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P&L: The Thanksgiving Price War · Bloomberg Intelligence

0:04
Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
0:07
Speaker 1: Fox along with my co host Lisa Abramowitz. Each day
0:11
Speaker 1: we bring you the most important, noteworthy, and useful interviews
0:14
Speaker 1: for you and your money, whether you're at the grocery
0:16
Speaker 1: store or the trading floor. Find the Bloomberg P L
0:19
Speaker 1: Podcast on iTunes, SoundCloud and at Bloomberg dot com. I
0:28
Speaker 1: want to take a look at how much it's going
0:29
Speaker 1: to cost this Thanksgiving? Uh, thinking about buying perhaps a
0:35
Speaker 1: organic turkey. Jennifer Bartashes is over here. She's a of
0:40
Speaker 1: Bloomberg Intelligence US food and drug retail analysts, speaking to
0:44
Speaker 1: us from Prinston, New Jersey. Jennifer, what are you cooking
0:47
Speaker 1: this this h holiday? Well, I am cooking turkey. Um,
0:51
Speaker 1: But I'm actually cooking part of a turkey, and we
0:53
Speaker 1: have a small household, so we're not interested in a
0:57
Speaker 1: lot of leftover. But it's cheaper this year. It is, um,
1:01
Speaker 1: you know, definitely. Food food deflation is taking a toll
1:04
Speaker 1: um And on average, Thanksgiving is about three point four
1:08
Speaker 1: percent less expensive this year than it was last year. UM.
1:12
Speaker 1: And so that that's good news for consumers. Well, so
1:15
Speaker 1: where is the decline coming from? Because the actual turkey
1:18
Speaker 1: itself is not necessarily cheaper, right exactly. Um, But what's
1:22
Speaker 1: the decline is really coming from all the other typical
1:25
Speaker 1: items that you would think of for your holiday dinner,
1:28
Speaker 1: so um, stuffing, green beans, you know, uh, you know, potatoes,
1:33
Speaker 1: things like that. Um. And what's happening is that in
1:36
Speaker 1: a deflationary environment, all of the retailers are trying to
1:40
Speaker 1: get as many sales as possible, um, and so they're
1:44
Speaker 1: discounting all of those common items, and so there's a
1:46
Speaker 1: little bit of a price war that's happening that's driving
1:49
Speaker 1: those prices lower. What what product is sort of the
1:53
Speaker 1: focal point for some of these price wars? Um, well,
1:57
Speaker 1: anything you know, obviously aside from the turkey, which which
2:02
Speaker 1: is a little bit more expensive this year. Um. You
2:04
Speaker 1: see everything from you know, the instant stuffing to cans
2:09
Speaker 1: of you know, cream of mushroom soup, pretty much all
2:12
Speaker 1: the standard basic items that most people buy. Um. Almost
2:16
Speaker 1: every retailer has some sort of promotion happening on a
2:20
Speaker 1: lot of those core items. But it seems like there's
2:22
Speaker 1: something of a divergence between lower cost grocers and the
2:26
Speaker 1: higher end sort of organic focused UH stores. Right. I
2:31
Speaker 1: mean it seems like prices are going up for the
2:33
Speaker 1: more kind of artists, artisanal producers. It's true, especially once
2:40
Speaker 1: you get into more more of the organic type of items,
2:44
Speaker 1: that prices are going up a little bit more. Um
2:47
Speaker 1: And And what's what's happening is that there are more
2:50
Speaker 1: and more stores that are selling organic products these days. Um.
2:54
Speaker 1: But the the supply is not necessarily expanding at the
2:58
Speaker 1: same rate as a number of people that are starving
3:00
Speaker 1: those goods, um. And so that that gives it an
3:03
Speaker 1: inherently a little bit of extra inflation or or higher prices,
3:07
Speaker 1: as people have to pay a little bit more to
3:09
Speaker 1: have the goods in their stores, and then they pass
3:11
Speaker 1: it on to consumers. So when you look at retailers
3:14
Speaker 1: like Whole Foods, UM, fresh Market, Fairway, Um, these are
3:19
Speaker 1: all retailers that have lean more heavily in that organic
3:23
Speaker 1: and natural space. And as a result, their Thanksgiving basket
3:27
Speaker 1: was a little bit higher this year's than the average supermarkets. Yeah,
3:30
Speaker 1: meaning that it was more expensive. Right. So I think
3:32
Speaker 1: you had some information that the basket at Whole Foods
3:35
Speaker 1: would cost a hundred and thirty four dollars, that's for
3:38
Speaker 1: twenty items. Compared with one and seventy eight cents at
3:42
Speaker 1: Fairway at nine seven dollars a Trader Joe's and nineties
3:46
Speaker 1: six dollars and forty cents at fresh Market. Can we
3:49
Speaker 1: talk a little bit about why there is price deflation
3:52
Speaker 1: in some of these grocery uh products. Well, you know,
3:57
Speaker 1: the the the price deflation. Yeah, this is a pretty
4:00
Speaker 1: small basket, you know when you're talking about very specific
4:03
Speaker 1: things for Thanksgiving, But the price deflation is is really coming.
4:07
Speaker 1: It's a it's an overall industry trend where you're seeing
4:10
Speaker 1: deflation across the board and it's been a sustained period
4:13
Speaker 1: of deflation. UM. And some of that is coming from
4:16
Speaker 1: deflation in produce UM. Some of that is coming from
4:19
Speaker 1: deflation in proteins like beef and eggs and chicken UM,
4:23
Speaker 1: and in dairy as well. UM. And so when that happens,
4:26
Speaker 1: it sort of bleeds through and affects all of the
4:29
Speaker 1: you know, all of the retail prices within the industry.
4:32
Speaker 1: Is it just that we're getting that much more efficient
4:34
Speaker 1: at producing food? Um, That's that's that's part of it. UM.
4:38
Speaker 1: You know, there's there's there's always a cycle of supply
4:41
Speaker 1: and demand with regards to you know, what's produced UM,
4:45
Speaker 1: and so you know, you go through limited supply producers
4:48
Speaker 1: that overproduced UM, and then you go through, you know,
4:51
Speaker 1: a period where there's there's a little too much in
4:54
Speaker 1: prices come down UM, and that's kind of a normal fluctuation.
4:57
Speaker 1: But we have had kind of a sustain period where
5:01
Speaker 1: UM prices have been coming down or staying well UM
5:05
Speaker 1: for quite a while. Jennifer Batasha's thank you so much
5:08
Speaker 1: for being with us. Jennifer Patasha's US food and drug
5:11
Speaker 1: retail analyst for Bloomberg Intelligence, speaking with us from Princeton,
5:15
Speaker 1: New Jersey. I'm Lisa Bramwood's my co host, Pim Fox
5:18
Speaker 1: is on vacation. This is Bloomberg. I want to learn
5:34
Speaker 1: about what fund managers are thinking right now. A number
5:38
Speaker 1: of money managers that we spoke to since President elect
5:41
Speaker 1: Trump won the election, they've said that they have not
5:45
Speaker 1: changed the way that they structured their portfolios significantly or
5:49
Speaker 1: their strategies. But perhaps our next guest disagrees. I want
5:53
Speaker 1: to bring in David Kudla, CEO and chief investment strategist
5:56
Speaker 1: of Mainstay Capital Management, which oversees about two billion dollars UH.
6:00
Speaker 1: David Thank you so much for being with us. Good morning,
6:03
Speaker 1: Good morning. So have you changed your base case outlook
6:07
Speaker 1: and the way that you invest since the election? Absolutely? Uh.
6:12
Speaker 1: You know, when we look at it, we look at
6:14
Speaker 1: a Trump presidency with a still Republican controlled Congress, but
6:19
Speaker 1: specifically with the Trump presidency, a see change in the
6:23
Speaker 1: investment landscape. Um. We've already seen what's happened with bond
6:27
Speaker 1: yields in the last two weeks, with the prospect of
6:32
Speaker 1: tax policy and infrastructure spending, pro growth policies, regulation regulations
6:40
Speaker 1: being rolled back, and you know, we see the that
6:45
Speaker 1: there is a path here for rates headed higher. The
6:48
Speaker 1: Fed will have cover to raise rates even faster than
6:51
Speaker 1: maybe they would have. UM. And we've seen the markets
6:55
Speaker 1: performing well in specific sectors in this regard that I
6:58
Speaker 1: think investors need to take key to this. It's very
7:01
Speaker 1: important for the coming weeks and months in their portfolio. Well, so,
7:04
Speaker 1: how do you sort of take what's going on and
7:08
Speaker 1: put it into an investment thesis? I mean, how do
7:10
Speaker 1: you determine when potentially a rally has gone too far
7:13
Speaker 1: or when perhaps people's hopes are getting ahead of the reality. Sure,
7:17
Speaker 1: so there's some things that happened immediately. UM that that
7:22
Speaker 1: could have been expected if one expected that Trump was
7:26
Speaker 1: going to win the election. You know, we saw an
7:28
Speaker 1: immediate bounce in biotech because biotech and pharma had been
7:32
Speaker 1: under a what we considered a political risk with the
7:38
Speaker 1: threat of UH pricing regulation what started really in September
7:44
Speaker 1: of last year with the Hillary Clinton tweet. As soon
7:47
Speaker 1: as Trump won the presidency rather than Hillary Clinton, that
7:51
Speaker 1: political risk was greatly diminished. Biotech popped a lot UH
7:56
Speaker 1: that we see maybe you know, as a shorter immediate
7:58
Speaker 1: bounce other things like banks. You know, we had already
8:02
Speaker 1: been favorable towards the regional banks with the prospect of
8:06
Speaker 1: FED raising rates that improves their net interest margin or
8:09
Speaker 1: basically their profit on landing. Now the regulatory headwind in
8:14
Speaker 1: front of banks will probably be diminished, and we expect
8:19
Speaker 1: that and we think there's a long runway for banks
8:21
Speaker 1: and financial services UH that's now in front of us
8:24
Speaker 1: with the Trump presidency, with the infrastructure spend. We'll see
8:28
Speaker 1: what comes there and we'll see what policy statements or
8:32
Speaker 1: what statements were made during the campaign actually become policy.
8:36
Speaker 1: Because he's walked some back, some like announcing its intent
8:40
Speaker 1: to pull out of t p P. He's he's gone
8:42
Speaker 1: through with. So I'm looking at a tenure yield right
8:45
Speaker 1: now in the treasury UH at about two point four percent,
8:50
Speaker 1: up from UH one point five percent as recently as September.
8:55
Speaker 1: How high do you think that the tenure could go
8:58
Speaker 1: and will this be a messy, unwrapped ing of of
9:00
Speaker 1: the bond market? Well, it's it's been a messy, unrattling
9:04
Speaker 1: for the last two weeks. We've seen yields, depending on
9:08
Speaker 1: where we are on the curve, rise as much as
9:10
Speaker 1: fifties sixty seventy basis points, and yields around the world
9:14
Speaker 1: have gone quite a bit higher. UM. So it's already
9:17
Speaker 1: been a little bit massy. We think we could get
9:20
Speaker 1: a pause here at some point, you know, around two
9:23
Speaker 1: and a half percent on the ten year UH. But
9:27
Speaker 1: when we look out longer term and a lot of
9:30
Speaker 1: this will will that will be based on you know,
9:33
Speaker 1: our Trump's you know, the actual policies with a Republican
9:37
Speaker 1: Congress to get put through. Do we see the inflationary
9:40
Speaker 1: the pro growth but also inflationary policies that many think
9:45
Speaker 1: will go in That has caused the bond market start
9:47
Speaker 1: pricing and higher inflation um. You know, but it's easy
9:51
Speaker 1: to see that we we now see rates moving higher
9:55
Speaker 1: and the one three back in July we saw in
9:58
Speaker 1: the tenure um is a generational low bond yields. Well,
10:03
Speaker 1: so what argument for why people were going into stocks
10:06
Speaker 1: was that, well there was no alternative, right, because bond
10:09
Speaker 1: yields were so low. Basically, the dividend you'd you'd be
10:12
Speaker 1: paid by owning a broad basket of stocks would be
10:15
Speaker 1: more than treasuries. That's changing, and it's changing fast. Do
10:19
Speaker 1: you think that this will lead some people to withdraw
10:22
Speaker 1: or at least hold back from allocating money to stock.
10:26
Speaker 1: So far that has not been the case, but this
10:28
Speaker 1: has been one big question among people I speak with. Yeah,
10:31
Speaker 1: it's it's an interesting dynamic that will unfold because you know,
10:35
Speaker 1: we've talked about the great rotation for a number of years,
10:38
Speaker 1: and there have been a lot of false starts where
10:40
Speaker 1: where rates have eventually start to go higher. We see
10:43
Speaker 1: the rotation from UM from bonds to stocks for that reason,
10:48
Speaker 1: although stocks have had a lot of UH stimulus to
10:53
Speaker 1: go higher, namely central bank stimulus. I mean, that's what
10:56
Speaker 1: we talked about until the election. Is earnings didn't matter.
10:59
Speaker 1: Valueations didn't matter. It was about central bank stimulus around
11:03
Speaker 1: the world pumping stocks higher. And you know, but the
11:06
Speaker 1: way we think the dynamic between stocks and bonds and
11:09
Speaker 1: folds initially is investors start to see and again it's
11:13
Speaker 1: investors that look at treasuries and high grade corporates is
11:16
Speaker 1: a safe investment. But statement after statement they see a
11:20
Speaker 1: negative number in terms of their total return because the
11:23
Speaker 1: price of bonds moves inversely the yields. As yields go
11:25
Speaker 1: higher and stay higher, the bond prices are lower, and
11:30
Speaker 1: that will cause people to rethink, you know, how are
11:34
Speaker 1: they allocating their investments. And you know, we have been
11:38
Speaker 1: saying for a while and continue to say, this is
11:39
Speaker 1: where liquid alternative investments are an opportunity when bonds are
11:45
Speaker 1: going to be you know, an asset class that potentially
11:48
Speaker 1: offers negative returns here for a while. So in terms
11:51
Speaker 1: of total return, So, David, what's your what's your best
11:54
Speaker 1: bet going forward in the next six months? Banks, financial
11:59
Speaker 1: services regionels are bigger, bigger. So we've seen we've seen
12:04
Speaker 1: what's happened with the large money center banks we have, um,
12:08
Speaker 1: you know, the problem with the Wells Fargo scandal. So
12:11
Speaker 1: when we we look at what rising rates will do
12:16
Speaker 1: for financial services in general, uh, it is it's help
12:21
Speaker 1: with lending. When we look at the regulatory headwinds that
12:25
Speaker 1: have been in place, that's affected lending a lot to
12:28
Speaker 1: people look at their regional banks. We we think of
12:32
Speaker 1: as the hometown lender. People look at at those banks.
12:34
Speaker 1: That's where a lot of their revenue comes from. So
12:38
Speaker 1: therefore we like the regional banks over larger banks. We like, uh,
12:43
Speaker 1: you know, the smaller companies that are domestically oriented versus
12:48
Speaker 1: large mauna national conglomerates. So so small regional banks right
12:52
Speaker 1: in that fold of a couple of investment themes that
12:54
Speaker 1: we think they have a long runway ahead of them,
12:56
Speaker 1: even though they've done so great the past two weeks.
12:59
Speaker 1: David Kudla, CEO and chief investment strategist at Mainstay Capital Management,
13:04
Speaker 1: talking about how banks is his bet going forward, te
13:18
Speaker 1: you with the enemy. Donald Trump went to visit The
13:21
Speaker 1: New York Times yesterday, a publication that he has maligned
13:25
Speaker 1: greatly and that they've had a pretty contentious relationship, and uh.
13:29
Speaker 1: He had a wide ranging interview with editors and reporters
13:33
Speaker 1: at the New York Times, Ben Brody, Bloomberg Politics supporter
13:36
Speaker 1: here in the studio at Bloomberg eleven three oh, to
13:39
Speaker 1: talk a little bit about what the three most important
13:42
Speaker 1: points were that we learned from that interview. Right, Well,
13:45
Speaker 1: as you said, it was certainly wide ranging them. But
13:48
Speaker 1: one of the things that I think a lot of
13:50
Speaker 1: people took away from it was him saying suddenly that
13:52
Speaker 1: he was open to not exiting the Paris Climate Accords.
13:56
Speaker 1: This is somebody who has labeled climate change, uh, you
13:59
Speaker 1: know what Chinese designed to make America less competitive, and
14:02
Speaker 1: suddenly he's saying that, well, he might keep an open
14:05
Speaker 1: mind about this. It was a little unclear what exactly
14:08
Speaker 1: would sway him one way or the other, but that
14:10
Speaker 1: certainly made headlines. Um. He also backed away a little
14:14
Speaker 1: bit from some of the neo Nazis have been supporting
14:17
Speaker 1: from him, who have been supporting him backed away a
14:21
Speaker 1: lot from this campaign, promised to prosecute Hillary Clinton for
14:24
Speaker 1: her use of a private email server, and then raising
14:27
Speaker 1: a lot of eyebrows in my world, was him saying
14:30
Speaker 1: that the president of the United States simply can't have
14:33
Speaker 1: a conflict of interest. This was this was quite exceptional.
14:36
Speaker 1: The laws totally on my side, meaning the president can't
14:39
Speaker 1: have a conflict of interest. UM. There was a great
14:45
Speaker 1: story by Bloomberg reporters Caleb Melby and Stephanie Baker about
14:50
Speaker 1: how President elect Trump would have a hard time divesting
14:54
Speaker 1: his businesses even if he wanted to. UM, can you
14:57
Speaker 1: talk a little bit about that and just how conflicted
15:01
Speaker 1: he may be? Sure? Well, for one thing, you know,
15:05
Speaker 1: he has a broad international empire with a lot of
15:09
Speaker 1: international partners, including in the Philippines somebody who is uh
15:14
Speaker 1: an envoy to the US. UH. So the level of
15:18
Speaker 1: the conflicts and the level of the involvement is just
15:21
Speaker 1: so incredibly vast and really unprecedented UH in the history
15:25
Speaker 1: of the U. S presidency. But of course there's also
15:27
Speaker 1: the real estate issue. A lot of his holdings are
15:30
Speaker 1: relatively a liquid and it's not clear exactly what fair
15:33
Speaker 1: market value would be UH for him to divest again
15:38
Speaker 1: if he were interested, which he does not seem to
15:40
Speaker 1: be coming across as he says, an such thing. It's fine,
15:46
Speaker 1: And in a strange way, he actually is right about
15:49
Speaker 1: the law conflict of interest. UH laws generally exempt the
15:53
Speaker 1: president because they have such a wide purview that there
15:57
Speaker 1: would constantly be raising questions of that doesn't undo his
16:01
Speaker 1: moral or ethical obligation, nor is it going to stop
16:04
Speaker 1: his political enemies from raising questions about it or for
16:07
Speaker 1: that a matter of reporters who seeing a story yesterday
16:09
Speaker 1: that George Washington too had a lot of property. Um,
16:12
Speaker 1: but it might not have been as as quite as lucrative,
16:16
Speaker 1: but people are sort of looking, uh for some kind
16:18
Speaker 1: of precedent that far back. There was another report yesterday
16:23
Speaker 1: that the Trump Foundation admitted violating I R S rules
16:27
Speaker 1: by uh improperly giving money to someone close to the organization. Um,
16:32
Speaker 1: is this an important thing? Is this something that people
16:33
Speaker 1: should pay attention to? Does it matter? Well, you know,
16:36
Speaker 1: I'll just sort of use Trump's own logic. You know,
16:39
Speaker 1: he said that the Hillary Clara the Clinton Foundation, that
16:43
Speaker 1: Bill Hilly and Chelsea Clinton Foundation was worthy of looking
16:46
Speaker 1: into because people could use it giving to it as
16:49
Speaker 1: a way to get access to the precedent to the president.
16:53
Speaker 1: They had used it as a way to get access
16:54
Speaker 1: to the Secretary of State, and that you know, this
16:57
Speaker 1: basically was issue number one or piece of evidence number
17:02
Speaker 1: one about the ways that the economy is rigged and
17:05
Speaker 1: the way that Washington is rigged. So I think it
17:07
Speaker 1: is something that people should be looking into. Uh, it's
17:11
Speaker 1: not exactly clear what the nature of that self dealing was.
17:14
Speaker 1: They just sort of checked a box on the I R.
17:16
Speaker 1: S Form. But yeah, well we're certainly gonna be looking
17:19
Speaker 1: into it. Yeah. It seems pretty unclear at this point
17:21
Speaker 1: with the scope of it is or sort of how
17:22
Speaker 1: how important it is. Um, but it's something to keep
17:24
Speaker 1: an eye on. Another thing making headlines today, uh, and
17:28
Speaker 1: President elect Trump plans to nominate South Carolina Governor Nicki
17:31
Speaker 1: Haley to be United Nations ambassador. Is he getting pushed
17:34
Speaker 1: back from his Republican colleagues even though Nicki Haley is
17:39
Speaker 1: a Republican herself. Nikki Haley is very popular in the party.
17:44
Speaker 1: Nikki Haley is very popular in her state. Of course,
17:48
Speaker 1: she was a vocal Trump opponent for much of the primaries,
17:52
Speaker 1: never really came around to him. Uh. It's a little
17:55
Speaker 1: bit unclear just how comfortable mainstream Republicans are right now
18:00
Speaker 1: with some of his picks who have been a little
18:02
Speaker 1: bit more outside of the mainstream where they've been a
18:03
Speaker 1: little bit more insiders, uh and loyalists. But we do
18:06
Speaker 1: know that they are broadly very happy with the choice
18:09
Speaker 1: of NICKI Haley, which one are theyt least happy about? Uh,
18:13
Speaker 1: that's uh, that's a big question. Steve Bannon is certainly
18:17
Speaker 1: someone who they who's gonna be uh a senior strategistic
18:20
Speaker 1: counselor uh, somebody who is drawing sort of a headache
18:23
Speaker 1: for them insofar as it's brought some pressure and some
18:26
Speaker 1: examination from liberal groups who are concerned about his ties
18:30
Speaker 1: to white nationalist movements. But uh, you know, picks like
18:33
Speaker 1: Ryant's previous for chief of staff, who's the chairman of
18:36
Speaker 1: the r n C, they're pretty happy about those. So
18:38
Speaker 1: you know, it's a mixed bag for some of them.
18:40
Speaker 1: And I've heard um kind of mixed reports about Mitt
18:42
Speaker 1: Romney and how seriously uh President elect Trump is is
18:45
Speaker 1: considering putting up a secretary of state. Is that it
18:47
Speaker 1: is still Is that still on the table too? I
18:49
Speaker 1: think it's definitely still on the table. I think he's
18:51
Speaker 1: also definitely still considering a lot of people. This is
18:54
Speaker 1: a you know, this is a blue ribbon appointment, and
18:56
Speaker 1: he's taking it seriously, and I think he's entertaining a
18:59
Speaker 1: really wide iety of people from it. And he's somebody
19:01
Speaker 1: who uh kind of goes through a lot of different
19:05
Speaker 1: possibilities for big choices like this, and UH often doesn't
19:10
Speaker 1: sort of commit one way or the other until his
19:12
Speaker 1: gut knows, And so you'll hear leaks from this or
19:14
Speaker 1: that quarter representing what's purported to be his choice at
19:19
Speaker 1: a given moment. But very often once it's made, UH,
19:22
Speaker 1: it looks a little bit different from what people on
19:23
Speaker 1: the inside for telling us. Ben Brody, Blumber Politics reporter,
19:26
Speaker 1: you have an interesting job. I want to talk about
19:40
Speaker 1: the story of UH construction companies and that have just
19:45
Speaker 1: absolutely searched in the wake of Donald Trump's victory as
19:49
Speaker 1: the next US president. And they seem to be soaring
19:53
Speaker 1: on the expectation that construction will pick up. But is
19:57
Speaker 1: this actually what's going to happen with us? To break
20:00
Speaker 1: it all down, is Karen Eubile, Heart and industrials analyst
20:03
Speaker 1: at Bloomberg Intelligence. First, Karen, let's talk a little bit
20:06
Speaker 1: about Deer earnings. They came out. They were better than expected,
20:09
Speaker 1: still down from last year, but better than expected. The
20:13
Speaker 1: stock now up more than nine percent. What's going on, UH,
20:17
Speaker 1: Deer is consistently beat throughout this cycle. This was a
20:20
Speaker 1: big beat. The expectations were thirty cents. That came in
20:23
Speaker 1: almost a dollar, So that's part of it. UM. The
20:26
Speaker 1: second thing is they sort of signaled that they think
20:29
Speaker 1: the bottom is here in aug equipment. UM. And you know,
20:32
Speaker 1: I think it's just that they've executed well, and there's
20:35
Speaker 1: a lot of hype around these stocks right now, so
20:37
Speaker 1: any any news is good news, it seems like. But
20:39
Speaker 1: it seems like it's not necessarily that they're predicting such
20:43
Speaker 1: an uptick in revenue next year even and frankly, a
20:46
Speaker 1: lot of their gains have come from or better than
20:49
Speaker 1: expected performance has come from cost cutting. Correct. They still
20:54
Speaker 1: expect the North American market to be down five to
20:56
Speaker 1: ten percent. That's the most important market for them. Uh.
20:59
Speaker 1: They expect lard equipment to be down in a similar amount,
21:02
Speaker 1: But they were down twenty five tot in uh in
21:06
Speaker 1: uh fifth school sixteen, so I guess five to ten
21:09
Speaker 1: looks better. Uh. You know it. It is still going
21:11
Speaker 1: to be down in their high margin project products. So
21:14
Speaker 1: it's still going to be about execution next year, but
21:17
Speaker 1: people have a lot of confidence in it because they've
21:19
Speaker 1: done a good job. Did they talk at all about
21:23
Speaker 1: what a Trump administration would mean for their outlook going forward,
21:28
Speaker 1: do they have any sense of that. The conference call
21:31
Speaker 1: is on right now, but um, I so you know,
21:34
Speaker 1: I haven't heard the commentary. But what's going on is
21:37
Speaker 1: of course everything moved with Trump, right, But infrastructure was
21:41
Speaker 1: the big, big excitement around these docks. And interestingly for Deer,
21:45
Speaker 1: it's twelve percent of their sales construction equipment, so it
21:48
Speaker 1: should not have moved on that. But um, you know, Caterpillar,
21:51
Speaker 1: some of the others, they all moved in anticipation. What
21:54
Speaker 1: he what he said he wants to do is a
21:56
Speaker 1: big number, a trillion dollars over ten years on likely
22:00
Speaker 1: very unlikely. Also probably not gonna help next year, maybe
22:03
Speaker 1: help if we get anything through. But there's other things.
22:07
Speaker 1: Tax rates are expected to be lower, UH, clean it
22:11
Speaker 1: regulations are supposed to be lower. So there's just a
22:13
Speaker 1: lot of height that it's a very favorable environment for
22:17
Speaker 1: business in general, and UH cyclicals even more because of
22:20
Speaker 1: the construction spending and they're just really running. And yet
22:24
Speaker 1: on Monday, S and P Global downgraded the outlook for Caterpillar,
22:29
Speaker 1: which is often thought of as a rival too dear UH,
22:33
Speaker 1: saying that the outlook looks less less positive going forward.
22:38
Speaker 1: I mean, is Caterpillar facing a different outlook for some
22:41
Speaker 1: reason than Deer Uh yeah, Um, Deer's Cats in the
22:45
Speaker 1: money market, big market for them, it's down you know
22:48
Speaker 1: sixty um and uh so that looks like that's going
22:52
Speaker 1: to be bad again next year, maybe not as bad again,
22:55
Speaker 1: leveling off Deer's largely. Yeah, Dad Deer's egg. Um, cats
22:59
Speaker 1: got mining and construction. They overlap in construction, but the
23:02
Speaker 1: outlook is is different and Cat's financial situation is more
23:07
Speaker 1: stretched than DearS and that's part of why. Um, you know,
23:10
Speaker 1: SMP made the adjustment as well. Um. So they are
23:14
Speaker 1: similar in that that the two largest cap stocks in
23:17
Speaker 1: the group, but the end markets are really quite different
23:20
Speaker 1: with respect to Dear. How much more can make cut? Uh,
23:25
Speaker 1: they expect to cut another another hundred and fifteen million
23:29
Speaker 1: dollars again, Um, it's going to be probably largely people
23:32
Speaker 1: at this point. I think, you know, you can always
23:35
Speaker 1: find something. I think they're they're doing some restructuring in Europe.
23:39
Speaker 1: I think they're getting to the end of the cost cutting.
23:41
Speaker 1: At some point, they've got to start getting some top
23:45
Speaker 1: line and and you know, maybe they'll get it by
23:48
Speaker 1: the end of next year, but it's certainly not gonna
23:49
Speaker 1: happen in the in the first half. You know, I
23:51
Speaker 1: have to wonder, I mean, are they replacing people with
23:53
Speaker 1: machines or it's just as excess. Uh now they're running there,
23:56
Speaker 1: they're running their plants at much lower levels, like they've
24:00
Speaker 1: they've shut down their capacity and large equipment is like
24:03
Speaker 1: a third of what it was, for example, so they'd
24:06
Speaker 1: simply need less people. But that is happening that, you know,
24:09
Speaker 1: the longer term trend is that is happening. Karen Yubil,
24:11
Speaker 1: Heart Industrials analyst at Bloomberg Intelligence, here with us in
24:16
Speaker 1: our Bloomberg eleven three oh studio in New York, talking
24:19
Speaker 1: about uh Dear's beat big beat, its stocks are responding,
24:24
Speaker 1: and counterpillars more negative outlook. The big question remains, will
24:29
Speaker 1: the positive expectations of the market beefa filled with actual
24:33
Speaker 1: infrastructure spending. Thanks for listening to the Bloomberg pian L podcast.
24:43
Speaker 1: You can subscribe and listen to interviews at iTunes, SoundCloud,
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Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
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Speaker 1: out there on Twitter at pim Fox. I'm out there
24:54
Speaker 1: on Twitter at Lisa Abramo it's one before the podcast.
24:57
Speaker 1: You can always catch us worldwide. I'm Boomberg Radio m