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Bank Earnings, Energy Uncertainty, Market Concerns · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller.
• 0:05
  Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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  Speaker 2: and Bloomberg experts, along with essential market moving news.
• 0:14
  Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
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  Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
• 0:20
  Speaker 3: The Israel Hamas war does seem to be broadening out
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  Speaker 3: the US and the UK striking back against Houthi rebels
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  Speaker 3: who've been targeting shipping in the Red Sea, and now
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  Speaker 3: the Huti are vowing to strike back oil hire as
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  Speaker 3: a result, Let's take a deeper dive into the story,
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  Speaker 3: look also at the political fallout. Wendy Schiller, professor at
• 0:40
  Speaker 3: Brown University, joins us. Now, Wendy, thanks for being with us.
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  Speaker 3: We appreciate it. Did the Biden admonstration have much of
• 0:47
  Speaker 3: a choice in its response? And what's the worry about
• 0:50
  Speaker 3: how deeply we may or may not get involved in
• 0:53
  Speaker 3: a broader conflict?
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  Speaker 4: Well, I mean, I don't think the Biden decision had
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  Speaker 4: any choice. I mean, obviously we are a major superpower,
• 1:01
  Speaker 4: but we also have very strong commercial interests in making
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  Speaker 4: sure that commercial carriers can use shipping lanes unaccosted. You know,
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  Speaker 4: we've had issues with piracy in the past and other
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  Speaker 4: parts of the world, but this is you know, reminiscent
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  Speaker 4: of a conflicts that we've had over the years, the
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  Speaker 4: last fifty sixty years, and it reminds voters of our
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  Speaker 4: dependence on foreign oil and the globalization of the energy market.
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  Speaker 4: And so I think that's where Biden has to sort
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  Speaker 4: of figure out how to sell this to the American
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  Speaker 4: people as important to the United States, but also to
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  Speaker 4: the environmentalists, talk about where we are in terms of
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  Speaker 4: our energy independence.
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  Speaker 5: Now, when you the Houthi rebels, they said they have
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  Speaker 5: no issue launching more attacks after this, So how much
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  Speaker 5: of a thread of that and are the our only
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  Speaker 5: point of concern right now?
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  Speaker 4: Well, I mean the biggest concern I think to the
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  Speaker 4: United States directly is that we do have carriers in golf,
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  Speaker 4: We have personnel all over the Middle East, and we
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  Speaker 4: want to make sure that they are safe. I think
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  Speaker 4: that's the biggest fear the Biden decision has currently. But
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  Speaker 4: there are also lots of civilians who are in commercial shipping,
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  Speaker 4: and you know, the United States feels some obligation to
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  Speaker 4: protect that kind of commerce. So I think these are
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  Speaker 4: the pressures on the Biden administration. I think we're fully
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  Speaker 4: equipped militarily to really deal with any and all of
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  Speaker 4: the attacks. But I think they're trying to show fairly
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  Speaker 4: massive force early. And want to say massive, I mean
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  Speaker 4: joining with the UK and doing it all at once,
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  Speaker 4: doing a number of different strikes to limit civilian casualties,
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  Speaker 4: but also make sure that those that would attack the
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  Speaker 4: United States know that there will be a response every
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  Speaker 4: time they do, and that's been I think Obama, Trump,
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  Speaker 4: and Biden. I don't see a lot of daylight across
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  Speaker 4: any of the three presidents in that regard.
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  Speaker 3: All right, let's shift gears a bit. I would imagine Wendy,
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  Speaker 3: if you live in Iowa a year of a different stock,
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  Speaker 3: you're kind of a heartier breed. Is the weather going
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  Speaker 3: to matter for the Caucus?
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  Speaker 4: I think the weather doesn't matter as much as maybe
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  Speaker 4: those of us on the East Coast or West Coast
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  Speaker 4: who are experience in bad weather might be deterred from
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  Speaker 4: getting out the door. I think that the caucuses are
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  Speaker 4: locally held, and so I think they are prepared for it.
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  Speaker 4: I think that Trump supporters, and Trump himself has an
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  Speaker 4: advantage in that way because there's generally more enthusiasm consistently
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  Speaker 4: among Trump voters in the nomination process so far, particularly
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  Speaker 4: in Iowa, than there are the Dysantis or Haley voters.
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  Speaker 4: So that's the big challenge for Nikki Haley. Can she
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  Speaker 4: draw close enough? She'll probably lose Iowa. I think most
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  Speaker 4: of us agree on that, But can she actually draw
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  Speaker 4: close enough to say I'm viable going into New Hampshire
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  Speaker 4: and really put DeSantis on the sidelines. And if she
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  Speaker 4: can do that with some percentage of the vote, maybe
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  Speaker 4: more than the fifteen percent or twenty percent, maybe twenty
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  Speaker 4: five percent, something like in that range, I think it
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  Speaker 4: makes her more viable as a candidate going into New Hampshire.
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  Speaker 4: As I just said. Also, the broader primary season becomes
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  Speaker 4: more attractive for donors for Nikka Haley if she can
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  Speaker 4: slice out a bigger coalition for her in Ireland.
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  Speaker 3: Remind me how that the caucuses work. That the local
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  Speaker 3: it's not winner take all, right, No.
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  Speaker 4: No, it's basically people people. It's yeah, it's in terms
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  Speaker 4: of the precincts, so people actually go to their precinct.
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  Speaker 4: It can be a school, it can be a library,
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  Speaker 4: it can be somebody's home, and people vote in that
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  Speaker 4: area for their choice. Right, But you know, the Republicans
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  Speaker 4: have proportional representation in their primaries at least going till
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  Speaker 4: March fifteenth, So this is an interesting thing people are forgetting.
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  Speaker 4: You can pick up delegates throughout this contest until the
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  Speaker 4: middle of March, So even though Trump looks like the
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  Speaker 4: big front runner, we don't get to winter take off
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  Speaker 4: for a couple more months. So that means people like
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  Speaker 4: Haley and the Santis can pick off or collect delegates,
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  Speaker 4: and I think that makes a difference at least in
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  Speaker 4: the next couple of weeks.
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  Speaker 5: So if you can, we'll dig into the economics a
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  Speaker 5: little bit of this. So like we do, we have
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  Speaker 5: the electioneer, we have the Warren Ukraine, we have the
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  Speaker 5: Warren Gaza. How is this affecting the markets? If you
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  Speaker 5: can just dig deeper into the market reaction from all
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  Speaker 5: of this put together, well, I mean.
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  Speaker 4: I think, you know, I think the question is consumer
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  Speaker 4: confidence in both government but also in market predictions. Because
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  Speaker 4: you know, there was supposed to be a recession didn't
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  Speaker 4: really turn out that way. We have maybe a soft lanning.
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  Speaker 4: Maybe they'll be a little bit more of a slow down,
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  Speaker 4: but we've seen a very healthy job market just last month.
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  Speaker 4: So the question is who are we going to believe
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  Speaker 4: the same kinds of forces that have infiltrated politics in
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  Speaker 4: terms of misinformation, perception, you know, partisanship, the lens of
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  Speaker 4: looking at the economy through partisanship will start to affect
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  Speaker 4: people's trusting of economic reditions and the market at the
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  Speaker 4: very high elite levels. Not but for people who are thinking,
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  Speaker 4: do I put my money in a savings account in
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  Speaker 4: a bank that I know, or do I put it
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  Speaker 4: in the stock market? You know, the bank that you
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  Speaker 4: know is becoming far more attractive given interest rates than
• 6:01
  Speaker 4: the amorphous stock market. So I think that people who
• 6:04
  Speaker 4: do watch consumer behavior in terms of the stock market
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  Speaker 4: have to pay attention to what's happening in politics now
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  Speaker 4: in terms of credibility to figure out where people will
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  Speaker 4: actually end up putting their money as we go forward
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  Speaker 4: this year.
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  Speaker 3: One of his cases, Donald Trump showed up yesterday kind
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  Speaker 3: of turned it into a political rally of sorts. Is
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  Speaker 3: there any degree that you can sense of maybe as
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  Speaker 3: it makes all of these appearances in court, usually that
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  Speaker 3: there's some Trump fatigue.
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  Speaker 4: I think we're seeing the opposite, and I have been
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  Speaker 4: surprised by that that trend, but the opposite in terms
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  Speaker 4: of his core supporters. There is no bad publicity in
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  Speaker 4: Trump's world. In Trump's mind, every single opportunity to present
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  Speaker 4: himself and make his case he takes, and he takes
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  Speaker 4: with vigor and energy. And these are the kinds of
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  Speaker 4: things that are frustrating to the Biden campaign. So he
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  Speaker 4: will now get the kind of free press, even if
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  Speaker 4: we all think maybe it's press, but he thinks it's
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  Speaker 4: good press, good opportunity, and I'll get the same kind
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  Speaker 4: of free press he got in twenty sixteen when everybody
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  Speaker 4: covered him, and I think that's what he's looking for.
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  Speaker 4: Will will be Trump fatigue three or four months from
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  Speaker 4: now among independence and suburban voters who have not yet
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  Speaker 4: committed in their choice for twenty twenty four, that's the
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  Speaker 4: big question mark. The more we see it here from
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  Speaker 4: Donald Trump in what we call the mainstream media, do
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  Speaker 4: we get more tired of Donald Trump? He's betting the opposite,
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  Speaker 4: at least for the primaries to show up his base
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  Speaker 4: once we get to the summer. I think that's where
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  Speaker 4: we really have to take a look at whether people
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  Speaker 4: are going to choose Trump and all that Trump brings
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  Speaker 4: versus right now Biden. And that's where if we're going
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  Speaker 4: to see Trump fatigue, we'll start to see it.
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  Speaker 3: Then, Okay, what's the gap between undecided versus his core supporters.
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  Speaker 4: So let's just say maybe there's you know, the public party,
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  Speaker 4: you know, you'll do polls and people say they'll vote
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  Speaker 4: for Trump, will vote for Trump. But essentially there's about
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  Speaker 4: thirty eight to forty percent as we saw in the
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  Speaker 4: primaries in twenty sixteen and might see again of support
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  Speaker 4: for Donald Trump that's unwaiverable that they will not budge.
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  Speaker 4: So it does leave open the possibility of winning the nomination.
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  Speaker 4: But those people are Trumpers and they're never going to
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  Speaker 4: sway and they're never going to affect from Trump. But
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  Speaker 4: there's still a lot of open GOP people. And also
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  Speaker 4: there are primaries that are open to independence to register,
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  Speaker 4: like New Hampshire where you can register to vote in
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  Speaker 4: the Republican primary. So a lot of states have that opportunity.
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  Speaker 4: That's what could swing these Republican primaries, not the closed
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  Speaker 4: primaries of the type that are typically in place like
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  Speaker 4: South Carolina. But the open primaries are semi open where
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  Speaker 4: you can register as a Republican and then vote in
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  Speaker 4: that primary if independents choose to do that. That is
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  Speaker 4: what the Haley campaign is counting on to make her competitive.
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  Speaker 4: As we move forward, and before.
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  Speaker 5: You go really quickly Biden's running meete. There's been different talk.
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  Speaker 5: I know you Mind mentioned it too, Kamala Harris still
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  Speaker 5: still sticking with them on the side or is he
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  Speaker 5: going somewhere else?
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  Speaker 4: Yeah, I've said before that picking somebody like Raphael Warnock,
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  Speaker 4: who won in Georgia four times technically and who certainly
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  Speaker 4: in terms of making sure that you stay loyal to
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  Speaker 4: your promise to the African American community, to pick an
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  Speaker 4: African American candidate, Biden said, woman candidate. But nonetheless, that's
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  Speaker 4: somebody who can make Georgia competitive. Right now, Georgia won't
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  Speaker 4: be competitive. I don't think in twenty twenty four there's
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  Speaker 4: nobody on the bout that really will generate Democrat turnout.
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  Speaker 4: So my proposal has been that if he is faltering
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  Speaker 4: generally in ways that are sort of systemic against Trump
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  Speaker 4: by the summer, by the convention, there could be a
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  Speaker 4: shift in who he selects as his VP.
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  Speaker 3: Wendy, always a pleasure, appreciate it. Thanks for the Updaid,
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  Speaker 3: Wendy Shilder, Professor at Brown University.
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  Speaker 6: You're listening to the Team Ken's Are Live program Bloomberg
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• 9:51
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• 9:54
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• 9:58
  Speaker 3: What stands out to me right now, Lisa? The two
• 10:00
  Speaker 3: year treasury which is more policy reactive. That's seven basis
• 10:03
  Speaker 3: points lower four sixteen. That would be just around the
• 10:07
  Speaker 3: lowest since May, an unexpected decline and producer prices reinforcing bets.
• 10:12
  Speaker 3: The Federal Reserve cuts rates this year. Of course, it
• 10:15
  Speaker 3: comes after the hotter that expected CPI figures we got yesterday.
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  Speaker 3: Let's get the MAC review now. Phil Orlando, chief equity
• 10:22
  Speaker 3: strategists with Federated Hermes, joins us. Phil, good to talk
• 10:26
  Speaker 3: to you. Take your pick. What narrative have you latched onto?
• 10:33
  Speaker 7: There are many from which to choose. I'm less inclined
• 10:38
  Speaker 7: to look at the PPI, the wholesale inflation this morning.
• 10:42
  Speaker 7: Yesterday's CPI critically important, and then the personal Consumption Expenditure
• 10:47
  Speaker 7: Index coming up later in the month. So looking at
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  Speaker 7: yesterday's CPI, that number was just much hotter than expected.
• 10:55
  Speaker 7: November year on year nominal was up three point one percent,
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  Speaker 7: December three point four percent, and that was a couple
• 11:02
  Speaker 7: of tecks higher than expected. So what you look at
• 11:05
  Speaker 7: what the Federal Reserve has been doing. You've got some
• 11:09
  Speaker 7: investors out there. Frankly, I think the consensus is expecting
• 11:13
  Speaker 7: the Fed to cut rate six times over the course
• 11:16
  Speaker 7: of this year, with that first cut coming in the
• 11:19
  Speaker 7: month of March. We just don't see that. Given how
• 11:23
  Speaker 7: hot inflation still is, we think the Fed is going
• 11:25
  Speaker 7: to be patient, vigilant, try to make sure that inflation
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  Speaker 7: is heading down to their two percent core PCEE target.
• 11:34
  Speaker 7: So we're looking at a couple of rate cuts in
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  Speaker 7: the back half of the year, not six that are,
• 11:41
  Speaker 7: you know, starting in the month of March.
• 11:44
  Speaker 5: And what about recession thoughts? Are they on the back burner?
• 11:47
  Speaker 7: We are officially in the soft landing camp. That said,
• 11:52
  Speaker 7: we still expect the economy to slow materially over the
• 11:56
  Speaker 7: course of the next year or so. So you look
• 11:59
  Speaker 7: at this fourth quarter that's gonna get flashed in about
• 12:02
  Speaker 7: two weeks, we're at one point five percent GDP growth.
• 12:06
  Speaker 7: That compares to the third quarter at four point nine percent.
• 12:09
  Speaker 7: That's a pretty significant decline. And then as you look
• 12:12
  Speaker 7: at say the first three quarters of this year, we're
• 12:15
  Speaker 7: gonna be limping along, we think at about a one
• 12:17
  Speaker 7: percent run rate. So the Federal Reserve, in our view,
• 12:20
  Speaker 7: has done exactly what it intended to do over the
• 12:23
  Speaker 7: last two years. They took the funds rate from zero
• 12:25
  Speaker 7: to five and a half percent, They cut their balance
• 12:27
  Speaker 7: sheet from nine trillion dollars to you know, seven point
• 12:31
  Speaker 7: seven trillion dollars. They were hoping to see the economy slow,
• 12:35
  Speaker 7: the rate of unemployment increase a little bit, inflation come
• 12:39
  Speaker 7: down materially, and all of that's playing out at this point.
• 12:43
  Speaker 7: I think they just want to be you know, very careful,
• 12:47
  Speaker 7: very cautious, very patient to make sure that inflation is
• 12:50
  Speaker 7: sustainably moving down to their target. I think they'll come
• 12:54
  Speaker 7: to that conclusion by the time we get to say
• 12:56
  Speaker 7: the July FMC meeting.
• 12:58
  Speaker 3: I don't want to get two wonky, but I'm still
• 13:00
  Speaker 3: having a little trouble wrapping my thoughts around the sheltered
• 13:06
  Speaker 3: component and how that specifically is measured in whether it
• 13:11
  Speaker 3: really is accurate at this point, well.
• 13:14
  Speaker 7: We can discuss or debate whether or not it's accurate
• 13:16
  Speaker 7: or not. But here's the big picture. That inflation peaked
• 13:21
  Speaker 7: last year and is coming down, no question, full stop.
• 13:25
  Speaker 7: But you look at the housing market, and in calendar
• 13:27
  Speaker 7: twenty one and calendar twenty two, housing prices in the
• 13:31
  Speaker 7: United States went up by fifty percent five zero percent.
• 13:35
  Speaker 7: So while it's absolutely true that inflation is generally coming
• 13:39
  Speaker 7: down and that housing prices have sort of peaked here,
• 13:42
  Speaker 7: we're not seeing a fifty percent decline in housing prices.
• 13:46
  Speaker 7: And the investment that we make as individuals in our
• 13:50
  Speaker 7: homes for a lot of us is the most significant
• 13:53
  Speaker 7: investment that we have in our personal portfolios. I think
• 13:56
  Speaker 7: that's weighing on consumer attitude and consumer mentality, and then
• 14:01
  Speaker 7: that translates back into the rental component of the CPI calculation,
• 14:09
  Speaker 7: which accounts for about forty percent of that number. So
• 14:12
  Speaker 7: it will come down and wash itself out over time,
• 14:15
  Speaker 7: but it's not going to happen tomorrow, and to some
• 14:18
  Speaker 7: degree that's creating some of the noise and some of
• 14:21
  Speaker 7: the stickiness in the data.
• 14:23
  Speaker 5: So with all that said, felt CPI PPI, How are
• 14:27
  Speaker 5: you changing your strategy moving into twenty twenty four.
• 14:30
  Speaker 7: So we sort of made that change back in late
• 14:33
  Speaker 7: October when the S and P five hundred got to
• 14:36
  Speaker 7: that forty one hundred level, we felt that that was
• 14:39
  Speaker 7: dramatically oversold, and we felt that we could get to
• 14:43
  Speaker 7: the forty eight hundred level by the end of this year,
• 14:46
  Speaker 7: the fifty two hundred level by the end of calendar
• 14:49
  Speaker 7: twenty four. And we felt that the rally last year
• 14:54
  Speaker 7: was disproportionately driven by the mag seven and we felt
• 14:58
  Speaker 7: that there was going to be reverse the mean there.
• 15:01
  Speaker 7: So what we wanted to do and we're maintaining that
• 15:03
  Speaker 7: strategy now is look at the sectors of the market
• 15:07
  Speaker 7: that had been left for dead that we felt would
• 15:11
  Speaker 7: finally find some love. So domestic small cap growth, domestic
• 15:16
  Speaker 7: large cap value, and international the areas that we think
• 15:19
  Speaker 7: are going to be the winners in the fourth quarter
• 15:22
  Speaker 7: of last year and over the course of calendar twenty four.
• 15:25
  Speaker 3: All right, your view overall of technology in the new year,
• 15:29
  Speaker 3: and then since we got their earnings today, the financials.
• 15:33
  Speaker 7: So you know, growth stocks, technology stocks are still great companies.
• 15:38
  Speaker 7: I'm not going to tell you that Google or Softy
• 15:41
  Speaker 7: or Nvidio or bad companies. They're not. The question is
• 15:44
  Speaker 7: that valuations may have gotten a little bit ahead of
• 15:47
  Speaker 7: themselves in terms of all of the AI FOMO that
• 15:50
  Speaker 7: we experienced over the course of last year. So at
• 15:55
  Speaker 7: this point we are slightly underweight growth and technology, but
• 16:00
  Speaker 7: we're not zero. We're maintaining a slight underweight position. Financials
• 16:05
  Speaker 7: are one of the areas that we really like, along
• 16:07
  Speaker 7: with energy and healthcare. Those were areas you look at
• 16:10
  Speaker 7: financials for example, this time last year, first quarter of
• 16:14
  Speaker 7: last year, those stocks were absolutely obliterated based upon the
• 16:19
  Speaker 7: problems with the commercial real estate market. A lot of
• 16:23
  Speaker 7: those stocks were down fifty percent. They sort of double
• 16:26
  Speaker 7: bottomed in the fall and then have started to come
• 16:29
  Speaker 7: back up. So there's a lot of catch up that
• 16:31
  Speaker 7: has to happen there. And you look at some of
• 16:33
  Speaker 7: the quality numbers, for example, that came out of JP
• 16:36
  Speaker 7: Morgan this morning. We think financials are a sector that
• 16:39
  Speaker 7: that's probably going to do pretty well over the course
• 16:42
  Speaker 7: of this year as they sort of get back on
• 16:44
  Speaker 7: trend in terms of evaluation.
• 16:46
  Speaker 5: Felt disinflation good for markets or not good for markets?
• 16:52
  Speaker 7: I think everyone would be happy to see the FED
• 16:55
  Speaker 7: hit their core PCE number at two percent. But here's
• 17:00
  Speaker 7: sort of the interesting thing. We're rapidly approaching that number,
• 17:05
  Speaker 7: and by our account, we could be there by the
• 17:08
  Speaker 7: end of this year at the beginning of next year.
• 17:10
  Speaker 7: But you look at the fed's latest SEP, the Summary
• 17:14
  Speaker 7: of Economic Projections that they publish just in the middle
• 17:17
  Speaker 7: of December, they're telling us that they're not confident that
• 17:21
  Speaker 7: we're going to get to that two percent level until
• 17:23
  Speaker 7: the end of calendar twenty twenty six. That's three years
• 17:26
  Speaker 7: from now. So where's the disconnect here? Is the FED
• 17:30
  Speaker 7: being too conservative or do they know something that we
• 17:33
  Speaker 7: don't know that this last mile, so to speak, I'm
• 17:36
  Speaker 7: getting to that two percent target is going to be
• 17:39
  Speaker 7: like hand to hand combat, and they're taking a very prudent,
• 17:44
  Speaker 7: very patient approach, just to make sure that things are
• 17:47
  Speaker 7: moving in the right direction.
• 17:48
  Speaker 3: All right, unfair question time year ENDO S and P
• 17:51
  Speaker 3: five hundred target.
• 17:53
  Speaker 7: Not unfair. Fifty two hundred's our number.
• 17:55
  Speaker 3: Okay, we're right now forty seven to seventy six. Also,
• 17:59
  Speaker 3: you know, still we.
• 18:01
  Speaker 7: Think we're going to be up eight or nine percent
• 18:03
  Speaker 7: over the course of this year, which is a very
• 18:05
  Speaker 7: modest year compared to the twenty four percent game we
• 18:08
  Speaker 7: saw last year.
• 18:09
  Speaker 3: Phil, always a pleasure, appreciate it. Happy Friday, have a
• 18:12
  Speaker 3: great weekend. Phil Orlando, Chief Equity Strategists with Federated Hermes.
• 18:16
  Speaker 6: You're listening to the tape Can's our live program Bloomberg
• 18:19
  Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 18:23
  Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 18:26
  Speaker 6: You can also listen live on Amazon Alexa from our
• 18:29
  Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 18:35
  Speaker 3: Well, we all know about geopolitical risk lease. We saw
• 18:39
  Speaker 3: oil pop hire after US and allies launched air strikes
• 18:42
  Speaker 3: against Houthi rebels and Yemen. As an investor, can you
• 18:45
  Speaker 3: mitigate risks like that? Or should even try? Let's get
• 18:50
  Speaker 3: some answers this morning Global Macro View with Jeffrey klentz Up,
• 18:53
  Speaker 3: the Global Strategist, Chief Global Strategists at Charles Schwab. Thanks
• 18:58
  Speaker 3: for being with us. We call risk assets for a reason.
• 19:02
  Speaker 3: Should I be losing sleep over events over which I
• 19:05
  Speaker 3: have no control?
• 19:07
  Speaker 8: Well, these types of events are gosh, you know, just
• 19:12
  Speaker 8: an ever present risk.
• 19:13
  Speaker 9: When it comes to investing.
• 19:14
  Speaker 8: We've seen backups a chow point at the Panama Canal
• 19:18
  Speaker 8: for months now. It's only getting worse as we head
• 19:20
  Speaker 8: into February, as the cargo traffic through that particular vital
• 19:27
  Speaker 8: global supply chain link is really cutting back to less
• 19:30
  Speaker 8: than fifty percent of capacity. By February, forty percent of
• 19:33
  Speaker 8: the world's freight traffic moves to the Panama Canal.
• 19:35
  Speaker 9: That's an issue.
• 19:36
  Speaker 8: The Red Sea certainly moves a lot of energy, yet
• 19:39
  Speaker 8: the world is oversupplied right now, and so I think
• 19:41
  Speaker 8: that's one of the reasons. Yes, we're seeing a balance
• 19:43
  Speaker 8: and energy prices, but we are not in a deficit situation,
• 19:46
  Speaker 8: and as a result of that, I think this is
• 19:48
  Speaker 8: something that can be probably absorbed. We're not likely to
• 19:52
  Speaker 8: see the type of surge to input prices that we
• 19:55
  Speaker 8: saw during the pandemic tied to supply chain issues related
• 19:59
  Speaker 8: to these particular their threats at these two vital supply
• 20:01
  Speaker 8: chain choke points. That could be different were they to
• 20:04
  Speaker 8: linger into the latter part of this year, where maybe
• 20:07
  Speaker 8: we run into an undersupply situation with energy.
• 20:09
  Speaker 9: But for right now now, I.
• 20:10
  Speaker 8: Don't think you need to lose sleep over this just
• 20:12
  Speaker 8: expecting this is part of one of those risks when
• 20:15
  Speaker 8: it comes to investing.
• 20:16
  Speaker 5: Now something else people might lose some sleepover interest rates.
• 20:19
  Speaker 5: I want to talk give a little economic outlook yesterday
• 20:21
  Speaker 5: where Cleveland FED President Loretta Mester, she said Central Brankos
• 20:25
  Speaker 5: probably will have to wait past March before they can
• 20:27
  Speaker 5: start cutting interest rates. What's your take on this.
• 20:31
  Speaker 8: I think that the market has gotten a little carried
• 20:33
  Speaker 8: away with the magnitude of rate cuts likely in twenty
• 20:37
  Speaker 8: twenty four.
• 20:37
  Speaker 9: I think it's.
• 20:38
  Speaker 8: Probably something closer to what the FIT has been telling us,
• 20:40
  Speaker 8: maybe three or four rate cuts rather than five or six.
• 20:43
  Speaker 8: And some of the reasons for that is the potential
• 20:45
  Speaker 8: volatility in the path of inflation. We know inflation rarely
• 20:49
  Speaker 8: subsides in a straight line, and we're now beginning to
• 20:51
  Speaker 8: see this. As we get closer to the Fed's target,
• 20:54
  Speaker 8: it's getting harder and harder to push those numbers down.
• 20:56
  Speaker 8: We know housing remains very challenging in the US to
• 20:59
  Speaker 8: try and push those housing rental rates down, and the.
• 21:01
  Speaker 9: Result is that, yes, it may take a little bit longer.
• 21:04
  Speaker 8: So I think the rally we saw in the market
• 21:06
  Speaker 8: at the end of last year, enthusiasm around a soft
• 21:09
  Speaker 8: landing and a flood of rate cuts might need to
• 21:11
  Speaker 8: be tempered early this year, as maybe we see a
• 21:14
  Speaker 8: push out in the beginning and the magnitude of the
• 21:17
  Speaker 8: number of cuts we expect from the Fed.
• 21:18
  Speaker 3: Hey, Jeff, is disinflation good for markets or not?
• 21:24
  Speaker 8: Well, it's generally good in that it lowers borrowing costs
• 21:29
  Speaker 8: and we generally see a little bit more investment by businesses.
• 21:32
  Speaker 8: But we've really yet to see that pick up, right,
• 21:34
  Speaker 8: So we're still in an environment of much higher rates
• 21:37
  Speaker 8: than businesses have been used to a few years ago,
• 21:39
  Speaker 8: and so we're not seeing the type of capital expenditures
• 21:42
  Speaker 8: or hiring that would normally go along with lower rates
• 21:46
  Speaker 8: and the disinflation. So in general it's a good thing,
• 21:49
  Speaker 8: but it takes some time for that begin to show
• 21:51
  Speaker 8: up in economic activity.
• 21:52
  Speaker 5: Ajef's big bank earnings out today. That's been the big talk.
• 21:55
  Speaker 5: If rates go lower, what's the impact of margins? I mean,
• 21:59
  Speaker 5: is that still a place to invest?
• 22:03
  Speaker 8: I do think financials are our favorite sector for twenty
• 22:05
  Speaker 8: twenty four, and there's a variety of reasons.
• 22:07
  Speaker 9: One is that you've got this balance of you.
• 22:10
  Speaker 8: Know, what, what are banks going to earn in the
• 22:12
  Speaker 8: short term on their cash, balanced by the fact that
• 22:16
  Speaker 8: they hold a lot of maybe longer data fixed income
• 22:18
  Speaker 8: because of that's how.
• 22:19
  Speaker 9: They hold their reserves.
• 22:20
  Speaker 8: And of course we all know the challenges that caused
• 22:24
  Speaker 8: last year with the route in some of those banking
• 22:26
  Speaker 8: stocks on that big surgeon interest rate. So there's that
• 22:30
  Speaker 8: balance in terms of what the yield curve does this year.
• 22:32
  Speaker 8: But maybe even more importantly is the credit outlook. And
• 22:35
  Speaker 8: looking at the credit picture, it looks relatively bright. Usually
• 22:38
  Speaker 8: we're going to see soaring bankruptcies through a deeper downturn
• 22:41
  Speaker 8: in the economy.
• 22:42
  Speaker 9: In the economy, we didn't get that this time, and
• 22:44
  Speaker 9: we may not.
• 22:45
  Speaker 8: Businesses seem to have been holding more cash. The economy
• 22:49
  Speaker 8: seems to be managing its way through this downturn and
• 22:52
  Speaker 8: manufacturing with a bit more strength and services, and the
• 22:54
  Speaker 8: result of that is that we may see much less
• 22:57
  Speaker 8: in terms of losses and provisioning for losses bank So
• 23:00
  Speaker 8: are actually pretty bright outlook for the banks, given how
• 23:03
  Speaker 8: they are raced on a valuation basis for a more
• 23:05
  Speaker 8: difficult environment.
• 23:06
  Speaker 3: What's the outlook for the consumer? You mentioned loan loss
• 23:09
  Speaker 3: provisions and credit cards. Probably not as high as we
• 23:13
  Speaker 3: would have expected, But what is the outlook there for
• 23:15
  Speaker 3: the consumer?
• 23:17
  Speaker 8: So much is going to be dependent. I think upon
• 23:19
  Speaker 8: the job market. We've seen some signs of layoffs last year,
• 23:25
  Speaker 8: but really it's not much of a follow through. Businesses
• 23:28
  Speaker 8: sening to be hoarding labor, and we know that a
• 23:31
  Speaker 8: lot of consumer spending really comes down to confidence in
• 23:34
  Speaker 8: the employment situation and wages, and as long as that
• 23:37
  Speaker 8: remains fairly high, I think you can see a consumer
• 23:40
  Speaker 8: that continues to spend.
• 23:41
  Speaker 5: And what about your twenty twenty four, your whole global outlook,
• 23:44
  Speaker 5: what are you liking right now?
• 23:47
  Speaker 8: So I'm actually looking outside the US overall, what we've
• 23:51
  Speaker 8: seen is a pivot, but not less of a pivot
• 23:55
  Speaker 8: towards ray cuts and more of a pivot to international outperformance.
• 23:58
  Speaker 8: After years of the US market lead the way. Sure,
• 24:01
  Speaker 8: last year on a cap weighted basis, the S and
• 24:03
  Speaker 8: P five hundred beat the rest of the world. But
• 24:05
  Speaker 8: if you look at what the average stock did using
• 24:07
  Speaker 8: the equal weighted benchmarks, we actually saw the EFI index
• 24:11
  Speaker 8: outperformed the S and P five hundred, The average international
• 24:14
  Speaker 8: stock beat the average US stock really eclipsed by just
• 24:17
  Speaker 8: those seven magnificent stocks in the AI universe that really
• 24:21
  Speaker 8: led the US cap weighted into CES downperform. I think
• 24:24
  Speaker 8: that broader performance is going to be revealed this year
• 24:27
  Speaker 8: in a period where we're going to see some volatility
• 24:28
  Speaker 8: in the economic data and the inflation picture. I think
• 24:31
  Speaker 8: those stocks outside the US lower valuations, maybe a better
• 24:35
  Speaker 8: earnings environment. As a manufacturing sector recovers, that looks.
• 24:39
  Speaker 9: Brighter to me.
• 24:40
  Speaker 8: I think we'll see the first year in a long
• 24:42
  Speaker 8: time of international market out performance.
• 24:43
  Speaker 3: I looked to Charles Schwab when I want to know
• 24:45
  Speaker 3: about the fund flows. What are you seeing on that front?
• 24:51
  Speaker 8: Investors are still favoring fixed income. Money is flowing into
• 24:55
  Speaker 8: the bond market after many years where it was just
• 24:57
  Speaker 8: unattractive to be there, So that's where we're seeing money go.
• 25:00
  Speaker 8: But at the margin, we're also seeing money flow into
• 25:02
  Speaker 8: international equities. Perhaps that's a little bit of rebalancing after
• 25:05
  Speaker 8: last year where the US out performed. But it is
• 25:07
  Speaker 8: interesting to note this has been several months now we've
• 25:10
  Speaker 8: seen more money flowing into international markets than the US markets,
• 25:13
  Speaker 8: and I'm speaking broadly for the industry as a whole,
• 25:15
  Speaker 8: and that's encouraging to me as well as investors maybe
• 25:17
  Speaker 8: reconsider their portfolios and broaden that diversification.
• 25:20
  Speaker 5: Hey, Jeff, before we go quickly, we started this segment
• 25:23
  Speaker 5: here talking about risk. I want to bring it back
• 25:25
  Speaker 5: full circle here, so you can hedge risk, but is
• 25:28
  Speaker 5: hedging worth it because it's not cheap.
• 25:33
  Speaker 9: It really is not cheap.
• 25:35
  Speaker 8: And I think that's the one of the challenges here
• 25:38
  Speaker 8: and one of the benefits of having a diversified portfolio
• 25:40
  Speaker 8: right now we just talked about is.
• 25:42
  Speaker 9: The fact that bonds are actually paying you.
• 25:45
  Speaker 8: They offer some interest now and are offering a little
• 25:47
  Speaker 8: bit of an offset when we go through these periods
• 25:49
  Speaker 8: of volatility. Just this morning, you know, a rally in
• 25:51
  Speaker 8: the bond market on this you know, revelation of these
• 25:54
  Speaker 8: attacks on the Hoofy rebels, and so you get a
• 25:57
  Speaker 8: little bit of that volatility dampening effect in your portfolio
• 26:01
  Speaker 8: with that classic sixty to forty mix. That maybe that's
• 26:04
  Speaker 8: back as a dampening factor after so many years where
• 26:07
  Speaker 8: fixed income really didn't act as an effective hedge tequity volatility,
• 26:12
  Speaker 8: maybe we're beginning to see that now.
• 26:13
  Speaker 3: Yeah, I missed out on five percent is what is
• 26:16
  Speaker 3: it three ninety three right now on a ten years
• 26:19
  Speaker 3: that still a screaming buy.
• 26:22
  Speaker 8: We still think that's attractive in a reason to extend duration.
• 26:26
  Speaker 8: We think that the around year end yields maybe around
• 26:31
  Speaker 8: that same level. So we don't see a big rally
• 26:34
  Speaker 8: in the fixed income markets, but we don't see a
• 26:36
  Speaker 8: further sell off either, and that means you can pocket
• 26:38
  Speaker 8: some of that yield and benefit from the volatility damping effects.
• 26:42
  Speaker 3: Jeff always a pleasure, Appreciate it. Jeffrey Klinop, the chief
• 26:45
  Speaker 3: Global Strategist, joining us from Charles Schwab.
• 26:48
  Speaker 6: You're listening to the tape Can's our live program, Bloomberg
• 26:51
  Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 26:55
  Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 26:58
  Speaker 6: You can also listen Love I have on Amazon Alexa
• 27:01
  Speaker 6: from our flagship New York station, Just say Alexa play
• 27:04
  Speaker 6: Bloomberg eleven thirty.
• 27:08
  Speaker 3: Lisa, here's a question for you. Yeah, what is it
• 27:10
  Speaker 3: that keeps you up at night?
• 27:12
  Speaker 4: Probably sleep?
• 27:15
  Speaker 5: I'm always worried about him. That keeps me up at night.
• 27:18
  Speaker 3: I know it's pretty much everything. Well, the folks at
• 27:20
  Speaker 3: the conference board put that question. The global CEOs Dana
• 27:23
  Speaker 3: Peterson's chief account of it is at the conference board
• 27:26
  Speaker 3: with the results of their survey, So Dana welcome. First
• 27:32
  Speaker 3: of all, are the big wigs in the C suite gloomy,
• 27:35
  Speaker 3: happy or what?
• 27:37
  Speaker 10: It's kind of a mix. They're very worried about recessions
• 27:40
  Speaker 10: and slow downs, as well as high inflation and geopolitics.
• 27:44
  Speaker 10: But they are looking forward to growth and they certainly
• 27:47
  Speaker 10: have plans in terms of expansion and also investments and
• 27:51
  Speaker 10: innovation to make sure that they do grow over the
• 27:53
  Speaker 10: next year.
• 27:54
  Speaker 5: Now are what are their biggest worries? I know, recession, inflation,
• 27:58
  Speaker 5: I mean, are they ready for worried? How are they preparing?
• 28:02
  Speaker 10: Well? The interesting thing is that given those two things
• 28:05
  Speaker 10: that they're very very worried about, they are not prepared
• 28:08
  Speaker 10: to deal with another crisis having to do with a
• 28:11
  Speaker 10: recession or high inflation. They're also very worried about labor
• 28:15
  Speaker 10: shortages and geopolitical risks, including wars, and for most of
• 28:19
  Speaker 10: those things they are not really ready, but they are
• 28:21
  Speaker 10: thinking about, well, how do we push through despite these
• 28:25
  Speaker 10: very high risks. And certainly when it comes to labor shortages,
• 28:29
  Speaker 10: they're looking at attracting and retaining top talent, So that
• 28:33
  Speaker 10: includes things like investing in their talent AI upskilling and retraining.
• 28:39
  Speaker 10: So they're certainly trying to find their way through the fog.
• 28:42
  Speaker 3: What is it that backs up those views? Is it
• 28:45
  Speaker 3: anecdotal evidence? Is it sales figures? I mean, they have
• 28:49
  Speaker 3: to be gloomy for reason, right.
• 28:53
  Speaker 10: Well, CEOs are notorious for looking ahead and looking down
• 28:56
  Speaker 10: the road, and certainly it's also going to be colored
• 28:59
  Speaker 10: by recently experience. Certainly, in recent experience, they've seen major
• 29:03
  Speaker 10: increases and input costs, and certainly that includes higher interest rates.
• 29:07
  Speaker 10: The cost of capital is elevated, and all that feeds
• 29:10
  Speaker 10: into inflation. They've seen around the world China slowing, Europe
• 29:14
  Speaker 10: is slowing. A number of conflicts are causing disruptions and
• 29:18
  Speaker 10: production and trade and investments, and all those things have
• 29:21
  Speaker 10: gotten them very worried.
• 29:23
  Speaker 5: So with all these negative things that we're hearing, how
• 29:26
  Speaker 5: did they even plan to grow profits in twenty twenty four.
• 29:30
  Speaker 10: Well, they're looking at expansion. So expansion means looking at
• 29:34
  Speaker 10: new regions and countries to investment new lines of business,
• 29:39
  Speaker 10: looking at new products and new services, and also using
• 29:43
  Speaker 10: tools like AI to really enhance the performance of their
• 29:46
  Speaker 10: businesses and also their workers. And they think all of
• 29:49
  Speaker 10: this is going to be great for not only cutting
• 29:51
  Speaker 10: costs and driving the bottom line, but also increasing profits.
• 29:55
  Speaker 3: Well wait a second. If they're worried about labor and
• 30:00
  Speaker 3: they want to hold on to their workers and top talent,
• 30:03
  Speaker 3: are they paying them more? I mean, is it an
• 30:06
  Speaker 3: inflationary picture we're looking in.
• 30:09
  Speaker 10: Well, certainly when we look at the BLS data, Yes,
• 30:12
  Speaker 10: in those industries that are suffering from labor shortages, they
• 30:15
  Speaker 10: are paying their workers more. And also those industries where
• 30:18
  Speaker 10: they're worried about people quitting or a lot of people
• 30:21
  Speaker 10: are retiring, they are raising wages. But again that's very costly,
• 30:26
  Speaker 10: so businesses are trying to find ways around that, and
• 30:28
  Speaker 10: a lot of that's through digital transformation and technology.
• 30:32
  Speaker 5: Now you're talking about the workers getting paid, but where
• 30:35
  Speaker 5: are they working? That's the big question. This whole battle
• 30:38
  Speaker 5: back and forth between are you in the office, are
• 30:40
  Speaker 5: you at home?
• 30:41
  Speaker 9: Where are you going?
• 30:42
  Speaker 5: Are CEOs? Are they just throwing in the towel and
• 30:45
  Speaker 5: saying you know what you guys, do what you want
• 30:47
  Speaker 5: to do? Or are they going to try and try
• 30:49
  Speaker 5: and get more people in the office.
• 30:50
  Speaker 9: Well, it's interesting.
• 30:51
  Speaker 10: We did ask about the imperative to bring people back
• 30:54
  Speaker 10: to the office, and it was really low. CEOs are
• 30:56
  Speaker 10: not that focused on it. They're on flexibility and making
• 31:01
  Speaker 10: sure that their workers are having a good experience, that
• 31:04
  Speaker 10: they're collaborating, that the culture is very important, that there's
• 31:08
  Speaker 10: a right culture to keep their workers and also to
• 31:11
  Speaker 10: attract new workers. So again, you know, I think they're
• 31:15
  Speaker 10: recognizing that remote work is here to stay in some form,
• 31:18
  Speaker 10: but they're really trying to enhance the culture to make
• 31:20
  Speaker 10: sure that people do when they come into the office,
• 31:23
  Speaker 10: they have a good experience and they're productive.
• 31:26
  Speaker 3: Is this survey broken down by region and industry and
• 31:30
  Speaker 3: if so, what, if anything does that tell you.
• 31:34
  Speaker 10: Yes, it's definitely broken down by region, and so that
• 31:37
  Speaker 10: includes the US, Europe, Japan, Latin America, and then the
• 31:41
  Speaker 10: rest of the world. When we look at those regions,
• 31:44
  Speaker 10: there's really not much of a big difference in terms
• 31:46
  Speaker 10: of how CEOs think in terms of the big issues,
• 31:49
  Speaker 10: though I would note that Japan was very much worried
• 31:51
  Speaker 10: about labor shortages and also US China relations. When it
• 31:55
  Speaker 10: comes to industry, we looked at finance, manufacturing, and then
• 32:00
  Speaker 10: everyone else, and certainly there's not there's a big focus
• 32:04
  Speaker 10: in terms of finance on the cost of capital and
• 32:07
  Speaker 10: higher interest rates. But for the most part, there's a
• 32:10
  Speaker 10: lot of synergies, a lot of commonality in the way
• 32:14
  Speaker 10: that CEOs around the world are viewing business, the business environment.
• 32:17
  Speaker 3: Yeah, with manufacturing, since it's been in recession, I would
• 32:20
  Speaker 3: imagine they're a little a little more pessimistic than the
• 32:23
  Speaker 3: mode than most.
• 32:25
  Speaker 10: Yeah, they definitely are, And you're right, there has been
• 32:28
  Speaker 10: this manufacturing recession, and a lot of that reflects the
• 32:31
  Speaker 10: fact that manufacturing was one of the pandemic darlings. It
• 32:34
  Speaker 10: did extremely well when everyone was stuck at home and
• 32:37
  Speaker 10: buying things, but certainly as we shifted more towards a
• 32:40
  Speaker 10: better balance between goods and services consumption, manufacturing experience a slump.
• 32:45
  Speaker 10: And certainly when you look around the world, you see
• 32:48
  Speaker 10: that there's very weak growth in China, also very weak
• 32:51
  Speaker 10: growth in Europe in and out of recession. UK Germany
• 32:55
  Speaker 10: may go back into recession. And these are areas that
• 32:58
  Speaker 10: you tend to be big manufactoring hubs and also big
• 33:01
  Speaker 10: consumers of goods, and so if you have weak demand
• 33:04
  Speaker 10: in those areas, that's certainly going to impact the manufacturing
• 33:08
  Speaker 10: sector as well.
• 33:09
  Speaker 5: Hey, Danna, we have about probably a minute left. You
• 33:11
  Speaker 5: had mentioned Ai so I want to kind of bring
• 33:13
  Speaker 5: it back there because this has been another problem in
• 33:16
  Speaker 5: the workplace too. Our CEOs are they embracing it? You
• 33:19
  Speaker 5: had mentioned they have to do some more training. How
• 33:22
  Speaker 5: are they tackling AI in twenty twenty four.
• 33:25
  Speaker 10: Well, it's interesting they're welcoming AI with open arms. Most
• 33:29
  Speaker 10: CEOs that we canvas said they have already adopted AI
• 33:34
  Speaker 10: or have plans to do so. So they're overwhelmingly for it.
• 33:37
  Speaker 10: They think that it's going to enhance profitability, it's going
• 33:41
  Speaker 10: to make their workers more productive. But they are wary.
• 33:44
  Speaker 10: They are aware that there are some risk and responsibilities.
• 33:46
  Speaker 10: There may be more regulation. You have to think about
• 33:49
  Speaker 10: how to make sure the AI is not going to
• 33:51
  Speaker 10: compromise your intellectual property or even that there will be
• 33:55
  Speaker 10: an unethical use. But for the most part, companies are
• 33:58
  Speaker 10: very welcoming. They're did about.
• 34:00
  Speaker 3: AI all right, Dana, Always a pleasure, appreciate it. Dana Peterson,
• 34:03
  Speaker 3: the chief account of is at the Conference Board.
• 34:06
  Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
• 34:09
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
• 34:13
  Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 34:16
  Speaker 2: at Matt Miller nineteen seventy three and I'm fall Sweeney.
• 34:20
  Speaker 1: I'm on Twitter at pt Sweeney before the podcast. You
• 34:22
  Speaker 1: can always catch us worldwide at Bloomberg Radio