One Market That Volatility Forgot

out for going forwards? Well, one thing we can watch out for is our guests, Sarah. Two very good guests this week, joining us for the first time on the podcast, Mr Pim Fox. Sarah, did you know Pim was a a onetime Florida man. I'm just learning this today. However, he doesn't seem like he's really a big fan of this date, well, at least not in the summertime. The humidity and the heat, you know, moves a little too high for me. Okay, now now the excuses come out.

That's right. We'll talk about air conditioning later on in the program. Pim has a whole investment thesis centered around air conditioning. It's pretty interesting actually. Also joining us from the bonds and FX team Katie Greifeld, who I do not believe has any Florida connections now. Actually my parents relocated to Florida their soccer. Yeah, they made the plunge and fulfilled the stereotypes. So you're a part time Florida I'm the only non Florida connection here to get in.

Somehow I feel lost. Anyway, as Sarah said, the first half of the year is in the books. What a ferocious rally in not only stocks but bonds. Katie, that FX markets going nowhere. However, But Pam, I'm curious, did anything surprise you in this first half? Well, I can give you some of the numbers. I mean, SMP five hundred more than so far this year. Right, So the first half of the year up. So that's kind of

bogey for all of the act of money managers. Plus you take a look at the NASDA gets up about twenty two percent. And as you just mentioned, bonds rally for US treasuries I mean, dig this. You know the

four week bill will yield you two point to two percent. Oh, but if you decide to lend your money to the government for ten years you will only get one point nine five so not exactly a great return, but that inverted yield curve certainly causing a lot of consternation, and we got to look forward to that July thirty thirty one FED meeting to find out are they actually going

to cut rates? It really is pretty amazing. But Katie, one place that we have not really seen any volatility, any excitement this year, at least until maybe recently you can make the case for is the FX market. How difficult has it been to be a reporter who cover as currencies this far into the year. You know, it's been really frustrating for me as a reporter, and uh, I imagine if you're trying to make money there, it's

even more frustrating. But yeah, you know, you've seen these just crazy moves and bond yields all across the world, and FX has really been trading sideways. There's just no volatility there. And uh, you know, this is something I talk about with sources a lot. It's all anyone wants

to talk about is where is the volatility? And I mean, even though you are seeing these big yield moves, which you know typically would expect currencies to respond to that's been caused by this stubblish shift by global banks around the world. So we're all going in the same direction in terms of monetary policy, and that just doesn't breed effects volatility. You know, even if you want to sell the dollar, what do you sell it against everyone's stubblish? Yeah,

I think to put some numbers on it. Last time I looked at a chart of the Dollar Index. Now, this thing has been around since nineteen seventy three. I believe the range between high and low has only been about three and a half percent. Now, if this year ended today, which obviously it won't, but unless Sarah, I know nothing that you don't, you can confirm it it would be. Then it would be the narrowest trading range ever since at least nineteen seventy three for the dollar index.

I mean, is it? That's basically the long insured of it is that all central banks are devilish. Uh, there's really no edge anywhere in the currency market. Is that? Is that the general thinking of Unfortunately, UM and I have I'm going to one up you on a stag. So if you go back to the first quarter, I guess we're in the third quarter now, but Euro dollar, which is the most actively traded currency pair, it's like of global currency trading, and it's you know, the most

liquid market. So that was the tightest quarterly training range since the inception of the euro. It's it's been really grim And I was just talking about this with a few people yesterday. I mean, is there any reason for open the you know, the coming months and uh, unless you think that one of these major global central banks is going to diverge, you know, in the group of ten space, we're really looking at more sideways trading. So buckle up. Pinning down the trajectory of the dollar seems

like it has been extremely hard to do. However, it doesn't just have implications for the currency markets, of course, it's very closely interrelated with the movements in the commodity markets.

Also what it means for U S stocks or really global stocks as well as these currency relations come into shape going forwards, when you talk to traders, are you hearing more that the dollar is set to fall because the FED is incrementally turning more devish or is there a case to be made against that too, because we're set to see other central banks turn more dovish as well. It's really hard and that's mostly what I hear when

I talk to people. You know, even if you really think the US economy is going nowhere, it's going to slow down. I mean, if you look abroad Europe, Japan, there's you know, no reason for celebration there either. So you know, if you want to be barish the dollar, and this is the beauty of currencies, you have to pick something you like better. And from what I'm hearing too from people, you know, even if they like to make a barished dollar call, it's really hard to have

conviction in that. So you might see some tactical trades here and there, but you know, I'm really not getting a high sense of conviction from really anyone I talked to. Yeah, and obviously this type of nonvolatility is bad news for currency traders, maybe not such bad news for the rest of US PIM Right, you had a post talking about how the recent weakness in the dollar. Now it is still in this this very low range, uh small range that it's traded in all year, but the last couple

of weeks you've seen it sell off. For example, let's say against the Canadian looney, Right, I mean, the Canadian government released report having to do with their trade surplus

that was a big surprise. This comes even after we see oil decline in price over the last let's say, a couple of months into April, and as a result of the decline and the value of the dollar, it's an interesting connection between loan origination in the United States, something I had never really thought of, and a report by the Federal Reserves. Some research took a look and said, you know, about a two and a half percent decrease UH in the US dollar would lead to an increase

of ten percent in US bank corporate loan origination. And the reason the really I mean, you know, okay, you know, you try to follow the bread crumbs here, but I mean, the reason that was given in the research is that typically what happens is when the dollar strengthens, that kills emerging markets, and that typically sends everybody in one direction, and that causes lending to pull back because it makes

people risk averse. So you see this sell off and eat in emerging markets, you get a risk averse feeling on the part of bankers and they contract their lending. Conversely, if the dollar continues, its more recent slide against let's say the Canadian looney or maybe even the euro. We've had comments from the President having to do with currency manipulation,

whether it comes to the Euro or whether the Chinese. Uh. You want to remember that if you get this fall in the value of the dollar, you could see a big boost in bank lending. And this comes at just the same time that the Federal Reserve has also basically taken the handcuffs off of us, you know, big financial companies to go ahead and do stock buy backs and increase their dividends to investors. That's very interesting, I've got

to say. But you mentioned the relationship between the dollar and emerging markets, and I have to say, on my end, a lot of the people I've been speaking with lately are growing more and more bullish on emerging markets. Also see more upside and commodities because of that relationship, and do think that the dollar could fall further. And I want to bring that over within the commodity space to oil. PIM, Can you just walk us through this past week what

is going on with oil? You have all that come out extend production cuts and then we see oil just fall off a cliff, right, Uh, Oil the price of let me just give you the bigger context, because you may not call that oil crude. Oil West Texas into media traded on the IMAX is actually up twenty five since the beginning of the year, but still down from the high, right, and it is down four percent just

since April. So I think that the there's a there's a term called the recency uh bias, right, that the things that happen most closely in time to now are the things that dominate your thinking. And as you described it, you have a situation where there is more oil than there is growth and demand. And it is obviously the OPEC plus one, you know, with Russia is saying that they're going to curtail production. They're trying to maintain some

level of pricing. But you've got US shale producers, they're the swing producers here. And you also have a big switch in terms of electricity generation that's being done with natural gas, and natural gas prices at least so far have gone nowhere. We're in the three dollars per million b to you. So you know, oil and energy companies

they have still been struggling. When you take a look at their performance in the SMPA well, and natural gas not exactly in short supply in this country, You're correct. I mean, you know, they have some cases where because of the pipeline bottlenecks that producers of natural gas are actually paying to have someone take the natural gas away. Negative actually negative pricing for certain types of natural gas.

Well somewhere, we're negative pricing isn't uncommon? Is the sovereign bond market around the globe now a day's This past week we did also get some new news regarding the European Central Bank, and that is the nomination of Madame Christine Legard to potentially head up the ECB after Mario

drags exit. What implications could this possibly even have for Marcus Katie, Yeah, so Christine Legard, it's it's great because you know, we know her views, we know her record, and uh, talking to people, I really hear that she's probably gonna you know, continue on, uh you know the drag e trajectory, bring in some more easing and uh that should you know, that's good news for bonds, in particular Italian bonds, and you've been seeing yields drop there

and she hasn't even you know, been confirmed yet in terms of buns. Though, it's interesting, you know, with buns already near record low yields negative right, yeah, very negative negative? What what what can they buy that they haven't already bought? And if your money sitting at the central bank is actually disappearing, what incentive could they possibly offer corporations to

actually spend the money. And when the news came out that Laguard was going to be Draggings replacement, you did see that drop in the euro suggesting that people think she will even be more dovish. So yeah, I guess I I echo him's question, what what what will they buy? Well, I'm excited to find out. I think we all are. The euro. It's interesting though, and this is something I was talking about with people. So yes, uh, the e

c B has an easing bias, we know that. But you know, if push comes to shove and we really enter a global easing cycle, the Fed has much more ammunition to cut rates to ease policy than the ECB.

They're kind of tapped out when it comes to monetary policy, so that actually, you know, the Euro might struggle to weaken too much against the dollar given that, you know, just the Fed has so much more room to ease policy, which again brings us back to this ranger trading in So, with the fed's next meeting coming up at the end of July, um you have the stock market just dare I say the word melt up, but just flying higher, as Pim said, nineteen percent or whatever higher for the

SMP five And of course we're gonna get it. You know, probably what July mid July fifteen, we're gonna start getting earnings for the second quarter, and we'll see whether corporate earnings are are keeping pace because the pe on the SMP five hundred I think right now is like eighteen nineteen depending upon how you look at it. That's historically pretty high. So, Katie, do people really believe that we're going to get this rate cut? Even with the stock

market shooting to the moon like this? I mean, is this sort of ratching those bets down a little bit as we watch stocks higher? You know, it's really crazy, but it doesn't seem like it. It really still feels

like July is a lock. You know, of a week or two ago, we were saying maybe fifty basis points and obviously Bullard poured some cold water on that, but I would love to see what it would take to get the market to sort of pair those bets, because I mean, even with the outcome of the G twenty meeting, you really didn't see expectations, Budge. And you know, these geopolitical tensions was a large in a large part what

caused this repricing of the FED. And initially when when you said sorry, when you said Jim Jim Bullard of the St. Louis FED. And it makes me think about the two new members that the President has proposed for the Federal Reserve. One of them is coming from the St. Louis FED. This is Christopher Waller, right, he's the director of research there. And then you've got Judy Shelton, who at one time, well I don't know whether she still does, but at one time she talked about the return to

the gold standards. We sounds like some others that we've heard nominated to the FED boards. And you know, you you take a look at the price that you talked earlier about, So, okay, what do you do if you sell the dollar? A lot of people have been buying gold. You've seen the gold rally up what about ten year to date, and most of that has really come in the last month. It's it's very clear that when President Trump is either tweeting or even going ahead and nominating

people to the FED board, he wants doves. He wants people who are going to go in to the FED and really fight for cuts and see easier monetary policy. And I will say, if you go back and you look through history, it's really not uncommon actually for the FED to cut rates with socks near all time highs. And Katie, most of the people I've spoken with have really echoed a similar tone, saying you kind of get

the best of both worlds. Actually, since we didn't get a deal out of the G twenty this past weekend, because there's still uncertainty and that could give the Fed a little bit more leverage to cut rates before a deal could potentially take shape. But Pim, I also want to ask you, I know, a big question coming out of the first half has been how is it possible that we can continue to see bonds rally alongside the

stock market? How do you try to reconcile things. I mean, I'm sorry to make it sound like it's simple, but at least to be it's simple. Well, it's very clear it has to do with the fact that you have

so many committed buyers. I mean, if you're running a large pension fund, if you're running a municipal pension fund, if you're running uh an insurance company, if you're running any kind of endowment, anything that has long term liabilities, you're not deciding whether you're going to buy your going to buy your It's not like, you know, we look at it and we compare one asset class to another. They're not comparing any asset classes. They're always in there buying.

They have to buy. And then to the point earlier that Katie was making having to do with negative interest rates in other parts of the world, if you are a let's say European pension plan and you're looking at liabilities ten thirty years down the road, what are you gonna do. You're gonna buy negative yielding German ones, or maybe you're gonna go and you're gonna take one point nine five for US treasury ten uere. So I don't I don't think that that's necessarily you know, it's not

either or. And when you look at the returns, let's say, of stocks, you know you can there are a lot of stocks that you can buy that will produce dividend yields that are double what you could get into treasury. Now, obviously you got volatility and risk and all, but on a relative basis. If you're managing people's money and they say, well, you know, great, I can't live on two percent, You're

gonna have to go find them something else. There's an interesting report out I think it's Mike Mayo, who's now at well as far Ago, pointing out that the dividend you get on banks three the expected dividend anyway after the stress test is rivaling utilities at half the pe. I mean, pim is are we're gonna see banks, uh finally start out performing the market? Do you think? Yeah? Well, I mean I wrote up a piece for the m Live blog earlier in the month about that having to

do with buy backs and dividend increases. Now we talk about buy backs that are just limited to financial companies, and corporations continue to spend what excess cash they have on buying back their shares. Of course it makes their EPs look good. Uh that also, you know up ceo pay because they're measured on what the stock price does.

But having said that, it doesn't look like anyone's going to start cutting dividends, specifically in the financial sector, just when they got the green light from the FED and those stress tests to go ahead and do it, and we know that this is something they've already said they're gonna do. And one more post you had that really caught my eye. It was about air conditioning in Europe. Well, this goes back, This goes back to Sarah's up impending

trip to Florida. You know, you're not going to Florida unless you have air conditioning. And maybe that's something that the Europeans will be paying attention to because while Southern Europe has a lot of air conditioning, you know, Spain, Italy and so on, France and Germany and the Netherlands, northern European countries in the UK, typically they do not have residential air conditioning. Five percent of France, five percent of French homes and under two percent of German homes.

And I'm not even thinking about offices and trains and various public venues. A lot of them do not have cooling capacity above ninety degrees fahrenheit. So if it goes above ninety degrees fahrenheit and you're a German high speed train. Good luck right, and it hit it went over in much of the continent. You had a record in France. I think it was a hundred and four degrees in France.

So what are the ways to invest there? You go? See? Well, okay, So what I did was I took a look at the refrigerants, the actual gases, the industrial gases that go into air conditioning systems, because if you're gonna buy an air conditioner, they've got to have something to actually cool the air. And they're are a variety of rules and regulations having to do with hydro fluoral carbons and so on. But there there's air liquid, there is um Linda, the

Industrial Gas company. All of those might benefit because they produced the kinds of industrial gases that are compliant with the European Union regulations. Interesting stuff again from him, Love having here and get your air conditioning in Europe. I want to turn the tables really quickly on Mike, because back on January fourth, he issued an outlook for the

Markets Live blog. So I figured it was only fair if I pulled out my highlighter and my red pen and I granted him and saw where his outlook actually stands, and I have to say he did pretty well. Um, very equity focus. But I'll run through That's why we're talking about it. Right. If this were wrong, he would have absolutely shunned me from talking about it on what goes up? But here we are talking about it. We'll talk about my post saying was the floor for ten

year yields? That was very wrong, and that came mid June. You have a lot of company. I do not know one Wall Street strategist who called the bond mark. Oh no. But now we have Golden JP Morgan coming out saying we could see one point seven five flow forecasts. It's pretty fun. Let's go back to how I was right. Right, We'll go back to how you're right. I'll start with

the ones that we're right. How about that? So the first one was the consensus is calling for a stronger stock market with double digit percentage gains for the SMP five hundred in the coming year. Clearly, we are already there, double digit gains in the first half of the year, there's no doubt about that. Now this one, it's talking

about the year end target. So he said the average estimate from a survey of a hundred seventy markets live readers, so not necessarily my himself, but those who feed into the Market's live blog. Is for the SMP to close the year at nine, that would have been a twelve percent gain. So sure, we got a twelve percent gain, but we are already way past that. And if you compare that to say the SMP ends around three thousand or so, that's seven percent above that level. So we're

already there. We're already there, We're already past. It's a long year. Sorry, we could see, we'll see what happens. We could always come back down. But my point was everybody likes to be a contrarian, you know. Pim and I thought, sometimes the consensus gets it right. And that's that seemed right to me because at the time, all those predictions were made before the market freaked out in December and then it looked like they were calling for

this unrealistic rally. But uh, you get you know, broken clock. I'll give you a one more that's right, and that's on EPs estimates. So he wrote that bottom up estimates show analysts expect earnings per share growth of eight point three percent in now that was down from eleven percent towards the end of last year, and then he said estimates may fall further fall. They absolutely have. Now we're expecting four percent earnings growth for the year, and we

could see that potentially fall even further as well. Um, but it's only fair if I also say one that you got wrong, Mike, and I think we should go with Actually, we'll keep it with earnings. So you said that still SMP five hundred companies have a pension to consistently beat estimates, which they do. But then you said we could potentially even see double digit earnings growth. I'd say that's long that's long gone. But overall, i'd give you a solid solid you could get a B minus

I mean B plus, B plus or A minus. Got to remember, MYLM, it's amazing how you could be too optimistic about the earnings and not optimistic enough about the price. Yeah, well, let that one resolved. Sorry, is it that time? It's time? It is the time for the craziest thing I ever saw in markets this week our weekly ritual on the podcast. Did they warn you Katie about this? We weren't you? I've been warned. Yes, I'm prepared, Yes I knew Katie comfortably.

I did my homework, all right, Then you start, what's the craziest thing you saw on? Okay, I'm happy I'm going first so no one else steals it. But I thought the price of tin was really interesting. It plunged price of tin. Tin. Okay, So again, I'm a currency and bond reporter, not an expert here, but the price of tin plunged by the most in seven years this week, and I have no idea why, but obviously Bloomberg authors do,

so this is what they said. The International Tin Association blamed the drop in prices on manipulation by institutional investors in China's domestic markets. I yeah, so their words, not mine, but yeah, check it out. The price of tin plunged this week. That's amazing. Pin. Did you have a call a market call? And I had no, I had no,

I had no tin market call. Um. But but I would say that the thing that I was taking a look at this week had to do with commodo these and it has to do with things like cobalt, nickel and lithium, right, and this has to do with batteries, and then that has to do with Tesla, and we got the Tesla results, and they were great and the

stock went up. But my only point is that if we are replacing OPEC as the source of fuel for internal combustion engine cars and replacing it with China as the really or maybe South Korea you can add into but South Korea and China as the two suppliers of battery technology, that poses an interesting dynamic in the future,

doesn't it. Because we've been through the opeque stuff, right, I mean, this is, you know, controlling markets, controlling prices, and now you're talking about China, which controls about seventy percent of the actual UH processed lithium that goes into batteries. They don't mind it necessarily all there, but they process it and they turn it into batteries and that's what runs electric cars. What if they start messing with it like they did with the tin according to our there's

a lot of risks here. There you go, and the good news the price of tinfoil hats went down. Everyone everyone really sees that as just in time. Sarah, what's the craziest thing you saw this week? I'm going to say, we're really all going out on a limb today, But this headline really caught my eye across the bluebrick terminal. It's beyond meat fever turns the tiny P into America's

hot new crop. So we're actually seeing P prices increase because there is such a craze for vegetarianism, veganism and beyond meat, burgers, beyond burgers, whatever you make of it, and P is the input into that. And I want to read you a quote from one of the farmers. This farmer said that essentially beyond meats goal of helping wean humans off of meat consumption quote unquote does not interest me at all. I am a traditional meat guy

and pro rancher. Then you went on to say about the PA, at the beginning, we didn't see it as a money maker. It just made the far more sustainable. I am excited for new markets for the peas. So we'll see what happens with the peace going forwards. But beyond meat really helping the price out, can we invest in peace? Is there are there futures? I guess so maybe in the Princess and the mattress. All right, these

are all pretty good. I'm gonna I feel like I'm cheating with my craziest thing because it's kind of a duplicate of last week's crazy thing, but there has been developments. Last week, my craziest thing PIM was there's actually an exchange where you can buy and sell sneakers. It's called stock Ax, and you, you know, buy a pair of Nikes for a hundred dollars and you keep them in the box for a few years, and then you sell them for three of years down the line. That's your

retirement plan. That's so I'm gonna start a hedge fund the sneaker with some Nikes. I have a feeling. So this week, Nike released what they thought would be a patriotic sneaker with the Betsy Ross flag, you know, the thirteen stars um and before they could even get it on the market, Uh, Colin Kaepernick, who's one of their athletes that they sponsored, said, wait a minute, that thirteen star Betsy Ross flag is actually considered offensive to some people.

Apparently part of the right wing is using that flag as a as part of their symbology. I don't really get it. I guess it harkens back to the time when slavery was still legal. Regardless, Nike said, all right, that's a bad idea. To release this shoe back to stock X. A few pairs trickled out. I think like sixty seven pairs of this sneaker traded on stock X, going for as high as twenty dollars. A pair of these sneakers that come with or without laces five hundred dollars,

I would hope. So people will do anything nowadays for limited edition sneakers. I would say. Now, we also have one from Twitter that we have to bring to the podcast that we picked out. This came from at thirty seven Techno Shaman. Now he said he was watching the gold dollar pair quote unquote too fast, too soon, wasn't the case? It went further up against all odds, considering the correction right after G twenty talks. I bet some

bears got caught unprepared. Now this goes to thinking, sure, we saw another rally in gold, we're back above four ounce, But does the rally and gold seems sustainable at this point in time? Oh gosh, I mean, I have no idea.

All I can say is that if you hold a gold coin like a double Legal or a Kreugeran in your hand, you will understand how it makes you feel, rather than what it is sort of symbolically, and I think that many gold investors looked to that as the sort of inception of their interest in gold and what we've seen, for example, the Central Bank of China adding to their gold reserves. And if you believe that paper

currencies are being debased, gold is certainly an option. I would say, announce a goal still costs about a grand grand, less than a pair of Airmas one Nikes, so and you can't wear the gold so nice. Try Twitter guy, but I think I think the Twitter guy Mike's can refer to everyone who now offers up their brilliant ideas on Twitter as Twitter guy. Although it's it's declare winner. I think Katie wins with the tin price manipulation. I totally missed that one. Usually I'm aware of these crazy

market stories. I wasn't aware that there was a winner. I think this is the first week we got a winner, so you should be really get excited. I don't think you get the sneaker. Maybe a tin hat, though I think that's another tin hat. Katie Grindfeld, though pimp Box, thank you so much for joining the podcast today. What goes Up? We'll be back next week until then you can find us on the Bloomberg Terminal, website and app,

or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple podcast so more listeners can find us. And you can also find us on Twitter. Follow me at Sarah Ponzack, Mike is at Rea Anonymous, Our guest Pimp Fox is at pim Fox, and Katie Greidfeld is at k Greifeld. You can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by Toprah Foreheads. The head of Bloomberg Podcasts is francesco Leavie. Thanks for listening, See

you next time. Four