Bloomberg Audio Studios, podcasts, radio news. Michael Purvas. He's a founder and CEO of Talbacan Capital Advisors.
Michael, what are the conversations you're having with your clients these days?
Is we all were going into week three of this Iran issue here, and it's been such a volatile time for financial markets, starting with the commodities markets.
What are the conversations you're having with your clients these days.
Well, one thing I think is that's I've certainly been doing is standing back and looking at sort of some of the cross asset correlations and how those are moving, because I think there was good clues as to what type of risk environment we're we're we're we're edging into there. And so one of the interesting things here, you know Thomas referencing the VIX at twenty one, which is really not that high a level there, that's right line with
its long term average there. But at the same time, you know, you're seeing very high cross process of correlations the for example, like Crude's correlation with the VIX right now, over the last several days really since this attack, these attacks began, it's in the top two percent of all readings going back a decade. If you look at crude correlations with high yield spreads, those are also in the
top two percent. And what's interesting about that is that high yield is now correlating with the VIX, which it had kind of decorrelated. It's supposed to be positively correlated, right, you know, spreads back up that kept you know, when risk off happens. That correlation kind of broke down over the last eighteen months for all sorts of interesting reasons. But now that correlation's coming back now as it relates
to the VIX. What's interesting also is that, you know the fix of twenty one, Yes it's been correlating with the crude prices, but the across stock correlations are still
really kind of muted. They've gone up a lot over the last couple of weeks, but they're not really high here, right, and you're still staying on any given day, one stock can be in the green and a bunch of other stocks and be in the red there, So we're not really in the sort of you know, sort of risk off environment, but we're you know, crude is clearly driving.
The possum mark.
So I think that gets to you know, sort of begs the questions about how are you really trying to contextualize what's been happening here? I think again you have to step back a little bit and just think. Look, you know, we had a great year last year in the equity market. A late winter malaise is kind of normal without iran, right, that's something that could be expected. Here.
We had a bad jobs rapport with some really important questions that were begged by the complex the complexion of what jobs were being dropped, particularly in the you know, sort of those pillars of job growth the today.
What do you do?
I mean, Yeahully artfully dodged as many questions as you get to get off the stage. But seriously, I think it's it's interesting. I mean, Thomas referencing your your rea prices, solfare prices, helium prices, all these things will impact producer prices that will sort of weave its way.
WHOA did you have.
In organic chemist three freshman year in college?
Did you go down in flames?
Like I continue on, UEA, we need more methy continuous?
Oh god, well so so. But all those things do you know, raise questions about I think what the FED has to deal with today is what I call inflation complexity. So you're gonna see you're gonna see producer producer prices right are once again, you know, in some way similar to post Ukraine, some some different, but those are going to linger and creep into into the inflation metrics we see a few months from now, right, and and maybe
longer than that, we don't know, uh there. But at the same time, you've got companies laying off a whole bunch of workers with AI right, right, So that's that's part of the inflation complexity that the FED has to deal with. And then of course the other dimension of the FED has to contend with. There is this sort of K shaped economy and in a way, the auron attacks almost worse than you know, you have to rather than think about you know this, this this situation is
like straight's on, Straight's off. It's really not that binary. Nor is the fact that is a procession on procession off. You if you understand that in terms of the K, you know there there will be many things that magnify the economic divergence.
Michael Purvis with his charm besides a twelve vvacation in the summer, is he really truly mixes in analysis of equities, bonds, currencies and commodities. So I've plotted Aussie yen is a specific rim proxy.
Back thirty years observation one, two, three, four, five, Six times in thirty years we've had two standard deviation plus strong Australia week yen.
And the word I use is stochastic.
They're point, they go up their stress and they turn around and come down.
Why is this time any different?
Where this is the mother of all opportunities at two point two standard devia and a long trend and you go against this.
Gloom, this zite guide that's out there.
Now, well, I'm going to pivot that back to the to maybe dollar yen and and dollar euro. I think one thing that's really apparent here is that when you look at relative hydrocarbon vulnerability that isn't obviously today the United States very different than it was in the nineteen seventies here, right, So we're not a petro currency the US dollar, but relative to the end and relative to the Euro, we are. And I think what you're referencing in Australia some version of that theme here, right, And
so what have you seen you've seen? You know, I was before Iran, I was waiting for the Euro to break one twenty maybe go to one twenty five, worked out big til Iran right there. And now you're seeing that now if you measure say the US dollar relative to the Canadian dollar, that's really been very stable right there.
So there are sort of petro currency and I don't like the term, but there are petrocurrency dynamics that are that are that are in that and it's also being reflected in the in the equity markets.
I gotta wrap this up, but you're a young guy. Can you just state that usually these tensions are stochastic and they repeat and reverse always almost.
The question is is yeah, classic golf oil spikes, you know their temporary. You know, gold shoots up, shoots back right right, the Australian dollar shoots up relative to the end and and falls back. But the the the the question we don't know is is and he saw this by the way in SPX options where the three months football ski finally caught up with a one month SKW just the other day there that this may be not
a two week thing. Maybe they're this tension will persist for you know, a few months here and so following Ukraine. You know that was not a sort of straights on, straights off type of dynamic that just come to kept going, and yet it drove a lot of problems, for example within the Eurozone. Right relative to the S.
Right, did you survive St Patrick's thing?
Uh? Mostly putting together charts and I did have a green bagel though.
So Michael Purvis, tall back and thank you so much, greatly appreciate it.