Inflation, Crypto, Commodities, And Credit (Podcast)

to taxes, as it relates to climate. But the title Inflation Reduction Act, as I read through it, I'm like my hands around it. Is it reducing inflation? I don't know. Say. Yesterday we talked with Sadequaba right from I Squared Capital Infrastructure at Morgan Stanley. This guy is super plugged in and way smarter than me, like exponentially smarter, and he said it is longer term going to have a serious impact inflation. All right, Good for him. Carol Murphy's CEO

of Kestro Holdings, joins us today. Carol, what do you what's your read of this Inflation Reduction Act? How should we think about it? Here? Well, I have to say, I'm with you, guys, and I think the title is a very clever piece of marketing, so kudos to whoever came up with the name. But I agree once you dig in, I mean, this is really about climate change policy. It's about access to healthcare. It's not about inflation. The thing that I mean, I understand why they named it

that right got to it. They're selling it, and I don't even know how smart it was, because when you look at the details, you start to think this has nothing to do with inflation. But what gets me is they left in the carried interests tax loophole for you know, rich pe guys. And good for those rich pe guys. I'm not, you know, knocking them, but it just doesn't

sound like something that Democrats would do. Then they didn't put the salt deduction in, which hurts middle class people like me, you know, and that seems like something the Democrats would want to I understand how this is a Democratic bill. Frankly on the tax side of things. Yeah, I have to agree, And it's a disappointment that those two got you know, left on the cutting room floor. I think those those are those have been objectives of you know, Democrats and others for quite some time now.

They did get in the corporate minimum tax, which has been a goal and attack on share repurchases. So you know, that gets a little bit more to turn the screws on some companies in a way that you know supports democratic policy goals. UM. But I think you know, some of those other things that were left out were disappointed. What do you think about that? I mean, are they throwing a big giant blanket over all large corporations and saying, you know, these companies are all from now, I'm gonna

pay minimum No. I mean when we look at the numbers, it's really just on the margin. I mean, it's a handful of companies that are going to be very impacted by that corporate minimum tax UM. And I think politically it plays very well to write this idea that very large, very profitable companies are able to avoid paying any taxes

does not fit well with a lot of Americans. So I think it helps to kind of close the loophole, but really isn't going to impact all that many company me Karrot, we we've got somebody here at Bloomberg govin Signarelli. He's a strategist force here, and he spent his career on Wall Street trading UH currencies and bonds and all that kind of stuff. He kind of says, this focused by the FED on inflation is misplaced. He kind of feels like inflation is kind of taking care of itself.

And I only look at you know, I look at gasolene prices three dollar for regular a gallant? Thank you? Did I say bar a gallant? I do that all the time. Okay, So that's for a regular unletted. So

what's you're calling inflation here? So it's interesting because we've sort of been in that same camp, and that for good prices at least, it's pretty easy to follow the pig and the python and see how these inflationary pressures are working themselves out, and you know, things like container prices, subsiding, commodity prices easing. The harder part is on the services side. Those are prices that tend to move around a lot

less and have still seen a lot of inflation. Um those prices tend to be very closely aligned with the labor market. So cooling the labor market is going to be really key to bringing that down. And we started to see some anecdotal evidence that the labor marketed cooling, but that typically takes a lot longer, so I think that will be the more difficult objective. Well, and not

even um really anecdotal anymore. Yesterday I saw a survey from Price Waterhouse Coopers and they talked to more than seven US executives and board members across a range of industries. They said are They found that half of respondents said they're reducing headcount or planned to, fifty two percent have implemented hiring freezes. Um more than four and ten are

ascending job offers. This is These are some real storm clouds on the horizon, yeah, for sure, and those will start to work their way into the actual numbers over the next couple of months. So I think this will be, you know, a big headwind. And I've been warning folks who are sort of newer to the job market that this is not a normal job market. This is so much easier to get a job than we often see during cycles. So I think folks who have only been in the job market for a couple of years really

need to brace themselves. But Karen, can I ask you about something completely different here? Looking through your resume Um, I'm guessing you fell in love with Prague at some point and decided to stay there for a while. Do they not have the best beer in the world? I have never in all of my travels, and I drink beer everywhere I go, have better beer, had better beer than in the Czech Republic. It is so true. And the tech pride themselves on drinking the largest amount of

beer per capita. And there's a reason that's great. So alright, So, Karen, I mean, you know, it's interesting in this economy here we focus on the consumer. The consumer seems like in pretty decent shape. It seems like the consumer has been so confounding because you're absolutely right, you know, job we we talked about the job market slowing, but right now it's very very strong. Wages are up, consumer balance sheets are very strong, but consumer confidence continues to look really poor.

I mean, it's among the lowest that we've had in quite a number of years. So consumers are spending money like they feel good, but they're telling us that they don't feel good. And I'm worried that's going to fall off a cliff here when this when this job news comes home to roost and savings are down. I know that data is a little bit sketchy, but um credit card uses going up at some point, I'm worried consumer. Right, all right, Karen, thank you so much for joining us.

Kara Murphy, c IO of Chestra Holdings here. She has a master's International Relationship University of Chicago and it be as an international politics from Georgetown. That's pretty darn good. I mean, you go to Georgetown, you're thinking about public service, you know, going into government, all that kind of good stuff. And then she gets a masters in Chicago. Not bad. Looking at bitcoin off eight point four seventy five four bitcoin and we can talk bitcoin because Tom Keen is

not here. It's generally during surveillance. It is a bitcoin free studio. But Everett Millman East, chief markets analyst at Gainesville Coins. You look at precious metals at Gainesville Coins. Everett, but we also like talking to you about bitcoin. Any thoughts here about what we're seeing? Is this just a trading thing that isn't because of the FED? It's because of the Fed? Right? Yeah, I guess you're right. I guess you're right. What do you what do you have

for us effort? Well? Sure, I think basically across markets right now, pointing to the FED is going to be the correct answer more often than not. But really, what I look at with the cryptocurrency market as it stands is it's caught in a bit of a catch twenty two. UM. The lack of a regulatory one of my favorites. The lack of a regulatory framework UM is certainly hampering adoption

of bitcoin and other cryptos. But on the other hand, tight regulation really is antithetical to the core principles of bitcoin and many other cryptos, which is to say that, um, they're the entire animust behind bitcoin is to have completely private and largely anonymous transactions through a decentralized network. So the more that regulation comes in, the less likely that

is to be the case. But again, I think almost anyone involved in the crypto space wants to see some sort of regulation to kind of put some people's fears to rest. Well, it's exactly the people who are selling you know, the picks and uh wheelbarrows that they want to see regulation because that's how they make their money on on the whole gold rush, not actually the gold The people who are into um bitcoin for real don't want to see UM censorship, government censorship allowed on money right.

I talked to UM, the CEO of Cracking, a couple of days ago, and I thought it was really interesting because he's kind of torn. Cracking is one of the biggest crypto exchanges. Jesse Powell is the CEO, and he's you. And what you talked to him, you can see he's clearly torn because on the one hand, he has this business, he employs a ton of people, he wants to make money, and regulation and working with the government is he goes

hand in hand with that. On the other hand, he's clearly like an early stage bitcoiner who wants who has the kind of libertarian viewpoint, and you just can't reconcile those two things. I tend to agree. I think the the idealism behind bitcoin, as he said, to have this sort of libertarian bent to being sound money and being censorship resistant UM. Even on a personal level, that was one of the main reasons that I got interested in

bitcoin early on. But as we see, there really does need to be some establishment backing UM, and you know, some regulation would certainly spur that. We've seen that over the past year. A lot of major US corporations have been rather enthusiastic investors in crypto startups, but it's still on the order of about a billion dollars over a

twelve month period. UM. That's being held back because again, if they make those investments, they start businesses and then here comes Washington with a hammer to crush all of those businesses. Well, that's um, that's that's a reason to not invest. That's the reasons shy away. So we're still seeing that playoff. Well, I mean every I tend to see it like this. There does need to be regulation, and there has to be a framework for bitcoin to

work with governments around the world. If you wanted to trade trade for twenty dollars, right, if you want a bitcoin to cost ten tho dollars, if you need it to cost five grand for bitcoin, then yes, but not if you don't care about that, Not if you're someone who wants to use bitcoin just within the community of people who all have the same principles, Because if you open it up to regulation, as we've seen with um,

the Russian invasion of Ukraine, they're gonna censor it. They're going to tell exchanges you can't trade with anybody who has a Russian residence, which I mean you can have your own view on what Vladimir Putin does, but certainly random dude you know in in the uh suburban or urban areas or rural areas of Russia has little to

do with that, correct. And and that is a constant threat um, not just from censorship, but from the idea that uh, you know, governments and central banks would sort of co opt the idea with central bank digital currencies. That would because their government money, they would be very um, they would have no resistance to to censorship. Um. And we're still obviously although bitcoin has been around about a decade, we're still these early stages where the the pass forward

is not entirely clear. And then we have to also take into account that it is not like bitcoin against one central enemy. Um. You have governments all over the world with their own individual interests that are kind of attacking this problem from their own angles. So I think that does create a although a very kind of wild West dynamic. Um, it is still fertile ground for some growth and experimentation with how how best to tackle is from a regulatory standpoint, Where is Lutz, Florida, Ah, So

it was just north of Tampa. It's in the Tampa Bay area. That's where uh you guys, that's for your base, right, Yes, that's where Gainesville Coins headquarters. Of the name is a holdover from where we were founded. Um, but we do also have offices internationally, um in London and one in Singapore. Alright, So Gainesville is what's Gainesville? Isn't that the Gators? Is that? The University of Florida? Yeah, the University of Florida in the central part of the state. Alright, awesome, all right?

And then Tallahassee's Florida State. I'm just getting my because you think about Florida, you know, you know, I just kind of think South Florida. But you gotta you gotta go to tahas for Florida State. Well, personally, I love the Panhandle the best, the best beaches, literally, folks listening around the world, you want to go to the best beaches in the US destin Florida and that kind of panhandles. Awesome? All right, Everett, thanks so much for joining us. We

always appreciate talking to you. Everett Millman. He's a chief market analyst at Gainesville Coins. Located and beautiful Lut's Florida, just north of Tampa, Matt. I spend a lot of time in the central California coast, and I tell you, you know, like around Selina's you look as far as the eye can see literally our farms, and it's like we're most It just seems like most of our countries

fruits and veggies come from. I mean, they're just everywhere for Aunt, miles and miles and miles and miles and miles. And one of the big companies there in Watsonville, uh is Drift Calls Thinks Strawberries, fresh strawberries. Those are the folks that bring you that kind of stuff so sore and boring. He's a president of Drift Calls of the America's. They are in fact based in Watsonville, California, near my crib in Carmel. Uh sore and thanks so much for

joining us here. Talk to us about your business here. How's it from both a supply you know, in terms of the farms, the the environment, all that type of stuff, as well as the demand for your products. Yeah, and for the most part, I would say these things have been pretty good. Um. I think the reality is there's more people work from home and had to get a mid morning snack on afternoon snack. You know, they went

to varies very frequently. And so the demand side in officiness has been very strong the last couple of years, and we actually don't really see that ending as we're sort of coming out on the other side. And so I think the demand side has been very good. Production is way more challenged. M We certainly had some pretty significant weather events, and an inflation, of course, is hitting us. I mean, we are planning next year's crop right now, and we are doing that with a cost structure that

that we've never seen before. So what so inflation is gonna be with us? I can think of a few ways in which inflation would hit you. One of the stories we've been seeing a lot lately is the water shortage in California. Is that an issue for you? I mean a different issue in the long run. I think the reality is we have it off water today to grow up the crops we have, but we are several places where we're getting rationed down to sort of the

minimum level where that we need. And if we get rationed anymore, then then some of the crops will not be combiable. So if you get rationed anymore. You can't say, all right, well we'll spend another ten There's there's little you can do, right, Yeah, I mean typically the way it it gets allocated out is like on a per acre basis, and we need about two and a half a computer water to grow strawberry crop. And if our allocation goes below that, you're just not going to have

a product to crop. Right. So, and we are right there on the on the edge of that in a couple of districts in southern California. So and talk to us about your labor situation. We hear about it, you know, across almost every single industry, uh, you know, over the less several years, a labor shortage, and of course your labor uh you know market is a little bit unique. It's a lot of immigrants, legal and illegal. Talk to

us about your labor supply kind of what you're doing there. Yeah, I mean I think that what's happening in California now, it's we're finally seeing a significant increase in the agricultural labor coming in under the age to a guest worker program. Really not something that you saw very much in California. Is much more common on the East Coast and that wasn't needed to supplement the shortage that we have. Without that, we we simply couldn't pick the crops. And we expect

that to increase year after yearfter year going forward. So even if you're bringing in workers from other countries, I'm assuming um wage costs are still going up. There must be some pressure there with the inflation that everyone's seeing. Yeah, and I think on top of that, you know, California has passed, you know, a number of pieces of legislation that's made labor costs a lot more expensive. So even before you know, the general economy start feeling inflation, we've

been feeling inflation for quite a long time. I would say for almost ten years. Labor costs has been going up twice the rate of inflation. And so we've been dealing this for a long time. And so efficiencies and increasing productivity has been a major focus of ours for you know, I would say the last six seven years. So our consumers willing to pay um the boost in prices. You know, every time I go to the grocery store, I throw a couple of boxes of strawberries and blueberries

in the cart without looking. But my wife says, wait a second, those are ten dollars a box. You know, I don't know where we're shopping, but you get my you get my point. Yeah, absolutely, So yeah, I think the good nurses and it's that consumers are willing to pay for really good fruits. Okay, that's you know, if consumers are not going to trade down to cheaper, lower quality strawberries. I think that the evidence of that is

very clear. Our company has historically done well and there's been an economic downturn because consumers may trade down their car or the vacation or not eat out as much, but they're not they're never trading down the quality of their berries when they eat them at home. So so that's definitely we believe that that's here to stay. And

that's how that makes sense. Right. This is a relatively cheap indulgence and there's really no reason to go off to the three dollars strawberries when you can get better for dollar strawberries. So dry schools again, I know the Brandon listeners. Go google it. You'll you'll recognize the brand immediately. When when when you see it, Um, who does the

average California strawberry? Who does that? Who? Does it compete with you know, I think we we like to think that we compete against you know, there's snacking alternatives, right, and that's what we've seen throughout the pandemic. We're not really competing against the other fruits. We really mean competing

for a share the consumer stomach. And so we are really focused on going outside and looking to bring consumers into coming in from other categories and and make them, you know, make a healthier choice and eat fresh berries instead. I was wondering what the cheaper I guess the cheaper alternative would just be old and yuckier, as my daughter

would say, strawberries. So you're obviously going to pick the best looking box that you can find at the store, right what what what you don't You don't compete with bananas, You don't compete with Kiwi's or blueberries. I mean, in the end, there's only so much fruit that ends up in the shopping basket. So of course there is some of that going on and um, but your strawberries is by far the number one category in produce and is the fastest growing category, has been so for ten years.

It's not twice the size, So the the second biggest fruit category, which would be apples, and uh, you know, bananas is not growing that much and hasn't really grown for a long time. And I think it's just it's the versatility of berries, is the health benefits of berries. It is the indulgence of berries, right, I mean, not too many categories to sort of check all the boxes. And we're very fortunate our stars so so. And just you know, I spent a lot of time in the

Central Valley. I see the folks picking the berries. So my question is what the time between the barry getting picked in Watsonville or Salinas and getting to a supermarket in New Jersey. That's not expensive. It's got an expensi cificate against the truck across. I mean, well over ten thousand dollars would be typical to get that truck across.

We will have it there in three to four days, right, and then it gets to a distribution center in New Jersey and then out to the store, right, And so you know, New Jersey consumers probably realistically I can get their hands on the berries in six to seven maybe eight days, depending on you know, exective way it's at. So you know it's pretty fast. Yeah, that's the kind of trucking I want to do. That's when I get my CDL. That's what I want to Watsonville. I'm not

doing these little hundred mile John's. Yeah, I want to go across country in three to four days. All right. It's good stuff. I'm telling you, folks. You go to Central Valley, California, and it is amazing. And we're gonna go back to Central Valley. We're gonna go back to California just a little bit. You know why Why because we're gonna talk to the CEO of Lamborghini. He's a pebble beach. He's a pebble beach. All right, that's how far away? How far away are you staring from pebble Beach.

I'm twenty miles away, okay. And I saw all the cars yesterday. So there you got all right, good stuff. So in boring the president of Driscoll's of the America's think strawberries, blueberries, all that kind of stuff. And I tell you, it's just all inspiring to see these huge, huge vegetable and fruit farms in the Central Valley of California, truly feeding the rest of the country. Truly cool stuff. Carmendo Royal joins us. She's a credit reporter for Bloomberg News.

She's got an article out today showing the banks are retreating, some banks like even Wells far especially Wells Fargo. That's the one because that's where I had my mortgage. When I had my mortgage for about fifteen minutes, I got my mortgage from Wells Fargo. Carmen, How can a banks, how can the banking industry like like a Wells Fargo pulled back even slightly from the mortgage market. Isn't that what they're job is. Yes, of course that's that's what

they do. But they do certain types of mortgages, especially after early um, before I wait, they did all kinds of mortgages. They did, like the risk here ones, the ones that work that are now backed by the government. But right now they've kind of retreated. They do only more like Freddie and Sandy Mac mortgages, which has left like a lot of space from non bank lenders to kind of grow in this risk here parts of the

mortgage world. Um, and now that's becoming an issue with like basically no business coming in, rates really high and the whole change in the rate cycle. Yeah, so the rate cycle is basically killing this business. Is regulation also a part of that? I mean, the rates is something

Carmen that we can very easily see. You look at the mortgage rates and they're up over five some I've seen as high as six UM, and so I understand consumers are going to be turned away by by that, having been used to very low rates for the last decade. What about regulations is that a part of the problem right now? Right like regulation was kind of part of the problem after early and a lot of banks retreated them.

Right now, the cost of class of that is at right now basically um two thirds at the top twenty lenders are non bank lenders, whereas before the crisis, it was about a third of the top top twenty lenders were independent firms. And that's kind of the problem, the fact that this non non bank lenders have much less capital to kind of maneuver compared to banks, and they also don't have a lot of factcess to emergency funding

or other lines of credit like that. So how bad is going to be for these uh, non bank mortgage lenders? I mean, it's again, as you mentioned, they don't have the capital, they don't have a lot of the support. Well, everybody's pulling out, wells Fargo is shrinking, and the non bank lenders can't participate. Who's going to be around to give us mortgages? Someone will be there, but not everyone's going to disappear, but it's certainly going to consolidate a

little bit. They were, especially in this prescure space, there were which was basically only independent non banks UM there. That's where most of the pain is going to come from UM because that they don't have that government backing, so the loans drop in value. They can't really go to the g s c s to kind of get funding from them, and that's why we've seen like some

bankruptcies and they've been mostly focused on this space. So you know, I'm looking at the uh the story here and there's a couple of names sprout mortgage, first guarantee, mortgage. I mean, I'm not even tried go for a mortgage with one of these people, but the rage right, you're gonna do it, I guess. But who goes to these types of mortgage players? So there is usually more for non qualified mortgages, which is, for instance, if you don't have like W two's or basically if you're not eligible

for mortgages that are backed by Fannie and Freddy or Jinny. Um. So you that's the type of mortgages that are mostly done by non bank lenders. Uh, and that banks kind of retreated from after eight because they were the riskiest ones, and they were the ones that are kind of like got a little bit more regulated. First guarantees owned by Pimco. Yeah, that got my I mean, what are they doing in

that business? All right? Good stuff interesting here? I mean it's uh, you don't think about it as much, but as you know, interest rates go up and maybe some challenges. I think about it. You don't think about it so much because you just sold your house and you never had a mortgage to begin with note dumped it. I think about it because it took me months to get a mortgage. It was a painful, painful process. Why you're

you're a good credit right right? Well, well I did get a good rate, but I still had to, you know, show all of these documents. I had no idea where they are and with keep stuff. But you're a star on television that you just didn't say, Hey, go see me on TV tomorrow, And that's good enough. I said, you know what cable news fame, and they were like,

who are you again? All right, Carmen Royo, credit reporter for Bloomberg News, with that story out today and her team looking at the kind of the the mortgage market, but not from some of the mortgage players you might think about. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you for her. I'm Matt Miller. I'm on Twitter at Matt Miller en seventy three. On

Fall Sweeney, I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio