we'll see. I mean, if we're in this era that we're never going to get rates too high again,

which I'm not sure I buy into yet. People who bought strips are locked in tansit over three percent are going to be pretty happy if you know here we are. You know, in a couple of years, the Feds fighting in a recession cutting rates again. Is that, by the way, kind of a consensus that the Fed is gonna raise rates high enough to fight inflation because they now they

have to. That's they're locked in. And not only is it one of their actual mandates, but and then we're gonna have a recession in three and they're gonna have to cut right back down again. Well, I would say, like the timing of the recession gets nebulous. A lot of people say late I've heard a few say maybe there's enough cash in the system. Corporations are much better

it could be. But I think in general, Matt, you're right that it's fast, up front loaded quick, and then the FED is going to have to eventually not too long be cutting rates again because they're trying to manage. And like Pal said, he's gone from you know, like soft landing soft dish to saying, well, you know, we could have a slowd You know, he's trying, but you know,

you raise rates this fast. And I know there's not a lot of floating rate debt out there, but I have a home equity line of credit and I was like, oh, they raised that rate pretty darned fast, you know, to me. So not only that, um Joel Levington wrote a piece about the automakers. Now they're facing a one hundred and forty five billion dollar wall of debt and it's not like, uh, you know, they can just hold it right, They're they're constantly rolling over. So now they're going to look at

two d fifty three hundred basis points of increased costs. This, by the way, adds to inflation because they've got to pass that along to the customer. But Uh, it's it's tough for for companies as well. Yeah, I think everyone you're going to feel this very quickly. Now. The Fed said, we're really watching financial conditions, which is kind of nebulous. You know, how tight do they have to get? You know, not just what's the hard rate the Fed funds has

to get to, but that's what they're watching. How does this filter through? Look at mortgage rates over six percent? You know, they seem like so low for so long. The housing market hasn't imploded yet, but for once, not that I'm looking to buy, but you see on Zeala finally price reduction. We didn't see that forever, So I think it's gonna sale. I know people who wanted to sell and now they can't, so they got to rent. Yeah, well, you know what, rents are crazy right, going up in price,

the you know, leases up. I've heard so many people complaining, oh the language putting up my rent is too damn high. The rent is too damn hon So if you move, is that another reason to move to Austin, Texas? Or I don't think pricing is good in Austin time. I don't think it is either, especially you don't get a special rates because it's Texas. So where do you have

to go? What we could go Columbus, Ohio. It's a great place to live in, very affordable and people are just wonderful and no accent, so it's the only place in the country where there's absolutely no regional accents. They use people from the great state of Ohio often for newscasters and Matt Miller case in point. All right, Liz McCormack, thanks so much for joining us. Lis mccormer. She covers

all things global fixed income, foreign exchange reporter. She does it all for Bloomberg News, and most important, she is in the Bloomberg Interactor Broker studio today, So we appreciate that. Matt Our next guest is all in the state of Wisconsin. PhD in Economics from the University of Wisconsin Milwaukee, j d from Marquette, and an undergrad and finance from the University of Wisconsin and Madison. We're gonna get this guy out of state once in a while. I mean, he's

all in. It's also part time instructor at Marquette. Uh DR Brian Jakebison's senior investment strategist Offspring Global investments. So, Brian, you don't mind the winters in Wisconsin, you know what I mean? Life is all about trade off. I guess that's just the tradeoff you have to make for living in the land of milk and honey, or I guess milk and sausage or milk and cheese. I wish this

market was all about trade offs. Yes, it seems like no matter what you own, your down I mean, I guess if you if you if you just had oil modity, if you have some commodities, you're okay. So, Brian, you know, one of the things that people start talking about, well, maybe I'm we're just hearing a little bit more of the last few weeks is trying to find a bottom, uh in these markets? Is that an exercise you go through? And if so, kind of what do you look for?

How are you trading this market here? Well? You know, sometimes it feels like my workouts, you know, an exercise and utility. Um. And I think that, you know, trying to find the bottom is always going to be difficult because the market seems to be there to frustrate the

expectations and ambitions of everybody. Um. But it does feel like we're trying to find a bottom, and since you know we can't pick one, we just have to I think, take a look at the broad thrust of the market, and it seems like some of the indicators are suggesting we're trying to find one here. Now who knows is it is it even lower than that? But all we know is that things look cheaper now than what they did back in u on January three, when we're at

the peak. And so I think for longer term investors, for that kind of structural part of your portfolio, the strategic part um, that does suggest to us that there's some long term opportunities even if there could be some short term pain here. It's all about those trade offs, right, that long term gain maybe a little bit more short term pain. Do you go h do you go in for the traditional defensive um? You know, can't imagine you're

buying utilities but consumer staples or healthcare? Healthcare? Yeah? You know. So we just published are the all Spring mid year Outlook and the theme was rolling with change, and I think that what is defensive now you need to really kind of change the way you think about it because of that interest rate sensitivity, Right, utilities do tend to be much more interest rate sensitive than say, consumer staples.

Both are traditionally viewed as being more defensive. It's just one has a higher loading on rate risk than the other. And so actually we are overweight consumer staples as somewhat of uh not necessarily a barish view, but as a bit more of a defensive view on the markets, at

least here in the short term. I do have to say, though, we are warming up to areas like financials or home builders, those parts that have sold off pretty substantially here or haven't performed as you would have expected just given the FEDS change and stamps. You know, looking at this upcoming earning season, so I think July fifteen fishes when it

kicks off. You know, we look at inflation x food and energy, Well, what's earnings x energy um is possible that it would be a negative three You're a year just excluding that one sector. So you know that it seems like there's a lot of areas that there's some decent opportunities if you focus on looking for maybe the parts that have been beaten down the most but still have decent fundamentals that can pull you through this. Yeah, Bron I'm glad you mentioned earnings because we're going to

switch into that earnings mode very soon. Give us a sense of kind of how you're thinking about evaluation for these markets. Some people are suggesting that it's obviously a lot more tracted than it was at the beginning of the year from evaluation perspective, But is it cheap? How do you think about that? And no one's really pulled earnings forecast down, at least not dramatically. Yeah, that's been a puzzling thing as to why we haven't seen the

ear and forecasts come down. And I think that's why people can make the argument that, well, just the price decline, it's just that things are cheaper now. The problem is is I think the market is saying that the fundamentals has also declined. Right, So it's yes, things are cheaper based on price, but maybe it's also cheaper based on

value if the value has declined in tandem. And when we like interest rate in just some of your typical market multiples, you know, we've seen the pe come down, but at the same time, yields have gone up, and so it's been almost a bit of a wash from the pure market multiple perspective, and as a result, the way that we're trying to position things is be a little bit more just broadly diversified, and then within each one of the sectors, work with some of our tremendous

teams like and Miletti. She's the head of our fundamental equity teams. They're the ones who are trying to identify value there. Yeah, and so here it all springs. You know, We're very fortunate to have her and her teams here to try to identify some of those areas within each sector about who might have that quality of earnings to kind of cut through some of these cyclical headwinds that

we might be facing. By the way, Uh, Brian just got about thirty seconds here, But I see you like China, and it strikes me that they're kind of going in the other direction or they haven't, you know, been in a situation where inflation is high and they're raising rates. They've still got to come out of lockdown. Is that kind of a reopening play? It really is. Yeah. I think sentiments shifted so much so negatively against them. Who knows how long will hold on to it. But we

do like China road to to the US. They got the fiscal impulse, monetary stimulus, and now the reopening. We think that could bode well for them. All right, Brian, great great stuff. I always appreciate getting some of your thoughts here. Dr Brian Jacobson's senior investment strategists off Spring Global Investments. Uh, they are all in Wisconsin. I mean, I'm talking about it, Marquette, that's a Milwaukee is an

in Wisconsin is Yeah. They they all started. A lot of them started there at Strong Funds, which is a big was a big mutual fund out there in suburban Milwaukee. It was a must go to visit if you were sell side equity analyst. He had to go out se a million times, a million times. It's a it's a great money town, great money market town. There's lots of

good folks. They're managing institutional money. Well. When you think about one of the great success stories in the US in terms of the growth of you know, certain cities, certain metroplexes around the country, Atlanta's got to be at the top of your list. It's just been such a great growth story for so long. So many great companies like Delta Airlines and home Depot and so on, and so forth, they hosted the Olympics. UH, just a great success story. And so of course we need to put

some numbers around that. And when you want to do that, you go to Chinpey a Bloomberg News and Matt Winkler, who is editor in chief emeritus and founder of Bloomberg News, to kind of put some numbers around that, put some context around that. And they certainly have Matt include joint us here in our Bloomberg Interactive Brokers studio. So, Matt, Atlanta, Georgia, what's the key one of the key takeaways from your perspectives as you looked at the data as to why

Atlanta has been such a good success story. So it goes back to Maynard Jackson became the first black mayor of any city, major city in the South, and he had two very big initiatives that stand the test of time. One was massive public works, which included the renovation of the airport that is the busiest in the world uh and has been renamed with his name on it because

of that renovation. UH. He also initiated a rail line that goes from one into the city to the other, so everybody can get from here to there without any difficulty. But the other major thing was he wanted to make sure Atlanta would be forever diverse. And with Atlanta being today uh the second largest black majority UM city in the United States. UM, he initiated a it was persuasion really requirement that everybody hire at least thirty of their

workforce from the black local community. And that also stood the test of time. So today when you look at business in Atlanta, it is diverse, UH. And in fact, Atlanta is really more diverse than any other city that way. And so those two things, if you like, UH, infrastructure, public works, and diversity have combined to make Atlanta, UM the best performing city right now in the United States.

And we know that because we have these credit measures that show that Atlanta liabilities are falling, personal incomes going up, and UH and so UM are so many other measures of performance for the city. So it's going in the right direction. Is anyone else UM taking note or other mayors looking at this as a template for what they can do in their cities, especially in you know, cities

that have historically have had problems like Chicago or Baltimore. Well, UM, I can't say I've done the Grand City tour of late partly because of covid um you know, impediments. But um, you know, I was in Boston last week catching up with another new mayor, uh Michelle wou and mentioned Atlanta, and she got excited and she said, we like what we see down there. So, um it is. It is

an exemplar, There's no question about it. It's interesting, Matt, just thinking about the success story of Atlanta, which has been generations into making you think about just in the pandemic, how we've seen, you know, a migration of people in this country to other similar type cities, whether it's a Nashville or or Charlotte or certainly Miami in on a greater scale. How did Atlanta deal with the pandemic That

does anything unique there? Or were they hit as well as anybody and they're trying to recover as well as anybody. They had the same issues of every other city. Um, and they also had you know, the if you like the polarized politics, because as you know, Georgia is in fact politically led by Republican legislature and governor. In Atlanta, um is as I said, it's been Democrats since uh well, going all the way back in time. Really, but it's been black Democrat and uh, they don't agree on a

lot of big issues. And they certainly had difficulty dealing with the pandemic having to do with things like masking and you know, when businesses were going to be open in schools and everything else. So every city has had those issues. Uh, probably Atlanta I had to contend with

a much more difficult political um agenda. But Atlanta being Atlanta, it managed to, you know, deal with these difficulties and deal with them successfully to the extent that you know, it's a uh, a bastion of diversity and will probably continue to be so. I couldn't believe it when, uh they tried to make it illegal to pass out bottles of water to like single mothers and lines to vote. What what a mean spirited thing to do. Uh, they generate I think you said two thirds of the GDP

for Georgia. Is it possible that Atlantic could pick two thirds of the congressional representatives. No, we're not there yet. We're not there yet. But look, Atlanta was the reason that Georgia for the first time in thirty years went

for a Democrat in the White House. Um, that's Faulton and Dekalp County, those two counties to account for Atlanta, and uh, you know, it's the reason that the senators from Georgia are also Democrat and it's the reason that you know, we see all these stories of companies leaving Illinois to go, um to Texas and other states. But companies headquartered in Atlanta are very happy. I know from um, you know the companies I cover. Porscha absolutely loves being there.

But then they have much bigger, famous corporations that are happy and not leaving, right correct. Um. You know, In fact you mentioned at the outset Delta and home Depot, those are the two. Those two companies are the best performing in their global industries. You know, if you look at Delta every which way you look at it, Delta is the best airline from a market perspective or investment

perspective in the world. And if you look at home Depot, uh, you know, look at their sales performance, it's it's really the same thing. Home Depot does better than any other company. So yes, they're very happy. Where they are happy is a relative term, but um, yeah, where they're situated is

is uh is good for them, particularly because the airport. Um. And that's really probably the best part of this is that the Atlanta Airport has come out of COVID nineteen UM performing better than any other airport in the world. It's and the biggest airport in the world. I didn't know that before I read this. I figured in terms

of traffic. Yeah, oh, hair or Charles de gaul Um, I just want to quickly get your take on or point out that Georgia Shirley must be one of the trigger states, right, and we had this the uh, you know, to really emotional days I think for the whole country on Thursday and Friday because of the Supreme Court. Um. What are we hearing from companies about how they're going

to deal deal with this? Well, what you've heard so far, and we've reported this at Bloomberg pretty extensively, which is that, uh, while companies have not for the most part, been explicit in condemning the Supreme Court decision, what they have done instead is say publicly that they will do whatever it takes to pay for the reproductive care of their employees.

In other words, they will do whatever it takes to enable employees wherever they are in any of these states where um, you know, abortion is suddenly impossible or legal or both. Yep, they'll take care of it all right, Matt, thanks so much. We appreciate Matt Winkler, Bloomberg News. Here's

some data for you. Since the US alone has sustained three weather and climate disasters, and by the end of this century, the US government predicts two trillion dollars per year in damages from hurricanes, wildfire's, flood, drought, severe storms, or earthquakes. Question is is there a way to take advantage of the disaster recovery efforts out there where you guessed it? There's an e t F for that. Andrew Chain and CEO of procure A m joins us UH.

Andrew talked to us about an e t F that may benefit from, you know, recovery efforts for our disasters. First of all, thanks for having me. It's great to be back. And yeah, we're thrilled to talk about FEMA. It's our latest ETF from procure We launched this just on June one, and realizing the various trends and climate change and the devastating and financial devastation that many of these natural disasters and even man made and man enhanced

disasters can cause. To us, it made sense to create a fund that focused on these companies that are helping us with recovery, mitigation, prevention, and the companies that help us in our in our times when we need them the most. It's one of those ideas where when you hear you're like, yeah, yeah, of course about time. Why did it take so long? So talk to us about the holdings that are in it. Yeah. So it's it's a wide range, it's a global basket. We have currently

sixty two companies from around the world. And the SPUND So you look back at the Texas UH freeze that we had a little over a year ago, and when the system went down, people were scrambling for generators. So a company like Jenerac is where respund and they help with you know, remote power generation absolutely. And you look at UH. You know, when you have Hurricane Sandy or events like the Horizon oil spill down on the Gulf, and you know, typically dredging or the rebuilding of dunes

and protective barriers are extremely important. You have a company like Great Lake Dredging DOC that you know, repaired I believe twelve or more miles of the New Jersey coastline UM and helped build up sand level sands heights in the Gulf during the oil spill. So you have companies to help with that. You have construction of engineering firms, you have waste management treatment, water management, water treatment, UM and so many other influential companies that help us in

events like wildfires, floods, earthquakes, even droughts. And this is something that is a global phenomenon. You mentioned that two trillion dollar figure that the US government expects by the end of this century to the US budget alone. That's probably five and a half billion dollars per day from the US budget alone. That doesn't include what global efforts are occurring overseas. That doesn't include what companies and individuals

will have to pay to protect and recover. So this is truly a remarkable industry and one that we believe we helped quantify by developing FEMA. But by the way, I don't want to take us too far off base. But when you see like Generac is one of those products when when a guy like looks over the fence and sees that has never got one, you're like super jealous. And the new GENERAC I think are these bi directional e V s. You just test of the four F

one which will essentially do the same thing. Right, it's gonna power your house if and when the power goes down. We got our generact three weeks before Superstar Sandy Horse. We had people in our house. I didn't even know they were staying with us for days. I found myself walking a crying baby at like three o'clock in the morning around my house and try to comment. I'm like, I don't even know who this who this kid is,

But they work those generat work. Andrew, Uh, talk to me quickly about the E t F business At a broader level, you offer other products obviously. I I usually talk to you about space and stuff like that. Um, as we see this market downturn, it has been brutal, Um, how does that affect E t F trading? Yeah? You know, you know sometimes volatility, you know, brings a lot of

volume to the market. Sometimes people are in a wait and see position and aren't ready to allocate new capital to either new ideas or existing ideas, and they're trying to figure out, Um, you're where the next trade maybe or where they want to be overweighted and so UM. You know, we've had some pretty violent moves in the market over these last you know, many weeks, and you know,

for for the bulk of UM. You know, sometimes you see those big moves and people use those as times to reposition or reallocate, and you see volumes you know, really surge. Sometimes people say, you know what, I'm gonna take a step back, and certainly in the summer the old adage and sell them ay and go away. UM. You know, not always the case, but you know, some volumes have been have been depressed, but there's always some interest in certain areas in the market where you'll see

those volumes pick up. So typically those could be good indicators for for what people are looking at. So is this Uh? Is this the second e t F you're launching? You have UFO right? UM? Is FEMA the second one under the procure brand? Exactly what's next? You know, it's it's a question we we always receive, UM. You know, lots of times it's industries or themes that are near and dear to me. UM. You know, I I was down in New Orleans at University during Hurricane Katrina. Uh.

How is uh? You know in New York city during sandy and the storms that we just had last year. Um, you know a lot of ideas that I bring out are things that you've played to some of my own fears and looking for exposures and ways to potentially protect myself. So we're always looking for first to market concepts. Typically thematic global equity is how we how we bring the strategies out and FEMA was, uh, you know, an area that seemed completely underserved and one that you know could

give interest to many investors. Totally makes sense. Net look for innovation. Now, UFO, you've been I assume you've been hit by the whole um. Well, the FED raising rates take some frothiness out of the market. Everybody looks at ARC and they're like, why did we ever buy that? You know, Um, but but you're investing in space and the things that we're gonna need to use in space, make in space, get from space. I have to assume that is not going away just because the FED starts

raising rates. Well, you can even look at just in the last few weeks various government contracts that have been a ordered to numerous space companies and you know, historically in the early days, space is almost entirely funded by governments and government agencies. That numbers dropped to roughly twenty percent in recent years, with commercial space really being the driver.

So we're seeing a ton of demand with the Ukraine invasion, we're learning how important space is and to be able to have redundancies, capabilities, defensive and offensive capabilities from a government from a military standpoint, And these are things that are in real time driving the space industry. So while maybe people not as many people can afford space tourism,

that's a really small part of the space economy. The other parts, the main drivers like communications, draw band, internet, connectivity, um, you know, the things that benefit our lives here on Earth are things that are still seeing some tremendous demands. So it's an unaccompanied by company basis. Not necessarily every company is going to be a winner, but using diversification can hopefully provide you to too many of those companies

that are generating space revenues from around the world. All right, Andrew, good stuff as always entertained and CEO of procure a M. They've got a new e T f out f e M a FEMA. It's uh to try to invest to take advantage of some opportunities in the disaster recovery effort. That's their second e t F after the first one was u f O as Andrews just explaining kind of take advantage of all the investment that is going on in space of some cool thematic e t f s

out there. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on false Sweeney. I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio