Latest / Bloomberg Intelligence / UPS to Cut Jobs, US Consumer Confidence Climbs, Tech Earnings on Deck

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UPS to Cut Jobs, US Consumer Confidence Climbs, Tech Earnings on Deck · Bloomberg Intelligence

0:01
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0:16
Speaker 2: You're a confident guy, John.
0:18
Speaker 3: The consumer confidence numbers just coming out from a conference board,
0:21
Speaker 3: man spot right on the forecast came in at one
0:24
Speaker 3: fourteen point eight. That was right in line with expectations,
0:27
Speaker 3: and notably it was a lot higher than last month,
0:30
Speaker 3: which was revised down to one zero eight.
0:32
Speaker 2: So nice pick up there.
0:33
Speaker 3: Let's break it down with somebody who kind of knows
0:35
Speaker 3: what's happening here, Dana Peterson, chief economist at the conference Board.
0:39
Speaker 3: It joins us via Zoom Data. It looks like a
0:41
Speaker 3: solid number. Put it in context for.
0:43
Speaker 4: Us, absolutely, we have the highest reading on consumer confidence
0:47
Speaker 4: in two years. A lot of it was led by
0:50
Speaker 4: the present situation where consumers are feeling good about their jobs,
0:54
Speaker 4: they're feeling good about the business situation, but also consumers
0:57
Speaker 4: are thinking that maybe we won't have a recession, and
1:00
Speaker 4: that also contributed to expectations which were above that threshold
1:04
Speaker 4: that usually signals or session.
1:06
Speaker 5: Yeah, before you came on, Dana, we did the Joelt's
1:09
Speaker 5: Job Opening survey, more evidence the labor market is just
1:13
Speaker 5: cooking along. How much does that play into this?
1:17
Speaker 4: We think it plays a huge role. Consumers continue to
1:20
Speaker 4: say that the labor market is good. Even most of
1:24
Speaker 4: last year they said the present situation was fine with
1:26
Speaker 4: regards to the labor market. Many of them are working.
1:29
Speaker 4: Companies are not letting people go because they're concerned about
1:32
Speaker 4: labor shortages, and so that's been benefiting the consumer and
1:35
Speaker 4: definitely supporting their finances and their incomes.
1:39
Speaker 3: And Dan, it's interesting here we're getting you know, as
1:42
Speaker 3: interest rates come down, Like just take the mortgage rate.
1:45
Speaker 3: Mortgage rates are coming down off their peak. They are
1:47
Speaker 3: still a lot higher than probably people would like though,
1:49
Speaker 3: but everybody's.
1:51
Speaker 2: Got a job.
1:51
Speaker 3: But once one, where are you looking at this economy
1:55
Speaker 3: to get a sense of really where it is and
1:57
Speaker 3: where it might be going here?
2:00
Speaker 4: Sure, So, I mean you have to look at the
2:01
Speaker 4: economy and look under the hood. So they're definitely areas
2:04
Speaker 4: of weakness. The housing market is still pretty weak as
2:08
Speaker 4: mortgage rates have come off, but there's still much higher,
2:11
Speaker 4: almost double what we saw a pre pandemic or even
2:14
Speaker 4: during the worst of the pandemic. Businesses are not investing
2:17
Speaker 4: that much, and we don't think government is going to
2:19
Speaker 4: be as big of a stimulator. But when you look
2:22
Speaker 4: at consumers, many of them are working. As we said,
2:25
Speaker 4: their real incomes are rising as inflation is falling, and
2:28
Speaker 4: so that's definitely propping up spending. But the key issue
2:32
Speaker 4: is can they continue to do so, and we're not
2:34
Speaker 4: sure about that given the amount of debt that's being
2:36
Speaker 4: piled up right now.
2:38
Speaker 5: Okay, and these numbers also to some extent, because they
2:41
Speaker 5: are good numbers, might actually be inflationary. You did mention
2:45
Speaker 5: consumer spending.
2:46
Speaker 4: Right, Well, the interesting thing is that in the right ends,
2:49
Speaker 4: consumers continue to complain about inflation and prices, so the
2:53
Speaker 4: price level is high even though inflation prices aren't rising
2:57
Speaker 4: as quickly as they were. But the good news is
2:59
Speaker 4: that inflation expectations continue to fall in our measure, and
3:03
Speaker 4: that's a signal that consumers are thinking that inflation is
3:07
Speaker 4: going to continue to decline, and so it might not
3:09
Speaker 4: be inflationary. Despite the fact that we have seen some
3:12
Speaker 4: pretty strong consumption, especially in the second half of last
3:15
Speaker 4: year and in the last few months of last year.
3:17
Speaker 5: Can you explain why those inflation expectations are important? I mean,
3:21
Speaker 5: do they tend to be sort of self fulfilling prophecies?
3:26
Speaker 4: Well, it can be. If inflation expectations are too high,
3:29
Speaker 4: then people say, well, you know, I'm just not going
3:34
Speaker 4: to spat and because I can't afford it, and I
3:37
Speaker 4: probably won't be able to afford things in the future.
3:39
Speaker 6: So with the.
3:40
Speaker 4: Expectations falling, that means consumers are thinking, oh, I'm going
3:43
Speaker 4: to get some relief later on. So that means I
3:46
Speaker 4: don't have to put my life on hold while I
3:48
Speaker 4: watch prices rise even faster.
3:51
Speaker 3: So, Dana at the conference board, are you guys thinking
3:54
Speaker 3: there's going to be a recession in twenty twenty four
3:57
Speaker 3: or or not?
3:58
Speaker 2: How do you think about that?
4:00
Speaker 4: Well, we do think the likelihood of a soft landing
4:02
Speaker 4: has definitely increased, but we're still there's still risks out
4:05
Speaker 4: there that you could have a recession. It's probably going
4:08
Speaker 4: to be short, it's probably going to be shallow. Why
4:11
Speaker 4: do we think that? Again, consumers do no longer have
4:14
Speaker 4: the massive supports from the stimulus checks. Also, many consumers
4:19
Speaker 4: are financing their purchases with debt. At some point that's
4:22
Speaker 4: going to come due and they have to pay it back.
4:25
Speaker 4: We also think that some businesses may come under pressure
4:29
Speaker 4: and start letting people go, and that will definitely put
4:31
Speaker 4: a debt in confidence and also spending. But the key
4:35
Speaker 4: thing is the labor market. If the labor market doesn't
4:38
Speaker 4: weaken much further, then you're probably going to see people
4:42
Speaker 4: continue to spend and we'll have that soft landing that
4:45
Speaker 4: the fet is hoping for.
4:46
Speaker 5: Are all consumers created equal or do you break this
4:49
Speaker 5: down into certain groups geographically or income wise?
4:55
Speaker 4: Yes, we do, and in fact every income group, with
4:57
Speaker 4: the exception of the wealthiest group, we're more optimistic in January,
5:03
Speaker 4: so that's definitely good news. Not sure what's going on
5:05
Speaker 4: with the wealthier folks spically, but the thing is that
5:11
Speaker 4: for the most part, consumers expect interest rates to be
5:14
Speaker 4: lower and they expect the stock market to be higher
5:17
Speaker 4: going forward. So you know, the folks who tend to
5:19
Speaker 4: have stocks are the wealthier folks. But the point is
5:22
Speaker 4: that every age group was feeling better in the month,
5:26
Speaker 4: so for the most part, consumers are much more optimistic
5:30
Speaker 4: now than they were a few months ago.
5:32
Speaker 5: Can I just real quick the political implications, What does
5:38
Speaker 5: it mean for a Joe Biden presidency.
5:41
Speaker 4: Well, I will say the election is months away, and
5:44
Speaker 4: that's kind of like an eternity right in terms of
5:47
Speaker 4: political terms. But you know, the key thing is, you know,
5:51
Speaker 4: it's probably gonna be domestic issues and things like the
5:54
Speaker 4: border and spending that may cause consumers to come out
5:58
Speaker 4: there and vote one way or the other. But certainly,
6:02
Speaker 4: if you know, the economy does take a bit of
6:04
Speaker 4: a swoon, we think it's going to be in the
6:05
Speaker 4: middle of this year and by the time we get
6:08
Speaker 4: to the election season, the economy should be recovering. And
6:12
Speaker 4: that's that's good for either candidate.
6:14
Speaker 1: Really.
6:15
Speaker 3: All right, Dan, I thank you so much. We appreciate that.
6:16
Speaker 3: Dan Peterson at the conference board.
6:20
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6:39
Speaker 3: In addition to all the economic data we have this week,
6:41
Speaker 3: in addition to all the earnings we have this week
6:43
Speaker 3: from some big tech companies, we also have a FEDER
6:46
Speaker 3: Reserve meeting tomorrow. I think I saw Michael Barr, I
6:49
Speaker 3: mean Michael McKee with his bag heading down to the
6:52
Speaker 3: cellar station.
6:53
Speaker 5: There's a Michael Barr on the FED too.
6:55
Speaker 2: I know exactly we're all at the one you were thinking.
6:58
Speaker 3: Of now, exactly, Bloomberg and tell Legence, Chief US Interest
7:01
Speaker 3: Rates strategis Ira Jersey joins us from Princeton, New Jersey
7:05
Speaker 3: via zoom So, Ira, I guess tomorrow. You know, obviously
7:09
Speaker 3: the rate, any movement in the rates is not expected tomorrow.
7:12
Speaker 3: What are you looking for in tomorrow's release and in
7:15
Speaker 3: the commentary from FED Chairman J Powell.
7:18
Speaker 7: Yeah, tomorrow is going to be a very busy day
7:20
Speaker 7: for those of us in rates land. We not only
7:22
Speaker 7: have that FED meeting, but also the quarterly refunding announcement
7:25
Speaker 7: from the Treasury Department in the morning before that. So
7:28
Speaker 7: at the Fed, you know, we're going to be looking
7:30
Speaker 7: at listening for nuance. I think the statement probably doesn't
7:33
Speaker 7: change very much. But Jay Powell, I think will probably
7:37
Speaker 7: you know, need to guide the market as to whether
7:40
Speaker 7: or not they think there's going to be a cut
7:42
Speaker 7: in March or not. He was going to probably say
7:44
Speaker 7: every meeting is live, but at the same time, you know,
7:47
Speaker 7: some meetings are more alive than others. I would say so,
7:50
Speaker 7: so I think that if the FED is thinking about
7:54
Speaker 7: cutting in March, he really has to make that not
7:56
Speaker 7: abundantly clear, but I think he has to make it
7:58
Speaker 7: a little bit more clear that they're going to be
8:02
Speaker 7: going to be cutting in March.
8:04
Speaker 8: The other thing that.
8:05
Speaker 7: I think that Jay to listen for for j Powell
8:08
Speaker 7: is what's the path thereafter? So the market is not
8:11
Speaker 7: pricing for what Governor Waller mentioned a week and a
8:14
Speaker 7: half ago or so, which is we're not going to
8:17
Speaker 7: necessarily go at every meeting.
8:18
Speaker 8: We're going to go slow.
8:19
Speaker 7: We might only cut three times this year. The market
8:23
Speaker 7: doesn't believe that they're going to do that. The market
8:25
Speaker 7: things that the FED going slow is cutting twenty five
8:27
Speaker 7: basis points every meeting once they start, and so you
8:31
Speaker 7: know it's going to be hard maybe to jaw bone that,
8:34
Speaker 7: but I think Jay Powell will try to tomorrow.
8:37
Speaker 5: What's the big worry at the FED some sort of
8:40
Speaker 5: I don't know, Arthur Burns bumbled. You cut now and
8:44
Speaker 5: then inflation comes roaring back and you look like a moron.
8:48
Speaker 8: I think that's part of it.
8:50
Speaker 7: I think that the other issue that the Fed has
8:53
Speaker 7: is they're trying as they try to calibrate the Fed
8:55
Speaker 7: Fund rate is there's a feeling among a lot of
8:58
Speaker 7: economists and I think a lot of people the Federal
9:00
Speaker 7: Reserve that as inflation comes down, you have the real
9:05
Speaker 7: Fed fund rates of the Fed funds rate after adjusting
9:07
Speaker 7: for inflation, continues to rise, and that that will be
9:11
Speaker 7: too restrictive and tighten financial conditions. But I think the
9:15
Speaker 7: bigger issue that the Fed has right now is that
9:17
Speaker 7: financial conditions, instead of being tighter, even though that real
9:20
Speaker 7: Fed fund rate has been going up, they've actually been easing.
9:24
Speaker 7: So you have credit spreads that are very tight. You
9:26
Speaker 7: have consumer lending rates that, while they're much higher than
9:28
Speaker 7: they were, they've come down significantly from their peak. And
9:32
Speaker 7: in large part that's because the market is expecting the
9:35
Speaker 7: Federal Reserve to cut interest rates very aggressively starting in
9:39
Speaker 7: May and then continuing to cut into twenty twenty five.
9:42
Speaker 7: And that's adjusted a lot of the different borrowing rates
9:45
Speaker 7: and a lot of the other things that go into
9:48
Speaker 7: different financial conditions measures. And because of that, that's one
9:52
Speaker 7: reason why I think that the Fed wants to say, Okay,
9:54
Speaker 7: we're going to go slow because they don't want to
9:56
Speaker 7: ease financial conditions even more and have another inflationary impulse.
10:01
Speaker 8: So, like you said, John, like.
10:02
Speaker 7: That's really the fear that the FED has is that
10:05
Speaker 7: they might be the cause of yet more inflation in
10:07
Speaker 7: the future and that the job's not done. And you're
10:09
Speaker 7: going to hear that again, the job's not quite done,
10:11
Speaker 7: but we're happy with the progress made so far. That's
10:14
Speaker 7: that's going to be probably the opening line from Jay
10:16
Speaker 7: Powell when he talks about monetary policy and inflation.
10:19
Speaker 3: Hey, Iriti, earlier this morning, we had a cloudi assam
10:22
Speaker 3: on some consulting and formerly the Fed. She says, the
10:27
Speaker 3: Fed's already too late. They should have already started cutting rates.
10:31
Speaker 3: Is that widely held out there? How do you think
10:33
Speaker 3: about that?
10:34
Speaker 7: Yeah, there were some people who, certainly and some investors
10:37
Speaker 7: that think that they should be just because the economy
10:40
Speaker 7: has slowed significantly, and you have seen that, you know,
10:44
Speaker 7: that gap widened between inflation and the FED fundt rate.
10:47
Speaker 7: But then there's a whole slew of others who look
10:49
Speaker 7: at the real economy and look at what happened with
10:52
Speaker 7: retail sales. You had the Jolts data that was just
10:54
Speaker 7: out a couple of minutes ago that showed that job
10:56
Speaker 7: openings actually increased in December.
10:59
Speaker 8: The quick rate, though, kept on falling.
11:01
Speaker 7: So I think that there was kind of a mixed
11:02
Speaker 7: picture there in terms of the job market from that reading.
11:06
Speaker 7: But the but nonetheless, the the economy seems to be
11:10
Speaker 7: holding up decently right now. So so again, like if
11:15
Speaker 7: if the Federal Reserve is behind the curve, as Missam suggested,
11:19
Speaker 7: h then you know, certainly we don't see that in
11:22
Speaker 7: the hard data. We do see it in other things
11:25
Speaker 7: like some of the some of the survey data. But again,
11:27
Speaker 7: like you just had on data from the UH from
11:31
Speaker 7: the Conference Board, the Conference Board survey of consumer confidence
11:35
Speaker 7: was decent today. So again there's all these mixed signals
11:39
Speaker 7: right now. Mixed signals usually do lead to a turn
11:42
Speaker 7: in the economy, but it's much slower this time than
11:46
Speaker 7: you might have expected it during prior cycles. And I
11:49
Speaker 7: think a large part of that is we still have
11:50
Speaker 7: a big fiscal impulse rate.
11:51
Speaker 8: We still have deficits that are.
11:52
Speaker 7: Going to be approaching two trillion dollars this fiscal year
11:56
Speaker 7: and over the next couple of fiscal years, so that
11:58
Speaker 7: will keep the economy a little bit more robust than
12:01
Speaker 7: it would be normally. And then secondly, you still have
12:05
Speaker 7: consumers that don't have any lack of appetite to spend.
12:08
Speaker 7: So I think that there's a lot of good things
12:11
Speaker 7: still going on in the economy that are going to
12:13
Speaker 7: delay I think a recession and a major downturn until
12:16
Speaker 7: much later this year and maybe even into twenty twenty five.
12:19
Speaker 5: All Right, you brought up fiscal iris, so let's talk
12:21
Speaker 5: about the Treasury cut. What do they do yesterday? They
12:24
Speaker 5: cut their quarterly borrowing estimate, which I mean to me,
12:29
Speaker 5: on the surface, that sounds pretty good.
12:32
Speaker 8: Yeah, so it's a good thing.
12:33
Speaker 7: They cut it by a by about fifty five billion dollars.
12:37
Speaker 7: The Treasury Department, what they do is they have a
12:40
Speaker 7: forecast for a quarter ahead, and they almost always get
12:43
Speaker 7: it at least a little bit wrong. Right, we all
12:45
Speaker 7: don't forecast perfectly what's going to happen. So they cut
12:51
Speaker 7: the borrowing estimate for this quarter primarily because it looks
12:56
Speaker 7: like revenue has been coming in a little bit stronger.
12:58
Speaker 7: Speaning tax revenue has been coming and a little bit
13:00
Speaker 7: stronger than they anticipated. And spending has been you know
13:05
Speaker 7: about about flat and the fact that so we can
13:09
Speaker 7: spend more, Well that's maybe that's part of it, but
13:15
Speaker 7: it does mean that deficits are running going to be
13:18
Speaker 7: running a little bit lower than we initiatively anticipated.
13:21
Speaker 8: It was pretty close to our estimates. We were actually
13:24
Speaker 8: a little bit lower than that. We were one of
13:25
Speaker 8: the lower people within the consensus.
13:27
Speaker 7: A lot of people thought that they were going to
13:29
Speaker 7: be around eight hundred billion dollars in net borrowing. We
13:31
Speaker 7: thought it would be under closer to seven hundred. It
13:34
Speaker 7: kind of came in the middle of that. So, yeah,
13:36
Speaker 7: so that means that the Treasury Department probably won't issue
13:39
Speaker 7: as many tea bills as we thought, but they still,
13:42
Speaker 7: we think, will increase the amount of two year notes,
13:45
Speaker 7: three year notes, all the way out to thirty year
13:46
Speaker 7: debt issue a little bit more of that because right
13:49
Speaker 7: now they're issuing a ton of tea bills compared to
13:52
Speaker 7: how much they were issuing of other debt. And you know,
13:55
Speaker 7: there's only so much appetite that's going to be out
13:57
Speaker 7: there for short end paper, especially once the Federal Reserve
14:01
Speaker 7: gets going and starts to start to lower interest rates, and.
14:04
Speaker 3: I rich just you know, on these auctions remind us
14:07
Speaker 3: again like who's buying this stuff?
14:11
Speaker 7: So it's mostly domestic investment funds. When you look at
14:14
Speaker 7: at at treasury auctions, like last week we had the
14:19
Speaker 7: five year and the seven year, so you have investors
14:23
Speaker 7: who are just saying, Okay, look we're not going to
14:24
Speaker 7: buy the seven year. The seven year went terribly. Excuse me,
14:27
Speaker 7: the five year went terribly, The seven year did okay.
14:30
Speaker 7: Because I think people are getting preparing themselves for the
14:33
Speaker 7: Federal Reserve cutting interest rates, and usually longer term debt
14:36
Speaker 7: does better when the Fed's cutting interest rates. So you
14:41
Speaker 7: have you know, people going out and buying that. Look,
14:43
Speaker 7: savings is still high. There's still relatively high savings rates
14:47
Speaker 7: compared to what we had, you know, a decade or
14:50
Speaker 7: so ago, So there's still people that have money to
14:53
Speaker 7: put to work. And with interest rates closer to four
14:55
Speaker 7: percent instead of zero, treasuries are an attractive option instead
15:00
Speaker 7: of buying maybe riskier assets that have the chance of
15:02
Speaker 7: the fault. Maybe if revenues slip or profitability slips because
15:07
Speaker 7: you think that there's going to be a recession, then
15:10
Speaker 7: you rotate out of other fixed income instruments, into treasuries
15:14
Speaker 7: and also just you know, put your incremental savings into
15:16
Speaker 7: treasury securities.
15:17
Speaker 5: All right, put on your politics hat, you guys in
15:20
Speaker 5: the treasury markets, you must game all sorts of things,
15:23
Speaker 5: like if there's something unexpectedly happens in the election that
15:29
Speaker 5: you know your candidate doesn't win but the other guy does,
15:33
Speaker 5: have you gained that what are all the different possibilities?
15:37
Speaker 7: Yeah, it's interesting because, yeah, you know, the conventional wisdom
15:42
Speaker 7: might be that if there's a Republican in the White
15:44
Speaker 7: House in Congress, that maybe there'll be somewhat more fiscally responsible.
15:48
Speaker 7: That actually, historically has not been the case. That typically
15:51
Speaker 7: when you have one party that controls the White House
15:54
Speaker 7: and both houses of Congress, deficits go up. Right, Democrats
15:58
Speaker 7: spend more money, Republicans cut taxes, But both of those
16:00
Speaker 7: have the same net effect of increasing budget deficits and
16:03
Speaker 7: increasing the amount of treasury supply that needs to come out.
16:06
Speaker 7: And quite frankly, you know, there's probably very little at
16:10
Speaker 7: this point, over the next year or two that can
16:12
Speaker 7: be done to quell the two trillion ish dollars of
16:15
Speaker 7: deficit that's coming.
16:16
Speaker 8: Regardless of who's in the White House. You know our expectation.
16:20
Speaker 7: I think the most important thing that's going to come
16:22
Speaker 7: out of this election is not even the fiscal stuff.
16:24
Speaker 7: It's really who's going to be the next FED chair? Right,
16:27
Speaker 7: if Joe Biden wins the presidency again, maybe J Powell
16:31
Speaker 7: will be reappointed. I think that's pretty unlikely if Donald
16:34
Speaker 7: Trump or another Republican were to win the White House,
16:37
Speaker 7: that J Powell would wind up staying in a seat.
16:39
Speaker 5: I mean, we have to remind everybody J Powell was
16:41
Speaker 5: Donald Trump's pick, right.
16:44
Speaker 7: And quite frankly, when that came out, I was pretty
16:46
Speaker 7: surprised that Donald Trump picked him because J. Powell is
16:49
Speaker 7: kind of a mainstream Federal Reserve governor was at the time,
16:54
Speaker 7: I had expected Donald Trump to pick someone who would
16:57
Speaker 7: be more definitively doubvish than that a mainstream economy or
17:02
Speaker 7: mainstream person.
17:02
Speaker 8: I can't call J. Powell an economists, but nonetheless, you know,
17:07
Speaker 8: the next the.
17:08
Speaker 7: Next FED chair might be the most important thing from
17:11
Speaker 7: a treasury market and from a rates market point of
17:13
Speaker 7: view that's going to come out of the election cycle.
17:16
Speaker 7: So who do people say might be their pick for
17:19
Speaker 7: for FED chair might be one of the more interesting
17:24
Speaker 7: things that comes out of the election. If people are
17:26
Speaker 7: askedt out of debate or in a town hall or
17:28
Speaker 7: something like that, I would certainly be interested to know
17:30
Speaker 7: is J. Powell likely to be reappointed or if not him,
17:33
Speaker 7: then who else?
17:35
Speaker 5: But I always thought, I mean, my conventional wisdom was that, yeah,
17:39
Speaker 5: the president makes the pick on the advice of well
17:42
Speaker 5: pretty much everybody on Wall Street, because if he gets
17:45
Speaker 5: that wrong, you know, you can just kiss your you
17:48
Speaker 5: know what, goodbye.
17:50
Speaker 7: Yeah, but there are a number of people who I
17:53
Speaker 7: think Wall Street would be okay with. But there's people
17:56
Speaker 7: along the spectrum, right, Like, you know, if you chose
18:00
Speaker 7: someone like Lyle Brainerd over Powell, then you know, you
18:03
Speaker 7: get a slightly different outlook on there, you know, Governor Waller.
18:06
Speaker 8: Versus versus J.
18:07
Speaker 7: Powell again, like you'd have just some nuanced differences in
18:11
Speaker 7: the policy outcomes that you might actually get just because
18:14
Speaker 7: those those people have different opinions. So you know, if
18:17
Speaker 7: you wind up with you go through a whole slew
18:19
Speaker 7: of former governors or former Fed president, you know, Federal
18:23
Speaker 7: Federal Reserve, regional FED Bank chairs like you know, James
18:27
Speaker 7: Bullard for examples out there, and he might have even
18:30
Speaker 7: a different take and uh, you know, might be more
18:32
Speaker 7: hawkish or dubvish and some.
18:33
Speaker 8: Of the other potential picks.
18:35
Speaker 7: So but but and I think all of those, if
18:36
Speaker 7: they're known quantities could probably Wall Street would probably be
18:40
Speaker 7: okay with them. Uh, it's just a matter of you know,
18:43
Speaker 7: what what price level you get. If you pick a
18:45
Speaker 7: more hawkish person, then maybe, you know, stocks go down.
18:48
Speaker 7: But it's not that the market's not going to function,
18:50
Speaker 7: and it's not that you know, the treasury market is
18:52
Speaker 7: suddenly going to implode because you picked you know, one
18:55
Speaker 7: person who was more more or less a duvish mainstream
18:57
Speaker 7: person or a hawkish mainstream person.
19:00
Speaker 3: All right, Ira, great stuff has always really appreciate you
19:02
Speaker 3: checking in with us. Ira Jersey, chief US interest rate
19:05
Speaker 3: strategist for Bloomberg Intelligence.
19:08
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live
19:12
Speaker 1: weekdays at ten am Eastern on Apple Car playing Android
19:15
Speaker 1: Otto with the Bloomberg Business app. Listen on demand wherever
19:18
Speaker 1: you get your podcasts, or watch US live on YouTube.
19:22
Speaker 2: Are ups.
19:25
Speaker 3: Had some I know, just some disappointments, as Nora was
19:28
Speaker 3: just reporting, laying off some people. Ben Elgin, Bloomberg News
19:31
Speaker 3: has got a great story today, FedEx UPS struggle on
19:34
Speaker 3: ev transition as delivery demand grows, costs, the electric trucks
19:39
Speaker 3: and charging complications are hampering progress. I didn't even think
19:42
Speaker 3: about that, Like, they got to go electra too, And
19:44
Speaker 3: if they can't get the trucks and all that kind
19:45
Speaker 3: of stuff, how they're going to get that package to
19:47
Speaker 3: me in fifteen minutes.
19:48
Speaker 5: They're going electric because there it's good for the environment,
19:51
Speaker 5: or they're trying to save money.
19:52
Speaker 8: I don't know.
19:53
Speaker 3: Let's check in with somebody who actually we pay this
19:55
Speaker 3: guy to think about this stuff. Lee Clascal, Senior Transport
19:58
Speaker 3: Logistics and Shipping Animals, is one of the best on
20:00
Speaker 3: the street. We got them at Bloomberg Intelligencies down from
20:02
Speaker 3: our Princeton bureau. Hey, Lee, first, let's just start with
20:05
Speaker 3: the news at UPS. I love UPS. I love the
20:09
Speaker 3: brown trucks. They deliver this stuff great.
20:13
Speaker 2: What's going on? The stock hasn't done much in a while.
20:15
Speaker 3: And I know they've got some union issues which they
20:17
Speaker 3: resolved earlier, and now they're laying off some people and
20:20
Speaker 3: forcing everybody to come back to work. What's happening in
20:22
Speaker 3: our good friends at UPS?
20:24
Speaker 9: Yeah, I mean they're really just reeling from the impact
20:26
Speaker 9: from the labor negotiations they had last year. So running
20:31
Speaker 9: up ahead of those negotiations, a lot of shippers were like,
20:34
Speaker 9: you know something, I'm not going to use you, use
20:37
Speaker 9: UPS because I might want to use one of their
20:38
Speaker 9: competitors like FedEx or even the postal service, because I
20:42
Speaker 9: don't know if my stuff is going to be able
20:43
Speaker 9: to get where it needs to go on time. So
20:46
Speaker 9: a lot of that diverted freight, you know, is kind
20:48
Speaker 9: of deleveraging effect on the network, which really weighs on margins.
20:52
Speaker 9: And then you know, they had the negotiations, they have
20:56
Speaker 9: a contract in place, which is fantastic for UPS and
20:59
Speaker 9: also for the teams stairs, you know, but a lot
21:01
Speaker 9: of the cost the initial costs of that new contract
21:04
Speaker 9: are in year one and so that's like a real
21:07
Speaker 9: big hit to margins. That coupled with the fact it's
21:10
Speaker 9: taking some time for them to win back some of
21:13
Speaker 9: that share. You know, on today's earnings call, management noted
21:17
Speaker 9: that they've won back about sixty percent of that share.
21:20
Speaker 9: It's going to take time for them to get that
21:22
Speaker 9: share back to where.
21:23
Speaker 8: It needs to be.
21:24
Speaker 9: And again, these are networks and when you're talking about
21:27
Speaker 9: freight transportation. It's all about building density because the more
21:30
Speaker 9: stuff you can deliver at the same time, you know,
21:33
Speaker 9: the better the margins are. And that's what they're really
21:36
Speaker 9: working through right now. And you know, and what I
21:40
Speaker 9: thought was kind of one of the more interesting little
21:42
Speaker 9: tidbits in the call this morning is that they think
21:44
Speaker 9: that this year that the small package volume from an
21:48
Speaker 9: industry standpoint, is only going to increase like one percent,
21:51
Speaker 9: which to me I thought was a little pessimistic. But
21:55
Speaker 9: you know, all in all, they're really dealing with tepid demand,
21:59
Speaker 9: the dealing with rising costs, and you know, they're obviously
22:03
Speaker 9: taking those costs pretty seriously. As you know you mentioned earlier,
22:07
Speaker 9: they're they're laying off or planning the layoff or reduce
22:10
Speaker 9: heads however nicely you want to say it, twelve thousand people.
22:13
Speaker 9: And then also they're looking to get there. They're putting
22:17
Speaker 9: their brokerage business, which is called Coyote, under a strategic review.
22:21
Speaker 9: Coyote is the third largest freight broker out there. So
22:26
Speaker 9: one of the largest publicly traded ones are c H.
22:30
Speaker 8: Robinson.
22:31
Speaker 9: People might not know that, might may know that name. Also,
22:34
Speaker 9: RXO is another pure play brokerage as land Star. There's
22:38
Speaker 9: a couple of private ones. A lot of large companies
22:41
Speaker 9: like JBI Hunt have their own brokerage business in house.
22:44
Speaker 5: You get sorry for a series of stupid questions, but
22:48
Speaker 5: this is who you're talking to. What is a freight
22:52
Speaker 5: what's their role on what do they do a freight brokerage?
22:55
Speaker 9: So's they're pretty much get together buyers and sellers of freight.
22:58
Speaker 9: So if you think about it, so if you're a
23:00
Speaker 9: shipper and you have a load that you need to
23:02
Speaker 9: get from point A to point B, you might use
23:05
Speaker 9: a broker to find a truck to carry that load,
23:08
Speaker 9: and the broker kind of makes a spread in between
23:12
Speaker 9: what they're charging the shipper and what they're paying the
23:14
Speaker 9: trucking company. What's happened is, you know, it's a very
23:18
Speaker 9: cyclical business. There's there's, there's great highs and kind of
23:21
Speaker 9: depressing loads, and margins can be very volatile during this.
23:25
Speaker 5: So this this just a backup of this brokerage that
23:28
Speaker 5: they own that they're now getting rid of. That you
23:31
Speaker 5: could have gone to them and they could have picked
23:32
Speaker 5: a shipper other than you know, the company that owns
23:36
Speaker 5: them UPS.
23:39
Speaker 9: Yeah, So you know, so UPS could potentially use its
23:42
Speaker 9: own in house brokerage to move a trailer load of
23:46
Speaker 9: freight between two of their sorting facilities. Or if you're
23:50
Speaker 9: Walmart and you know you have an extra load that
23:53
Speaker 9: you need to get from your DC to you know,
23:56
Speaker 9: your Spring Lake Walmart. I don't think there's a Spring Walmart,
23:59
Speaker 9: and you know you might you might use them because
24:05
Speaker 9: either the carriers that you're contracted with don't have the capacity,
24:10
Speaker 9: or you're trying to take advantage of cheap rates in
24:13
Speaker 9: the spot market, and right now, truckload rates are extremely cheap.
24:16
Speaker 9: They've been bouncing along the bottom for quite some time,
24:20
Speaker 9: and so shippers might like to leverage that. You know,
24:23
Speaker 9: intermodal is an example, So you know the intermodal space,
24:27
Speaker 9: which is railroads. You know that's when you see like
24:30
Speaker 9: two containers on top of a railroad. You know they're
24:34
Speaker 9: facing increased competition because of the loose conditions that are
24:37
Speaker 9: on the spot market, and a lot of those shippers
24:40
Speaker 9: might use brokerage to try to find a load, I'm sorry,
24:43
Speaker 9: try to find a carrier to carry their loads.
24:45
Speaker 5: I think in there you it sounded like you just
24:47
Speaker 5: said there was a freight recession or at least that for.
24:50
Speaker 2: A long time.
24:51
Speaker 9: Well there has been for about two years.
24:53
Speaker 5: I mean, how severe is it right now?
24:56
Speaker 9: You know, the way we look at it, we're probably
25:00
Speaker 9: a little optimistic about twenty twenty four. Kind of a
25:04
Speaker 9: glass half full and it's filled with a really good cabernet.
25:08
Speaker 9: So's I'd say we're probably more optimistic than most.
25:13
Speaker 8: You know, we've been saying that.
25:15
Speaker 9: You know, we didn't feel that the economy necessarily had
25:18
Speaker 9: to go into a regular recession. And just because you
25:21
Speaker 9: go into a freight recession doesn't mean it's going to
25:23
Speaker 9: lead into a regular recession. The freight recession is really
25:26
Speaker 9: driven by a number of things. First and foremost is
25:29
Speaker 9: they had really difficult comps during the pandemic. You know,
25:33
Speaker 9: you were talking about trying to get a refrigerator. You know,
25:36
Speaker 9: everything was just commed up during the pandemic, and so
25:39
Speaker 9: capacity was in high demand, and the problem with getting
25:43
Speaker 9: capacity was that there weren't enough workers to either be
25:47
Speaker 9: in the trucks or be on the railroads or be
25:49
Speaker 9: in the air freight area. So there was there was
25:52
Speaker 9: a real issue there, and so we just saw like,
25:55
Speaker 9: you know, a backup in demand and then all of
25:57
Speaker 9: a sudden that demand got fulfilled because apply chain started
26:00
Speaker 9: loosening up. Here we are today. You know, you have
26:04
Speaker 9: moderating economic demand. You have you know, an ism and
26:07
Speaker 9: negative territories, so you know that the manufacturing economy is
26:10
Speaker 9: not great. You have some difficult comparison. So when we
26:13
Speaker 9: look at railroads, for example, not to be all over
26:17
Speaker 9: the place, but when you look at railroads, last year
26:19
Speaker 9: was a fantastic year for Canadian grain. This year is
26:22
Speaker 9: going to be a normalized crop. So that's that's a
26:25
Speaker 9: decline in volumes that the railroads are going to have
26:27
Speaker 9: to deal with. You know, railroads, a Canadian Pacific and
26:30
Speaker 9: Canadian National automotive is expected to be strong this year,
26:35
Speaker 9: continued for the railroads, but coal is probably gonna be
26:38
Speaker 9: weak because the export markets are probably going to start
26:41
Speaker 9: to cool and they have some really serious difficult comparisons.
26:45
Speaker 9: And intermodal is really a crapshoot. You know, we're pretty
26:50
Speaker 9: optimistic about the domestic demand, which is more truckload competitive,
26:53
Speaker 9: just because the rails have gotten a lot better and
26:56
Speaker 9: improving their their overall service. So we started talking about
26:59
Speaker 9: ups somehow, now we.
27:00
Speaker 2: Got all across logistics.
27:02
Speaker 3: See that's because Lee covers the railroads, he covers the
27:05
Speaker 3: trucking companies, he covers the logistics companies, he covers the
27:09
Speaker 3: you know, the shipping companies and big ships on the season.
27:12
Speaker 2: He covers a lot. So we just call them basically
27:14
Speaker 2: logistics analysts.
27:15
Speaker 3: I mean, if you've got to get a boxer point
27:17
Speaker 3: A to point B and you want to know how
27:19
Speaker 3: to do, you talk to Lee Clasgow.
27:21
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
27:25
Speaker 1: weekdays at ten am Eastern on Apple car Play and
27:28
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27:31
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27:35
Speaker 1: just say Alexa playing Bloomberg eleven thirty.
27:40
Speaker 3: I don't know what to do with this market because
27:41
Speaker 3: we had it just ripped there in the last couple
27:44
Speaker 3: of months of twenty twenty three on that fed pivot.
27:48
Speaker 3: We've had some pretty solid economic data so far this year.
27:51
Speaker 3: The earnings okay, we'll see with some of the big
27:53
Speaker 3: tech companies this week.
27:56
Speaker 2: But the question is where do we.
27:57
Speaker 3: Go in twenty twenty four? So let's check in with
27:59
Speaker 3: somebody who does this for a living. Nimbrit Kang Joints
28:02
Speaker 3: as she is the chief investment officer at north Star
28:04
Speaker 3: Asset Managerment joinings via zoom from the town of.
28:08
Speaker 2: Brotherly Love, Philadelphia, PA. I'm a huge fan of Philly, Nimber,
28:11
Speaker 2: thanks so much for joining us here.
28:13
Speaker 3: Again, I don't think a lot of people kind of
28:16
Speaker 3: saw that move higher in stocks in bond prices at
28:20
Speaker 3: the end of last year. You know, maybe some people
28:24
Speaker 3: thought that pulled some of the performance from twenty twenty
28:26
Speaker 3: four a little bit forward here.
28:27
Speaker 2: So as we finished out a pretty solid.
28:29
Speaker 3: January here, Nimber, what are you telling your clients for
28:32
Speaker 3: twenty twenty four.
28:35
Speaker 10: Yeah, we tell our clients to focus on what they
28:38
Speaker 10: know with a lot of certainty. You know, what we've
28:40
Speaker 10: seen in the last two years, Paul, is a round
28:44
Speaker 10: trip right. Last year was a pretty strong year for
28:46
Speaker 10: the markets, but it's was on the heels of a
28:49
Speaker 10: pretty dismal twenty twenty two. So we really did a
28:52
Speaker 10: round trip here in the last two years. And you know,
28:56
Speaker 10: when we think about broadly for our clients, we expect
29:00
Speaker 10: to be in this era of heightened uncertainty and volatility
29:04
Speaker 10: in the financial markets, we are coming to a reversal
29:08
Speaker 10: of several big trends that have been in play for
29:12
Speaker 10: a number of decades almost you know, the big one
29:15
Speaker 10: is the monetary cycle reversing. So in this environment, we
29:19
Speaker 10: just want our clients to remain focused on what they
29:22
Speaker 10: know with a lot of certainty, which is understanding and
29:25
Speaker 10: clearly communicating what their financial needs are going to be
29:29
Speaker 10: over the next five ten years and then setting appropriate
29:32
Speaker 10: strategic asset allocation based on that.
29:36
Speaker 5: Okay, with a monetary cycle reversing. First of all, what's
29:40
Speaker 5: your expectation for the FED? The meeting, the two day
29:43
Speaker 5: meeting ends tomorrow.
29:47
Speaker 11: You know, John, as much as I would like to
29:50
Speaker 11: kind of speculate what is thing to be doing and
29:54
Speaker 11: how exactly they're going to say, we take a little
29:57
Speaker 11: bit of a longer term view, and we do think
30:00
Speaker 11: there's an upward pressure on the rates, right.
30:02
Speaker 10: I mean, we do have record deficits going on, record
30:05
Speaker 10: debt and at the same time our governments have to
30:08
Speaker 10: grapple with some of these big societal ecological challenges. So
30:13
Speaker 10: there's this continued upward pressure on spending, aging demographics. If
30:17
Speaker 10: we take all of that into account, we do think
30:19
Speaker 10: that you know, the ten year between the four or
30:21
Speaker 10: five percent range is a more normalized kind of an
30:24
Speaker 10: environment going forward. Now within that range, it fluctuates all
30:28
Speaker 10: the time based on every single word out of the
30:32
Speaker 10: bed about, you know, the speculation on what their next
30:36
Speaker 10: move is going to be. Just in twenty twenty three,
30:39
Speaker 10: I was looking at the data. The low point for
30:41
Speaker 10: the ten year was a three to three and a
30:43
Speaker 10: high point was five percent.
30:46
Speaker 12: That's a big move.
30:47
Speaker 10: For what's usually you know, a very stable asset class.
30:53
Speaker 3: Right, yeah, it is. It's interesting And one of the
30:58
Speaker 3: things I was thinking about, you know, putting a portfolio
31:01
Speaker 3: together for twenty twenty four is on the fixed income side.
31:04
Speaker 3: I was so surprised that the best performing fixed income
31:08
Speaker 3: category in twenty twenty three was highyield bonds. How do
31:13
Speaker 3: you think about high yield bonds in this environment where
31:16
Speaker 3: it looks like we're going to rates coming down.
31:19
Speaker 10: We take a little bit of a differentiated approach. So
31:23
Speaker 10: on the credit side, we want to be in very
31:25
Speaker 10: high quality bonds, you know, where basically there's a contractual
31:29
Speaker 10: obligation to get the money back and we take more
31:32
Speaker 10: off the credit or company risks really on the equity side.
31:37
Speaker 10: So that's how really we think about it.
31:39
Speaker 12: On the bond side.
31:40
Speaker 10: We prefer to construct a very laddered portfolio, diversified across maturities,
31:48
Speaker 10: but really in very high quality government guarantee debt.
31:52
Speaker 5: Ooh number, are you sixty forty or have you changed
31:55
Speaker 5: those allocations?
31:57
Speaker 10: Yep, John, the allocation, it really depends on every client
32:02
Speaker 10: and their individual needs and their investing horizon. So we
32:06
Speaker 10: do think that equities have a very strong role in
32:08
Speaker 10: the portfolio as long term capital appreciation. We do think
32:12
Speaker 10: fixed income here is providing a pretty nice yield income
32:16
Speaker 10: here for a lot of people who are looking for.
32:18
Speaker 12: That part as well.
32:20
Speaker 10: But the actual allocation depends on where the clients are
32:23
Speaker 10: in their journey.
32:25
Speaker 3: So my friend here, John Tucker, he started twenty twenty
32:29
Speaker 3: three long and overweight, the Magnificent seven. He's just doing
32:32
Speaker 3: this radio thing because.
32:33
Speaker 2: He loves it. The rest of us have to work
32:36
Speaker 2: on our portfolio. In twenty twenty four, Do.
32:38
Speaker 3: I chase those big tech names, and again we're going
32:41
Speaker 3: to see a lot of them start reporting earnings tonight.
32:44
Speaker 2: Do I chase them or do I just say miss
32:46
Speaker 2: that boat.
32:46
Speaker 3: Let me go look at maybe a sector that's not participated, Paul.
32:52
Speaker 10: Our approach is to really identify these long term companies
32:57
Speaker 10: that are solving some of the secular problems invested in
33:00
Speaker 10: them take opportunities like the market volatility to really size.
33:05
Speaker 12: The position appropriately.
33:06
Speaker 10: So, you know, you talked about the Magnificent seven, not
33:09
Speaker 10: all seven of them, but you know, for a very
33:12
Speaker 10: long time we have held onto some of the holdings
33:16
Speaker 10: in there from the technology because we saw them very
33:19
Speaker 10: playing a very vital role in solving some of the problems,
33:23
Speaker 10: mainly related to empowering small businesses, communities, you know, entrepreneurs
33:28
Speaker 10: all over the world. Now, when we think about, you know,
33:32
Speaker 10: the sectors that have run up, Yes, technology has far
33:36
Speaker 10: outperformed on a two year basis, though, believe it or not,
33:39
Speaker 10: Magnificent seven just on a two year basis is up
33:42
Speaker 10: only fourteen percent, So not as ridiculous as it seems,
33:47
Speaker 10: just based on twenty twenty three data. But that said,
33:51
Speaker 10: we do think there are plenty of opportunities elsewhere in
33:55
Speaker 10: other areas as well to continue to tilt the portfolio
33:58
Speaker 10: towards those types of compounders as well.
34:01
Speaker 5: I want to get to some can you do individual names?
34:04
Speaker 10: Yeah, absolutely, so one of the you know, area that
34:08
Speaker 10: we think there's a long term secular problem is related
34:11
Speaker 10: to water. You know, there's a huge issue around scarcity
34:15
Speaker 10: of water resources.
34:16
Speaker 12: But even just in the US, our water infrastructure was
34:19
Speaker 12: built in.
34:20
Speaker 10: The nineteen fifties and sixties, so there's a huge need
34:23
Speaker 10: to upgrade this water infrastructure to make sure that we're
34:28
Speaker 10: getting the safe quality drinking water that is so essential.
34:32
Speaker 10: You know, just EP estimates there're seven hundred billion of
34:34
Speaker 10: investments needed over the next twenty years. So when we
34:38
Speaker 10: have thought about that, we have tried to get exposure
34:41
Speaker 10: to a number of companies that play a very important
34:44
Speaker 10: role across the water infrastructure value chain. So specific names
34:50
Speaker 10: like Xylum. Xyleum is very prominent in valves meters, things
34:55
Speaker 10: like that, y why out YEP, and it's you know,
35:03
Speaker 10: Xylum especially has a big mare market position, leading market
35:08
Speaker 10: position in wastewater treatment, again a big area of long
35:12
Speaker 10: term growth and where we think there's major societal problems
35:16
Speaker 10: that need to be solved. Another name, a small cap
35:20
Speaker 10: only seven hundred million in revenues is Badger Meters. They
35:23
Speaker 10: make your utility meters. You know, there's a big upgrade
35:27
Speaker 10: cycle going on from upgrading that manual meter that needed
35:30
Speaker 10: to be read to more of those smart meters which
35:34
Speaker 10: can be read remotely. So that's another small cap company
35:39
Speaker 10: long term tail wins. You know, the company just reported
35:42
Speaker 10: excellent twenty twenty three numbers, double digit revenue earnings going forward,
35:49
Speaker 10: you know, we don't expect them to have that kind
35:51
Speaker 10: of a growth, but high single digit through the cycle
35:54
Speaker 10: is a.
35:54
Speaker 12: Pretty reasonable expectation.
35:56
Speaker 10: And the last one I'll leave you with is Viraltov
36:00
Speaker 10: lto is the ticker simple, it's it's a spin off
36:04
Speaker 10: from Danaher, very high quality company. You know, sixty percent
36:09
Speaker 10: comes from water quality type of businesses. They analyze the
36:12
Speaker 10: water quality coming out of our streams, rivers, but also
36:16
Speaker 10: have treatment solutions such as UV filtration some of the
36:20
Speaker 10: other treatment solutions as well. So again, these other companies
36:24
Speaker 10: that haven't kind of had the rip roaring returns we
36:27
Speaker 10: have seen from some of the household names, but long term,
36:31
Speaker 10: very important demand for their products and solutions.
36:35
Speaker 5: Not the sexiest names in the world, Paul, now.
36:37
Speaker 2: But those work.
36:38
Speaker 3: I mean if you so, when you identify a theme
36:40
Speaker 3: like water, for example, nimro, do you do you and
36:42
Speaker 3: your team do you screen across the sector for evaluation,
36:47
Speaker 3: sales growth? How do you then identify individual names once
36:49
Speaker 3: you've identified a theme exactly.
36:53
Speaker 10: So one of our themes in our portfolio is just
36:55
Speaker 10: related to ecological limits, right. You know, we've had years
36:59
Speaker 10: and decades of extra tractive growth and we think that's
37:02
Speaker 10: you know, our natural resources are scarcer and scarcer and
37:06
Speaker 10: we're going to have to learn to cope with these
37:08
Speaker 10: problems waterfalls under that. We identified that a long time back,
37:13
Speaker 10: and knowing that, then we're looking for high quality compounders
37:16
Speaker 10: within that that are solving for that, you know, solving
37:21
Speaker 10: that particular problem. And when we talk about high quality compounders,
37:25
Speaker 10: you know, it's your traditional companies that have strong balance sheets,
37:30
Speaker 10: revenue growth, free cash flow margins, good deployment of capital,
37:34
Speaker 10: good management track record, all of.
37:37
Speaker 12: That same kind of criteria. There.
37:40
Speaker 10: On valuation, we take a longer five to ten year
37:43
Speaker 10: view and we use cash flow based valuation to understand
37:46
Speaker 10: what is the true valuation based on the earnings potential
37:51
Speaker 10: of a company like that.
37:52
Speaker 5: Hey, what's the number one thing on the minds of
37:55
Speaker 5: your clients?
37:57
Speaker 10: You know, when we talk to clients again, it's different,
38:00
Speaker 10: but it's really around understanding that, yes, we just live
38:05
Speaker 10: in this era of a lot of uncertainty heightened volatility.
38:11
Speaker 10: You know, last year this whole thing around AI really
38:15
Speaker 10: magnified and gave a really new leash to life for
38:18
Speaker 10: these magnifist and seven names. But longer term, people just
38:23
Speaker 10: want people. You know, our investors, our clients are concerned
38:27
Speaker 10: about making sure that they have their financial assets can
38:31
Speaker 10: help them meet their financial needs and goals, right yep,
38:34
Speaker 10: and taking a balanced approach and a very risk aware
38:38
Speaker 10: approach towards constructing those portfolios for them.
38:41
Speaker 3: All right, That's how the pros do it. Nimmer Kang,
38:43
Speaker 3: thank you so much. We appreciate it as always. Nimmer Kang,
38:46
Speaker 3: Chief Investment Officer, north Star Asset Management.
38:51
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
38:55
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
38:58
Speaker 1: Auto with the Bloomberg Business. You can also listen live
39:01
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39:05
Speaker 1: say Alexa playing Bloomberg eleven.
39:09
Speaker 3: Let's talk UK stocks, Let's talk European stocks. We don't
39:14
Speaker 3: do that as much here, but we can do it
39:16
Speaker 3: today because Tim Craighead is here, and Tim Craighead is
39:19
Speaker 3: a European equity strategist for Bloomberg Intelligence. He joins his
39:22
Speaker 3: live here in a Bloomberg Interactor broker studio. That's important
39:24
Speaker 3: because he's based in London at the awesome Bloomberg European headquarters.
39:30
Speaker 2: We got to get your lead to go. It is
39:32
Speaker 2: just it is super cool. Yeah, it is just awesome.
39:34
Speaker 3: I mean, and what I like about it a it's
39:37
Speaker 3: just a phenomenal building in the city of London, right
39:40
Speaker 3: by the Bank of England. But when you know, Brexit happened,
39:46
Speaker 3: Mike was over there with the Mayor of London saying no,
39:48
Speaker 3: we're doubling down on London, which I thought was very
39:51
Speaker 3: cool because up until Brexit, a credible argument could be
39:56
Speaker 3: made that London was the world's financial capital visa via
39:58
Speaker 3: New York, A credible argument after a couple of pints
40:01
Speaker 3: at the local pub. And you could make that argument
40:04
Speaker 3: now you can.
40:05
Speaker 5: Before remind me, before he leaves, I got to ask
40:07
Speaker 5: him about congestion pricing.
40:09
Speaker 2: Okay, all right, Tim Craighead joins it.
40:11
Speaker 3: Ay, Tim, just give us a sense here. Let's start
40:13
Speaker 3: with the UK here, how did the UK trade last year?
40:17
Speaker 3: How did that market perform and what's the expectations for
40:19
Speaker 3: this year?
40:20
Speaker 6: So the UK did the same thing last year that
40:22
Speaker 6: it did in twenty twenty two, interesting enough, which is
40:26
Speaker 6: a big fat nothing. And if you think back in
40:29
Speaker 6: twenty twenty two, that was a good stellar performance, it
40:33
Speaker 6: was a hero. Twenty three not so much, especially with
40:38
Speaker 6: the rally at the end of the year. So far
40:40
Speaker 6: this year pretty much again, it's sort of status quot
40:45
Speaker 6: and our view is that's kind of where we're stuck.
40:48
Speaker 6: It's a funny thing. The UK market has this very
40:51
Speaker 6: odd composition where you've got this big basic material commodity base,
40:58
Speaker 6: and you've got medals and you've got oil. You've got
41:03
Speaker 6: a big defensive brand base of companies like Unilever and
41:08
Speaker 6: Diagio I think Whiskeys, and healthcare pharma with Glaxo Smith
41:14
Speaker 6: Klein AstraZeneca, and then you've got a big dose of
41:19
Speaker 6: financials with the big banks like HSBC. Those three. You
41:24
Speaker 6: always end up with a driver that's good for one
41:28
Speaker 6: but bad for the others, or vice versa, and quite
41:31
Speaker 6: often they just sort of nix each.
41:33
Speaker 3: Other because you don't have that technology thing, which is
41:36
Speaker 3: actually the leader of the US.
41:38
Speaker 6: Market, the entire TMT group. So you take internet and
41:43
Speaker 6: tech and the good media e commerce, the whole kaboodle
41:48
Speaker 6: about one percent of the UK market.
41:50
Speaker 5: What was the best performing stock individuals talk.
41:53
Speaker 6: Rolls Royce if memory serves correct, which.
41:57
Speaker 5: Is this is the engine maker, not the Yes car.
42:00
Speaker 6: Yes, the engine maker that feeds into the rebound in commercial,
42:05
Speaker 6: aerospace and defense.
42:08
Speaker 5: The cool thing about Rolls Rice is like each of
42:10
Speaker 5: their engines has had a name like the Yeah, well
42:14
Speaker 5: going back to like World War two, Okay, the Maryland.
42:17
Speaker 5: The Maryland probably the most famous engine there ever was
42:21
Speaker 5: They stuck that in Well, the Spitfire, I digress and
42:25
Speaker 5: then fifty one D Mustang and made it the greatest
42:29
Speaker 5: plane in the world.
42:30
Speaker 3: Absolutely, still my favorite fighter plane, the P fifty one.
42:33
Speaker 3: The Spitfire is right there at fourteen's nomber three.
42:36
Speaker 2: All right, Tim, I actually think about this stuff. We
42:40
Speaker 2: digress and digress more.
42:41
Speaker 3: How about Europe here a little bit broader kind of
42:45
Speaker 3: markets in terms of the waitings here. How are your
42:48
Speaker 3: clients looking at the European market?
42:50
Speaker 6: So the European market is reasonably well positioned from the
42:55
Speaker 6: standpoint of a diverse sector base, it still doesn't have
42:59
Speaker 6: the technology opportunity set.
43:02
Speaker 2: That sap AM.
43:05
Speaker 6: You've got basically four big tech companies there. If you
43:08
Speaker 6: think about it, one five one is SAP. We all
43:12
Speaker 6: know that, and it's doing fine. Look at its earnings,
43:16
Speaker 6: look at stock price. Here is of late, it's been
43:18
Speaker 6: a really good call. That's one ASML, which is chip
43:24
Speaker 6: manufacturing equipment, absolutely a must when it comes to making
43:30
Speaker 6: things for say Nvidia with their chip set, you have
43:34
Speaker 6: to have ASML's equipment. And then you've got semiconductor companies
43:39
Speaker 6: like Infinian and st Micro and they feed into more
43:44
Speaker 6: energy transition, autose, industrial applications, things along those lines.
43:49
Speaker 5: But wait, a tech in Europe, I want to lose
43:51
Speaker 5: weight all isn't that where those weight loss drugs come from?
43:55
Speaker 5: Or initially?
43:56
Speaker 6: So that's Novo Nordis and you know obviously is coming
44:00
Speaker 6: up as a big second here. But the pharma industry.
44:05
Speaker 6: Pharma's business is a big business from a European perspective,
44:10
Speaker 6: no doubt. You've got really big consumer franchise, you've got
44:13
Speaker 6: luxury goods and the big one of the bigger businesses
44:18
Speaker 6: over there that is different from here is the big
44:22
Speaker 6: high end luxury auto companies, which are a big play
44:27
Speaker 6: on China. Another difference with Europe versus the US is
44:31
Speaker 6: China is really important over there.
44:33
Speaker 3: I mean if you big buyers of the big German
44:35
Speaker 3: industrial equipment.
44:36
Speaker 6: Well, and it's pervasive. The UK has a ton of
44:40
Speaker 6: It's actually the most exposed because you've got companies like
44:45
Speaker 6: Rio Tinto and Glencore and big medals and money that
44:49
Speaker 6: feeds in. But you've also got the autos, You've also
44:51
Speaker 6: got the industrials, You've got the luxury goods, and.
44:54
Speaker 2: All of that adds to.
44:56
Speaker 6: Roughly a four hundred and fifty billion euro revenue business
45:01
Speaker 6: from Europe selling to China. What happens in China matters
45:04
Speaker 6: a lot for Europe, which is a different story than
45:08
Speaker 6: what you have here from a US perspective. If you
45:10
Speaker 6: add all that together, Europe is okay. It's a lot
45:14
Speaker 6: cheaper from a multiple perspective than the US, but the
45:18
Speaker 6: earnings growth expectations for this year next year are not
45:22
Speaker 6: as robust as they are here in the US, and
45:24
Speaker 6: it holds it back.
45:25
Speaker 5: Do I have to worry about things? If I'm a
45:26
Speaker 5: U and US investor looking to invest in Europe? Do
45:30
Speaker 5: I have to worry about things like the currency translations?
45:35
Speaker 8: You do?
45:36
Speaker 6: And it's kind of typical with currency as a double
45:39
Speaker 6: edged sword. I think the conventional wisdom this year is
45:43
Speaker 6: if the FED cuts early and first, then you've got
45:47
Speaker 6: a week dollar scenario to be told. Now, if you're
45:49
Speaker 6: a US person and you're buying European markets, let's say
45:54
Speaker 6: all else being equal, that's going to be good for you,
45:57
Speaker 6: because you're going to be carrying, you know, Europe over
46:01
Speaker 6: to here, which is a stronger currency. It actually ends
46:05
Speaker 6: up being negative for the European companies themselves from an
46:07
Speaker 6: innings translation basis.
46:09
Speaker 5: But it's different argument.
46:10
Speaker 3: All right, tim you've lived in London a long time.
46:14
Speaker 3: You live just outside of London. So we'll get to
46:16
Speaker 3: the congestion pressing. The economy here in the US is good.
46:19
Speaker 3: You had a great GDP print, inflation's coming down. How's
46:21
Speaker 3: the economy in the UK?
46:23
Speaker 6: Yeah, Actually it feels a lot better than necessarily what
46:27
Speaker 6: the headlines might suggest. I think there are signs that
46:30
Speaker 6: housing prices are possibly stabilizing, certainly like everywhere else. If
46:34
Speaker 6: you end up seeing interest rates coming down and the
46:36
Speaker 6: expectations are for the Bank of England as well as
46:39
Speaker 6: the European Central Night to be cutting, then that could
46:43
Speaker 6: be a good thing as well. But big election cycle
46:47
Speaker 6: this year. From a UK perspective, that's going to cause
46:49
Speaker 6: a lot of noise, just like it is here in
46:51
Speaker 6: the US. And yeah, on the ground you're traveling, you're
46:57
Speaker 6: looking around, you're going places which you do feels it
47:00
Speaker 6: feels he doesn't.
47:02
Speaker 5: Go to your congestion pricing because okay, and everybody should
47:06
Speaker 5: care about this. London did it first, where cars coming
47:09
Speaker 5: into the central part of the city to reduce congestion
47:12
Speaker 5: are charged a fortune. New York City is trying to
47:14
Speaker 5: do that. But all sorts of you a fan or like.
47:20
Speaker 6: Whether you like when I'm gonna say or not, I
47:22
Speaker 6: guess we'll see. I am a fan. I think it
47:24
Speaker 6: is a good thing for you.
47:28
Speaker 2: Yeah, but and not like a mile that writes like
47:31
Speaker 2: a long way all kinds of weather.
47:33
Speaker 6: But but but it is a case where between congestion
47:38
Speaker 6: pricing and they are expanding that congestion zone as well
47:42
Speaker 6: as increasing things like cycle lanes and other elements of
47:46
Speaker 6: public transport, it is an easier place to get around
47:50
Speaker 6: unless you want to drive.
47:52
Speaker 5: I don't have a choice, though, we're gonna get I'm
47:54
Speaker 5: gonna take my bicycle. At two o'clock in the morning.
47:57
Speaker 2: It comes through the Lincoln tunnel.
47:58
Speaker 6: That's what you don't have to worry about.
47:59
Speaker 2: Now we're gonna we're.
48:00
Speaker 3: Going to work with somebody we know and get so
48:01
Speaker 3: John can expense his congestion pricing.
48:04
Speaker 2: I think I know somebody can help out with that.
48:06
Speaker 2: Tim Craigh, thanks so much for joining us.
48:07
Speaker 3: Tim Craig at European Equity Strategists know, by the way,
48:09
Speaker 3: he is also the director of research over there in Europe,
48:12
Speaker 3: so doing lots of stuff.
48:13
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