Latest / Bloomberg Intelligence / CPI, Cruises, Industrials, ETFs, and Cannabis

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CPI, Cruises, Industrials, ETFs, and Cannabis · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. 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 on the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com Slash podcast. Let's get back to
0:22
Speaker 1: the inflation print we had today. It's high, but it's
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Speaker 1: coming down, but maybe not coming down as fast as
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Speaker 1: people would like. Alice Andrews joins us. She's US Interest
0:31
Speaker 1: Rates and FX reporter with Bloomberg News. Alice, what was
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Speaker 1: your takeaway from the print we had today on CPI. Yeah,
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Speaker 1: I really thought that the market reaction, especially on the
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Speaker 1: treasury side, was just really wrong footed this morning. I
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Speaker 1: was very uncomfortable with the bull flattening that we saw
0:49
Speaker 1: after the CPI number. I think that the market really
0:52
Speaker 1: focused on that lower headline number and that drop in
0:56
Speaker 1: year over year and inflation. But I think that the
1:00
Speaker 1: thing that the market was really missing was that big
1:02
Speaker 1: shelter component. And I really think that the whole thing
1:05
Speaker 1: was about shelter. I mean, I think that either way
1:07
Speaker 1: you slice or dice it, if you take shelter out
1:11
Speaker 1: of your analysis or put it back in. I think
1:13
Speaker 1: that inflation is still rising. So for example, if I mean,
1:18
Speaker 1: if you look at it, inflation is coming down whether
1:20
Speaker 1: you're looking at the headline, core or supercore. But the
1:24
Speaker 1: fact of the matter is is that the FED really
1:26
Speaker 1: targets the super core that excludes the shelter component of CPI.
1:31
Speaker 1: And if you take a look at it, it's running
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Speaker 1: at five point seven percent year over year, and that
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Speaker 1: surpasses core CPI at five point six percent, And to me,
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Speaker 1: that's just an indicator that inflation is going to stay
1:44
Speaker 1: pretty sticky. Yeah, And I mean, so the core was
1:48
Speaker 1: higher than the headline, and you're saying the supercore is
1:51
Speaker 1: even higher than the core. That's right. And we're hearing
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Speaker 1: more and more people Alice voice concerns about the stickiness
1:58
Speaker 1: of inflation at these levels black Rock. I heard Wailey
2:00
Speaker 1: this morning on Bloomberg Radio talking about that. But the
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Speaker 1: ECB is also concerned about the stickiness. The Bank of
2:06
Speaker 1: England is also concerned about the stickiness. So is inflation
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Speaker 1: at these levels, you know, five percent here to stay? Oh?
2:15
Speaker 1: I think it could stay there. Easily, if not go higher.
2:20
Speaker 1: I mean the indicators that things that I really like
2:22
Speaker 1: to look at is something like housing and cars. So
2:26
Speaker 1: what I'm seeing in the housing market is that you know,
2:29
Speaker 1: we have a spring market, right, so that's supposed to
2:31
Speaker 1: bring a lot of supply, but it's not. And the
2:35
Speaker 1: fact of the matter is low supply people still out
2:38
Speaker 1: there wanting to buy houses. It just artificially keeps housing
2:42
Speaker 1: prices strong because there's still so much competition to get
2:45
Speaker 1: the few houses that are coming on the market. The
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Speaker 1: other thing is that rents, because housing market is staying high,
2:52
Speaker 1: I think that rents are going to stay high. And
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Speaker 1: that's the big, you know, component that wants to take
2:57
Speaker 1: out or put back in of their of their analysis
3:00
Speaker 1: of inflation. And I think, again, anyway you slice it
3:03
Speaker 1: or dice it, with or without shelter, inflation is staying high.
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Speaker 1: The other thing that I've been looking at is transportation,
3:10
Speaker 1: and actually this month, transportation contributed positively to CPI. And
3:16
Speaker 1: the thing is is that autos I think are going
3:19
Speaker 1: to actually stay high as well. I've noticed that I've
3:23
Speaker 1: noticed a big bag I've noticed resilience in used car
3:27
Speaker 1: prices and carback said that yesterday. Yeah, and you haven't
3:31
Speaker 1: seen you know, Tesla's price cuts. Notwithstanding you haven't seen
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Speaker 1: new car prices come down at all, they continue to rise.
3:42
Speaker 1: So that's that's gonna be a problem as well. And
3:46
Speaker 1: what is really happening is that incentives are picking up.
3:49
Speaker 1: I don't know if you're noticing this, but you know,
3:51
Speaker 1: watching TV. I actually saw an ad last night on
3:54
Speaker 1: TV and I thought, oh, yeah, no, I haven't seen
3:56
Speaker 1: that in a while. But in doing a little bit analysis,
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Speaker 1: incentives have and about five percent, we're starting to see
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Speaker 1: zero percent financing, three percent financing, and huge double digit
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Speaker 1: cash back, double digit cash back. Think about that. Those
4:10
Speaker 1: are on like more expensive cars, but still that's just
4:13
Speaker 1: that's a lot. And so I think that because the
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Speaker 1: consumer is so savvy, right prices start to come down,
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Speaker 1: people that are working with cash on hand, boom, they're
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Speaker 1: going in and buying like you know, kind of pouncing
4:28
Speaker 1: like they're doing on housing. It something comes on the
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Speaker 1: market on the right block that you like, Boom, you're
4:34
Speaker 1: going to buy it. Car prices showing some incentives, cash back, boom,
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Speaker 1: consumers are pouncing. They're very you know, price sensitive and savvy.
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Speaker 1: So I think that new car prices can stay firm
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Speaker 1: with these incentives. But the thing is is that cars
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Speaker 1: new cars are still really expensive, so that shifts a
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Speaker 1: subsector into the used car market, which I think can
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Speaker 1: stay strong. Yep. Absolutely kind of heard that from CarMax yesterday.
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Speaker 1: I'm wondering, Alice, why does a FEDS like to strip
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Speaker 1: out for this super core data point. Yeah, but doesn't everybody?
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Speaker 1: It affects everybody, doesn't it everybody's got to pay rent
5:12
Speaker 1: or mortgage. Yeah, but I think that you know, it's
5:16
Speaker 1: just an indicator that the FED is targeting. They had
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Speaker 1: talked a lot about, you know, housing prices remaining elevated
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Speaker 1: and rents remaining elevated, and how they think that rents
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Speaker 1: are going to reset lower once these liss come up.
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Speaker 1: I just don't really get that logic, because if you're
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Speaker 1: a landlord and you know that housing prices are high
5:41
Speaker 1: and you missed an opportunity to raise rents in the
5:44
Speaker 1: last year, I don't understand why you would think that
5:49
Speaker 1: lises are going to reset lower. I don't think that
5:51
Speaker 1: that's really going to happen. In terms of the wrong
5:53
Speaker 1: footed move in the markets, especially in rates, Alice, we
5:58
Speaker 1: saw a drop. I mean, I mean, looking ten year,
6:00
Speaker 1: we saw a drop in ten year yields. Now it's
6:02
Speaker 1: coming back to unchanged around three forty three forty one.
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Speaker 1: How do you see this reaction and what does that
6:10
Speaker 1: mean the market expects from the Fed? Well, right after
6:14
Speaker 1: the data of the market priced in four percent that's
6:17
Speaker 1: funds rate in January. I mean that's a full point
6:21
Speaker 1: below where we're at right now. I thought that that
6:23
Speaker 1: was just crazy. And I think that you know what
6:26
Speaker 1: happens on these big numbers, right you know, you get
6:28
Speaker 1: a lot of emotional trading and position trading. And I
6:32
Speaker 1: think that what you're seeing right now is a market
6:34
Speaker 1: coming back a little bit to life. We're pairing some
6:36
Speaker 1: of that steepening that we saw and we're backing off
6:40
Speaker 1: of that rally. Rates are rising a little bit. I
6:44
Speaker 1: think that this is the right move, And you know,
6:46
Speaker 1: do you have to kind of remember sometimes it takes
6:48
Speaker 1: a day or two for you know, big numbers to
6:51
Speaker 1: get digested by the markets. And also participation isn't exactly
6:56
Speaker 1: that high. The other thing I wanted to mention us,
7:00
Speaker 1: we're gonna have to we'll get that next time because
7:02
Speaker 1: we gotta short on time. We'll get the We're gonna
7:05
Speaker 1: get you at Gang. Yeah, we want you back for sure.
7:07
Speaker 1: Talking about Rachel, you know, she's a former floor clark
7:09
Speaker 1: at bear Stern says she knows all that trading stuff.
7:11
Speaker 1: Alice Andre's US interest rate reporter for Bloomberg News. You're
7:16
Speaker 1: listening to the team ken'ser Line program Bloomberg Markets weekdays
7:20
Speaker 1: at ten amis daring on Bloomberg dot Com, the I
7:23
Speaker 1: Heart Radio app, and the Bloomberg Business App. We're listening
7:26
Speaker 1: on demand wherever you get your podcast. Story that caught
7:31
Speaker 1: my attention yesterday, Carnivals chief financial This is the cruise business.
7:36
Speaker 1: Carnivals chief financial officer David Bernstein isn't worried about rising
7:39
Speaker 1: interest rates, unlike other finance executives, as the cruise line
7:43
Speaker 1: operator looks to pay down debt rather than finance. And
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Speaker 1: I was when I was reading that, I was saying, boy,
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Speaker 1: their creditors are happy. Credit analysts must be happy that
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Speaker 1: they're paying down debt. So I figured, let's check in
7:52
Speaker 1: with Jody Lori. She covers. She's a credit analyst for
7:55
Speaker 1: Bloomberg Intelligence covers this industry. Jody joins us here via
7:58
Speaker 1: zoom on her vacation day. Oh, we really appreciate Jody
8:03
Speaker 1: making some time there. Jody talked to us about Carnival
8:05
Speaker 1: Cruise Lines. Here. This is a company that's focused. I mean,
8:08
Speaker 1: a lot of these cruise operators right at the biding
8:10
Speaker 1: again pandemic mandate, rushed into the market, raised cash, sensing
8:14
Speaker 1: that this could be really bad for their business, and
8:17
Speaker 1: they were. Some of them had to pay like eleven
8:20
Speaker 1: twelve zack percent, right, I mean, some of them sold
8:22
Speaker 1: debt for way too much interest and the sign of
8:26
Speaker 1: the time. So what's Carnival doing now? Sure, so Carnival
8:31
Speaker 1: is certainly one of the more interesting companies under our
8:34
Speaker 1: coverage these days. I mean, let's let's take a little
8:37
Speaker 1: look back, right, So, the company added about twenty four
8:39
Speaker 1: billion or more to its balance sheet during the pandemic.
8:43
Speaker 1: It's about twenty four billion above where it was at
8:45
Speaker 1: the end of twenty nineteen. So you're talking about thirty
8:48
Speaker 1: five billion dollars sitting on the balance sheet that they
8:51
Speaker 1: have to deal with. Management is targeting it's going to
8:54
Speaker 1: get down to about thirty three thirty three and a
8:55
Speaker 1: half by the end of the year, which is music
8:58
Speaker 1: to our years, of course, But how they're going to do.
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Speaker 1: That is always key. They're just getting to the precipice
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Speaker 1: of generating free cash flow, and with that, obviously they're
9:08
Speaker 1: going to put it towards paying down debt. But I
9:10
Speaker 1: think there's a lot of finessing that needs to go on,
9:12
Speaker 1: and there's a lot that's dependent on the ability for
9:15
Speaker 1: them to get customers on their ships. I look at
9:19
Speaker 1: by the way DDIS, Paul, Okay, if you if you
9:21
Speaker 1: put in Carnival Cruise Lines, which I think is CCL
9:24
Speaker 1: equity and look at DDIS, you can see the debt
9:26
Speaker 1: distribution when these things are coming due, and you can
9:28
Speaker 1: see the average coupon is seven percent. So is that
9:33
Speaker 1: high with a weighted average of five years? How does
9:38
Speaker 1: their debt profile look to you? It's definitely a horse
9:42
Speaker 1: of a different color or a ship of a different
9:44
Speaker 1: color these days than it was at the beginning of
9:46
Speaker 1: the pandemic. They were investment grade rated previously, and so
9:50
Speaker 1: they commanded very good rates at that point. Now you
9:54
Speaker 1: think about this company a year ago, they tapped the
9:56
Speaker 1: debt markets and they actually got a lot of plaque
9:58
Speaker 1: or issuing double di issues, right, So similar coupon to
10:04
Speaker 1: what they issued in June of twenty twenty, during the
10:07
Speaker 1: depths of the pandemic. And so I think management is
10:10
Speaker 1: being very cautious about how and when they tapped the
10:14
Speaker 1: debt markets and why because even this past fall when
10:18
Speaker 1: they did issue debt, they issued about two billion dollars.
10:21
Speaker 1: They've got a little creative in how they did it.
10:23
Speaker 1: They created a new subsidiary where they put some of
10:26
Speaker 1: their vessels, and they made it a little bit more
10:28
Speaker 1: attractive to keep rates lower. That complicated their balance sheet.
10:32
Speaker 1: So if you're an average bond holder, you don't really
10:35
Speaker 1: understand which vessels are backing your bonds. You know, you're
10:39
Speaker 1: an insecured holder, so you're really just general company ability
10:44
Speaker 1: to pay. But the complicating factor of it is, Okay,
10:49
Speaker 1: in a theoretical bankruptcy, where would I be in line
10:52
Speaker 1: to receive any sort of money. Yeah, especially if it's
10:56
Speaker 1: in Panama. Yeah, I see, like twenty billion of their
11:00
Speaker 1: dead is at a Panama. Yeah, the Hamas and Caymans
11:02
Speaker 1: are usually generally the place that they go to for
11:07
Speaker 1: the issuing subsidiaries. But yeah, I mean, if you're saying, okay,
11:12
Speaker 1: I have these bonds, and even even if it's not
11:14
Speaker 1: you know, bankruptcy. If you're a high yield company, you
11:16
Speaker 1: always have to think about liquidation, right if you're a
11:18
Speaker 1: credit autai as you say, okay, what would this be
11:21
Speaker 1: in a theoretical liquidation standpoint, because it's high yield, and
11:25
Speaker 1: so that will dictate how the bonds trade. Now that said,
11:29
Speaker 1: you have higher risk, higher rewards. So there are some
11:32
Speaker 1: investors who say, oh, then it's worthwhile to sort of
11:35
Speaker 1: nibble at those There's other investors who say, you know what,
11:37
Speaker 1: there's still a lot of factors at play that could
11:41
Speaker 1: dictate how these bonds behave and and the you know,
11:45
Speaker 1: the forecast of this company. I think there's still very
11:47
Speaker 1: much in a turnaround phase, and I think there's still
11:49
Speaker 1: a little bit on the earlier side, although we're starting
11:52
Speaker 1: to get to the point that we're seeing the light
11:55
Speaker 1: at the end of the tunnel. So Jody, just give
11:57
Speaker 1: us a sensure. I'm just looking at the stocks of
12:00
Speaker 1: Carnival and it's peers and they're all down between twenty
12:02
Speaker 1: and forty percent, So the market's really skittish there. I'm
12:05
Speaker 1: sort of there's similar concerns in the credit markets as well.
12:09
Speaker 1: I kind of thought once this pandemic you know, they
12:11
Speaker 1: started lifting on the mass mandates and all that stuff,
12:14
Speaker 1: that this industry would just explode with demand and occupancies
12:17
Speaker 1: would be like sky high for years in pent up demand.
12:21
Speaker 1: That really hasn't happened, or has it. It's starting to happen.
12:25
Speaker 1: We actually wrote a note that specifically spoke to occupancy
12:29
Speaker 1: rates as well as to cash flow. So one thing
12:33
Speaker 1: that they have is advanced bookings, which is basically the
12:36
Speaker 1: cash they take in when people book their cruises. They
12:39
Speaker 1: can't book that as revenue until the person actually goes
12:41
Speaker 1: on a cruise, but they can take it in as cash,
12:43
Speaker 1: so that actually helps their business. It's an alternative form
12:46
Speaker 1: of cash compared to say raising debt. The piece when
12:51
Speaker 1: you think about it from an occupancy standpoint that's difficult
12:54
Speaker 1: for these companies is the cruise lines were unique and
12:56
Speaker 1: that they got a moratorium, meaning they were unable to
12:59
Speaker 1: actually cruise. They were unable to operate. You compare that
13:01
Speaker 1: to the theme parks, which I know you and I
13:03
Speaker 1: have talked about it before. Um and and the theme
13:06
Speaker 1: parks they were able to sort of get creative and
13:09
Speaker 1: how they operated. So you take someone like Cedar Fair,
13:12
Speaker 1: they were able to have a wine and cheese festival
13:15
Speaker 1: at Nottsbury Farm, you know, and and and six Flags.
13:19
Speaker 1: We actually my family actually went to Great Adventure and
13:22
Speaker 1: did the Safari tour in our own car. And you
13:25
Speaker 1: don't have to get out of the car, nor do
13:26
Speaker 1: you want to get out of the car, you know, Okay,
13:28
Speaker 1: And it is a little fun to have drafts like it, Yeah,
13:30
Speaker 1: absolutely out of draft actually in the yes, the baboons
13:36
Speaker 1: used to do that. I think they've been a little
13:38
Speaker 1: bit better about how they let you interact with them.
13:41
Speaker 1: But I was there one time as a kid where
13:43
Speaker 1: they did rip off our antenna from the Now I
13:48
Speaker 1: have something on my list that this weekend that sounds awesome.
13:52
Speaker 1: Yeah so, but but your point is that the very
13:54
Speaker 1: good time. Your point is that the cruise lines were
13:58
Speaker 1: sincerely disadvantaged these every other industries, right exactly. So getting
14:03
Speaker 1: back to the cruise lines, you compare that to the
14:05
Speaker 1: theme parks, and the cruise lines were literally unable to cruise.
14:09
Speaker 1: They had these massive vessels that were either sitting dormant
14:12
Speaker 1: or they had to staff it up so that they
14:14
Speaker 1: had a minimal amount of staff to just keep the
14:16
Speaker 1: basically keep the ships from getting stale. They also postponed
14:20
Speaker 1: some of their capex right, so that just the maintenance
14:23
Speaker 1: caffex that's required, and it just takes a lot of
14:26
Speaker 1: time to ramp up from zero. So even though these
14:29
Speaker 1: companies are seeing tremendous demand, I mean I'm hearing anecdotally
14:32
Speaker 1: because people hear that I you know, I'm a cruise analysts,
14:34
Speaker 1: they'd go, oh, actually, I just went on my first cruise.
14:37
Speaker 1: And you're definitely hearing that more and more, which is
14:40
Speaker 1: music to the cruise company's ears, because the challenge that
14:43
Speaker 1: they're dealing with isn't so much the diehard cruiser fans
14:47
Speaker 1: like my parents, but the people who have never stepped
14:52
Speaker 1: foot on a cruise ship before, the people who are
14:54
Speaker 1: skittish around cruises or it's just not within their generational appeal.
15:00
Speaker 1: And so that's where the cruise companies are trying to
15:02
Speaker 1: jump over. The hurdle is saying, Okay, let's get these
15:05
Speaker 1: new to cruise people on the ships and then grow
15:07
Speaker 1: our our pool of potential customers. Then they'll they'll see benefits.
15:12
Speaker 1: They'll see it as beneficial. That's it. I mean, there
15:15
Speaker 1: is only so much they can cruise. There's only so
15:17
Speaker 1: many days in the year. There's only so many rooms
15:19
Speaker 1: in a ship, and it takes a lot of time
15:22
Speaker 1: to get them from zero to one hundred percent operational.
15:25
Speaker 1: Are they these companies still investing in ships. I mean,
15:29
Speaker 1: that's to me is the sign of optimus. If you're
15:32
Speaker 1: bullish on you know, your future, five to ten years,
15:35
Speaker 1: you'll build a billion dollars ship or whatever they cost.
15:37
Speaker 1: These days. Yes, I mean the companies are still very
15:41
Speaker 1: much investing in ships. Carnival has a little bit of
15:44
Speaker 1: a gap in terms of when they're planning to take
15:47
Speaker 1: delivery of ships, which I think they're a little bit
15:49
Speaker 1: relieved by. It's less so indicative of what they've been
15:53
Speaker 1: planning more so of the hold up in the shipbuilders side.
15:57
Speaker 1: So obviously the shipbuilders, just like every other industry, dealt
16:02
Speaker 1: with the pandemic where they had shutdowns, they were unable
16:05
Speaker 1: to get parts. You know, everything you're hearing about the autos,
16:08
Speaker 1: similar sort of things we're going on with the shipbuilding.
16:11
Speaker 1: So a lot of the cruise ships had ships that
16:13
Speaker 1: were scheduled to be delivered that they got postponed, which
16:16
Speaker 1: was actually fortuitous for the cruise ships because it gave
16:19
Speaker 1: them a little bit more time to deal with the
16:22
Speaker 1: fact that they had all these ships that were just
16:24
Speaker 1: not being operating. Yep, all right, Jody, thank you so
16:26
Speaker 1: much for joining us. Really appreciate getting your thoughts here
16:29
Speaker 1: on Carnival and on the cruise industry as it ramps
16:32
Speaker 1: back up a post pandemic. Jody Lorie, she's a credit
16:35
Speaker 1: analyst for Bloomberg Intelligence. She's on her day off, but
16:38
Speaker 1: she took time out to give us the update on
16:41
Speaker 1: the cruise business. We appreciate that. Two gold stars for Jody.
16:44
Speaker 1: You're listening to the tape. Ken's a our live program
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Speaker 1: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
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Speaker 1: the tuning app, Bloomberg dot Com, and the Bloomberg Business App.
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17:03
Speaker 1: I want to bring the all star to the microphone
17:06
Speaker 1: over here. Karen Uberhart, she's in Bloomberg Intelligence. She covers
17:09
Speaker 1: the industrial space. I mean talk about these are real companies.
17:13
Speaker 1: Met These are like dear Caterpillar, Emerson Electric. I mean,
17:18
Speaker 1: you're going hardcore industrial America. This is General Electric. Back
17:23
Speaker 1: in the day. I guess you could say, I mean
17:25
Speaker 1: back in the day, General Electric is still bigger than Emerson, right,
17:28
Speaker 1: I mean big. Emerson's just a forty seven billion dollar company.
17:32
Speaker 1: It will put up a I'm sure ge right now
17:35
Speaker 1: one hundred and two billion, so it's still bigger. It's
17:39
Speaker 1: not the world's biggest maker of earth moving equipment. No,
17:42
Speaker 1: this is they have all right. Karen Buberhart, Senior Industrial
17:44
Speaker 1: Annals Bloomberg Intelligen just joins us here in our Bloomberg
17:46
Speaker 1: Interactive Brokers studio because Emerson Electrics out there with a
17:49
Speaker 1: deal to buy National Instruments. Karen, thanks so much for
17:52
Speaker 1: joining us here in studio. What is Emerson Electric buying?
17:56
Speaker 1: What is National Instruments? It's one of the larger test
18:00
Speaker 1: and measurement companies, you know, like when you're in the
18:02
Speaker 1: R and D lab and you know, developing product etc.
18:06
Speaker 1: That is a platform that Emerson wants to develop. It's
18:08
Speaker 1: a higher growth platform. It fits with their automation focus
18:12
Speaker 1: now and they'd been looking. They did say they'd have
18:15
Speaker 1: to do a meaningful deal to get a footprint rather
18:18
Speaker 1: than their own, and they did it rather quickly. So
18:22
Speaker 1: what does Emerson's core business I mean, what do I
18:24
Speaker 1: go to Emerson for factory automation process, you know, plant
18:29
Speaker 1: automation like chemical plants, etc. Software They're getting involved. They
18:33
Speaker 1: took one of the biggest bets on software with buying
18:36
Speaker 1: Aspen Technologies to get them into industrial software. This is
18:39
Speaker 1: a new CEO about two and a half years. He's
18:41
Speaker 1: really trying to make the make the company into less cyclical,
18:44
Speaker 1: higher growth. Lots of companies are doing, but he's moving quickly.
18:47
Speaker 1: I saw Fordive was the biggest gainer in the S
18:50
Speaker 1: ANDP for not buying. And sometimes you know, you just
18:55
Speaker 1: feel good when you don't spend a ton of money. Well,
18:58
Speaker 1: you thought you were going to get I get the
19:00
Speaker 1: That's a shareholder reaction, but does it lead them in
19:02
Speaker 1: a disadvantaged position for not getting it? That was a
19:04
Speaker 1: financial stretch for Fortive. You know, it is a twenty
19:08
Speaker 1: three billion dollar company. They would have had to issue
19:10
Speaker 1: stock or some nearer stock to get it done. Leverage
19:13
Speaker 1: would have been very high. People were nervous about that.
19:16
Speaker 1: It did lead Emerson to pay sixty bucks, which is
19:18
Speaker 1: more than you know, some of us would have liked.
19:21
Speaker 1: The numbers still can work, but you know it was
19:25
Speaker 1: higher than So it's interesting here. So Emerson Electric paying
19:28
Speaker 1: eight point two billion dollars sixty dollars to share. The
19:31
Speaker 1: stock was at like fifty three before trading today, so
19:35
Speaker 1: a premium. Emerson's people know this. People must have known
19:38
Speaker 1: this is going on. Well, you know, it's funny. The
19:41
Speaker 1: CEO drew a line in the sand and said, if
19:43
Speaker 1: it's a sixty dollars bid, it's not ours. And so
19:47
Speaker 1: I was in the possive writing, this is a competitive bid.
19:51
Speaker 1: Maybe it's gonna be sixty bucks. And it is sixty bucks.
19:55
Speaker 1: You can still make the numbers work. The synergies are
19:58
Speaker 1: talking about one hundred and sixty f million and five
20:00
Speaker 1: years out. That's a stretch to get it all the
20:02
Speaker 1: way five years. But Emerson is a very good operating company.
20:04
Speaker 1: They're going to do better than the numbers they say
20:06
Speaker 1: on synergies and it is a creed of even at
20:09
Speaker 1: sixty bucks. I'm just saying for NATTY shareholders, right the
20:11
Speaker 1: ticker for National Instruments NATI, those shares were trading at
20:16
Speaker 1: thirty five, thirty six thirty seven dollars at the end
20:19
Speaker 1: of twenty two, beginning of twenty three, and then I'm
20:22
Speaker 1: guessing just by looking at the chart that shareholders became
20:25
Speaker 1: aware that they had something others wanted to buy, because
20:29
Speaker 1: the stock just shoots up in the beginning of January
20:35
Speaker 1: twenty three. Well, that's when they announced a hostile bid.
20:38
Speaker 1: They couldn't Emerson was trying to get a deal done.
20:40
Speaker 1: They went into forty eight, they couldn't get it done.
20:42
Speaker 1: They went into fifty three, they couldn't get it done.
20:44
Speaker 1: There was a lot of communication going back and forth.
20:46
Speaker 1: So Emerson broke the news, we're trying to buy this thing,
20:49
Speaker 1: and they published all the letters and communications to get
20:52
Speaker 1: them off. You get them moving, right. So then they
20:55
Speaker 1: went into a strategic planning situation and got other bidders
21:00
Speaker 1: and this is where it fell out and Emerson had
21:01
Speaker 1: to fight to sixty to get it from Fordive is
21:05
Speaker 1: or how is Emerson paying for this cash? They're selling
21:08
Speaker 1: their climate business, and that is part of that's probably
21:11
Speaker 1: what they want. They're going to have nine point nine
21:14
Speaker 1: point five billion dollars in cash from selling their refrigeration
21:18
Speaker 1: and climate you know, air conditioning components. That gets them
21:21
Speaker 1: out of a residential oriented cyclical business, gives them money
21:25
Speaker 1: to put into a higher growth that these businesses they
21:28
Speaker 1: say will grow ford to selling the name from that's
21:30
Speaker 1: where I know the name. I see it at my
21:32
Speaker 1: house in the basement all the time. They're a market
21:34
Speaker 1: leader in that business, but they wanted out of that
21:36
Speaker 1: to spend money on these higher growth, higher margin businesses.
21:40
Speaker 1: All right, So if everybody's talking about a recession, your companies,
21:45
Speaker 1: long lead times make big stuff. How are you thinking
21:49
Speaker 1: about or how are your companies telling you that they're
21:52
Speaker 1: preparing for a recession? You know, Um, the backlogs are
21:56
Speaker 1: at record levels. It doesn't mean some of that can't dissipate,
21:59
Speaker 1: but there's there's a lot of pent up demand. A
22:01
Speaker 1: company like Emerson's pretty long lead time, So maybe some
22:04
Speaker 1: of their large projects might get pushed out a little bit.
22:06
Speaker 1: But I don't think they're going to see you know,
22:08
Speaker 1: like residential construction goes down thirty percent. They're not going
22:11
Speaker 1: to see that kind of exposure. But they all are
22:14
Speaker 1: still you know, supply constrained. Um, their costs are still
22:20
Speaker 1: they still have getting that supply chain stuff is still
22:23
Speaker 1: an issue for still going on. Yeah, and in this
22:25
Speaker 1: in this case, automation is a growth business. Companies are
22:29
Speaker 1: investing a lot in you know, EV and semiconductors, et cetera.
22:33
Speaker 1: There's a lot of money going into the automation business.
22:35
Speaker 1: That's where there, there they are, and where they're going
22:38
Speaker 1: in a bigger way, drawing on the same track as AI,
22:40
Speaker 1: really right, I mean automation and software is happening at
22:43
Speaker 1: the same time as we're seeing these big leaps forward
22:45
Speaker 1: and manufacturing. What about consolidation we were talking about, you
22:49
Speaker 1: know the string of M and A we've seen this week,
22:51
Speaker 1: obviously not in industrials but mostly in UH in materials commodities.
22:56
Speaker 1: Now we see this deal. Is there a consolidation way happening?
22:59
Speaker 1: Is this a one off? It's I think it's a
23:02
Speaker 1: strategic move. There's like four or five people in that business. Um.
23:05
Speaker 1: You know, the other big one in the US is
23:07
Speaker 1: Key Site. They were talked about as maybe buying them,
23:10
Speaker 1: but I don't think they were serious contenders. And you
23:13
Speaker 1: don't see a lot of other deals on the horizon
23:15
Speaker 1: the companies you cover not But what's happening is they're
23:18
Speaker 1: breaking up. I mean all the multis have are becoming
23:21
Speaker 1: more focused and more so. But a lot of that
23:24
Speaker 1: is happening in spinoffs. They're creating new companies um like
23:27
Speaker 1: the HVAC companies are mostly pure plays now. They came
23:30
Speaker 1: out of larger companies. So that's the biggest wave in
23:33
Speaker 1: the large industrials is breaking up being more focused. And
23:36
Speaker 1: that's exactly what Emerson did with this move selling climate,
23:39
Speaker 1: trying to get into more It's so funny they go
23:41
Speaker 1: through these. When I first started working at Bloomberg and Frankfurt,
23:44
Speaker 1: I was covering Seemans at the time, and they were
23:48
Speaker 1: breaking up, and then they got together, and then they're
23:50
Speaker 1: breaking up. I mean, it's it's it's good to be
23:52
Speaker 1: an investment banker covering industrial America. Absolutely a wave and
23:56
Speaker 1: and and you know it had I'm here a long
23:58
Speaker 1: time too, and I've seen them put them all together
24:00
Speaker 1: to lower the cick locality, to be in different businesses,
24:03
Speaker 1: be more diverse. Then you see them breaking up to
24:06
Speaker 1: be more focused. My feeling is, you know, once we
24:10
Speaker 1: get in a bad cycle and some of these focused companies,
24:13
Speaker 1: you know, get whacked by a bad recession, maybe they're
24:16
Speaker 1: going to want a little balance again. I mean, this
24:18
Speaker 1: thing comes and goes and comes and goes, as you know,
24:20
Speaker 1: over long periods of time. Twenty seconds GEED stocks up
24:23
Speaker 1: thirty five percent the traillion twelve months. Are they done?
24:26
Speaker 1: They fixed everything? Well, you know, there's a lot a
24:29
Speaker 1: lot of legs in aerospace that's going to be a
24:31
Speaker 1: great standalone business. And I think what changed is people
24:35
Speaker 1: start to get confidence on the energy business, which has
24:37
Speaker 1: been the dog for a while, and you know it's
24:39
Speaker 1: been going up for a while. But then they had
24:41
Speaker 1: an investor day and pitched the long term story for
24:44
Speaker 1: you know, the energy business, the IRA etc. There's a
24:46
Speaker 1: lot of money flowing into that business there and wind
24:49
Speaker 1: power etc. So now the two pieces look like they're
24:51
Speaker 1: going to be okay and the stock is taken off.
24:53
Speaker 1: All right, good news finally for our friends at General Electric.
24:56
Speaker 1: Karen Uberhard. She's industrial anallyst for Bloomberg Intelligence, the absolute
25:00
Speaker 1: expert on all that industrial stuff coming out of Middle America.
25:04
Speaker 1: She's the best. You're listening to the team Ken'serline program
25:08
Speaker 1: Bloomberg Markets weekdays at ten am, easting on Bloomberg dot com,
25:12
Speaker 1: the I Heart Radio app, and the Bloomberg Business App.
25:15
Speaker 1: We're listening on demand wherever you get your podcast. Want
25:20
Speaker 1: to get to right next guest Johann Gron He's a
25:22
Speaker 1: vice president and head of ETF strategy at Alliance Investment Management. Johan,
25:27
Speaker 1: thanks so much for joining us here. I'm just looking
25:29
Speaker 1: through the notes here and Matt and I talk a
25:31
Speaker 1: lot about the volatility, particularly in the treasury market, but
25:33
Speaker 1: there's been some volatility in the equities, although it's been
25:36
Speaker 1: kind of low recently. But you've got a product called
25:39
Speaker 1: bufferd ETFs. What is a bufferd ETF. Oh, hey, yeah,
25:45
Speaker 1: thanks for having me on. It's good good to talk
25:47
Speaker 1: to you. Buffery ETFs and all their simplicity, effectively are
25:51
Speaker 1: four investors that care about having some downside risk committigation
25:55
Speaker 1: in their portfolios. So effectively, all of this is exposure
25:59
Speaker 1: to the SMP five hundred, and you can participate in
26:02
Speaker 1: the SMP five hundred up to a cap. That's the catch,
26:05
Speaker 1: if you will. So in the case of our two products,
26:08
Speaker 1: we have one with a ten percent buffer, we have
26:10
Speaker 1: one with a twenty percent buffer. In the case of
26:13
Speaker 1: the ten percent buffer, if you were to invest this month,
26:17
Speaker 1: for example, you can gain up to about eighteen percent
26:21
Speaker 1: if the SMP five hundred goes up in the next
26:24
Speaker 1: twelve months, and if the SMP five hundred is down
26:26
Speaker 1: by ten percent or less than you're flat with the
26:28
Speaker 1: market or flat in your portfolio. So that's at a
26:31
Speaker 1: very high level. That's kind of how they work. What
26:33
Speaker 1: if it's down ten percent or more so, in the
26:37
Speaker 1: case of the ten percent buffer, if it's down by eleven,
26:40
Speaker 1: you lose one. If it's down by twelve, you lose two.
26:42
Speaker 1: If it's down by twenty, you lose ten. So basically,
26:45
Speaker 1: whatever the market is down, mine is that ten So
26:48
Speaker 1: so sorry, the ten percent buffer, you can get eighteen
26:52
Speaker 1: percent upside, but you're protected from ten percent of the
26:55
Speaker 1: down side, that's right. And the twenty percent buffer, it's
27:00
Speaker 1: your upside cap. The April found that we have. The
27:04
Speaker 1: upside is almost twelve percent netal fees, I see, and
27:09
Speaker 1: the downside would be then you get downside protection to
27:12
Speaker 1: twenty percent, that's right. Yeah, So if the market is
27:15
Speaker 1: down by twenty percent or less, you're still flat. So
27:18
Speaker 1: if you put the million dollars in on day one
27:20
Speaker 1: here on let's say April first, or even today, actually
27:23
Speaker 1: it's trading at about the same place. It's been relatively
27:25
Speaker 1: flat so far in April, then you have you have
27:30
Speaker 1: that opportunity to twelve percent up and then you're still
27:33
Speaker 1: you have twenty percent of the buffer if the market
27:35
Speaker 1: swings down. How many ETFs are do you guys have
27:38
Speaker 1: right now? And kind of where are you seeing the demand?
27:41
Speaker 1: What types of products? Yeah, so a lot of a
27:44
Speaker 1: lot of the demand we've seen our twenty percent product
27:47
Speaker 1: and part of that stems from the volatility and the
27:52
Speaker 1: rate tiking, if you will. In the battle market. There
27:54
Speaker 1: are a lot of advisors and investors out there that
27:57
Speaker 1: they'd rather take put their put theirs on the equity side,
28:01
Speaker 1: on the equity risk premia. When you have a twenty
28:03
Speaker 1: percent cushion's um it's rare to see or you don't
28:06
Speaker 1: see a lot of predictions speaking to a market decline
28:10
Speaker 1: of twenty percent or more in the next twelve months.
28:13
Speaker 1: So that's a pretty good trade off for a lot
28:15
Speaker 1: of a lot of advices and investors. And that's where
28:17
Speaker 1: we see the most the most traction. Well, if you
28:21
Speaker 1: look across the the ETF spectrum, though, um, you know,
28:26
Speaker 1: where do you see I mean, the most demand in
28:28
Speaker 1: the last couple of weeks has certainly been ultra short
28:33
Speaker 1: treasury ETFs. Right, So if you look, if you look
28:36
Speaker 1: at the ETF universe, where do you see the biggest holes. Well,
28:41
Speaker 1: more broadly speaking, that's just a reflection of you know,
28:44
Speaker 1: where where the places are being bets at the moment. Right,
28:46
Speaker 1: So we still see some more slightly more aggressive behaviors,
28:52
Speaker 1: if you will, in terms of putting money into equity ETFs.
28:55
Speaker 1: So you see a little bit a little bit less
28:58
Speaker 1: risk one and a little bit more risk on generally speaking,
29:01
Speaker 1: is what we've been seeing. Now. I happen to believe
29:04
Speaker 1: that that might be a little bit premature, but that's
29:07
Speaker 1: the market economous conversation that I'm happy to get into
29:09
Speaker 1: if you'd like. So all right, let's kind of go there, John,
29:12
Speaker 1: because we had the big CPI print today PPI coming up,
29:17
Speaker 1: and of course inflation's job one for this Federal Reserve
29:21
Speaker 1: and for the ETF I'm sorry, the ECB as well.
29:24
Speaker 1: What are you guys at Alliance? Would would you make
29:26
Speaker 1: the inflation print today? And how do you think our
29:28
Speaker 1: Federal Reserve is going to respond? I actually think it's
29:32
Speaker 1: pretty straightforward. We still see pressure in the service sector.
29:35
Speaker 1: I mean, goods have come down for natural reasons, but
29:38
Speaker 1: in terms of the service sector inflation and you still
29:40
Speaker 1: have some wage inflation. And even if there are not
29:43
Speaker 1: numbers that you might see in you know, other other
29:46
Speaker 1: parts of the world. They're still very high. Given the
29:48
Speaker 1: target that the FED has and the fact that FED
29:52
Speaker 1: shairman John Paul was talking about fifty basis points just
29:55
Speaker 1: before we had a couple of banking issues, I think
29:58
Speaker 1: that speaks to the that there is still more quote
30:02
Speaker 1: unquote work for the FED to do, and what that
30:04
Speaker 1: implies is that, yes, they're going to continue with this
30:07
Speaker 1: ray tike cycle twenty five basis points in a couple
30:10
Speaker 1: of weeks here that I think that's pretty much baked
30:15
Speaker 1: in right now. You have a seventy five percent chance
30:17
Speaker 1: of that happening according to the statistics today. But I
30:21
Speaker 1: think that's more a function of time. The closer we
30:23
Speaker 1: get to the meeting, that those numbers are going to
30:24
Speaker 1: go up and we're going to see the twenty five
30:26
Speaker 1: basis point hike. So I think that's pretty much more
30:29
Speaker 1: or less a dumb deal, pending any any strange behaviors
30:31
Speaker 1: in the market in the next couple of weeks here, Yeah,
30:33
Speaker 1: the markets pricing in some cuts after that. Do you
30:36
Speaker 1: think we're going to see any this year? I don't.
30:39
Speaker 1: I'm in the camp of no. I just have a look,
30:43
Speaker 1: at the end of the day, the FED consists of
30:45
Speaker 1: human beings, right, and like it or not, they they
30:47
Speaker 1: can be as data dependent as they want. But I
30:49
Speaker 1: don't think they're going to have enough data points to
30:52
Speaker 1: place what I would consider a very bold pivot already
30:56
Speaker 1: in July. I see some the consensus is that they're
30:59
Speaker 1: going to start cutting in July already and then at
31:01
Speaker 1: every meeting for the rest of the year after that.
31:05
Speaker 1: I don't think that will happen. I think they will
31:06
Speaker 1: have much more staying power than that. The decision to
31:10
Speaker 1: pause is somewhat difficult. We might see it in May,
31:15
Speaker 1: but I can also very easily see the rate hiking
31:18
Speaker 1: cycle continuing another meeting or two. But it's an easier
31:22
Speaker 1: decision to make. To make a decision after a pause
31:25
Speaker 1: is much much more difficult, because either you have to say, well, crap,
31:30
Speaker 1: we have more inflation that we thought. I guess the
31:32
Speaker 1: disinflation we've been seeing it wasn't after all unintended transitory.
31:37
Speaker 1: So they're going to be very cautious with that. That
31:40
Speaker 1: part of it, right, So they'd rather go higher for
31:42
Speaker 1: longer than pausing or cutting earlier. And then on the
31:45
Speaker 1: flip side, if you if you say you're going you're
31:47
Speaker 1: going to actually start cutting rates, then the question immediately becomes,
31:51
Speaker 1: what is it that the FED is seeing that hasn't
31:53
Speaker 1: been baked into the market over the past, you know,
31:55
Speaker 1: two months so, and that it'd been a self will
31:58
Speaker 1: create some some reelings, and I don't I don't think
32:01
Speaker 1: that that's anything that they want to trigger. So Johanna
32:04
Speaker 1: over the lines, talk to us about just the fun
32:06
Speaker 1: flows in and out of ETFs. Are you seeing continued
32:10
Speaker 1: net inflows here, because it's just been you know, in
32:13
Speaker 1: my investing lifetime, well north of thirty years, it's just
32:17
Speaker 1: been one of the most fascinating phenomena to watch the
32:19
Speaker 1: growth of the ETF business. Yeah, I mean, it is fascinating,
32:24
Speaker 1: and it's fascinating for good reasons, as I'm sure you've
32:28
Speaker 1: covered in previous episodes, you know, in terms of why
32:30
Speaker 1: the ETF rapper is so attractive. But even even in March,
32:34
Speaker 1: we saw thirty billion coming into the overall ETF industry
32:38
Speaker 1: here in the United States, and it's now back up
32:40
Speaker 1: to like almost seven trillion six point nine to be
32:43
Speaker 1: more precise, six point nine trillion dollars in market size
32:46
Speaker 1: and the predictions over the next couple of decades is
32:48
Speaker 1: that it's going to easily double triple or maybe quadruple,
32:53
Speaker 1: so that that flow of capital, if you will, from
32:56
Speaker 1: the mutual fund industry primarily into the ETF industry is
33:00
Speaker 1: US that's basically tied away. That that's not going to
33:03
Speaker 1: stop anytime soon. Yeah. I was talking to Brian Lake
33:07
Speaker 1: from JP Morgan on on Monday and he said he
33:11
Speaker 1: sees fifteen billion that's for the US market. If you
33:14
Speaker 1: look at, you know, the global ETF industry, it's more
33:18
Speaker 1: like ten trillion dollars in UH. It's a huge it's
33:22
Speaker 1: a huge market and growing. Where do you think the
33:25
Speaker 1: most growth is going to be. We've seen a lot
33:26
Speaker 1: in terms of for a while we saw factors and
33:29
Speaker 1: then now thematic I'd say probably actively managed ETFs are
33:33
Speaker 1: the hottest thing right now. What's your take? Well, I
33:37
Speaker 1: guess it depends on the where the question is coming from,
33:39
Speaker 1: right But in terms of growth, it's going to continue
33:41
Speaker 1: to be in the in the passive endses, in the
33:43
Speaker 1: broad market exposure that is by by far the most
33:47
Speaker 1: dominant part of the world, if you will. But in
33:51
Speaker 1: terms of where UH etf issuers are going to see
33:55
Speaker 1: the most exciting opportunity for growth and also on opportunities
33:57
Speaker 1: to to h to generate some revenue is from the
34:02
Speaker 1: active ETF actively managed ETF space and then more specifically
34:06
Speaker 1: the space that Alian's Investment Management is in is to
34:09
Speaker 1: define the outcome ETF space. It's a relatively new space
34:12
Speaker 1: as well. An innovation has just barely begun in this
34:16
Speaker 1: space and that is already over. It's been around for
34:20
Speaker 1: almost what is an a three and a half years
34:22
Speaker 1: maybe and as of last year it grew by ten
34:25
Speaker 1: billion alone and that growth is just continuing as well.
34:29
Speaker 1: All Right, Johan, thank you so much for joining us.
34:31
Speaker 1: Johann Gron he is the vice president ahead of ETF
34:33
Speaker 1: strategy to Alligan's Investment Management and just falling up on them.
34:37
Speaker 1: It's just the growth of ETFs is just extraordinary. You know,
34:40
Speaker 1: you think about we grew up when is all about
34:42
Speaker 1: mutual funds, you know, but these ETFs have just there's
34:45
Speaker 1: such a superior product in terms of cost for and
34:49
Speaker 1: other attributes as well for so many investors. And the buffer,
34:52
Speaker 1: i mean the space that Johan and Alliance Investment Management
34:56
Speaker 1: are in buffer ETFs is just about to break out.
35:01
Speaker 1: I mean they're doing I assume very well with their business.
35:04
Speaker 1: I know black Rock, which is an ETF Beheemoth has
35:07
Speaker 1: filed plans to break into the booming buff Buffer ETF
35:10
Speaker 1: market as well. So it's a tremendous space. Yeah, we'll
35:13
Speaker 1: stay on top of that. You're listening to the tape
35:16
Speaker 1: cancer our live program Bloomberg Markets weekdays at ten am
35:19
Speaker 1: Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com,
35:23
Speaker 1: and the Bloomberg Business alf. You can also listen live
35:26
Speaker 1: on Amazon Alexa from our flagship New York station, Just
35:29
Speaker 1: say Alexa play Bloomberg eleven thirty. Our Brad case Joints
35:35
Speaker 1: his chief economist, director of Research for Middleburg Communities, talk
35:38
Speaker 1: about a guy who's just way over educated. All right,
35:41
Speaker 1: he keep economists there, chief economists. That's the key part
35:44
Speaker 1: of his title todays. Yeah, all right, Burke, where would
35:47
Speaker 1: you go? Undergrad Williams? Okay, not bad. They're the EPs.
35:50
Speaker 1: We cleared that up, masters in something from Berkeley, then
35:52
Speaker 1: a PhD from Yale. Then he goes out and gets
35:55
Speaker 1: his CFA. On top of that and the CIA, which
35:58
Speaker 1: I have no idea what that is, but while you're
36:00
Speaker 1: working at the Federal Reserve. I would guess, yeah, absolutely, Yeah,
36:02
Speaker 1: that's that's alternative investments. Alternative Sure, why not? So I'm
36:07
Speaker 1: guessing he's got everything covered here. Brad talked us about
36:09
Speaker 1: inflation out there. You guys are in the real estate
36:11
Speaker 1: business at middle BIRG communities. What's going on with the
36:14
Speaker 1: cost of housing? Is that really the driver here for
36:17
Speaker 1: the inflation that is still probably a lot stickier than
36:20
Speaker 1: people would like to see. Yeah, I mean you have
36:22
Speaker 1: to remember that there are two very different parts of
36:24
Speaker 1: the of the housing market. That the prices of houses
36:28
Speaker 1: that are bought by owners who expect to live in
36:30
Speaker 1: the houses, those are still so expensive and prices have
36:34
Speaker 1: already started to decline, um, and so it's it's harder
36:38
Speaker 1: to buy those properties, and people are worried that once
36:40
Speaker 1: they buy the the price will come down. Um. But
36:44
Speaker 1: but the but that's much more expensive than the rental
36:47
Speaker 1: housing part of the market, which is I've actually got
36:49
Speaker 1: a lot of a lot of attention last year because
36:52
Speaker 1: rents had increased so dramatically all across the country. That
36:56
Speaker 1: has gone away, but uh, you know, but that's not
36:59
Speaker 1: yet mayasured in things like the CPI, because what they're
37:03
Speaker 1: measuring is essentially leases that people signed last year. This
37:06
Speaker 1: is what I wanted to ask about. And you you
37:10
Speaker 1: worked at the Federal Reserve Board. Doesn't somebody at the
37:13
Speaker 1: FED know somebody at the BLS who can set that straight?
37:16
Speaker 1: Because it seems to be a measurement a metrics problem
37:19
Speaker 1: more than it is a rent problem. It's not really
37:22
Speaker 1: a problem. What the CPI is for is measuring it properly. Okay,
37:28
Speaker 1: The FED, when they set interest rate policy is looking
37:32
Speaker 1: at something a little bit different. So the FED is
37:35
Speaker 1: worried about inflation, not about the CPI. Now for a
37:38
Speaker 1: lot of those people, for a lot of people, those
37:40
Speaker 1: are the same thing. But if you're a FED decision maker,
37:42
Speaker 1: they're not. And so the people have a FED Yes
37:45
Speaker 1: they are aware, yea, and they're paying close attention to
37:48
Speaker 1: and they like, if I'm not mistaken. They prefer the
37:50
Speaker 1: core PC right, yes, the personal consumption expenditures expenditures exactly
37:57
Speaker 1: I was looking for the E. Yeah, so they look
37:59
Speaker 1: at a different measure than we kind of main Street
38:01
Speaker 1: follows the CPI. There's a very little difference between the
38:04
Speaker 1: CPI and the PC deflator, all right, So put it
38:07
Speaker 1: all together here, what's our Fed going to do? So?
38:10
Speaker 1: I think the Fed is going to continue raising interest rates.
38:12
Speaker 1: I expect them to raise them at the next meeting.
38:14
Speaker 1: I don't. That may end up being the last one, okay.
38:18
Speaker 1: But the reason that they're doing that is is that
38:21
Speaker 1: getting inflation down is very important, and they have finished
38:26
Speaker 1: that job. Inflation, when you measure it properly is back
38:30
Speaker 1: down under two percent. But that's not their only job.
38:33
Speaker 1: I explain that one because you know what, I used
38:37
Speaker 1: my sandwich ham and cheese sandwich at the La Delhi
38:40
Speaker 1: forever was six dollars and seventy cents. It's now nine
38:44
Speaker 1: dollars and twenty cents. That's inflation for me. Is that
38:48
Speaker 1: going to go down? I mean it's not. No, the
38:50
Speaker 1: Fed doesn't. They're generally not not looking to get prices
38:54
Speaker 1: back down to where they were sometime in the past. Okay.
38:56
Speaker 1: They they're trying to say, we don't want the rate
38:59
Speaker 1: of increase in prices to be much above two percent.
39:03
Speaker 1: They don't want it to go down either, and they're
39:05
Speaker 1: actually there are economic problems that are caused when when
39:08
Speaker 1: prices are actually declining. So that's not something everybody waits.
39:11
Speaker 1: Nobody wants to buy anything right because you think you'll
39:13
Speaker 1: get a cheaper price in the future. You look at
39:15
Speaker 1: something like the Japanese economy, which has had trouble for
39:17
Speaker 1: more than thirty years, and a lot of that trouble
39:20
Speaker 1: came because they were in that disinflationary situation. So the
39:23
Speaker 1: price here's hand which is not going down back down
39:25
Speaker 1: to five bucks. What we want is for it to
39:27
Speaker 1: stop going up so aggressively. And that, as I say,
39:30
Speaker 1: really has been accomplished in spite of what we saw
39:32
Speaker 1: this morning when the CPI came out. Years hoping to
39:35
Speaker 1: find that because all I look at my ECO screens,
39:37
Speaker 1: I at CPI, CPI X, food and Energy and the
39:41
Speaker 1: Supercore whatever that is, that's all got a five handle
39:44
Speaker 1: on it. So what should I be looking at or
39:46
Speaker 1: what is the FED looking at to say, all right,
39:48
Speaker 1: we've kind of done our job. So so thirty five
39:50
Speaker 1: percent of the CPI comes from the way they measure
39:53
Speaker 1: housing costs. Okay, and that's not just rent, but rents
39:57
Speaker 1: are the main piece of information that they're using to
40:00
Speaker 1: do that. But as they say, to a great extent,
40:02
Speaker 1: they're measuring the rents that were signed a year. Okay. Um.
40:05
Speaker 1: So so what they're doing in practice is saying, all right,
40:10
Speaker 1: what's happening to new rents, and new rents are not
40:12
Speaker 1: showing that that strong growth that they're still measuring, um
40:17
Speaker 1: and and so when you take into account the new rents,
40:19
Speaker 1: then the overall CPI is down in the two percent range. Okay,
40:22
Speaker 1: the government doesn't publish that number, that's right. What's right
40:26
Speaker 1: because because they accomplish their main purpose by publishing the
40:30
Speaker 1: CPI or the or the pc deflator, Okay, that is
40:33
Speaker 1: measuring something different. I'm just saying that the FED is
40:37
Speaker 1: their job is not to get the CPI to two percent.
40:40
Speaker 1: Their job is to is to fight inflation. Those are
40:43
Speaker 1: slightly different. Now, one of the things that that that
40:46
Speaker 1: that they're that they're that they need to accomplish is
40:49
Speaker 1: they need to make sure people don't expect inflation to
40:52
Speaker 1: stay high. And since people are paying attention to the CPI,
40:56
Speaker 1: that's why it's important to get the CPI down. But
40:59
Speaker 1: that's part of the job that is not yet expectations
41:02
Speaker 1: or the problem. Let me quickly, we only have a
41:04
Speaker 1: minute and a half left, but I want to ask
41:05
Speaker 1: you about housing because I think there's an affordability issue
41:08
Speaker 1: now for a lot of people, both in terms of
41:10
Speaker 1: price and in terms of rates. How does that get solved?
41:15
Speaker 1: So it gets all fundamentally, but just more supply. And
41:18
Speaker 1: that's that's everywhere in the country, but it's especially in
41:20
Speaker 1: the parts of the country where people are moving to
41:23
Speaker 1: and so houses housing prices are just outrageous in places
41:27
Speaker 1: like San Francisco. But people are moving out of San Francisco,
41:31
Speaker 1: partly because of that, but partly because their jobs are
41:33
Speaker 1: moving out. Their jobs are moving two places where it
41:36
Speaker 1: is somewhat easier to build housing. And so you know,
41:38
Speaker 1: my company's situation is, you know, we're in that part
41:42
Speaker 1: of the country where the people are moving to because
41:44
Speaker 1: the jobs are moving there. And you know, it's a
41:47
Speaker 1: long term story there is it will take years for
41:49
Speaker 1: us to build enough housing for everybody. But over those years,
41:53
Speaker 1: a lot of those people will move out of the
41:55
Speaker 1: high house parts of the country and to the places
41:58
Speaker 1: where the jobs are moving to. Middleburg, Virginia. Is that
42:01
Speaker 1: you guys are we are not located there. We're named
42:03
Speaker 1: after that town. Okay, where were you guys located? And
42:05
Speaker 1: just outside of Washington, DC in Virginia? Okay, all right,
42:08
Speaker 1: good stuff from Middleburg Communities. Next time you're back in
42:11
Speaker 1: New York, we'll get you back in here. You've got
42:12
Speaker 1: a lot of good stuff to talk about. I'm just
42:13
Speaker 1: looking at Middleburg, Virginia. Looks like a very nice little
42:16
Speaker 1: town there. I've never been there. I was more Inston
42:19
Speaker 1: Williams it is. I googled Williams versus Amherst to see
42:22
Speaker 1: I thought I was going to see football scores, but
42:24
Speaker 1: everything I got was like, Williams has more access to nature.
42:28
Speaker 1: Apparently Williams has better food and dorm situations. But Amherst
42:33
Speaker 1: is closed to Northampton, which has a lively arts town,
42:36
Speaker 1: so it's not really the same kind of thing you'd
42:38
Speaker 1: get if you googled Ohio State versus. It's a big rivalry.
42:40
Speaker 1: It's a huge rivalry. Yeah, the biggest little game in America.
42:45
Speaker 1: Rad Case, thanks so much for joining us chief economist
42:47
Speaker 1: at Middleburg Communities. You're listening to the tape cans Are
42:51
Speaker 1: Live program Bloomberg Markets weekdays at ten am Eastern on
42:55
Speaker 1: Bloomberg Radio, Tuna app, Bloomberg dot Com, and the Bloomberg
42:59
Speaker 1: Business App. You can also listen live on Amazon Alexa
43:02
Speaker 1: from our flagship New York station. Just say Alexa play
43:05
Speaker 1: Bloomberg eleven thirty to weed? Why not? Morgan Paxy, a
43:12
Speaker 1: co founder managing partner Beside Investment Management, joins us they
43:16
Speaker 1: have a Poseidon Dynamic, a cannabis etf the tickers ps DN.
43:20
Speaker 1: Morgan takes so much for taking the time to join
43:23
Speaker 1: us here. We want to get a state of the
43:25
Speaker 1: cannabis business these especially after till Ray's disappointing revenue in
43:28
Speaker 1: neverse came in yesterday. What's what's the weed market look like? Sure, well,
43:33
Speaker 1: thank you for having me. It's good to be with
43:35
Speaker 1: you all here in Rainy, Miami for the Benzinga Cannabis Conference. UM.
43:41
Speaker 1: It's a really interesting time in our industry. UM. Companies
43:44
Speaker 1: like Tilray, as as you know, had a pretty lousy quarter,
43:47
Speaker 1: not their first, not their last. UM. There are several
43:50
Speaker 1: companies in our space that really won't make it through
43:52
Speaker 1: this period. There was too much capacity built regulations and
43:56
Speaker 1: really keep up, and so you know, the weaker companies
43:59
Speaker 1: are falling by the wayside and the good companies are
44:02
Speaker 1: managing through m So that's what we're seeing right now.
44:05
Speaker 1: We're seeing that here live at the conference. I'm at
44:08
Speaker 1: this week great attendance mood is pretty somber because it
44:12
Speaker 1: feels like people don't want to celebrate if they're doing
44:14
Speaker 1: well because they see others struggling in this time. So,
44:19
Speaker 1: you know, through a tight capital market like we're in, though,
44:21
Speaker 1: it's it's brought a lot of focus on fundamentals and
44:24
Speaker 1: companies are really being very stupid their cash They need
44:28
Speaker 1: to get to an a point of cash flow positive
44:30
Speaker 1: and really thinking about their roys, how they're deploying capital,
44:34
Speaker 1: what they're doing on their cost side. So as the
44:37
Speaker 1: demand continues to grow, we're seeing, you know, we're seeing
44:39
Speaker 1: that translate to the bottom. All when I get into
44:41
Speaker 1: a somber mood, I just look for a little sativa
44:43
Speaker 1: that kind of boost you up a little bit, you know,
44:45
Speaker 1: gives you a little energy boost. Why aren't we seeing
44:49
Speaker 1: explosive sales figures from these cannabis companies. I went down
44:53
Speaker 1: to the grand opening of the first legal weed shop
44:56
Speaker 1: in New York a couple of months ago, and the
44:59
Speaker 1: line was apped around the block four days. How come
45:03
Speaker 1: that's not coming through in the numbers. Sure? Well, Remember
45:07
Speaker 1: cannabis is still as a state by state market, and
45:09
Speaker 1: New York is an abject failure from a legal standpoint
45:12
Speaker 1: because the regulators have not opened up legal doors, right,
45:16
Speaker 1: so there's very few legal retail. Even though there's retail
45:20
Speaker 1: all over New York, most of that or of that
45:23
Speaker 1: is completely illegal, so which is actually very scary. There
45:26
Speaker 1: was a there was a guy actually shot and killed
45:28
Speaker 1: in was in the Bronx. Yes, we prefer the term unregulated, Morgan. Sure, Okay,
45:35
Speaker 1: Well that's not helping the regulated market so much. So
45:38
Speaker 1: that's part of the problem why New York is not
45:40
Speaker 1: doing well. But if you go to like New Jersey
45:42
Speaker 1: or Connecticut, those are states that are doing great or Missouri.
45:45
Speaker 1: Missouri just in the month of March at one hundred
45:47
Speaker 1: and twenty six million dollars of legal sales. So it
45:50
Speaker 1: really depends on where you are, all right. Just New
45:52
Speaker 1: York's got a lot of work to do, all right, Morgan,
45:54
Speaker 1: thanks so much for joining us. We'll get you back
45:56
Speaker 1: on again and get the update here made the next
45:58
Speaker 1: time you're in New York tomorrow maye. We can get
46:01
Speaker 1: them right back on tomorrow because that wasn't enough time
46:03
Speaker 1: and I want to hear more about the conference down there,
46:04
Speaker 1: so I'm gonna ask Eric Mallow, our producer. We can
46:07
Speaker 1: do that if we can, and we'll ask Morgan obviously
46:09
Speaker 1: if yeah, if he's got time, he's down in Miami.
46:11
Speaker 1: Morgan Paxy a co founder and managing partner Poseide the
46:14
Speaker 1: Investment Management. Thanks for listening to the Bloomberg Markets podcast.
46:18
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
46:21
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
46:25
Speaker 1: on Twitter at Matt Miller nineteen seventy three, and I'm
46:29
Speaker 1: fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast,
46:32
Speaker 1: you can always catch us worldwide at Bloomberg Radio