Bloomberg Markets Full Show (06/01/2022)

Bloomberg Markets Full Show (06/01/2022)

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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 Wednesday June 1st here the top market stories we're following for you at this hour. Let the Kutty begin. The Fed started shrinking its massive balance sheet today. It's a run off versus tightening or look for where strains in the financial markets may appear and finding deep value. Howard Marks of oak trees his opportunities

and growth as well as India and China. More from our exclusive interview with the legendary investor. And jolting the jobs market. The latest read on hiring inflation and manufacturing with Tim Furey chair of BIAS Arms Manufacturing a business survey committee from New York. I'm Alix Steel is my co-host in London. Anna Edwards Guy Johnson is off today. Welcome everyone to Bloomberg Markets. First day of June. Equity is on the front foot economic data front and center. Yeah an economic data front. The sense European market struggles find much direction although U.S. markets giving a little bit of

that. But it is a bit there. It doesn't feel as if perhaps there's all that much commitment behind it because we're quite low in volumes here in Europe. So we'll return to that theme. Let's get to some of that economic data that Alex was just mentioning. And we'll go first to the jolts jolting the U.S. economy. See what you did that Alex in the in the headlines like

that. So we've got jolts job openings coming in at eleven thousand four eleven thousand four hundred. That's eleven point four million essentially. And that is almost in line with what we were expecting eleven point three. Five million was what we were expecting. It's down a little bit on the prior period but it is more than the survey. And if this is part of the continual

recovery in the jobs picture in the United States then we're certainly still seeing that we got down to levels of around 5 million back in 2020. Lot of people starting to ask questions. When do we get more job openings in the U.S. economy than we have than we have unemployed people in the U.S. economy. We've certainly got to that particular landmark event here in the UK some time ago. So interesting to keep an eye on the tightness of this labor market right now Alex. All right. Here in the U.S. you got the ESM manufacturing prices paid new orders all coming in stronger

than estimated particularly the new orders coming in there fifty five point one in the manufacturing index coming in over fifty six. The one lighter area though that missed estimates a touch is ESM employment coming in under 50 which is usually that expansionary mark. Equities though not reacting now much at all. You still have S&P up by about four tenths of one percent. Let's dig into the numbers here because the question really becomes what kind of demand destruction do we see from higher inflation. That's what the Fed is watching that that's markets are going to be watching. Want to bring in Tim Furey chair of the ISI

Manufacturing Business Survey Committee. Hey Tim it's great to see you. What would your biggest takeaway from the ESM today. Well not to avoid the employment hour which we'll get to shortly. I think the greatest news here is the man after softening slightly in April falls right back. And all four southern DAX that I use to track the man all react implausibly the customer inventory number. The backlog numbers particularly new export order was a little bit soft but not a big surprise. Europe and China and the new order number are popping up so it feels good. I mean the sentiment of the panel was 5 to 1

positive about future demand which is which is you know makes you feel real good. So I think demand is stable solid. There was a little bit of concern in the April timeframe but it's easily rectified. But there are some signs in some industry sectors that we're seeing a little bit of slowing in expansion primarily in those sectors that support the building industry. We had comments from the chemical and recyclers and fabricated metal products and non metallic materials where there's some indication of some softening not not IBEX across everything. Good morning. Let let me ask you about that a little bit more then because from what you said at the beginning it sounded as if any weakness was coming from overseas. And actually the U.S. dimension here was really strong. But then there was maybe some weakness in

construction took us through through that level. All right. So I go through the comments. I look for people's feeling that things are slowing and bit it's time to start to look for that because at some point it collapsed. And you know I came up with slightly less than 10 percent of the general comments indicating that things may be slowing not things are slowing. So there a casino industry sectors that make up the manufacturing economy. I looked into those and there were three that kind of stood out on metallic materials. That's a big building construction area chemical products. It's a foundation element that goes into a lot of other materials that I don't get in metal products but that doesn't seem so. I mean it's not widespread. It seems to be industry specific. And

I guess not that big of a surprise given what's happened now with the housing market. Yeah. Tim I wanted to get your take on that. Is it more of a supply issue. Right. We don't have the construction material to build the stuff or as an underlying demand issue. Well the case is as demand but it could also be

that there's over ordering and that people have you're really pumped up the purchase order pipeline over the last year to a contra long 800 souls sitting at record times. Hasn't budged. You did see that the price index eased a little bit which is a positive sign. And our supply delivery index came off a little bit too which is a positive sign. But we're not seeing dramatic movements in those. We're seeing slow improvement. Post post the Russian invasion of Ukraine. So we're moving in the right direction but it's going to be slow. And you know let's get to the employment numbers. So we did contract. Not a really big

surprise. You know we're dealing with very significant quits. It seems to be slowing a little bit but not very much. And although our panelist companies are getting better at hiring people they're still losing people. As you saw just recently I said records in the month of April I think it was. So that's still continuing. There's still a chase for wages. And until unemployment really comes back our production number isn't going to get to that high 50s that we're really looking for. OK

let me ask you about any clues you've got for us Timothy around inflation at looking at the prices paid component here. The actual number coming in at 82 above the survey a bit lower than the prior period. Any clues as to whether inflation that was two guys. Well you know it's it's in transportation energy for sure. This

is some topping off. We just recently did our forecast for the second half of the year. And we're feeling that the prices are up about eleven point four percent compared to December of last year. But we believe by the end of the year it will be up eleven point one. So that kind of indicates that we're at the peak of growth and that we could have a slow come down not even you know on a basis points here but will come down slightly as we close on the year which means we're moving more towards equilibrium. I think it's you know I think there's a really strong month at this point in our 24 month manufacturing expansion cycle. That's

really positive. As I mentioned before are typical cycles are about 34 months. I feel that this one will be longer if the Fed doesn't do something and the interest rate side and next year that could slow it down faster. But I think what a great trajectory here. There's still a lot of demand out there. Supply chain is getting better and you can see it with some of the southern DAX as we're still struggling with inversion. And that's primarily due to labor issues on the factory floor which is driven really by the quits. Hey Tim maybe an unfair question but if the Fed looks at this number is this the kind number where they're like OK great economy is good enough but demand's too strong. Still we're going to have to hike a lot more than

just to 50 basis point hikes over the next few months. Well you know I can't speak for them to. So again 1 percent federal funds rate is really low. I mean it's a long way to go towards what is this equilibrium. So I don't think that they would be disappointed in this number. It doesn't feel like it's an overheating number and it doesn't feel like it's it's collapsing towards a 50 level. So I mean if we ran fifty five to fifty eight for the next six to nine months it would be really

good. I mean every two and a half it points here and the PMI is approximately eight to 10 percent improvement month over month. So you know we're doing much better than April. Timothy thanks very much for joining us. Good to speak to you Timothy Fury chair for the ISF Manufacturing Business Survey Committee. Let's get to some other breaking news we've had just in the last few minutes that comes to us from Bank of Canada. Of course we're monitoring rate hikes across the globe as that

seems to be the dominant narrative not in China of course but at many other places. Bank of Canada hikes key policy rates by 50 basis points to one and a half percent. They're warning another red Haidi Lun tells me that the Bank of Canada is warning it could be even more forceful if needed. And there is gonna be a lot of focus on the hawkishness or otherwise of the statement. This is the second jumbo hike we've had from the Bank of Canada. Another one is currently due in July. That would be a third. Do pause after that. How will the market interpret that. More forceful if needed. Does that mean could do more than 50. I mean 50 is what they've done twice. And an expectation in the markets that they will do another 50 shortly. So this is what we see in

the affects markets. As a result the loonie maintaining its gain after the Bank of Canada policy decision. Now coming up on this program the Fed has another tool to fight. Inflation is shrinking its eight point nine trillion dollar balance sheet. That starts today. Where are the biggest risks from quantitative tightening. We're going to ask Lisa Charlotte from Morgan Stanley Wealth Management. So where she's chief investment officer. That conversation coming up next. This is. Labor market is the tightest basically it's ever been. You can see that by the ratio of unskilled jobs relative to the number

of people that are unemployed. The Fed needs to loosen that up for wage pressures will accumulate and that will keep inflation above the Fed's 2 percent inflation objective. That was Bill Dudley Bloomberg opinion columnist and former New York Fed presidents of course speaking earlier on Bloomberg TV. Let's get to our question of the day. Where is the biggest risk from Q2 from quantitative signing from the run off of these balance sheets that we see starting today at the Fed but actually has been taking place from other global central banks already. Lisa Charlotte joins us. Morgan Stanley Wealth

Management chief investment officer at least. Really nice to have you with us. Let's start on this question then about cutesy because it starts today at the Fed and we're all curious to know what the biggest risk from Q2 is going to be for markets. Yeah. Look I. I think what people need to remember is you know the Fed is

using two tools. One is the Fed funds rate which is the cost of capital. And you know running off the balance sheet is the amount of capital. I and I think you know as we've been trying to caution clients about it's where that quantity of capital and quantity of liquidity has been most beneficial that it's withdrawal is going to continue to be felt. And that is in the

most speculative parts of the market the most richly valued parts of the market. So while I think we've seen a bounce back over the last five or seven trading days in some of those sectors whether it whether it's unprofitable tack if you will whether it's you know some strengthening in some of the smaller CAC sectors or sectors you know levered to you know some of the more speculative parts of the market. That's I think where we're going to see this withdrawal of liquidity really start to bite. So at least I guess I wonder how much of that is already in the market. And I'm just looking at the front end of the curve. Now when you're looking here or in Canada for example and Bank of Canada hikes 50 bibs they say we can do more if we need to kind of knew that was going to happen. But the market reacted quite strongly anyway. What's appropriately priced. So look I think we need to remember you know from our perspective what's happening on the front end of the curve is all about you know what people think is going to happen to rates. What happens on the back end of the curve is very much about what people think is going to happen to the balance sheet. And so I think you know we saw a pullback in the 10 year and the 30 year over the last

three or four weeks. And our sense is we may give some of that rally in long duration treasuries back as people begin to further internalize what this withdrawal of of liquidity looks like for that longer duration bit. So that's a longer term story. And as you say that might be driven by by the balance sheet. Let me ask you what you expect to hear next from the Federal Reserve. I mean we just went through some data on the US economy the data suggesting according to our colleagues on the markets like blog that the economy can handle a hawkish Fed for how much longer do we hear a hawkish Fed. Lisa do you have any kind of pivot points in mind. I think the Fed's going to remain extraordinarily hawkish

through September. But I do think that September is going to be a watershed and it's going to be a watershed in terms of the deceleration of Fed hawkishness. If that makes sense. I mean let's think about it. We're going to live through what's likely to be 50 basis points in June 50 basis points in July potentially. You know 50 in August as we get closer and closer

to Fed funds futures forecast for this for the full year. And at the same time that quantitative tightening is ramping up and we don't get to steady state on those things until September. So I think by the time we get to September we should have some more constructive inflation data that will give the Fed some cover. We'll also be approaching the midterm election season when the

Fed typically in their spirit of independence wants to try to quiet down and not get into the fray of campaign season. So we're targeting September for a shift in the tone from the Fed but it's going to be a rocky summer from where we sit. And the Fed's going to keep their foot on the accelerator. So Lisa this is such a simplistic question but like what do you buy and what do you sell on that in that if you're if we're in for a higher volatility regime until things calm down. What do you what would you do with that. We haven't been in that kind of regime and in a very very long time. Yes. So our advice to clients has been to be a very active asset allocator and be a very active security selector. We're advising maximum levels of diversification by region by sector by exposure to style and quality factors like buy capitalization. And we're really just hollowing out the parts of the of our portfolio exposure that's very sensitive to rates. And so that has left us surprisingly very focused on a suite of cyclical oriented sectors like energy like industrials like financials like some consumer services and balancing that with some more defensive exposures most particularly health care.

OK. So that combination of the cyclical and the defenses on the subjects that that cyclical you mentioned commodities you mentioned oil. Is that still a good place to hide Lisa do you think we've seen peak oil. I mean clearly the geopolitics very difficult to call here but you have the geopolitics pushing the supply side but then you have the demand side from China. What

do you think this heads. I think we go higher before we get to a resolution around equilibrium. Clearly you know we've gone through this period where much of the pressure has quite frankly come from the constrained supply side and what's going on emanating from the Russia Ukraine war. Well what we have to appreciate exactly to your point is that China and quite frankly a swath of emerging markets have been if not slowing close to our recession. And so as those economies come back which again we have very high degree of confidence they will towards a third and fourth quarter of this year in large part because we do think that China is going to aggressively stimulate into the next communist Congress in September when G goes for a store next term. And so you know if we see a spike in demand you know in the back half of the year I don't think that the supply

situation globally is going to be fixed by then. And so we're looking at least another six to 12 months in our humble opinion of tightness in oil markets here. And so that that trade's got more more ways to run. Hey. It was really good to catch up with you. Thank you so much Lisa Charlotte Morgan Stanley Wealth Management chief investment officer. Coming up I was wrong. Treasury Secretary Janet Yellen admitting she made a major misjudgment when it came to inflation. More from Washington next. And just to point out here we're seeing a little bit of risk off mood under way. The S&P is now down by about four

tenths of one percent. Dollar moving higher yields moving higher. That really took effect when the Bank of Canada countered that 50 basis point rate hike and warned of fourth further more to come. And that good data from the US is seeing a little bit of risk repricing here as we head into the session. Also want to point out that Jamie Dimon CEO of JP Morgan is speaking at the Autonomous Strategic Decisions Conference right now. Some really interesting headlines coming out saying on the economy it's a hurricane that was a storm before but now it's a hurricane. And that you better brace yourself. I don't quite

know what that means but he is definitely warning of tightening conditions and private farmers and saying that you should brace yourself on the U.S. economy. We'll continue to update you on some of those headlines as they cross. This is Bloomberg. If I have to hold twice as much capital as somebody else somebody else should own the moon. No I'm an IPO dude overnight. You. I'm a dude over time. I think I was wrong then about the path of inflation would take as I mentioned there have been unanticipated and large trucks to the economies in the boosted energy and food prices. It is not something that you hear every day. My territory

secretary for Moore and Janet Yellen surprising remarks when I go to Bloomberg and meet her during joining us in Washington in. This is all sort of the White House's push to start controlling the economic narrative. Right. I feel like there was a flood of officials over the last 24 hours trying to place the blame and trying to make copies. Yeah there is definitely going to be a concerted effort for the month of June. There seems to be a lot of angst within the administration. Of course this NBC report that the president hasn't exactly like telecommunications have gone regarding a lot of these issues. And when you look at inflation and some of the recent polls one earlier this month was more than nine in 10

Americans think at a minimum. Inflation is a huge concern. And they don't like the way the administration is handling it. So you're going to see a lot of communication from this administration. Yesterday we heard from Treasury Secretary Janet Yellen a mayor culpa saying maybe we got this wrong or we did get it wrong in terms of the path forward for what we thought inflation or how high inflation would get. But there is an issue in the sense that the administration says that they are doing everything they can. But then when you ask them questions like well where are you on the China terrorist for instance something that has been you know dealt with potentially as a means to shave off some level of inflation and they don't have answers yet. So this is going to be a month where I think there's gonna be a lot of questions of the administration if they're serious

about doing anything to bring down inflation. What exactly are those actions. Because right now a lot of it is is rhetoric. It was a photo op with Jay Powell. We've had two op ed and it's been a slew of officials on television networks as you pointed out Alex. Amari good morning to you. So what are we hearing from President Biden that will give us the context I suppose because in international financial markets we'd like to hear all the time about what the Fed is doing and the Fed's role in fighting inflation and the independence of the Fed. But I imagine that's not necessarily how Main Street sees it in the US or at least they need maybe reminding by politicians that there are others responsible for fighting inflation to. That's a great point Anna. And actually Guy and Alex asked this to me yesterday how many people in America know who Jay Powell is. And I didn't know. But I look back at a poll in 2014 when Treasury said

current trajectory Janet Yellen was the Fed chair. She was named Forbes most powerful women. And yet only 24 percent of Americans when asked who she was knew who she was. Twenty four percent. So this moment with the president standing next to Fed Chair Jay Powell who just got his second re second confirmation from the Senate to be the helm of the Fed is really the president saying passing the buck a little bit. This is the Fed's responsibility. They are responsible for the unemployment rate and they are also responsible for consumer prices. This is something that as you say a lot of everyday individuals

need to be reminded of because when you see gasoline another record today for dollars and sixty seven cents going up when you see your groceries going up you you blame the individual sitting in the Oval Office. You don't necessarily think of the Fed chair. Yeah. So the emphasis maybe from Paul on the independence but with that independence comes responsibility presenting to Ron Paul. Mary thank you very much. IBEX Annmarie Horden outside the White House of course for us. Coming up on this program

we're talking markets and bargains in a time of inflation. Our exclusive interview with the co-chairman of Oaktree Capital Howard Marks. He sat down with our colleagues at Bloomberg TV to talk about these markets. More detail from Howard Marks coming up shortly. That's just back. We're about an hour into the U.S. trading session we got a pretty strong I have said manufacturing no demand really holding up quite well now. That actually spurred a little bit of risk off move. You have yields in the front end surging higher dollar

on the highs the session stocks dropping this session lows. Let's dig beneath that a little bit now with Bloomberg's Abigail Doolittle Abigail. Well Alex that's a great setup because it's really interesting to see this because of course on the open we had stocks higher. But right now that S&P 500 down about six tenths of one percent the Nasdaq down three tenths of 1 percent. Having everything to do with that. I assume no coming in stronger than expected. Perhaps it means that the Fed's fully on course. They of course floated the idea of having flexibility later this year. But if the economy is OK and does not need help it could maybe create the path to continue raising if needed. In any case we

have some more volatility for stocks. Crude is up one point six percent. This of course on the possibility the report that OPEC plus may consider dropping the plus and exempt Russia from its targets. There's also super tight inventories. So we have crude oil at 116. And to Alex's point take a look at that two year yield backing up 10 to 11 basis points. So right now an

interesting day here with stocks down bonds down and crude oil higher. Now what is also lower is the housing market in terms of the number of the mortgage rate here for the the applications excuse me for mortgages. Not surprisingly in the bottom panel here down for a third week in a row. This as the 30 year average rate for mortgages it's been trending off of the high. But nonetheless it's ticked back up just a little bit. So that of course created a little bit of an issue for the homebuilder sector. As for sectors on the day the energy sector. Up one point two percent in line with oil trading higher. We also have software and services higher up about six tenths of one percent. This after

CRM put up a great outlook saying that business demand for enterprise software still very very strong and that stock itself up more than 10 percent helping out that sector. Communication sector services up a little bit at this point. And then we see airlines. This is an interesting turnaround because earlier airlines had been sharply higher now down three point five percent maybe having something to do with the oil. But we do of course know Anna that Delta Airlines joined both United Airlines and Southwest in terms of reiterating and raising the revenue guide because demand remains strong. But the airline

sector not following along right now. We'll be digging into that. Yeah aviation under pressure today here in Europe as well. A tough week one where European aviation businesses were hoping to make quite a bit of money with lots of vacations taking place certainly here in the U.K. But it is proving difficult to get up to speed to get up to capacity for those aviation businesses thanks to be IBEX Abigail Doolittle with a look at the markets there now. Howard Marks thinks it's a good time to be a value investor. Marx is the co-founder of Oaktree Capital Management's the largest investor in distressed securities worldwide. He spoke with Bloomberg in an exclusive interview. Attitudes are more balanced today. But

you know when when there's euphoria when there's optimism when there's greed when there's risk tolerance and so forth that's a very difficult climate for the value investor to find bargains. So we're happier today than we were six months ago. I don't know if we're gonna be happy or six months from now. That is to say that the bargains will be more pronounced but at least the as they say the bloom is off the rose at a time of such incredible uncertainty. How do you position seeing value now but also preparing for seeing more value in six months. You know one of the six tenets of oak trees investment philosophy which we established when we started in April of ninety five and I've never changed a word and I believe in thoroughly is that we're not market timers. And that means mostly to things we'd never sell to raise cash to to prepare for a decline. And we never say it's cheap today but it will be cheaper in six months. So we'll wait. If it's cheap today we buy it. If it's cheaper

it's six months more. We buy more. And I think that that works much better than an assertion that we know where the market will be in six months. This is really important at a time when so many pensions and institutional investors have been shooting for that seven and a half to eight percent bogey. We talked about that extensively in the past five to six years. This I did it that seemed completely unachievable in an era of quantitative easing. Suddenly high yield bonds have an average yield of more than 7 percent. Is this the best period that you have seen for pensions to actually hit their bogies for

more than a decade. Well I think that's right. In in in. Well of course many have hit their buggies. It just didn't look in advance like they would. But this stock market and many other things have surprised on the upside for the last 10 years. But now as you point out one of our big activities is high yield bonds. And a year ago they were yielding in the 3s of percent. One deal was even done in the twos. That's not a very high yield for high yield today. As you say that yield in the sevens. So a pension fund that needs seven or seven and a half can make use of high yield bonds and everything you know see when everybody gets concerned when prices decline. But if you flip that over the

flip side of price deterioration is increases in prospect of returns. So now the prospective returns are on. Many asset classes are higher than they were just a little while ago. And again a much better climate for the bargain hunter. So people would counter this by saying inflation takes a lot of the value out of those returns that basically on a real basis you're still not getting very much. How do you counter that as a long term investor by saying you know what. At this point it's worth it to

get higher returns even if on a real basis it's not necessarily that much more. Well you're right in that we're not talking about an increase in real returns. We're increase that increase in nominal returns. Most most pension funds and other organizations reckon their need for return in nominal terms. But you know I mean that is a challenge. And nobody knows what inflation is going to do. I think I heard out of one ear. Your previous guest say that you know some of the inflation factors will probably subside in the next few months which means all things being an increase in real returns.

Now as Howard Marks Oaktree Capital co-chairman earlier today on Bloomberg Television. Coming up the political climate in Latin America and how it is affecting investments. We're going to speak with a private equity investor Oscar NIKKEI D X A Invest C E O. Coming up next. This is Bloomberg.

This is Bloomberg Markets can get. You're looking at a live shot of the principal room coming up Quincy Crosby the Prudential Financial chief market strategist something bank TV three thirty p.m. New York time. This is Bloomberg. Keeping you up to date with news from around the world is the first word which could get to Ukraine we'll get advanced rocket systems and other weapons from the US. President Biden made the announcement in an article published in

The New York Times. The Rockets will allow Ukraine to hit targets up to 50 miles away. The U.S. says Ukraine has promised not to attack targets inside Russia. In New York state Governor Kathy Hochul and legislative leaders pledged to raise the legal age to purchase a 15 assault rifle to 21 years old from 18. They also say they'll pass a package of measures to tighten gun laws this week. Officials cited the recent mass shootings about the Texas buckle up in Colombia. The peso rallied after construction mogul Rodolfo and Mendez defied the polls to secure a place in the election runoff later this month. That reduces the chance that leftist Senator Gustavo Petro will be the next president. And this is something of an unknown but he is seen as

a safe bet for business interests. 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than a hundred and twenty countries which can get to this system back. All right. Thanks so much. Ridiculous day in Latin America for a moment. We have an election uncertainty in Colombia. Brazil has a presidential election in October where former President de Silva the leftist is really looking to stage quite a comeback. And on the economic front. Latin American economies are dealing with high inflation and high U.S. dollar and questions about the strength of the

consumer just like everywhere else. So joining us now to discuss investments in Latin America is Oscar Decode Tele ADX a invest CEO and founder joining me here on set. Oscar it's a pleasure. Nice to see you again Alex in person. Been a long time since I've been here in New York. It has been quite a long time. I got your name right. And that name is one I can say forever. So the climate from where you sit you invest in private equity. You amid small companies mostly geared towards the consumer.

Where are you right now. Well Alex I think it's what's going on is really kind of an example that it's not about macro. Right. So we're seeing a lot of bad information on the macro side. And you were mentioning inflation the slow growth and even on the election side as a lot of discussions to happen there. But when you look in terms of the underlying companies venture related

tech enabled companies innovation related. It's it's it's a new market. It's a different set up. We just saw for instance in Colombia we just saw last month a new unicorn coming out of Colombia with international big funds investing in backing that company. Just to give an example. What do you need. So are we talking like those that technology exposed to the consumer. And then do you need a strong consumer. Do you need the macro to hold up for that to continue to happen. Not necessarily. I'll give an example. So when you think about Latin America from a macro

standpoint they would say there's no security there's political instability there is poverty. And when you look from a couple of different companies there resolving those problems. So I always say about Uber right because there's no security there. The three best cities for upbringing are in Latin America Mexico City some Paul Allen Rio. The biggest number in terms of number of rights. And you say there's political instability and their companies are doing for

instance cameras surveillance cameras that they're using to pile up that information to resolve something that the government is not doing. So I think that the fact that you'd have big problems are now becoming more and more a big market in landscape for you to be able to tap into that with technology. Good to see you. Hang Seng security becomes a business opportunity there where governments are absent than private business can can can make some money. Let me ask you about though some of the macro scenes and how they do impact the kind of private equity deals that you're doing. Because I mean the Fed the Fed with its types of policy private equity has been a big winner of course from low

interest rates. A lot of money allocated in that direction. Is it harder. Is is money harder to come by now. Look I think of course money is a little bit harder than what we saw in the past. We're still seeing massive drives of growth in terms of the volumes of their coming into the region. So I'll give an example. If you take a percentage of techie neighborhood companies versus GDP Brazil Brazilian that terms about 2 percent OK. India is at 14 percent. China 40 percent. In the U.S. 70 percent. So there's still a long way to go there. So you're coming from such a low base that it's not impacting that much.

However we are seeing especially in the deals are we're doing the. When you start putting interest rates into that deal. So you do things like a debt that has an interest and it converts on the next round. And you're starting to see things well especially in Brazil that now interest rates are at twelve and three quarters. You have to factor that into your deal. So I think that funds and investors there can be kind of a little bit more flexible.

Therefore the companies are open to that. You're able to factor in the interest into those negotiations. So tell me about maybe the most recent deal that you did and then maybe one area that you're most excited about. So we do have a strong view in terms of consumer. It kind of changes right. We've just done a deal in a beauty tech. It's a company

that started off basically. It's called Beauty For. Basically they started giving kind of small kits that people that were going to pay on a monthly subscription side right to have the newest lipstick and then that's that drove into a economy for second income. So now these creators and influencers they buy these subscriptions but they. Well they set up their own line shops and they use the Internet to drive that. So when he got into a situation where income is not very well and everything starts to have bigger subscribers because people were looking to use that as a way for a second income. And now they have about 100000 subscriber or monthly sent point and a million people that really kind of run that network. So I think there's a lot

of different things are happening in the landscape. And it's not just Brazil. It's Colombia. It's Mexico. All across Latin America that we're seeing these kind of opportunities. Okay subset of subscription models that are of interest to you ISE. Let me ask about clean tech. We're going to talk later this hour about electric vehicles and expectations for their future development around clean tech. Are you finding interesting ideas on that theme. For sure. For Shery Ahn. Well first of all we're seeing a huge impact of investment. Staats Solar towards wind energy also especially in Brazil.

There's some new legislations around it. We're looking at a lot of clean tech for instance. You have companies that use technology for you to reduce the expenditures around France's private planes. This is a deal that we're currently looking at. France is where you have like a net jets here. Just to give an example similar situation they're using there. Also these are definitely drivers of clean tech movement. Brazil already has it specifically. Brazil already has one of

the cleanest matrix of energy in the world. And I think that we're seeing now these big investments towards solar and wind. The definite going to drive the big change. Just give one example. In the northeast of Brazil the factor the load factor for wind is about 65 percent efficiency. You look in the Nordics is 40 percent efficiency. And now we just issued a law where they're going to allow for you to have offshore wind turbines. So this is something that's still at the verge at the beginning when you see market volatility like that. It doesn't impact that much because it's coming from such a low base of low low amount of capital is being invested in there. So let's just go macro for just a moment. Yes. You mentioned the high yield and sort of

would that wind up doing when you're factoring in your investment in issuing debt. What about inflation. Like how do you look at inflation and then eating into your returns. Could you just change your profile. Well I think you do need to factor in specific products that you're investing in that will use inflation as an aspect. So if it's gasoline prices that's going to generate an impact into that company. You should be shying away. We are doing that of course. But I do think that macro will impact from a political standpoint will impact the landscape of innovation being driven. So

we've seen a lot of new legislation to allow fintech to to operate freely. Looking at things around health tech to to be free. If we do have the impact of inflation affecting the political landscape and any see a backdrop of the mentality towards a pro-business region then that's I think it's something that becomes a bit more risky. Let me ask you that about pro-business and how pro-business some of these sad geographies are. We started our conversation talking about Columbia with somebody who is relatively pro-business and pro risk assets. He's now going to be in the run offs and maybe that was a surprise to some people. All the geographies countries where you feel you have a more pro-business backdrop or are you saying the

opportunities don't really correlate with that. Well I think it's quite interesting what happened in Colombia. Friends this is is a discussion with a mind is coming from now into the second into the second round is really showing that the population they want to change they want to see don't want to see the old old politicians in power. Right. We saw that in 2018 in Brazil when votes on ORAC came into power although he was a longtime politician was wasn't somebody that was really kind of on on people's mind. Right. So I think what we're seeing in Colombia also is the especially the younger population it was really kind of clinic. That's where 90 would particularly like to call it tick tock. KING Right. And we saw that this is the same population that once more innovation once more products. So I think that Colombia has a great a great setup for the future. Brazil has it. Mexico has it also. You've been in some stances. We're seeing a lot of interesting opportunities come out of even

Argentina. That's in such a difficult moment. But it's through innovation and technology that we're starting to see companies that are kind of resolving those issues for the general public. Oscar it's really good to catch up with you. I really appreciate seeing you in person. Oscar Digitally DAX Invest. CEO and founder thank you so very much. Coming up electric vehicle sales are expected to soar in the next few years. We got a new report from Bloomberg that says that's not enough to get

to carbon neutrality. More details on that next. This is Bloomberg. It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now I'm sure she could get it. Joseph says BOVESPA rising today. The company raised its annual profit forecast a signal that demand for business software is holding up despite a border downturn. All those major tech firms SALES Force Coast CEO Marc Benioff says that so far the demand environment remains strong. The richest person in the world doesn't appear to think much of working from home. Elan Musk apparently sent an email to the executive staff at Tesla with the subject line. Remote work is

no longer acceptable. He wrote that anyone who wishes to do remote what must be in the office for a minimum of 40 hours per week will leave Tesla. And that is the latest business flash at risk. Thank you very much for talking with the business flash. Now staying with electric vehicles she was just talking about Tesla. A new report predicts that CV sales are set to more than triple by 2025. But it says governments and carmakers need to lean even harder into eliminating emissions.

That report comes from Bloomberg. Any F F new energy finance. With us now is Ryan Fisher Beanbag. Any F analyst for electrified transport the perfect person to speak to that about this report. Ryan really good to speak to you. So what is that. What's the big takeaway coming through from this report. Yes well as we hear in the news we're selling more and more Evie's. I mean last year a lot of the top markets China Germany getting 15 25 percent of car sales being heavy. So certainly is a success story. But when you even look at that and you project sounds of the

future we're still in a position where we're not meeting that zero by 2050. It's really difficult to get rid of those internal combustion engine vehicles from the fleet. So we end up with somewhere around a third of the fleet still being internal combustion engine. And that's even worse when you think about heavy duty vehicles. So we end up with something like a third of the fleet being zero emission by 2050 in that case. But that still means you've got many of those on the road and

they're obviously high emitters. Does that mean that people aren't demanding IV's or they're just not available. Not as easy to access. They're not as available to buy. And maybe that you know the combustion engine ones are cheaper still. Yeah. So I think price has something to do with it. But these all the way there. So we've obviously seen these gap

problems in the supply crunch semiconductor crisis not being able to produce them. But one thing that I think is understated at the moment is once the price when you look at it first of all it's expensive. If you've got subsidies can be seven thousand dollars say in Germany but then you're starting to see TCO and fuel costs actually be much lower. So whilst electricity prices

have gone up gas prices have gone up quicker. So when TV can actually be somewhere around a thousand five hundred dollars cheaper. Yeah. Alex. Hey Ryan first of all I should point out that your work is referenced among all Wall Street analysts when it comes to these whether it's the equities or whether it's the commodity. So kudos to the work quickly. Do you feel when is the adoption rate going to happen. Like when is it going to flip in terms of even becoming cheaper than an internal combustion engine. Have you revised that. So what we started to see was kind of looking around 23 or 24 depending on the region depending on exactly the size of the vehicle and obviously battery prices have slightly increased. We see that in the news every day which means that it might be a little bit more challenging it might push it further

back. But as I just kind of said a second ago what we're also seeing is people start to look and go. Actually I can use cheap electricity in the evening and therefore my fuel costs are much less than paying and going to the gas station. So two slightly different conversations. OK. Brian thanks very much. Thanks for the analysis. Ryan Fisher of Bloomberg Anya's joining us with the latest on the rise of electric vehicles. This is Glenn Beck.

2022-06-03 00:58

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