The Fed, China, and ETFs (Podcast)

stuff going on. We got the I s M manufacturing stuff tomorrow, the jolts number still looking at a ten million uh job open to go figure that fed me minutes tomorrow. We got initial claims Thursday. Then of course the non farm pay rolls, the big labor and number comes out Friday. Still look for two adds down two hundred sixty three thousand the week before, so certainly slowing, but still pretty healthy. But that's a lot of stuff for IRA Jersey's filled to reserve to kind of digest there.

So our Jersey joins as Chief US Interest Rate Strategies for Bloomberg Intelligence. I what do you think that the FEDS really looking at these days as they think about their next meeting and their next messaging here for this market. Yeah, so I think the messaging that you just mentioned, Paul is probably going to be more important to the direction

of treasury yields than is UM. You know, what they do at the next meeting, whether they go twenty five or fifty at the next meeting, probably is less relevant than UM them describing what they're react. It's the market is pricing fifty. I suspect, uh it it will be fifty, but UM. But but there's a non trivial chance that they could do less. So for example, when you look at some of those data that are coming out this week, UM, you know, the Fed will get get the full run

of this month's data. UM, the I S M new orders numbers which we get tomorrow are That's my favorite indicator for the future path of the economy real right it Yeah, it is for a number of reasons. One is that it tends to be the best predictor of what the overall business sector is going to do, not necessarily the job sector, but but certainly the um the

business sector. And we're at the level right now where we're either showing a mid cycle slowdown like we had we had in or where if we go lower, we're going to be near recessionary levels. So so I think that that can be a really important indicator if we if it stays at forty seven ish, then that's fine. If it goes below forty five, that's typically recession type levels. Um. So I think that there's going to be some interesting, you know, fireworks that could come depending on how that

data shows shows tomorrow. And of course the jobs numbers, right, we'll be watching wages will be right now, Um, the FED is focused on services wages and um and and that's going to be a key focus then for us and for the rest of the market is do those

continue to run at six percent year on year? And if they do, then you know, that's when a fifty basis point it's probably I don't want to say assured, but certainly more like if if we do to get those kind of numbers, I mean, twenty five basis points would be pretty weak sauce that would be a signal that this is no vulgar Powell we're watching right, more

of Burns and Powell. Well, the way that I look at it, mat is is the FED is trying to get into calibration mode, right and and because they can go more and they can still do the same amount if they go fifty or twenty five, they just might have to go an extra five kind of at the end, right. So, so so they know at some point over the next six months they want to stop hiking and are likely to stop hiking. You just look at the dots. You just you know, you hear what J. Powell and other

members of the feders saying. And the FED is interested in getting towards the end and waiting and seeing if the hikes that they've already done feed through the economy. Right. We always talk about long and variable legs. So we're at the point where, you know, if they if they hike another seventy five or take another hundreds, so maybe five for example, by by May, then uh, then they're

in a wait and see mode. And given that just about every forecaster thinks that the second half of the year we're going to have, you know, the near recession. If not in recession, then you know, they can probably say job done in that situation, because recessions typically come with significantly lower inflation, right, but also typically with tighter uh financial constraints, right, And we don't have that. So Uh, giving us twenty five basis point hikes isn't exactly going

to get us there? By the way, I was wondering, you know, we were at nine c p i um what in June last year, and if the Fed gets us closer to two, that would be a drop of seven percentage points in headline cp I scoured the terminal for the last time we saw that happen such a huge drop in such a short period of time, and it was from July of two thousand eight to July of two thou nine. Uh, you don't want to be

in that situation, do you? Or or do they? Well, it's so you know, they don't necessarily want to be a two percent but you know, why do you get to two percent? Right? If you get to two percent because oil prices fall to thirty bucks of barrel, then that's a great situation for the Fed, right because you

have inflation. Inflation expectations would likely be significantly lowered. At the same time, that's kind of a tax cut on the consumer, and the consumer would then have more discretionary spending, you know, non energy discretionary spending to to help boost the economy. So so that's a scenario where you might actually um with lower energy prices, where you might actually avoid a recession. UM. You know that being said, I think that that seems pretty unlikely that you get that

type of move in in energy prices. And and because of that, um, you know, a fault to two percent would mean that you'd have to have wages go down or massive marching compression, particularly in the services sector. UM. And that that's not necessarily public companies, right, because most

services are provided by small businesses, not public companies. Um. And and that means things like proprietors income, which which we also look at for for the health of the economy overall, would have to would have to shrink massively. And and you know that that could still mean a recession. Right, So you can wind up with a situation where you do get significantly slower consumer spending, you get prices falling

in some sectors. And keep in mind, prices in the good sector are already falling um now, not in every sector, but in many sectors. So with good prices going down, the question now is how quickly do services prices UH stop increasing? And um, you know it's hard to it's hard to know that and that's going to be driven again by by the wage data that we get this Friday. Hey,

is quantitative tightening still a thing? Like if I'm a mortgage backed security trader or government bond trader, Morgan Stanley, is the Fed call me up to buy my bonds? Um? Well they are a little bit, but only well not not mortgages for sure. For treasuries, they do buy some treasuries on refunding months, so they'll buy some treasuries in UH at auction UH in February because they have more UM maturing treasuries in February than UH than they are

are allowing to run off in the balance sheet. But the mortgages were not even close because there's very very few refinancings going on right now because mortgage rates are so high compared to the mortgage rates that most people have, So there's significant volatility in that market, in part because there's not a lot of supply, which is a little

bit ironic, but it's also the UM. The Fed isn't buying everything that's cheap, so UM, you're at You're at a point now where you're going to see continued volatility I think in mortgage spreads. UM but the mortgage rate probably is peaked, um, both in terms of spread and also in rate, and that's due in at least in our view, because tenure treasury yields we think peaked around that that three three point facing me four point um, and we're out likely to get back up there um.

So we're we're looking for mortgage rates kind of stabilize here. But that's still you know, there's still a massive sticker shot going on. People aren't used to paying six or six and a half percent. I always joked because twenty five years ago when I got my first mortgage, I had a seven percent mortgage. So for me, it's like, okay, this is kind of like, you know, the high end

of the range, back to square one exactly. Hey, you know, when Pale came into my consciousness, it was probably in the mid seventies when he came over for the New York Cosmos. But as we think about look back on his life, holy cow, he had a Hall of Fame career the way before that, with all the World Cup stuff in his in his club stuff. But I'm just looking at some live footage here on the Bloomberg video screen of Brazil as they continue to more in Pale,

but wow, what a name within the sport. Yeah, he was, And I have to say his playing for the Cosmos is the reason why I am so into soccer because it came to my little tiny soccer club on Long Island where I played four back in the nineteen seventies six or seventy seven, and did some things with a ball that just amazed us and shocked us. And I just fell in love with the sport in part because

of what Paley did in front of us. You know, forget the fact that like Franz Beckenbauer was also there, I had no idea who he was, but Pale had such a big personality and his his fame transcended the sport right where in the nineteen seventies, you know, no one could name any professional soccer player in the United States, but they could all name Pale, right, So I think that that was just a massive uh. He was just a massive figure in the sport and helped grow the

sport both here and abroad. Um created, you know, purveyor of the beautiful game, which which Brazil to this day tries to continue to live up to his legacy and beloved as well right and without the kind of tarnished You know, other soccer greats have been involved in taking bribes for putting the World Cup in places it doesn't belong. I want to mention any names, or or doing drugs, right, so and and you know, even at well, I was thinking of Beckenbauer. Yeah, I was thinking of Diego Maradonna.

But um, yeah, I think you know Pale. You know, Pale was a class act. And I think just about everyone who's ever so, Chef Messing, who has been a commentator for the New York Red Bulls for a very long time. Um, and and who's who who I know, Um, you know he he stayed in touch with Pale. Pale stayed in touch with Bob Smith, a guy from down here in Central Jersey, um, who is also a professional soccer player. Pale kept in touch with all these guys and was just everyone that I've talked to about Pale

just says he's such a regular guy. You know, he's super famous. Good stuff. I were Jersey Chief US Interest rate strategist. Thanks so much for joining us. Well. The story over the last several weeks has been the reopening of China, the dropping, if you will of the zero COVID policy and the pace at which China is reopening, taking a lot of people around the world by surprise. What does it mean for the global economy? What does

it mean for the people of China? Um, just a Bloomberg story out here today China's biggest cities see subway use rebound as COVID peaks. We want to check in with all things China. When we want to do that, we check in with Leland Miller. He's the CEO of China beige Book International, just extraordinary data analysis on all things China. So, Leland, We've had a couple of weeks here where we've had been able to digest you know,

this this reopening of China. What do you think are some of the key takeaways here as they continue to reopen and pretty aggressively. Yeah, well, there's certainly just letting it rip. Um. You know, there's there's several different stories and they focus on on different parts of this of this so called recovery. Uh. The first is, you know what happened in Q four, what happened specifically in December, And I think everyone's come around the idea that December

was very, very bad. You know, everyone was talking about reopening, but there wasn't actually reopening because everybody was hiding either getting COVID or they were hiding in their rooms trying not to get COVID. So so nothing good happened December. Our dad are some of the worst you know, we've seen in many, many, many years. Uh. Then there's a

quite what's going to happen later in Q one? And I think people are optimistic that when COVID's passed, then then there was going to be a bounce back in the recovery because in the in the economy. So then the question is like what happens in January, February and March. You know, how do you time this? And I think that that's really the question market should be focusing on. There's a lot of focus on COVID peaking in the

big cities right now, subway indicators, etcetera. But you're talking about a very small all be an important part of China. There's plenty of China left to left to left the infection to spread. So I think this is gonna be a slower economic recovery than people think. You know, albeit, uh, you know, the economy should be back in Q two. Well so, but as China really investable? I mean, I know the market has a very short memory, but it was only a few months ago that jack Ma was

nowhere to be seen. Um, you know, if if this is a country that takes company leaders and puts them into some sort of isolation. I don't know the details of what happened there, but that isn't the only thing that we saw and the most recent incident of China interfering with investor assets. Um, what do we expect in the future. Well, obviously there's there's plenty of reason to be to be worried about investing in China. You know, you there's limited rule of law. You know, you don't

always know what you're investing in. But the landscape has changed from you know, six months ago and twelve months ago. People are looking at these, you know, incredibly low valuations for Chinese stocks. They're not liking what they're seeing. Around the rest of the world. There's an emerging market investment story that people want to buy into, and there's a COVID recovery story and a pullback of COVID zero recovery story.

So everyone went from being very embarished on China uninvestable to being absolutely you know, all in, let's let's do this. And it's interesting because when you talk to funds investing in China, they say, we don't really care what happens in the next you know, months, or even three months or sometimes even six months, just as long as talks go up for us, you know, by mid year, you know, we're going in, and we don't care what happens in

the meantime. Leland, I know, you know, I'm just thinking about kind of what we experienced here in the U. S and the West, you know, as the pandemic initially, as the virus initially went through the population, and the terrible numbers. I guess we have some anecdotal data coming out of China, but we don't really have any good data about hospitalization's death rates, that type of thing. Is

there any good guesses you're using. Well, look, there's been model after model that said China was going to hit you know, a million plus and million plus deaths, and I don't think anything has changed. Due to the fact that they're that they're getting infected much faster than anyone thought possible. So you know, it is a black box.

We don't know the death ray. We don't know the cases either, although we assume just about everybody's getting COVID in the big cities and that will eventually spread to the countryside. So we don't and it has it's a black box. But I think what it has done is it is made investors a little bit more opt mystic, oddly because they're seeing low reported deaths or or very little reporting on deaths, but they know everyone's getting infected. So there's this idea, okay, world, we're just weeks away

from COVID peaking in China. That's actually not what the numbers say. There may be COVID peaks in some of the larger cities, but you've got a lot more to spread. So the fact that this is such a black box I think is making it hard for investors. But you know, there will be a recovery, it just may not be

as quickly as people are assuming. Leland In terms of the timing, here was this simply a case of President she wanting to get through the party Congress, get his you know, next term, before he just pulled the band aid off here. I don't think so, but I'll tell you what I don't know anybody who knows who can explain what happened other than the fact that that she just sort of, you know, flipped on something that that you know, he seemed pretty passionate about for three years.

Obviously that the economy was near a breaking point. We've been reporting on that for for for not just months, but years. Uh, you know, the the situa age with the protests pressured him. But the fact that they had multiple years to prepare for COVID zero coming off and instead of you know, waiting after COVID spread season in the winter, or preparing with m RNA vaccinations or or therapeutics campaign or vaccinating the elderly, they just pulled it back.

And it's very hard to imagine this was well thought out, so huge mystery, but it doesn't it doesn't speak very highly of their you know, long term strategic prowess. What do you think about the UM conflict with Taiwan UM How bad could it get in terms of you know, military intervention because they still are reliant on that economy for chips to run their own right. Yeah, Look, taiwan Is is hovering in the background. I don't think it's a near term issue. But obviously they're gearing up their

military capabilities. The United States is doing similarly. You know, Taiwan just reinstituted year long conscription. So this is something it should be on hand everyone's mind. But I think that the state of the global economy, the state of China's economy right now, being so weak and and and in the midst of this COVID wave, I don't think anything is is on the minds of the leadership right now.

But this certainly should be a discussion topic as we go, you know, a year or two in the future, because by the end of this decade, you do have some pretty pretty nasty, uh, pretty nasty challenges coming forward. And and uh, you know, people have to be aware of the possibility that this is something that that Beijing is

going to want to do before not too long. Leland, do we have any good data or about the support that she still has with his people, given maybe the last few weeks with the COVID outbreak, You know, no, we don't. There's there's no way of getting attitudes. I think anyone who answered that survey negatively would put their life at risk. But look, I think that the reality here is that this has definitely been a ding to the leadership, but that doesn't mean that the leadership is fracturing.

It doesn't mean that chij and Ping, you know, is has has weakened dramatically. We just don't know. So a lot of it will depend on how fast they can get out of this current COVID wave and back to an economy that's actually working. And then I think we have to revaluate about six months and see where we are there. Alright, great stuff. Leland Miller. He's the CEO of China beij Book International. Uh really one of our goat two voices when we want to get the what's

going on on the ground there in China. In our Suitet conversation today, we want to check in with air nor Limb CEO at Exaction No sorry, Evaccion Biotech. The symbols e v A x on trades on nastac. You can punch it into your Bloomberg Professional service. Take a look at that. Stocks pretty flat today, but they've got some big now. Yeah, but it was the open I know, crazy stuff. So um part thanks so much for joining us here. Talk to us about your news in the

cancer space today. What did you guys disclose. Yeah, thanks so much for calling on. What we've done today is just releasing the news. But the FDA has accepted will giving a green light to our clinical trial, our phase two clinical trial for a personalized cancer vaccine. So what exactly is this? There's a lot of different kinds of cancer. I've read on UM your website that it's melanoma treatment.

But explain it to us, you know, obviously not so complicated that we need a doctor to understand it a little bit more in depth. Yeah, well, it's it's pretty similar to what was in the news about a month ago from Moderna and Murphy with our a Morna vaccine. So this is a similar vaccine where we essentially make a new product for each patient. So very simply, we take a sample from the patient, we use artificial intelligence to see where the mutations are, and then we create

a vaccine that is tailored for just that patient. And all is just to make sure that we get a strong immune response towards that. Very humor, So when you say vaccine, I think of something that's preventative. Um, does that mean this won't treat someone who already has metastasized melanoma? Oh, yes, and that's it's usually called therapeutic vaccines or indeed personalized

cancer immunotherapies. So these are patients at with advanced metastatic cancer where we can look at the tumors and through artificial intelligence identify the different mutations in that very tumor and that is the basis for this immunotherapy. Or well, that's incredible news. And um, what does this mean for you know, maybe patients listening? Um, is there a possibility that anyone's going to be able to get access to this in the near in the near future, Well, I

definitely think this is the future. How long it will take that depends because it is challenging. We need to make it right for every patient. But given that it can be done, we also know today that the sects are better. We already have a phase one trial that has been presenting most of the results where we can show that we have two thirds of the patients responding

to the therapy in the late stage metastatic melanoma. So that's quite the very promising results, I would say, And so from our perspective, we are really confident it works and it will provide better results. But again, you need to make a drug for each patient, so it is more complicated, and I would think it would be extreme, extraordinarily difficult to get this to market in scale. If every vaccine is personalized for an individual patient, how do you in fact distributed in scale or get it to

the patients. Yeah, today we have a peptide based platform, you know Modern and Murky. They are developing their own in an m RNA based platform, and we have ourselves a new DNA based platform coming up and we needse platform. Once you have proven that is effective, you can definitely streamline all the processes and make this very quick. Today we can do it with a peptide based platform in

about two months. We foresee that in a couple of years we would be able to do it with a DNA based platform in maybe two weeks and then bring down the cost tremendously. So it can definitely be done, be done. It's just we need the engagement or bigger players like the formats. But as I said that Mark is already there and also other formats like growth, so they are taking it very seriously enough. So what does

your capital structure look like? We just mentioned your depositary seats trading here e v a X is the ticker. I see a market cap of forty two million dollars, which is fairly small, um, but I guess you're in the position to to exponentially grow that. What is the structure look look like now? Yes, and so we are

a Danish company coming from a private setting. And then we were listening in New York about two years ago, and at the start there was a lot of the institutions they have over the last year many of them actually left the company in the quite depressing market that has been here. We see now that hopefully there is coming more interesting back into this field, especially into personalized

cancer mini therapy. But that's that very still quite a significant part of retail and the Scandinavian retails and also smaller US investors. Alright, great stuff. Pair Pear Norland, he's the CEO of Evaccition, the symbols e v a X. I was some promising news on some of their drug therapies. We wanted to check in there because it seems like here with the m r n A vaccine technology and others starting to move pretty quickly here, so we want

to always stay on top of that. Let's get to Washington, d C. Because apparently the rumor is Connress is going back to work here, so we want to see what it will be up. I don't know, we'll see Nathan Dean, Senior US POSSI annalso Bloomberg Intelligence Joints US here, Nathan. All right, the folks done, Congress are getting back to work. I think the first order of businesses doesn't the Republican Party have to get uh speaker or something. What's the

latest on that? That's absolutely right, you know, right now the Republican caucus is actually debating about who's going to be the next Speaker of the House. And it's actually uh fairly good for those of us who want to watch popcorn and uh, you know, politics intrigue right now Speaker McCarthy is struggling to get those votes. Now. From a market perspective, really this is just a delay of

a few weeks. I mean, eventually whoever becomes speaker, you know, we we anticipate that to be resolved in the next week or so. But the Republicans need this because they already have like five or seven bills just ready to go on repealing I R S funds, abortions, immigration, border security.

None of these bills are really going to pass. But usually when we're a new Congress comes in, whoever is the Speaker of the House needs those few weeks to say, Okay, these are our policy goals and this is how we're gonna move forward, and any further intrigue, if you will, is just going to delay that. Um, what are the chances that we see uh, George Santos elected speaker? Well, you know that's actually that's another issue that's obviously that's

playing out right now. I mean the Bloomberg newss have reported that you know, he's under investigation and so forth. But what I will say in multiple jurisdictions in different countries on different continents exactly. I mean, we we saw the news out of Brazil that you know, they dusted off an investigation as well, but you know, because they

couldn't find him, right he was a scoff law. Well, you know, it just signals though that the problem that the Republicans are going to have with the House of Representatives because they have such a thin majority, and if they were to lose George Santos and there's another runoff, that's just another person that you know, it can make

that margin even slimmer. So you know, as this plays out through twenty four, I just also remind people is that, you know, you always have like five to seven retirements or deaths or so forth in the house, and so, uh, you know, with such a slim margin, you know, obviously things could change. Dude, I mean, Kevin McCarthy and the speaker bid is nothing on you know, popcorn drama compared to what's going on with Santos. Is there a possibility that this guy, I mean the Post. I was reading

a story in the Post. So he lied about graduating from college, not just where, but graduating at all. Uh. He lied about working for Goldman Sachs and city where's the OPO research before he got here. He lied about he's at He owned thirteen properties, he lives with his sister and doesn't own one, but he's thinking about buying one. UM. Maybe more damning is the fact that he may have spent campaign funds on personal travel and rent um and now we find out that Brazil is reopening UM an

investigation into him. He's apparently stole a checkbook and then went and used the stolen checks to buy stuff, admitting later that he did it, but now he denies it. I mean, can this guy really stay i mean even start in office. So you know, obviously members of members in Congress under investigation is not a new thing. I mean, there's there's always a member of Congress who's under investigation

for something. Um. You know, it will just be interesting to see though, do the Republicans actually embrace him or do they keep him aside. You know, we saw statements over the weekend saying that, you know, it wouldn't be and I'm paraphrasing here, essentially saying, uh, you know, resigning is not a bad thing for him. Um to your earlier point about the opposition research, that is a question that the Democrats are going to be asking themselves. Why

didn't we actually discover this until the reporters did so? Uh, you know, this process is going to play out. It's not going to happen fairly soon, I don't think. But even if it does, if he were to just resign in the next week or so, you would have a special election and so forth. But the damonamics of Congress wouldn't change. Paul, I'm gonna ask a question that may be controversial. Okay, what does this say about people in Long Island that they would elect this guy. I don't know.

I don't know, uh, Nathan. I mean as I think about, you know, the Republicans and their inability to get a speaker done in a timely basis, does that just highlight that this is a party that really is maybe more divided than maybe we initially thought. No. I mean, look, you always you always have, you know, wings of certain parties that are always going to be you know, challenging the speaker and challenging leadership to take their position. Uh. You know, we saw this under Speaker Baner, and we

saw this under Speaker Pelosi. So that's always out there. The question is that can they come together and unify for an agenda because you know, this is a divided Congress. So the Republicans understand that there's not going to be a lot of policy wins here. I mean, this is going to be one of those where where they're gonna have to pick their fights, you know, the leverage points of government funding bills and the debt ceiling and so forth.

From the market perspective, though, you know, the most concerning thing for us in terms of whether the Republicans are unified or not comes to the debt ceiling. Fortunately that's going to be in September, so a lot of things are going to happen between now and then. But uh, you know, we still anticipate that this session may actually be somewhat fruitful for legislation to get across some some legislation,

not a lot. I gotta ask you about something that isn't being legislated anymore, but I guess worked out at Treasury, and that is um the tax credits for evs from the I r A. This is absolutely fascinating because the law um as it stands, I mean, most electric vehicles, if not all, are gonna be will no longer be eligible in a couple of months for dollar tax credit.

But I guess it's up to Treasury to decide which vehicles, uh you know how lacks they are um when they try and adhere to the legislation because battery has to have of its components coming from a trading ally and we're not even sure what a trading ally is. How we're going to figure this out, you know. And it was funny I was reading about how like the certain you know, the the uh, the height of your base of the car determines how Sometimes it's an suv, sometimes

it's not, and so forth like that. Yeah, the Tesla model, why, for example, is two hundred thirty eight pounds too heavy to qualify, sorry, too light to qualify for the suv tacked credit, so it won't get it. And someone suggested on Twitter that Elon must just added two fifty pound weight to the trunk that you know, drivers can remove after they buy the car. But you know, but there's

nothing new. So I mean, obviously the IRA comes out, it's thousands of pages and so forth, but it's written at the you know, hundred thousand foot view level, and most legislation actually directs the uh, you know, the executive branch, via the regulators or the agencies and so forth, to actually put that down at the ten foot branch. And so as Treasury actually jumps into this, they're gonna look at the discrepancies and discrepancies in Congress is nothing new.

This happens all the time, and so you know, as this as your Treasury moves forward to actually implement this stuff, if they see certain discrepancies where they think it's just not going to work out, or so forth, like that they always have the ability to go back to Congress and saying, hey, fix this. And if Congress doesn't do this, then you know, they can look within their statute to see is there any wiggle room that they can use

issue A via the rulemaking process. Nathan, the State of the Union is coming up from not mistake in any preview of what we may hear, what we should be in to look out for. So the two things that I'm looking for, you know, obviously we're still a month and so away, is geopolitical issues, so essentially Russia and China. How does the President going to take those issues on,

what's his vision and so forth? When it comes to domestic policy, it's nice to hear what he says, but you know, Congress more often than not just says, thank you, Mr President, but we're gonna do whatever we want anyway. The second thing that I'm going to look for into the State of the Union is whether or not he announces that he uses it as a catalyst to run for re election or not. I'm not sure he will. I think that decision will come outside of the State

of the Union. But you know, if he were to decide that, I'm not going to run for re election. He's going to lose a lot of political capital, and that state of the Union may fall flat. So I think that decision will come afterwards, but there's always the chance it could. All right, good stuff. Nathan Dean coming to us from Washington, d C. He's all he's knee deep in all this Congress and policies. You know, the best thing for me is about three We're one year

closer to getting my salt deduction back. Is that right? When I think, Nathan, by the way, isn't it is he still there? Isn't it? When we get the salt back? Well, you know the Trump tax cuts expiring five and so I think that the eight I'm bringing the salt back will actually be uh be a lot more. Uh. We'll take place later this year and earlier next year. And for those of you living in New York and New Jersey, hopefully it works out on the positive side for you.

See Matt smiling, he's hoping. Nathan Dean, senior ys policy analyst with Bloomberg Intelligence, thanks so much for joining us here again. I guess I gotta get a speaker there for the Republican Party. That's kind of the first order business before they can move anything forward. So apparently that they're still kind of negotiating. I kind of envisioned backroom deals getting cut here between various factions, kind of like

like the old days. Here, let's talk commodities. Let's talk E T F S. Let's talk commodity E T S. We can do that. Bob Inter, director of ETF Investment Strategy at Aberdeen, joins us live here in the Bloomberg Interactive Broker studio. Bob, we're throwing out it's it's in the rear view mirror. Three. What are some of the ideas that you're thinking about for your clients. Sure, so we look at the act drop coming into this year, and we see that the US dollar long positioning it

still looks pretty crowded. Started to come off at the end of last year, but it still looks crowded. If we start to get a reversal of that, we could see some dollar weakness that's generally speaking, really very good for precious medals. Second thing, we have commodity inventories which are really incredibly low. No one's paying attention to it. Um. The London Medals Exchange just announced twenty five year low

in the six major medals inventories. Why yeah, why is that? Why? Well, it some of it is because there are labor strikes in South America that have reduced supply. UM. At one point, natural gas was the equivalent of apparel for an oil equivalent. So those are costs that go into the manufacture of these very energy intense medals. So if you can't if you compete in the global marketplace, you don't make it in Europe, you make it somewhere else. So is that why?

I mean? I was looking at gold this morning. Right now, it's trading eighteen thirty a troy ounce, and I thought, why is gold on a tear to the upside when you know we're still dealing with runaway inflation. The Fed has raised four or fifty basis points in one year and is going to keep going this year. Um, it just doesn't make much sense add into the at in the fact that inflation is coming down, right, So it's

if it's really a hedge, why buy it now? It absolutely stood out to us going into the end of the year last year we said something's the market is fundamentally looking at gold differently than than it did before. At one point last year, eighteen trillion dollars of negative yielding bonds across the world. Now it's about a trillion

just what's left. In Japan. Real yields rose, they came back a little bit, but they rose at one point that the real yield equivalent, it would tell you the gold should be seven an ounce, and here it is at eight hundred. So something different is going on. What the something different is that in the third quarter official gold purchases from central banks and the like, we're four

hundred tons now. That is more than double the last roughly double the last the next closest largest purchase in a quarter, and it's the largest since they've been keeping records. And there they're stocking up, they're diversifying their reserves away from U S dollars. That's big, that's a big deal. Talk to us about China. They're reopening. We've been talking about it for the last few weeks now. And if I'm a commodity guy and I'm thinking about my demand model,

my supply model, wow, i gotta recalibrate now. It's it's actually a little bit bigger than just than just China. If you think about it, we're returning the calendar here. It's been three years since we've seen what global demand really looks like. The whole world hasn't been open simultaneously for three years. We can't predict the next three months. And now we're trying to say exactly what demand is going to look like, and we haven't seen to come

on and say that. You know, we continue to ask these questions and everybody posits of forecast anyway, but it's fair to say there's zero visibility, dude, Like we're in completely unprecedented, unchartered territory, so we don't know what's going to happen. Correct. Um, it is uh also a massive

economy coming online. So even if um, you have tens of millions of infections a day, you've got to figure more people are going to be filling up their cars, more people are gonna want to be using um, you know, natural resources. Considering the high frequency data we saw, apparently more people are using the subway in China, that's correct.

Just very recently we've started to see an uptick in the mobility data, and um, you know it's kind of there's the mobility restrictions, the official mobility restrictions were dropped, and then mobility absolutely plummeted because it was voluntarily restricted.

But we're starting to see that bounce back, and again I think I think it's we're fundamentally see similar things like what we see in New York where the easy past data for bridges and tunnels went right back to pre pandemic levels, and the subways and the trains are not anywhere near that. I'm doing my part. I'm on the trains and subway every Yeah, but you're alone. I'm alone, well except on the weekends. Then they're pack. You can't.

It's standing your moan because people are coming in the party in the city, but god forbid they come into their offices. Silver. What do I do with a work from home acts to grind? Yes? I do? What do we do? What do we do with silver? Here? We talk a lot about gold, but what's your calling silver? So we we like to break it down a little simply. Silver has two main demand drivers. One is industrial, right, so that's in all sorts of medical instruments, it's in

solar panels. But it's also used by investors in the same way that it would um be used like that someone would use gold, so we think of baby gold, so we think of it as half copper and half gold, which isn't the right way to look at it, but in shorthand that's the way we look at it. It's

more industrial used in industrial than gold. Absolutely, yes, And you're not concerned about the market being sort of owned by a couple of big players silver because I know that for a long time it was a real zero hedge like conspiracy theory thing that some big bank was running the silver market all over the place. I won't say which one. Palladium is that something that we care about for if you if you uh, you know, I'm glad I want everyone else to have a catalytic converter.

Why is that? I don't love it for me, you know? And it really stuffs up the exhaust. I want the engine to be able to breathe. But yes, palladium is used catalytic converters and that's a good thing. Absolutely, And it's actually there are sort of poster child for this environmental trade that we have for metals. Is that, you know, you're just not economists scratch their head when they look at palladium because it's had tremendous returns over tremendous yearly

returns over a long period of time. That's not supposed to happen. The price is supposed to go up, supply is supposed to respond, the price is supposed to come down, and that just hasn't happened for a number of reasons. There's no such thing as that pure palladium. Mind, the rest of the metals that come out of it have

to also work and be profitable. But the sheer increase in the Chinese environmental regulations year over year, it was China's called China three, than China four, than China four A China four B meant that a car in China went from having roughly a gram of palladium in it in this catalytic converter to having three grams. You don't care how many cars are getting sold when the actual loading of the metal triples. Yeah, and supply just couldn't react.

And so it's those sort of environmental regulations that tell us that an environmental metal can perform well over a long period of time, can exponentially growing. Bob, you are director of E t F Investment Strategy, So we're talking a lot about commodities, but I want to get to the E t F part of this because I have a program that's dedicated to E t F s. What an incredible year two was for issuance um, for new E t s, for thematic E t f s, and even any year when there were no I, P O

S and M and A was dead. What does look like to you SOE for for us, we think that that backdrop going into twenty leaving two coming into three really sets us up for some some nice um return in in a few areas, and one of them is UH. We we have a an E t F The ticker is g L t R. It's called Glitter. It's a precious metals basket. These are physically held there in a vault. We list the serial numbers of the bars of all of the metals on our website. You can go in,

you can see it. There's no roll yield problems UM and it is roughly allocated. It is a market UH. The allocation fluctuates based on market value and UH and it started in so it's fluctuated away from its original weight. But right now it's about fifty seven percent goal, seven percent over four platinum and twelve percent palladium. We talked

about palladium. Platinum is what you use in a cut cataly converter for a diesel powered boo, yeah yeah, and and uh we we talked about gold and silver and so okay, we think the backdrop that we spoke about is positive for for for glitter, for glitter, g L t R g LTR Bob Mentor, Director of ETF Investment Strategy, thanks so much for joining us here. The firm is Aberdeen. He got his bachelor's in economics from Rutgers. Rutgers men's basketball had a huge win yesterday they beat number one

per Du. That is a signature wind that come times March, that is gonna be a big for the committee they're on. They're picking teams for the big dance, talking commodities, talking metals, and lots of ways to play it on the precious metals, the base metals, all that kind of stuff. And there's certainly et F plays there alrightwo ugly, it's in the rear view folks here at Bloomberg Market. So we look forward and we do that with Gina Martin Adams today,

chief equity strategist for Bloomberg Intelligence. All right, geane a. You know, I could put on my chief equity strategist hat, and if I do that, I say I've seen peak inflation. I can see the end of rate hikes at some point in the next you know, certainly the next six months. Maybe I feel like, Okay, I've got some earnings risk, but that's not too bad. I think I can take some risk here. But people keep coming back to me and saying, whoa, whoa, whoa. The earnings risk is bigger

than you think. What's your call there as we start up? So our call is, yes, there is some likely downward estimate revision pressure to continue. But looking at past estimate or past recessions for guidance in the upcoming year is probably going to prove a faulty strategy. And what I mean by that is our most most likely sort of behavioral pattern as investors is to look at pastor recessions as guidance as to what to expect in the recession

that is emerging in the US. But the reality is all recessions look very different, and the recession in the environment where inflation has piqued inflation was largely supply based, and some of those supply constraints are easy going forward creates a very different profit outlook than your typical recession, and certainly very different than the two thousand eight recession, where we were in the midst of a financial crisis

which created that really big down draft in earnings. So we do think that we have some downward revision pressure to come. But the recession I had really unlikely to look like any of the past several recessions will be unique in its characteristics, and that should really drive your investment strategy for well. Michael Burry says, um, it could be the kind of recession that drives us from terrifying inflation back into deflation and and requires not only the

FED to cut rates, but more fiscal stimulus from the government. Um. What do you think of his tweet? He of the big short Of course, you know, I'm not Michael Burry, so I can't really speak to his strategy. But what I will say is we absolutely are in a period of disinflation. Definitely saw inflation peak in the summer of last year. I frankly don't think we're going to have a massive deflationary crisis coming in three I do think that the monetary measures have a lot of people quite

scared as to the potential financial implications. But offsetting that contraction in money growth, you do have very strong balance sheets in the part of us households to offset some of that pressure, which puts puts us in a very different position than we were in the two thousand seven two thou eight period. I think it's only natural for most people to look back and say, Okay, well, what were our recent experiences and attribute that is the most

likely um, you know, outcome. Fore, I just think, you know, we sit in a very different position. We will see disinflation, certainly, we will see the unemployment rates start to take a little bit higher. But there are some you know, unique characteristics of the economy today that didn't exist fifteen years ago. Uh. Certainly we've been through the last fifteen years to set us up for the next cycle, and so I want to try to account for that when I think about

where we're headed. And I know from reading your work over the years, you and your team you have score cards at different sectors. You kind of like, what's your score card telling you these days? As you as we start, Yeah, so our scorecard last updated at the end of the last earning season said you want to start to lean into cyclicals, into three cyclicals being financials and industrials popped up toward the top of our scorecard to accompany, energy

and consumer stables. So it's a little bit of a mix right now. It would suggest to me a tiptoeing into what are likely to be the leaders in the next up cycle in stocks, while still hanging onto some of the you know, strong defensive place that work in the current environment, those being energy and consumer stables. What do you think about I mean, in looking at equities, you have to also, um, I guess, confer with the

credit market, and we're seeing some cracks there. Loan loss provisions at banks surged in the last reporting quarter I think was the amount they were raised, of course from fairly low levels. But um, we have eight hundred and thirty four billion dollars of leverage loan issuance in two which is more than double the rate of two thousand seven, And Paul Singer says that the global financial system, maybe in contrast to the US consumer, is vastly over leveraged.

Now that could also be UM a dramatic statement, but are you seeing these cracks in in the in the credit side, and does it concern you. So what I use for credit when I'm looking at the equity market is actually really simple. It is simply, you know, what is the corporate credit markets suggest is the likely outcome for equities. We look at high yield and high grade spreads as one of our prime are indicators of potential distress,

distress emerging in the credit markets. Those spreads have certainly widened from all time low levels reached you know, in the early stages of this recovery process, but they're at about the same levels that we saw during the you know, many many recessions and earnings that that emerged in two thousand and eighteen as well as in twenty. They're not even anywhere close pandemic peaks, nor do they look to be going there anytime soon. They're nowhere close to two

thousand eight crisis peaks either. So I think when you suggest, you know, some of these things are moving off of record low levels, that's the correct characterization. We're certainly not in an environment in which credit is easy, um, nor are we an environment that simply lacks distress at all.

But we are moving into some form of a recession in the US, and that's reflected in some widening and credit spreads, which know, I think is consistent with an environment for a relatively moderate earnings recession persisting in the in the smp fid Gina, how about small cap stocks? Is it time to look there or with a pending recession that should wait. Look, I think small caps have priced in a tremendous amount of weakness, Paul. Small caps have been in a bear market for nearly two years now.

Small caps are trading at extraordinary discounts by comparison to large cap stocks. So you've priced in a tremendous amount of risk in small caps. Yes, you will have stronger earnings declines and small caps than you do in large caps. Certainly there's much more um likely default risk and some degree of earnings distress and small caps. But our work would suggest you've largely priced that in. We even have.

Our work would even suggests that we've priced in the entirety of a FED balance sheet reduction as well as very very tight interest rate policy invaluations for small caps. So I would suggest small caps downside is relatively limited. You also don't have the risk of you know, a

bubble still deflating in small caps. This is one of the kind of underappreciated aspects of what's really happened in the large cap index over the course of the last year is you know, not only are we experiencing some degree of earnings distress, but we've seen um, you know, a bubble that emerged in large cap tech and tech related stocks really deflates substantially over the last year. That bubble is still in the process of deflating. In our view,

that doesn't that doesn't really plague the small cap index. Alright, great stuff as always, Gina Martin Adams. She's the chief equity strategist for Bloomberg Intelligence. If you have access to the Bloomberg terminal print, offer us market three Outlook report. It has got great stuff and it gives you the perspective. 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. On Fall Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.