The UK, The BOJ, ETFs, and Nickel (Podcast)

currencies economists sort of thing. I'm sure pretty has chopping at the bit to talk about the Bank of Japan, because if anybody cares about the Bank of Japan, it is pretty good. It's important, I know, very important. Huge.

Jennifer Lee Joins, a senior economist managing director over at BEMO Capital Markets, and Jennifer, Um, you know, I I sort of realized the importance this morning when Valerie Title in London said, look, the b o J is the only anchor among major central banks holding rates lower, like they're the only ones with nerve or ZERP right now, and uh, if they let that go, it's like off to the races, do you agree? Um, they've already started letting it go in some ways, but you know, just

a little bit. And and yes, in many ways it is going to be off to the racist um. You know, I remember a time when you know, it was like snooze fest over at the Bigger Japan because they were doing nothing forever. And finally, you know, back in December they let the creating range around the tenure ye old

wide in a bit um. But now it looks like with this new and I actually don't not very familiar with this new potential incoming governor, but it sounds like he's, you know, his comments this morning sounds like it's going to be you know, business as usual at the Big Japan when he takes over. So that's probably why we saw some some some gift back, I guess in the ends,

in the end this morning. So so far it sounds like that it might be again just you know, keep going on with very easy monetary policy, so we don't have to worry Jeff yet, Oh, Jen, talk to us a little bit about the actionable differences in that policy. What does going from dovish to hawkish actually look like for the b o J that's kind of been stuck

for what ten twelve years minimum? Yes, for well, I've been exaggerating to say, well forever um but being going from you know, some super dubbish to slightly less subbish again by letting that training range widen a little bit last month, but you know, going I guess officially hawkish would be actually raising their interest rates, which you know, I think possibly might happen in April. I actually thought was something that's gonna happen in a at the last meeting,

but you know, it may in March. It's it's still you know, it's gonna be the end of their their fiscal years, so there's always walking this's going on in financial market. So I don't know what they want a chance doing anything, But of course if the governor or Corona wants to go off with a bang, and that's the way to do it. So I think April is

probably a more likely time to start tweaking it. But I guess if they don't make any actual like giving any changes in their actions, just changing the conversation or making their tone of their discussions a bit more hawkish will also do the job a little bit as well.

Fascinating stuff, yeah, sure, But to me the question is still for the b O J are we still viewing this as kind of its own I mean, as Matt said, like, is this kind of its own thing that doesn't necessarily apply to the rest of the world At a time when the ECB and the BOW remains uber hawkish and arguably the FED as well, does the B O J matter when the bigger central banks have kind of decided the path that, especially for investors who are focused on

the US, or for investors who are focused on Canada, or even investors focused on does it really matter that much? I still you know, I I have a bove leaned toward yes, and it still matters because it's still heard of the G seven, it's still part of the G tenth, So it does have a bearing, even though again you know, as we all know, they've they've been doing nothing and while everyone was has been uh husband has been tightening. And now it looks like it's it's kind of interesting case.

Now we've got the FED potentially coming to the end of the eating eating cycle to my boys to men there um, and the end of course, you know, make a candle, looks like they are going to be on hold for for some time um. And then of course the e c B is going the other direction, and the big of England is sort of you know, still tightening. So you know, the Big Japan is almost going to go in to wake or break this uh this this

this tipe breaker in many ways. But again still it's just it broadens the overall picture of you know the fact that central banks are still in some sort of a tightening mode, even the Big Japan, and not as tight as it once was, but still you know, inching a little bit more towards that towards that line. By the way, um Ed Harrison from Bloomberg in Washington, d C. Writes that some trader on Tuesday build up an eighteen million dollar position on six percent FED funds rate by September.

Um it's obviously a big or a deeply out of the money, uh position, But people are guarding against that possibility. What are the chances that we get up over five and a quarter over five and a half per Oh wow? So you know, I'm gonna be very humble and say, you know, we we've you know, over the past couple of years, we've been nudging our fed pigs right higher, and uh, you know, now we're looking for the final move to be in May I mean, obviously anything as possible.

But at this point, and we've already seen the peak in inflation, we're starting to see it coming down. Maybe not as as as steadily and as as much as the SET is still wanting to but you know, we've already moved down to the twenty five dayses point r right moves. It would have to do be something pretty dramatic, um pre substantial, well you know what I mean, possibly, if you can gonna do see that, yes, but I I don't think that's going to be the case. I think that might be a bit of an l a liar.

On Tuesday, as pretty points out, c p I is coming in, we're expecting six what have it's seven? Oh again, it's gonna you know, it's gonna take more than a month. It's gonna have to take more. And then plus we've got these new seasonals, right, so I think it's gonna take more of them up. Just like when we saw inflation decline in UH over the summer, and everyone jumped on the fact that the potential for the set to

start turning. You know, they said they needed more than one month, and you know, now they've had more than the month just like if you go to the other direction, if you see a big jump in CPI, you're gonna need more than just one month of a big jump in CPI for the set to change its tune. All right, Ennifer, thanks so much for joining us. Pleasure as always talked to you. Grateful for your insight. Jennifer Lee Uh there over from BEMO, where she is a senior economist and

Managing Director BMO Capital Markets, Bank of Montreal. I am psyched to get over to Anika Gupta right now. She covers equities and commodities as director of Macroeconomic Research for Wisdom Tree and Uh On a day when Anika, we got a couple of I think pretty interesting calls. Um. Michael Hartnett over at ba A says, as soon as the SMP gets forty five, says Cell Cell, Cell, don't

believe this rally. Meanwhile, Deutsche Bank says the SMP is gonna go to forty five by the end of the year if there was a recession, and if there's a soft landing, we're looking at five thousand. What do you think, well, Um, I agree with the former, Matt. You know we've been plotting the SMP versus the FED balance sheet. Take away the the the tightening that we've seen on the balance sheet and repurchase agreements, and it it is a clear cell signal at this point in time, and I think

that's what's being reflected by the market. Um. You know, we've had this um speculative frenzy in the first first month of this year, and you know, we kept warning our clients that look, come that pivotal week where we have these central bank meetings, you are going to see that you know, that that renewed concern actually being echoed

in the markets. And we've we've rightly seen that happened. UM. I think what what remains for us as a key focus is that, you know, the employment data still remains very strong. And as long as that is the case, UM, you know, the US is the U S economy is essentially trying to trying to show us that you know, it's it is pointing to economic resilience and if that is, if that is going to continue, then the Fed will

need to continue keeping rates in restricted territory. So UM, I think that's what's a key on our minds at this point in time. And obviously retail sales is going to be the big swing factor because you know, we are seeing one of your source of strength coming in from autos. We've you know, where we can see vehicles sales have rebounded um versus the December figure, so you know that. I think that's going to be really interesting to watch out for. Hey, Matt, I'm looking at her

bio here. She got a bachelor's in math from St. Stephen College in New Delhi. And I think my dad went to school as well. Oh, that's amazing that we have the same last name, we have the same sort of connection to this college. So unlikely that you're related. I don't think we're related. But and then she got she got the masters in mathematics or maths as they say, from a small known college in England called Oxford. All right,

so it's clearly she knows her stuff. Let's talk about the pricing of it all, because I really, I mean, look, you got your bachelor's and masters and math, so explain the math here when it comes to what we're looking at for the commodity market, you're looking at rent crewed an eighty five handle at the moment. But I'm concerned about how you quantify this Chinese reopening, which seems to be the real tailwind for commodities right now. You're absolutely right.

I think the way we were looking at commodities, we try to split up the commodities within their four subsectors. And I think from the Chinese reopening theme coming up, you know, taking into effect, we believe energy stands to benefit more than the industrial metal space. And the reason for that is UM. You know, there's a clear distinction that China is is UH like as a message that they're sending out in terms of how they plan to

prop up the property sector. It isn't a full scale UH initiative to just prop up the entire property sector. They are distinguishing between UH you know, developers that that have a better buffer buffer of UH and a better quality of assets compared to the other, so that they're clearly distinguishing one from the other. So I think we're going to have a moderate rebound in the property sector.

I think they're trying. What China is also trying to do, is they're trying to boost their energy sector as well, because they want they want they don't want to find themselves as vulnerable as you have found themselves in two so I think these two sectors are going to get uh you know, are going to be helped and aided by the Chinese government or into which we we do believe that UM energy stands to benefit as a subsector within commodities a lot more than the industrial metal space.

Where we believe industrial metals are really going to get their boost from is from uh you know, the energy transition that is in full swing at this Garrent junc show.

By the way, UM I was talking earlier about this commodity story that Bloomberg put out overnight, a trader traffic EURL, a British trading group, has discovered that more than five hundred million dollars worth of uh nicol it's paid for, actually five seventy seven million dollars is fake as a result of well it alleges as a result of a

fraud from an Indian company. This coming right after a Donni UM, what do you think about this rapid turn in UM the fortunes of you know, the Indian reputation, because before the Hindenburg report, like every every week we were saying news stories about how India was the new place to invest and it was gonna overtake China and population growth and it has a much better demographic. And it was even Matt Winkler, our editor in chief emeritus, wrote, you know, a love letter to India. So what are

we to make of this rapid turn of events. Well, I think it is a sign of caution for the Indian economy because clearly, you know, they were the most resilient economy in two and surprised you know, the vast majority of investors. But I think what we do need to keep in mind is they've been through so many headwinds over the past few years. You know, be at the COVID pandemic um that that's carred the economy quite

a lot. We've also had the denomination um, you know, the change and the currency that that caused quite a bit of an overhaul within the economy. UM. And I think what we do need to keep in mind is those very tailors that you did mention they do still exist. But clearly what Hindburg is trying to site, is trying to bring out is you know there is there is clearly, um, you know, something going on within the Adani group that investors should be aware of. UM. But I don't think

it will be real India's growth story. But because I think obviously with China being locked down, that was a very important tailwind for India that they that they actually benefited from, you know, be it Apple moving its supply chain, um uh you know, the I G sector benefiting a lot more from uh, from from from the US, which which did quite well. So I think those have been

important tail winds for the Indian economy. And obviously they have one of the most favorable demographics in the world, and this comes a bit time when you know, you have aging demographics globally, can't fight demographics. Can if they've got if they've got this huge new generation is bigger than the old generation, that's just got to turn out well, absolutely, and they have this strong consumption uh you know, that is helping drive demand and I think that's really important.

And even if you just reflect on the recent budget that is being launched, I think that was another tailwind where you know, the government is trying to be a bit more disciplined in terms of keeping uh you know, the deficit of the entage to the GDP in line. They're also benefiting from much higher tax collection, so that's really benefiting uh, you know, government capex. So I think from that point of view, you know, those state table

wins are still going to aid the economy. But I think from a sentiment perspective, we are going to see a bit of a blip, you know, towards Indian equities until we see that does settle. We'll see if that happens, Anika. We have to kind of harp on the Indians on the show right now. I recently educated Matt Miller on Bollywood, a very brief education, and I showed him the wedding photos uh Kr Advani and said, Molota, have you seen him?

I did? I did that? They have. They put out a video overnight as well, which I'll show you in the break. It is stunning. What did you make of Ana? Well? I I just barely glanced on the picture. I think the couple looked lovely. Um. Indian weddings are known to be extravagant, long affairs that the West are not very used to. Um So I think, yeah, I wouldn't. I

wouldn't spend too much of my time on it. But you know that's another sign of how what how do you have to in some senses right, I mean the gold purchasing power there and the will to buy gold actually drives markets. It does, it definitely does. Um. Yeah, and it's it's obviously, you know, Indians identified with a source of like obviously being a physical asset, a big sign of wealth, and you know it has been increasing

over the past year. It really has. Also, for what it's worth, Matt has been saying for like a year now that he's going to affreciate my wedding one day, which she has some experience an incredible efficient. I've done it a few times. Yeah, so, but I'm not sure if I could. The Indian weddings tend to last longer than I think I could. Party, right, it's exactly to be too much for you. I can help. I'll do one or two days of it, you know, and then

the elephants will carry me out. Get it together. You gotta you gotta push through it. I just want to get Hannah, the Hannah painted on me that too. That's gonna last piece. A week, that's gonna last you. I'm ready for a week. He's ready for like I could use I could use a week actually, And Nica thanks so much for joining us there. She's director of macroeconomic research.

Equities and commodities over wisdom treat a little bit of a turnaround here if John says the Dow Jones Industrial Average rising as the SMP is unchanged, so maybe we will get a little bit of a rally into the end of the day today. Still, it's gonna take a lot to bring the nastact back. Yeah, it really is. You're seeing the down about five tons of one percent yield higher. I wonder if there's a relationship. It doesn't really look like there is, but um yeah, tech underperforming today,

all right. One of the important pieces of news we got, I think for the market this morning was on China's consumer inflation accelerating last month as the company reopened and the lunar New Year holiday spur demand. But the games were pretty small. In fact, the c p I, the Chinese Consumer Price Index, was up two point one percent, which you know, for for China is not a huge jump, and the p p I actually um drops zero point

eight percent. Let's bring in a China expert right now to help us figure out what's going on with this reopening and what kind of effect it's really gonna have. Hans Doubt joins us. He is the CEO of the Madison Mitchell Group and uh sorry, Mitchell Madison Group, and he joins us from Jackson, Wyoming. It's a place I always love to be, Hans. I'm always so jealous when I say that, but um, thank thanks for joining us.

Give us your take on the Chinese situation. We're starting to get more and more data points coming out to help well, hopefully to help answer the question is the reopening gonna be good for you know, an engine of global growth. But I'm not sure if we're really getting the answer yet. Yeah, it's it's always a hard picture there, right, because you can't always trust the data. But I think

overall it's a positive story. Right. We talked a lot about China, uh and and it's always been really concerning supply chain, and nobody, you know, everybody expected that this this COVID spreading COVID you know, so quickly in China, especially around the lunar New Year, would would be a major catastrophe. And it wasn't right, it really wasn't. It just simply inspected the whole country and then now they're

going back to work. And if you you want to think about it, this way if they really kind of you know, flattened the curve on the back of the whole world, right, which is sort of what they did, and you have to admit that it was a success. Right. So I think China is going back to work. China capacity in dost the capacity is going up just as

the Western demand is going down a bit. And you're right, you see this in the pp I a little bit already, and I think it's going to be a very positive effect on inflation, at least as far as treatable goods DOT concerned. Right, that's that's you will see this everywhere, and I think that's overall a good thing. Um. On the other side, you have the political implications, right, So I was you know, you have the Chinese balloon, You

got Biden giving his speech. There's a lot of you know, sort of negative sentiment towards China and the desire to continue, you know, the great decoupling. And even worse than that, you had Biden saying nobody would want to be she right now he's facing a ton of problems. I thought it was almost insulting, um, And it seems like the Chinese took it that way as well. Yeah, but this

is all nice and fine. But at the same time, we had a record trade between the US and China last year, right, So you guys had this really nice headline a couple of days ago saying globalization finds a way. And I think that's true, right, It's not so much about you know, beating up China. Of course, you know, the US has to do it on the critical goods obviously,

on military things and stuff like that. And I think as we're disassembling the balloon, finding more you know, American and Sony parts in there, it's going to be very interesting. But I think the bottom line is that corporation simply have to diversify globally. The globe is bigger than just China. But can we agree that there's something we're not all of us are not being told about the balloon. I mean, it just does not add up if it's really some

big spy balloon. I cannot buy any of the million different reasons I've been given for why they didn't shoot it down right when it entered you know, US airspace over Montana. I mean, you live out there. There are not a lot of people around, so they wanted to shoot it down yes, they should have. But so I don't think that we're getting the full story on that. I'm not saying there's some big conspiracies, deep state theory,

but something we're not being told. Maybe I don't know why, but um, it just strikes me as an odd time to be then insulting to the Chinese leader when we had a US Air Force general saying, prepare for war. It's gonna happen. By even if we are trading a lot, we could get into a pretty serious military scuffle with a big army. Absolutely, yeah, gotta be careful. Well, all right, we'll walk us through. Then back to China. The COVID story of it all. Do we just not factor it

in anymore? I think I think COVID is over. I think, like I said, I think China's done really the right thing. And when I was dealing with after effects of COVID globally, right, I mean, if if you actually think kind of becoming a little bit boring, right, if you maybe shifting you're a little bit here. So another news piece of news which I thought was really interesting last year, last last

week was around employment. Right, we had employment, unemployment rates very low, and people got really skittish about this, right, I think that is not really an area of concern because I think what you really have seen is not incremental demand from employers because they actually firing. You see a reduction in in vacancies obviously, but what you're seeing now is workers finally taking jobs because they're running out of savings. They have rising consumer prices that more it

is smart and more expensive. So I think in this really crazy post COVID environment, you're seeing a lot of things that normally don't make sense, and I think this is actually a sign of economic weakness. So I think the global story is China will produce, the US and the West will slow down, and things are going to go to normal. I think the issues how quickly and with what rates? So so what effects do you expect

all that to have on asset prices? I mean, especially like commodities, right, because it's one of the first places we look when we heard China was reopening. Yeah, I think, look China, China obviously is a net exporter, right, so of course you're going to have some impact on commodity prices. Uh in the short term might be it might be you know, going up, But I and you have to remember the end product demand will be down and this stuff is made in China with a combination of labor, capital,

and raw materials. Right, So this is just one component. I don't think inflation in tradable goods is going to be a massive problem. What about the thirty seconds? If you can the relationship between China and say Russia, the relationship between China and India, is there going to be a read through into the States? I mean you have to The Russia relationship is obvious, right, you have you

have Russia and China. Is the match made in heaven because of energy, right, So that's that was always going to happen, and it's just a question of getting it there. With North Stream too gone, however, was you know, eliminated? That makes sense, right. I think India's is a slightly different story. But I think um at the end of the day, you have to look at trade flows. Right, China in the US are mutually so dependent that it's it's not a good comparison to you know, the Cold

War era between Russia United States. We were so dependently to other portrayed and I think that the Chinese recognized that. So there's gonna be a lot of noise, but I think I would be fairly positive that UM, the economic reality would drive good policy. Al Right, Hans, thanks so much for joining us. Hans Dowt there. He is the CEO of Mitchell Madison Group, China expert. We go to UM whenever there are open questions here, and you can be sure that for a lot of people in this market,

there are a lot of open questions. Even with the new data inflation CPI coming out in China at two point one percent last month. UM, so a little bit tepid, but nonetheless UH growth in prices rather than declines as they reopened. And that's the ETS was interesting to me. For me, I think my favorite et F fun factors that you can actually use e t F as a shorting vehicle. UM. I guess a little wonky, but it's

interesting to me. UM, let's bring in someone who is a true expert on e t F. S Uh has far more knowledge on the subject than Matt and I combined, probably a Ward Boards et F portfolio manager over at Angel Oak. He's going to talk to us a little bit about probably everything, but we're indulge the nerdiness here. Shorting through e t f s. Is that a thing? Oh, yeah,

that's the thing. That's one of the great things about the e t F market is it's a way for you know, markets where it can sometimes be difficult to short things like corporate bonds or high yield corporate bonds. If you want to get underweight or short exposure, you can utilize the e t F market to UH to do that. And that actually, you know, it's a nice way to kind of create liquidity in the e t F market. And there's also options markets that are growing rapidly around large liquid UH e t f s that

are out there. I also love that you can, you know, build your own index is now um you can invest in active e t f s and you can just complete you can put together a complete strategy with e t s. There are some limitations, right, especially in certain vehicles like a four oh one K for example. Are those are those sort of barriers falling away? Yeah? The last call it even two years has been really interesting, particularly in the fixed income market right along the lines

of what you're you're talking about. So historically, if you wanted exposure to the fixed income market via e t f s, you were buying either treasury bonds or corporate bonds. And as active ETFs have grown and the difference between active and passive e t f s. Passive you're just gonna track a very simple index, so you need very liquid securities underlying those those uh, those passive e t s. With an active index or with an active e t F,

you're gonna look to try and achieve an outcome. So maybe you're trying to get total return, maybe you're trying to get a very high beta exposure to the fixed income market. Maybe you're looking for something very stable that's not going to move. It gives you a lot more flexibility though, to be able to select different securities. You're not forced to change when an index changes, and so one of the things we're really excited about what that

allows in the E t F market. You know, as I highlighted, historically you've only been able to get exposure to credit through corporates, and now you can get exposure to mortgage backed securities, commercial mortgage backed securities, clos All these things that have been concentrated in the mutual fund space where only mutual fund investors could could get access are now quickly entering the E t F marketplace. Okay, so let's bring it to UH next week, making a

little bit more short term here. Matt mentioned at the top of the segment thematic e t s specifically, it feels like the no brainer to play this market is while you look at the Federal Reserve and you kind of gamble what they're going to do next, what are we looking at the Mattock ets as perhaps reemerging as things like China, Russia, even Europe become a larger part of the trading conversation. So we tend to focus right

exactly with what was highlighted around the Federal Reserve. We're we're a bond focused manager and for us, you know, the our kind of UH credents going into two thousand twenty three is that bonds are the new equity, and so UH you look at the Federal reserve policy, we think we're getting towards peak policy at the Federal Reserve. Um later this year you could even see a light recession, and this is going to create what we think is

a tremendous opportunity in the fixed income marketplace. And we think investors were already seeing this are starting to reduce their equity allocations and actually think about adding fixed income

given the the yield effectively in the marketplace. You know, particularly if that recessionary scenario plays out, you could see that hit corporate rings and that would suggest this might be a mooted year, particularly given the strong returns that we've seen in the beginning of the year in the equity marketplace on a go forward basis, without you know, the growth and earnings and in the rally we've already seen in equities, you know, fixed income could look like

a great place. That's particularly true in our market where we tend to focus, which is credit. Where in the fixed income space, Like, what kind of maturities are we talking about here? We had a guest on yesterday who was saying a lot of what you were saying as well, but he said, look, we gotta go out in maturity. You gotta go to the thirty year to the fifty year because that's the safest play way to play the FED. What kind of what kind of duration? What kind of

maturity are we looking at? I gotta I gotta tell you, I don't know who it was, but I'm on the opposite end of the spectrum. I think you can get six and a half percent yields in UH in structured investment grade rated securities that are one year and in versus going out the curve to the thirty year UH, where you're getting less yield and taking significantly greater risks.

So we think in the near term you want to have those you know, safe, high quality, short duration securities, get that high yield, and then over time, perhaps later in the year, as spreads widen out with with that potential recession um, that's when you might get a little bit longer data and you know, buy stuff. Call it further out the curve and further down the credit quality spectrum. What are you seeing in the in the flows right now and and how do you use the flows to

inform your views? Yeah, so last year was clearly a very challenged year from a flow standpoint in the fixed income marketplace, and on one hand, as an asset manager, that's not as fun as the alternative. On the other hand, it's what's creating this amazing opportunity that we're we're seeing this year, and so far this year we have started

to see floats turn around aggressively. I think it's a lot of the investors who were tax harvest tax harvesting last year, uh um, and also just kind of had moved to cash given the yields in cash were at levels they hadn't seen in a long time. But they're starting to put that money to work now. There After you kind of look at what the demand is going

to be. We look at what the supply is in the market, and there's not a lot of supply coming from fixed income market, which you know, again informs our bullish view that if you have a lot of demand for bonds and there aren't a lot of bonds being produced out there, you know, the price has to go up. I am confused then about when you're talking about the yield. Isn't this been kind of a dynamic for a couple of months now. I'm just wondering, like, what's new here?

Why are people more convinced that perhaps the bond market is deserving of a bull case. I think the point you you brought up, which are flows flows having turned around, I think is a positive catalyst. I also think some of the CPI that we've numbers that we've seen in the last call it month or two as that kind of flows into the marketplace and starts to see interest

rate volatility declimb. All those things, you know, effectively inform or drive this kind of both spread tightening in particular and at least the stabilization in yields, if not a a lower yield number itself. But you also got to remember that you're getting a nice coupon now, a six and a half percent, seven percent coupon with the potential for price appreciation. That's where you get into this call at seven, eight, nine, even ten total return potential. You know.

That's that's why we view as bonds as the news stocks. That's interesting, you know. I will say that I saw a great piece today by Ed Harrison from Bloomberg pointing out that one of the most unnoticed monetary policy transmission channels is the interest income channel. So that that coupon is um maybe less helpful than the Fed wants it to be right now, which leads you down a whole uh well, leads you down a big rabbit hole, and I recommend the macrobu column. Um alright, Ward, Boards, thank

you very much for joining us. Pleasure having on. Hope you can get you back on again soon. Ward is the et F portfolio manager as well as a head of distribution in public strategies over at Angel Oak. I've been waiting all day long to get to this story. I know you mentioned it like every commercial break. Well, it is to me absolutely fascinating the sheer scale of theft. Until this point, my all time favorite theft was the

Great maple Syrup heist of like two twelve. Do you remember one Canada has like maple syrup is a big deal for Canada obviously, and they have these huge, like government run depots that store all the extra maple syrup, just like we have Fort Knox for gold. And at one point, I can't remember all the details, but at one point they looked in one of the barrels and found it was just water. And then they realized somebody had still and like millions of dollars worth of maple syrup.

But that was like twenty million bucks or the maple syrup. This is five hundred and seventies seven million dollars worth of nickel. Okay, yes, quite not quite the same. Let's get out to Jack farshe's one of the reporters on this story, which Jack, I just you know, there are a few stories that I just read straight top to bottom um and then want more. This is one of

those stories. So traffic Eurra Group is the big trading outfit where based in London that realized, um, it was buying all this nickel and was getting I guess rocks that head office in Geneva. They're one of the world's biggest trading companies. Uh. Probably not the company that you would expect to be to be caught out in this kind of in this kind of situation. Uh. You know, if you if you think of the the global commodity

trading industry, they are one of the blue chips. They are, you know, the Microsoft or Apple of the of the commodity trading industry. And yet here they are and you know, according to our reporting and and indeed what they've what they've said now and confirmed on the record. Uh. They started opening containers as they started arriving at ports. First the first one in Rotterdam a few days before Christmas

last year. They opened this container that was supposed to contain nickel that they supposedly owned, and what they found in it was essentially not much. I think there were some things like crude steel in some of these containers and other things that are worth you know, a tiny,

tiny fraction of what of what nickel is worth. Uh, And when they add up, I mean they're still they're still apparently I think probably hundreds of these containers sitting on container ships going around the world at the moment. But if they add up all of the containers that they have that as uh, that that that they bought from a from a group of a group of companies connected to a particular individual, um, they say that's worth five seven million dollars and they've they've taken that as

a loss already. So so talk us through first of all, how this nickel gets transported around the world. How big are these containers? Are we talking like twenty ft fort containers? What do they weigh? Did they just fill them up with nickel? Is it like shoveled in or what are we What are we really talking about here? Because I just think it's fair, it's standards, its standard shipping container. There's a lot of a lot of industrial metals get

shipped on in containers. You know, if you think about things like iron ore and coal, they tend to be shipped in bulk. So you have a whole ship that is full of coal or of iron ore, but things like refined in copper, nickel, aluminium, even copper ores. That kind of thing usually shipped in containers alongside everything else that gets shipped in containers, you know, the cars, the whatever. If you're moving house, you're container full of your stuff

moving from one country to another. All the rest of it is on a container ship with you want to contains on a container ship with with the with the nickel and the copper, uh, and you can probably put about twenty five tons of copper give or of nickel rather or copper for that matter, in a single container. And so there will be a few dozen containers containing nickel that is owned by Trafficura, say in this case,

on a container ship going from one part to another. UM. The key really to the whole, this whole story and why this happens time and time again in commodity trading is the reliance of the industry on physical documents. So, just to be clear, was there actually nickel there or was this a complete like fraud. It's a good question. We don't know all the details yet of what exactly happened. Traffic Oura has said UH that they think they were the victim of a systematic fraud, UM, and that involved

misrepresentation and the presentation of a variety of false documentation. UM. There are various ways in which this kind of thing can happen and has happened in the past. One is, you know, at some point there is some real nickel, uh, and then at some point somebody produces some some fake documentation saying that the real nickel is still in this container when actually it no longer is, or or that it hasn't been sold when actually it has. That kind

of thing. So somewhere in the chain, maybe there was some nickel at some point, but by the time that trafficer opened the container, it wasn't there anymore. Season maybe it's been taken so could it could have been stolen, Maybe it was never there. I guess we don't know. We're not to the bottom of this yet, Jack traffic Er, I guess pressing legal action against um I. When I saw India, I immediately thought of Donnie, as I'm sure

many other people did. But it's not. It's there pursuing legal action against Pratique Gupta and no relation to Critty. By the way, I want to point out right now, UM, but what does pratique Gupta say, and how I mean even if you know, if if you take Trafficer at his word, this guy must be a big deal to even sell five hundred seventy seven billion dollars million dollars of fake nickel. Well that's a very good point. Um. So Prettee up to we have been trying to contact

him and his companies. We haven't had any response so far. Um. Obviously they're defending themselves in legal action or they they will be scrambling to defend themselves in legal action against traffic or which trafficker has been launching around the world in the last few days. Um. But it's a good point that Trafficer had this huge exposure to them. Uh. They're not that huge trading company. They're relatively well known in the world of people who trade uh metals like nickel,

but it's not a vast group of companies. Um. Uh. You know, Prettee up to there was a company called Tushtev International, which was an Indian company that's now an insolvency that he was running and was partially owned by him and other members of his family. It's maximum which was more than a decade ago. It was worth about two d and fifty million dollars and since then is worth you know, only a few million dollars which is

listed on in India. Um. So it is quite striking that Trafficura managed to end up with an exposure of five seven million dollars to to these guys. I think that you know, the point that I would make is uh, and I guess the reason why a company like Trafficura could end up being caught out by this kind of thing. Uh. This was metal that Trafficura thought it had bought. So it wasn't like they had a credit exposure to these companies. They thought they bought some metal and they thought what

they owned it. It was only when they discovered that they didn't own what they thought they owned but they that they realized they had a big exposure. So actually their assumption was that they didn't have much of an exposure at all because they owned some metal, they had title of documentation to this all of these parcels of metal fitting in ships around the world, which wasn't there. It wasn't which in fact, Jack, thanks so much for

joining us. It's a great story. Jack. Here she wrote this story with Archie Hunter highly recommend checking it out on the Bloomberg terminal. Traffickerro faces five seventy seven million dollar loss after finding nickel fraud. 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. Pen On Fall Sweeney I'm on Twitter at pt Sweeney. Before

the podcast. You can always catch us worldwide at Bloomberg Radio