Market Outlook And Supply Chain Constraints

your investment professional before investing. Let's bring on our Jersey chief US interest rate strategist for Bloomberg Intelligence IRA, give us the latest on what your Federal Reserve plans to do over the next let's call it six to twelve months. Hey, yeah, there's uh, the opinions are all over the place. My view is that the Fed is going to go a little bit slower than the market is currently pricing, but

also start balance sheet runoff pretty early. So um so I think that they might announce in May, might even start in May with their balance sheet reduction because they really they bought so much and I was actually just looking at some of my spreadsheets this morning, you're fallen and that they probably bought about a trillion dollars too much in terms of their asset buying over the last year, so they have to get rid of that before they

could really tighten monetary policy very effectively in my view, just hanging out at home going through my spreadsheets. You know, that's the life of a chief fixed income strategist. Um. You know. I read a great piece today. I think it was Cormack Mullen talking about maybe it's too soon to call the end of the bond bull market. And one of the interesting things that he says is, um, there are already a substantial amount of rate hikes priced

in two treasuries today. If that's the case and the Fed delivers less than the market expects, um, you know, that's that's that's bullish for treasuries. What is priced in? And how do and how do you read what's priced

in for for someone who doesn't know? Yeah, so the easiest way we actually have a very uh you know, simple function on the Bloomberg terminal called w I r P or WARP some people call it um And if you if you use that, you can see kind of over the next year how much the markets pricing seven rate more or left. Yeah, so seven rate hikes uh by by this time next year, Yeah, exactly. So that's that's where I think that the market maybe is getting

a little bit too far ahead of itself. We actually put out a note yesterday suggesting that something more realistic would be maybe five hikes along with runoff, because I do think that the Federal Reserve does think about um the runoff as replacing a hike or two right that they don't know exactly, you know what the what the metric is is it, you know, five billion dollars a runoff equals equals another hike or something like that. That

that's a little bit more of guests work. But importantly, and and to your point that we are pricing in more interest rate hikes. The difference between looking at that long term trend that you mentioned, Matt. You know, yes, interest rates have been going down basically from present they

the long term bond bull market goes down. But if you're an an asset manager trying to outperform an index or you're trying to determine, um, you know, what your total return is going to be over the next twelve months of holding an asset, you don't have to think

about that long term you know, kind of two generation trend. Well, you worry about as the cycle and keep in mind ten year treasury yields are right now at two percent a hundred and fifty basis points one and a half percent higher than where they were a year ago or after that, after I should say, at the beginning of one So so you know, that is a pretty substantial move and and interest rates of you've lost money if you held the Treasury index right the Bloomberg Treasury indexes

down UM you know, five percent since the beginning of last year, actually even a little bit more than that. So that's a non trivial loss in a you know, in a bond portfolio, which is supposed to be you know, your ballast compared to the rest of your financial assets. Is the Federal Reserve gonna hike fifty basis points in March? I don't think so, UM. I think that they'll they'll

go twenty five. I think it's much more likely that they go every meeting this year and do go seven times as opposed to UM as opposed to hike initially with a fifty basis point move. UM, it is possible if inflation doesn't roll over the way that a lot of u UM market participants and economists think that it will UM that that maybe they'll do a hike a

fifty base point hike sometime later in the cycle. But I just don't think that they'll start with you you think, I mean, I'm guessing you think inflation is gonna roll over, our growth is going to slow down, because otherwise, well I wouldn't have fed do fifty basis points hike at every meeting and then not just let the balance sheet run off, but actually sell assets. You know, if we if we're stuck at seven and a half percent, people

are freaking out. Yeah. Yeah, So so we won't be stuck at seven and a half percent, I mean, just base effects alone. If you're looking at year over year inflation, UM, inflation will be low or for four or five months from now. The question is how much lower, right will we will we be trending from eight percent, which you know we could get seen a percent prince is not out of the question, especially with what oil has done recently, UM.

But but if we get an eight percent print, the question is will we be at at four percent or five percent at the end of the year, right, So, so how is that glidepath going to go? Which would be harsh by the way, that's four or five percent at the end of the year on a six percent number from the year before, right, Yeah, But at the same time, keep in mind we were at one and a half percent inflation for a decade, right, So that was good in a way. That was good. Remember what

Reagan said about inflation. Yeah sure, but and yes, this is this is the question that it has to be answered before we know what that end game is, right, Like, is seven hikes going to be? What what it takes. Look, the bond market right now is telling you there's gonna be a recession next year. Let me say that again. The bond market is telling you there's gonna be a recession next Well, that's not fun. Curves are flat um.

And and this is where this is where this you know, the FED making a policy mistake, Like the markets already priced with the Fed to make a policy mistake. So what we're already priced for two s tends to be basically at zero UM at this time next year, which is very consistent with the market thinking the Fed is gonna be done and we're gonna have a recession. I'm

looking for when, I can't find when. But Reagan said that inflation is as violent as a mugger, as frightening, as an arm dropper and as deadly as a hit man. All Right, Ira Jersey gif us industrate strategist for Bloomberg Intelligence bond market calling forward recession. If you're talking about Ira Jersey in the last segment you mentioned w I R P Worp. Put that into the Bloomberg and it shows you that the markets pricing in seven rate increases

by the end of the year. What's the fixed income manager to do in that kind of environment, Well, let's check in with Kevin Nicholson, Global Fixed Income co ce IO, cohead of the Investment Committee at river Front Investment Group, located in Lovely Richmond, Virginia, home of the University of Richmond Spiders. Kevin, thanks so much for joining us here. Given that interest rate backdrop, how are you guys positioning

your portfolios? Thanks for having me, Paul, And we continue to position our portfolios in such a way that we're moving further and further up the curve, so to speak. So we're buying on the short end of the curve because as we're seeing the curve flattened, it doesn't really make sense to take on that duration risk in your portfolio. Um and so what we have constantly been doing is we've looked for some spread, getting some a little bit of additional spread on the front end of the curve,

and buying short term corporates and some high ye opportunistically. UM. But one of the things that we have not been doing is going you know, beyond about five years out on the curve, because we really don't need to at this point. But overall, because we run balanced portfolios, we have been underweight fixing become pretty substantially relative to our benchmarks in those balance portfolios. And we've seen, um, a Bank America survey yesterday shows us that credit investors were

in kind of sell everything mode. Goldman Sachs was recommending, um, you reduce your exposure to credit and go to cash. Is this the end you think of the bond bull market that we've seen since the early eighties or is this a mini bear market as some I've been describing it.

I would say it's probably a mini bear market in the sense that I think that you know, by the end of the year, we'll see it two and a half on the ten uere But I don't think that we're going to retrace what we have seen occur over the last you know, twenty years. You know, I've been in the business thirty years, and I think that when I started, the tenure was right about a seven thirty four seven thirty five. Um. And do I think that we're going to retrace all of that? Absolutely not, um I.

But I do think that we're gonna go higher. We are probably like I said, see you know, two and a half on fight year end, Kevin, I think the consensus on the street is that inflation will kind of peak I don't know in the next several months and then moderate remainder of the year. Are are you in that camp? If not, why I had been in night camp. You know, my thoughts were that inflation was going to peep in the first half of this year and then moderate to around between two and a half and three uh.

Thus far I would say that we have been wrong on that front. And you know, I think that it might be consensus that it's going to peak. But right now it's a hope and a prayer because as you've seen, you know, headline inflation coming out of seven and a half cent. We saw a p p I the this morning. Um that was really high. And so there's inflation everywhere. UM. But the one thing that is all that we believe in is that high prices will solve the high prices problem.

And so as prices continue to go up, I think that, you know, we're going to kill some of the demand out there, and so that may help mitigate the inflation risks that we're seeing. So hopefully by you know, Midsummer, we will start to make inflation teach here all right, Kevin, thanks so much for joining us. Kevin Nicholson. They're Global fixed Income Co. C I O and Co. Had to invest the investment committee as well at Riverfront Investment Group.

Talking to us about the fixed income markets. Looking at the yield curve here, I got the ten year treasury up five basis points two point zero four percent, to thirty year up six basis points two point three five on the thirty years, So rates moving higher. Let's get in angle on how you might play the fixed income markets given that this feder Reserve has been very clear that it will be raising rates. We check in with Hugh Robert's head of analytics for quant Insights. Hugh, thanks

so much for joining us here. What is your bond market outlook for Hi, thank you very much for having me at the moment, we have our models, we rely on macro input to give a kind of quantitative perspective on all asset classes, and looking at the US fixed income at the moment, then the moving yields has slightly got ahead of itself on our metrics UM and anecdotally adding into that, I think you know one one story that might just play Internet if you start looking at

just how much the flattening of the yield curve has happened in coupon space, and then looking at the shape of the yellow donor strip, you see the deferred contracts actually starting to speculator about rate cuts. So while at the moment markets are talking about the said high team this year and next, the market is actually already moving on to the next narrative, which is, at what point do they fear a proper kind of mistake and a reversal in the policy stance and easing once again? You

know how far away from that are we? I mean it's difficult, of course, the forecast UM into the future, the further away you get. And and for now we're looking at a seven and a half percent inflation print. We had pp I come out higher than expected today, UM and there's no sign that we're UM in a recession other than the you know, implications of a flattening yield curve. Yeah, well, some of the men if you look at somebody like that Lena said GDP, now that

had a sharp move earlier. Most of the models that are kind of more forward looking, that are kind of more credit impulsey type of nature or financial conditions indicators do suggest that the story from the the flattening of the yield curve is true, that the big fiscal stimulus we saw last year UM is going to fall off. We'll get a kind of cliff edge effect there. So I think there are quite a few of the more forward indicators that do suggest the data could be struggling

in the near term. The consumer confidence data yesterday not make pretty reading UM, but yes, that the whole inflation debate is absolutely front and center. And I don't think team transitory has completely thrown in the town. There's a large residual of the market who are still in team transitory. It's just that they defined transitory in quarters rather than

in months. And you know, they think that we need to wait till probably the middle part of this year before you start to see things roll back over again. You does a flattening of the yield curve suggests a recession to you? I think you have to be very very careful the because you have to rephrase that question. To my mind, an inversion of the yield curve, Yes,

it is consistent with with recessionary conditions. It does depend on whether you're looking at two s, tens, fives, thirties, whether you look at guvees or swaps or O I s um. There are little nuances you can take on that front. But the inversion of the curve does have a good back record of being consistent with recessionary conditions.

For sure, a flattening of itself. But when the curve stays positive, no, that won't stop the market speculating about it, because obviously it's about the journey to the end game. But you really have got to wait until you see curves go negative before you can really start kind of increasing your your forecast for recession in a material way. Well, but we're still close, right What are we looking at a forty basis point spread between twos and tens right now?

And the Fed hasn't even begun its rate high cycle. If you look at rate high cycles over the past decades. Um the curve always flattens more in a in a in a rate high cycle. So if we're going to see any more flattening, inversion is next. Yeah, no, I agree, but we have got that Fordy Lips cushion and it will take time to get there. That's my my point really, just on the reality of inversion versus the flattening when

you're in a positive, upward sloping gheel curve. And then I guess the other point to throw into the mix really is just the degree to which financial conditions have heightened already. I mean, the moving real rate is phenomenal, The repricing of the front end of the yield curve, you know, the two year notes or do euro dollar strike, whichever metric you want to use. The widening in credit spreads, you know, the widening in credit spreads is a tough one. If you look on a one year chart, it looks

pretty done, dramatic. You look on a tenure history and really it's just a blip. But we have seen a sharp tightening of financial conditions, and that the others slightly cliched, but I think it is a truism. The other thing to throw into the mix is that it's less about levels, it's also about the speed of the journey. So you know, if we have a sharp flattening of the yel curve that happens in two weeks, yes, the FED they're going to sit up and take notice. But it happens over

a prolong period lesser. So many of the things you just said reminded me of the Jean clautriche ECB. Is the likelihood of a turnaround, of a of an about face after a little bit of tightening higher for the E c B than it is for the FED. Um, well, that's a good question. Um. The difficulty this one, of course, that we haven't in a lot of people's recent lifetime seen inflation like this. Now, this is a complete game changer,

having these levels of price pressures. And I think you know the way the markets have thought about, at least in an equity markets, you know, this kind of concept of restriking the said put for US equities at a

lower level makes complete sense. We have to reprice given these conditions that we're seeing on the inflationary front in terms of FED versity c B. I mean I think most market participants will always view the CPS laguard that they are so petrified of the euro as being strong and and titling them that they will always go second. All right, Hugh, thanks so much for joining us. You Robert's head of analytics at Quad Insights, giving us his thoughts on interest rates. Well, Matt and I, we've been

focusing on the supply chain challenges. It is a global issue for businesses really across the board, and you hear these quarterly earnings calls. Companies are calling it out left and right. Let's ga get a sense of what it means in the critical food business. Andre Menezez, co founder and CEO of Next Gen Foods and Tindle, joins us. Andrea, thanks so much for taking the time. First, just tell us what Next Gen Foods and Tindle do. What are you guys up to, Hi, Paul him, It's a pleasure

to be here with you right now and talking to you. So. Next Thing Foods is the company behind Kingdo, our plant based chicken brand, and uh it's a company that let's stablished in seeing the poor and in less than a year we are already in Singapore, Hong Kong, Dubai Amsterdam and coming to the US right now. So where do you sell this stuff? I've noticed walking around Trader Joe's that there seems to be um plant based or you know,

vegan versions of pretty much everything from cheese to meat balls. Um. What what are your sales points? Well, we actually have a slightly different strategy. We start with chefs. We call it gastronomy first, and we start with the most trendy restaurants and chefs because we do believe that they play a role in um showing consumers that plant basted foods can be really believer that great food experience that we usually have at nice restaurants and behave at the highest

level of astronomy. What do you see out there? Unfortunately today are mostly only nuggets and tenders, which are nothing wrong with that, but we do believe that we can do better and we can really have a product that caters to the highest level of food experience. So is that a give us a sense of kind of kind of like is it restaurants and what types of restaurants are you selling into? So, yes, it is restaurants. Around the world, we have restaurants serving tindle in many different

shapes and formats. As for the preparation of the chefs, UM, it's extremely versatile. Therefore they can really prepare as they prefer. And UM, the profile of restaurants that we have right now would range from you know, find Dyning, Mission and Stars all the way to casual neighborhood UM restaurants with their you know, their own chefs creations in house, and then maybe multiple units like five, ten up to forty units. That's what we have been seeing around the world right now.

The Gray Dog is a restaurant here, orchard grocer exactly. UM, what just what I needed in hell A, Miami's Little Brazil. So we we have some of these restaurants here. What kind of growth are you looking at? What kind of growth are you forecasting? Um? We are all about creating the most meaningful impact in the food system we can. And I mean I came from the from the poetry industry, and while the meat industry has served as well in the last two that gets to really provide protein to humanity.

We believe that there's a better technology to produce what we like, which is basically ingredient. Uh, and we do it without the birds. So our ambition is to take a relevant share out of the birds on the chicken industry and provide consumers for more sustainable, equally delicious and as nutritional as or even better than than than chicken. That's our goal. I gotta say, have you seen uh the film Baraca? Paul No I ask I always ask this, and you you never go and watch it. Have you

seen this film? Andre Baraca documentary? There's no um, there's no dialogue. Um. They just have a three part series where they show um city life production. I think of cigarettes and then uh poultry factory and it just makes you never want to eat chicken again when you look at and I missed this, when you look at how factory um farms Uh, I guess raise although it seems like the wrong word and produced chicken. It's just horrible.

But of course it tastes so good, you know, Andre, how do you replicate the delicious nous of a chick fil a with m plant based proteins? Now, you're absolutely right, um in the I haven't watched the movie, but I will. UM. What I can tell is that I have worked for over seven years in the poetry industry, and I think what happens is that we um as consumers, as meat lovers, um, we like the ingredient. I think that, as you said, it's so delicious, right, and you know it's nutricious, as

delicious as fibers versas tile. Chicken is the only global animal protein, truly global and really local everywhere. So we recognize that from a consumer perspective. But as you said, I also don't know anyone who went to a poetry factory, including you know, all of us who came from the industry, who goes to a pulture factory and get out of the saying that they're craving chicken or any animal after seeing the process in which we get the animals from.

It's really um something that it's it's you know, it's not sustainable, it's not efficient, and it's time for us to improve that. How we do that is very simple. Actually, it's harder to justify the animal farming, if you think about it, than it is to to to just explain how we get you know, soy water, coconut bad some flower oil through you know, process and technology. We just don't transform that in what we want. We want the fibers, we want to taste, We want this spatch and for

none of that, we need an animal in between. I guess it's just that we kind of take it for granted, but it doesn't make any sense for us to just keep raising billions and billions of animals just to get a little bit of meat out of each one of them. All right, Andre, thanks so much for joining us. Really appreciated inching part of the food chain. Andrea Manennaz, co founder and Andreas it Menzi's It's menis Is And yes,

thank you so much for the chat. I'm very happy that everyone listening to us right now they can't affective the trite single ordering on Go Valley anywhere in the US, prepared by Chad Chad Rosenthal in the Motive Preston. All right, Andre, thank you so much. We really appreciate that. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt

Miller V three. Pt On False Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio