November 1, 2023 • 39 mins
Eric Hansotia, Chief Executive Officer at AGCO, discusses growth, technology and sustainability in the agriculture industry. theSkimm Co-Founder Danielle Weisberg talks about their Show Us Your Child Care initiative. Bloomberg News Chief Correspondent for Global Macro Markets Liz McCormick and Bloomberg News Cross Asset Reporter Denitsa Tsekova provide the details of their Businessweek Magazine story Hedge Funds Turbocharge Volatility in Cratering US Bond Market. And we Drive to the Close with Amanda Agati, Chief Investment Officer at PNC Asset Management Group.
Hosts: Carol Massar and Mike Regan. Producer: Paul Brennan.
FULL TRANSCRIPT:
This is Bloomberg Business. Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. Well shares at Adco. Check it out, everybody, They're up our third day, They're at more than six percent in that time. Company reported earnings yesterday morning, of which third quarter just at EPs was a big beat. Third quarter net sales in line with expectations, and the maker of tractors and combines also said it still sees fiscal year net sales of about fourteen point seven billion, slightly above street estimates, with fiscal year just ADPs of about fifteen dollars seventy five cents a share. That's fifty cents above the company's earlier forecasts. Three analysts nonetheless cutting their price targets on the company by an average of three and a half percent since it reported yesterday. So let's get to it. We have a great guest. We have the CEO, Chairman, President and CEO at ADCO, Eric Hansotea. Excuse me, Eric Hensotia, He's on zoom from Duluth, Georgia, and he joins, us, forgive me, forgive me. I'm trying to race to get to you. So I apologize. Eric. Oh you good, no problem, Really great to have you here with us. First of all, how are you? And I do have to ask you about the FED? In an environment where the FED says, you know, we could still continue raising rates, we're still worried about inflation. Does that kind of mesh with the outlook that you see? Well, your first question was how am I doing great? Just couldn't be happier with the progress that our company is having relative to our strategy. We're going to have two billion more in sales this year, We're going to grow margins significantly relative to the and it's all in line with our high tech focus on being the industry leader and smart farming machines relatively to the FED. You know, interest rates do weigh on farmers' minds. These are big as they carry a lot of technology. They're expensive machines, many times half a million to a million dollars, and so they often finance those machines, and higher interest rates are part of the part of the decision. I'm expecting that we're you know, at a high plateau and that we're more likely over the coming year to have red rates go down then up, and that would be welcomed by our customers, you know, Eric, I'm looking at the revenue growth of ag CO over the years and really some impressive growth there. Twenty twenty one is up, twenty two, twenty twenty two up fourteen percent, sixteen percent. This year, it does, at least according to analyst estimates, look like you might be in for a dip in revenue last year. And I'm wondering what's the what's driving that? Is that entirely an interest rate story or is there is there something else going on? It's actually very little related to interest rates. Agriculture often is not connected, not correlated highly with the regular GDP growth. It's more tied to the agricultural agricultural economy. So the price of corn, wheat, soybeans, and that's a function of how much green there is in the world. F
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
This is Bloomberg Business. Wait inside from the reporters and
editors who bring you America's most trusted business magazine, plus
global business, finance and tech news. The Bloomberg Business Week
Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2 (00:20):
Well shares at Adco. Check it out, everybody, They're up
our third day, They're at more than six percent in
that time. Company reported earnings yesterday morning, of which third
quarter just at EPs was a big beat. Third quarter
net sales in line with expectations, and the maker of
tractors and combines also said it still sees fiscal year
net sales of about fourteen point seven billion, slightly above
street estimates, with fiscal year just ADPs of about fifteen
(00:42):
dollars seventy five cents a share. That's fifty cents above
the company's earlier forecasts. Three analysts nonetheless cutting their price
targets on the company by an average of three and
a half percent since it reported yesterday. So let's get
to it. We have a great guest. We have the CEO, Chairman,
President and CEO at ADCO, Eric Hansotea. Excuse me, Eric Hensotia,
He's on zoom from Duluth, Georgia, and he joins, us,
(01:04):
forgive me, forgive me. I'm trying to race to get
to you. So I apologize.
Speaker 3 (01:08):
Eric.
Speaker 4 (01:09):
Oh you good, no problem, Really.
Speaker 2 (01:10):
Great to have you here with us. First of all,
how are you? And I do have to ask you
about the FED? In an environment where the FED says,
you know, we could still continue raising rates, we're still
worried about inflation. Does that kind of mesh with the
outlook that you see?
Speaker 4 (01:26):
Well, your first question was how am I doing great?
Speaker 5 (01:29):
Just couldn't be happier with the progress that our company
is having relative to our strategy. We're going to have
two billion more in sales this year, We're going to
grow margins significantly relative to the and it's all in
line with our high tech focus on being the industry
leader and smart farming machines relatively to the FED. You know,
interest rates do weigh on farmers' minds. These are big
(01:53):
as they carry a lot of technology. They're expensive machines,
many times half a million to a million dollars, and
so they often finance those machines, and higher.
Speaker 4 (02:01):
Interest rates are part of the part of the decision.
Speaker 5 (02:05):
I'm expecting that we're you know, at a high plateau
and that we're more likely over the coming year to
have red rates go down then up, and that would
be welcomed by our customers, you.
Speaker 6 (02:17):
Know, Eric, I'm looking at the revenue growth of ag
CO over the years and really some impressive growth there.
Twenty twenty one is up, twenty two, twenty twenty two
up fourteen percent, sixteen percent. This year, it does, at
least according to analyst estimates, look like you might be
in for a dip in revenue last year. And I'm
wondering what's the what's driving that? Is that entirely an
(02:39):
interest rate story or is there is there something else
going on?
Speaker 4 (02:43):
It's actually very little related to interest rates.
Speaker 5 (02:46):
Agriculture often is not connected, not correlated highly with the
regular GDP growth. It's more tied to the agricultural agricultural economy.
So the price of corn, wheat, soybeans, and that's a
function of how much green there is in the world.
Speaker 4 (03:03):
For the last two or three years.
Speaker 5 (03:05):
There's been green shortages and so green prices have been high.
Speaker 4 (03:08):
That means more profit for our farmers.
Speaker 5 (03:11):
Now they've had a great year this year in terms
of harvest and so there's a little bit more stock
prices have come down a bit, and that's really more
what drives farmer profitability and then turn their interest to
purchase equipment.
Speaker 2 (03:24):
Hey, Eric, what I wonder is longer term how you
guys think about the business, how you plan, because I
wonder if things like weather, climate change, demographics globally, is
that more significant in terms of how you think about
the growth longer term? And if so, what does that
maybe indicate to you.
Speaker 4 (03:41):
Yeah, that's a great point, Carol.
Speaker 5 (03:43):
So we see three macro tailwinds plus this weather factor.
So let me touch those real quickly. Number One, we're
moving from eight billion people to ten billion people between
now and twenty fifty. Number two, emerging economies are adding
more meat to their diet as they do that. That's
a multiplier on the demand for green chicken is a
(04:05):
two to one multiplier, beef is a ten to one multiplier.
And then third is renewable fuels, so ethanol in the
United States. But now the next one is renewable diesel.
Ethanol consumes forty percent of the corn crop today. Renewable
diesel is likely going to grow to that same kind
of proportion over the next few years.
Speaker 4 (04:24):
Those are all macro tailwinds that.
Speaker 5 (04:29):
Cause the farmer to have higher yields and more pressure
on higher yields.
Speaker 4 (04:33):
And then weather is another one.
Speaker 5 (04:35):
We're having more severe droughts and more severe floods every
year that reduces the overall global global.
Speaker 4 (04:42):
Ability to produce cream.
Speaker 5 (04:44):
So you add those four factors together and the farmers
are pushed to have higher yields while using less inputs,
less fertilizer, pesticide, chemicals and things like that, and.
Speaker 4 (04:53):
So there's a big squeeze for productivity.
Speaker 5 (04:56):
Using our technology, we're using artificial intelligence on our now
to be able to use vision systems so identify the
difference between a weed and a plant as a machine's
going through the field and spray only the weed, saving
like seventy percent of the chemical and a lot of
automation of features throughout all.
Speaker 4 (05:13):
Of our products.
Speaker 2 (05:14):
Can you say, I'm assuming you've been using AI for
a long time though.
Speaker 5 (05:17):
Right, Yes, we have. Across many of our machines. We
use AI to understand the variation in soil or crop
and have the machine learn over time to be able
to optimize itself real time in the field.
Speaker 6 (05:28):
It's amazing because when you think of AI. The last
thing I think most people think of is farm labor.
Speaker 2 (05:34):
Do you think of machines though, I think a machine.
Speaker 6 (05:37):
Well, Eric made a great point and I wanted to
ask about this. Is right at the beginning, you said
that technology aspect of your business is so important, and again,
if you're not really familiar with ACO, you might.
Speaker 4 (05:47):
Not think about that.
Speaker 6 (05:48):
But one thing I wanted to ask about, Eric, and
full disclosure, I'm not an expert on tractors. In fact,
I hire a kid to cut my own grass, so I'm.
Speaker 2 (05:57):
Really I've driven a tract, this big one.
Speaker 4 (06:00):
There we go.
Speaker 6 (06:01):
So I'm coming at this from a pure ignorance state
of mind. But I would think that self driving technology
would be easier to implement on the farm with a tractor.
But from my understanding is it's not really I wonder
if you could talk to us a little about where
you are with that type of technology. You know what
(06:23):
we see it anytime soon? Or is it just, for
whatever reason, too complicated to have self driving tractors.
Speaker 4 (06:31):
It's a great topic. It's at the heart of our strategy.
Speaker 5 (06:35):
Is putting technology on machines to have the machine be
smarter and be able to do more things for the customer.
I talked about the sprayer. We're automating all our functions
on all of our machines. We've increased our engineering spend
by sixty percent over the last three or four years
since we started a strategy.
Speaker 4 (06:49):
We've bought six tech companies.
Speaker 5 (06:51):
We just announced the biggest AGG tech deal in history
with Trimble agg where is over a two billion dollar
deal to bring those to their technology and our technology together.
So technology is a big deal. Now let's talk about
the autonomy question. Already, guidance, which Trimble is is one
of the world leaders in is used by farmers once
(07:11):
they get into the field. They get into the field
and they already turn on auto steer, which is a
satellite driven guidance, tip the steering wheel out of the
way and the machine steers for itself. Now it's still
supervised today, but most large AGG has is.
Speaker 4 (07:25):
The machine is doing the steering for itself.
Speaker 5 (07:28):
We've committed when we were in Wall Street last week
last year, we committed that by the end of the decades,
so twenty thirty, we would have the full crop cycle,
meaning planting, spring, tractors, harvesting, all autonomous with no driver
in them, and by twenty twenty five we'd have a
retrofit kit that would be able to be put on
(07:48):
an existing machine to make it autonomous.
Speaker 4 (07:51):
So it's a more contained environment.
Speaker 5 (07:53):
There's not so much other traffic and other things in
the way, and you can stop. You don't have a
lot of other traffic around, so you can if there's
runs into a situation hasn't seen before, the machine will
just failsafe mode is stop and then you can remotely
view into it and restart it.
Speaker 2 (08:08):
It's like about right, there's lots of move there's a
lot of space around you. Autopilots work really really well. Hey,
in twenty twenty four, what do we expect for your company?
Do you see higher prices due to inflation continuing And
just got about forty seconds.
Speaker 4 (08:22):
Yeah, yeah, prices are going to moderate.
Speaker 5 (08:24):
You know, these last couple of years, we put a
lot of pricing into the market, more than our a
little bit more than our cost.
Speaker 4 (08:30):
We expect to still put more.
Speaker 5 (08:31):
Than our cost into the market because of all this
technology we're bringing in the value it generates. But inflation
is coming down pretty significantly for us, and so we
think it'll be much more normalized. You know, we haven't
given guidance, but it'll be more in the mid to
low single digits than where we've been before.
Speaker 2 (08:48):
Any any kind of peak ten seconds in terms of
the ag machinery market, do you see any kind of
peeking out just very quickly.
Speaker 5 (08:55):
Well, we've still got strong demand going into next year.
Our order boards are out six or seven months on
large egg. We're sold out for our seasonal products. We're
all through Mighty Year twenty four, so we still see
twenty four as a good year, although getting more normalized.
Speaker 2 (09:08):
All right, love it, listen, come back soon, so appreciate it.
Eric Hansodia He is chairman, president CEO at AGCO on
zoom from Duluth, Georgia, So appreciate your time.
Speaker 1 (09:17):
On this Wednesday, you're listening to the Bloomberg Business Week podcast.
Catch us live weekday afternoons from three to six Eastern
Listen on Bloomberg dot com, the iHeartRadio app and the
Bloomberg Business app, or watch us live on YouTube.
Speaker 2 (09:33):
All right, we're going to switch gears a little bit
off of earnings. Talk about the skim. It's a non
partisan digital media company catering to women. It's a subscription
newsletter company to offer up things like the daily Skim
Skim Money. There's also a podcast and a lot more
in terms of what they do the privately held company.
Their investors include GV which was formerly Google Ventures. Also Disney.
(09:53):
We just heard Denise talk about Disney when it comes
to the Hulu ownership. Ventures is another investor in the company.
We talked with both of the founders back in March,
and great to have back with us this time around.
The Skim co founder Danielle Weisberg. She's on Zoom in
New York City. Danielle, how are you.
Speaker 7 (10:11):
I'm good, Thanks so much for having me here today.
Speaker 2 (10:13):
Before we get into some specifics, I always like to
talk perspective. You guys have been around for more than
a decade. It's been a few months, about six months
or so since we last talked. Talk to us about,
you know, how business is doing this year, and just
talk to us about how you see the environment right now.
Speaker 8 (10:32):
Yeah, So you know, listen, you guys are in this
day in and day out in terms of public companies,
and I think that when it comes to this environment,
we know ADS spending has been really up and down.
Speaker 7 (10:44):
It's been tenuous.
Speaker 8 (10:45):
I think that when those budgets flex, the biggest thing
that you can rely on is a direct relationship with
a sought after customer. And at the Skim we have
been representing millions of win women for over a decade.
Our audience is the people that you want to reach
(11:05):
and that you need to reach. They are the ones
that are making ninety five percent of household purchasing and
spending decisions. So while the overall media landscape continues to
have challenges, we've certainly felt that, but at the Skim,
what we come back to again and again is what
you can't duplicate and what you can't just start overnight,
(11:26):
which is a real direct relationship with a group of
women who look for look for us every single day.
Speaker 2 (11:35):
How big is that group? Just remind us in terms of.
Speaker 7 (11:38):
Your reaction base over twelve million women.
Speaker 6 (11:41):
Wow, that's a lot.
Speaker 2 (11:43):
That is a lot. Are you just remind me to
only subscription based or no, there's ad dollars that comes in.
Speaker 7 (11:50):
No, we have a differentiated revenue model.
Speaker 8 (11:53):
So we have sponsorship, we have subscription, and actually our
fastest growing line of revenue has been commerce.
Speaker 6 (12:00):
Danielle, at the Skin, you have a very interesting initiative
going on called show us your Childcare, Talk to us
a little bit about what that is, what the goal.
Speaker 4 (12:09):
Of that is.
Speaker 8 (12:10):
Yeah, so it's a good day to talk about it
because there was I don't know if you guys saw this,
but there was a report today where we were finally
able to look at data in comparison to childcare costs
in twenty nineteen. So the price of childcare is up
thirty two percent. That means that many families can't afford
to both work, and that price search outpaysd overall inflation.
(12:34):
I mean, when you look back this year, how much
time have we spent reporting on inflation and thinking about
what that is doing to families and the decisions that
they're having to make, and think about then what it
means to say childcare costs are going beyond that. And
again this isn't new. This child share share childcare crisis
(12:55):
has been in existence for years and the pandemic only
made that worse. And in fact, the only time that
there has been an investment the US has ever made
a sizable investment in childcare was during the pandemic. And
when that pandemic era funding expired, which it did, there
(13:16):
were no.
Speaker 7 (13:16):
Other solutions offered.
Speaker 8 (13:17):
So it's leaving about three point two million children and
their families without childcare options, and that is absolutely just unacceptable.
We have an economy that more and more relies on parents,
both of them to work, and to do that, you
need to make sure that your kids have proper care.
Speaker 2 (13:38):
Right Listen, you're preaching to the choir. Nobody's going to
like get. We totally agree. We talk so much here,
I feel like about the lack of affordable daycare or childcare,
if you will, for many, many millions of Americans. Other
countries seem to have figured it out. You guys, have
a partnership and talk to us a little bit about
it with moms first. You're partnering also with companies such
(13:59):
as Verizon, MasterCards, show Banni on this. Tell us what
specifically are you are doing to kind of impact this
problem or the situation.
Speaker 8 (14:10):
Yeah, So we launched hashtags show us your Childcare. And
this is the second real civic action campaign that we've
lost that we've launched.
Speaker 7 (14:18):
The first was hashtag show us Your Leave.
Speaker 8 (14:20):
And what we believe is really matching areas with there
is a disconnect for what the government is doing so. Again,
childcare has not been something that's been solved by Democrats
in leadership or Republicans, and so because of that, we
again have really needed the private sector to step up.
And I think that this is a time when there's
not one right way to know how to support your
(14:44):
business through a childcare cliff.
Speaker 2 (14:46):
But how best do you think the private sector can
do it? I think many would argue, yeah, maybe the
government doesn't need to be involved, that there are private
sectors that have definitely been very profitable and that as
a benefit, or to help out their workers to make
it easier, or in a tight labor force, bring more
workers in to actually provide childcare. So what are the
one or two things that can really make a difference here.
Speaker 8 (15:09):
Well, the first is use it to attract and retain talent.
So this is a big way to make your policies transparent.
Use our hashtag show us your childcare. And that's where
we've gotten over eighty companies such as Pinterest, Shobani, ww ets,
Verizon to make their policies transparent. And what that does
is it really virtue signals that you care about families
(15:32):
and that you are going to put your money.
Speaker 7 (15:34):
Where your mouth is.
Speaker 2 (15:35):
But what any of those companies actually do, That's what
I'm curious about. What do they do that actually helps
people with their childcare needs.
Speaker 8 (15:43):
Yeah, so it's everything from flexible work hours to cash
stipends to put towards childcare costs. One of the things
that we do at the SKIM is team up with
a partner VB to make sure that there's backup care options.
So we offer kind of a bank of credits those
days when you have normal childcare but you need a
(16:03):
plan B your childcare provider is closed or someone sick.
So it really runs the gamut to onsite childcare centers.
And again, you know, it's going to depend on the
size of your business how much you're able to invest.
But there are different things out there, and we want
to make sure that that's part of the conversation when
it comes to benefits.
Speaker 6 (16:22):
And I imagine there's a pretty good economic incentive for
some companies to get more engaged with childcare. Is that
a selling point of this initiative?
Speaker 2 (16:32):
And Daniel just got about twenty seconds.
Speaker 8 (16:34):
Yeah, I think it is, and I think overall as
a society, we should all make sure that we have
a growing workforce that we have nice things like social securities,
and to do that, we need to make sure that
women stay in the workforce. So I think overall there's
a benefit there, but there's also investing employees they'll stay longer.
Speaker 2 (16:52):
All Right, we got to run, Thank you so much,
A very timely issued something we've been talking about.
Speaker 9 (16:56):
Bloomberg.
Speaker 2 (16:57):
This give co founder Danielle Weisberg on zoom in New
York City. This is Bloomberg.
Speaker 1 (17:02):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from three to six Eastern on Bloomberg Radio,
the Bloomberg Business app, and YouTube. You can also listen
live on Amazon Alexa from our flagship New York station,
Just say Alexa playing Bloomberg eleven thirty.
Speaker 4 (17:29):
Yeah.
Speaker 2 (17:30):
One man's loss is another one's game. That is definitely cocky.
Attention of the hedge fund industry on this FED decision
day Wednesday, if you will, the US Treasury, you know,
trade is definitely on our minds, Mike. The funny thing
is it's been on our minds a lot this year,
amid big swings in the trade volatility in any given day,
we've seen tremendous swings.
Speaker 4 (17:49):
Yeah.
Speaker 6 (17:49):
Absolutely, and it's fascinating to see sort of new classes
of hedge funds get involved in the treasury market. You know,
there's certain macro funds that are always president there. But
whenever I see the name long tail Alpha, you know,
a tail risk catch fund, I know something's gone wrong
somewhere when these guys are actively involved in the trade.
So I think that's the case with the story.
Speaker 2 (18:10):
Well, let's get to it, because it's a story that
is reported out in the new issue of Bloomberg Business Week.
Let's get into what's going on, as I said in
the upcoming new issue on newsstands tomorrow, already online a
Bloomberg dot com slash business Week, and of course on
the Bloomberg terminal. So let's get to it. Bloomberg News
Chief correspondent for Global macro Markets, Liz McCormick is with us.
She is on zoom in New Jersey, and also with
(18:30):
us is Bloomberg News crossauset reporter Denisatsakova. She's here in
our Bloomberg Interactive Brokers studio. Guys, so great to have
you here with us. It is in BusinessWeek, the upcoming
new issue, which will be out on newsstands tomorrow. Denise,
let's start with you. I'm curious about the conversation in
the newsroom. Joel has a tendency they'll kind of walk
around the newsroom and like kind of poke people about stories.
(18:52):
How did this story come about? What was the conversation
or did you know one of you say like, you
should see what hedge fund guys are up to, So
tell us how this came to be.
Speaker 10 (19:00):
Yeah, so it came back to that theme. We've talked
a lot about price sensitive and price incentensitive buyers, so
we wanted to look into who are really those new buyers,
and hedgephone's a big part of it. And obviously, like
if you think of just generally trading treasuries and think
of it as the safest market and kind of a
little bit slower moving market compared to I don't know,
(19:21):
compared to equities, currencies, I don't know. So the conversation came,
how has the day of those people changed? And this
is what we ask them, So won't tail Alpha ven
year's day is very different?
Speaker 4 (19:36):
You know.
Speaker 10 (19:36):
The first anecdote is he wakes up every two hours
to check the prices, and you know, it's being there
on your Bloomberg terminal or whatever. You check your prices
all the time and following every little move and then
every small data release is very important and potentially it
can make you move things. And obviously, like some of
(19:57):
those traits have voice trades, sometimes you have to be
in the and look at all those releases together decide
where you have to make moves. And you can imagine
this is very different than I don't know, five years ago,
when the FED was such a big important buyer and
prices maybe weren't as sensitive to those things.
Speaker 6 (20:13):
Yeah, this is why I'm not a tail risk hedge fund.
Speaker 11 (20:16):
That that well, well, I want to bring listen to
this conversation, Liz, because we talk about the extreme volatility
that we see in the US bond market this year.
Speaker 2 (20:28):
So are they playing our hedge fund guys and gals,
if you will, playing a significant role in that volatility?
Speaker 4 (20:36):
Well?
Speaker 3 (20:36):
Yeah, right? Is it circular?
Speaker 1 (20:38):
Right?
Speaker 3 (20:38):
And they like the volatility, they come in, they create
more volatility, right, So it kind of feeds on itself
and then more it becomes and I have to do
a shout out. I know Tracy Alloway at some point
did a story treasury is trading like a meme stock,
so we have to book that one up. But that
it becomes like, you know, what was it? Oh, I
think Mike Reagan must have edited one of these stories
(20:59):
we did where there was other things that were like
the hot things that was crypto. And now look at
this treasuries even today, look at the yields across the curve.
It's like down, you know, over fifteen bases points. It's crazy.
So I think hedge fund's coming in because there's more
volatility and trading than that adds to it. But they
do kind of on the flip side say hey, we're
adding to the liquidity, we're you know, making markets. And
(21:21):
Deniza knows. Today we had the refunding today and they
had their barring committee, which the Treasury always does look
into different things. One of them was like the demand base,
and they brought up things that were in our story,
not that it was from our story, but that the
buying base has changed. You know, you have less commercial banks,
foreign central banks, you have more households and hedge funds
(21:41):
you know, involved in the treasury market. So it's kind
of interesting that they brought that up today.
Speaker 2 (21:46):
Mike did call it a meme stock by the way early.
Speaker 6 (21:48):
Yeah, I really wanted to take credit for that, but
of course Liz Tracy's way ahead of me as usual.
But Liz, you know, one of the sort of standard
bread and butter hedge fund trades when it comes to
the treasury market is something known as the basis trade,
which basically looks to profit between discrepancies in the price
of bond futures and the actual bonds trading in the
(22:09):
cash market. That seems to be kicking into high gear
this year, and there's a bit of a backlash to
that from the government and some scrutiny about what hedge
funds are doing. I know, it's created its own backlash
to the backlash, Ken Griffin coming out and saying, why
do they care about this? This is sort of an
innocuous trade that actually helps save taxpayers money in the
(22:32):
bond market. Walk us through the basis trade and why
there is scrutiny of it right now?
Speaker 3 (22:39):
Yeah, in fact, you're front running another story.
Speaker 10 (22:41):
I have covered.
Speaker 11 (22:42):
Helpful get it out.
Speaker 9 (22:44):
Before you do.
Speaker 3 (22:45):
But yeah, it's been interesting. Like you said, we've had
the FED, the BIS, A lot of regulators say hey,
we'll worry the side of the size of this basis
trade is gotten as jig as it was like in
March twenty twenty, and we know what happened then. But yeah,
normally this is kind of like you say, picking pennies
up under steamroller. You're shorting the futures, you're buying the cash.
If you take it to you know, to expiration of
(23:07):
the futures, they should converge and where they see some discrepancies,
some price discrepancies, that's why you'll do that trade. Where
the risk comes in is that most of that is
done using leverage, meaning using the repo market to finance
the treasury side. So you have the risk that's what
happened in like twenty nineteen, that repo rates go crazy
(23:28):
for whatever reason and you just can't keep funding this trade.
On the flip side when volatility picks up, as you
know in futures, you tend to get margin calls. It's
just part of the metrics. And so if you started
getting margin calls on the short side, so you know,
things can just go awry on both sides and all
of a sudden, you know you just can't keep in
(23:48):
this trade. Then there's a mass exit. That's the way
that there's a problem when everyone's running on the same way,
right and no one can get out. And remember Mike,
in twenty twenty, we had people saying, hey, I had
a good trade, I couldn't even get out of that
because there's just no liquidity, right.
Speaker 2 (24:02):
Well, that's what I wanted to ask. Don't we want
it to be a little bit of a sleepy market
that you know, foreign central banks and the Fed and
others you know, use and can count on to be
kind of trade a certain way. I mean, don't we
to some extent they need to care about the composition
of buyers or are we just glad that there are
buyers in this market.
Speaker 10 (24:21):
We do care about the composition for sure, and obviously,
like just to give perspective, So those big traditional buyers,
including the FED, commercial banks, foreign buyers used to count
for seventy five percent of the ownership of the treasury market.
That number now is fifty five percent. So this is
a very big drop. And speaking to different experts who've
(24:43):
been following this for a year, a lot of people
saying that in a case where there's a little like
a slightly bigger shock, probably there will be very sharp moves,
and the market is more fragile to those moves that
and it was in the past because obviously hedge funds
are a big part. They're very price sensitive, but mutual
are also growing fast, pension funds are growing fast. They're
(25:04):
not necessarily moving as fast as hedge funds obviously, but
are sensitive to macro events. So all those different participants
are a lot more likely to react on who knows
the next banking news or oil prices or any of
those little things.
Speaker 2 (25:22):
But hedge funds have always been a part of this market, right,
it is now there a bigger part we know, percentage wise.
Speaker 10 (25:27):
Yeah, they have tripled in the past year. So currently
they own two point three trillion, which is close to
ten percent of the treasury market.
Speaker 2 (25:36):
Which makes me wonder if he gets sleepy again, Mike,
do they just run in the other direction right to
make money?
Speaker 6 (25:41):
Yeah, and it makes me You know, the dirty word
in macroland is are you a tourist in this market?
Speaker 11 (25:46):
Yeah?
Speaker 6 (25:46):
Are you really a macro fund who's used to this
trade and knows what to do? Or are you taking
riskue you're an equity manager, you know. I've seen a
few headlines out this week Bill Ackman with shortening treasuries,
he's changed his mind. He's now covering that shere Stan,
Truck and Miller are a very wealth known hedge fund
(26:07):
manager used to work with George Sourez without saying he's
very bullish treasuries. So is that at least the tourist
sort of mentality. Does it seem like the consensus is
we've seen the peak and yields, it's now time to
back up the truck and start going along the treasury market?
Speaker 4 (26:22):
Do you think?
Speaker 10 (26:23):
I think the peak is for sure, very important, but
it's also very important that for a very long time
it was the direction of trouble was very sure. And
obviously like the Fed is likely to continue rowing off
its bounce sheet, so them being a smaller portion of
it guarantees more volatility, whether those traits are whether short
(26:45):
bonds will still be a successful trade. Obviously this is
this is going back to the debate where we've seen
the peak, but the fact that they're more say realty
value trades or or you know, basis traits or things
where you can exploit that volatility stace. No matter whether
we've reached dot peakids.
Speaker 2 (27:06):
I wonder too, Liz, come on back in. I mean
what you make for someoney who's also followed this, you
know for a long time in terms of the bond
market and treasury trade to see a greater role of
hedge funds. I do wonder, listen. They love volatility, right,
they want things to move. That's how you make money
and quickly for investors. But I do wonder does that potentially,
(27:27):
you know, or could it spell trouble? We always talk
about right, these changing rate environments, and you know, as
the tide goes out, like we get to see all
the problems and we you know, could it create some
kind of crisis many or otherwise in the future.
Speaker 3 (27:43):
Well, I have to say, and I wouldn't be doing
a good service. And maybe Treasury Department will still talk
to me if I do mention that. John Josh Frost,
to the Treasury Department Assistant Secretary for Financial Markets, said
publicly in a press conference. Listen, we still have a
very diverse buyer base. We're not lying on any one
type of investor or group of investors. So they're saying, hey,
(28:04):
we're doing fine. But to your point, Carol, I think
that is why regulators worry like they're zoning in on
leverage of things, but you don't want a massive positioning
and with one group of investors, who if they go
the other way, you just create this groundswell of movement
and they take everyone else out in the process. So
I think that's the risk when any trade gets too big,
(28:26):
especially when it's leveraged, that's a problem. But like I said,
Treasury saying, we're okay, we're looking at all this, but
we still have enough folks that want to buy our
stuff that we're not concerned. But like, who knows well
to see what happens for now?
Speaker 9 (28:39):
How?
Speaker 7 (28:39):
Yeah?
Speaker 6 (28:40):
Yeah, Well, let's I wonder you know that that expression
crowded trade comes to mind with a story like this.
I mean, is there enough diversity in sort of the
trades going on or is there a risk of crowding
in certain trades, especially you know when you look at
how the yield curve is really steepened pretty aggressively in
the last couple month, you know, is that potentially a
(29:01):
crowded trade or you know, are there any pockets of
crowded trades we should think about in this market right now?
Speaker 1 (29:09):
Well?
Speaker 3 (29:09):
I would say I think the biggest one is the basis,
even though some people argue there's reasons it's not as big,
But I keep saying, like Denisa says, it's this debate
have yields peaked and that I think people keep getting burned,
you know. I mean, we've seen a massive fall today,
but that yields have peaked, let me just load up,
bring up the truck and buy them, and then yields
(29:30):
go up again. And so I think that's where the
risk is that people are trying to just can't seem
to time this market right, you know. So that's creating
the extra volatility, not just from the hedge funds but
just regular macro funds, et cetera, thinking it's time now.
Maybe they're okay in the long run because this will
come back. But I think that's the risk that people
(29:50):
just can't seem to get a clarity for sure where
rates are going.
Speaker 2 (29:53):
Yeah, right, exactly. The crystal ball is really muddy right now, Deniza.
Just to bring it back to how you guys kick
off this story the founder of long Tail Alpha and
talking to him, does it feel like it's a trade
he plans to be in for a long time or
is it something he's like, Yeah, this is maybe a
one or two your thing or I don't know.
Speaker 10 (30:11):
Yeah, I think this is not including the story. But
he actually said that probably the best time for this
trade is yet to come. As cliche as that is,
but this is something we've also heard. We talked to people,
of course, I mean, what else could he say, But
we also talk to people like who are selling trading
algorithms and who very you know, have a very good
(30:32):
perception where the basis trade is growing, and they're saying
that in the past three months they've seen the most
demand they've seen for these type of things, and obviously
they have interest in saying that this will continue to
be strong. But this is this is a thing we're saying.
So for sure, there are numerous players in this space
that are saying that as long as there is uncertainty
(30:55):
of peakios, as long as the FED is rowing off
his bounce sheets, as long as we see that volatility, uh,
there may be more appetite for those things.
Speaker 2 (31:05):
Feels like we could see some more volatility, guys. Thank
you so much. Bloomberg News process that reporter Deniza Zakova
along with Bloomberg News, she correspondent for Global Macro Markets
Liz McCormick. This story in the new upcoming issue of Bloomberg
Business Week, on newstands tomorrow, already on the Bloomberg and
already online at Bloomberg dot Com.
Speaker 4 (31:23):
I'm brother Marco, the journal.
Speaker 3 (31:28):
Now about you.
Speaker 4 (31:29):
Let me drive?
Speaker 3 (31:30):
No no, no, no, please going to drive.
Speaker 4 (31:32):
Honey, please, I'll do the gravels.
Speaker 5 (31:35):
Let's wat I want to try it.
Speaker 4 (31:39):
It's good question that try.
Speaker 1 (31:44):
This is the drive to the clothes.
Speaker 4 (31:46):
Dot com tek we'll buy around fold it on.
Speaker 2 (31:49):
Bloomberg Radio and a very good afternoon, everybody. Welcome to
Bloomberg Business Week live in our Bloomberg Interactive Broker studio,
streaming on YouTube than Bloomberg Originals. It is a FED Wednesday,
as you've been listening on TV and across Bloomberg channels.
FED Wednesday, the first day of November, and the FED
holding rates at a twenty two year high for a
second straight meeting, and the FED Chief Jay Powell asking
(32:11):
should we be hiking more? Which I feel like sets
the tone. I'm Carol Masser. Tim Stanovec is off today
and with us as Bloomberg's Mike Reagan, and I do
feel like Mike. There was a lot of things where
they He kind of continued to remind us that inflation
is still elevated, and I feel like they might not
be done yet.
Speaker 6 (32:27):
Yeah, I mean, and I don't think he said anything
too new today really changed the outlook for interest rates
at all. But we do have this really wild rally
in the stock and the bond market right now, So
I wonder you know how much of that is sort
of people caught on the short end, short selling both
stocks and bonds before this and now having to cover.
(32:49):
I'm not one hundred percent convinced you can trust this
as sort of the markets interpretation.
Speaker 1 (32:54):
Of what he's saying.
Speaker 2 (32:55):
Right you think about how they were positioning ahead of
all of this and thinking it was going to be
a lot more negga.
Speaker 6 (33:00):
Yeah, and so often, you know, we see these reactions
in the market the day of a FED press conference
and then wake up the next morning and wait a minute.
Speaker 2 (33:09):
Everyone, wait twenty four hour cycle that hasn't happened before
this year. It's a really good point. But we are
seeing equities hold and it's pretty broad based buying. Let's
get back to the markets. It is a FED Wednesday.
Stocks are ralling. We've seen yields back off, and lucky
for us on our drive to the close on this
FED Wednesday is Amanda Gotti. She's chief investment officer at
P and C Asset Management, joining us once again out
(33:31):
there on zoom in Philadelphia. Amanda, there's a rally underway
in stocks. Yields have backed off. I think Mike makes
a great point that maybe some investors were caught off
guard expecting a much more negative tone or negative description
statement whatever from the Federal Reserve. Do you discount the
trade today?
Speaker 4 (33:51):
Oh?
Speaker 9 (33:51):
Absolutely, I discount the trade. I mean, there's no question
that sentiment has been pretty lousy in the last you know,
four to six weeks. Yields of move rapidly higher. We
think very crowded positioning at one end. So there's a
scurrying around that's happening here into the close today to reposition.
But I'm not sure that we learned a lot of
new information. I mean, I think it's hard for me
(34:13):
to say that Powell had his hawk costume on for Halloween.
Maybe it was a little bit lighter of a tone
than he has been recently. But the door is still
very much open for additional tighter policy from here. So
we think this rally is going to be short lived.
Speaker 6 (34:29):
And I know you're in Philadelphia, and I think we
should make a deal not to discuss the Phillies at all.
Speaker 4 (34:33):
During this interview.
Speaker 9 (34:35):
Thank you, I appreciate that.
Speaker 6 (34:36):
Yeah, yeah, me too.
Speaker 2 (34:37):
But I wonder, as October, for all the wrong reasons,
I was in a hotel with the Arizona team when
they lost. Uh yeah, am I wrong?
Speaker 6 (34:48):
Well they lost, they lost a few games in Philly,
but they ended up winning the series. Hey, we're not
going to talk about it, Carol.
Speaker 2 (34:53):
All right, Okay, still too soon.
Speaker 6 (35:01):
Now, I mean, you know, we're going to talk later
in the show about sort of this wild year of
volatility in the bond market. And I wonder, just as
a professional in these markets, what's it like coming in
every day and seeing these wild moves in the treasury market,
you know, this market we were so accustomed to being
quiet and sort of boring, you know, And what do
(35:24):
you think is needed to calm it down?
Speaker 9 (35:27):
Well, it's a great question. It's almost an unanswerable one
at the moment here. I think as investors we've been
conditioned to a hashtag high volatility regime for quite some
time now. I mean, think about the last three years
of unprecedented challenges and return negative returns in the bond market,
so we're starting to get conditioned to this. But I
(35:49):
think at the end of the day, it's all a
function of this unprecedented policy accommodation that came in at
the onset of the pandemic and now this unprecedented unwinding.
At the end of the day, it's just going to
take a lot longer. I keep saying longer for longer.
It's not higher for longer, it's longer for longer. Everything
about this is just going to take longer to normalize
(36:10):
than what investors would like.
Speaker 2 (36:12):
And I think it's, you know, again, kind of just
hammering the same thing that I feel like Mike and
I kind of agree in terms of what we got
from Japwell, the risks of doing too little. They're worried
about that, even though he's stressed right out of the gate,
we've got a dual mandate and that eventually maybe some
of this will start to work its way into the
labor side of the equation. The risks of doing too
little is certainly I feel like top of mind.
Speaker 9 (36:33):
For him, absolutely, and we agree with that that's why
we continue to think that the door is potentially open
for some tighter policy ahead. I think the key question
is whether the market has done the Fed's job for
it or not. And he even acknowledged that a little
bit that with the I.
Speaker 2 (36:50):
Think the market has done enough of the job for
the FED at this point.
Speaker 9 (36:55):
I think it's done enough at the moment. I mean,
think about the you know, one hundred bases points that
we've seen a move here in the longer term portion
of the curve. It's been a very violent move, no
matter how you slice and dice it. And so I
think for now we're definitely in sufficiently restrictive territory. But
there's still plenty of ammo from an economic data perspective
(37:17):
to go further here. Economic growth continues to come in
pretty strong. Ism report today gave a very polar opposite
story here, but US consumer is still very strong, inflation
not to the long term target, So I think there
is room. I think we just need to, as Pale said,
let some of the lagged effects of this policy work
its way through here. But we are definitely in restrictive
(37:40):
territory for sure. Yo.
Speaker 6 (37:42):
I meta one of the themes this year is the
yield curve, you know, the difference between yields on shorter
term debt and longer term debt. And we've been living
with this inverted curve for a long time where the
shorter maturity debt is yielding more than the longer maturity debt.
We have seen this very aggressive steepening in the last
(38:03):
few months, and you had a really interesting point in
your note to us talking about that steepening of the curve,
and it's a very unique thing that's happening, this bear
steepening of the curve while it's inverted. What's the takeaway
from that, Well, I.
Speaker 9 (38:21):
Think it's an interesting dynamic because we of course have
this inverted yield curve, it's been consistently inverted for the
better part of a year plus, but we're also having
this bear steepening phenomenon. And usually when you see that
start to come into the equation, it's like, oh, here's
the signal for something's going to crack in the backdrop.
(38:42):
But it's actually only happened once in the last fifty
years where we've had both of these dynamics in play
that you don't usually see them together, and so the
one time that we have in history was right before
the nineteen sixty nine nineteen seventy recession began. And so
one data point does not make a trend. It's not
a perfect guide or predictor for what's to come next.
(39:03):
But we do think the net effect is just a
lot of pressure on high valuation stocks and the long
end of the curve too.
Speaker 2 (39:09):
All right, we've got to run. Hey, listen, Amanda, Thank
you so much, so appreciate. Amanda A. Gotti of URPNC.
Speaker 4 (39:14):
This is the.
Speaker 1 (39:15):
Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere
else you get your podcast. Listen live weekday afternoons from
three to six Eastern on Bloomberg dot com, the iHeartRadio app,
tune In, and the Bloomberg Business App. You can also
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the Bloomberg journalone
This is Bloomberg Business. Wait inside from the reporters and
editors who bring you America's most trusted business magazine, plus
global business, finance and tech news. The Bloomberg Business Week
Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2 (00:20):
Well shares at Adco. Check it out, everybody, They're up
our third day, They're at more than six percent in
that time. Company reported earnings yesterday morning, of which third
quarter just at EPs was a big beat. Third quarter
net sales in line with expectations, and the maker of
tractors and combines also said it still sees fiscal year
net sales of about fourteen point seven billion, slightly above
street estimates, with fiscal year just ADPs of about fifteen
(00:42):
dollars seventy five cents a share. That's fifty cents above
the company's earlier forecasts. Three analysts nonetheless cutting their price
targets on the company by an average of three and
a half percent since it reported yesterday. So let's get
to it. We have a great guest. We have the CEO, Chairman,
President and CEO at ADCO, Eric Hansotea. Excuse me, Eric Hensotia,
He's on zoom from Duluth, Georgia, and he joins, us,
(01:04):
forgive me, forgive me. I'm trying to race to get
to you. So I apologize.
Speaker 3 (01:08):
Eric.
Speaker 4 (01:09):
Oh you good, no problem, Really.
Speaker 2 (01:10):
Great to have you here with us. First of all,
how are you? And I do have to ask you
about the FED? In an environment where the FED says,
you know, we could still continue raising rates, we're still
worried about inflation. Does that kind of mesh with the
outlook that you see?
Speaker 4 (01:26):
Well, your first question was how am I doing great?
Speaker 5 (01:29):
Just couldn't be happier with the progress that our company
is having relative to our strategy. We're going to have
two billion more in sales this year, We're going to
grow margins significantly relative to the and it's all in
line with our high tech focus on being the industry
leader and smart farming machines relatively to the FED. You know,
interest rates do weigh on farmers' minds. These are big
(01:53):
as they carry a lot of technology. They're expensive machines,
many times half a million to a million dollars, and
so they often finance those machines, and higher.
Speaker 4 (02:01):
Interest rates are part of the part of the decision.
Speaker 5 (02:05):
I'm expecting that we're you know, at a high plateau
and that we're more likely over the coming year to
have red rates go down then up, and that would
be welcomed by our customers, you.
Speaker 6 (02:17):
Know, Eric, I'm looking at the revenue growth of ag
CO over the years and really some impressive growth there.
Twenty twenty one is up, twenty two, twenty twenty two
up fourteen percent, sixteen percent. This year, it does, at
least according to analyst estimates, look like you might be
in for a dip in revenue last year. And I'm
wondering what's the what's driving that? Is that entirely an
(02:39):
interest rate story or is there is there something else
going on?
Speaker 4 (02:43):
It's actually very little related to interest rates.
Speaker 5 (02:46):
Agriculture often is not connected, not correlated highly with the
regular GDP growth. It's more tied to the agricultural agricultural economy.
So the price of corn, wheat, soybeans, and that's a
function of how much green there is in the world.
Speaker 4 (03:03):
For the last two or three years.
Speaker 5 (03:05):
There's been green shortages and so green prices have been high.
Speaker 4 (03:08):
That means more profit for our farmers.
Speaker 5 (03:11):
Now they've had a great year this year in terms
of harvest and so there's a little bit more stock
prices have come down a bit, and that's really more
what drives farmer profitability and then turn their interest to
purchase equipment.
Speaker 2 (03:24):
Hey, Eric, what I wonder is longer term how you
guys think about the business, how you plan, because I
wonder if things like weather, climate change, demographics globally, is
that more significant in terms of how you think about
the growth longer term? And if so, what does that
maybe indicate to you.
Speaker 4 (03:41):
Yeah, that's a great point, Carol.
Speaker 5 (03:43):
So we see three macro tailwinds plus this weather factor.
So let me touch those real quickly. Number One, we're
moving from eight billion people to ten billion people between
now and twenty fifty. Number two, emerging economies are adding
more meat to their diet as they do that. That's
a multiplier on the demand for green chicken is a
(04:05):
two to one multiplier, beef is a ten to one multiplier.
And then third is renewable fuels, so ethanol in the
United States. But now the next one is renewable diesel.
Ethanol consumes forty percent of the corn crop today. Renewable
diesel is likely going to grow to that same kind
of proportion over the next few years.
Speaker 4 (04:24):
Those are all macro tailwinds that.
Speaker 5 (04:29):
Cause the farmer to have higher yields and more pressure
on higher yields.
Speaker 4 (04:33):
And then weather is another one.
Speaker 5 (04:35):
We're having more severe droughts and more severe floods every
year that reduces the overall global global.
Speaker 4 (04:42):
Ability to produce cream.
Speaker 5 (04:44):
So you add those four factors together and the farmers
are pushed to have higher yields while using less inputs,
less fertilizer, pesticide, chemicals and things like that, and.
Speaker 4 (04:53):
So there's a big squeeze for productivity.
Speaker 5 (04:56):
Using our technology, we're using artificial intelligence on our now
to be able to use vision systems so identify the
difference between a weed and a plant as a machine's
going through the field and spray only the weed, saving
like seventy percent of the chemical and a lot of
automation of features throughout all.
Speaker 4 (05:13):
Of our products.
Speaker 2 (05:14):
Can you say, I'm assuming you've been using AI for
a long time though.
Speaker 5 (05:17):
Right, Yes, we have. Across many of our machines. We
use AI to understand the variation in soil or crop
and have the machine learn over time to be able
to optimize itself real time in the field.
Speaker 6 (05:28):
It's amazing because when you think of AI. The last
thing I think most people think of is farm labor.
Speaker 2 (05:34):
Do you think of machines though, I think a machine.
Speaker 6 (05:37):
Well, Eric made a great point and I wanted to
ask about this. Is right at the beginning, you said
that technology aspect of your business is so important, and again,
if you're not really familiar with ACO, you might.
Speaker 4 (05:47):
Not think about that.
Speaker 6 (05:48):
But one thing I wanted to ask about, Eric, and
full disclosure, I'm not an expert on tractors. In fact,
I hire a kid to cut my own grass, so I'm.
Speaker 2 (05:57):
Really I've driven a tract, this big one.
Speaker 4 (06:00):
There we go.
Speaker 6 (06:01):
So I'm coming at this from a pure ignorance state
of mind. But I would think that self driving technology
would be easier to implement on the farm with a tractor.
But from my understanding is it's not really I wonder
if you could talk to us a little about where
you are with that type of technology. You know what
(06:23):
we see it anytime soon? Or is it just, for
whatever reason, too complicated to have self driving tractors.
Speaker 4 (06:31):
It's a great topic. It's at the heart of our strategy.
Speaker 5 (06:35):
Is putting technology on machines to have the machine be
smarter and be able to do more things for the customer.
I talked about the sprayer. We're automating all our functions
on all of our machines. We've increased our engineering spend
by sixty percent over the last three or four years
since we started a strategy.
Speaker 4 (06:49):
We've bought six tech companies.
Speaker 5 (06:51):
We just announced the biggest AGG tech deal in history
with Trimble agg where is over a two billion dollar
deal to bring those to their technology and our technology together.
So technology is a big deal. Now let's talk about
the autonomy question. Already, guidance, which Trimble is is one
of the world leaders in is used by farmers once
(07:11):
they get into the field. They get into the field
and they already turn on auto steer, which is a
satellite driven guidance, tip the steering wheel out of the
way and the machine steers for itself. Now it's still
supervised today, but most large AGG has is.
Speaker 4 (07:25):
The machine is doing the steering for itself.
Speaker 5 (07:28):
We've committed when we were in Wall Street last week
last year, we committed that by the end of the decades,
so twenty thirty, we would have the full crop cycle,
meaning planting, spring, tractors, harvesting, all autonomous with no driver
in them, and by twenty twenty five we'd have a
retrofit kit that would be able to be put on
(07:48):
an existing machine to make it autonomous.
Speaker 4 (07:51):
So it's a more contained environment.
Speaker 5 (07:53):
There's not so much other traffic and other things in
the way, and you can stop. You don't have a
lot of other traffic around, so you can if there's
runs into a situation hasn't seen before, the machine will
just failsafe mode is stop and then you can remotely
view into it and restart it.
Speaker 2 (08:08):
It's like about right, there's lots of move there's a
lot of space around you. Autopilots work really really well. Hey,
in twenty twenty four, what do we expect for your company?
Do you see higher prices due to inflation continuing And
just got about forty seconds.
Speaker 4 (08:22):
Yeah, yeah, prices are going to moderate.
Speaker 5 (08:24):
You know, these last couple of years, we put a
lot of pricing into the market, more than our a
little bit more than our cost.
Speaker 4 (08:30):
We expect to still put more.
Speaker 5 (08:31):
Than our cost into the market because of all this
technology we're bringing in the value it generates. But inflation
is coming down pretty significantly for us, and so we
think it'll be much more normalized. You know, we haven't
given guidance, but it'll be more in the mid to
low single digits than where we've been before.
Speaker 2 (08:48):
Any any kind of peak ten seconds in terms of
the ag machinery market, do you see any kind of
peeking out just very quickly.
Speaker 5 (08:55):
Well, we've still got strong demand going into next year.
Our order boards are out six or seven months on
large egg. We're sold out for our seasonal products. We're
all through Mighty Year twenty four, so we still see
twenty four as a good year, although getting more normalized.
Speaker 2 (09:08):
All right, love it, listen, come back soon, so appreciate it.
Eric Hansodia He is chairman, president CEO at AGCO on
zoom from Duluth, Georgia, So appreciate your time.
Speaker 1 (09:17):
On this Wednesday, you're listening to the Bloomberg Business Week podcast.
Catch us live weekday afternoons from three to six Eastern
Listen on Bloomberg dot com, the iHeartRadio app and the
Bloomberg Business app, or watch us live on YouTube.
Speaker 2 (09:33):
All right, we're going to switch gears a little bit
off of earnings. Talk about the skim. It's a non
partisan digital media company catering to women. It's a subscription
newsletter company to offer up things like the daily Skim
Skim Money. There's also a podcast and a lot more
in terms of what they do the privately held company.
Their investors include GV which was formerly Google Ventures. Also Disney.
(09:53):
We just heard Denise talk about Disney when it comes
to the Hulu ownership. Ventures is another investor in the company.
We talked with both of the founders back in March,
and great to have back with us this time around.
The Skim co founder Danielle Weisberg. She's on Zoom in
New York City. Danielle, how are you.
Speaker 7 (10:11):
I'm good, Thanks so much for having me here today.
Speaker 2 (10:13):
Before we get into some specifics, I always like to
talk perspective. You guys have been around for more than
a decade. It's been a few months, about six months
or so since we last talked. Talk to us about,
you know, how business is doing this year, and just
talk to us about how you see the environment right now.
Speaker 8 (10:32):
Yeah, So you know, listen, you guys are in this
day in and day out in terms of public companies,
and I think that when it comes to this environment,
we know ADS spending has been really up and down.
Speaker 7 (10:44):
It's been tenuous.
Speaker 8 (10:45):
I think that when those budgets flex, the biggest thing
that you can rely on is a direct relationship with
a sought after customer. And at the Skim we have
been representing millions of win women for over a decade.
Our audience is the people that you want to reach
(11:05):
and that you need to reach. They are the ones
that are making ninety five percent of household purchasing and
spending decisions. So while the overall media landscape continues to
have challenges, we've certainly felt that, but at the Skim,
what we come back to again and again is what
you can't duplicate and what you can't just start overnight,
(11:26):
which is a real direct relationship with a group of
women who look for look for us every single day.
Speaker 2 (11:35):
How big is that group? Just remind us in terms of.
Speaker 7 (11:38):
Your reaction base over twelve million women.
Speaker 6 (11:41):
Wow, that's a lot.
Speaker 2 (11:43):
That is a lot. Are you just remind me to
only subscription based or no, there's ad dollars that comes in.
Speaker 7 (11:50):
No, we have a differentiated revenue model.
Speaker 8 (11:53):
So we have sponsorship, we have subscription, and actually our
fastest growing line of revenue has been commerce.
Speaker 6 (12:00):
Danielle, at the Skin, you have a very interesting initiative
going on called show us your Childcare, Talk to us
a little bit about what that is, what the goal.
Speaker 4 (12:09):
Of that is.
Speaker 8 (12:10):
Yeah, so it's a good day to talk about it
because there was I don't know if you guys saw this,
but there was a report today where we were finally
able to look at data in comparison to childcare costs
in twenty nineteen. So the price of childcare is up
thirty two percent. That means that many families can't afford
to both work, and that price search outpaysd overall inflation.
(12:34):
I mean, when you look back this year, how much
time have we spent reporting on inflation and thinking about
what that is doing to families and the decisions that
they're having to make, and think about then what it
means to say childcare costs are going beyond that. And
again this isn't new. This child share share childcare crisis
(12:55):
has been in existence for years and the pandemic only
made that worse. And in fact, the only time that
there has been an investment the US has ever made
a sizable investment in childcare was during the pandemic. And
when that pandemic era funding expired, which it did, there
(13:16):
were no.
Speaker 7 (13:16):
Other solutions offered.
Speaker 8 (13:17):
So it's leaving about three point two million children and
their families without childcare options, and that is absolutely just unacceptable.
We have an economy that more and more relies on parents,
both of them to work, and to do that, you
need to make sure that your kids have proper care.
Speaker 2 (13:38):
Right Listen, you're preaching to the choir. Nobody's going to
like get. We totally agree. We talk so much here,
I feel like about the lack of affordable daycare or childcare,
if you will, for many, many millions of Americans. Other
countries seem to have figured it out. You guys, have
a partnership and talk to us a little bit about
it with moms first. You're partnering also with companies such
(13:59):
as Verizon, MasterCards, show Banni on this. Tell us what
specifically are you are doing to kind of impact this
problem or the situation.
Speaker 8 (14:10):
Yeah, So we launched hashtags show us your Childcare. And
this is the second real civic action campaign that we've
lost that we've launched.
Speaker 7 (14:18):
The first was hashtag show us Your Leave.
Speaker 8 (14:20):
And what we believe is really matching areas with there
is a disconnect for what the government is doing so. Again,
childcare has not been something that's been solved by Democrats
in leadership or Republicans, and so because of that, we
again have really needed the private sector to step up.
And I think that this is a time when there's
not one right way to know how to support your
(14:44):
business through a childcare cliff.
Speaker 2 (14:46):
But how best do you think the private sector can
do it? I think many would argue, yeah, maybe the
government doesn't need to be involved, that there are private
sectors that have definitely been very profitable and that as
a benefit, or to help out their workers to make
it easier, or in a tight labor force, bring more
workers in to actually provide childcare. So what are the
one or two things that can really make a difference here.
Speaker 8 (15:09):
Well, the first is use it to attract and retain talent.
So this is a big way to make your policies transparent.
Use our hashtag show us your childcare. And that's where
we've gotten over eighty companies such as Pinterest, Shobani, ww ets,
Verizon to make their policies transparent. And what that does
is it really virtue signals that you care about families
(15:32):
and that you are going to put your money.
Speaker 7 (15:34):
Where your mouth is.
Speaker 2 (15:35):
But what any of those companies actually do, That's what
I'm curious about. What do they do that actually helps
people with their childcare needs.
Speaker 8 (15:43):
Yeah, so it's everything from flexible work hours to cash
stipends to put towards childcare costs. One of the things
that we do at the SKIM is team up with
a partner VB to make sure that there's backup care options.
So we offer kind of a bank of credits those
days when you have normal childcare but you need a
(16:03):
plan B your childcare provider is closed or someone sick.
So it really runs the gamut to onsite childcare centers.
And again, you know, it's going to depend on the
size of your business how much you're able to invest.
But there are different things out there, and we want
to make sure that that's part of the conversation when
it comes to benefits.
Speaker 6 (16:22):
And I imagine there's a pretty good economic incentive for
some companies to get more engaged with childcare. Is that
a selling point of this initiative?
Speaker 2 (16:32):
And Daniel just got about twenty seconds.
Speaker 8 (16:34):
Yeah, I think it is, and I think overall as
a society, we should all make sure that we have
a growing workforce that we have nice things like social securities,
and to do that, we need to make sure that
women stay in the workforce. So I think overall there's
a benefit there, but there's also investing employees they'll stay longer.
Speaker 2 (16:52):
All Right, we got to run, Thank you so much,
A very timely issued something we've been talking about.
Speaker 9 (16:56):
Bloomberg.
Speaker 2 (16:57):
This give co founder Danielle Weisberg on zoom in New
York City. This is Bloomberg.
Speaker 1 (17:02):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from three to six Eastern on Bloomberg Radio,
the Bloomberg Business app, and YouTube. You can also listen
live on Amazon Alexa from our flagship New York station,
Just say Alexa playing Bloomberg eleven thirty.
Speaker 4 (17:29):
Yeah.
Speaker 2 (17:30):
One man's loss is another one's game. That is definitely cocky.
Attention of the hedge fund industry on this FED decision
day Wednesday, if you will, the US Treasury, you know,
trade is definitely on our minds, Mike. The funny thing
is it's been on our minds a lot this year,
amid big swings in the trade volatility in any given day,
we've seen tremendous swings.
Speaker 4 (17:49):
Yeah.
Speaker 6 (17:49):
Absolutely, and it's fascinating to see sort of new classes
of hedge funds get involved in the treasury market. You know,
there's certain macro funds that are always president there. But
whenever I see the name long tail Alpha, you know,
a tail risk catch fund, I know something's gone wrong
somewhere when these guys are actively involved in the trade.
So I think that's the case with the story.
Speaker 2 (18:10):
Well, let's get to it, because it's a story that
is reported out in the new issue of Bloomberg Business Week.
Let's get into what's going on, as I said in
the upcoming new issue on newsstands tomorrow, already online a
Bloomberg dot com slash business Week, and of course on
the Bloomberg terminal. So let's get to it. Bloomberg News
Chief correspondent for Global macro Markets, Liz McCormick is with us.
She is on zoom in New Jersey, and also with
(18:30):
us is Bloomberg News crossauset reporter Denisatsakova. She's here in
our Bloomberg Interactive Brokers studio. Guys, so great to have
you here with us. It is in BusinessWeek, the upcoming
new issue, which will be out on newsstands tomorrow. Denise,
let's start with you. I'm curious about the conversation in
the newsroom. Joel has a tendency they'll kind of walk
around the newsroom and like kind of poke people about stories.
(18:52):
How did this story come about? What was the conversation
or did you know one of you say like, you
should see what hedge fund guys are up to, So
tell us how this came to be.
Speaker 10 (19:00):
Yeah, so it came back to that theme. We've talked
a lot about price sensitive and price incentensitive buyers, so
we wanted to look into who are really those new buyers,
and hedgephone's a big part of it. And obviously, like
if you think of just generally trading treasuries and think
of it as the safest market and kind of a
little bit slower moving market compared to I don't know,
(19:21):
compared to equities, currencies, I don't know. So the conversation came,
how has the day of those people changed? And this
is what we ask them, So won't tail Alpha ven
year's day is very different?
Speaker 4 (19:36):
You know.
Speaker 10 (19:36):
The first anecdote is he wakes up every two hours
to check the prices, and you know, it's being there
on your Bloomberg terminal or whatever. You check your prices
all the time and following every little move and then
every small data release is very important and potentially it
can make you move things. And obviously, like some of
(19:57):
those traits have voice trades, sometimes you have to be
in the and look at all those releases together decide
where you have to make moves. And you can imagine
this is very different than I don't know, five years ago,
when the FED was such a big important buyer and
prices maybe weren't as sensitive to those things.
Speaker 6 (20:13):
Yeah, this is why I'm not a tail risk hedge fund.
Speaker 11 (20:16):
That that well, well, I want to bring listen to
this conversation, Liz, because we talk about the extreme volatility
that we see in the US bond market this year.
Speaker 2 (20:28):
So are they playing our hedge fund guys and gals,
if you will, playing a significant role in that volatility?
Speaker 4 (20:36):
Well?
Speaker 3 (20:36):
Yeah, right? Is it circular?
Speaker 1 (20:38):
Right?
Speaker 3 (20:38):
And they like the volatility, they come in, they create
more volatility, right, So it kind of feeds on itself
and then more it becomes and I have to do
a shout out. I know Tracy Alloway at some point
did a story treasury is trading like a meme stock,
so we have to book that one up. But that
it becomes like, you know, what was it? Oh, I
think Mike Reagan must have edited one of these stories
(20:59):
we did where there was other things that were like
the hot things that was crypto. And now look at
this treasuries even today, look at the yields across the curve.
It's like down, you know, over fifteen bases points. It's crazy.
So I think hedge fund's coming in because there's more
volatility and trading than that adds to it. But they
do kind of on the flip side say hey, we're
adding to the liquidity, we're you know, making markets. And
(21:21):
Deniza knows. Today we had the refunding today and they
had their barring committee, which the Treasury always does look
into different things. One of them was like the demand base,
and they brought up things that were in our story,
not that it was from our story, but that the
buying base has changed. You know, you have less commercial banks,
foreign central banks, you have more households and hedge funds
(21:41):
you know, involved in the treasury market. So it's kind
of interesting that they brought that up today.
Speaker 2 (21:46):
Mike did call it a meme stock by the way early.
Speaker 6 (21:48):
Yeah, I really wanted to take credit for that, but
of course Liz Tracy's way ahead of me as usual.
But Liz, you know, one of the sort of standard
bread and butter hedge fund trades when it comes to
the treasury market is something known as the basis trade,
which basically looks to profit between discrepancies in the price
of bond futures and the actual bonds trading in the
(22:09):
cash market. That seems to be kicking into high gear
this year, and there's a bit of a backlash to
that from the government and some scrutiny about what hedge
funds are doing. I know, it's created its own backlash
to the backlash, Ken Griffin coming out and saying, why
do they care about this? This is sort of an
innocuous trade that actually helps save taxpayers money in the
(22:32):
bond market. Walk us through the basis trade and why
there is scrutiny of it right now?
Speaker 3 (22:39):
Yeah, in fact, you're front running another story.
Speaker 10 (22:41):
I have covered.
Speaker 11 (22:42):
Helpful get it out.
Speaker 9 (22:44):
Before you do.
Speaker 3 (22:45):
But yeah, it's been interesting. Like you said, we've had
the FED, the BIS, A lot of regulators say hey,
we'll worry the side of the size of this basis
trade is gotten as jig as it was like in
March twenty twenty, and we know what happened then. But yeah,
normally this is kind of like you say, picking pennies
up under steamroller. You're shorting the futures, you're buying the cash.
If you take it to you know, to expiration of
(23:07):
the futures, they should converge and where they see some discrepancies,
some price discrepancies, that's why you'll do that trade. Where
the risk comes in is that most of that is
done using leverage, meaning using the repo market to finance
the treasury side. So you have the risk that's what
happened in like twenty nineteen, that repo rates go crazy
(23:28):
for whatever reason and you just can't keep funding this trade.
On the flip side when volatility picks up, as you
know in futures, you tend to get margin calls. It's
just part of the metrics. And so if you started
getting margin calls on the short side, so you know,
things can just go awry on both sides and all
of a sudden, you know you just can't keep in
(23:48):
this trade. Then there's a mass exit. That's the way
that there's a problem when everyone's running on the same way,
right and no one can get out. And remember Mike,
in twenty twenty, we had people saying, hey, I had
a good trade, I couldn't even get out of that
because there's just no liquidity, right.
Speaker 2 (24:02):
Well, that's what I wanted to ask. Don't we want
it to be a little bit of a sleepy market
that you know, foreign central banks and the Fed and
others you know, use and can count on to be
kind of trade a certain way. I mean, don't we
to some extent they need to care about the composition
of buyers or are we just glad that there are
buyers in this market.
Speaker 10 (24:21):
We do care about the composition for sure, and obviously,
like just to give perspective, So those big traditional buyers,
including the FED, commercial banks, foreign buyers used to count
for seventy five percent of the ownership of the treasury market.
That number now is fifty five percent. So this is
a very big drop. And speaking to different experts who've
(24:43):
been following this for a year, a lot of people
saying that in a case where there's a little like
a slightly bigger shock, probably there will be very sharp moves,
and the market is more fragile to those moves that
and it was in the past because obviously hedge funds
are a big part. They're very price sensitive, but mutual
are also growing fast, pension funds are growing fast. They're
(25:04):
not necessarily moving as fast as hedge funds obviously, but
are sensitive to macro events. So all those different participants
are a lot more likely to react on who knows
the next banking news or oil prices or any of
those little things.
Speaker 2 (25:22):
But hedge funds have always been a part of this market, right,
it is now there a bigger part we know, percentage wise.
Speaker 10 (25:27):
Yeah, they have tripled in the past year. So currently
they own two point three trillion, which is close to
ten percent of the treasury market.
Speaker 2 (25:36):
Which makes me wonder if he gets sleepy again, Mike,
do they just run in the other direction right to
make money?
Speaker 6 (25:41):
Yeah, and it makes me You know, the dirty word
in macroland is are you a tourist in this market?
Speaker 11 (25:46):
Yeah?
Speaker 6 (25:46):
Are you really a macro fund who's used to this
trade and knows what to do? Or are you taking
riskue you're an equity manager, you know. I've seen a
few headlines out this week Bill Ackman with shortening treasuries,
he's changed his mind. He's now covering that shere Stan,
Truck and Miller are a very wealth known hedge fund
(26:07):
manager used to work with George Sourez without saying he's
very bullish treasuries. So is that at least the tourist
sort of mentality. Does it seem like the consensus is
we've seen the peak and yields, it's now time to
back up the truck and start going along the treasury market?
Speaker 4 (26:22):
Do you think?
Speaker 10 (26:23):
I think the peak is for sure, very important, but
it's also very important that for a very long time
it was the direction of trouble was very sure. And
obviously like the Fed is likely to continue rowing off
its bounce sheet, so them being a smaller portion of
it guarantees more volatility, whether those traits are whether short
(26:45):
bonds will still be a successful trade. Obviously this is
this is going back to the debate where we've seen
the peak, but the fact that they're more say realty
value trades or or you know, basis traits or things
where you can exploit that volatility stace. No matter whether
we've reached dot peakids.
Speaker 2 (27:06):
I wonder too, Liz, come on back in. I mean
what you make for someoney who's also followed this, you
know for a long time in terms of the bond
market and treasury trade to see a greater role of
hedge funds. I do wonder, listen. They love volatility, right,
they want things to move. That's how you make money
and quickly for investors. But I do wonder does that potentially,
(27:27):
you know, or could it spell trouble? We always talk
about right, these changing rate environments, and you know, as
the tide goes out, like we get to see all
the problems and we you know, could it create some
kind of crisis many or otherwise in the future.
Speaker 3 (27:43):
Well, I have to say, and I wouldn't be doing
a good service. And maybe Treasury Department will still talk
to me if I do mention that. John Josh Frost,
to the Treasury Department Assistant Secretary for Financial Markets, said
publicly in a press conference. Listen, we still have a
very diverse buyer base. We're not lying on any one
type of investor or group of investors. So they're saying, hey,
(28:04):
we're doing fine. But to your point, Carol, I think
that is why regulators worry like they're zoning in on
leverage of things, but you don't want a massive positioning
and with one group of investors, who if they go
the other way, you just create this groundswell of movement
and they take everyone else out in the process. So
I think that's the risk when any trade gets too big,
(28:26):
especially when it's leveraged, that's a problem. But like I said,
Treasury saying, we're okay, we're looking at all this, but
we still have enough folks that want to buy our
stuff that we're not concerned. But like, who knows well
to see what happens for now?
Speaker 9 (28:39):
How?
Speaker 7 (28:39):
Yeah?
Speaker 6 (28:40):
Yeah, Well, let's I wonder you know that that expression
crowded trade comes to mind with a story like this.
I mean, is there enough diversity in sort of the
trades going on or is there a risk of crowding
in certain trades, especially you know when you look at
how the yield curve is really steepened pretty aggressively in
the last couple month, you know, is that potentially a
(29:01):
crowded trade or you know, are there any pockets of
crowded trades we should think about in this market right now?
Speaker 1 (29:09):
Well?
Speaker 3 (29:09):
I would say I think the biggest one is the basis,
even though some people argue there's reasons it's not as big,
But I keep saying, like Denisa says, it's this debate
have yields peaked and that I think people keep getting burned,
you know. I mean, we've seen a massive fall today,
but that yields have peaked, let me just load up,
bring up the truck and buy them, and then yields
(29:30):
go up again. And so I think that's where the
risk is that people are trying to just can't seem
to time this market right, you know. So that's creating
the extra volatility, not just from the hedge funds but
just regular macro funds, et cetera, thinking it's time now.
Maybe they're okay in the long run because this will
come back. But I think that's the risk that people
(29:50):
just can't seem to get a clarity for sure where
rates are going.
Speaker 2 (29:53):
Yeah, right, exactly. The crystal ball is really muddy right now, Deniza.
Just to bring it back to how you guys kick
off this story the founder of long Tail Alpha and
talking to him, does it feel like it's a trade
he plans to be in for a long time or
is it something he's like, Yeah, this is maybe a
one or two your thing or I don't know.
Speaker 10 (30:11):
Yeah, I think this is not including the story. But
he actually said that probably the best time for this
trade is yet to come. As cliche as that is,
but this is something we've also heard. We talked to people,
of course, I mean, what else could he say, But
we also talk to people like who are selling trading
algorithms and who very you know, have a very good
(30:32):
perception where the basis trade is growing, and they're saying
that in the past three months they've seen the most
demand they've seen for these type of things, and obviously
they have interest in saying that this will continue to
be strong. But this is this is a thing we're saying.
So for sure, there are numerous players in this space
that are saying that as long as there is uncertainty
(30:55):
of peakios, as long as the FED is rowing off
his bounce sheets, as long as we see that volatility, uh,
there may be more appetite for those things.
Speaker 2 (31:05):
Feels like we could see some more volatility, guys. Thank
you so much. Bloomberg News process that reporter Deniza Zakova
along with Bloomberg News, she correspondent for Global Macro Markets
Liz McCormick. This story in the new upcoming issue of Bloomberg
Business Week, on newstands tomorrow, already on the Bloomberg and
already online at Bloomberg dot Com.
Speaker 4 (31:23):
I'm brother Marco, the journal.
Speaker 3 (31:28):
Now about you.
Speaker 4 (31:29):
Let me drive?
Speaker 3 (31:30):
No no, no, no, please going to drive.
Speaker 4 (31:32):
Honey, please, I'll do the gravels.
Speaker 5 (31:35):
Let's wat I want to try it.
Speaker 4 (31:39):
It's good question that try.
Speaker 1 (31:44):
This is the drive to the clothes.
Speaker 4 (31:46):
Dot com tek we'll buy around fold it on.
Speaker 2 (31:49):
Bloomberg Radio and a very good afternoon, everybody. Welcome to
Bloomberg Business Week live in our Bloomberg Interactive Broker studio,
streaming on YouTube than Bloomberg Originals. It is a FED Wednesday,
as you've been listening on TV and across Bloomberg channels.
FED Wednesday, the first day of November, and the FED
holding rates at a twenty two year high for a
second straight meeting, and the FED Chief Jay Powell asking
(32:11):
should we be hiking more? Which I feel like sets
the tone. I'm Carol Masser. Tim Stanovec is off today
and with us as Bloomberg's Mike Reagan, and I do
feel like Mike. There was a lot of things where
they He kind of continued to remind us that inflation
is still elevated, and I feel like they might not
be done yet.
Speaker 6 (32:27):
Yeah, I mean, and I don't think he said anything
too new today really changed the outlook for interest rates
at all. But we do have this really wild rally
in the stock and the bond market right now, So
I wonder you know how much of that is sort
of people caught on the short end, short selling both
stocks and bonds before this and now having to cover.
(32:49):
I'm not one hundred percent convinced you can trust this
as sort of the markets interpretation.
Speaker 1 (32:54):
Of what he's saying.
Speaker 2 (32:55):
Right you think about how they were positioning ahead of
all of this and thinking it was going to be
a lot more negga.
Speaker 6 (33:00):
Yeah, and so often, you know, we see these reactions
in the market the day of a FED press conference
and then wake up the next morning and wait a minute.
Speaker 2 (33:09):
Everyone, wait twenty four hour cycle that hasn't happened before
this year. It's a really good point. But we are
seeing equities hold and it's pretty broad based buying. Let's
get back to the markets. It is a FED Wednesday.
Stocks are ralling. We've seen yields back off, and lucky
for us on our drive to the close on this
FED Wednesday is Amanda Gotti. She's chief investment officer at
P and C Asset Management, joining us once again out
(33:31):
there on zoom in Philadelphia. Amanda, there's a rally underway
in stocks. Yields have backed off. I think Mike makes
a great point that maybe some investors were caught off
guard expecting a much more negative tone or negative description
statement whatever from the Federal Reserve. Do you discount the
trade today?
Speaker 4 (33:51):
Oh?
Speaker 9 (33:51):
Absolutely, I discount the trade. I mean, there's no question
that sentiment has been pretty lousy in the last you know,
four to six weeks. Yields of move rapidly higher. We
think very crowded positioning at one end. So there's a
scurrying around that's happening here into the close today to reposition.
But I'm not sure that we learned a lot of
new information. I mean, I think it's hard for me
(34:13):
to say that Powell had his hawk costume on for Halloween.
Maybe it was a little bit lighter of a tone
than he has been recently. But the door is still
very much open for additional tighter policy from here. So
we think this rally is going to be short lived.
Speaker 6 (34:29):
And I know you're in Philadelphia, and I think we
should make a deal not to discuss the Phillies at all.
Speaker 4 (34:33):
During this interview.
Speaker 9 (34:35):
Thank you, I appreciate that.
Speaker 6 (34:36):
Yeah, yeah, me too.
Speaker 2 (34:37):
But I wonder, as October, for all the wrong reasons,
I was in a hotel with the Arizona team when
they lost. Uh yeah, am I wrong?
Speaker 6 (34:48):
Well they lost, they lost a few games in Philly,
but they ended up winning the series. Hey, we're not
going to talk about it, Carol.
Speaker 2 (34:53):
All right, Okay, still too soon.
Speaker 6 (35:01):
Now, I mean, you know, we're going to talk later
in the show about sort of this wild year of
volatility in the bond market. And I wonder, just as
a professional in these markets, what's it like coming in
every day and seeing these wild moves in the treasury market,
you know, this market we were so accustomed to being
quiet and sort of boring, you know, And what do
(35:24):
you think is needed to calm it down?
Speaker 9 (35:27):
Well, it's a great question. It's almost an unanswerable one
at the moment here. I think as investors we've been
conditioned to a hashtag high volatility regime for quite some
time now. I mean, think about the last three years
of unprecedented challenges and return negative returns in the bond market,
so we're starting to get conditioned to this. But I
(35:49):
think at the end of the day, it's all a
function of this unprecedented policy accommodation that came in at
the onset of the pandemic and now this unprecedented unwinding.
At the end of the day, it's just going to
take a lot longer. I keep saying longer for longer.
It's not higher for longer, it's longer for longer. Everything
about this is just going to take longer to normalize
(36:10):
than what investors would like.
Speaker 2 (36:12):
And I think it's, you know, again, kind of just
hammering the same thing that I feel like Mike and
I kind of agree in terms of what we got
from Japwell, the risks of doing too little. They're worried
about that, even though he's stressed right out of the gate,
we've got a dual mandate and that eventually maybe some
of this will start to work its way into the
labor side of the equation. The risks of doing too
little is certainly I feel like top of mind.
Speaker 9 (36:33):
For him, absolutely, and we agree with that that's why
we continue to think that the door is potentially open
for some tighter policy ahead. I think the key question
is whether the market has done the Fed's job for
it or not. And he even acknowledged that a little
bit that with the I.
Speaker 2 (36:50):
Think the market has done enough of the job for
the FED at this point.
Speaker 9 (36:55):
I think it's done enough at the moment. I mean,
think about the you know, one hundred bases points that
we've seen a move here in the longer term portion
of the curve. It's been a very violent move, no
matter how you slice and dice it. And so I
think for now we're definitely in sufficiently restrictive territory. But
there's still plenty of ammo from an economic data perspective
(37:17):
to go further here. Economic growth continues to come in
pretty strong. Ism report today gave a very polar opposite
story here, but US consumer is still very strong, inflation
not to the long term target, So I think there
is room. I think we just need to, as Pale said,
let some of the lagged effects of this policy work
its way through here. But we are definitely in restrictive
(37:40):
territory for sure. Yo.
Speaker 6 (37:42):
I meta one of the themes this year is the
yield curve, you know, the difference between yields on shorter
term debt and longer term debt. And we've been living
with this inverted curve for a long time where the
shorter maturity debt is yielding more than the longer maturity debt.
We have seen this very aggressive steepening in the last
(38:03):
few months, and you had a really interesting point in
your note to us talking about that steepening of the curve,
and it's a very unique thing that's happening, this bear
steepening of the curve while it's inverted. What's the takeaway
from that, Well, I.
Speaker 9 (38:21):
Think it's an interesting dynamic because we of course have
this inverted yield curve, it's been consistently inverted for the
better part of a year plus, but we're also having
this bear steepening phenomenon. And usually when you see that
start to come into the equation, it's like, oh, here's
the signal for something's going to crack in the backdrop.
(38:42):
But it's actually only happened once in the last fifty
years where we've had both of these dynamics in play
that you don't usually see them together, and so the
one time that we have in history was right before
the nineteen sixty nine nineteen seventy recession began. And so
one data point does not make a trend. It's not
a perfect guide or predictor for what's to come next.
(39:03):
But we do think the net effect is just a
lot of pressure on high valuation stocks and the long
end of the curve too.
Speaker 2 (39:09):
All right, we've got to run. Hey, listen, Amanda, Thank
you so much, so appreciate. Amanda A. Gotti of URPNC.
Speaker 4 (39:14):
This is the.
Speaker 1 (39:15):
Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere
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