Bloomberg Markets Full Show (05/19/2022)

Bloomberg Markets Full Show (05/19/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It is 30 minutes into the US trading day on this Thursday May 19. Here are the top market stories that we're following for you at this hour. The one and a half trillion plus wipe out investors dump stocks from value to tech and hide out in treasuries. We look for the safe havens and finding that bottom in stocks. Recession row scare or rebound strategies. Try to figure out what needs to be priced into the market. Where does the stock drop stop. And housing hot or not. Jobless claims

climb to the highest level since January. Consumer debt is rising. Get the latest read on the housing market. But Peggy Hogan Marker president of Marker Construction Group from New York and Alix Steel of my co-host in London Guy Johnson. Welcome to Bloomberg Markets. Guy I'm looking at the bear market for the S&P. That number 38 37. We're off from there though. Yeah. Yeah.

Well that I have to say I. We've been setting ourselves up for a tongue quest tongue twister. I can't even say that today. Yeah. Where do. Where does the stop drop stop. Is it something that we're gonna try to get all of our guests to say today. Thought I'd have some fun with that. Existing home sales coming through right now. That was that anticipated. The prime numbers being

revised lower the month on month negative two point four. I think that's the third negative month in a row. The prior number was negative two point seven. That's been revised to negative 3. The economists were looking for negative two points rate. So we are worse than expected and the revisions are worse than expected. The headline number five point six one million. This

is circa 5 percent of the U.S. economy. Alex and writes As you know have gone from the 2s to the fives. So that's going to have an impact. And I think we've started to see that showing up the Fed is going to be paying attention. Yeah. And then also what's the wealth effect from that to people being able to buy stuff or not. And then what that means for the equity market. So all of that leads to our question of the day. I should point out NASDAQ 100 now flipping into positive territory. So where does the stock drop stop. Let's give a technical view that Jeff de Graaf chairman and head of technical research at

Renaissance Macro Research. All right. Jeff look at the S&P and tell me where it ends. Well yeah I wish it were that easy. Certainly. I think you know the other trend work that we do shows that we are in a downtrend. So you talked about the bear market and I know that there's a 20 percent qualification for that. But most the characteristics that we look at him have suggested that we've been in a bear market for about six weeks now. And I think we're going to continue to see that. I think one of the things that should be important is seeing the market start to discount this peak inflation idea and getting through peak inflation. And if you

look at the performance of energy you look at the performance of yields up until about a week ago certainly we weren't there yet. But I think that's going to continue. We think that the market trades somewhere between thirty five hundred and thirty six hundred as a minimum to get us into that zone. The good news is and there is some good news is that you started to get into a

situation where there's nowhere to run there's nowhere to hide. They took out Apple last week. They took out some of the staple names here this week. Obviously Wal-Mart which is a safe haven type of name you know who doesn't go to Wal-Mart regardless of the of the economic conditions. And so once you start doing that you start getting into the very end of these bear markets historically. And I think that's that's good news that we can we can point to today.

Caroline Hyde in the bull market. What are you seeing in the 10 year. Well I think the tenure is really interesting and it's too early to make a call here. But what we know historically is that as we get into peak inflation bond yields actually start to decline and they generally decline about a month prior to those peaks and inflation going all the way back to the 1950s. So you know we get a CPI print and what happened to bond yields. They went down. We've seen the inflation story from Wal-Mart whenever the bond yields they went down. And so I think what the bond market at least the the further into the curve the tenure is starting to tell us is that the Fed's on the case the Fed is committed to squelching out this inflation. And if that's the case then that's good news for the longer into the curve. So I think

that's an important thing to watch and to continue to monitor because one of the country and calls here would be that bond yields actually go down. And I'm not talking back down to you know 50 basis points or so but maybe there's actually some some investment thesis in being long bonds here between now and the remainder of the year. What's that. If we're gonna see we have seen for the top and yields for now then it kind of begs the question like what do you do with growth. And I mentioned Jeff that the Nasdaq 100 is now up by almost half a percent. What does that mean for the growth. Is stuff like tech like a bitcoin

for example. Yeah. Well you know I think there's there's some there's some aspects of tech that are just going to be done. And you know we've we've labeled those concept capital or concept finance. As you know Fargo is as high as 18 months ago. And I think Bitcoin is a great example of concept finance. I mean it gets a little tricky because it's money and we get into the definitions of money. And you know that's a full that's a full segment plus. But I think you've got these these fringe equities that were really driven by negative real rates. And we're not talking about real rates going negative 100 basis points again.

But I think what we have to what we have to keep in mind is that you know growth and rates don't have as strong a relationship historically as what we've seen over the last two years. And so there's probably some normalization. And unfortunately for growth investors I don't think that normalization is going to give you that type of of of nitrous oxide if you will or jet fuel to really propel these names like like they were value still tends to do well in a post peak environment for inflation. And I think value still a better bet though. It's not dominant. I think it's a better bet here than growth. Energy has had a great run Jeff. We are running out of road. Well you know we're not seeing it yet. On a relative basis and obviously you know the market is our muse. We take our cues from the market. But we also keep one foot planted in history. And what we do know is that as we get towards that peak inflation energy names start to lose their relative performance. We

haven't seen it yet. We talked about this with bond yields. So that's one of the areas that we're watching. I think it's safe to take a little bit of money off the table from. From energy. We've been there for almost two years now. So we feel comfortable as playing this from a strong hand standpoint taking a little bit off. I would not be underweight the sector but certainly we're watching for that relative performance turn particularly as it relates to things like health care and staples because we know once you get past peak inflation health care tends to dominate. And I think that will be a very interesting shift in the dynamic of the narrative. You know where inflation's boiling today if we get health care starting

to outperform energy I think we have a very very high confidence level that that we're in this peak inflation and getting past this peak inflation zone at least in terms of what the market senses and what the market cares about. Hey Jeff I just want to get your take then on positioning. And do we have clean positions yet or do you feel like there's going to be the conversation about margin calls that people sold enough of what they like. Yet for us to kind of feel good about where we are.

Well that's part of the nowhere to run nowhere to hide. Right. So you start taking on Apple which is a great example of tech. You started doing it with Staples. And you know at some point you say geez I bought these things because I want safety and now these are even going down and you go to cash. When we look at that volume we look at the percentage of advancers on a daily

basis. I mean we were really getting into levels late last week that were that were synonymous with where we were in 2020. I don't know if we're there yet but I think we're getting close at least in terms of positioning. You know the talk on the street of some forced liquidations etc. Those are are generally hallmarks that get you into the latter innings of at least a a tactical low in terms of the equity market. So I think we're close to that in terms of what we've seen from some of the data. The only thing that stands out as a sore thumb right right now for me Jeff against that thesis about a tax low is the volatility. The VIX remains incredibly low. I can't remember the last time we had a major blow out like this and volatility

didn't spike sharply higher. The VIX is kind of 31 right now. History would tell us experience would tell me that you need to get into the kind of 40s before you start to see maybe that referencing real pain in the market. Why is volatility so low. What are you seeing in the VIX. Yeah I mean we don't use the VIX that much. We use some of the skew data. And you'd be right. I mean the student is not there either. The put called data which is you know obviously a

reflection of the volumes. We just RTS is late last week where a 25 they put call ratio was starting to expand finally entered into territory that again was consistent with something tactical. Look I think the grade level for a low here is a B maybe a B plus. It's certainly not an A or A plus. I think there's enough things here to get something a tactical bounce.

But you're right if you're looking for all the stars to align they're not on the line here. The challenge is is they don't always have to be aligned. It's great when they do but they don't always have to be aligned to get you know that that's 7 10 15 percent bounce off of some type of low. Thanks you. Thanks for your thoughts. We really appreciate them. Thanks for jumping in. Jeff de Graaf of Renaissance Macro Research really appreciate the insight into what is happening from a tactical point of view at moments like this. So important to figure out what the charts are saying sentiment masses. We're trying to figure out where the stock drop stops. There you go. I've done it twice now as well. Sarah Hunt portfolio manager at

Alpine Woods Capital Investors joining us next to give us her view. This is Bloomberg. With me Thursday S&P just down three tenths again NASDAQ one hundred now in positive territory. So let's get to our question of the day. Where does the stock drop. Stop. Want to pose that question to Sarah Hunt Alpine Woods portfolio manager. Where does it stop Sarah. I wish I had an answer for you like Jeff MCGRATH would be great if I could give you a number and say at this point it's gonna be fine. I think what we're seeing now is a second stage of

bearishness. So you have the first stage where multiples came down. But earnings were going up or earnings estimates were going up. And now we're seeing some margin compression that we'd all talked about last year and into the beginning of this year. Even before you had the problems with energy and everything else we were looking at the possibility for margins to come down. And now you're actually seeing them in real time. And I think to some extent there is some one off aspects of how people were positioned in their inventory and everything else. But you have to look at rising food and fuel prices and look at the fact that

you just are going to have a hard time keeping margins where they are. And now we're looking at how do we figure out where earnings are go. Okay. Let's talk about this new face that we've been through the valuation reset seems to be the consensus. Now we're going to go through the earnings reset in terms of the bigger impact. Which do you see having the greatest impact our way halfway through this process in terms of finding a bottom. How big an impact will this earnings reset have. I think it really depends on how bad earnings are entered. Again

to the extent that some of this was just in Target's case there was some inventory issues. You saw good numbers out of homes before. You saw good numbers T.J. Maxx. So it's not across the board. It's not a consumer pullback. But you have a lot of things where people are trying to figure out how to come out of this pandemic. And last year everybody was still staying home and they wanted everything to be nice for the summer. And this year everybody wants to get on a plane and go somewhere. So I

think that it's very difficult for companies to figure that out. So I don't think that the earnings are going to be across the board difficult. It's just going to be each sector is going to have their own dynamics. But I don't see lower food prices. I don't see lower fuel prices. And unless people can raise prices to counteract that which gets the Fed more worried about

inflation we haven't we have a tough situation here for a lot of reasons. And I think that it's not a huge surprise that the market is having a lot of trouble digesting that and trying to figure out where it's going to go next. Where have we seen valuations rewrite enough and where then may earnings be relatively stable. So I'm just picking randomly Apple. We talked about in the last segment an estimated price to earnings ratio is now 22 times more than enough. So you know we were out of profitable tech before this year started thinking that I was not possible tech start thinking that profitable tech would do OK properly. Tech is taken just as much of a beating as non profitable tech. I don't know what the right number is for Apple. I think of Apple service story is becoming a bigger and bigger part of what's going on there. Just

like Amazon is just getting killed on the retail side make far more money and Amazon Web Services. Google had great numbers and the stock has been punished just as much as everything else. So I think that that getting to everything that Jeff MCGRATH mentions earlier is is what the market needs to do to get some sort of sense of bottoming. But I don't I don't really know where the exact number for that is. And that's really also going to depend on events. And that's the other problem is that we don't have a clear event path either from the Fed from Russia Ukraine from any of the things that are going on. There's no resolution to a lot of these unanswered questions and that just makes things even more difficult.

Sarah are you surprised that the VIX hasn't spiked more. I we were talking about this earlier. You'd know you'd normally be expecting this to be in the 40s. Right now it's in the 30s. That signals to me that this market isn't there yet. Well it's interesting. I did hear your question Jeff earlier and I don't I don't follow enough of that underneath of the VIX to understand exactly why it should or should not. Clearly the market action. I'm surprised that with what happened yesterday you did not see a bigger spike in the VIX. But I don't think you saw such relentless selling that it may also be sort of orderly this versus UN orderliness. I'm I'm not quite clear on the math of how the VIX is calculated to give you those numbers. But I

will say that the volatility in the bond market has been so bad that there's volatility in the stock market almost looks normal ish. I mean it's so hard with all the asset classes hearing someone's experiencing so much volatility that I don't know. That's where we are right now because I don't think that anything can quite take direction and stick with it. OK let's talk about bond volatility for a second. And also the Fed we've seen in the last couple of days into the bond market. Is that where you should be going for safety. It's hard to be running into bonds when the Fed is raising rates. And I do appreciate that if as inflation peaks maybe bond yields have peaked. So maybe that's an OK place to go. We are more equity managers than fixed income managers so I don't wanna speak too much to where you should or should not go in the bond market. But I do think that with a raisings the tightening cycle ongoing that it might be a little bit you're going to see more

volatility in bonds. I will say also that the fact that Royal Cruise Lines had to pay 8 percent today for some bond issuance that they did earlier tells you that financial conditions actually are tightening which has been one of the big questions about how far does it have to go to tighten financial conditions. Well already if you're trying to borrow money they're tighter. If you've got money if you've got cash what should you be doing. Should you be sitting on it still. Or are there opportunities here that you would actually be using to deploy that cash rather than just simply rotating the portfolio. That's a tough question because honestly every time you've done

something recently and you had a day where the market was up and you felt good about what you did do you have a reversal the next day and you feel like I should have waited a little bit longer. We have had a little bit of elevated cast levels in our portfolios across the board recently and I'm still sort of hoping to find some sort of place where you can say okay I feel a little bit more like there's a bottom in and therefore I don't mind spending that cash. Otherwise you're just looking for specific stocks that you really like and potentially adding to them. But I mean even energy didn't get a whole lot cheaper in some of this route. And I think that energy has legs just because I don't see what brings prices down in the near term. And generally speaking if the commodity prices are still moving higher or staying at elevated levels relative to history those earnings are going to come through really well. That's going to be one of the good earnings stories of the of the year. Is there

real quick at the end if you haven't sold yet. Should you be selling right now. I think if you weren't as fairly positioned as the market has handed to you yesterday to John's point John Kerry's point about getting punched in the face the market is causing maximum pain for maximum people if you haven't done it yet. I almost think at this point you sit and you sort of wait for a bottom to add to anything. But I wouldn't be running out of equities here either because I think that that's also one of those reactions that sometimes turn around. And if you do get some better news by the

end of the year the midterms are coming up. The Fed is slow down. I think that the market the equity markets will be happier with that information. Sara Smart as ever thanks for your time today. Always appreciate it. Sara Hantz of Alpine Woods. Thank you. OK. What are we gonna be doing next. The hedge fund that did battle with amnesty traders and then lost. Yep. We are talking stocks next. And the impact that they have had into the hedge fund community Melbourne Capital. No more. This is Bloomberg. It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now and it could give to Spirit Airlines has rejected Jet Blue's latest three point three billion dollar takeover offer that sets the stage for possibly contentious vote by shareholders. That choices either to back JetBlue or stand by a pending combination with rival

deep discount to Frontier Airlines. McDonald's didn't have to look far to find a buyer for its operations in Russia. The existing licensee has agreed to buy the entire portfolio and operate the restaurants under a new brand. Earlier this week McDonald's became the latest company to announce it would pull out of Russia in the wake of the invasion of Ukraine. A British Airways owner IAG has agreed to buy 50 Boeing 737 max jets. That is a lift to the struggling plane maker. And it concludes what's been a widely watched commitment for two hundred aircraft that was reached three years ago. The fifty planes have a list price of about 60 billion dollars. But IAG says it has negotiated a substantial discount. And that is your latest business flash

Alex. All right. Thanks so much Riddick. So in the market sell off that we've seen over the last few weeks we've had one of our first casualty and that is Gabe Plotkin. He is shutting down his seven point eight billion dollar hedge fund Melvin Capital Management more than a year ago. You'll remember the fund was hammered in a short squeeze. Our boomer Wall Street corresponding Sonali Basak joins us now. Jihye Lee is this a reaction to market conditions right now or is this kind of

payback from the GameStop debacle last year. Yeah it's a great scoop last night. I have a Palmeiro. What had happened here was remember even after the GameStop debacle and ending the year lower he was able to recoup some of those losses those steep steep losses in January of last year. Then this year happened and then the first four months of this year he was down about twenty three percent. Listen a lot of his peers were down a lot more in that time frame. But after two years of steep losses he did say to investors he was going to throw in the towel and return money to investors after initially trying to reboot the fund. Is this the final act. Does anybody believe in the point. That's a great question because remember he was kind of a prodigy here. He was known for shorting stocks and being successful at it in a bull market. And that is something that he

said he would stop doing to that degree. And in a market like you see now Guy a little good of short positioning. Could it have done a lot of investor as well. The question for me is if you look at what had happened with Gabe Plotkin and even some of the peers that are losing money like Chase Coleman who really took off in the burst you have to wonder what the new set of hedge funds will look like. Again who will start to gain from this market rout. Remember investors turned to hedge funds

to hedge. And yes for four for Gabe Plotkin in particular will it be his final act that only time will tell. I mean he's my age. I hope not. I want to have my final act please. I had a great track record before the last two years but so do we have a read yet on how fund managers active managers are doing in this environment. I think one thing that is the big question is was

is he going to be the only one that ends up having to return money to investors after such steep losses. Let's see how the year keeps going. But as we have seen from the 13 ETFs a lot more selling than there is buying. How are investors going to mitigate losses in this market rout. The other thing I have to say is a lot of the easy trades have gone away and the cost of

leverage is rising. So anybody who is kind of clipping coupons or doing anything that really was a small return without that leverage. The question is what does those returns look like as the Fed starts raising rates higher. In terms of those that work for him what are they going to do. I'm assuming he's going to be running family money effectively.

What is what is his shop look like in terms of not running external money. Running internal money. What kind of a shift is that going to look like. Well we don't know what that looks like yet. Guy. And the question is too there is what some 30 investment professionals that you're looking at over at Melbourne alone. I have to ask the question is all of these other shops also start to go through so much carnage. Are they going to also be shedding staff as their assets decline. Are

investors going to ask for renegotiation of fees that don't make it more difficult to retain talent. I think these are really pertinent questions because remember there was a talent war going on just a year ago. The by side with hiring hot and heavy. And I already know tons of big funds that are ready to pick through the carnage here and start to attract talent from these funds that are already facing some trouble this year. Yep as ever the talent war on Wall Street continues. Opportunities here may be Shinola. Thank you very much indeed. As you say hammers. Great scoop coming out last night. Sonali Basak. OK. Coming up our next guest says the Federal Reserve is likely to keep tightening. That certainly continues to be the

message we get from Fed speakers but they're gonna keep tightening until something breaks. What does that look like. We're going to fight. We're gonna find out. Next we speak to the founder and CEO of Long Cell Alpha Venture Bhansali. Joining us next. This is Bloomberg. So we're an hour into us trading. First the market is down. Then it rises a little bit. Now it's down again.

The S&P flirting with thirty nine hundred. Let's get the details. Abigail tracking all the moves. Hey guy. Well certainly a bit of a wild morning after yesterday's big loss. The worst day since June 20 20 the day before a big rally. So we have this volatility day today. We also have an on intraday basis. This is a chart an intraday chart of the S&P 500 a mini feature. So you can see overnight at one point up slightly than down down down down more than 1 percent almost green right now down about six tenths of one percent. So let's see how the day plays out as there's so much uncertainty in the system right now. Retail earnings really an issue as inflation creates a problem for these companies weighing on investors wondering about whether this will happen for other companies. However we've been talking a lot about the possibility of a bear market rally. It's still

in place so long as last week's low or actually the earlier this month low holds. We are likely to see we could see should say a bounce back up into this range and it could be more of a bounce as opposed to a bear market rally that little move up. That's not really a bear market rally. More of a bounce. Take a look at the RSI still close to oversold territory. If this bounce develops into Moore and into some sort of the bear market rally think along the lines of what we saw back in 2008 where it could be a number of weeks or months but an uneven unpredictable one maybe up toward not two. Forty five hundred. But again within that steep downtrend that confirms S&P 500 for a much lower level at some point later this year. One thing that could help that possibility of a bounce or some sort of a sustained bear market rally even though it could be a bumpy one the yields. Take a look at the 10 year yield over the last nine days. Really pretty incredible down to basically 31

basis points. This as they overshot after the Fed raised rates. But now there of course is the whisper idea that perhaps things have gotten so bad that the Fed is going to back off. The Fed itself is not making any indication of that. But that is something that investors seem to be thinking about. Plus bonds are haven assets and we have stocks sell off. We're

seeing that traditional move. The key chart to watch perhaps. So as far as whether or not we do get some kind of bounce it could be the VIX because if you take a look at the VIX you see these lower highs which suggests that even as the S&P 500 has been selling off that options less worried. In fact it's more likely to my view that you would see the VIX dropped to 20 before going to 40 even though Alex there probably is some sort of super spike ahead later this year. But right now who knows. Let's see what happens here with all of this volatility and really stress. Guy out. FTSE evicted 20. Abigail. Thanks very much. Max Abigail Doolittle joining us there. And Esther George saying earlier today too that she is watching the stock market. Now all of this

caused Michael Crowley the chief U.S. economist over at JP Morgan to lower his growth forecast. He says the growth has to slow. This is what the Fed has said. And the Fed will make sure it takes it does what it takes to make that happen. Now there is a narrative out there that that's exactly what we're seeing in the market. The Fed needs to break things to get inflation under control and things now are subsequently breaking. Joining us now for his take the nearby Sally Long tail founder. And see I o with about three decades of experience within the market here is just what we're seeing. Is the Fed breaking stuff and do they keep breaking stuff. Absolutely. I think that's what's going on. I think we've talked about this now for six months or so. And I

call it self-inflicted wounds right now. They went too far in terms of easing. Now they have to reverse. They were buying assets about a couple of months ago. Liquidity is absolutely horrendous which tells me that markets are breaking and it's not been this bad for a very long time. Really it's just the market break Mohamed El-Erian just read the opinion piece on the Bloomberg. Looking at the possibility the market functioning starts to become a concern as well. At the moment it seems like the market is functioning. But as you say liquidity is a key factor here. When it dries up it dries up quickly. Is that something that we should be concerned about. Are you seeing any evidence that that

could happen. Yeah we are all people. Market participants watch various measures of liquidity. And one of the ones that is quite important today is the depths end in many futures contract that Abigail Doolittle is showing and that has been declining for quite a while now. But right now it's almost as bad as it was during Covid and maybe even in the financial crisis. So that can give the Fed an excuse because it's not about growth and inflation. If markets quit functioning it can give the Fed an excuse to actually stop tightening aggressively and maybe even start talking in a friendly way for the markets are easing. But that potentially could be a huge huge shift. What do you think. We actually see that and what does the market look like for that to happen. So if you look at what is being priced in the market two year

treasuries are up to 70 or so. The curve inverted just momentarily a few months ago and then is very steepening again. We are sitting great at the lows and S&P 500 recent lows at least. And liquidity is beginning to really fall quite drastically. I think a sharp selloff where S&P falls maybe a couple of

hundred points again in a day or two let's say thirty five hundred or below. I think that results in the Fed maybe just saying like us to Georgia said we're watching. The markets were paying attention to it. I think that's sufficient to call into question how far the put us. She also said that inflation is the priority. So inflation is still high but the market isn't functioning. What is the Fed doing that kind of environment. Yeah. So you know Mohamed said that brilliantly a few months ago. They're trapped. Right. The mistake was made last year when they kept buying assets. Now

there's no easy way out. So I think the worst outcome again is financial market participants. We know that if you can imagine the worst outcome it can't happen. And it sometimes and very frequently doesn't happen is inflation doesn't come down. And maybe it comes down to only about six or seven percent. So there's general misery from prices. And then you've got the stock market down 20 30 percent. So people

rein in spending. So now you've got a double problem which is lower markets that lack of spending and higher inflation. So the other side of that coin though and comic over J.P. Morgan has been out in this. He says we're going climb out of this hole. No recession. Summer. People are going to do more stuff. We're gonna get still more reopening trades happening. China's going to increase monetary and fiscal measures etc. Is that not a way worse. No that is. And I think earnings at least nominal earnings look fine. Real earnings are not that good. I think analysts are going to start recalibrating and bringing their earnings down. That has happened in the past for prices that I've been until minds can change very quickly. But the more

important question is not if the US economy is going to survive in the long run. This is a Fed driven Fed cause problem right now. So they can also fix it and they can fix the markets also by providing liquidity. The question is what does the path look like from here to there. You might end up having a very sharp drawdown which could be a great buying opportunity

and then eventually no recession. But right now things are not looking that good. OK. This is a really really tricky scenario that you're painting here veneer to navigate from from an investing point of view. How do I invest in this kind of environment. Do I invest in this kind of environment. That's a great question. And I wrote a couple of pieces recently on good ol two year treasuries 270 yields the draw and Kerry Condit three three and a quarter percent. You got a lot of convexity because when markets become illiquid what's the most liquid asset. U.S. Treasuries cash and

two years. I like to say they're as good or maybe actually more liquid than gold. In that environment. And if you actually fall by 100 basis points you make two or three percent additional return. The best part is that if we are wrong in it and we lose the opportunity costs relative to inflation in two years you get your capital back because it's a finite self liquidating finite maturity asset. You want that principle though anyway by inflation. Absolutely. And that that is thought. The choice is a very hard decision. Do you give up opportunity or do you actually give up permanent capital by

losing money in the markets. For me it makes more sense to trust the Fed can bring inflation down somewhat and fixed liquid on cash. Cash is fine as well. There's nothing wrong with cash. It's just that in cash you're getting two and a half or 3 percent less yield. I'll take a little bit of yield and two years.

So from that perspective if I'm listening to you and I haven't allocated already it can I still do that. Is there still time or am I kind of like holed up right now until we get some relief. No. The great thing about the U.S. Treasury market is it's actually on sale right now for whatever reason because foreign central banks have been selling. And you know generally bond markets have come under probably historic pressure but treasuries exist out there. You can buy as many as you want. I mean not as many but billions of course. And

it's still a good strategy. As a matter of fact it's probably higher and yield than where we entered which was maybe 20 basis points. So you're getting in better than where we got that in. The credit markets just talk about what is happening in credit in order to come to the market. Now you're going to pay significantly more than you would have done two or three months

ago. What do you see in credit spreads. What signals do you take away from credit spreads as they start to widen now. Yes this is a very interesting conundrum. Part of it has to do with the fact that people are still hoping that credit won't have the same kind of problems like it did in 2008 to 2010. And part of the reason is that interest rates are low and the VIX is low. VIX drives VIX. Plus the interest rates drive credit spreads. I think there is a chance that if the stock market makes new new lows and accelerates you might get a sharp spike up in the VIX which then drives credit spreads wider and you get a reverse spiral effect where people just can't lean on credit to get indication about what the stock market is going to do. And that

is the dangerous scenario in my view. Keep an eye on the VIX. Yeah I heard that somewhere before today. Great stuff. Thank you very much indeed. Nice to speak with you as ever. Fantastic. Nearby Sally Long Sale founder and CEO. Thank you very much indeed. Coming up existing home sales in the United States falling for a third straight month. We'll get a look at how the housing market is grappling with rising mortgage rates and inflation. Supply chain issues are still present. Peggy Hogan marker like construction group joining us next to talk about what's going on in Florida. This is

Bloomberg. This is Bloomberg Markets could get to you're looking at a live shot of the principal room coming up on the stage yet Amaro said I capital chief investment strategist. She joins Bloomberg TV three thirty p.m. New York time. Tune in. This is Bloomberg. Keeping you up to date with news from around the world his best right answers could get to them as a sign that Beijing is strengthening its energy ties with Moscow just as Europe turns towards banning imports. Bloomberg's land that China wants to

replenish its strategic stop what stockpiles with cheap crude from Russia. The strategic reserves attached during times of emergencies or sudden disruptions. In London police have wrapped up their high profile party gate investigation that caught Prime Minister Boris Johnson. More than 126 fines have been issued over Covid rule breaking parties held at Downing Street during lockdown. None of those find were identified but a spokesman says Johnson will not be fined a second time. The US housing market is showing some signs of cooling off. Existing home sales fell in April to the lowest in almost two years. They were held back by a shortage of inventory plus rising prices and mortgage rates. SALES were down some two point four

percent an annualized rate of just over five point six million post global news 24 hours a day on air and on Bloomberg Quicktake followed by more than twenty seven hundred journalists and analysts and more than 120 countries members could get to. This is going back out. All right. Thanks so much for joining us. Let's get more details on those existing home sales. They declined by more than expected in the last month. There you look at all the different regions there. Mortgage rates are rising. All of that eating into some demands. Joining us now for more is Peggy Hogan marker president. Marker Construction Group. Her firm is involved in residential hotel and manufacturing construction. Peggy it's good to get your perspective. We've been worried that the housing market is kind of going to roll over. Do you feel like it is supply or demand

driven rollover that we're seeing. I think it's a demand driven rollover to a certain extent in in the middle income homes. Those buyers are obviously being affected by the mortgage rates. But I will say that the high end home sales the high end condo sales the market is as strong as ever. It's cash buyers with a ton of liquid assets. And they

want to move down here and take advantage of our economy and our great weather. Peggy the people I talk to my friends in Florida tell me that they talk about two things. They talk about house prices and they talk about their stock portfolios their stock portfolios are starting to crack in a fairly big way. Is that a read across from one to the other. Absolutely. So as you said the market's not great right now. With inflation where it's at. We're seeing a huge increase in the multi-family sector. Rental prices are through the roof. And

so people are pulling their money and they want to get in on this hot real estate market and they're investing in multi-family. It's a safe place for their money. It's a safe bet right now. And one of the few I believe. Let me take the other side of that for a second. As the market kind of craters we're also seeing some cracks in say the sub prime borrowers. And I feel like then that means maybe we'll get squeezed from both ends like credit card debt is rising loan defaults are picking up on the on the lower end. Are you. Are you seeing any bad or when you talk to your peers you see that. No for sure. I mean people are upset you know people are renting are upset you know the prices are going up. People can't afford it. It's a huge issue not just in Florida but all over the country.

I don't know what the solution is but the demand is just so high. There's so much money. I guess people are living further outside the cities and looking for affordable housing options. In terms of building houses what is going on there. As you mentioned earlier road construction has been booming but supply chains have been snarled. How much is that slowed down. Did the

the amount of amount of homes that have been built. How much is still in train. How much are the ones that are being built taking to. How long are they taking to finish. I'm kind of curious as to the nuts and bolts of building homes right now and how it's going. Sure. So. So to your point the supply chain is still an issue. It has stabilized to a certain extent but it's not going to be fixed anytime soon. I mean I think we're talking years literally. What's happened. The industry's done a great job of pivoting. I'm kind of adjusting the buying cycle for construction materials trying to to front end load the projects so that things are going to be stored which you know allows us then to continue the process.

And I think with the with the new infrastructure bill that just passed we're going to see increased strain in the market in steel and concrete which are already problematic. So. And obviously with the shutdown in China and the war in Ukraine all of it is adding to our problems. But the industry you know the demand is there the money is there. So the industry's figuring a way to make it work. When does it stop working man. I mean we're kind of seeing that. We're wondering when that happens say in the retail market literally when people stop buying stuff and stores that it gets too expensive. You haven't you idea as to where that tipping point is like how much pricing power can be passed through until it's not anymore. So the only thing that we've really seen that would reflect that is a little bit of a shift a little bit less of that the interest in condos and a shift more towards some multifamily. So I think people are still interested. They want to build even though the

prices are so high. But people are willing to pay. You know what. In the past you could never have considered the number. So what if we have clients that are developers that literally are saying like these numbers would never work but they are. And so they're just continuing and they're just anxious to get started right away and try and take advantage of the market. Peggy interest rates have gone from two to five. Is this a market that needs slowing down more. Is this a market that

actually needs some help in slowing down from the Federal Reserve. Do you think. I do. I do think so. No not like I mean when dramatic let's say it but a bit of a correction. Yeah. Well then. So what what what does that correction look like. How significant does it need to be.

So I don't think needs to be too significant because I do think that you know the supply chain that the cost of escalation are and are natural corrections that are within the market currently. I think it's something that's got to be watched closely. I mean I think anything dramatic would have catastrophic effects that that would ripple across across the country. Peggy great to catch up useful day to do it on with the housing data out. Peggy Hogan Mocha. Presidents of the Market Construction Group thank you very much indeed. Want to take you to the Rose Garden. The president is speaking. He is flanked by the Swedish prime minister and the Finnish presidents. Their side fiercely on the back of both countries making applications to join NATO. The president's adding his support to that effort

and certainly saying that he will continue to bring that support. We continue to watch carefully the view from Ankara president. Autoworkers in Turkey may be slowing things down a little bit. But the expectation is he probably will find a way through this and allow these two countries to join. The president talking about a strong united NATO allies make a sacred commitment to one another. That an attack on one is an attack against all. This Article 5 of the Washington treaty and the core. Market will be Bitcoin. Even with the year the S&P now down by nine tenths of one percent after pretty tumultuous hour and a

half. Bitcoin though is up. Let's get more on the cryptocurrency moves here at Abigail Doolittle Abigail. Hey Alex. Weather is a bit of a reprieve for the crypto space on the day but when you take a look at it on the year that's why it's a brief reprieve. Bitcoin up slightly ether up a little bit. But on the year the Bloomberg Galaxy Crypto Index down forty eight percent really

exceeding the decline that we've seen in stocks. And that is certainly true of course for ether and Bitcoin both down in a big way but in the way that it looks like stocks may bounce in the near-term something similar setting up for bitcoin. If we go into the Bloomberg terminal and take a look at the technicals here on Bitcoin and frankly for Bitcoin it made me more than a near-term bounce. It's too too early to say but you can see how Bitcoin has really been basically stuck in this range between

let's call it 30 and 60 thousand dollars per bitcoin over the last year year and a half. Down down down. That tells you that the buyers are less confident in terms of not buying on a higher level. The seller is more confident too. But there is support right around here. Let's call it somewhere around thirty thousand dollars. The exact level isn't too critical. The idea is if bitcoin can bounce here there's a pretty good chance you see a bounce back up to forty thousand dollars per bitcoin. The

reason to think that it could happen from a technical perspective. Take a look at that. The RSI oversold coming off of below that 30 dollar level or thirty level suggesting that we may just see the momentum gain in bitcoin to the upside. It also makes sense given the fact that it's been down down down so much guy a bit of a reprieve. Will it be to forty thousand. Hard to say for sure but maybe. And again unlike stocks guy it looks like there could be some chance that if there is this kind of a bounce maybe it develops into something more. Maybe it's not just a near term but certainly this could be a positive for overall sentiment with so many people saying that Bitcoin is their new sentiment on looking at the overall risk asset picture. Yeah and in some ways it led the move. Abigail thank you very

much indeed. Let's see where we are as we approach the end of the day here in Europe this Thursday. Stocks are on off for the footsie is underperforming. The 600 is down by one point. Three percent were down at 428. What is inching though today is that the dollar is on offer. So cable rate nearly with a 125 handle. Look at what is happening in the bond market as well. That's

catching a big Sebastian Raedler. Bank of America Merrill Lynch head of European equity next. This is Bloomberg.

2022-05-21 14:57

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