Markets, Commodities, And Twitter (Podcast)

docket to join us. Pre a great to have you on the program. Um, I'm gonna kind of sit back while you and Lisa explain to me what's going on. I know that what the curve is inverted for like the third time, maybe the fourth time, right, Um, and Jay help me out. Lisa, Sorry, Lee, Lisa helped me out. Jay Powell pays attention to the three month tenure, but we're all fixated on the two year, ten year. Well, okay,

so there are yield curve in versions. People. If it's waiting for this, you're seeing people really bid into the long end. There is this expectation for some sort of recession. But the thing that really has struck me in Matt. You know, to me, the fascinating aspect is that people are already pricing in rate cuts, and a lot of people are pushing back and saying it is too soon to predict the FED will curtail their rate hiking cycle.

Can you weigh in on that, this idea that there is going to be some sort of retracement of a federal reserve that is dead set uncurtailing inflation. Sure, thanks for having me, and I love all the rich talc. It's it's really the heart of the issue right now. So you know, I think it's fair the market pricing in these cuts. What I struggled with not so much

as the concern. I mean, the FED is likely to hike at the fastest space into the highest level really since the nineties, so it is a significant amount of frightening. We also have balance sheet run off, so there is a lot of tightening, and so I think the concern about growth and the consumer six months out, one year out, I think is legitimate, and which is why we're actually long long and real rates. We went long last week. What I struggled with is the pricing and of rate cuts.

I think the FED is telling us, and I'm taking them at face value. They've changed their reaction function. They care about inflation unconditionally, which means, even though they know that they have a dual mandate, if growth slows down, I think they'll view it as collateral damage. They really have to get price stability and their inflation credibility back on track. So if inflation stays higher, we're looking for

another actually above consensus headline inflation number this week. We're concerned that that's going to make the FED continue to hike, and I think the market pricing and cuts right after the last hike that I struggled with, I think they're going to stay on hold for a while, so that

inversion that Matt's talking about. I think that inversion stays deepens further because we're all going to wait for the FED to respond to slower growth, and they're going to be their hands are a bit tied until inflation gets

closer to percent. I don't think they'll have that. It's two percent the number that we're looking for pre I was reading a note from Ben Emmons over at Medley Advisors this weekend, and he says, um an unemployment rate of sorry, uh uh, an inflation rate of three point six percent would be three and a half percent would be headed in the right direction. I think it's headed in the right direction. It can help them slow down the place of hikes like we're looking for after this

fifties twenty five. But I think to ease you have to have two percent very clearly in front of you. I think three and a half is still too high. I mean, if we're a two and a half, that's a big decline and growth is slowing significantly. I think that might be mode level where they can cut. But absolutely I think getting to three three and a half, they'll say, look, their success, our tightening is having an impact. We can slow down, we can pause the hiking cycle.

I think cutting is just a higher hurdle. Right. We're speaking with Permsra Ahead of Rates Strategy over at TV Securities. Prior earlier this morning, we were speaking with Sonalza Sai, a Franklin Templeton who said she expects inflation headline and c p I to remain at about seven and a half to eight percent at year end. What kind of FED funds rate would that imply if the Fed really saw that inflation, Yes, was trending down, but only by about a percentage point. Oh that's not a good That's

much higher than our forecast. We've got FED funds closed like three seventy five by your en four percent biole next year with a five and a half percent cp I. So if you're telling me it's seven percent, I mean I don't think we go up necessarily a lot more than four four and a quarter, but I think it's going to make that it makes it very hard for the Fed to sound responsive to growth. Let's say, let's sort of reframe this in terms of the CPI print that we get this week on Wednesday. Is the risk

of possible upside or a downside surprise? What's the bigger risk based on market positioning for rates? I actually think, I mean we're looking for upside surprise because I think even though oil prices have fallen, they didn't really fall in June. But I think the markets more vulnerable to a weaker surprise, meaning you know, we were sort of we've priced in high inflation, and so if you start to see weaker inflation prints, I think these FED hikes

start to get taken out. The idea maybe the touts pricing will go down, but I do think rates will fall. I mean we've risen a lot, even in the front end, so I think now with growth concerns sort of front and center, a weaker inflation, and I should say it's not just headline, it's core, and it's details of the core. If all the decline is driven by airline fares, I think the market should ignore it. If it's driven by shelter service inflation, the consumer is pulling back and therefore

service inflation is slowing down. I think the market is going to say, great, now the FED can slow down hikes and that doesn't result in a recession. And so I think some of the real move this, you know, inversion of the curve or over the FED over doing it risk. I think that starts to come off. I think it's truly for it. I think we only see that sign closer to your end, but but that's the risk.

Pria thanks so much for joining us. Pre A Miser their managing director and global head of rate strategy at t D Securities. So, Lisa, I saw that interview they do with Nale Decide this morning. I thought it was fantastic and both Priya and Sinale are have been going long on the long end of the curve, right is that is that consensus right now? Basically people see a more consistent outlook over the next ten to thirty years

than they do over the next two months. That's my takeaway as we look at a market that is highly tollowed off, as we look at that market, and as we focus on Way. Paul Sweeney is out this week on the Big Island. Lisa just came back. Magnum p I. The Robin's nest was demolished in two thousand eighteen. This is Bloomberg. Let's go to Darway cong right now and talk about the commodities portion of that equation. He's a portfolio manager and head of Commodities over at d w

S Group. Darway. Thanks so much for joining us. Um are we seeing commodities prices turned down? I've seen charts recently the show. You know, not just the aggs, but also the metals and the oils start to turn over, even though we still have this natural gas story in Europe.

Uh Hi, Matt, thank you for inviting me today. Yes, we do see quite a bit of a correction recently across the board across all commodities and your rights across energy complexes, cross based metal and certainly agriculture as well. But we do think the drivers behind each part of the sector is different, so plus energy. Clearly energy is most directly related to people's concerns about the session and

the demand correct in there. It could be very severe should we have a deep prolonged recession, but we do think right now that's a little bit overdone from the energy price correction perspective. On the natural gas side versus oil, US natural gas price corrected much more than the global

natural gas price actually going opposite direction. Large part of that is driven by the recent vire freeport that caused the export to slow down, and we do think once to export blockage, what to reverse welcome to see the export pick up again, and then probably energy price, especially metural gas price wor pick up again as well. Darway's taking on the crude story on the oil, not the gas.

I'm wondering what the floor and what the ceiling is for your expectations at this point, given that just a few months ago you saw the potential for a hundred and fifty five barrel and Brent and now we're seeing recession concerns overwhelmed some of the demand issues and really caused the clients. Um, that's a very good question of our earlier assumption really comes from the unknown from how

much would the Russian oil be off market? I think at the beginning of March there has really been very little clarity about how deep the sension could go and how much impact there are in terms of just ability for for replacement for the oil. But we have found since then, and I think the market recognized that is the exports from Russia has been disrupted, but not to the large degree that could have happened. And then even though Europe is about to impose more ascension hasn't started yet,

so Europe is still buying oil from Russia. UM that that replacement of demands from Asia has been very palpable and was a increase buying from both India and China. They can take up what the Europe doesn't buy. So we're seeing less supply disruption than earlier expected. So that's why the price has declined. What's your outlook for China and how much does that play into the price because they've been locked down and I know, Um, that's also

stopped a lot of driving demand. Uh trying. That's an interesting story because in terms of the crew purchase, they actually haven't declined very much, so the country is still important crewe uh even though the demand part is impacted directly because of the traffic constraint. Um we're seeing China releasing some of the products of gasoline diesel, allowed that to export out of China recently. Still very limited by allowing that to occur, so we may see some more

inventory freeda from China. Chinese stories are very interesting because it is a policy issue for China in terms of the COVID constraints. So near term we see the same concern on COVID, but once that would to to change onnticipating very large spending package. We just saw one recently with a recent a large MOM program that's worth about billion US dollars that that if that would to kick in, we'll want to see sharp reversal of demand from China. Darwai,

thanks so much for joining us. Darway Kung there portfolio manager and head of Commodities over at d w S Group. Let's get over right now to Alex Webb Rights for Bloomberg Opinion and covers tech for us, and uh, he's going to talk about Twitter and exactly what's going on

there with Elon Musk doing his you turn. I will tell you also, the Bloomberg Markets is brought to you by Commonwealth, supporting more than two thousand independent financial advisors with the solution they need to grow a thriving business, Commonwealth go where you grow. Visit Commonwealth dot com to learn more with that other way, Uh, let's get over to alex web and and find out what happens next. I think Alex to be fair, we none of us were really expecting Elon Musk to buy Twitter. Is that

a fair statement. I mean, some people clearly were, because the share price got one stage, got very close to the offer price, but not for very long weeks and weeks, you know, not for a little while. There's been certainly a lot of very confusing messaging, and you know, Elon Musk says that she wants to buy it and then does something even before today, which seems to suggest very

much the opposite. It clearly was not looking good because the the offer price was fifty four dollars twenty The share price is now in the low thirties particularly given the latest news, some analysts forecasting that it could fall as low as the low twenties. So um, just even cutting aside any Elon Must related whimsy, from pure financial perspective, it was very hard to see why he would want to do this deal. But he's already sealed it, so there was an you know, he's tied to it in

a sense. Well that that's really where wanting to go, this idea that he's trying to back out of the deal. But the deal exists and is currently being debated in a Delaware chord, and you have Twitter board members saying you gotta buy this, and you've gotta buy it at fifty four and twenty cents. Is this all just a lot of drama around renegotiating price. That's hard to tell, Like, you know, that's essentially I've said this is someone earlier today.

Actually that so many questions when you're going broadcasts to do with Elon Must, they ultimately come down to what is Elon thinking? And no one knows what Ellen is thinking. He may still wants to do the deal, just in a reduced form. He may not want to do the deal at all. Ultimately, I think that you know it was looking over priced. Now, if he really wanted to, could he raise that money? Yeah, of course he could. He could just sell down his test or stake. Does

he want to sell down his test stake? Almost certainly not so. Um, it leaves him in a pickle where clearly the Dela where court is going to have to make some sort of decision. I think this would be one of the if not the biggest decision of this nature ever carried up ever taken by the court. Previously, there is evidence to suggests that they have forced these

deals through. The case law that most people tend to site is in the meat industry twenty years ago, where a company had agreed a deal, the market collapsed and then they tried to say, oh, well you weren't didn't provide us ironically with full data, which it sounds very similar to what Ellen has been saying. And they were forced to do the deal anyway. And so, but that was a third three point two billion dollars deal. This is a forty four billion dollar deal. So there's a huge,

huge difference there. Um, can he not simply pay the billion dollar breakup fee and walk away? I mean, he's super rich, right, It would be an expensive, um sort of mistake. I guess we would see there's a mistake. He probably wouldn't. But can he do that? Not if Twitter doesn't agree to it? Right? If they they? If Twitter saying look, you you've agreed to do this deal,

you have to do this deal now. If the thing is with a breakup fee, is that is when both sides of the of the agreements say, oh, for whatever reason, we code determined that this is not going to work, for whatever the reasons might be, but irrespect to that, you've got to pay the breakup fee. For instance, that would be if for antitrust reasons they weren't allowed to do the deal. You'd still have to pay the breakup fee because you know, you've endured some damage over course

that time. But just the buyer not one to do the deal. That is not enough to go actually the breakup fee and be done with it. Is there anyone standing by waiting in the wings? Any white night here, um even maybe a beige night. Well, we've not seen any big names reported, but there is over the years, there's been any any amount of speculation, you know, big names like Google for instance. Hard to see how that would be doable from an antitrust perspective, given that fundamentally

YouTube is a social media channel. Um, but there are you hear some of these names like Oracle or sales Force, some less sexy names who you know clearly have the capital, and you know that far hose of data's valuable, particularly for in the advertising business, Alex. It's a bigger question, which is at what point does it become more damaging for Twitter to pursue and try to hold elon musk price tag versus cutting their losses, cutting a deal with him,

letting him out, and trying to move on. And you could say that that pass that point has long since passed. They have clearly endured a lot of damage over the past few months and have in a certain amount of stasis, except I think clarity is something the shareholders almost certainly want.

But if there's no path to moving the share price from the twenties and thirties to the fifties again, then this is the best deal for shareholders, right, And so that's why potentially that's why they're trying to fight for it. From the Tesla side, how concerning is it and how much do you start to hear some pushback about a CEO who can joke about an acquisition, who can make comments and make agreements without thinking them through, perhaps, or you know, just on a whim and try to backpedal

just as quickly. I mean, has it had any material effect on the nuts and bolts of his business? Tesla shares are down. I think they're down something like, if I recall correctly, something like twelve percent since this this since the Twitter deal was announced. Now, whether there's a correlation between the two or whether that's the cause entirely,

it is hard to say. It also suggests that all investment in Tesla is rational, which you could say isn't necessarily the case as well, when you look at some of the earnings fundamentals, it is clearly or has clearly been a distraction. But Elon runs a whole bunch of companies and they seem to distract from each other, and yet Tesla share prices where it is, so, you know, I think that the bigger risk would have been perhaps relationship with China, stuff like that. Is that, but that's

probably more of a relation of risk for Twitter. I mean, there are so many different moving parts here that it's hard to kind of pin anyone down and saying that's been detrimental to this. Yes, there's so many moving parts to everything I'm finding this morning. Um. In terms of the deal, though, one thing I was thinking as I read through this over the weekend and Alex is that his friends he's got on board must be annoyed. His bankers must think, God, this guy waste so much of

our time. His lawyers even must. I'm sure they're happy about the billing, but just unbelievable how much business this guy generates. Is it not hurtful to his relationships? I mean, if you're a lawyer, you're probably pretty happy, as you say, yeah, because your generates all billable hours. If your banker is a bit more complicated. It also depends where you are

in the value chain. If you committed equity, then perhaps you're a little bit perturbed, although equally, did you want to be buying in at that price given the direction of travel. If you can get out of that, you might be quite happy. From the debt perspective, of course, the debt situation now, if there was a bridge, if there was bridging financing in there, and then all of a sudden you've got to find new financing. In the current climate, it would have been a significantly different ask

because interest rates are so much higher. So again I'm sorry to be, you know, a little too equivocate a little bit, but it isn't a clear picture that everybody will be angry at him. I think clearly if you are Twitter, back to Lisa's original question that you know good Twitter wanted to get out of this. I'm sure Twitter is annoyed because they he's kind of come in throwing a metaphorical grenade into the business which has proven a distraction for however many months in his life, to

prove a distraction for another few months. So those are the people I think are most put out right. Although you wonder how many employees really wanted to work for Elon Musk and I'll leave that a question. Alex Web, thanks so much for joining us. Alex Web their Bloomberg opinion calumnists who covers tech for us. Talking to us about the Elon Musk Twitter deal, I noticed everyone cares. Even people who are normally covering rates have commented on

Twitter today shade this is Bloomberg. Let's bring in Burt White to talk about this and how it affects his market outlook, his chief strategy officer at the Carson Group and bert Um, you know, these prices are real. Um. The Fed seems pretty determined to break the back of inflation. And can we take them at their word that they're gonna do whatever it takes and offer clear and effective

communication along the way. Yeah, I think you can. And I think I think what you're beginning to get a sense of is that, Um, you know what, what's causing this inflation is a bit demand, but it's released the supply side. And so I think what the Feds beginning to realize is what's just as important as their rate rising is their narrative. Right. They've got to talk pretty tough.

They've got to redefine what hawk is is. I think they are doing that as best they can, and that certainly was in the minutes, and I think they're going to continue to do that because at the end of the day, Um, you can raise rates all you want, um, but the demand side is not as big an issue. It's a supply side. So the Feds just buying time here with this tough talk until the supply chains begin to loosen up a bit, which we're starting to see happen.

It sounds like you doubt the commitment to raising rates to the degree that a lot of people in the market currently are pricing in. Is that right? Yeah? I think I think a lot of this is talk. You know. The good news is that that the markets come down a little bit, a feed has come up a little bit, which is really what has got the market a little

bit more comfortable. They were in completely different camps set in left field in La La Land, the market much more on Hawkish Land, and those two things have come together a bit um. But I do believe that the Fed wants to take a couple of really big swings at the ball um and and raise seventy five. They did that. They'll raise seventy five again. But then I think that they're gonna be a lot more moderate than

what I think that people think they will be. Um, at least the market is thinking they will be, because I think they recognize that all they can really do is reduced demand, which sends us to a recession. That's all they can do, and so they're willing to do that a bit, but they don't want to take that too far. They recognize what really is going to get us on the other end of this is the supply side beginning to open up. So how much pain do

you think they're willing to let us take? I mean, so far, we really haven't seen much in terms of, you know, equity indexes, we still haven't come down to pre COVID levels, and um in terms of unemployment, we're still an incredibly low number. Right, What do you think is gonna set them off to go together direction? Yeah, well, you know, you're exactly right. They have a lot of room to operate. And and remember the FED doesn't have a scalpel. The set has baseball bats, and so they

recognize that. So they have a blunt instrument. And so if they were trying to lower inflation from let's just pretend five to two, that'd be pretty tough because you need a scalpel to do that. But but moving from eight percent to two percent, have a lot of room. And so that's why I think that this soft landing is possible. So I think they're willing, just like they showed in some of the dot plots, They're willing to

see employment begin to slow down and moderate. They're willing to see the unemployment rate take back up a bit UM, call that a few a few, you know, maybe a half a percentage point or so. I think they're willing to see demand come down just a little bit because that's going to take some of the pressure off of what really is going to impact this, and that is a supply chain and so UM. I do think they're they're mindful of that, but their narrative has to be tough.

And that's really what's really cut out of this is. UH, they've come out with a really tough sort of stance, and I think that they're trying to just buy time that they'll do whatever it takes, UM, but they don't have the tools to fix it. They're just buying time until those uh, those real fixes on the supply side come through. Bert, my spidy sense gets the feeling that

maybe your long stocks is that right? You know, UM, we're neutral rate right now, UM, but we want to start buying UM and and and listen, midterm election years are always tough. You know, this is historically go back the nineteen fifty mid term election years have been the hardest of the three year presidential cycle, and the quarters win right now are almost always tough. UM. What we usually see historically is around right before the midterm elections.

That is typically the time UM to begin to see the market rally. We think that's going to happen again this time. So I think we're in for some you know, foltle up and down. Think about a decision box that this plus or minus you know, five or six percent. But at the end of the day, we think that that stocks move higher before the you know, by the end of the year, substantially higher by the end of the year, and a lot of that's going to happen in the latter parts of this year. Bert, thanks so

much for joining us. Burt White, they're um talking to us from the Carson Group, where he is chief strategy Officer. Thanks for listening to the Bloomberg Mark Kids podcasts. 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 three. On Fall Sweeney, I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.