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Bank of Japan, Africa, Swatch, and Freight (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Let's move on and
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Speaker 1: get into what this really means from a Central banks perspective,
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Speaker 1: from a bond market perspective. You know, I woke this
0:27
Speaker 1: morning and I have to when I saw this new
0:28
Speaker 1: is I have to admen. I did not have the
0:30
Speaker 1: b O J tightening on my two BINGO card. But
0:33
Speaker 1: here we are. So I said, we need to talk
0:35
Speaker 1: to some smart people here. So we rounded up a couple.
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Speaker 1: We have plenty to choose from here at Bloomberg. Kathleen Hayes,
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Speaker 1: Bloomberg television correspondent, joins us Ira Jersey h interest rate
0:44
Speaker 1: strategist for Bloomberg Intelligence, also on the phone, and Kathleen's
0:48
Speaker 1: here on our Bloomberg Interactive Broker studio. So, Kathleen, I
0:51
Speaker 1: came in here. I'm listening to the energy John Farrow
0:54
Speaker 1: and Tom keene have about the b o J. I'm like,
0:57
Speaker 1: I don't know. Can you tell me why this is important?
0:59
Speaker 1: Why this is important? Oh? My god. First of all,
1:01
Speaker 1: big surprised. I was sitting on the sixth floor in
1:05
Speaker 1: front of our camera up there, getting ready to react
1:07
Speaker 1: to this with our team in in Tokyo and Asia,
1:11
Speaker 1: and when I saw they had like come across widening
1:14
Speaker 1: yield curve control, I was shocked. Everyone was shocked. All
1:19
Speaker 1: the signals coming out of the Bank of Japan, including
1:21
Speaker 1: Governor Kuroda, repeatedly was no, we're not ready, and the
1:25
Speaker 1: expectation has been not ready to uh start making this
1:29
Speaker 1: move with inflation rising. UH. Kroda kept saying, well, we
1:32
Speaker 1: don't know if it's sustainable. You know what, there might
1:34
Speaker 1: be a global recession bring down prices. That's gonna We're
1:37
Speaker 1: gonna we need the stimulus uh. And then UH, we're
1:41
Speaker 1: getting a new governor. The new governor is going to
1:43
Speaker 1: be in place UH in April. And at that point
1:46
Speaker 1: that's been the expectation when it would start. But the
1:49
Speaker 1: BOJ has been insisting even when the shift away from
1:52
Speaker 1: extraordinary stimulus started, it would be gradual. And so when
1:56
Speaker 1: Kroda had his press conference last night. One of the
1:58
Speaker 1: things he stressed was we haven't changed our forward guidance.
2:02
Speaker 1: I'm still concerned that inflation may not be sustainable. Wayes
2:05
Speaker 1: have to rise. The spring negotiations start off to the
2:09
Speaker 1: first year, probably in late February early March. Uh that um,
2:12
Speaker 1: it was what financial stability keeping. And there's a big
2:16
Speaker 1: concern about the weekend right that that's been something that
2:19
Speaker 1: very unpopular with the public. So this is a step.
2:22
Speaker 1: But it's one thing to say it's not clear that
2:25
Speaker 1: the regime shift has fully begun, but at the door
2:29
Speaker 1: is definitely wide open. It's clear that's where the b
2:31
Speaker 1: o J is going now. Well, I think what's so
2:32
Speaker 1: significant about this particular move is that and a lot
2:36
Speaker 1: of people don't really read about the Japanese economy, but
2:38
Speaker 1: deflation has been an issue for the Japanese economy for
2:41
Speaker 1: what decades. Well, they got out often after they signed
2:44
Speaker 1: the accord in that set up all this extraordinary easing,
2:47
Speaker 1: but yes, they they still had inflation has not gotten
2:50
Speaker 1: to two percent and stayed there right exactly. And I
2:53
Speaker 1: think what's crucial here is that, I mean, so many
2:56
Speaker 1: people would call this right. They said that the market
2:58
Speaker 1: was going to break at some point up point, which
3:00
Speaker 1: is why you're seeing a lot of the likes of BBS,
3:02
Speaker 1: blue Bag, etcetera. I really cash out on shorting these
3:05
Speaker 1: j g B s. But I have to ask why
3:08
Speaker 1: so soon? Because that was the surprise here. It was
3:10
Speaker 1: going to be this eventuality by so soon? Why so soon?
3:14
Speaker 1: But financial stability? Perhaps he was a bit concerned about
3:16
Speaker 1: having to defend the yen so aggressively. Member in the
3:19
Speaker 1: just a couple of months ago, the yen they with
3:22
Speaker 1: the extraordinary bomb purchases. And that's one thing they also
3:24
Speaker 1: did in the last meeting was increased the amount of
3:29
Speaker 1: the money for intervening, for buying the bonds, etcetera, to
3:32
Speaker 1: nine trillion from seven point three trillion. It might be
3:35
Speaker 1: one of our guests overnight said politics that high inflation
3:40
Speaker 1: is so unpopular in Japan. Uh Krona gave a speech
3:43
Speaker 1: a couple of months to Parliament a couple of months
3:45
Speaker 1: ago where he said, well he knows that the Japanese
3:48
Speaker 1: people can understand inflation. He got so much pushback that
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Speaker 1: made people very angry. Kishida, the new prime minister, relatively
3:55
Speaker 1: new prime minister. His approval ratings are have been crushed.
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Speaker 1: This made be a sense I need I need to
4:01
Speaker 1: show that yes, we we know what's going on, this
4:04
Speaker 1: is where we're heading and let people know. Now all right,
4:06
Speaker 1: want to bring you in here. What is your reaction
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Speaker 1: to what we saw out of the bank in Japan.
4:11
Speaker 1: How do you think the US feder Reserve will react?
4:14
Speaker 1: What was your take? Well, I don't think the Fed
4:16
Speaker 1: is going to react directly to this, but I do
4:19
Speaker 1: think that it surprised everyone. I think a lot of
4:21
Speaker 1: people thought that if if the b o J was
4:24
Speaker 1: going to increase the band for its yield curve control,
4:27
Speaker 1: that it would come you know, much later next year.
4:30
Speaker 1: So so so I'm not surprised given the news. What
4:33
Speaker 1: how the the US markets reacting. I think what what's
4:36
Speaker 1: going to be fascinating is whether or not the you
4:39
Speaker 1: know J is actually going to deliver on what the
4:43
Speaker 1: what what the market is currently pricing in terms of
4:45
Speaker 1: interest rate moves, because there's a large part of the
4:48
Speaker 1: market and I've even had conversations this morning with UH
4:51
Speaker 1: with investors who think that the UH the b o
4:54
Speaker 1: J is not going to ever move interest rates off
4:57
Speaker 1: of the negative ten basis point level where the are now,
5:00
Speaker 1: but the market continues to price for um, you know,
5:04
Speaker 1: for for for the b o J to potentially increase
5:06
Speaker 1: interest rates a little bit in the middle of next year.
5:08
Speaker 1: So so I think this is kind of a almost
5:10
Speaker 1: a necessary step in order to pave the way for
5:14
Speaker 1: potential interest rate hikes in the future. Um, you know,
5:17
Speaker 1: how many and how aggressive the b o J can be,
5:21
Speaker 1: I think will be very much determined, like Kathleen said,
5:23
Speaker 1: about what the economic landscape ends up ends up being there.
5:26
Speaker 1: But but generally speaking, you know, it is part and
5:29
Speaker 1: parcel of this global policy tightening that you've seen, um
5:33
Speaker 1: out of just about every central bank in the world,
5:35
Speaker 1: even even those who you know traditionally have been majorly dubbish.
5:39
Speaker 1: So just Kathleen, that's kind of right ones to go.
5:41
Speaker 1: It feels very coordinated to men, like the central banks
5:46
Speaker 1: around the world raising rates. Is this typically how it happens? Well,
5:50
Speaker 1: I'm not sure it was coordinated now they do. We
5:52
Speaker 1: know that they communicate with each other frequently. I will
5:56
Speaker 1: say this that very recently my sources to the b
6:00
Speaker 1: o J, we're indicating that nothing was going to change yet,
6:04
Speaker 1: as recently as late last week when I spoke to somebody, So, uh,
6:09
Speaker 1: it's still a mystery to me too. Why now why
6:12
Speaker 1: this meeting? And another thing, the b o J has
6:15
Speaker 1: eight meetings a year. Four of them have a monetary
6:17
Speaker 1: policy report thoughts when they usually make any kind of
6:20
Speaker 1: shift in policy. This was not one of them. Again,
6:23
Speaker 1: why now, why the movie do they communicate with the public,
6:27
Speaker 1: with the markets like the Fed? Does it seems like
6:29
Speaker 1: we're here from Fed presidents every other day? Well, they
6:32
Speaker 1: test Governor Rod testifies Parliament all the time. The board
6:35
Speaker 1: members are are testifying more than they used to. But
6:38
Speaker 1: one of the big clues that something was going to
6:40
Speaker 1: happen was really broken first about four or five weeks
6:43
Speaker 1: ago by our team in Tokyo that a source said
6:45
Speaker 1: that that change having having a look at the policy review,
6:49
Speaker 1: that was the policy accord that was set back in
6:53
Speaker 1: that established all that the aggressive easy and that established
6:56
Speaker 1: the groundwork for moving your Their inflation target was one
6:59
Speaker 1: percent to two sen that's when yield curve control in
7:03
Speaker 1: that they were going to be looking at that after
7:05
Speaker 1: the first year. Kyoto News, one of the big Japanese
7:07
Speaker 1: news outlets, over the weekend another report saying this was
7:10
Speaker 1: going to happen so it has been telegraphed, and the
7:14
Speaker 1: b o J does telegraph things with the press. I
7:16
Speaker 1: think the surprising part is the fact that they decided
7:19
Speaker 1: why to wide and yield career control. They doubled it right,
7:22
Speaker 1: and I think Roda is probably telling us the truth
7:24
Speaker 1: that to a certain extent, they needed um, they needed
7:27
Speaker 1: more ability to defend the end when they need to
7:30
Speaker 1: to make sure that the bond market doesn't get too
7:34
Speaker 1: far out of whack. They've got more. They've got more
7:36
Speaker 1: flexibility on that now too, they don't have to be
7:38
Speaker 1: so aggressively trying to hold it, you know, below point.
7:42
Speaker 1: So still a little bit of mystery why now again,
7:45
Speaker 1: possibly the politics of this, and they need maybe to
7:48
Speaker 1: show the Japanese people we're moving that direction. Boyd. News
7:50
Speaker 1: coming out of Japan hot and heavy today. It is
7:53
Speaker 1: the topic Bank of Japan getting letting the rates go
7:55
Speaker 1: a little bit higher, and that is certainly a change
7:57
Speaker 1: from what we've seen from Japan over the Lai. Well,
8:00
Speaker 1: I don't know, at least a decade, maybe two. I
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Speaker 1: need to get some context here, and we do that
8:05
Speaker 1: with Kathleen Hayes. She's a Bloomberg television anchor six to
8:08
Speaker 1: twelve pm Eastern time doing all that, tune into absolutely
8:14
Speaker 1: gotta follow Asia over Jersey. He covers all things interest
8:17
Speaker 1: rates for Bloomberg Intelligence. So, Kathy, I just want to
8:20
Speaker 1: start with you again, just I know, you know pre pandemic.
8:22
Speaker 1: You're going over to Japan on a regular basis. Just
8:25
Speaker 1: give us a sense of how is the economy today
8:28
Speaker 1: in Japan. Well, the economy is I would say I
8:32
Speaker 1: would sort of characterize it as medium. Uh. They've they've
8:35
Speaker 1: come out of COVID pretty well over the past year,
8:38
Speaker 1: but there's still concerns about where the economy is going next.
8:44
Speaker 1: Capital investment surprisingly has been looking a bit better. People
8:47
Speaker 1: were b o J was concerned about that. I think
8:50
Speaker 1: their retail sales have been sort of mixed. Uh. The
8:53
Speaker 1: inflation rate has been moving higher, and that's the key
8:56
Speaker 1: here because their target is two percent. They've had well
9:00
Speaker 1: number one. They did when the when the bo J started.
9:03
Speaker 1: It's very aggressive policy back in I should say they
9:09
Speaker 1: did get the Japanese economy out of deflation with the
9:12
Speaker 1: help of some energy prices, but that that was that
9:14
Speaker 1: was the big accomplishment at the beginning. But they've been
9:16
Speaker 1: I'm unable to get much above one percent or get
9:19
Speaker 1: to two percent and keep it there. And now, because
9:21
Speaker 1: of higher energy prices, et cetera, up they've been able
9:24
Speaker 1: to get it up to what the core rate their
9:27
Speaker 1: their headline minus fresh food prices is up to three
9:31
Speaker 1: point six percent year over year, the headlines up to
9:33
Speaker 1: three point seven. There's a concern whether or not they
9:36
Speaker 1: can keep it there. There's a concern about the FED
9:38
Speaker 1: hiking rates so aggressively and pushing towards recession to get
9:42
Speaker 1: down this this inflation problem that exists here because a
9:45
Speaker 1: recession in the US bad news for Japan's economy, very
9:50
Speaker 1: export oriented. So I'd say it's a mixed view, and
9:53
Speaker 1: that's why there's UH. That's why to a certain extent,
9:55
Speaker 1: Governor Quota's UH decision to widen the yield curve COULT
9:59
Speaker 1: band to point five percent on either side of zero UH.
10:03
Speaker 1: As he said, today's move is not a rate hike.
10:07
Speaker 1: He's this is not meant to start an exit. That's
10:10
Speaker 1: what he's saying now. And we'll have to see what
10:13
Speaker 1: happens next. What does future policy then look like when
10:17
Speaker 1: it comes to UM some of these kind of expansion
10:22
Speaker 1: of the bands. Because I believe I saw a chart.
10:24
Speaker 1: I want to say Jim Bianco has been circulating it,
10:26
Speaker 1: but this is the third time they've increased that ban um.
10:29
Speaker 1: But it's taken years to do that. What would the
10:32
Speaker 1: next potential increase look like? I think that's a very
10:35
Speaker 1: good question. I suspect it's we're not There's another meeting
10:39
Speaker 1: in January. That's a meeting with a monetary policy report.
10:42
Speaker 1: As I said, that's usually they make choose in policy.
10:44
Speaker 1: Send you over there in January. Oh, you better believe
10:46
Speaker 1: that I'll be over there right out there. You know,
10:48
Speaker 1: we're out of the first year. Uh. But I think
10:52
Speaker 1: now the question is what we're going to hear more
10:55
Speaker 1: from the government. Are they going to announce a policy review?
10:59
Speaker 1: Are they by February? I believe we should know who,
11:05
Speaker 1: uh the next governor is going to be, certainly by March,
11:09
Speaker 1: but because they'd like to do that early. Governor Quota
11:11
Speaker 1: steps down on April eight. Can they do anything more?
11:14
Speaker 1: Do they need to do anything more between now and
11:18
Speaker 1: the next meeting when the governor next government will take over?
11:21
Speaker 1: So you know, I'm looking at the U S. Treasury market.
11:24
Speaker 1: I got a couple of basis points into two year
11:27
Speaker 1: maybe eight basis points in the tenure. Are you surprised
11:29
Speaker 1: for not seeing more action in the U S. Treasury market? Not? No,
11:33
Speaker 1: not not really. I think a big reason for this
11:35
Speaker 1: is one that just a correlation between global rates generally,
11:39
Speaker 1: because so you've seen developed market interest rates sell off
11:42
Speaker 1: just about in every jurisdiction after the after the b
11:46
Speaker 1: O J news. I think the other thing is for
11:48
Speaker 1: for the US is that the consensus has been very
11:51
Speaker 1: crowded trade, which is yield curve flatteners, so more in
11:55
Speaker 1: version of the yield curve. As the economy slows, people
11:57
Speaker 1: think that the Fed is going to keep interest rate
11:59
Speaker 1: throughoutively high and then and then long term interest rates
12:02
Speaker 1: will have to come down significantly. So I think when
12:04
Speaker 1: you get news like you did out of Japan, you
12:07
Speaker 1: have people that are just unwinding positions, particularly given the
12:10
Speaker 1: calendar effect here, right, So people just want to get
12:12
Speaker 1: out of whatever risk they have before your end, especially
12:15
Speaker 1: if they had very good years visa be their index
12:18
Speaker 1: or or their peers um. So, so I think people
12:21
Speaker 1: are just taking some um. People are just taking some
12:24
Speaker 1: chips off the table here. I think that's the probably
12:27
Speaker 1: the big reason why you're seeing this this pretty big
12:30
Speaker 1: steepening in the curve over the last couple of days.
12:33
Speaker 1: I wrote, when we're talking about the contagion effect or
12:36
Speaker 1: the ripple effect here of Japan, it does seem like
12:39
Speaker 1: it's a fairly muted reaction today. But I think there
12:43
Speaker 1: was this expectation going in the eventually the market is
12:45
Speaker 1: going to break in in some regard. Do you think
12:48
Speaker 1: that what happened overnight in Japan, well's to some extent
12:52
Speaker 1: priced in explaining the needed reaction. Well, yeah, we did here.
12:56
Speaker 1: You know, there were people who were I think hearing
12:58
Speaker 1: rumblings that it might happen yesterday. That's one reason why
13:00
Speaker 1: you saw a similar reaction yesterday. So when you look
13:03
Speaker 1: at the two day move, it's really non trivial. Right,
13:05
Speaker 1: So you look at the UM the two day move
13:08
Speaker 1: and in tenure treasuries, and you are talking about UM,
13:11
Speaker 1: you know, a twenty basis point selloff in in two
13:14
Speaker 1: your in ten ure yields UM not quite as much
13:17
Speaker 1: in the front end. And again I think a big
13:18
Speaker 1: part of that is this UM kind of unwinding positionings
13:21
Speaker 1: and people getting somewhat somewhat flatter than than they had been.
13:24
Speaker 1: I think the risk going forward, is this kind of
13:27
Speaker 1: is going to be communication out of the b O
13:29
Speaker 1: J right, So so there is the chance for more
13:31
Speaker 1: volatility being driven out of the next actions at the
13:34
Speaker 1: Bank of Japan takes because if you know, Governor Kuroda's
13:38
Speaker 1: term is ending soon, you're going to get a new
13:40
Speaker 1: governor in there. Will that governor actually decide to hike
13:43
Speaker 1: interest rates or won't they will? Will they get rid
13:46
Speaker 1: of the band altogether and kind of end yield curve
13:49
Speaker 1: control instead of just you know, continuing to increase the
13:52
Speaker 1: band um. And you know, even though even though Governor
13:56
Speaker 1: Krota has said, you know, this is not an interest
13:58
Speaker 1: rate hike, it is an interest rate hype because the
14:00
Speaker 1: fact is that you you did see long term so
14:03
Speaker 1: thirty year um Japanese government bonds went from very low
14:07
Speaker 1: levels to one and a half percent doesn't sound very high,
14:09
Speaker 1: you know, visa v the US, right, which has more
14:11
Speaker 1: than twice that yield, and it's in our long end.
14:15
Speaker 1: But nonetheless, you you had this very serious deepening of
14:18
Speaker 1: the yield curve in part because people thought that natural
14:21
Speaker 1: interest rates in Japan should be much higher than they were.
14:24
Speaker 1: You know, you still don't have the same type of
14:26
Speaker 1: inflationary problems in Japan that you have in in Western
14:30
Speaker 1: Europe or the United States. But nonetheless, their inflation is
14:33
Speaker 1: now positive, right, whereas it had been hovering near zero,
14:36
Speaker 1: you know, and generally negative for for a long period
14:39
Speaker 1: of time. So so I think the fact that that
14:41
Speaker 1: there's an acknowledgement now by markets that hey, we do
14:44
Speaker 1: have some inflation. Maybe we don't need policy to be
14:46
Speaker 1: as easy as it has been so um. So I
14:50
Speaker 1: think the bo j's actions are um, you know, have
14:52
Speaker 1: the potential for creating more volatility and other developed market
14:56
Speaker 1: developed market rates um markets Uh, over the next couple
15:01
Speaker 1: of months, Kathleen. We have some strength in the end today,
15:04
Speaker 1: but boy, it had been weak. What's the Bank of Japan?
15:08
Speaker 1: How does it really feel about its currency? What does
15:10
Speaker 1: it want it to be? How does it because it
15:12
Speaker 1: seemed to become so weak? Okay, not so weak? Uh?
15:17
Speaker 1: And again it is it's a source of it's a
15:21
Speaker 1: source of discontent, uh in Japan. Uh. You know, the
15:27
Speaker 1: it's for so long we worried about the end getting
15:28
Speaker 1: too strong, right, you know, the ultimate carry trade currency.
15:31
Speaker 1: Everybody wants to use it. You don't have always control
15:34
Speaker 1: it completely. By the central Bank. But this, this ultra weakness,
15:37
Speaker 1: has been a problem. And when Governor Crota said at
15:40
Speaker 1: the press conference, put your attention on foreign exchange, on
15:43
Speaker 1: financial markets, I think that's another signal that this truly
15:47
Speaker 1: is his concern. And uh. Again, the this ever raises
15:52
Speaker 1: the question of how quickly they'll get rid of youka control.
15:55
Speaker 1: This is going to take time. But one of the
15:57
Speaker 1: lead contenders, Roshi Nakaso, who was made a deputy governor
16:01
Speaker 1: of the b o J back when Crota made was
16:03
Speaker 1: made governor, is looked at somebody who may be in
16:06
Speaker 1: favor now because he will be more on the side
16:10
Speaker 1: of let's move away from this extraordinary stimulus, let's normalize this.
16:14
Speaker 1: This Uh, all these bonds were buying. You know, the
16:16
Speaker 1: government owns excuse me, the b o J owns more
16:18
Speaker 1: than half of all the outstanding jgbs now and that
16:21
Speaker 1: has been a concern, has been complained about. They haven't
16:23
Speaker 1: seemed to respond to it. But this, this is definitely
16:26
Speaker 1: a time of change for the BUJ. Will it be quick?
16:28
Speaker 1: We'll see, Okay, hey, I were real quick. I'm looking
16:30
Speaker 1: at the crowds in Buenos Aires, A hundred thousand people
16:32
Speaker 1: celebrating Argentina. Pretty good World Cup? Huh, yeah, it was.
16:37
Speaker 1: You know, the on field action was very exciting this
16:39
Speaker 1: World Cup. It was some of the It was probably
16:41
Speaker 1: the best World Cup of my lifetime. Quick frankly everever
16:46
Speaker 1: who didn't want MESSI you know, I was rooting for
16:49
Speaker 1: France and completely it was wrong. Um, but I did
16:52
Speaker 1: think Bob played really well. Just saying, continue, you get
16:55
Speaker 1: a hat trick in the World Cup. Finally you gotta
16:57
Speaker 1: be you can't be unhappy, right amen? Yeah? And how
17:00
Speaker 1: big is it going to be in four years from now?
17:02
Speaker 1: I wrote in North America? Yeah, I think that it's
17:05
Speaker 1: It really will expand the game here in the US.
17:07
Speaker 1: I think just this final, I can't tell you how
17:09
Speaker 1: many people hit me up on you know, all the
17:11
Speaker 1: text I was getting about you know that, Hey, this game,
17:15
Speaker 1: this one game did more for soccer than US soccer
17:18
Speaker 1: has done in the last four years. So I think
17:20
Speaker 1: once all that action comes here to the US, I
17:22
Speaker 1: think it will just propel the sport even more. Alright,
17:24
Speaker 1: great stuff Iver in Jersey. Bloomberg interest rate strategist Kathleen
17:28
Speaker 1: Hayes joining us in study here. She has a Bloomberg
17:30
Speaker 1: Television correspondent really appreciate getting her perspective. President Biden just
17:37
Speaker 1: recently hosted a sum in Washington, U S Africa Leader Summit.
17:40
Speaker 1: A lot of topics discussed. One of them is that
17:42
Speaker 1: African governments have made it clear that they wished to
17:45
Speaker 1: be active participants in the clean energy revolution. And next
17:49
Speaker 1: guest argues that the United States should support the continent's
17:52
Speaker 1: efforts just beyond rhetoric. Ros Whittaker joins us the president
17:56
Speaker 1: and CEO of the Whittaker Group. She was the first
17:58
Speaker 1: ever Assistant US Representative for Africa. That was a position
18:02
Speaker 1: established by President Clinton back in the day. Rol, So
18:04
Speaker 1: thanks so much for joining us here. UM talk to
18:07
Speaker 1: us about Africa clean energy, their ability and willingness to
18:12
Speaker 1: participate in what appears to be for the most part
18:16
Speaker 1: of you know, a global trend here towards cleaner energy. Yes, well,
18:20
Speaker 1: thank you so much. Well, the African countries UM largely
18:25
Speaker 1: have a consensus around their feature entitled the Africa We
18:31
Speaker 1: Want and that's a decarbonized future. And the conversation has
18:36
Speaker 1: been very interesting with the US because what the African
18:40
Speaker 1: countries are largely saying, and it's summarized in an African
18:44
Speaker 1: proverb is that, UM, don't be the last person at
18:50
Speaker 1: the bar, because you may get stuck paying the bills.
18:53
Speaker 1: And that's largely how they feel. And so I think
18:57
Speaker 1: that with the summit this week, there was a lot
19:00
Speaker 1: of good feelings about President Biden's commitment. UM. He made
19:04
Speaker 1: a commitment to include Africa as a part of this
19:08
Speaker 1: eleven billion dollar climate change funding. He's thinking from Congress,
19:13
Speaker 1: but the operative word is speaking from Congress. Will President
19:17
Speaker 1: Biden be able to deliver on that commitment, We don't know. Um.
19:22
Speaker 1: The Africans were very pleased about the US commitment and
19:26
Speaker 1: COPS twenty seven where the US committed to the Loss
19:30
Speaker 1: and Damage funds very happy about that. But the African
19:34
Speaker 1: government is also recognized that climate change is costing up
19:38
Speaker 1: to fit taken off about fift cent of their GDP
19:43
Speaker 1: every year, and it is and they are in a crisis.
19:47
Speaker 1: And they believe that the Western world that really has
19:52
Speaker 1: this boom and productivity and industrialization based on you know, smokes,
19:57
Speaker 1: that kind of development models, UH, that they should not
20:01
Speaker 1: be paying the full price. And I agree, we have
20:05
Speaker 1: an obligation. This is a transnational issue, and so I
20:08
Speaker 1: think the summit was largely good. I believe we saw
20:12
Speaker 1: President Biden at his strength where he's building these global alliances. Uh,
20:18
Speaker 1: he is an internationalist. He is revitalizing these partnerships around
20:23
Speaker 1: the world. So it's a good thing. So Rosa, where
20:27
Speaker 1: is Congress on this? Do we have a feel what
20:29
Speaker 1: kind of support there may be in Congress? Well, I
20:33
Speaker 1: think that we don't know what's going to happen with
20:36
Speaker 1: the Republicans controlling the health I think there's a lot
20:39
Speaker 1: of work to do, and I hope that the African countries,
20:43
Speaker 1: like many other countries that have received US commitments, will
20:47
Speaker 1: not walk away disappointed on this. You know, it's really
20:50
Speaker 1: really I see the best way forward in my view,
20:55
Speaker 1: it's not to depend exclusively on the US government. We
21:00
Speaker 1: have to incentivize the private sector to come in and
21:03
Speaker 1: that's why I've called for um taxes centers by the
21:07
Speaker 1: US government to US companies to invest in africa String future.
21:12
Speaker 1: What it's needed. We need patient, well priced private capital
21:18
Speaker 1: to support a de carbonite one century Africa productivity revolution.
21:23
Speaker 1: And it's in our interest, you know. It was reported recently,
21:27
Speaker 1: for example, a solar farm in Cloudy Germany needs to
21:32
Speaker 1: earn only a seven percent return on investment to get funded,
21:37
Speaker 1: whereas a similar project in sunny, very sunny Egypt requires
21:43
Speaker 1: a twenty eight percent return on investment to get funding.
21:47
Speaker 1: There is a need for urgent, well placed private capital
21:52
Speaker 1: to do this, and I just believe that private sector
21:57
Speaker 1: and sentence open up our tax code. It can be
22:00
Speaker 1: done in a budget neutral way. Um for a private
22:05
Speaker 1: sector too to come in and invest in this ROSA
22:09
Speaker 1: talk to us a little bit about the geopolitics at
22:11
Speaker 1: play here. When I think Africa, I'm starting to think
22:14
Speaker 1: a lot about the Belton Road project coming out of
22:18
Speaker 1: China as well. Connect some of those dots for us. Well,
22:22
Speaker 1: I can tell you we are so far behind China
22:25
Speaker 1: that we would have to do far more than the
22:27
Speaker 1: summit to catch up. Okay, so US Africa trade and
22:31
Speaker 1: services with Africa has increased to about eighty three billion
22:38
Speaker 1: dollars last year, up by sixteen percent since the since
22:43
Speaker 1: the pandemic, but Africa. China's trade with Africa is over
22:48
Speaker 1: two hundred fifty four billion dollars and it's growing by
22:52
Speaker 1: thirty five percent a year. Uh. Right now, China controls
22:59
Speaker 1: the majority party of the infrastructure project in Africa, So
23:04
Speaker 1: they are controlling a lot of the strategic minerals that
23:09
Speaker 1: we even need. If we're talking about, for example, America
23:13
Speaker 1: leading the green future, America leading in electrical vehicles, no
23:19
Speaker 1: one has figured out how you're gonna have massive production
23:22
Speaker 1: of electrical vehicles without co books. Most of that call
23:26
Speaker 1: books in the world is in Africa, sevent of it
23:29
Speaker 1: in one country, the Democratic Republic of Congo. China is
23:34
Speaker 1: now processing sixty of that. So how can we talk
23:39
Speaker 1: about having a green future leading an electrical vehicles when
23:43
Speaker 1: China is controlling a lot of the strategic minerals required
23:49
Speaker 1: for that green future that's in Africa. So I think
23:53
Speaker 1: that we're late in the game and we have to
23:56
Speaker 1: get Americans. We have to build great awareness about Africa's
24:01
Speaker 1: strategic importance to the world. Rose, I wonder if we
24:05
Speaker 1: can just if you can just give us a quick
24:07
Speaker 1: kind of reviewer assessment of how Africa did during the pandemic. How,
24:12
Speaker 1: how how is it broadly defined the continent doing well?
24:16
Speaker 1: What Africa did is it surprised the world because it
24:19
Speaker 1: put in a lot of mitigation lockdown. It did fairly
24:25
Speaker 1: well in terms of the parts of the pandemic it
24:28
Speaker 1: could control. UM, we did not see people dying in
24:33
Speaker 1: the numbers that were projected. However, economically, UM, Africa has
24:39
Speaker 1: really suffered. It is it had a downward trajectory in
24:44
Speaker 1: terms of its economic growth levels. Uh. It created more people,
24:49
Speaker 1: hundreds of millions of new people that were impoverished on
24:53
Speaker 1: top of the poverty that we all ready saw. UM
24:57
Speaker 1: and UM we're seeing a massive food and security crisis
25:02
Speaker 1: as a result of poll. But and now with kraiz Okay,
25:06
Speaker 1: Rosa really appreciate getting that overview. Rosa Whittaker, President CEO
25:09
Speaker 1: of the Whittaker Group, getting us an overview of Africa
25:12
Speaker 1: and the need to develop trade with Africa, catching up
25:15
Speaker 1: with China. All right, Nathan Hagar, good stuff. Where you
25:20
Speaker 1: appreciate that as always want to get right to our
25:21
Speaker 1: next guest, uh Nick Hike Jr. He's the CEO of
25:25
Speaker 1: Swatch Group based in Switzerland. He's joining us via zoom.
25:29
Speaker 1: Uh Nick, thanks so much for joining us here. You know,
25:32
Speaker 1: I'd love to get it just an overview of the
25:34
Speaker 1: watch business. I'm not really a jewelry guy, but I
25:36
Speaker 1: really enjoy my Omega watch. I've had it for many
25:40
Speaker 1: years now. It's great, great watch. I love it. Just
25:42
Speaker 1: give us an overview of how the watch businesses on
25:45
Speaker 1: a global scale. Cod we just came through a pandemic
25:47
Speaker 1: and lots of different parts of the world reacted differently.
25:50
Speaker 1: I'm just wondering how the luxury watch market is doing.
25:54
Speaker 1: Hello first of all to everybody, and the congratulation you're
25:57
Speaker 1: a man with a good taste. You know, that's right. Congratulation.
26:02
Speaker 1: You know, worldwide we see a really strong, strong situation
26:06
Speaker 1: for watches, especially Swiss made watches and mechanical watches. Was
26:12
Speaker 1: also court watches, and we see it everywhere. Of course,
26:15
Speaker 1: you still have countries like China where you have shops
26:18
Speaker 1: that are closed because of COVID. But I would say
26:21
Speaker 1: the COVID situation where everybody had to stay at home emotions,
26:26
Speaker 1: you could not show, you could not meet people, you
26:29
Speaker 1: could not talk with other people. You could only make
26:31
Speaker 1: it a via zoom, you make your home offices. This
26:35
Speaker 1: has favored now everybody who doesn't want to sit at
26:42
Speaker 1: home and wants to live again and to breathe again.
26:46
Speaker 1: This is fantastic for the watch mark because watches a
26:50
Speaker 1: first of all emotional products. You go and look at
26:54
Speaker 1: them you want to make a joy for yourself, but
26:57
Speaker 1: you want to buy it as a gift to somebody else.
26:59
Speaker 1: And here we see that whatever segment you take, the
27:02
Speaker 1: entry segment, like with the moon swatch, what we are
27:04
Speaker 1: talking about also certainly later on to the luxury ones.
27:09
Speaker 1: It's really booming everywhere in the world and especially in
27:12
Speaker 1: the US well. Speaking of that booming dynamic, a lot
27:17
Speaker 1: of people are using a lot of these luxury products,
27:19
Speaker 1: and watches specifically, I would argue handbags as well as
27:24
Speaker 1: kind of the investment. Is sure when the rest of
27:26
Speaker 1: the market seem to be completely tanking, there is no
27:29
Speaker 1: alternative has really worked quite well for the luxury market.
27:32
Speaker 1: Do you think that's going to sustain Yeah, but you
27:36
Speaker 1: think only money and investment. For most of the people,
27:40
Speaker 1: it's an emotional investment. It's something you get when you
27:43
Speaker 1: get married or when you have a birthday. So of
27:46
Speaker 1: course these are products that that have value, that are
27:52
Speaker 1: not a commodity that's another consumer electronics product that in
27:56
Speaker 1: one year you have to change because of the software change.
27:59
Speaker 1: Watches have always been of great value long term, long time,
28:04
Speaker 1: but not only because they keep a value money wise,
28:08
Speaker 1: They keep first of all an emotional value, and that's
28:11
Speaker 1: why you have so many collectors. I talked with many
28:14
Speaker 1: young people. They want to own watches because they love it,
28:18
Speaker 1: they know the history about it. Are the ones who
28:20
Speaker 1: don't know the history of the watches and the brands
28:23
Speaker 1: they want to own one. If at the same time
28:26
Speaker 1: you have add its value and it increases over time,
28:31
Speaker 1: it's even better. But that's not the first motivation to
28:35
Speaker 1: buy Swiss made watches. Nick, you mentioned the Moon Swatch.
28:39
Speaker 1: I know that's a collaboration between Swatch and Omega, which
28:42
Speaker 1: is a brand. You don't talk to us about the
28:44
Speaker 1: Moon Swatch. Yeah, you know, typically the Moon Swatch. It's
28:49
Speaker 1: an idea that started. First of all, I have a
28:52
Speaker 1: Pirates flagon in front of my office hanging out to
28:56
Speaker 1: to say, hey, you have to be a little bit
28:58
Speaker 1: more provocative. Swatch has always been has a message of
29:02
Speaker 1: joy of life and positive provocation. And in the beginning
29:06
Speaker 1: of twenty one, I was sitting in my office and
29:08
Speaker 1: I said, my god, we have to stop two to
29:12
Speaker 1: be without joy of life and without positive provocation. What
29:17
Speaker 1: could we do? And then of course came the idea
29:19
Speaker 1: was the new material of bios ramy. Why should we
29:22
Speaker 1: not offer the people in the world. There's a craze
29:27
Speaker 1: about luxury, why should we not make an exclusive product
29:31
Speaker 1: and I can that is watch who works with an
29:33
Speaker 1: I can that's Omega and bring to the people the
29:37
Speaker 1: story of the speed Master in a quality product and
29:43
Speaker 1: let it launch in our own stores. Let's not make
29:46
Speaker 1: e coomerce, and let's give the people a social and
29:49
Speaker 1: cultural components in what they are doing. And that's how
29:53
Speaker 1: the whole thing has been born. And then we kept
29:55
Speaker 1: its secret. Thanks to our strong industrial base we produce
30:00
Speaker 1: everything here in Switzerland, we could keep it totally secret,
30:04
Speaker 1: and we wanted to keep it secret because we were
30:06
Speaker 1: convinced this will be spectacular. It's something people were waiting for.
30:11
Speaker 1: They could not imagine that this is happening, but it happened,
30:14
Speaker 1: and of course nine months after, it's still booming, queuing
30:20
Speaker 1: everywhere in the world. It's not a limited edition, and
30:24
Speaker 1: it has proven that you can make an exclusive product
30:27
Speaker 1: without excluding people, creating accessibility. But nevertheless, the product is rare,
30:35
Speaker 1: it's not limited and there's no e commerce and it works.
30:40
Speaker 1: And by the way, Bloomberg has reported that we could
30:43
Speaker 1: perhaps make and sell half a million of these pieces
30:47
Speaker 1: but it's the double that we have already done, and
30:49
Speaker 1: our capacities are really difficult to increase further. It doesn't stop,
30:54
Speaker 1: and it shows how much hunger is out there for
30:59
Speaker 1: a desirable emotional product that is only costing too under
31:04
Speaker 1: six SS. Well, one of the issues or criticisms that
31:09
Speaker 1: your company has faced is simply the rollout of the
31:12
Speaker 1: Moon's Watch, specifically basically saying the short supply was a
31:16
Speaker 1: major issue. They're only available at brick and mortar spots,
31:19
Speaker 1: and there was a promise of online sales as well
31:22
Speaker 1: that never really materialized. Do you regret how that went?
31:26
Speaker 1: Is it influencing your strategy on future product rollouts? You
31:30
Speaker 1: are wrongly informed. We never communicated we do e commerce.
31:33
Speaker 1: This was an assumption in the market. They said, this
31:36
Speaker 1: is a mass product. They cannot be that it is
31:38
Speaker 1: not e commerce. From the moment we first talked about
31:42
Speaker 1: it to the launch there were only nine days and
31:46
Speaker 1: we never talked about e commerce. The people had these
31:48
Speaker 1: expectations and we said, no, it's only through a selective
31:54
Speaker 1: number of our own stores, and you can buy one
31:58
Speaker 1: product why time when you come to visit the store,
32:02
Speaker 1: and then when you come a second time you can
32:04
Speaker 1: buy another one. And it was clearly communicated. And it's
32:07
Speaker 1: not the shortage that we created. The demand created the shortage.
32:12
Speaker 1: There is a huge demand. You can go out there
32:14
Speaker 1: and see what is happening. This is an industrially fine
32:18
Speaker 1: product where everything has to develope from scratch. It's innovative
32:22
Speaker 1: new material, and we do it in our factories with
32:25
Speaker 1: our workers, the hands, the dials, everything has to be done.
32:29
Speaker 1: It's not suppliers somewhere in China, in Vietnam where you
32:32
Speaker 1: can order something, you have to do it, so you
32:35
Speaker 1: cannot just press the button and say okay, I want
32:38
Speaker 1: to do a new mobile phone and then I produce
32:41
Speaker 1: it with I don't know how many suppliers. This is
32:44
Speaker 1: done here in Switzerland and the consequences. We didn't want
32:48
Speaker 1: it that the people just can order it in e commerce.
32:52
Speaker 1: Why should you Why should you be comfortable at home
32:55
Speaker 1: and say, yes, I have the right when I ordered hamburger,
32:58
Speaker 1: I order it. Okay, it's not a burger. It is
33:01
Speaker 1: a fine product. If you want it, you have to
33:03
Speaker 1: move and then you meet other people, you discuss with them.
33:06
Speaker 1: Everybody knows what he's waiting for, and the people play
33:10
Speaker 1: the game and they like it. They come back and
33:13
Speaker 1: when you talk with most of the people, the ones
33:15
Speaker 1: that have not yet angry, but the ones who are
33:19
Speaker 1: coming all the time back, they have also a joyful
33:23
Speaker 1: approach because they meet again people and it's a common
33:26
Speaker 1: experience that they have. It's something different than e commerce.
33:29
Speaker 1: And you see what is important. We didn't do this
33:33
Speaker 1: product to make in the shortest period of time the
33:35
Speaker 1: maximum amount of money. It was not this. We wanted
33:40
Speaker 1: to create an entry possibility for younger people in the
33:44
Speaker 1: world to get interested into watches and don't feel excluded
33:49
Speaker 1: in getting access only on Swiss made watches that are
33:52
Speaker 1: costing six thousand, seven thousand, ten thousand dollars. That's what
33:56
Speaker 1: we wanted to do, and we wanted to bring them
33:58
Speaker 1: to the stores and it works. Hey, Nick, you know
34:01
Speaker 1: I went doing research for this discussion. You know, I
34:04
Speaker 1: was surprised to see how many brands that the Swatch
34:07
Speaker 1: company actually owns. So I'm wondering about M and A.
34:11
Speaker 1: How do you think about acquiring new brands? I mean,
34:14
Speaker 1: it's such a strong market for luxury items luxury watches.
34:18
Speaker 1: Is Swatch looking to make acquisitions and grow via acquisitions?
34:23
Speaker 1: We are not investors in uh, you know, you can
34:25
Speaker 1: ask this question some I don't know, some funds probably
34:30
Speaker 1: or whoever wants to invest money. I'm an industrialist. I
34:35
Speaker 1: invest money in our factories and in new products. We
34:38
Speaker 1: have enough brands we have from Burge, from Harry Winston
34:41
Speaker 1: to Bruge, Blanc, Omega, Loan, Genes, Watch. We have all
34:45
Speaker 1: the brands we need and we won't We don't need
34:48
Speaker 1: other ones. But what we need is to invest in
34:50
Speaker 1: our brands, in the innovation of the brands, and mood
34:53
Speaker 1: Swatch is the best example. This was disruptive. This creates
34:56
Speaker 1: new opportunities for everybody in the whole industry. And that's
35:00
Speaker 1: what we're going to do. To go and look what
35:03
Speaker 1: could we buy? No, we don't need to buy anything. Yes,
35:07
Speaker 1: we invest in our factories here in Switzerland and not
35:10
Speaker 1: somewhere else in the world, and in our workers and
35:12
Speaker 1: in our research and development. And that's what we are doing.
35:17
Speaker 1: There's no lead, nick. I just want to also get
35:19
Speaker 1: it when I when I talk to anybody in the
35:21
Speaker 1: luxury business, I need to get the call on China
35:23
Speaker 1: because China is such a big part of demand for
35:26
Speaker 1: luxury products across the board and of course with the pandemic,
35:30
Speaker 1: it's virtually shut down. How are you guys thinking about
35:34
Speaker 1: China as as a market for your products going forward. Yeah,
35:38
Speaker 1: it's wonderful because the Chinese people are very cultivated people,
35:42
Speaker 1: and they know about the value and the difference between
35:47
Speaker 1: a commodity or a consumer electronics product and define product
35:54
Speaker 1: that is coming from an authentic brand, and they love
35:58
Speaker 1: to know that. And it's doing the products themselves and
36:02
Speaker 1: they're not producing somewhere else in the world that they
36:05
Speaker 1: have ownership. And they like storytelling. Because China has a
36:10
Speaker 1: history of several thousand years, they have invented many things.
36:13
Speaker 1: So the Chinese consumer is totally open for authentic brands
36:18
Speaker 1: that can tell them a story and are really delivering
36:21
Speaker 1: the product was their own know how. And that's why
36:25
Speaker 1: the potential is huge, not only in the luxury is
36:28
Speaker 1: also in the entry level. It is this consumer, Henry,
36:33
Speaker 1: he wants to know, I said, I read the study
36:38
Speaker 1: of the Chinese consumer knows what a mechanical watches. They're fascinated,
36:44
Speaker 1: all right, Well, hopefully they can get in the US.
36:46
Speaker 1: In the US of the consumer knows what a mechanical
36:49
Speaker 1: watches because see, yeah, I know It's interesting to have
36:53
Speaker 1: to see how that plays out as a reopening of China,
36:55
Speaker 1: hopefully a big move for your company. Nick Hyake Jr.
36:58
Speaker 1: He's the CEO of swa watch group, joining us via
37:01
Speaker 1: zoom uh from Switzerland. We appreciate getting the update on
37:04
Speaker 1: the luxury watch business, which has seen some incredible demand
37:08
Speaker 1: through the pandemic. Just amazing. Okay, let's talk a little
37:14
Speaker 1: macro here round table. Joining us on a Bloomberg in
37:18
Speaker 1: our Actor Broker studios, Dr Quincy Crosby. She's chief global
37:22
Speaker 1: strategist for LPL Financial, her offices in charlottees' Ville, Virginia.
37:27
Speaker 1: I don't know how she worked out that scam. That's
37:29
Speaker 1: a great town down there. She joins us here in
37:31
Speaker 1: our studio. Plus Ben Emmon's had a fixed income for
37:34
Speaker 1: New Edge Wealth. He joins his via zoom um. So
37:39
Speaker 1: you know, Quincy, when he we woke up this morning
37:42
Speaker 1: and he saw that the federal that the Bank of
37:44
Speaker 1: Japan is raising rates. Boy, we haven't seen that in
37:47
Speaker 1: a long time. As you know, as a macro global strategists,
37:51
Speaker 1: what did that mean to you? Well, you know, I
37:53
Speaker 1: mean the expectations were that when left office, which was
38:00
Speaker 1: expected that that we would start to see a shift
38:04
Speaker 1: in yell curve control. That's what that's what they did.
38:06
Speaker 1: That came in in UH September, and the expectations were
38:12
Speaker 1: that that that would help actually help induce inflation, which
38:17
Speaker 1: as you know, is something that Japan is needed over many,
38:21
Speaker 1: many years. So it was a surprise they that they
38:24
Speaker 1: did it overnight, but but not a shock. So how
38:28
Speaker 1: do because it was a surprise but not a shock.
38:30
Speaker 1: And also just think about it. They've had to take
38:34
Speaker 1: care of of underpinning the yen as it started to
38:39
Speaker 1: collapse a number of times visa VI the US dollar.
38:42
Speaker 1: As the dollar strengthened with an aggressive fet it meant
38:45
Speaker 1: that they had to sell treasuries in order to do that.
38:49
Speaker 1: It cost them a lot of money. This was and
38:52
Speaker 1: on top of that, the most important things. Inflation is
38:54
Speaker 1: actually up now it's above three not not great, but
38:58
Speaker 1: it's above where they needed to be. So they've got
39:02
Speaker 1: to work on wages. They've got to get that up.
39:05
Speaker 1: Wages and is an issue for them. They want higher
39:08
Speaker 1: wages that they're working on that with companies. But again
39:12
Speaker 1: this was needed. The yeld curve control kept a very
39:16
Speaker 1: tight band. They needed to just be more flexible, and
39:21
Speaker 1: that's what they have. Ben hop on in here and
39:25
Speaker 1: give us your take on this shock but not shock
39:29
Speaker 1: kind of decision overnight. Yeah, Cudy, I think it was
39:33
Speaker 1: a shock for let's say specific markets right like so
39:36
Speaker 1: it was going as to talk about the end had
39:38
Speaker 1: a put substantial move, you know, three and a half
39:41
Speaker 1: percent rally. The end volatility just jumped and you see
39:45
Speaker 1: the explosions, same thing in interstave volatility in Japan. Yes,
39:49
Speaker 1: you're underneath your shock. But when it comes to the surprise,
39:52
Speaker 1: I think what people didn't expect that CRUDA would make this.
39:56
Speaker 1: I would think in someone of a savvy move ahead
39:58
Speaker 1: of the his his office when he leaves right in April.
40:03
Speaker 1: I think what he really did here is to kind
40:05
Speaker 1: of listen to the government and say, you do want
40:07
Speaker 1: to move to a different rate regime. I'm just opening
40:10
Speaker 1: the door here for you to allow you to change
40:13
Speaker 1: this in the future. Yet I'm still keeping legacy here
40:16
Speaker 1: because what they did do as well and announcing this
40:20
Speaker 1: in the statement overnight, is that they actually increase quantity leasing.
40:24
Speaker 1: But another that's sort of I think it was like
40:26
Speaker 1: nine trillion yend or so So there's a bit of
40:29
Speaker 1: a bit of both sides of the story here, right,
40:31
Speaker 1: Kruda is listening to the government then cs inflation time
40:35
Speaker 1: and meeting a goal. We can allow for more flexibility
40:38
Speaker 1: or for the tenure to move around to zero, you know,
40:41
Speaker 1: up and down fifty base points, but we do keep
40:43
Speaker 1: it quantec vision really large. Right, So so I think
40:47
Speaker 1: the market gott and said, Okay, this means just a
40:50
Speaker 1: very simple message. The end entertain here that have been
40:53
Speaker 1: really closely linked since August and twenty sixteen. That's now
40:56
Speaker 1: the coupling. That's just simply means that Japanese will have
41:00
Speaker 1: less demand for treasuries as the end strength is and
41:02
Speaker 1: they look for a more normalized interest rate environment in Japan.
41:07
Speaker 1: So Quincy, given that backdrop, we've now got the Bank
41:10
Speaker 1: of Japan joining most other central banks around the world
41:13
Speaker 1: and kind of throwing in the hat saying all right,
41:15
Speaker 1: I gotta let rates rise to fight inflation. One could
41:19
Speaker 1: argue that's bullish for stocks here, that maybe we got
41:22
Speaker 1: light at the end of the tunnel. How do you
41:23
Speaker 1: think about stocks? Well, I mean, we just go back
41:27
Speaker 1: to Japan for one minute. It's also hurting going to
41:31
Speaker 1: hurt their exports, because suddenly that becomes more expensive as
41:34
Speaker 1: the end goes up. But take a look at the banks. Uh,
41:38
Speaker 1: they're enjoying a recovery with net and the rest margin
41:42
Speaker 1: in Japan. But overall, I mean, what what LPL is
41:47
Speaker 1: looking for is the process of going through the first
41:51
Speaker 1: and second quarter, the Fed we believe will continue to
41:56
Speaker 1: raise rates albeit perhaps ago from fifty basis points to
42:00
Speaker 1: twenty and twenty five, and then um, you know, looking
42:04
Speaker 1: for another sell off that perhaps then kills the bear
42:08
Speaker 1: market and brings the valuations down to a compelling level
42:13
Speaker 1: where not just traders, this has been a trader's market
42:16
Speaker 1: for so long, but where investors start coming in and saying, look,
42:21
Speaker 1: the valuations are attractive, they're compelling. The economy is going
42:25
Speaker 1: to start to ease, particularly if you if you believe
42:28
Speaker 1: the Fed funds futures market and the Fed UH cuts
42:31
Speaker 1: rates and sometime in three or even early you start
42:36
Speaker 1: to move out of this period in which, uh, you know,
42:40
Speaker 1: you've you've got a difficult market, You're worried about earnings,
42:43
Speaker 1: you're worrying about margin compression, and how about this, Uh,
42:47
Speaker 1: the the fixed income market becomes attractive, albeit now with
42:53
Speaker 1: some concerns about volatility that we just have UH introduced
42:57
Speaker 1: because of the Japan's move, But nonetheless US UH fixed
43:01
Speaker 1: income treasuries have become UH as equal as the equity
43:06
Speaker 1: market in terms of UH long term investors. Well, QUIZI.
43:11
Speaker 1: It brings me to the fact that now that we
43:13
Speaker 1: are actually seeing some real yield in in in the market,
43:16
Speaker 1: which I think is getting to the point that you
43:18
Speaker 1: were just making. Do you then start to see, even
43:21
Speaker 1: in the face of a hawkers federal reserve, a bull
43:24
Speaker 1: case for treasuries forming that might actually suppress yields. Yes,
43:29
Speaker 1: I mean, obviously if you start to see even now
43:33
Speaker 1: now before Christmas, before the holiday season, let's put at
43:36
Speaker 1: the end of the year, you start to see the
43:39
Speaker 1: rebalancing of of huge portfolios, pension portfolios, they start to
43:44
Speaker 1: do a rebalancing, and that I think is going to
43:47
Speaker 1: bring in more money into the treasury market, which would
43:51
Speaker 1: actually help the government by by bringing yields down. Hey, Ben,
43:56
Speaker 1: so for it next year, do you have a recession
44:01
Speaker 1: in your forecast? There? And I so kind of the
44:04
Speaker 1: depths and lengthen and we think it's going to be
44:08
Speaker 1: a mild downturn ball um So maybe too. Quincy's point, like,
44:13
Speaker 1: you do have a fellow reserve that's slowing down rate
44:16
Speaker 1: heights and will end up at a restrictive level that
44:19
Speaker 1: they will keep in place where it takes away a
44:21
Speaker 1: lot of yourncertainty about interest rates. Right, So you're getting
44:24
Speaker 1: in that sense of flow, natural flow from pensions from
44:28
Speaker 1: other investors into interest rates, and that should at least
44:30
Speaker 1: keep borrowing costs controlled. And at the same time, I
44:33
Speaker 1: think that's the other story China reopening. I think we'll
44:37
Speaker 1: play a big role next year. We talked about it
44:39
Speaker 1: the last show. I think that will be potentially actually
44:42
Speaker 1: a counterway to all the say really recession fear that's
44:45
Speaker 1: out there, because it should lead to more global activity
44:48
Speaker 1: potentially um and then Lassie, it is also about that inflation,
44:53
Speaker 1: you know, with restrictive rates, is a really different inflation
44:56
Speaker 1: next year than it is this year. Every we should
44:58
Speaker 1: see lower inflation next year. That should lead to better
45:02
Speaker 1: you know, real income. So we think it's a milder downturn.
45:06
Speaker 1: But you cannot escape to Quincy's points, there is an
45:08
Speaker 1: earning secession that seems to be more likely, that may
45:12
Speaker 1: be a more severe one than the actual recession. The
45:14
Speaker 1: economic procession. Well, Ben, when we're not talking when we're
45:17
Speaker 1: talking about kind of a more severe recession, there seems
45:21
Speaker 1: to be this thought and the market that, well, don't
45:23
Speaker 1: worry because the Fed is going to cut rights as
45:25
Speaker 1: soon as we get there. Something at the Federal Reserve
45:28
Speaker 1: has vehemently denied. Why do you think that they're denying
45:32
Speaker 1: that when Sherman Powell has actively said that, look, the
45:36
Speaker 1: risk of overdoing it is actually less than the market
45:39
Speaker 1: would perceive because they have that ability to cut rates.
45:43
Speaker 1: What do you think, Yeah, I think that conundrum that
45:47
Speaker 1: you described creaty party again into the Quincey says you
45:50
Speaker 1: have a lot of flows coming into into fixed income now,
45:54
Speaker 1: so to an extent that gets influenced by the view
45:57
Speaker 1: of one, yes, the fact will not rates, you know,
46:01
Speaker 1: and at a high rate for for a long time. Right,
46:04
Speaker 1: they do this for a number of months and then
46:06
Speaker 1: have to shift. There's a view that as goods inflation
46:09
Speaker 1: is now really declining, it's just a matter of time
46:12
Speaker 1: and services inflation will decline fast to therefore inflation comes
46:16
Speaker 1: up much quicker, and the fact we'll have to move
46:18
Speaker 1: on rates and then last ye, it's about that idea
46:21
Speaker 1: of fact, it may not be such a severe recession
46:23
Speaker 1: or earning succession, so you know, you don't really need
46:26
Speaker 1: the fellows have to say that tight, right, it could
46:29
Speaker 1: actually uh, first course, and I think the fact wants
46:32
Speaker 1: to be really careful here about this on the seventies
46:35
Speaker 1: experience in particular, if you have a too hot economy,
46:38
Speaker 1: are you east too soon? You're gonna have to come
46:40
Speaker 1: back with major radararchs, right, that's the problem. All right, good,
46:43
Speaker 1: great stuff. Really appreciate that. Ben Emmon's head of fixed
46:45
Speaker 1: Income for New Edge Wealth joining us to be a
46:48
Speaker 1: zoom and Dr Quincy Crosby and Chief Global Strategies for
46:51
Speaker 1: LPL Financial, joining us here in our Bloomberg Interactive Broker studio.
47:00
Speaker 1: One of my first jobs on Wall Street way back
47:01
Speaker 1: in the day was a research assistant covering railroads and
47:04
Speaker 1: trucks for Jim Voyko and Tony Hatch, a couple of
47:07
Speaker 1: the legends of research in that business. So I've followed
47:11
Speaker 1: it with uh, you know ever since, railroads, trucks, the
47:14
Speaker 1: big ships, all that kind of good stuff. Unfortunately, for
47:16
Speaker 1: Bloomberg Intelligence, we have one of the best on Wall
47:18
Speaker 1: Street covering the stuff, Lee class Cow. He's a sector
47:21
Speaker 1: heads senior analyst covers all that freight, transportation, logistics, all
47:24
Speaker 1: that stuff for Bloomberg Intelligence and and Lee Boy. I mean,
47:28
Speaker 1: your industries are really important for the U. S and
47:31
Speaker 1: and global economy, but never more so they've been in
47:34
Speaker 1: It just feels like been at the top of conversation
47:36
Speaker 1: for so many people. We talk about bottlenecks and supply
47:38
Speaker 1: chains and and all that kind of stuff. Here, just
47:41
Speaker 1: give us now we're here in December, give us kind
47:43
Speaker 1: of a review of two. How did the you know,
47:47
Speaker 1: the logistics business kind of work? How did it perform
47:49
Speaker 1: in two? And then more importantly, what's the at look
47:52
Speaker 1: for next year? Hey, Paul, thanks for having me. I mean,
47:55
Speaker 1: I really think it's it's really depends on what sector
47:58
Speaker 1: you're looking at with within the market, and just generally
48:02
Speaker 1: speaking of the first half wasn't it was pretty good
48:05
Speaker 1: for a lot of sectors, and then the second half
48:08
Speaker 1: got a lot worse. Uh, and that that that weakness
48:12
Speaker 1: is flowing through three. You know, we saw a trucking
48:17
Speaker 1: rates come down considerably. Um, you know the spot market
48:21
Speaker 1: where uh, you know, we get to see a weekly
48:24
Speaker 1: rates and weekly supply and demand on ammics, you know,
48:27
Speaker 1: they change considerably from you know, when they peaked earlier
48:30
Speaker 1: in the year. You know, they're down around year of
48:34
Speaker 1: a year um and were We don't expect that market
48:37
Speaker 1: to really probably bottom until like the second quarter, so
48:40
Speaker 1: we expect spot rates and then the truckload market to
48:43
Speaker 1: continue to decline, and that's going to have you know,
48:45
Speaker 1: a ripple effect amongst a lot of different modes within
48:48
Speaker 1: North America. You know, because the cheaper that trucking is,
48:52
Speaker 1: um you know, the less competitive intermodal is, which is
48:55
Speaker 1: what railroads move. You know when you see those container
48:58
Speaker 1: boxes on a on a train, um and that and
49:02
Speaker 1: that is you know, is hoping to be an area
49:05
Speaker 1: of growth for the rails and which have struggled with service,
49:08
Speaker 1: which has also limited their ability to attract freight onto
49:11
Speaker 1: their networks. Well what does that that mean from a
49:14
Speaker 1: more labor perspective, because not too long ago there were
49:18
Speaker 1: trucking strikes in Canada and that's billed over into the US.
49:22
Speaker 1: There are railroad strikes that of course have been calmed
49:26
Speaker 1: now but certainly did affect a lot of the supply
49:28
Speaker 1: chain issues. Are we worried at all about the possibility
49:32
Speaker 1: of the labor situation getting worse in Uh. You know,
49:37
Speaker 1: the good news is that, you know, we we luckily
49:40
Speaker 1: inverted a rail strike last month when the federal government
49:44
Speaker 1: stepped in. Um, you know, there seems to be you know,
49:48
Speaker 1: some disagreement amongst the labor unions and management companies about
49:52
Speaker 1: sick days. Um. You know, my guess is that it
49:55
Speaker 1: is probably going to be more negotiated at a local level,
49:57
Speaker 1: which has historically been U and the rails kind of
50:01
Speaker 1: understand um, that their relationship with labor is shifted in
50:05
Speaker 1: a way. You know, a lot of them have adopted
50:07
Speaker 1: precisions scheduling railroading, which is for the most part six
50:11
Speaker 1: sigma for railroads. It's really about operating lean and sweating,
50:14
Speaker 1: sweating air assets. Um, they're gonna have to operate with
50:17
Speaker 1: a little more cushion. Um. You know, we attended to
50:21
Speaker 1: southerns Analyst Day a couple of weeks ago down in Atlanta,
50:24
Speaker 1: and you know, they were actually highlighting that the fact
50:27
Speaker 1: that you know that they're they're willing to have more
50:30
Speaker 1: people on hand versus you know, overly firing or furloughing
50:34
Speaker 1: I should say people. You know when volumes come down,
50:37
Speaker 1: because during this last cycle, you know, when volumes dried
50:40
Speaker 1: up in the first quarter of um, you know, and
50:43
Speaker 1: then all of a sudden they snapped back. They already
50:45
Speaker 1: furloughed a lot of people, and they realized once they
50:48
Speaker 1: were calling those workers back that a lot of them
50:49
Speaker 1: didn't want to come back, either, you know, to work
50:52
Speaker 1: because of the pandemic, or didn't want to come back
50:54
Speaker 1: to working on a railroad because they were better opportunities
50:58
Speaker 1: closer to home, you know, and working on a railroad,
51:02
Speaker 1: you know, it is a difficult job at outdoors. You're
51:04
Speaker 1: dealing with the elements. Uh. And you know a lot
51:07
Speaker 1: of times, you know, you're you're not necessarily home every night,
51:10
Speaker 1: so you know, you miss some family activities. So you know,
51:13
Speaker 1: it's it's a tougher work balance than a transportation analyst
51:18
Speaker 1: sot Lee. Um, the the supply chain, Are we back
51:23
Speaker 1: to quote unquote normal or normal ish? And give us
51:26
Speaker 1: a sense of kind of where we are when you
51:28
Speaker 1: when you look at the rails and the trucks and
51:29
Speaker 1: all that kind of stuff. Yeah, Well, well, since this
51:31
Speaker 1: is radio, I'll let everyone know I'm doing air quotes
51:34
Speaker 1: when I say normal, So you know, I think we
51:37
Speaker 1: are getting back to normal. Um. But you know, it
51:40
Speaker 1: is becoming a new normal. You know, the ports we're
51:42
Speaker 1: seeing in l a long beach to backups which were
51:45
Speaker 1: over you know, hundred and nine. I think that's when
51:48
Speaker 1: they peaked. Um. You know, they're down by low single
51:51
Speaker 1: digits right now. UM. You know you're seeing the throughput improved.
51:55
Speaker 1: The problem still remain. The warehouses are very full right
51:58
Speaker 1: now because people aren't necessarily buying stuff and a lot
52:02
Speaker 1: of retails might have overordered stuff. Um, and so there's
52:06
Speaker 1: not a place for new freight to come. So there's
52:09
Speaker 1: still that bottle of that kind of like inland within
52:12
Speaker 1: the supply chain that'll slowly work its way out. And
52:16
Speaker 1: there's also still you know, labor issues across the supply chain.
52:19
Speaker 1: You know. Um, while we're not necessarily talking about like
52:22
Speaker 1: driver shortages, um, but you know, it's still tough to
52:25
Speaker 1: get certain types of employers and certain types of markets. UM.
52:31
Speaker 1: You know the ones that the companies that are going
52:33
Speaker 1: to probably be best uh to to deal with this
52:37
Speaker 1: are being very creative. You know, you have trucking companies
52:40
Speaker 1: like XPO and Warner they have driving schools which you
52:43
Speaker 1: know helps them get new drivers into their system. UM.
52:46
Speaker 1: You know, there's things of that nature. They you know,
52:49
Speaker 1: we recently went to a facility at XPO, you know,
52:53
Speaker 1: and they have a program in place where you know,
52:56
Speaker 1: a dock worker can become a trailer technician, and that
52:59
Speaker 1: trailer technician going to become you know, a diesel mechanic, um,
53:02
Speaker 1: you know. And that progression is you know, not just
53:05
Speaker 1: changing of jobs, but it's you know, a higher paying job.
53:08
Speaker 1: So it's like kind of a career path for folks.
53:11
Speaker 1: And and so you know, I think companies are investing
53:14
Speaker 1: more in their employees, you know, to have them, um
53:18
Speaker 1: stay stay longer as opposed to turn over, and turnover
53:21
Speaker 1: in transportation tends to be typically high just because of
53:24
Speaker 1: the nature of the work that we discussed earlier. Well, UM,
53:28
Speaker 1: in our last thirty seconds lead, I have to ask
53:31
Speaker 1: you about the relationship between a lot of the countries here,
53:35
Speaker 1: so Canada, Mexico, as we talk about the outlook for
53:39
Speaker 1: rail specifically between UM the next year for those three countries,
53:44
Speaker 1: comply on the spot thirty seconds what do we have
53:46
Speaker 1: to watch for? Actually, I'm gonna say one thing, you know,
53:49
Speaker 1: the most exciting thing next year, and it has to
53:51
Speaker 1: do with all those countries that you mentioned is the
53:53
Speaker 1: merger of Ken Pacific in Kansas City, southern UH. That
53:56
Speaker 1: should be get the STB approval probably UH in the
53:59
Speaker 1: next couple months here, and that's going to create the
54:02
Speaker 1: first UH. I guess we can call it an apt
54:04
Speaker 1: to still a network. I don't know what we're calling
54:05
Speaker 1: it nowadays, but you know, it's really connecting the market
54:09
Speaker 1: those three markets. It's probably going to increase competition amongst
54:12
Speaker 1: its other class one here. So I think that's going
54:14
Speaker 1: to be the most interesting to see how that plays
54:16
Speaker 1: out in the execution of integrating those two rails. All right,
54:20
Speaker 1: good stuff, Lee, classical US sector head and senior analyste
54:23
Speaker 1: covers rails, trucks, logistics, all that kind of stuff. And
54:26
Speaker 1: it's obviously the backbone of the U. S economy in
54:30
Speaker 1: so many ways, touches a lot of different parts of
54:32
Speaker 1: the economy. That's why economists really track some of those
54:36
Speaker 1: metrics and data coming out of those transportation companies because
54:39
Speaker 1: they really give a reflection of goods and services that
54:41
Speaker 1: are being transported across the country. Thanks for listening to
54:48
Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to
54:52
Speaker 1: interviews with Apple podcasts or whatever. Podcast platform you prefer.
54:56
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen
54:59
Speaker 1: se twenty three and on Faull Sweeney. I'm on Twitter
55:02
Speaker 1: at pt Sweeney. Before the podcast, you can always catch
55:05
Speaker 1: us worldwide at Bloomberg Radio