Inflation, Markets, And Crypto (Podcast)

a moment. Bloomberg Markets brought to you by Commonwealth, supporting more than two thousand independent financial advisors with the solutions they need to grow a thriving business. Commonwealth go where you grow. Visit Commonwealth dot com to learn more. Johanna, a singer, joins us here in our Bloomberg Interactive Brokers studio. She's cross asset reporter from Bloomberg News based in Singapore but in New York. This week's we said we need

to get Joanna in the studio. When there's a ton going on, the perfect time for Johanna to come here. I mean, want the hell is going on. Sorry for saying hell, but you can't talk about hell if you can't say hell, right, Um, we have not only the drop in Bitcoin, which to me it's not abnormal to see this kind of I've been watching it for eleven years now and this happens, but um, the move in Tara is shocking to me. I mean, still day two, I'm stunned that this supposed stable coin can fall to

this morning twenties on the dollar. It's like x ute no, no, the ticker on the Bloomberg terminal. Right, Um, got it? Okay, you got it? All right? Okay, So what happened? What? What are? What is? There's there's this uh algorithm based stable coin. It's supposed to automatically make changes to stick exactly to one dollar. It works in combination with another um uh coin called Luna, which then I guess buys

bitcoin and avalanche and other stuff. There's this dude, a total bro and I don't like to use that word pejoratively, but I will right now. Who is the backer of it? He says he might have a solution what's going on? Well, this is the thing with these algorithmic stable coins is that they work until they don't. And there has been this history of these things not doing well, and you know, there are a few that have lasted a while, but

they can blow up in spectacular fashion. And you know, people have talked about this where if you have volatile assets that you wrap together, sometimes they can be volatile, they won't necessarily maintain that desired peg to the dollar. So it's really just been quite dramatic. And there are a lot of people who put faith in ust doing well in having these yields if you stake to it, that or more people were counting on that stuff, and now it doesn't look like that's happening. And the thing is,

how do you restore confidence once it's been lost? This question about both of you, what's the breakdown? And do you think an investor base for a lot of these crypto assets, whether it's Big Corner or anything else, institutional versus retail. Oh jeez, I don't know numbers per se, but institutions have been getting into them. But there are a lot of people who are regular investors who just looked at it and said, hey, twenty yield sounds awesome.

I'm gonna put a lot of money in there. And I have been hearing just anecdotally about people who have lost some decent amount of their savings on stuff like this. Yeah, well, I know a ton of people who have to be fair, UM made a made a lot of money over the last few years, UM that have gotten into this. People like my trainer. You know, I have a cameraman who have made hundreds. Well no, I don't. Actually I hired the guy and then we started hanging out for beers

and we don't really training. Now we're just buddies, different kind of training. But but so you're paying him to be your buddy. But these these guys have made a lot of a lot of money in crypto, but they're into all of these schemes right, anything where they can make a sick return or leverage, you know, get leveraged up. And also stable coins are a huge part of the

way they trade. The interesting thing to me, Joanna is that while this story is so shocking, we haven't seen much of a ripple effect across um the crypto universe. We haven't too much. Although some of the other stable coins are down just a tad um like Tether. I mean it's it's very minimal, but Tether is off you know,

point one cent or something. But yeah, you're right, that the other stable coins, but Tether and usd coin, for instance, do claim to be backed by dollars and other assets, so it's um, you know, you could say they're kind of a frint thing from some of these other algorithmic stable coins. But definitely Terra is the one that's getting all the attention and seems to be a lot of

the focus. Of course, the whole crypto complex is down significantly in recent days anyway, so that's not helping things either. And again I started off with coin basis now off twenty three percent today, off seventy eight percent year to date, r at a fifty two week low, still a market cap of twelve and a half billion. But I'd look, the coin base is kind of the everyday person's opportunity to get exposure to crypto, and so this kind of

feels like it's meaningful. It's still could be. So look, coin base is still going to be the major exchange that Americans used, or one of the major exchanges that Americans used to trade crypto. The key here takeaway in my opinion for retail or for any investor is don't

hold your crypto on the exchange. When you get a wallet you can use coin bases wallet, which they make it easier for you to access, but they hold the private key, or you can hold it on an off exchange wallet where you have to remember the private key. That's the one that I forgot um with my blockchain wallet. But the problem is coin based said if they go bankrupt, all of your crypto that they hold could be lost. Yeah,

that is a scary prospect. But you know, it doesn't sound like they're anywhere near that point yet, but they are. The price is just so dependent on where bitcoin is. Coin bases price peaked around at the same time Bitcoin did, so you know you've noticed that what I have in my hand, cold hard cash. That's how players roll. Johanna austing Er, thank you so much for joining us live here in the Bloomberg and actor Brooker's studio. Join Austinger,

a cross asset reporter for Bloomberg News. Bring us the latest on the vault crypto space. We've got in trades. We had a hot inflation number today. Uh, just kind of markets are trying to figure out which way to play this year. We do have green on the screen here, but again a lot of uncertainty out there. That's kind of what we're seeing in the volatility. Doug Baker, He's a portfolio management had of preferred securities at Nuvene. They've

got a couple of shekels under management. Doug, What are you and your team? How are you thinking about putting money to work these days? Given the inflation print we saw this morning, given what we've seen from this Federal Reserve over the past couple of months, how are you guys approaching the market? Yeah? Absolutely, um so, so thanks for having me on um. You know, our views are a little bit more sing going as as far as

as rates are concerned. We we do feel a lot as priced into the curve today and and really our our outlook as far as the Fed is concerned by year end is is a slightly slightly more constructive than the market. So we we do feel that the Fed will will get to about two and a half percent

by year end. UM the ten years probably gonna be slightly north of three percent by that time, but we you feel that what's important important takeaway here is that a lot is priced into the curve, and when we do look at at rates and where they are today, I think some people are are are looking a little too bearish lye and and feel that there's a lot more move to come. We're we're we're really positioned from the perspective that, um, we need to look at what's

priced in and and trade accordingly. Now we want to remain relatively conservative when it comes to interest rate risk or duration risk, and you'll see that reflected across our strategies. What about investors who want to return here? Absolutely, is it a good time to get in? We think so. We think credit spreads are actually very attractive in fixed income space, whether you're talking about investment grade bonds, high heel bonds, and in my space and preferred securities, the

credit spreads are actually very attractive UM. And when you look at the underlying fundamentals, they're they're pretty strong. Corporate America really from a liquidity and a leverage perspective isn't isn't too extended. And actually the consumers and really a

good spot too. UM. They had elevated savings rates during COVID and are really coming into this environment UM fairly well protected to with with some ability to absorb the impact of inflation like we saw today, still kind of coming in higher than than what most people are expecting, Doug, we don't talk a lot on this show. I don't think about preferred stocks in general and the preferred market.

Give us your kind of thirty second elevator pitch for preferred How are you guys thinking about that part of the market. Yeah, absolutely so. I think it's important that one of the first takeaways is that this is a high quality investment solution. Most of our issuers are banks and insurance companies, and those two categories combined account for

about eight percent of our issuer base. So at the end of the day, these are highly rated, typically and highly regulated issuers, and interestingly enough, both of those sectors arguably benefit the most from a rising rate environment. So so the outlook for the fundamentals in our space are

pretty strong. Now, a lot of our preferred securities are either long dated or perpetual nature, so so the thought is by most folks that this must be a long duration or high interest rate sensitivity solution, and so some people could be a little scared by that, but actually, you know, through active management and security selection, you can actually put a portfolio together with a very reasonable duration exposure.

For example, our our mutual fund at at the end of the month of March this year was running a duration of just over three years. So so I think that there are possibilities and UM very attractive ones to take advantage of the preferred market and and to do so while also managing your your interest rate risk to a fairly reasonable level. What do you think about UM Europe or other regions than the US. I mean, you say preferred, I think about Volkswagen. You say preferred, I

think about Porsche. Right, these are just they have famous preferred stocks. I don't know if you like them particularly. Why do they have famous preferreds? That's that's the doctor trades. Yeah, vow three at g y okay, yeah so, but but it just makes me I mean obviously not banks, although they have massive financial arms. UM. What do you think about the UH outside of the US? UM right now?

Sure so, so outside the US banks are still very large issuers of preferred It's it's a slightly different categories something that we've referred to as contingent capital securities. But definitely here in the US, it seems there's a misperception

about how strong these Western European banks aren't. It shocks most people when we put data in front of them, and we demonstrate that on average, UH, these banks are better capitalized and even our US banks and so so we do think that there are tremendous opportunities, especially in

Western Europe. Now are there a handful of names obviously we'd like to avoid and maybe some particular regions indeed, but we've we've gone through the Western European bank space to pull out things like, hey, how much Russian Ukraine exposure is there? What if this was all written down, what would that mean for for that segment of our market?

And and to be honest, with the amount of capital that's in the bank system today in Europe, um, they should be well positioned to absorb any any sort of hit or write down UH and and even the knock on effects that we expect to hit the European economy,

those banks should be well positioned. A reminder for everyone US banks, European banks, they're stress tested regularly to to determine whether they can survive dire economic conditions worse than what we saw in two thousand and eight, two thousand and nine. So when people are you know, starting to raise the specter of of of a recession, that doesn't really bother us too much. In in in in the

scheme of things, good stuff. Doug Baker bringing it today, Doug Baker Portfolio Management had to preferred securities at noeu Ven. Let's get over to Michael Dean right now, Bloomberg Intelligence autos analysts out of London. He covers Volkswagen has been doing a bang up job of it for years. In fact, Um, Michael, A lot of the calls that you made UM are are now coming true. At the main one of them being that UM, folks Wong is finally gonna I p

O Porsche. Before we get into the Scout announcement, which I'm pumped about, UM, talk to us about the Porsche I p O and how how important this is, How big is this going to be for a company that has, like, you know, ten other brands, Hi, good morning. So yes, if you look at some you know what's happening to Tesla in terms of the market capitalization. If you look at Ferrari, you look at the very strong valuations that that luxury brand has, and then you look at Volkswagen,

which is trading on near crisis multiples. It's very important for them to do something and by I poing Porsche, they can actually extract some value for shareholders and hopefully, you know, Porsche will be valued at a similar sort of level to to Ferrari Volkwagon. By the way, Volkswagen trades for about eighty eight billion euros in total right,

which is like a tenth of Tesla. How much is Porscha going to be worth post ipl so we think it could be worth up to eighty billion euros, so so almost the market cap of its parent company in total. So this is huge for the company. Why is Volkswagen trade at such a discount? Dude? Imagine this means you get Bentley, Lamborghini, UH Party, CRT, Scolder, Volkswagen. I don't know what I'm missing, all for free Audi, all for

Let me ask the expert, Michael Dean. Why is that? Well, you just look at any European auto company or any legacy auto company. They're trading on crisis multiples, which means that it's effectively the market saying that their their ice business, their internal combustion engine business um will take them down or or the company won't exist in the future, even though they're spending huge amounts and they're going to convert very quickly to too battery electric vehicles, so it's a

very tough market valuation for them at the moment. Well, let me talk to you about Herbert DS because I'm gonna interview in this afternoon. I've been following this guy since he came from BMW. He produced one of my favorite motorcycles there, the r N and t UM among other things. But now at Volkswagen he has led up. Can I say ball to the wall, charge towards electrification, towards the future? Um is he? Do you think doing

doing all the right things now? I think so? I mean partly, Um, you know they're big charge into battery electric so I think you know, Volkswagen can overtake Tesla in terms of volumes for battery electric vehicles in two thousand twenty four, but indirectly because of what happened with diesel gates, Volkswagen was kind of forced into battery electric vehicles. But Deese has sort of taken the helm and he's really pushed and you know, they're they're way forward in

terms of their transition compared to other legacy bronze. He has no blood on his hands from diesel Gate. By the way. It's personally a sad, a very sad story for me because I love a diesel power train. I don't. I just adore I still have a diesel. You haven't, Isn't it great? My first car that I ever bought with my own money was Audi a four two point five t D I. I loved it. My new favorite power train is GM's Babydramax, a little in line six diesel.

I think they're fantastic propulsion systems and given where pump prices are, I mean the economical as well, So I'm very happy to have a diesel at the moment. All Right, Michael talked to us just about the car industry in general. Like, one of the questions I have is just, you know, in the United States, kind of the average production with sixteen seventeen million cars a year, I'm told we're not going to see that again. How do you think about

production and inventory levels at the dealers? Matt's gotta wait like eighteen months for his truck. Is that the new normal? Yeah? It's so interesting at the moment. So, you know, initially we had these production shortfalls because the semiconductor constraints. Now we've had other supply issues on the back of the Ukraine War. So so yeah, we look at the first quarter results this year, many automakers their production was down,

but their margins are up. So they finally realized that they don't have to go for volume, and actually it's probably a good thing for profitability for the industry. That's they're producing fewer cars, they're producing higher marching cars, and they're producing less of you know, the smaller saloons, which aren't very popular anymore. By the way, I can't wait, um, Michael, until you come over here to the US and get to ride in my truck. Hopefully I have it by then.

But let me tell you something about this truck I ordered. It just launched in February. It's a g M. Chevy Silverado z R two. They priced at sixty seven, sorry, sixty six in February. Then at the end of the month, at the beginning of March, they probably is to raise the price to six. Then at the end of March they raised the price again to sixty nine to five. So they've raised the price, um, more than three thousand dollars in the space of like two months. Is that normal? Yes,

I've got another example. I was looking to buy the BMW I X so that's sort of X five equivalent battery electric vehicle. When I first looked it was eighty five thou pounds. It's gone up to a hundred and five thousand pounds. So the inflation is real. Yes, it's everywhere, and they can get these prices. People are willing to

pay it. Yeah. And you've got to remember the most vehicles of finance now, so um, it's whether you extend the finance over another year, so you make the monthly payment the same, so that it's not really hitting consumers pockets at the moment. So are the days over? Michael? And we we pull into a lot and it's just dozens and dozens and maybe hundreds of cars on a dealer's lot, and we get the have a little bit of a negotiation over the race you're gonna pay. Are

those days over for consumers? Yeah? I think so. I mean in Europe that was never the model, you always ordered the vehicle, and and in the US it's probably better for the manufacturers if it goes that way, because you know, you probably have more options, and options are very profitable as you know for cars, So so for long run, profitability. Um, yeah, I think it's better for the car makers, and that's the way it's going to

go in the US as well. All Right, I'm keeping my two thousand fourteen BMW five thirty five I in Duke Blue with manual transmission. Dude. It's a great engine, it's a great transmission, and I don't see anything wrong with keeping that. Um, I gotta uh, just a minute left here, Michael, What do I ask Herbert D's today? What should what should my most important question for the CEO of Folkswagon be this afternoon? I just confirmed that they're going to ibi Porsche in the fourth quarter. Um,

that would be the key item of my agenda. But also just about battery electric vehicles. So he's talking about the cost of batteries or the equivalent cost of of a BEV compared to Anne being pushed back maybe a year or two. So when will cost be comparable? Originally we thought it was gonna be two tho. We forgot talk.

We forgot to and probably to you, it didn't you weren't you weren't um you know, slobbering over a scout as a young teen, Michael, because I never had the scout you've never had it, but it's so cool for the US. I mean, does Volkswagen as a brand really have a chance in America? Well, they suddenly do on on the Beth side of things, um, and they've got good market show at the moment, so they're catching up with Tesla. There's suddenly in with a chance on the

new power trains. Yeah, the battery electric vehicles they had, the I D four is quite cool. The microbus, everybody's waiting for that. Greg Jarrett's waiting for that to come back, and then the and then the new Scout will be like a Rivian competitor. Michael Dean, Bloomberg Intelligence analyst, uh, covering autos for US at Alan and great to have you on the program. Thanks so much for joining us,

and do tune in later this afternoon. I'm Inberg Television and Radio from my interview with the CEO of Folkswagen Herberts Professional here doing this stuff for living Christian Ladeau, director of investment research at cap Trust. UM Richard, I'm just kind of reading some notes here about half of the broad US market, we'll call that the Russell three thousand, About half are down over from the fifty two week highs.

That's a bear market? Are are things worse out there than we think they are in terms of you know, the equity markets? Good morning guys. Yeah, there's there's a lot of I don't want to say sketchy, but let's say questionable business models in some of those companies. So we've we've really had a period of froth that had to come down, and we're seeing that in the broad swath of industries, mostly in the tech and health care areas. But you know, you talked about real economy stocks, those

are the ones holding up a little bit. Are certainly the ones in inflation beneficiary areas like energy and materials. All Right, So I don't know if you kind of got this message early in your career like I did, which is don't fight the Fed, But if you did, kind of makes investing hard over the next six to twelve eighteen months because we have a federal reserve that's certainly in a hiking mode. Indeed it is. And yes, my entire career has been in periods where interest rates

are going down. Uh, we don't know yet just how far the Fed will have to go. Consensus has it going to three and a quarter percent by UM at least that was the last read, and that was really predicated on inflation remaining high, and you know, it's too

too early to know. I think we have to have that debate internally about whether this is a nineteen seventies type of inflationary spiral or whether it's more like World War two where the gis came home and did a lot of spending and there wasn't a lot the goods available, and sooner or later that got solved. We had John Author's on yesterday. He was comparing what we're watching in the markets right now to what we saw in which which was a little bit uh scary, to be honest.

What do you think about valuations here? Um, What do you think about the possibility of a bottom? What do you think about investors kind of waiting into this and picking things up? Yes, I see a lot of similarities to those those pockets of speculative stocks, certainly do. UM. The prospects of bottoming here is really company by company and industry by industry. You have some really attractive stocks

at current prices. You can get a five six percent dividend yield with cash flows cheap on earnings, good balance, sheets and you're probably going to be fine with that kind of stock, but to really get into the specul of his stuff, you really need to see inflation come off in the FED, taking the foot off the gas pedal. A T and T what you call their Christian You picked that, you picked the poster child. And what I just said that is the that is a kind of

company that I feel has very little downside. Here. You've got a company that divested the media business that was a real drag on that company, and it's saying that it's going to stay straight and narrow from here. It's going to start raising prices, it's going to start cutting costs, and then it gets that evaluation boost to make it a little bit more in line with its peers Verizon and T Mobile, and you can get a thirty percent game.

The stog like that, is this a whole new management team there at A T and T. Because they two of the worst acquisitions I can remember, and I covered the media industry for thirty years as analyst. Was direct TV, a business that was clearly on the downside, and then A T and T with I mean buying Time Warner in business they didn't really know with a really tough capital structure. Is the management has it turned over such that you have confidence in their ability. Well, let's just

say this management team has been sufficiently chastised. I think the market has given it a clear signal. It had been a dog for five years, and I think it's known now that it's not going to be able to do that kind of transaction anymore. In the market simply won't let it. An activist investor would jump in there and tell him to stop. But now the management team hasn't turned over to a great extent yet. If they were to make missteps from here, I think you'd see that.

How about the homebuilders there? A lot of folks are concerned about the homebuilders. I know you have Pulti Group on there, but because rates, yeah, rates rates, I mean prices are already high, um, and now you've got mortgage rates rising. Does it make a difference. Oh? Absolutely. This is in the industry that's likely to hit a recession pretty soon. But that's a beauty of a cycle like this. This stuck has peaked a year ago and business has

still been getting good. So in other words, investors know this is coming, and now the question is what's going to happen a year from now, and I think you're going to have a pretty shallow recession. Now, that's that's

where we could debate this. But if we see rates come down, because inflation has come down about six to nine months from now, and you know, we still still have a structural shortage of housing, we could see the other side of this housing recession coming real quick, shallow recession. That he's a gaucho, by the way, who Christians a gaucho? UCSB? Oh, that's right? Then is there any more beautiful place? And I was just I can't imagine going to school in a cooler place. How was it? Tell us here on

the on the East coast? What was it like going to college at U C. S B. It was horrible to know how I ever got myself out of bed boy, and it stays like this in the market that I wish I was back there. Yeah, exactly, all right, Christian, good good stuff. We appreciate you coming on. Christian Lado,

he's in director of investment research at cap Trust. Talking about some of the names that are looking at it again, you know some of the names A T and T, Broadcom, Poulti Group, those are some of the names that they're you know, allocating some capital too. Here and in the markets today, a little bit of a mixed SMP and NADAL up about four to six tenths of one percent of the nasdac UH that's trading off about half of one percent, So a little bit of a mixed market.

Here is the market digest UH. This CPI print that we had this morning. 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 fall Sweeney I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio.