Markets, Oil, And Metals (Podcast)

the bottom, look for capitulation. That means when everybody just kind of throws it in town. I'm looking at it. You know, the volume today, the dal Jones above normal, SP above normal. I don't know. That's kind of feels like a lot of people are just kind of thrown into town. But let's talk to our professional here, Mike vogals On, Chief Investment Officer Managing director at cap Trust. Uh, Mike, are we at or near the bottom? If we are, what data points do you look at to give you

some confidence about that call? Yeah, we've been wrestling with that question a lot, guys. I mean, it's it's a you know, clearly, what we're seeing is just continued obviously de risking in the in the I think particularly the hedge fund community. Um. You know that the hedge fund returns have been all over the place this year, and along short guys are are really struggling. A couple of a couple of winners, but most of them are really in trouble. And so I think I'm trying to de

risk sort of at any price. And you see that in some of the activity today, Um, that that's certainly a phase that the market has to go through. Um. You know, I think one of the things that's interesting is this this uh sort of the sort of the orderliness with which we've seen this this meltdown. Now right, we're down fifteen percent or something like that from the peak on December or January three in the SMP. And you know, it's not been crazy. We haven't hit anywhere

near forty on the VIX. We're even today we're a three four. Um, you know, it's it's it's we kind of looked for it's. You could look at it in the numbers. But there's also a visceral reaction of just like get me out at any price, right, And I think you're starting to see that at some of the most beaten down names, some of the really speculative innovation kind of names that that that have really you know,

they're down already. UM, So there's probably pockets of it, but you know, I don't I don't think overall there's a there's a ton of fear here. I'm worried that as interest rates continue to climb, as you pointed out, you know, we're over three ten, we're up three fifteen. This war hand and tame year, My goodness, I don't I don't know where it stops. The Feds have the

fence has really even haven't even started yet. Yeah, but I wonder when that's going to get priced in though they haven't even started yet, but we already expect you know, half back to back, half basis point cuts. Some people were saying seventy five and seventy five as well. Um, is there a point when that gets priced in and you know, all of the concerns you had about inflation and fighting inflation, um, and the economy slowing down are

all priced in and we can get out. I think I think you've got to look for a direction, right, You've got to look for the directional change and and right now inflation has only been getting worse. Um And and at some stage we need to see a consistent pattern of you know, lower employment cost index or we

are slower slower growth, same thing with inflation. We need to see uh COVID lockdowns in China beginning to ease, so we have some sense that the that the that the you know, the logistics supply problems are are beginning to free up. You know this. Right now, it seems like everything is continuing to go in the wrong direction. And until we get some fundamental change at the margins, it's just hard to see why anybody would want to step in front of it because there's no there's no

way to to know um. You know. Look, and every time we talk about something like this, it really comes down to your time frame. And if if your time frame is relatively short, um, I think you're going to stay out of the way of this thing. I think if you're a long term investor and you have some dry powder, I think you have to begin to think about nibbling at the at the margins here. Just because

there are some things that are pretty inexpensive. It's pretty easy, for example, to buy a large cap value portfolio with the price to earnings ratio pretty close to single digits now, maybe ten or eleven twelve times earnings UM with a pretty healthy dividend. Okay, that's pretty interesting right over the

next five or ten years. UM. So, you know, I think the pockets of a sort of long term allocation that can happen if you're if you're in the right spot and you're sort of smart enough to know that it's sort enought to see some of this coming, um and so, but you know, I just don't think we're there yet on a on a momentum kind of basis. There's no way yet. Hey, Mike, thanks so much for joining us here. Always appreciate getting your thoughts from here

on in these markets. Mike phobos On. He's a chief investment officer and managing director at Cap Trust. All Right, Matt, I filled up the beamer this weekend four one per gallon. I wanted to blame somebody, so I just obviously just looked at OPEC because I'm looking at the oil here, Brent crude on eight dollars a barrel. But I forgot about the whole refining process and taking that crude oil into gas or dies or whatever else we need to consume.

There's a whole refinery process out there, and don't you know haveavier Blast Calumnus for Bloomberg Opinion comes out with a fantastic column today looking at that part of the energy stream. The mark of the refinery business. How your those guys are making a lot of money right now? Aren't they making quarter lot of money right now? Record margins for American refiners currently about fifty dollars per barrel of refining margin. This is a bit of a back

of the envelope calculation. Each refinery is different, so you cannot really have like a benchmark for the whole industry, but we have a of the envelope calculation that in the industry we called the three to one refinery margin, and that is the record high up. In simple terms, a refinery usually makes something between ten and twenty dollars, but barrely, they're making about fifty five right now, so

it's as good as it gets for them. And uh, you know, people pay attention to normal gas every you know, consumer focused cable TV news channel. Uh, we're looking at Paul and I have a huge bank of screens here. They're all focused on the price at the pump and talking about regular unleaded, but diesel is almost seven dollars a barrel where I live. What is going on with that? Well, that is the market that is the tightest of all of them. There is very little diesel going around. And

this is a this is something that really mattered. You're right, most of consumers, myself included, we we we really look at cattle in prices because that's what we we we we need for our car. But the global economy, the American economy, really run on diesel. That is the fuel for tracks, that is the fuel for heavy machinery things about all of those machines and diggers on construction sites,

and it's also the fuel for for farming. And supplies are well above pre pandemic levels because in far all of us, myself included, are buying all these stuff online and that all needs to be transported in tracks and

bands and their fuel on on diesel. The supply has not really come back, and lots of refineries with trouble coming back from from pandemic and the combination of both has sent inventories to very low levels, and particularly the East Coast, the Eastern seaboard of the United States, lowest inventories in thirty two years for diesel, and that's why you see retail prices going to record levels. And UH diesel prices have never been so high compared to gasolin

prices in the United States. And and just ongoing comfort and scoll from one of the independent American refinance hs Sinclair where the CFO used to me gave the quote of the day or the month of what's going on on the on the diesel market, and morgenally all the kind of retail fuel market in the US. He said, pre pandemic demand and post pandemic supply. That's that's the problem. Demand is back to what it was before the pandemic,

but the supply has not come back. One of the other things that we've noticed, Javier, just on an anecdotal level, is it's harder and harder to get cheap tickets on an airline. Okay, in Europe, um, it's a different story, but here a lot of people are getting priced out of the market to fly, even in luggage class. Jet Fuel is another one of those markets that's super tight, right, Yeah,

jet fuel is also very tight. I think that generally what has happened was that the industry has been a bit surprised by the return of trouble by by air, not only in the US but also in Europe. Refinance, we're not making enough jet fuel now. The prices are there, so get fuel is selling in New York hardword that the benchmark for the US East coat at the equivalent to about two and fifty dollars per barrel, so very

very high prices that the highest ever. And refiners are something that we are trying to make more get fuel. But if they make more get fuel at the expense of making maybe a bit less decent or maybe a less a bit of less catoline, we really are getting quite a lot of strong demand for all of them. And and and you are right, consumers are starting to get price out on airth travel just because it's getting expensive. But I was in America only ten days ago UM

flying into New York. Both my flying and my flyout were completely booked UM every class, first class, business, Premium, Economy, and Economy. All of the seats were occupied. And that is kind of a sense of how Weston the demand is. After two years of not traveling around, people are still putting with high prices because they want to They want to see relatives, they want to see colleagues, they want to see business contacts. Have your How hard or difficult

is it for refineries to increase capacity? They have to restart, refineries have to build new ones. How does that look on the spade. It's very difficult because once you you shut down a refinery, that's not going to come back.

And the trend in Europe and the United States over the last few years have been of reducing refining capacity because of um well, we thought that peak demand was coming, the energy transitions, some of the refineries were actually now surrounded by big cities or operating with new environmental regulations was getting more difficult. And then pandemic hit and that

two more charge the trend. So what we saw is, excluding the Middle East, on China, we saw the biggest amount of refining capacity laws in thirty years over the last year and a half two years. Because of the pandemic. Those refineries are not going to come back. And China has a specifying capacity, but they really control a lot of what they are exporting, so you cannot count on them.

So we unfortunately seem that we have hit the refinery wall, and we're gonna we're gonna have to deal with that for for for a time, and the only solution is to reduce our slow down the demand for fuel, and that only comes be are two things that they are closely related. Demanded strokes will be a very high prices.

So just some American Son people just decide that they cannot drive because it's very expensive for outright recession and unfortunately, probably we're gonna hit both of them by the end of the year. By the way, I heard Tom talking to Will Kennedy the other day on Bloomberg Radio and asked him, you know where would Brent be right now in price terms if it weren't for the lockdowns in China, if it weren't for COVID zero, And he said, maybe more like or even closer to the high. What do

you think. I think that we will be higher. I think that we will be a hundred and fifty. It was not because of China shut down. I mean, China is all what is stopping this market to really rallying on a moneyful way. Um, if China will not shut down, we will be higher than that. Uh. Really in some ways, as Son speaking in private son government officials both in the US and Europe say, and also oil traders, the refusal of China to really go with the fives and

the moderna vaccine. It's all what is preventing this market to a hundred and all? Right? Have you ever last calumnist for Bloomberg Opinion got a great, great calm today talking at the refining aspect of the supply chain within global energy. You know, for a lot of folks, medals are a say haven or seen as a safe haven

for investors in uncertain times. I wonder if that's still the case given all the uncertainty we have out there, whether it's economic, federal reserve, UH, interest rate moves, geopolitical issues. It's checking with one Matthew Miller, one of many medals and mining analyst at cfr A Research. Matt, can people kind of hide out a little bit in metals here? Yeah?

I mean it is a great question because we've seen we've seen precious medals have a safe haven bid earlier in the year, but they have they have since sold off, and I think that you know, people are preferring the dollar, the US dollar as a safe haven of choice right now and you know, I think with the strength of dollar, we have seen both precious metals and industrial metals sell off, and you know, I think that risk off trade is really um, you know, a combination of three major factors.

But you know it fears about inflation and dead number one in Russia's war against Ukraine and how that impacting the supply side of the equation for industrial medals in particular, And then you have China's COVID lockdown, and I think that you know, with inflation remaining elevated, we here at c fr A do think the industrial medals in particular, it is a good place to you know, hedge inflation, even though we have seen that weakness recently, we do

think it's a great place to be currently in terms of treasuries. Uh, this morning we're looking at three eighteen. I think, let me check to get the exact here three spot Well we've come down substantially three spot zero one eight and nonetheless it's a much better return than gold. Is that a competitor? Yeah, I I absolutely think it is.

I mean, I think gold tends to do well when real rates are declining, and we we threw in the talent gold we were bullish for a number of years leading up to the end of one, and you know, we were too early on that knowing what's happened this year. But um, we do think old is gonna struggle to reach new highs in this cycle because you you do see um, you know, you do see real rates starting

to creep back up. And so we think that as the FED is tightening and real rates start to you know, they're now above UM, they're now positive again, and we think that gold's gold and precious metals are gonna really struggle in this environment. And we do think that that is maybe the number one thing over the short intermediate term that drives gold prices, that negative correlation with real yields.

So we do think that that's a major headwind for gold. Hey, Matt, I'm looking at the nickel a thirty five percent year to date. What was slash is the nickel call that I so obviously missed well, I mean, nicol is an interesting one because um, the spike and nickel really was driven by a major um, a major short squeeze, and so um, when you look at nickel, it is one of the medals that is at risk on the supply side.

From Russia's invasion of Ukraine. Russia produces around seven percent of the of the global UH supply of nickel, and it was already pretty um you know, the the inventory levels were already pretty tight. So it was already a

structurally tight market. And what we saw with um uh you know, Russia invading invading Ukraine, you did see a major um, a major short seller in China that was was literally the big short that that kind of drove what's happened with nickel and causing the CME to actually um, you know, causing the LMY excuse me to actually um halt the exchange a number of times in the last couple of months. And so we think that you know, there that market is going to be structurally tight, along

with aluminum and palladium. Um, there's a number of markets that rely pretty heavily on that region for for global supply. By the way, I'm sure the CMME is very happy that that was the l M E and and on them. Do you think that's done more than just reputational damage to the LEMY, I mean other people who are saying, you know what, I'm not trading there anymore. Yeah, Well, I do think that they will regain sort of that trust.

But yeah, it does hurt in the short term because you know, there are a number of trades that were canceled that the days that these were um you know, the days that the halt happened, and and you never really want that to happen, and you don't you never

want to see that type of volatility. But the reality is there there are a number of metals markets that aren't very liquid that are you know, they will see this sort of volatility, and so you know, the exchanges, you know, they do want to, you know, kind of do do their part to kind of correct the market when you do have a major, um, a major trader out there where this was this was a lot of speculation, but it was also somebody that was going to be

needing to close those short positions. So um yeah, I mean it's there's no easy solutions for them, But I do think that um, you know, they're gonna regain trust. I don't think it's a long term issue in my opinion. All Right, Matthew Miller, thank you so much for joining us. Matthew Miller Metals and Mining Analysis c f R, a

research well in person investor conferences are back. In fact, Bloomberg Intelligence is hosting its first annual Thematic Investing Conference UH May ten and eleven at Bloomberg's Global HQ in New York City. The inaugural in person event will focus on these key themes plant based foods, digital healthcare, digital commerce, digital payments, and cryptocurrency. So all the big topics that are front and center. Let's get a little bit of

a preview. Eric Baltunist, Uh, he covers E t F for Bloomberg Intelligence, and Eric, I know you're deeply involved in this conference, so you know, what are Bloomberg clients that are attending here? What are they going to see? Um, they're gonna see basically a different themes emerging themes. Why themes matter? You have throw stand, A lot of the investing universe used to be divided or is divided into sectors,

the gift sectors. But the the world is changing so quickly theme ets I think capture that changed a little quicker than the sectors. Do you know some of these stocks are in multiple sectors at least in their business lines, So more and more of the money is going towards thematic ETFs and that's why I'm involved because e t f s are tend to be sort of at the forefront of finding new themes because if you find a new theme and it starts to go up a lot,

you can get some cash. So if you look at the sectors, uh if thematic ETFs have the second most assets after tech, So we all know tech rules the sectors, but themes are number two now above healthcare. So that's how this is. These used to be kind of a laughing stock like a video game. Et F would come out everyday the trash and laugh at it. Now it's big business. This stuff is the future of active in my opinion, and it's smart of b I to get

on board. So a lot, a lot a lot of times Matt and I away ask a guess, you know, what sectors are you looking at? But maybe a better question, or certainly a different question be what themes are you guys focusing on? Yes, so well they're going to focus on everything. You know you talked about blockchain, cryptocurrency, plant based themes, the digit digitization of everything is a big one.

Some that we're looking at this year that are interesting are natural resources, right themes time Sometimes people think theme are themes are just growth stocks sort of you know, repackaged, but there's natural resources which hold oil mining stocks. You've also got infrastructure is a theme, and with the infrastructure spending that could be big the metaverse, even though that's been hit hard, that is a theme people are looking at. So those are some of the ones that we're looking

at on my panel. We also have ARC. We don't have Kathy, We have Brett Witten and ARC. To me, I think put themes on the map all of Kathy's funds or theme ETFs. But the main fund isn't a theme, right, It kind of is disruptive innovation. We consider innovation a theme, and Kathy kind of kicked off a whole category because Kathy goes across sectors to just find innovative and disruptive companies.

So in a way, that's how we define themes. And so it's interesting because I was I was thinking first about factors, right, because that became huge, especially in the hedge fund world five six, seven years ago. Right, And Paul mentioned sectors. Now those are two different things, right. A factor and a sector are different ways of categorizing investment opportunities. I guess companies or what have you? Um,

themes can be kind of either one. Yeah, no, you're what you're hitting on is so important and interesting and what everybody in asset management should understand. Themes are going to steal your thunder. They steal from the sectors, which are sort of born in this legacy. There's only eleven of them, and they're sort of stale, and they steal from factors because growth momentum value. Some of these to a normal person or an advisor with younger clients, they

just don't resonate. Whereas some of these themes have a narrative attached to them. You can identify them. They get your imagination going. And a lot of them also will hold stocks that aren't in the broad indexes, so they compliment nicely. So I agree with you, Matt, you're kind of stealing the thunder from both the factor world and the sector world. By the way, Um, Paul, did you know that Eric and I have a television show every

Monday at one pm? Do you really? Yes? So that today's Monday and today's Monday, we're almost there focused on E T F s and what have we got on the program today? Today? We have Dimensional, which is a major factor issue where I'm gonna actually hopefully ask dimensional what do you think about themes coming in and trying to steal some of your business? You know what, I'll make sure And then the drill down. We drill down into one ticker every week is net Z and this

is the climate Transition stocks. So these are stocks like auto companies and chemical companies and even oil companies that uh engine number one fields are driving the transition. But it's a thirty stocks and again it's a thematic sort of E s G climate play E T F UM And that's what we're gonna drill down. So themes will be part of the show. They're part of most shows actually, UM,

and I'm looking forward to it. What are we seeing in terms of flows because we've had but I think five weeks of losses on the sm P, right, that's the worst in over a decade in terms of losing streaks. Um. We've even seen a big losing streak for bitcoin. I think six weeks in a row of losses on bitcoin, the worst since like two thousand fourteen, which was back when no one cared about it except for me. Um, What are we seeing in terms of flows when I pull up E T F go What am I looking at?

By the way, I remember I was on a segment one time with you on bitcoin. Still kick myself for not just buying a little I'm like, what was I thinking? You? And anyway, So look, generally speaking, the flows are still buying H y G, the cues, they are getting bids, they've taken in money, the triple leverage cues. I think that by the dip crowd is still looking for opportunities.

That said, if you look across the flows in general, what you tend to find is like investors are in a dark room searching for a door out, because there's not really a rhyme or reason. You'll see gold within flows one week out the next, and then financials in flows out. So I can tell people just are a little lost. Whereas most year there's a general sort of slow, hurd ish move towards one or two things, this year is just all over the place, like someone trying to

find something. Eric good stuff. As always, Eric Baltunas making the trek into New York for the Bloomberg and Arrector Broker studio. He's a senior et f Annals for Bloomberg Intelligence and also a proud graduate of the State University of New Jersey, the Rutgers Scarlet Knights. 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 three.

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