The Market Bottom

about the future of abortion politics. First to the markets, seemingly a little let's sea this week and generally getting warier of weaker economic data this though, as Fed officials continue to talk up rate increases, and Terry J. Powell talks about finding price stability in the new economy, where with Jared Dillion of The Daily Dirt Nap and Bloomberg Opinion.

Hedgehone manager Michael Bury, famous obviously for getting the big short right as the Great Financial Crisis was unfolding, send a tweet out this week suggesting the Fed may actually pause or even reverse hikes because deflationary impulses are brewing in certain areas of the economy. We have seen a couple of people float this idea in recent weeks. Is he right? Uh? He is right, and what he was referring to in particular was this phenomenon where retailers are

building inventories to record levels. Uh. And inevitably, if you're a retailer in your inventories are stuffed, then at some point you're gonna have to discount. You're gonna have to lower prices in order to get word of those inventories. And that is deplationary. I mean, it's inherently depletionary. And the inventories piece is just one piece of the puzzle.

We're really getting a deplationary impulse throughout the economy. You're seeing in a lot of places like the manufacturing surveys, the regional manufacturing surveys, that that they're just you know, dropping like wet socks and a chicken. As one of my friends used to say. So, well, this is something. And you know, I was moderating pudlic quid space this week with four different firms representative and the figures we're

both mentioned in relation to the prospect of recession. So it seems like there are more and more people turning a bit negative on the economy. Do we have to have the NB or call it before we really know, or before the FED even reacts, well, we might actually be in recession already. I mean, that's well, you know, the NBR uses a number of factors to calculate a recession, and it's possible that as months go by that you'll see some of the data that we're currently experiencing, you'll

see that get revised lower. So it's possible that we're already in a recession, and then six months from now the NBR say, well, yes, we were actually in recession back in June. So I think it's totally possible. So is the Fed then waiting for more data to come in before it does something and kind of continue to hike interest rates if indeed there is a high possibility

that we are in a recession. Well, I think I think the one data point that's going to get the Fed to stop hiking is the labor market, and really because of optics and because the politics around unemployment. If unemployment were to go up significantly, say the unemployment where it goes to five or five and a half or six percent, then you know that's that's a severely lagging indicator, but then would be absolutely clear that we're in recession.

The problem with the FET doing that is that the problem doesn't really anticipate, uh, these moves in the economy, It really reacts to them after the fact. So yes, it's probably true that the FETCH stop hiking now, but they won't actually probably for three to six more months. Yeah, And I mean that's probably what we're seeing in the stock market right now, because it does seem a little at sea, you know. I mean we've had multiple days of barely any moves, but then sort of one random

to percent drop on Tuesday. Yeah. I mean I'm actually I'm reasonably bullish on stocks. Um. You know, I think I think sentiment is pretty terrible here. I think sentiment is bombed out and I'm actually expecting a rally. Really, the worst the data is, the better it is for the stock market, because that builds more of a case

for the FT to pause rays. Yeah. At the same time, the fact can't really pause Radix until we see it in inflation expectations, right, I mean, it's actually targeting inflation expectations right now, which it said it is. But how do we even try to bridge to what the impact of that will be on stock and modn markets. Well, the interesting thing is is we're getting a little bit

of early evidence that inflation expectations are coming down. We got that the other day UNI University of Michigan survey UH that inflation expectations on a one year basis and applied to ten year basis had come down just a little bit. So, you know, even though they haven't really actually hyped interest rates a lot, they've done sort of this verbal tightening over the last six to nine months, and it has been having an effect. It's been having

a huge effect. So I'm gonna quote from one of your pieces, you say, as laughable as it may seem, there may still actually be a transitory element of current inflation that was a function of quantitative using government spending and pandemic hoarding. You're really buying into this idea that we could see inflation coming down pretty precipitously soon. No, absolutely, I mean, I'm you know, I'm very confident that the eight point six percent print we got on CPI, I

think that's going to be the highest. I think the next print is going to be lower. The economy has slowed quite a bit since that last CPI print, So yeah, I mean, I think it's very possible that by the end of the year we could have inflation somewhere around five percent or six percent. Jared, do we have to be confident in this Federal Reserve before we make a calculation on the economy though? I mean I asked that because I'm not sure that even this Federal Reserve is

confident in itself on this particular cycle. Well, I mean, you know, Jerome Powell said that he isn't really you know, he doesn't really sure what causes inflation or I forget his exact quote, but nobody really is. I mean, it's really a psychological phenomenon, and um, you know that's really the purpose of the rate hikes is to crush the inflationary psychology. And I think it's I think it's doing

actually a pretty good job. And someone pointed out recently that, you know, in previous inflationary episodes, you had to raise FED funds above the rate of inflation in order to get inflation down, which would mean we would have to take you know, FED funds up to nine percent. I don't think that's going to happen, and I don't even

think that's necessary. I mean, I didn't think you could raise where it's to three percent, and you're going to be able to take this down because of this transitory element. You know, everybody made fun of the FETE calling a transitory and then capitulating, but I think it may in fact be transitory because of these one time factors. Yeah, and obviously we're seeing commodity prices coming down, which I'm

not sure that many people would have predicted even recently. Yeah, I mean the uh, the CRB Commodity index is down about ten percent from the highs and it happened pretty quick, and I expect you're gonna get a little bit more downside there. Timing the markets you wrote a column about is obviously we're told time and again, you know, investing one on one, don't try to time the market. It's going to be financial armageddon. Explain your thesis, Jared, Yeah,

I do. You know. Look, tim in the market is is for the people. You should never do it. It's really hard. You're gonna make your returns worse. Uh. And the reason that's true for most people is because, you know, because of human psychology, because people are hardwired to be bad investors, because when the market goes up, they get excited, they buy more. When the market goes down, they get discouraged and they sell, uh, And it's you know, that's

that's the way people are wired. So but if you can sort of do that countercyclically, if you can, say, if you can kind of step back and get some perspective and examine your emotions and say, look like, I'm you knowl on the market and it's going up, and I feel really good and I feel very happy about my investments. That is actually the time you want to

cut back exposure. You don't have to sell everything, but if you just reduced your exposure by about ten percent and then you know, a couple of years later, when the market is going down and you feel really terrible about your investments and you want to liquidate everything, that's actually the time to increase exposure. So just by doing these minor tweaks in your asset allocation based on sentiment, that's actually a way to outperform the market by a

little bit over time. Yeah. So it sounds incredibly you know, obvious when you put it like that, and it sounds quite a drunk to ben packing. Why not do that? You get a few extra percentage points for yourself at the same time, Timing the market and timing sentiment has to be very difficult, or everybody would be doing it all of the time. Now, well, everybody does do it all the time. I mean, this isn't this isn't like a license to day trade. I mean it's not. It's not.

It's not a license for active training. In the piece I have talked about, you know, this is something this is something you might do two or three times in your investing career. Uh. You know, like an obvious example would have been, you know, two thousand in the top of the dot com bubble. Another obvious example would have been two thousand nine when stocks bottomed at to the financial crisis. Um. But these are big, big sentiment turning points.

And you don't even have to like catch the top or catch the bottom as long as you're in the neighborhood. And these are tiny adjustments and asset allocations, not saying you have to go all out of the marketer all in, as Bart says, are we there yet? Then if you compare sentiment now to how bad it got in two thousand nine, I mean, sentiment is bad now, um, And but I don't think where I don't think we're really

close to where we were in two thousand nine. I think it could be a turning point, but I don't think it could be one of those generational turning points where you want to change your asset allocation, right, And do you think one is coming? This particular cycle seems so difficult to call because it's not just one thing. It's not just one asset clast that seems to be publicious.

I mean, obviously crypto walls and there are parts of the market that are, but there are so many factors that are coming together now, from the Ukraine War to zero COVID and China to so many other things. Is it going to be even possible to time sentiments this time? No, I think it's possible, and I think you'll know when it happens. Um, you know, I mean I think a

good analog for what's going on today is actually seventy four. Um. You know What's it's similar because you had inflation going up and the fet was kind of trapped and they had to high rates, and um, it really like the markets sort of got into this mode where you know, it was like, you know, just it was trapped by inflation basically. So it's I think it's similar to that in the market was down forty six or forty eight percent,

I can't remember. Well, So, just quoting from a Bloomberg story, stock did buyers across the E t F world have vanished this year because they've tried three times, They've seen their account balances ravaged three times. So the number of five bounces that didn't endure is three. How do you

then persuade somebody to try again a fourth time? Well, it's that's the that's the problem because really, like when the time to do it is when you really don't want to do it, is when it feels absolutely the worst, like when you're when really like you you want to do the opposite, you want to want to just liquidate everything and go to cash. That's actually the time to increase exposure. You know. The funny thing is that I've

been doing this for twenty three years. So I was around for two thousand and I was around for two thousand nine, and uh, you know, I I successfully took down exposure in two thousand but in two thousand nine, I actually I was a victim of my own emotion, Like I actually didn't increase exposure because I was so scared because you know, City Group was trading at nine cents and BA was trading at three bucks. And you know, I got I got sucked into the bortex and I thought, well, like,

the world is actually coming to an end. And it didn't. It never does. Well, it's easier to imagine something going to zero on it's three dollars then going to zero when it's three dollars, right, weird. I mean psychologically it shouldn't be, but it is. Yeah. So you know you talk about when you're feeling you're worse about your portfolio, how risky is acceptable? Then are you just talking equities here? Because some might take your advice and say, oh well

I'll buy a bunch of crypto. Then oh no, we're just talking equity. This is just this is just the stock market. Yeah, I mean, having having said that, you know, I've invested in crypto a little bit, I have some right now, and I be a much better buyer here than six months ago, for sure. Yeah. Well, I mean it's lower. Yeah. Another thing I noticed, and I'm not

sure if this should give us pause. The Federal Reserve Bank of New York launched a Corporate Bond Market Distress Index so it's supposed to track the health of a trillion dollars of US corporate bonds as financial conditions tightened. Should we be concerned that the Fed feels like it needs to have this new index? You know, actually, I don't think it's a terrible thing. You know, it's interesting because the last credit cycle that we had in two

thousand twenty only lasted about four days. I mean, the pandemic happened, the bond market crashed, and then the Fed announces liquidity facility, they started buying corporate bonds, so you really only had a credit cycle that lasted for four days. Now the corporate bond market is actually, I don't want to say it's distressed, but it's not good. Like there's there's a lot of pain out there in the high yield and investment great So I think it's interesting. The

timing on that is pretty interesting. How do you buy gauge sentiments if you're an amateur, Really, the best way to do it is to just pay attention to everything around you. Pay attention to every magazine cover, pay attention to newspapers, pay attention to TV shows, your neighbors who you talk to, listen to how they feel about the markets.

You know, if you if you start getting this consensus around all these sources of information that things are really good or really bad, then it's probably time to go the other way. What are you doing right now? What am I doing right now? Not? Not much, not much of anything, actually so much. We're not taking your own advice. I mean, I'm just I'm not a hundred percent convinced we're at the bottom. Jared Dillion of The Daily Dirt, Nap and Bloomberg Opinion, We're back with David Fickling on

global hunger, It's causes and potential alleviating factors. We know that there are wheat mountains backed up in ports because of Russia's war in Ukraine. Other factors, however, are contributing to this global intense hunger cry US. As David Fickling explains, how bad is it right now in terms of food and security in the world. I think we're approaching a quite unusual turn in the sort of history of global

food security. To be honest, if you look back at the long history of this, you know, one of the crucial things that helps keep the world fed over the past fifty years, while the world population has doubled is

actually trade. People talk a lot about the growth of sort of chemical fertilizers and farm machinery, which have both been very important in the twentieth century in keeping the world fed, but trade is a really important part of that because, of course, if you have drought and crop failures in your region, then there's no amount of fertilizer or farm machinery that will solve the fact that your

crop just won't grow. So a really important thing that I think is underappreciated is that the cost of ocean trade in the nineteenth century dropped by about se and so you suddenly have this global trade in grains and about a quarter of all the calories we consume it and now traded across borders. So it's very important that this is a global trade. But I think something's undappreciated is that it's quite a concentrated trade. The world's bread

baskets are rather few. There's probably about six of them, the US Midwest, the South America, sort of Argentina, Brazil, that area, areas of Western Europe and the Ukraine and the former Soviet Union and Russia. And I think most importantly the plain between the Indus and the Ganges in northern India and Pakistan and eastern China between the Yank Sea and the Yellow Rivers. Those six read baskets are

absolutely crucial to the world's growth. Of these relatively few number of crops that we depend on, wheat, rice, corn, soybeans. More than half of wheat and rice and corn are grown if you put those those areas together, soybeans disclosed.

Now for most of the time, that's not too much of a problem because although there's just half a dozen of these bread baskets, if you get a drought in one region, it tends to pair with good rainfall and another region that leads to higher crop yields, because essentially the rainfall has to go somewhere. It evaporates on one side of the ocean, it tends to drop on the other side of the ocean, and when we talk about things like El Nino and Landinia, that's essentially about rainfall

ending up in different places. However, as the climate is changing, a lot of that is getting a lot less secure than it has been in the past, and I think that's really putting pressure on some of the fairly sort of shaky system that we have there in place over the stage half a dozen bread baskets to to keep the world said, we seeing several weather events right now, even just in the United States alone, So weather has a lot to do with the fact that there's going

to be a shortage. It is not just Russias war in Ukraine. Absolutely, in normal times you would look to the world's other big wheat producers. Now one of the world's top three wheat producers may be slightly surprising in fact, is India. You don't think of India as a big wheat producer. There's not a big wheat exporter normally because it's almost all consumed at home for chiparties. And exactly what we've seen in India over the past a couple of months, we've seen this very extreme heat wave and

that has caused India to embargo exports of wheat. Places like the Middle East. They were very dependent on wheat from Ukraine that's obviously been damaged by the war in Ukraine. The places they were hoping to get their wheat supplies

from with India, but now injury is not supplying that either. Obviously, you see these high prices in the US as well, so you really see how some relatively small changes, and especially if you trow geo politics in the mix, as with the war in Ukraine, suddenly what looked like a decent spread of food baskets can very quickly that are

rather short. You also point out on a recent piece food dependent nations can import nutrition, but they must have the foreign exchange to pay for it, and we know that because of the dollar strength, that's in short supply in many of these countries. Yeah. Absolutely, and of course a weak currency becomes a problem for especially the poorest in the country, even if there is the availability of imported nutrition. I mean, another interesting example you look at Brazil.

Brazil recently not a country that you really associate with a sort of open trade policy, but they've been drastically cutting the tariff rates essentially to zero for all food imports the EGEA of values. Of course, that inflation is very high in Brazil and it is a problem for

people in Brazil that they can't afford to twell. That is a decent policy approach, but the problem is it's not nearly sufficient, because if you look at the way the real the currency has fallen in recent years, Brazili is a big food producer anyway, and it's probably not going to lead to any increase in food imports because Brazilians simply can't afford the market global price of food. Now, David, how bad does this get in terms of people actually starving?

People in places might even associate and food and security with I mean, the past few decades mostly have been an extremely successful period of bringing down rates of under nutrition under nourishment. That progress continued slowed down through the but then just in and then particularly twenties, since of course the COVID nineteen pandemic, we've really started to lose ground on that. Now, part of that is essentially driven

by the pandemic and driven by incomes. People don't have the money to spend on food that they used to have, But it's not just because of that, and I think particularly at the moment, we see all sorts of fact are leading to a much more insecure environment for food. Then you throw into the mix the war in Ukraine

is a factor. Ukraine and Russia are both big food exporters for that matter, and then led up at ports in Ukraine and Russia that just won't get out now absolutely absolutely, and then even on top of that, then you can add some of these export embargoes. Obviously, you know, an interesting one was India's wheat embargo follows very rapidly on the heels of an export embargo in Indonesia for palm oil, which has actually now been revoked, but went

on for a while. Injury is one of the biggest importers of palm or India needs palm oil for basic nutrition for Indians. They lose that nutrition from Indonesia. They embargo their wet exports elsewhere, and you see these knock on effects everywhere. So there are all sorts of impacts like this. David Fickling there and don't forget to get in touch. All thoughts and opinions are very welcome. I'm at Vanney Quinn on Twitter or email v Quinn at

Bloomberg dart Net. New and unexpected revelations from the House January sixth Committee the this week, and of course we're several days now post the Roe v Wade overturning Vicecotas. We're with Jonathan Bernstein. So, Jonathan, what an intense week we began with Row and all of a sudden the week has become quite the eventful week with the extra January six theory that we weren't anticipating as well, and

a lot of quote unquote bombshells. I don't ask you, though, what really did we learn that was usable from former white outside Cassidy Hutchinson. Well, you know, there's different levels of who this is for, right, So, but I think just to begin with the fact that Donald Trump, we now have established, knew that there were armed people that he then urged on to attack the capital. That's pretty big, um.

I don't think we'd had any kind of evidence before this that Trump knew that some of the crowd was armed. Not only is it, you know, reckless of him. Not only does it show that, you know, it shows that he thought of them as attacking a capital rather than just that they were going to peacefully march over there and hold the demonstration. So that's pretty big, big, big jump. So, I mean, if you were a prosecutor thinking about this, is there evidence that the former president knew or believed

that these people would use their arms? I mean, you know, many people are armed in the streets in many states, more and more now these days. He said they're not here to hurt me or to hurt me. I mean, we don't fully can you make the jump and say that we knew that he knew that they were going to Well, that's where I think I have to take a step back and talk about different audiences. I'm not a lawyer. I'm not going to tell you what the

prosecutors need. But in terms of us as citizens, yeah, I think that that's that's a pretty big deal that Trump knew that these people were armed, asked to remove the metal detectors so they could come and hear him talk saying, oh that you know they're not for those weapons aren't for me. I think, yeah, that that's a pretty big indication that he, at the very least, once there was trouble, once they attacked the cops and breached the capital, he had reason to believe that all kinds

of things could happen. In fact, you know, as it turns out, we have a lot of evidence of weapons at the Capitol, not guns, but Trump didn't know that everything.

One of the other things that was, you know, a shocker was what apparently happened in the beast where the President wanted to get to the capital and and wasn't allowed explain to me how how the Secret Services operating right now because apparently the Secret Service told the sitting president of the United States that he couldn't go somewhere, prevented him from doing that, and are now saying that, no,

that didn't happen. We're gonna have to wait to see how everything shakes out in terms of you know who says what. It's not clear that the Secret Services denying that he asked them to go to the capital, and there seems to be a denial of the story of exactly what happened in the car. But I think everybody agrees this wasn't the first evidence that he wanted to go to the capital and sort of lead the mob

to the capital. What I would say is that it's nothing new for Secret Service to tell the presidents, no, you can't do that, sir, And we have a wonderful example of it back when George W. Bush was president on September eleven, he said, take me back to the White House right now, and the Secret Service said, no, sir, you're staying up on the plane and flying around in circles because it's not safe to go to Washington right now.

Part of this is very much about Trump, and part of it is about the structure of the presidency in the first place, that you know, the president can't get his way by ruling by edict, even with people who work in the White House, which is the closest units to people who are directly below him, people saying no

to the president all the time. So, I mean, the other thing about that is that at the time, the Secret Serve didn't deny that they had tried to protect the president at the time Bush from getting into harm's way. But this time there's something strange going on. Also the fact that the vice president didn't want to get into the limousine. I mean, you know, obviously there are any number of ways to interpret what happened that day, But

isn't that problematic in itself? I think that there's no question there's done a series of things about the Secret Service going back to at least the Obama presidency, maybe back you know before that that really could use a proper investigation, and whether it had to do with the shift of the Secret Service. It used to be in Treasuries now in Homeland Security. Of course, there was no

Homeland Security on September eleven. That's a new department that came out of that, or maybe it's within the internal bureaucracy, internal culture of the agency itself that may really need

some work. That's something that Congress certainly should be investigating, sort of separately from what happened on January six, But you know, it's also I'm I want to be very very cautious about what we know and what we don't know, and what we can know because a lot of Secret Service stuff has to be by its nature not public. So and that's partially the problem with what we heard the other day to write, we're hearing a lot of

information that's not corroborable. Some of it yes, and some of it no. I think that the you know, in some ways you have to step back and say, well, we knew the broad outlines of what happened on that day, and within two days afterwards, we knew that former President Trump was publicly attempting and privately attempting to reverse the election, which is as he was doing. It was a form of undermining the constitutional order. We knew that he did

not intervene when his supporters attacked the capital. He refused to say anything to tell him to stop, and in fact he did the opposite. You know, he continued to tweet that it was all pences fault for not doing the right thing, you know, as he saw it. So a lot of that, you know, in terms of what you could legitimately impeach a president on that he broke his oath of office, that he violated both of office

in many serious ways. We knew that immediately, and in fact, you know, most of the Senate thought that you have seven Republicans out of fifty voted to convict, and about that many more, maybe maybe more than that, said well, we think he did it, but because of a technicality, we're not going to vote to convict. So you know, what we're getting now, to some extent, might be more than that. There's still a question of to what extent did Trump and the White House coordinate the violence on

January six, We still have only seemed hints of that. Um, we know it was welcome, we know that he was for it, but we don't know, you know, whether there was actual coordination, and that's if that was true, that would be something significant that we didn't know back then. But what we know is certainly sufficient for impeachment if he was still in the White House, and it may very well be invitable. Yeah. I mean, the other thing that I'm curious to hear your thoughts on is Mark

Meadows and his loyalty. I mean, the presidency isn't really supposed to be a cult of personality. We know that this presidency was a very different kind of one, but why is Mark Meadows continuing to be so loyal? Um? Yeah, that's a good question. Part of it is we don't

know what Mark meadows criminal liability is. There's there was certainly some talk in the testimony on Tuesday about not just that Trump might be criminally liable for what was happening, but that Meadows and others in the White House might be as well. So if he feels that he's criminally liable, he may feel that not talking is the best course

of action for himself. What happens in these things is that as some people start to talk, sometimes the incentives change and others feel like, you know, I'm in trouble. I need to cut a deal, or at least I need to give my side of in public. And we'll see if that happens coming out of this week's testimony. Yeah, there's certainly a lot of people having conversations behind closed doors these days. Jonathan got to ask you about the

events of Friday and the weekend row getting overturned. I mean, we knew it was coming, it was still sort of pretty shocking. Now we have a whole patchwork of laws across the country, We have states going into action, we have courts in different states putting the palls button on. How does this get sorted out? Does it get sorted out state by state level? I have a very strong

answer to this, which is, we don't know. Yeah. I think that there's there's people on both sides that are very certain of themselves, and I don't think that that's warranted. We don't know how this is going to play out state by state. We don't know. We don't know when is going to be either a larger democratic majority in unified democratic government than we have now or republican unified government at the national level. And if so, you know, how will take for that to happen, and then what

they'll choose to do in that circumstance. You know, I think that the people who say, oh, this is only going to affect solidly republican states, and it's only going to affect divorce, it won't affect any of the other things that fall under the right to privacy. I think that's stilly. It already is starting to affect some of those things. But on the other hand, the people who say, ah, this is a step that is certain to result in rolling back every single privacy right nationally, we don't know

that either. Um, we don't know how it's going to play out in this year's elections. We don't know how changes to both party coalitions may come out of this. That just are not that predictable because individuals and groups of people are going to make decisions about what to do exactly, And then the first question to ask even is doesn't even impact them in terms whether it be in turnout or in as you say, new coalitions being formed, or even as a gender item. We don't even know

if people will vote on this. That's correct, And most of the time time for almost all Spreme Court decisions, I would say, you know, it'll fade from the headlines. That won't. It won't have a major effect. Probably it will have a negligible effect at best. This time, I would say, we don't know. I could definitely picture in the immediate event the people who are most engaged in this issue are people who, for the most part, are strong partisans. Strong voters are going to vote the same

way they we're going to anyway. Could that change? Could the issues start affecting people who normally don't vote, who sometimes vote, who are not solidly partisan voters. It could. I have no idea. You know, we we do know that it's going to make abortion a more salient issue in state and local elections. But whether that means that people will vote on it, well, that's another question altogether.

Jonathan Bernstein there, We're now choosing to end all conversations not with you, though, as always, do get in touch. I'm at Vney Quinn on Twitter or email me at v Quinn at Bloomberg dot Net and Bloomberger Innion is also available as a podcast on Spotify, Apple or wherever you get your podcasts were produced by Eric mollow Till Next Time Onlinberg Opinion h