Corn May Be Big Opportunity at These Levels, Gilbertie and McGlone Say

in the world. And here to tell us what to expect from this market is Sala Gilberti, President, chief chief investment officer and co founder of two Cream Trading ll C, as well as Mike mclogan, commodity strategist for Bloomberg Intelligence. So I want to start with you. You noted something pretty amazing to me that even as demand increases from ethanol and just globally, corn prices are around three dollars and fifty cents of bushel, which means corn prices are

again at or below perceived cost of production. Does that mean that farmers have to raise prices cell, Well, it means the market has to raise prices. Farmers really don't control the price unless they stop planting, and in a way so indirectly they can control the price. What we've seen is in the past ten years, two times corn has been at this level three fifty or below spot corn and the prices doubled to over seven dollars. That happened in the two thousand seven two eight crop here

and again in usage continues to rise. Demand is always rising for corn. Corn touches every part of your life. It's like oil, and when oil, you know, goes below the cost of production, money tends to be attracted. Their corn is once again at that three fifty level in spot. We we can't say when for sure there will be a supply disruption. We know that it is very unlikely that there will demand disruption. So corns corn maybe a

big opportunity here. Uh, Mike mcgloan wants you to come in on this because you know, there's only so much acreage out there, and farmers have to decide what the plant. And sometimes they say, I'm not gonna plant corn, I'm gonna plant soybeans. Uh. Why do they make those decisions? And what are they deciding right now? One reason? Money revenue, and that's A key factor that's happening right now is

there's I'm looking at my screen. The US D estimates for corn revenue for this year are average acre is gonna lose ninety dollars per acre, yet they're still breaking even in soybean, so they're gonna plant more soybeans. So that's probably the first time in history we're gonna see much more soybeans planted than the corn. A key factor there is it's an indication that US grain production is peaked, which is a very profound statement because we heard about it.

You know, a great year again this year, but from a typical acre of land you get maybe four metric tons of corn, but for soybeans it's about one. So the total production will continue decline, is very likely to continue decline. It's farmers chase profits and plant more beans and less corn, and that's probably it's an unsustainable trend until price is generally adjust to make a difference. Sal I'd like to to get your sense of why farmers are planting more soybeans at this point. When I don't,

I mean I love tofu. We were talking earlier that you like tofu too, but that's not much driving this is it. No, it's not. In fact, that demand for soybeans is so enormous from China, and China we saw them by I think Smithfield. They they are consuming more pork, more animal based proteins. They are importing all of the soybeans they can find from any source in the world

in order to feed their animals. Remember, the number one use of grains is to feed the animals that we as humans eat, and so we might like the eat a lot of tofu, but the real consumption is for animals. Okay, so let's build on that. I mean, what at what

price point would farmers be incentivized to plant more corn? Well, they look at a ratio, and so they look at their inputs and their costs, and they look at what will make them more Either you know, d seventy five bushels of corn or fifty or so bustels of soybeans. One or the other is going to come off of that same maker. Importantly, though, for sustainability issues, it's really important. Corn draws nitrogen out of the soil, and farmers think

about this all the time. Soybeans put it back in, and so there's something called crop rotation where it's really advisable for a farmer who can supplement with with artificial fertilizers. But the best thing that farmer can do for his soil is once in a while, when he's got a choice, switch back to soybeans because it improves the general health of his farm. Uh Mica. One of the things I want you to speak about, though, is what they're facing in terms of fuel costs right now with with farmers,

because I don't get this. Uh. The United States is producing more oil and more natural gas than anybody can remember, and yet supplies for farmers are kind of getting squeezed. What's up? What's up with that one word? Exports a key factor in in the US. I think the US commodity market right now, most notably energies we can export. We have a declining dollar that we had restrictions a few years ago. Those are gone. So if there's a better market overseas and there's more money to be made,

there's plenty of exports. So that is a key factors. Cost of costs for farmers are increasing because patrol imune costs, drying costs for corn are increasing, but exports and that's also a key factor in the grains, and it just hasn't happened yet. So we've seen a bottom in crude oil bottomed and what it's really like from the lows free years ago, we haven't seen that in the grain yet. And that's what it's probably gonna happen in a key

driver's exports. So if we have a continued week dollar, unless there's some kind of straight train restrictions, it's almost inevitable. This substantial paradigm shift in big increase in US exports should boost the price of US traded corn, soybeans, and potentially weak So you were talking earlier about that ratio of corn to soybeans. Where are we now? What's it saying? Um, it's telling farmers to plant soybeans. Um, it was telling them a couple of weeks ago to plant a lot

more soybeans. Right now it's coming back into line because people are starting to speck like Mike is predicting that they will plant more soybeans versus corn. And again, you're gonna get fifty bushels of soybeans off an acre or you're gonna get a hundred and seventy five corn. That's a big difference. If you switch to soybeans. So how much could you see corn prices rise? They're at about three dollars and fifty cents of bushel right now. Where are they going to go by this time next year?

There's no towing. I can tell you that this is the midst of the corn harvest seasonal, so more corn is in a big pile than then there will be for the rest of the year, and so that generally creates a seasonal low um, so you can see a slow trickle upward of price for the next six months until the next planning season becomes clear. But again, twice in the last ten years, corn prices have doubled from

the price that they're at right now. I'm just looking at your E T F right corn, the two cum corn E T F trading it about sixteen and a half bucks a share. It was as high as almost twenty in July it was. And you've you've seen this relentless bear market with these these supplies of corn. But now the harvest is over. And again our fund wasn't around for both of those doubling prices, but it was for the one, and you know, the fund did perform quite well, and I think it's went from the mid

twenties to the very low fifties. Mike, what's the best way for investors to uh to trade corn? Well, I have to admit when I look at a lot of the products and it sell levels. When I do this, I go to soybeans partly because historically you can invest in soybean and soybean product and you don't have that massive cost of carry. Now you might not get the performance right away, but that's one of the issues in

commodities is you have a cost of carry. Soybeans are very easy to store and very inexpensive to store, so that generally you don't have that rolling futures cost I e. A contango and corn you have. It's a little more expensive, but you know that's just you have a different type of market. So I look at soybeans is a longer term hold. It depends on where you are, but overall

it's certain key levels like cell mentioned here. The risk is that we trickled down or re double in price over the next few years is the kind of way I look at it. And a little bit of a weather event will do that, and I'm not predicting that, but just these demand versus supply trends imply prices and top probably need to increase or exports will make them increase. Gentlemen, want to thank you very much for joining us and

lightening us about the world of commodities. Sal Gioberti is the president and the chief investment officer and co founder of a two creum at Trading not just looking at his soybean e t F again of about four point three percent since August. Thanks very much. Mike mcgloanar commodity strategist for Bloomberg Intelligence. This is Bloomberg. Here to help us understand what's going on in the bond market is

Tad Revel. He is the chief investment officer of TCW, helping to manage more than two hundred billion dollars based in Los Angeles. Tad, thank you very much for being with us. When if you could just begin by telling people who was Sir Thomas Gresham, why does it matter? And maybe tell us how that connects with the United States and the fact that we don't use silver in any of our money. That is, it is a bit of an obscure reference, but I think actually many people

are familiar with the term. Gresham's loss. So Gresham was actually an advisor to the court of King Henry the eighth of financial advisor, and he put forth the observation that bad money drives out good money, and what he meant by that is that if there were or the observation was that if you have two identical face value type currencies, let's say gold coins, silver coins, copper coins, UM, people will essentially take the gold coins and put them

in their drawer and utilize the copper coins to facilitate the circulation UM. In the case of the American experience, coinage was silver until n four Congress changed the law, and beginning in nineteen sixty five, when other medals base

metals were used, all the silver coins basically disappeared. So Gresham's law is kind of an interesting insight into the human nature that actually most people are probably pretty familiar with, even if no one really knows UM the origins of the term well so so connecting it to to now and to market, it's the idea being that we've seen this incredible run up in equities and in riskier assets in the debt market as well as frankly safe assets.

We've seen a run up and absolutely everything, and people are chasing the rally by pouring more money in. Is the implication here that we are on the precipice of a turning point, that this is bad money going into the market right now. I think that that's a that's a good metaphor for for the point which is that UH investors, I think are always counseled UM to be disciplined in their approach to UH, not overpaying for assets

who taking a long term approach. But what does happen laid in the cycle is the phenomenon that you alluded to, which is that there is money that is hungry for for yielden income and at some point is willing to pretty much underwrite any risk in exchange for the income.

The result is that you get assets of all sorts, those worthy and those less so that get bit up in price, and in effect it becomes an example of Gresham's law of investing, in which basically the bad underwriting UM, the money that is just far too willing to UH sponsor risk, starts to drive out the good money and the good underwriting that which is more discipline, and it creates a a point of cognitive dissonance for people because you said on the sidelines, if your discipline and you say,

I just don't understand. Everybody else seems to be making money and I'm sitting this out. Is this really the right strategy for for me that I should take? And historically, actually it is, even though it doesn't feel that way in real time. Given given that sort of backdrop, is TCW moving more money in its fixed income portfolios to cash? Is it taking money out of certain markets? And if so,

which ones? Well? The way we think about it, or the way we express it is that you should think in terms of in terms of fixed income, you should think about bendable assets and breakable assets. And by that what we mean is that a breakable asset is essentially an asset in the case of a bond, where you're going to ultimately suffer loss of principle um it will not recover or represent an economically viable asset. A bendable asset is an asset that will, we believe, ultimately provide

full recovery of principle. But the use of the term bendable is meant to remind us all that that doesn't mean that there isn't going to be ups and downs and market related type volatility. So what what Yeah? What

what's what's bendable and what's breakable? Yeah, exact exactly. Um. So, just as a large generalization, UH, the kinds of assets that you should think of as being bendable that are appropriate late in the cycle where we think we are are things like investment grade corporate bonds UM top of the capital structure type of investments in some of the securitized credit areas. So those would include typically triple A

rated commercial back mortgage backed securities. They would include programs such as the UH the FELP student loan program, which basically is government guaranteed full faith and credit obligations UH student loans. They would include agency mortgages. And then that begs the question, so what would be breakable? Well, um, that of course is the rub of it, which is that you need to pre identify that which will be breakable before you essentially get into the end of the

cycle when markets tend to be absolutely unforgiving. Traditionally, you will see breakable assets in such asset classes as UH high yield securities below investment grade. You'll oftentimes see them in emerging markets, and you'll typically see them down the capital structure in some of the securitized credits. If you're buying a triple B a double B commercial mortgage, you better be careful about the level of due diligence that you're doing because an asset like that, we would suggest

is potentially in the breakable category. So does that mean that TCW is actively selling HILD bonds, emerging market bonds, and some lower rated investment grade bonds. Right. So it's important to convey this is that the statements I made were generalizations, and there are sometimes particular differences. But as a general statement, we have de emphasized the high yield element in our portfolios for a significant period of time. We have emphasized the triple A in securitized credit and

the investment grade. So I don't want to, you know, go too far and say that, you know, we wouldn't buy a high yield security in this type of environment. We would subject it to a level of due diligence and level of skepticism that I think you're that is supposed to be appropriate laid in a credit or asset price cycle ted just quickly, the people that you speak with, do you feel that they are acting out of emotion

or out of some kind of rational thought process. UM. I think it's actually mostly habit People become habituated uh to to taking risk laid in the cycle. And I think an interesting way to think about it is that, uh if you look at market related measures of risks, so things like the VIX index, which measures stock market implied volatility or stock market implied risk. There are other indicries like the MOVE index that measures that in treasuries.

Until a few days ago, these indicries were hovering at twenty five years twenty five year loads. If market participants were being utterly rational. The only conclusion you could draw from that is that market participants must literally be saying this is the safest investment environment in twenty five years.

If you think market participants are not literally and rationally saying that, than what you're really observing is a very crowded trade UM in the sense that many, for too many people probably are over their skis as it related to credit risk taking. Tad Revell, thank you so much for joining us. Tad Revel, chief investment officer for TCW, which overseas two hundred and one billion dollars and is

based in Los Angeles. When a company defaults, typically it's because it has run out of money to pay its bills, but every so often it means something very different. If you take a look at the credit default swaps of Huffnanian, which is New Jersey's biggest home builder, it looks like the company is about default. If you look at the bonds, it looks like they are nowhere near defaulting and are lying. This is a hedge fund battle that we want to

illuminate with our own. Shodar Naturaj and he is a high yield the debt and syndicated a loan reporter for Bloomberg. He breaks a lot of news. He writes great articles. You can find them on at the Bloomberg as well as Bloomberg dot com. Um, sure, can you just give us a sense what's going on here under the surface having to do with have Nanian credit default swaps and bonds. I mean, it's one of those situations that just leaves a lot of people scratching their heads on how this

is even allowed. Essentially, you have a company who's sails it down, credit metrics are worsening, and they have a good chunk of debt that is about a mature so they need to figure out a way how they can refinance their debt, and in WOX and G s O, which is black Son's credit unit, ostensibly as the White Knight offering what might seem like a good deal to

the company, but there is this unusual provision. They want the company to be able to default on the credit default swaps contract so that they get a payout on that, and that obviously has a lot of people on the other side of the trade very upset. So basically you have hundreds of millions of dollars at stake in the credit default swaps market that are totally independent of the

company and the company's dealtload. Like the company doesn't actually have to pay out in any of this, right, so why wouldn't the company say we will take better financing terms, We're going to lower our interest rates, except black Stones offer and not make our payments quite on time, so that a bunch of hedge funds are forced to pay out black Stone make them whole on the whole transaction, and everyone goes on there, mary or not some merry way.

Because the guys on the other side are arguing that the company in this case would be intentionally interfering with another contract that they have with third parties, because what g s O is doing is they're effectively buying up the default swaps, betting on a default while simultaneously knowing that they will be able to force the default. And that doesn't smell right to a lot of people on the other side of the trade, who are obviously trying

to protect their own relative value trades. Who's on the other side you have? You have hedge funds like Solas, c Qus, there are a few other big names involved. We know that the credit trades has involved people like Goldman, Citadel, black Rock, and you have someone like an Apologlobal Management their credit unit which is on the same side as you, so as they have been buying a lot of the swaps, so they will profit if there is a payout in

those contracts. But doesn't this just raise the very sort of philosophical issue of how a credit the fault swap works because the credit the fault swap, while it may not be directly tied to something that underlies it, like the value in this case of Hobnanian, it is a

separate entity. So it's almost as if you're selling insurance for someone's automobile, and then the premium gets traded back and forth, and people say, I want that premium to go up, which means that you would get into an accident. So you have someone who's throwing tax on the road hoping that the car will get into an axe it in because that will raise the premium, and then the insurance company is left holding the bag. Is that It's

kind of the way this thing works. It feels like and and and and the byproduct of this this is a byproduct really of the growth we've seen in the credit to false source market. These are essentially insurance contracts. You're buying the contracts just so that you're able to head your position. At least that was the original goal, right,

but that's been teased out. In other words, the person who's buying that contract is now no longer really interested in the health of the underlying asset, or they're interested in is the value of the contract goes up or down, and that's something that is traded just as if it was a separate entity. And that's an interesting point to make because the last time something like this happened, and you know, black Stone got a lot of flak for it,

and this happened with the Spanish gaming company. Blackstone made a very specific point, and I'd like to read out about their statement from back then. They said the losers on the other side of the trade was sophisticated hedge funds using credit to false swaps to bet on the timing of a default. They were like gamblers betting on the overrun the spread, but having an interest, having no

interest in the outcome of the game. Of course, the guys on the other side would argue that that's absolutely not true, and that's why we have this bitched battle right now. Interesting story, it's a great story and one that I think will probably continue and the lawyers will

certainly make out with this. I will just note that that company that Shodar was talking about was Coderi, and it was featured the whole affair and Blackstone's role, and it was featured on the John Stewart Show back in It was that we perceived publicly as being rather ridiculous, given how divorced it was from you know, the underlying Well, there's no ridiculous in trying to make money, right, I mean, it's all about whatever the opportunity presents itself. Thanks very

much for enlightening us. Shoot our not Taraj and he is our high yield, dead and syndicated loan reporter. And also my thanks to are my colleague Lisa Bramwitos, co author of the piece. Thank you very much. Well, it looks like twenty one century Fox has yet another couple of suitors. Comcast and Verizon evidently have looked into acquiring a big portion of a twenty one century Fox, swooping

in after talks with Disney cooled off. And here to give us some more perspective is Geta Ranganathan, who is a technology and media analyst for Bloomberg Intelligence, coming to us from our BI headquarters in Princeton, New Jersey. Geta. You know, I'm struck by the market action. In response to this news, twenty one century Fox shares up four percent so far today in trading, whereas Comcast shares down Verizon also up. Why is this being viewed as a

negative for Comcast or is it so? Um so, Lisa, Comcast has had a lot of regulatory struggles in the past. Um they definitely for a severe setback when UM the d o J basically athwarted their efforts to buy Time Warner Cable and so I think the regulatory regulatory threat is probably perceived as the biggest concern for Comcast kind of trying to go after Fox, especially at this time.

This is really a very interesting time when we see that the d o J is kind of giving a T and T a hard time UM for its Time Warner acquisition UM and and obviously the name that's coming up a lot in those talks is Comcast and how the d o J is not very happy with, you know, the Comcast acquisition of NBC Universal. So adding more content obviously could really set off a whole streak of regulatory review.

Can we just go to maybe the four different categories of major businesses for Century Fox and why people would want them such as Comcast or Verizon, even the cable network programming? Who wants that? And and how valuable is it? So? Cable network programming they have of a whole bunch of different types of assets there. They have, um, you know, their regional sports networks as well as you know FS one, which is a national sports network now that apparently is

not up for sale. Their biggest portion of the cable network business or at least, the one that is the most profitable is Fox News Channel, that again is not up for sale. So so what we're left with is really a few general entertainment networks like f FX, UM, you know, FX Movie Channel, some of the smaller brands, and then National Geographic UM. Now this is what looks like, is UM you know, is what Fox is looking to

put up for sale. UM. It could be complementary UM for for let's say, a Disney or a Comcast kind of adding that Nature channel, adding a little bit of UM, you know, adding kind of deepening their entertainment UM profile. UM. So that that that's the part of the business that they're willing to give up. And I think the most important part from a cable net working standpoint, which would be of interest especially to Comcast in Disney, is their

international portfolio of cable channels. And and Fox really is an absolute media behemoth in India with its ownership of Star India has about fifty eight or fifty nine regional channels. It's a media giant UM and just that portion of the business ALAN should be worth about twelve to fifteen billion at least. The growing market as opposed to the U S which is you know, mature and possibly even in decline. You think that would be of interest to

John Malone and Liberty It could be. Jean Malhone is always always features right at the doubin in media mn A. Alright, television, how about the television business? So the television business is clearly not for sale, uh, you know, from from a few different standpoints. First of all, um, Fox has a broadcast network as well as the TV station business, and both Comcasts and Disney have significant broadcast presence and just the FCC would not allow any single company to own

two major broadcast networks. So the broadcast piece is going to remain with Fox. Uh, not for sale. Um. The other part of their business which possibly is up for sale is the film and the TV studio business, which is you know, filmed entertainment. Now, this is an area that Fox has had a little bit of struggles with. So the TV production is actually pretty robust. They've produced like great hits like you know, This is Us and whatnot. Um, But on the film side, it's been a little bit

more erratic. Um. They just don't have the franchises and the cloud that let's say, a Disney or a Comcast Universal Studio has and they really struggled, and I think, um, they've figured that it's going to take them some very very significant investments to kind of revive that portion of their business, and so they're probably willing to just to sell it and give it up to to somebody else, maybe a bigger, bigger rival. I don't understand the timing of this. Why is Century Fox right now looking to

sell some of its assets. I think the traditional media company has realized. Media companies have realized that, um, you know, Netflix has and other digital companies have clearly appended the media landscape. It's time for these companies to kind of, um, hone in on their narrow themselves down, kind of hone in on their core competencies. Fox probably realizes that, um, you know, it's core competencies in the news and the sports side of the business, not so much the film

because it requires a lot of investments. Um And and they've kind of they've they've they've made these investments, so they've they've done it for national geographic, they really haven't seen that translate into ratings yet, and so they've probably kind of decided it's time to sell. When when they can still get a good price. How about the direct

broadcast satellite television, So that is really up in the air. UM. That is their business, which is sky Um, which is a direct um to sell light Um kind of a pay TV business, distribution business in Europe. UM. They already own a thirty nine percent stake in sky and last at the end of last year they made a fifteen billion dollar bids to go ahead and acquire the remaining six stake. Now that deal has run into a lot of regulatory, um you know, obstacles, and they've obviously been

frustrated by that. So I'm not really sure how that is going to play out. It's still under regulatory review. Fox believes that they can get the deal done by the middle of eighteen, but again a lot of uncertainty there. They probably feel that it's best to kind of sell that to either a Comcast or Disney or whoever is willing to buy UM and get rid of that regulatory uncertainty.

Thanks for joining us, Kit Raganath on our technology and media analyst for Bloomberg Intelligence, the Shares of Century Fox or up for Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio