Markets, Fixed Income, And Crypto Investments

joins us. She's the CEO and Chief Strategies at Quill Intelligence. She drives on social gotta follow on, Danielle, you drive it. You have a giant pickup, don't you. UM. I have a large SUV, but I also have four large children. There you go. You need that space, Danielle. She's a chief strategis Quill Intelligence and former advisor at the Federal

Reserve Bank at Dallas. UM. Danielle, A lot of our listeners probably haven't put money to work, invested in, been in the market, taken market risk in a rising interest rate environment. How are you thinking about this environment? Right here? We're talking about the Fed raising rates, and I keep hearing people raise their expectations for the number of rate hikes we're going to see this year. How do you

kind of frame out two and twenty three. Well, I mean, you know, look, I applaud the idea that that the FED is going to have that kind of flexibility because it implies that there's there's significant runways for this economic recovery to continue. And I just you know, I'm seeing so many red flags raised, whether it was retail control, whether it was Empire literally collapsing yesterday, and Empire headline tends to follow what follows, which is the Business Leader survey.

In New York is a very service intensive state. Um, so we're seeing some some markers out there. Uh in Michigan, for example, I'm gonna throw a one quick example out in Michigan, you've seen General Motors and Ford fire back up their production line so they're they're unemploy Claims are the healthiest in the nation if you take Michigan out

of the top ten most manufacturing intensive state. We've seen initial jobless claims weekend for five weeks running now, and that flashed me, you know, as along with the Empire, that we're heading into an industrial recession and pretty quickly. So my concern is that the global economy and the US economy are slowing fairly quickly because we've been in

this compressed economic cycle. That's interesting. We don't see it coming through in financial conditions yet, at least as measured by a con On the Bloomberg Termer you can type f c O and go for the financial conditions, but gold other function of the day. I mean, all the big banks also have their own con um UH indexes. Danielle, why do you think that is? Why do you think this UH hawkish pivot, the tightening that we're seeing not just from the Fed but globally from central banks hasn't

um fed through into financial conditions. Well, I mean, look, we didn't increase the paper and my good friend Dr Lacy Hunt says that there is a three times multiplier that you can apply to liquidity being reduced the same way you would apply to liquidity being increased. But we haven't seen this. But for two weeks into January with the with the taper increased to billion from the prior

fifteen billions. We've got another thirty billion coming on February of the first, so you know they're the liquidity is being pulled from the system. But we're not seeing the effects of this except for in a very lagged fashion. Well I say very like very lagged in central banker speak as a former central banker, means like eighteen to twenty four months. But again we're seeing a very compressed cycle.

I'll be paying attention to the Philadelphia FIT and the other surveys that come out in the days to come, because everything that we that we're seeing right now suggests that we're going to get in a disappointment when we see the I s M. That's when I think you'll see Wall Street pay pay better attention. Well, when you say that we're headed for an industrial recession, when are we gonna see? Is that what we see coming through in the I s M. Where are you going to

see that? For? First, I think you will see it in the I M first, and again I think that if you're if you're talking about the nine most manufacturing intensive states in the nation, with Indiana being the most intensive of them all as as a as a percentage of their growth state products, that five at the last, that that five straight weeks of weakening initial jobless claims is saying something to you. They're up in that short time frame, Danielle. I often I just can't understand that.

Why you know Indiana when you say Indiana, I think of um electric cars because Rivian produces there. I think the town is called normal Indiana, Normal Indiana, and they must be working triple shifts. I mean, isn't everyone buying as much stuff as they can get? Aren't you ordering all of it? I don't think we're ordering as much as we think we're ordering. If you if you think about car sales in America in the aggregate, again, electric vehicles are a really hot spot right now, and there's

absolutely no denying that. But but when you think that car sales holistically peaked in April, that's not like the beginning of a small trend, you And there's more of a supply chain disruption in that length of a narrative.

And we know that many companies have gone from just in time inventory replenishment to just in case so and we're starting to see evidence in the inventory data as well that firms inventories they need for them to be so in some cases you might be talking about opponent, that being the semiconductor All right, Danielle, I love having you on our show because oftentimes I hear from you first on new topics like an industrial recession. Had not heard that at all. We need to do a whole

whole show with her. Daniel, next time you're in New York, please come in the studio. Yeah, let's do that absolutely. Daniel de Martino, Booth CEO and Chief strategistic Quill Intelligence. I'm telling you, folks, it's some of the smartest economic uh and now's is out there. From my perspective, she is so data intensive. Uh. Great follow on social media as well because she shares her thoughts on social as well. All right, let's bring in David Deats. Let's get h

professional again. David Deet's managing Principal Senior portfolio strategists at Gladstone Bank. David, what do we do here? I mean, I've got a rising interest rate environment for the remainder of the year going into next year. It's been a while since I've had to deal with that. What are you telling your clients in terms of asset allocation for the next year or two? Well, certainly you you want to make sure that your long term asset allocations it

is here too, because the problem here, Matt is that. Um. You know, stocks uh do not necessarily benet from rising interest rates. Obviously it reduces the present value of all those future earnings, but don't look so good either, um Uh. You know, as yields go up than bond prices go down. We saw a negative return on the major bonding necks last year, and it started out that way this year.

So I think this year you continue to be fully committed to stocks um, but you do want to pick your spots because I think you're gonna see different winners uh this year than perhaps you've seen during the pandemic. What about the you know, we're talking with cretty good earlier across assets reporter, and she said, one way a lot of people are hedging inflation is just by buying

the things that inflate, i e. The commodities themselves. Well, certainly stay diversified, but but we have seen, of course commodities and energy prices, particularly UH skyrocket since the depths of the pandemic. UM. Energy prices have gone up every day this year. Certainly, there's geopolitical developments on the horizon. You've got a pipeline explosion between Turkey and Iraq. They've got United State says that Russia may immediently invade Ukraine.

All those things could drive energy prices higher. Posts of course, the more overriding factor is we are ultimately think going to get out of this pandemic and that's going to drive demand for energy. So that's interesting, gave. You know, on the energy front, I'm looking at w T I crewed here up another one point four percent, just under

eight seven dollars per barrel. You know, the energy stocks, you know they've been they were so out of favor for both cyclical and secular reasons, but they've had a nice run. And do I take my profits here? Do I have more room to go? So I definitely agree

with you that they seem over bought here. Um And and certainly, you know, some analysts are coming out now and saying, hey, you know, um, this business that they're gonna hold back on further development because of pressure from green forces and because they just want to return capital shareholders. Not necessarily we're not. We're seeing you know, junk graded energy companies being able to uh tap the borrowing windows

very easily. We're seeing rick count surge at the same pace that it did back in the last time that's happened two thousand sixteen, two thousand seventeen. Nevertheless, I do think that um uh, that there is more discipline on the part of these energy companies. They want to return money to shareholders. Basically shareholders need to return. Has been so long that they've been down in the cellar that they think we've got more room to go. And I think that should be part of a world there's reverse

surviveed portfolio. When do you think the tightening environment? And to be fair, we've had basically job owning us far right. But um if the FED is going to tighten uh and by raising raids four something some people are saying and and Wong from Bloomberg in tellis now five times this year. As as they run off the balance sheet,

when does that hit the real economy? David Well, Historically it takes twelve to twenty four months, and historically stocks have continued to do well until about the third rate hike. If in fact we get there, you know there's three steps and the stumbles of famous Well Streets solved from back in the seventies and eighties. Um So, I think

it's going to take a while. One reason we are optimistic here, of course is there's tremendous political pressure to keep this economy going for those in power to stay in power. Um. And of course there's there's tremendous political pressure to make sure that everyone states fully employed here. So I think that although there's a lot of jaw boning bowing, as you pointed out, UM, if they see

any real effect on the economy. And it's difficult because all this stuff works with the lag, it takes a while. I think you're gonna be quick to recalibrate exactly what they need to do. That's interesting. That's in Muhammad arians

op ed that came out overnight. He essentially said that's one of the main reasons that the market and financial conditions haven't tightened along with the Fed tawk Is pivot, is that a lot of people don't believe the central banks will even do it, or that if they do that, they'll fall allow through and go the whole way. Really, I mean, I mean, the communication has been so clear. It seems like the messaging has been so clear. The

transitory messaging was super clear last year. Good point, good point, all right. David Date's managing principal and senior portfolio strategists for Gladstone Bank joining us there giving us his thoughts on these markets and inflation outlook and risk assets. Let's get right to R. J. Gallo, senior portfolio manager at Federator Hermes. He's a former financial alice with the Federal Reserve Bank of New York and ARCH. I guess I want to start with the Federal Reserve. Is my Federal

Reserve behind the curve here? Um? Yes? I think the tone of the FOMC speakers recently clearly portrays that the policy making officials, the FOC members voting or not, all have woken up to the idea that inflation is just too high and they need to act boldly to address it. So how boldly will they act? We're starting to hear and see the my market basically price in if you look at Euro dollar futures um a fifty point at the possibility of a fifty basis point hike in March, Yeah,

it's striking. I mean, it's been a long time since we've seen that type of incremental tightening that scale, usually twenty five basis points is dogma these days. But obviously we're in challenging times. The FED throughout the playbook to ease in the face of the pandemic crisis. I wouldn't be surprised if they have to rewrite some things or revisit the past and being more bold on the way back up In terms of tightening. That's said, I don't

anticipate in the fifty basis point move um. I think one of the key challenges to the FED right now is can they address the inflation problem without causing financial conditions to tighten accessively. It's sort of like walking a tight rope. I think part of the language we're getting from them it sounds very bold by design now that I don't think you're trying to deceive us. But they have to talk tough. One of the key facets of the market's interpretation of inflation lately has been it's really

high now, but it won't stay there. How do you keep that market in that mindset? You talk tough as a FEDE official, and you're gonna have to deliver, You're gonna have to tighten, you're gonna have to taper. All the things they're talking about. I don't think it serves their purpose to do so in a way that causes financial conditions to crumble. Well, we still see financial conditions, We still see them quite loose. And this is a question that John Faroh has been asking a lot over

the past couple of weeks. When our financial condition is going to be affected by UM, you know, rate increases Muhammad Area and posing the same question and an op ed overnight. But I guess what you're saying is the question should be if it's possible for the FED to tighten without financial conditionings, financial conditions UM getting uh too problematic, too difficult. I think they need financial conditions to tighten. You know, obviously the stock markets had an incredible run.

Credit spreads are tight, cost the capital is low, capital provision. You can get capital in most places of reasonable prices these days, and I think the FED wants that to reverse somewhat, But they don't want to cause a disorderly crash of some sort. They don't want the stock market to go down. We know how the FED responds when

that happens. How many people have been talking about the FED put probably is UH further out of the money these days, and that might be true, but the FED isn't going to try to engineer a situation where we see a bear market in stocks just to tighten financial conditions. I think they would instead talk tough, deliver in a methodical and still somewhat gradual way. Don't go fifty five,

but stop adding to the balance sheet. He talked about reducing the balance sheet and do it in ways that the markets are not surprised at the fact that the Fed, facing nearly seven percent inflation, is acting aggressively. People rationally expect they should be acting aggressively. If they weren't, I think the markets would be worse off. We'd be very concerned that our central bankers have just lost all religion

with respect to inflation. That would be a worse outcome than actually trying to tighten those conditions without causing a crash. All right, r J, thank you so much for joining us. Always appreciate getting your perspective here. R J. Gallo, Senior portfolio manager for Federated Herme's talking about these fixed income markets. What is being discounted in the credit markets today. Let's talk a little crypto here. You know are when we talk crypto a lot of times we'll go to Mike McGlone.

He's there, kind of our crypto guy at Bloomberg Intelligence to get the investment research angling, he moved to Miami, Florida, And I thought it was just a scam, everybody else moving to Miami, getting out of New York, selling their New York property and going down there. But he tells me Miami is becoming a crypto hub. And I'm like, wait a minute, New York is the financial hub, but what's going on here? So let's bring in somebody who kind of as the stuff for living Alex Lamberg, CEO

of Nimbus. Alex doesn't matter. Does crypto have a hub like Wall Street for the financial services industry, like the City of London for financial services in Europe? Does crypto have a kind of a hub? Uh? Good, good afternoon, A good morning still, and thank you for having me this. This crypto have a hub? Well, it should, but it certainly shouldn't be one city. And I'll give you my my my logic here. Right. Um, So you started off by saying, you know, New York as a hub for

financial products and and it should retain that. It should retain that, Monica, right, you know, no matter what we do as far as witch industries, we're going to we always want to find a standard, right, and a gold standard or some form of guidance or some form of some kind of a standard. And and you you you have to understand that blockchain will cater to a whole school of products, a whole smooth innovation from from finance to social, to medical, to you know, to everything else. Right.

So so when we do speak about you know, when we do speak about New York, you know, it's important that New York screams from the top of the from the mountains that they want to retain that financial you know, to become to retain that financial hub as a as a gold standard. Not not only that that they should also retain that gold standard from a regulatory perspective, right, And and that's what they are to the world. And I know, I know, regulatory is the most horrific word

when it comes to blockchain and define everything else. But it really isn't right, Uh, you know, regulation, regulation is going to be tried for you know, when you know investors or that participants, let's in this particular space, UH need someone that that policing and that guidance. Right. Everyone hates the police until your house gets robbed, right, and then they started screaming and even even CEOs like myself, right, you know, you know we we we cry against regulation

because we want to get into this space. What happens when we actually create a company and we have a product in service and other participants in the view want it, you know, are not doing it the right way, right, and then we want regulation as well. Right, So New York women should be that stand up or wherever c

Z is at the time. I guess Alex, let me ask you about Nimbus because, um, you know, Bitcoin was the white paper came out what two thousand nine by Satoshi and Nimbus is, as far as I understood it, a cipher that was from ten years before that. So what do you do? So so Nimbus Nimbus is a traditional defying company. Well, we'll defined the way defines being

used today. Right, it's you know, we have a school of products, of school of apps, but primarily we're focused on lending, uh, you know, peer to liquidity, providing peer to peer uh and and lending. Where I'm taking nimbusis taking Nimblais to start leveraging all of the alternative assets that we've wanted to run in efficient markets and have price discovery. Uh. And pure liquidity and all that other

good stuff. So we're taking what is a four hundred billion dollar alternative asset space that exists purely on the auction model and actually starting to bring it in uh to a more liquid market and more efficient marketplace. That's what embasis, you know, for the most part. I mean, we're a hundred men organization, hundred person organization, I should say, uh, in seven different countries, and we're starting to get a

decent foothold in the US. Alex yeh. I'm looking at, you know, the volatility that we've I guess become accustomed to in the crypto space. And again Bitcoin just for example, down one point three today, just unders per token. What's your outlook for crypto this year and beyond, because you know, we're going to be in an inflation we are an inflationary period. We're in a period were interest rates or will be right using. How do you think the crypto

asset class performs in that environment? I think, uh, I think that I fullheartedly believe that the crypto ax the class is going to do extraordinarily well for for for basically what you just said, right, you know, you know, inflationary periods. What's going to happen with the interest rates uh uh and the whole slow of other factors that crypto really should live outside of now right now, because so much of that is either pegged or or or

have a tie into the traditional markets. I believe that those things are going to start, you know, instead of converging there, they're gonna start to try to dislocate from each other. When that happens, uh, they'll start trading on their own basis what is the utility of that coin um, etcetera, etcetera. And and and the fact that you can't just keep printing those things and like you can with the US dollar or other fiat currencies, the world will start getting down understanding.

The other thing is going to start driving the volatility down is keep in mind that the crypto space is into a test similarly tiny I mean, uh, you know, Amazon has a bigger market value market cap, and then then the whole crypto space combined, and as as regulators start to you know, get on the ball and start working with companies like you know, like Nimbus and others, uh and and you know, and and actually start to tease and and help this space more than um, you

know more than heard it. For now you're gonna you're gonna see that value and the volatilities start to drive itself down. Alex, thanks so much for joining us. Alex Lamberg, there is the CEO of Nimbus talking to us about crypto. 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 and on ball Sweeney I'm on

Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio