tv Bloomberg Surveillance Bloomberg March 29, 2021 8:00am-9:00am EDT
over 20 exercises to choose from. get gym results at home. no expensive machines, no expensive memberships. go to aerotrainer.com to get yours now. >> we have to be conscious of the fact that the vaccine alone and the covid story alone does not tell the whole story. >> weed to get the economy to recover -- we need to get the economy to recover with minimal scar. >> higher inflation is really taking some of the steam and frost out of markets -- and froth out of the markets. >> if we do start to see inflation rise in the united states, you could see it exported elsewhere as well. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz.
tom: good morning, everyone. a simulcast on radio and television, and a monday simulcast different than others. we will talk about the boom economy into the jobs report friday. i will be here for you on friday when we see what is expected. maybe one million jobs. all pushed aside by a margin call, and it is not a movie. jonathan: so much speculation this morning. credit suisse involved in all of this. they say, "we are in the process of exiting positions." that was at 1:00 a.m. eastern time, so they were still in the process and still can't tell us the exact size of the loss. tom: we've not heard from morgan stanley yet. i guess we presume there will be a further unwind this morning. jonathan: i think you can make
that assumption. the questions we have to ask and still haven't been answered i think come back to the banks. who handled this well? is it just the exposure, by goldman and morgan stanley are coming up a little more lately compared to nomura or credit suisse. what is it about no more and credit suisse that they didn't do, not just the amount of exposure they had that built my investment. tom: involving billions of dollars of profit for this year. we got a great lineup on bloomberg radio and television. tracy alloway will join us. particularly, a focus on goldman sachs. michael nathanson will join us on the media companies, the failure of the streaming model. it has been boom, boom, boom. paramount+ brought down via comment cvs on that. let's do the markets here.
-- brought down viacom and cbs on that. let's do the markets here. jonathan: equity futures off by 17 points, 0.4%. the bonds, yields in. a lot of people say that markets our markets. what's been going on in this market? certainly not a story of fundamentals. it has been a massive story of leverage, sending these names surging. we all spend time trying to have these elegant narratives around these stories off the back of these huge surges, and then you find out what was behind the move, a huge amount of leverage. tom: i just put on twitter the definitive story of this morning , particularly for our global wall street audience. tracy alloway with a definitive article on the derivative strategies that have led to this margin call. ms. alloway joins us now.
down at the bottom of your article, you remind us that in 2008, financial ireland almost collapsed over a margin call, a busted derivatives strategy. is there any sense in this 2021 of the irish agony of 2008? tracy: i think you and jonathan laid out the scene pretty well. so far we have not seen signs that it is really unnerving the wider market. most seem to be taking it in stride. but i guess when you are looking at these internal leakages in the financial system, there are going to be more losses. we think there's more exposure out there. the question is, why did the prime brokers have this different reaction? nomura and credit suisse are saying they have losses. morgan stanley hasn't said anything.
goldman has managed quite well. what do the prime brokers do differently that resulted in all these different results? jonathan: is it still too early to tell about the way they've handled this? is it too early to drawing a conclusion's? tracy: i think that is right. one of the big outcomes of this might be additional scrutiny on derivatives put out by hedge funds and institutional investors. they built up these huge positions of total return swaps and contract triggered, but no one seems to have really known about it or connected the dots, certainly not the prime brokers. most are required to disclose their holdings if they are buying their stock, but this allows you to get tons of exposure without actually declaring it.
i think the question for regulators is going to be how systemic is this, and is there a possibility that there could be a disturbing force on the wider market. we have seen this already because of the robinhood and gamestop scenario. so this is another unflattering spotlight cast on hedge funds/family offices. jonathan: from your perspective so far, and i ask this in a way that gives you enough room to say i simply don't know. but from what you are looking out at the moment, do you find it strange the amount of roach so to speak -- of rotations beach they were giving -- rotation speech they were giving? tracy: bill hwang, of course,
is famous for insider trading. it was a long time, but a lot of people are asking why the prime brokers felt comfortable extending this find of cut financing. tom: i know you have done interviews before, and it is all great and fine, but you make the distinction between billions as entertainment and a family office. does this happen because there isn't more of a community and they can break against too much leverage? is it really one guy that made this happen? tracy: i think there's a point to be made there, but ultimately, i family office isn't that different to a hedge fund. but there is a question -- yes? sorry, go ahead. jonathan: tracy, he just does that. tom just jumps in and says things and you've just got to
carry on talking. [laughter] tom: i was rude. jonathan: a family office is fairly identical to a hedge fund. it just can't really take outside capital. so the disclosure requirements, regulators are going to be looking at. the idea that you seem to have these funds that have all of these interconnections with the rest of the market. jonathan: tracy alloway, good to see you. tracy and i have talked over years about things happening in markets. that is one of the sharpest minds in journalists among these issues. what stands out there is how much we still don't know about what is happened here. it is going to take time to find out. tom: the sunday headline of morgan stanley, with a black trade available on a sunday of
viacom. i've never seen that. jonathan: this is the story over the moment you get this is what we are going to do this morning. tomorrow, friday, we will be talking about vaccinations. that's where i want to focus right now with matt brill of invesco. matt, this friday, payrolls could be north of 500,000, may be approaching one million. what does that mean to you? matt: to me, it means we are on pace to have a really terrific summer in terms of economic activity. in georgia, everyone 16 years and older is a little -- is eligible to get the vaccine. i think we are about four to six weeks away from this economy completely reopening and taking off. tom: do you assume investment grade price goes down and healed goes up?
anchor: over the year -- matt: over the near term, i think that is likely. the risk of owning corporate bonds will be less going forward. but the market is going to react negatively, so i think your total returns will be challenged. this came up many times over last week. what do you do with that phrase? how do you manage that? matt: you've got to put it on the edges best you can. we have three major themes, which are reopening scum a reflation, and reratig. -- and rerating. we think travel and leisure will do quite well from pivot he picking up this summer. high yield bonds are going to be
re-rated. those are going to have positive total returns. last is reflation. em countries that are commodity rich should do well here. there are pockets that we think have positive flows. jonathan: matt brill, invesco head of u.s. investment grade and senior portfolio manager. tom: all of that is great. tracy alloway to come to us. and we've got some other guests coming up. michael nathanson on the media part of this story, but we have not really talked about the china exposure from this guy. the fact is his legacy is asia investment, and that seems to be the pullback from china that really got in the way of his
strategy. jonathan: if my recollection is correct, this is the reason -- at the office, too. tom: did you see the beard rating we are up to? we are way up, like 13,000 or something. jonathan: what does management say? matt: keep the beard -- tom: keep the beard, $13,000. lose the beard, one. jonathan: are you lobbying management? you're getting the "bloomberg surveillance" equivalent of a tap on the shoulder. coming up, stephen stock, the shock report founder and editor. this is bloomberg. ritika: with the first word news, i'm ritika gupta. it is the first step to unblocking the suez canal. the operation to free the
ship is still going on. there's a backlog of hundreds of ships. president biden will divide his next government spending pushed into two programs. the president will outline a plan focused on infrastructure and jobs this week. a white house spokeswoman says a second proposal would focus on childcare and health care programs. that will be released in april. in myanmar, the deadliest weekend yet since the military coup in february. dozens of protesters were killed in battles with the military and police. one human rights group says at least 14 people died, including some who weren't protesting. visa payment networks will use a stable coin backed by the u.s. dollar to settle transactions. visa says the movie is partly an effort to serve financial technology companies.
they have been able to move it, but it is a little bit too early to see when the canal is going to be cleared. it is another thing to completely clear the canal for traffic. jonathan: partly refloated. that's the story this morning. alongside tom keene, i'm jonathan ferro. lisa abramowicz back with us tomorrow. looking forward to catching up with lisa after a really choppy end to the week last week and a really interesting morning this morning. a mystery seller no longer a mystery. here's the price action. can i get to it? tom: please. i was going to say, we are gloom free on radio and tv. jonathan: i am talking slowly and giving you some space to jump in. we are down 16, would drop by 0.4%. bonds bid, yields lower by three basis points. in the fx market, euro weaker,
$1.17 handle. to the bond market we go. yields in, euro weaker. crude up by 1%. defensive a little bit, but nothing crazy. tom: vix, 19.2, has actually come in a little bit on the messiness of this morning's trading. jonathan: i think what you are waiting for, the morgan stanley take. we've heard the >> from the mora and credit suisse, and -- heard the likes of nomura and credit suisse. i think as time goes by, we get a deeper understanding of how morgan stanley and goldman handled this situation. however, here's an individual that got brought up. something changed in 2018 and
this client was take on board, and here we are. tom: right now on suez and our assumptions of hydrocarbons is stephen schork of the schork report. he writes detailed, inside baseball reports. i don't understand 2/3 of it, but stephen schork is encyclopedic on how oil moves around the world. what happens when we see suez shut down or a shutdown of the south china sea? stephen: thank you. we are talking about 1/10 of the global sea transport oil. oil out of the middle east going to markets in europe and the united states. so with the blockage, some i stand are saying it is only 10%,
the minimus amount relative to global trade. i will disagree. it is a question now that in a market that is as tightly traded as oil, any sort of disruption -- [indiscernible] tom: compare and contrast the south china sea, wrapping up north of the pacific rim, with the suez canal. matt: those two points are very narrow -- stephen: those two points are very narrow waterways, and the most important potential chokepoints with global trade in all commodities. i think that is really the story here of when it comes to the demand growth for oil and consumer goods, primarily being driven by asia. so you can understand why the
headline of suez is a supply-side story. the overarching story in the market has been in per seal -- in the future on the demand side. we've got a bifurcated scenario. in the united states, the macroeconomic headlines have been very positive. keep in mind that over the next month, when we get the ice storm debacle that we saw last month, that is going to be in the next batch of numbers. overall, that is a one-off event . that is a great story, and it is bullish for commodities. on the other hand, you had a sloppy rollout of vaccinations in europe, parts of the economy once again shutting down, and active cases spreading. regardless of supply, the supply situation will be fixed.
the big question remains on the demand side. jonathan: i hope you can indulge me just a little bit. we talk about tankers going through the suez. can we talk about container shipping for a moment? beyond what has happened in the last couple of weeks, what we saw coming into the new year was container shipping costs go through the roof. we have seen that with airfreight. clearly there was a massive demand slump, then a huge inventory rebuild. in your mind, work out some of this demand to be met with supply and some of the months to come. stephen: absolutely. with regard to shipping channels, the amount being shipped on u.s. water weights and u.s. barges is surging right now. this goes to my thesis of a firm demand picture in the
united states. there's only so much capacity to move these cargoes. for instance, when you look at the ports of long beach and los angeles in southern california, those are the two largest from the eastern coast equivalents. that is a snapshot of the global trade. when you look at these numbers, these are very important in the united states in the months of july and august because it is all the goods coming into the ports of southern california, coming from asia, and this is always a great bellwether for retail demand in the fourth quarter going into the holidays. when we look at these numbers, we have been smashing numbers with the container flows coming into the united states beginning last summer, and this continue to the point where we have hundreds of containers now anchored off the coast of southern california because there is no room in the inn.
while we have already been at this for coming on nine months at this point, and there is no site as to when this is going to end, i am going to double it and say at least another nine months before we see it through this glut. jonathan: thank you, stephen schork, schork report founder. stephen alluding to just backing up, backing up. tom: at long beach, it is really serious. we've got deutsche bank headlines. mr. sewing gets an extension of his deal, and the stock elevating today. and extension to 2026.
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jonathan: from new york city, this is "bloomberg surveillance." live on tv and radio alongside tom keene, i'm jonathan ferro. a drain on the drama of what is happened from friday to monday. nasdaq in by about .1%. russell off .75%. we did end up with a week of gains. it was not just about the long that had to be covered, it was some of the shorts as well and a lot of people saying maybe that was what the big grandpa to the close was on friday. -- the big ramp into the close was on friday. it is far more complex. look for the word material from the banks. if they say may be material, we are down 15%.
if they say not material, or allude to the idea that maybe does not material, we get stability. goldman, morgan stanley, goldman off 2.5%. morgan stanley, still waiting for clarity. that is the unknown. how has this been handled. the exposure and what is left unwind. tom: staying on 2% down versus 4% down. are you done? jonathan: you have permission to continue. tom: we are making up it as we go on this monday. 6.56 on remember the. a little bit of foreign-exchange movement. david kelly of jp morgan will not talk about margin calls, and then we are thrilled to bring you michael nathanson on the backside of this half-hour.
thread hard not hurrah should has led our coverage -- sridha -- we just had a technical difficulty. sri just hung up the phone and said i did not want to talk to them. we will get sri back. what does the management of morgan stack -- of goldman sachs or morgan stanley do? jonathan: a lot of people waking up and saying i remember, a lot of people saying i've no idea who that is. he set off on his own or once upon a time. started have a family office, which translates to we are hedge fund but we cannot take outside money. we are an investment firm. he put on a series of bets with a lot of leverage there is a lot of demand to have them as a client because made a lot of money having him as a client.
goldman sachs, people it goldman who clearly wanted him as a client, and clients for a series of years wanted hwang and then something changed. all of the sudden he became a client. we need to talk about what is happening with this, what it could means for regulation. we also need to talk about clients and knowing your customer and compliance. tom: i believe we are hooked up again. sri, what are the managements of morgan stat -- of goldman sachs and morgan stanley doing? sri: you can rest assured goldman sachs is breathing a big sigh of relief. telling a lot of their clients their rosses will be immaterial. that is different from headlines we've seen out of places like nomura or credit suisse. morgan stanley has been
uncharacteristically quiet. that is not a strategy that will work from everyone from investors to regulators demanding answers into the bottom of what happened. tom: do you look at a family office the same as a hedge fund? did this call occur because mr. hwang's shop is a family office, it may be separate from the regulation of hedge funds? sri: it is an almond claytor mismatch debt it -- it is a nominal claytor mismatch. the leverage he was employing was a serious force in the market, much bigger than several large hedge funds. for the banks and the others dealing with this, they could possibly be treating every different. for them it has to be just as important as the most important hedge fund client. this fall which is unraveled in
breathtaking speed tells you not all of the boxes were checked off. jonathan: tremendous reporting is always. a little bit of a technical issue with your line they were letting you run. for anyone not familiar with his reporting, check it out alongside erik schatzker on what is happening with goldman. incredible clarity and transparency we otherwise would not have about what happened, the courting of bill hwang as a client, why he was rejected a number of times and all of a sudden something changed. tom: something changed and we continue our reporting. two articles. i would notice futures deteriorate ever so slightly. we are following it take by take with little weight right now. away from the story, david kelly will join us, the jp morgan asset management chief global strategist. he would not know a derivative strategy if it hit him over the
head. lucky he does not have to talk about this. what you can talk about is, given a boom economy, how your temperament at jp morgan asset management changes. how do you adapt to a boom economy? david: the first thing is you recognize people have not fully priced in what is going on. this is the calm before the surge. we are looking at 4% gdp growth in the first quarter, nothing terribly excited. we are seeing rollout of vaccines and a lot of stimulus, the president about to announce another proposal this week in pittsburgh. this will build to a lot of momentum. the environment will heat up a lot more. that means higher interest rates. the rotation probably continues, the rotation from growth to value, from large-cap growth to small-cap value, and perhaps
some continued rotation to international. all of that is still on the table given the heating up in the economy we expect over the next nine months. jonathan: what you've said i have also heard a blackrock, that maybe this is all underappreciated. this data will still be unexpected to some people. how do you gauge that in this market at the moment? david: the real point is people have not seen this before. we have not seen this magnitude of stimulus along with a full pandemic recovery. this is unknown territory. i do not think people have a good way of measuring what this is likely to do. the important point is if you have the stimulus it will go one of two places. it will either push up real output or push up inflation. either of those scenarios does benefit cyclical stocks, does suggest higher interest rates. one way or the other we will get higher interest rates. it is just because it is so new and there still such uncertainty
about how an economy recovers from a pandemic. that is why people are under appreciating it. jonathan: that is the mystery of what is about to happen, how people respond to the data we are about to see. how do you think people will respond to the day that we are about to see? payrolls could be huge this friday? the inflation print. david: obviously people have to keep an eye on their tax exposure. if you can rebound to make sure you're not underweight value, make sure you are not underweight international, make sure you are not overweight the highest pe in the most exuberant sectors of the economy, what we are seeing is the story part of a much broader story, which is if you have a mismatch of lots of exuberance and lots of liquidity, you -- bad things happen. you can think of plenty of areas of markets where people are too exuberant and that is fed by low interest rates, and the low
interest rates will go away over time. that is what people need to pay attention to. tom: i will get revenue, i will get organic revenue growth like i've never seen before, and then q2, q3, do we get compression down the balance sheet or do revenues drift away? which is it? david: i think the margin compression comes later. we will have such a surge in demand over the third and fourth quarter and the first quarter of next year. at the same time the fed has put out forward guidance which forces them to be easier than they should be. i think rates will rise a little slower. companies have locked in long-term financing. we would also see wage growth pickup but it will take a while. these things lag great the real margin pressure will come in 2022, particularly as the economy slows down.
we will go to a crawl and then he surge. it is the normalization in 2022 which will slow down profit both. -- profit growth. jonathan: went does david kelly get back to the office? when does that happen? david: i am thinking middle of summer. jonathan: 21? 2024? david: 2021. i want to get back. jonathan: david kelly, jp morgan asset management chief global strategist. that is what jamie dimon wants to hear, he wants his people to say we will get back in the summer. tom: what i found fascinating in my sabbatical that everything is a story, everything is one person story in the pandemic, whether it is a fancy executive or an employee deciding bus or subway, everything is a micro story. they all have to sum up to a recovery. jonathan: i love that you're
referring to it as a sabbatical. i will be away. will not be here next week. can i tease my show quickly? tom: please. jonathan: blackrock ceo rick rieder joining us. i will have a tie on on for my personal show. my tie will be off tomorrow if tom keene still has the beard. what is the latest? tom: the latest. we really have to pick up as people wake up across america. it is really good. we have a substantial number, over 100,000 saying keep the beard. the lose the beard has been very stable. jonathan: has a guy called mike wade in yet? -- weighed in yet? tom: i do not believe mike. al from new jersey, i believe. on radio 106,000 people say keep
the beard, lose the tie. al from new jersey says maybe not. jonathan: we will find out tomorrow. good to be back with you. s&p 500 futures down 21. tom: you've said that before. jonathan: i mean it. [laughter] tom: lisa,, home. lisa, go home. ritika: with the first word news, i am ritika gupta. six days after the giant ship got stuck in the suez canal, the ship has now been partly reuploaded and the operations of to flee it completely -- the blockage has led to a backlog of hundreds of ships waiting to pass through. the suez canal is not the only place where there is a major shipping logjam. yesterday a total of 26 container ships were anchored
waiting to offload at los angeles and long beach. another 20 are expected to arrive over the next three days. the average weight is about -- the average wait is about three days. in minneapolis, opening arguments are set in the trial of a former police officer accused in the death of george floyd. derek chauvin was seen in a videotape kneeling on george floyd's neck for more than nine minutes. floyd's death sparked protests across the u.s.. h&m stores in some parts of china are being closed by their landlords as backlash to an h&m statement that expressed concern about reports of forced labor. china is the sweetest retailers fourth biggest country market. former security and exchanges commission chairman jay clayton will advise affirm on cryptocurrency. it is a $2.5 billion firm whose
this is a big case of that something else. >> it highlights the risk people have not seen on positioning and it highlights the concentration in the market and also some of the leverage in the market, critically the hedge funds. you'll have to be careful. >> i would say your typical average investor, your retail investor, i would stay out of this for the next couple of days. tom: voices on the mystery on the margin call. if you're not a sophisticate on a global wall street, you need to know there is global tension on global wall street over the mysteries of the margin call. our team has put together a great set of interviews starting sunday. we went through the morning. tracy alloway of bloomberg was particularly strong. we heard from brian jacobson's of wells fargo, sean taylor joins us, and carol pepper of pepper international. let me tell you about the
markets. real stability. yes futures decline, -21. dow futures -186. the vix out to new highs. what we want to do now is take a true industry expert on the stocks that got hammered and say what you do at this unique time? no one is better qualified than michael nathanson. we are thrilled he could join us this morning. what do you do? you and i have seen these debacles before but this is in your backyard. a buy on viacom? what did you do on friday? michael: we were buying discovery. a cell on viacom. tom: what you do this morning? michael: we buy discovery and we do not own viacom. the companies cannot be more different in their positioning.
discovery is cheap. viacom is not. discovery has a much easier path going forward than viacom. the markets treated both the same, but we think -- tom: we have lost audio with michael nathanson. this is an ongoing story. so much of this is off streaming. it is off what we saw at viacom with paramount plus. obviously viacom and cbs combined. all of you have seen huge marketing efforts on paramount plus. it is up in the air among industry pros whether that streaming service will get the critical mass you need, like you haven't netflix, like you have -- like you have at netflix. let's go back to michael nathanson as we reconnect. i was talking about how spongebob at viacom cbs did in william wang.
streaming is being tested. what about streaming an update. is that what did in william wang? michael: what did it in was the valuation was insane. viacom claimed they raise capital, they needed more capital to invest in direct to consumer. one of the things you and i have talked about is the capital intensity of this pivot. very few companies besides netflix and disney and amazon have the balance sheet, have they investor base to do this. what viacom is trying to do is play catch up in a very difficult business. raising capital where they did -- we need more money for directive to consumer spending. that was the beginning of the end. i do not think it recovers. i think it was overvalued. we put a sell on it on wednesday. i think they're in a different place than these other
companies. tom: i happen to be out in l.a. over the last week. instead of going abroad we decided to stay in the country. you cannot help but notice for your consideration, it is award season. you are the king of content is king. is content still king? michael: i think platform has become king. netflix has the ability to serve content you've never heard of, but the ability to surface and show content others may like and you may like yourself. it changes the model. the best content now does not always win. it needs to be delivered to you, it needs to be packaged on a platform. to your point, if you do not scale globally, you may have wonderful content, but no one will discover it. tom: tell us about the asian market. so much of this margin call tobacco is about china -- this margin call debacle is about china.
is hollywood still making product to sell to china? michael: what is funny about that is india has replace china as the most important market. india is where disney has done well. amazon and netflix are trying to catch up there. china is a place that has always offered potential. the country is very good at putting limits on american content. india is a much more open market and has a great opportunity for the u.s. companies, especially disney to do well. i think india has been the next key market to watch. tom: how do play that? what is your best indian buy? michael: we are neutral on disney. disney's position, they bought a fox company that is done very
well for them. i think they have the easiest path of our companies in india. we have buys on facebook, snap, and google for similar reasons. that is an easier way to play it. you play the digital names getting traction in india. tom: thank you so much for joining us on this historic monday morning. margin calls to be had. let me tell you what is on bloomberg. jonathan ferro will drive forward television with good conversations at the 9:00 hour. i am thrilled to join you with paul sweeney on bloomberg radio in a moment. paul sweeney, legendary in the media business and will be quite good on what we expect from media and its linkage to wall street. the headline story, without question for global wall street is a busted set of derivative trade involving mr. hwang, and
now his own family office. our reporting this morning is simple. there needs to be more reporting. we heard that from tracy alloway. we simply do not know too much of what will go on this monday or this tuesday as well. the key thing for me yesterday, morgan stanley making clear on a sunday that a block trade available on davidson's viacom. he is a cell on viacom. we will see if that trait unwinds. he made clear to me off-camera that he felt they would find a buyer for the large block trade sold at a discount, which becomes attractive to the institutional market. other than that, it is about the damage to the banks. we will have much more on that. we have heard from nomura, we have heard from credit suisse. a little bit we have heard from goldman sachs. critical in the next couple of hours -- what we will hear from morgan stanley? futures at -21.
from new york city for our audience worldwide, "the countdown to the open" starts right now. equity futures on the s&p 500 down .5%. we begin with the big issue. the massive block trade rattling markets. >> these events, and we have had them before. >> margin calls, concentrated additions. >> less requirement on collateral, less requirement on risk management. >> concentration in the market. it means the risk management is an adequate. >> that can be a dangerous proposition. >> a very small bump in the road. >> leverage and the market is nothing new. >> this will be over in a couple days. >> the problem is this is the domain of rumors. >> it will take some time for the bodies to float to th