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Markets, Chips, Nikola, And Battiers (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 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 s and p five hundred.
0:22
Speaker 1: You know, getting close to retesting those June lowe's. Certainly
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Speaker 1: feels very heavy out there in terms of the tape.
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Speaker 1: Looking across the asset classes, let's check in with the professional,
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Speaker 1: a j Odin's Senior Investment Strategist for bn Y Melon
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Speaker 1: Investors Solutions. A J thanks so much for joining us here.
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Speaker 1: What are you telling your clients at B N Y? Hey?
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Speaker 1: Thanks for having me. Um, right now we're telling clients
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Speaker 1: you know, we need to remain under underweight and equities
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Speaker 1: right now. I mean we we see the fat that
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Speaker 1: isn't going to capitulate or pivot anytime soon, and so
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Speaker 1: you know we're staying. You know, obviously we need to
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Speaker 1: stay in the markets, but remaining underweight equities, looking for,
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Speaker 1: you know, more defensive names, large cap stocks, with, you know,
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Speaker 1: income generating equities. Um, we're neutral from a fixing commerspective,
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Speaker 1: but we prefer short duration. However, as we start to
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Speaker 1: see the tenure continue to move up, we're gonna act
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Speaker 1: continue you start to add a little bit more duration
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Speaker 1: in the portfolio. Um, we're replacing that underweight in equities
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Speaker 1: with an overweight in real assets, just because we need
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Speaker 1: to be allocate to the sources of inflation. However, pulling
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Speaker 1: back on that commodity pieces. We're seeing energy come down today,
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Speaker 1: but that's that's kind of how we're we're positioning our
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Speaker 1: our clients a little bit more defensive in nature. Um,
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Speaker 1: looking at utilities, healthcare, Um, things names like that. What
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Speaker 1: does that mean in terms of the thought that we
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Speaker 1: have to have capitulation to really have a sustainable but market?
1:45
Speaker 1: In the last hour pulseween I we're speaking to David
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Speaker 1: Sowerby and he said, you know, we can't really tell
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Speaker 1: what capitulation looks like. We don't know what the signals are.
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Speaker 1: Your take on that? What do you look for? You know,
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Speaker 1: I think we're gonna have to follow the feed here. We,
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Speaker 1: I feel like, the more kit for the last fourteen,
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Speaker 1: fifteen years has been under this this sort of understanding
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Speaker 1: that you know, the market's gonna or the Fens gonna come,
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Speaker 1: come through, you know, ride through on a white horse
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Speaker 1: and sort of Save the markets when there's a massive
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Speaker 1: dip like this Um. But you know, we have to
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Speaker 1: understand that we've benefited from the amount of quantitative easing
2:17
Speaker 1: that's come in and that nine trillion dollar balance sheet,
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Speaker 1: as part of their mandate, is trying to run that
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Speaker 1: off as well. And so you know, when when inflation
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Speaker 1: is persistently highlight this, you know they're they're waiting for
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Speaker 1: to see a downward trend of that. You know, the
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Speaker 1: last month we're seeing inflation rise in parts of of
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Speaker 1: of the PC and C P I um, aside from energy,
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Speaker 1: and so you know, wage wage pressures continue to add
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Speaker 1: onto the inflation narrative until we start to see cooling
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Speaker 1: and the labor markets. Can Imagine, the FT's going to
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Speaker 1: continue to move forward, and that's I felt like they
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Speaker 1: gave a good projection of where what the potential terminal
2:52
Speaker 1: rate could be. And so a market at some point
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Speaker 1: will stabilize as as we start to see yields sort
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Speaker 1: of normalized here. But obviously when you're seeing, you know,
3:00
Speaker 1: the five basis points swing up in the two year
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Speaker 1: at four seventeen right now. You know we're going to
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Speaker 1: continue to see repricing and so we start to see
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Speaker 1: yields normalize a bit. So you're you're you're not alone
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Speaker 1: in saying that following the Fed is is the way
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Speaker 1: to go. But I have to talk about the precedent
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Speaker 1: that's set. The last time the federal reserved high rates
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Speaker 1: like this about seen through. At the same time, they
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Speaker 1: had this massive quantity of tightening operation, which was massive
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Speaker 1: at the time, not of the same skills it is
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Speaker 1: right now, and the equity market actually rallied over that
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Speaker 1: time frame. You had tech leading that charge despite rising rates.
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Speaker 1: Why is this time different? You know, that's a great question. Um,
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Speaker 1: what we would say here is that the reason why
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Speaker 1: this time is different, I think, has a lot to
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Speaker 1: do with inflation and it's it's really it's really been
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Speaker 1: this sort of differentiator in the market. Um and and
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Speaker 1: many of the different UH exogenists supply driven impacts that
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Speaker 1: we're dealing with here. You know, Russia Ukraine conflict is
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Speaker 1: still having spillower effects. There's still the risk for for
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Speaker 1: energy prices to go up Um and China, zero covid
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Speaker 1: policy having an impact on supply chains and any other
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Speaker 1: geopolitical tensions that it's sit out there between China and Taiwan,
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Speaker 1: but also the concept of reshowing and on showing and
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Speaker 1: how you know, even though the Fed has a two
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Speaker 1: percent target for inflation, that it's potential that we could
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Speaker 1: see persistently higher inflation for longer as jobs move back
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Speaker 1: to the US, and so I feel like inflation is
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Speaker 1: is that is that differentiator in the in the in
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Speaker 1: the environment that we're seeing today and the feds, and
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Speaker 1: not just the Fed but on a global perspective major
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Speaker 1: central banks, trying to maintain price stability. So H is
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Speaker 1: a recession part of the bing y melon kind of outlook,
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Speaker 1: I guess, for markets? Is that kind of what you're
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Speaker 1: factory into your models? We're definitely looking at it. Um
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Speaker 1: You know, I I wouldn't say you know it's it's
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Speaker 1: it's a high probability. I know we do have a
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Speaker 1: more recent UH snapshot. Our projection come out in a
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Speaker 1: few weeks, so I don't want to uh jump ahead
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Speaker 1: and give any sort of UH indications before that comes out,
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Speaker 1: but it is something that we're wearing on. I'd say Europe.
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Speaker 1: Europe in the UK, some of the news coming out
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Speaker 1: about potentially being in a recession is definitely something that
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Speaker 1: we're looking at as well. And and but you know,
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Speaker 1: the U s seems to be a relative out performer
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Speaker 1: Um when you're looking at many of the developed market countries.
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Speaker 1: But to that question that you had, yes, it is
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Speaker 1: something that we're looking at, but I think we believe
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Speaker 1: that the Fed can still pull this off and navigate
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Speaker 1: this this landing Um of the economy. Are you guys
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Speaker 1: holding more cash than you typically do? Uh, we're definitely
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Speaker 1: moving into Um. A little bit more cash, for sure. Um,
5:36
Speaker 1: and even within some of our our tacticle asset allocation,
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Speaker 1: looking at Treasury floating rate securities. Um. But, like I
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Speaker 1: said before, as we start to see higher duration, I'm sorry,
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Speaker 1: higher yields from the ten year, we're gonna start to
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Speaker 1: add a little bit more duration to the portfolio. All right,
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Speaker 1: a J great stuff. Really appreciate you taking the time
5:52
Speaker 1: checking in with us. Hey, J Odin, he's a senior
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Speaker 1: investment strategist at B and y melon's investors solutions. B
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Speaker 1: N Y, the Bank of the York Nicole dugal joins us.
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Speaker 1: He's a senior vice president general manager for automotive at Qualcom,
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Speaker 1: and your qualcom has probably got this monster booth there
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Speaker 1: which shows off all all its cool stuff. Nicole, talk
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Speaker 1: to us about where we are with just kind of
6:20
Speaker 1: the computerization of the automobile. I mean, Matt Miller had
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Speaker 1: to wait for US Chevy silverado truck for months because
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Speaker 1: they couldn't get enough chips to fund to drive all
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Speaker 1: this stuff that's in the car. Where are we now? Yeah,
6:35
Speaker 1: good morning, thank you for having me. Look, I think
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Speaker 1: the car industry is going through this massive transformation where
6:42
Speaker 1: every automaker realizes that the platform that they're building has
6:47
Speaker 1: so much more potential, so much more capable, capability to
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Speaker 1: really create a brand identity for the automaker, to connect
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Speaker 1: with their customers, make it a services platform, find new
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Speaker 1: ways to monitor times, and really the center of it
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Speaker 1: all is chips and software. These platforms are all becoming
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Speaker 1: much more advanced technologically, you know, keeping up with the
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Speaker 1: most complex technology that we are defining today. So, uh,
7:14
Speaker 1: this progression has started. It's upon us and we really
7:17
Speaker 1: seeing every card company become a technology company and our
7:22
Speaker 1: snapdrag and digital chassis is the basis on top of
7:26
Speaker 1: which we are building these partnerships with automakers. Talk to
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Speaker 1: us a little about pricing here. I mean it's clear
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Speaker 1: that chips are in demand and have been in demand
7:34
Speaker 1: and probably will be in demand, I want to say,
7:37
Speaker 1: for the next minimum year or so, as we starts
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Speaker 1: see supply chain issues really a bait. What does that
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Speaker 1: mean for pricing? How much of a premium can you
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Speaker 1: charge based on that really Um unabated demand? Yeah, you know,
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Speaker 1: I think automotive is and remains a very competitive space. Uh.
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Speaker 1: What is changing, however, as you know, as we are
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Speaker 1: able to integrate more and more functionality into the chips
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Speaker 1: that we build, it allows us to be able to a,
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Speaker 1: bring technology, bring products over to more affordable segments of
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Speaker 1: the value chain also, uh, bring much more capability to
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Speaker 1: the higher end. So there is certainly a price premium
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Speaker 1: that we can extract by the integration capabilities that we
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Speaker 1: have Alba, bringing more technology to really every year of vehicle.
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Speaker 1: All right, so, Nicole, in the past couple of months
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Speaker 1: I experienced to first for me. Number One, I drove
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Speaker 1: my first pickup truck. Number two, I drew my first
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Speaker 1: electric vehicle. That happened to be the electric pickup truck,
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Speaker 1: and I was just blown away by the technology of
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Speaker 1: that E v in the in terms of the performance.
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Speaker 1: So okay, I get the EV thing that's coming. I
8:49
Speaker 1: get it. Autonomous Driving, that's another thing altogether. How do
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Speaker 1: you envision the evolution towards autonomous drivings? I know calcom
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Speaker 1: is going to be right at the four front of them. Yeah,
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Speaker 1: it's an excellent question and you know, our snap dragon
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Speaker 1: right platform really addresses this transition towards autonomous driving. So
9:08
Speaker 1: there are a few things going on, you know. I
9:10
Speaker 1: think your experiences in terms of driving a new vehicle
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Speaker 1: and really being impressed with all of the electronics inside.
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Speaker 1: I think that is certainly indication of one shift. I
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Speaker 1: think the other, clearly, is that cars are becoming safer
9:22
Speaker 1: because there is technology, there are sens there is a
9:26
Speaker 1: lot of capability now available to make cars much more safe.
9:31
Speaker 1: The transition from safety to comfort, to where you can
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Speaker 1: actually allow the car to take you from point a
9:37
Speaker 1: to point B, is a complex part. It is something
9:41
Speaker 1: that is going to take time because it really is
9:44
Speaker 1: about making sure that this can be implemented in a
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Speaker 1: safe way. We are already seeing, for example, for highway applications,
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Speaker 1: the ability for cars to be operating in autonomous mode
9:55
Speaker 1: for long durations, for long length of time. But as
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Speaker 1: you start to bring in more way ability, more animous
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Speaker 1: there is clearly a lot of work that needs to
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Speaker 1: be done. And mostly, in my mind, this is actually
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Speaker 1: a question of the safety responsibility that automakers owe to
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Speaker 1: their consumers. So, while the tech might be there, you
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Speaker 1: have to do this in a very responsible fashion because
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Speaker 1: you're essentially taking control away from the driver giving you
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Speaker 1: the vehicle, and that's kind of where the responsibility potion
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Speaker 1: has to be really high. Cool. Yeah, I know you
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Speaker 1: focus on the auto industry, but just I'd love to
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Speaker 1: get your thoughts just over on the overall UH semiconductor
10:32
Speaker 1: supply issue kind of where are we as an industry
10:36
Speaker 1: in terms of getting supply matched with demand on a
10:40
Speaker 1: global basis, because that was a big, big problem continues
10:44
Speaker 1: to be a big, big problem for, you know, getting
10:47
Speaker 1: these economies kind of reopen and back up, up and
10:49
Speaker 1: running where already think? You know, I think from an
10:53
Speaker 1: auto perspective we've been fortunate in that we've actually been
10:56
Speaker 1: able to prioritize availability of semising to supply for our
11:01
Speaker 1: automaker customers ahead of all other verticals and through Covid
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Speaker 1: we were actually able to manage that quite well. Uh.
11:09
Speaker 1: You know, as we look at the next year or so,
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Speaker 1: they are clearly still, uh, pockets of the market, you know,
11:15
Speaker 1: certain types of semiconductors that are still in short supply.
11:19
Speaker 1: Supplies catching up, but I think, you know, through the
11:23
Speaker 1: second half of next year I do feel that the Automan,
11:26
Speaker 1: that the auto industry, is going to start to see
11:29
Speaker 1: much better balance between supplying the man so we have
11:32
Speaker 1: had a minute left. talked to us a little bit
11:34
Speaker 1: about the regional challenges that call comes specifically might be facing.
11:38
Speaker 1: I mean, like the auto industry is really in North America.
11:40
Speaker 1: It's in Germany as well, but a lot of the
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Speaker 1: chips are coming from abroad. Talk to us about the
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Speaker 1: challenges there. So, you know, we are a fabulous company.
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Speaker 1: We have partnerships globally across many different H semiconductor fabric
11:58
Speaker 1: fabrication partner and very the way that we have established
12:03
Speaker 1: the businesses to have the ability to build products across
12:06
Speaker 1: multiple locations, have dual sourcing strategies. H The automotive supply
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Speaker 1: chain is highly complex and so scale is a very
12:17
Speaker 1: important factor and you have to be able to work
12:20
Speaker 1: across a wide variety of complexity, whether it's partnerships at
12:24
Speaker 1: the front end or the back end. Because of the
12:27
Speaker 1: scale which we operate, this is something that we've actually
12:30
Speaker 1: been able to do, perhaps a bit better than some
12:32
Speaker 1: of the other more entrance players that do not have
12:35
Speaker 1: similar scale from a from an overall semic supply perspective.
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Speaker 1: All right, Nicole, thank you so much for joining us there.
12:43
Speaker 1: Nicole de Gal, senior VP and general manager. He covers
12:45
Speaker 1: the automotive business for Qualcom and again, the transition to
12:49
Speaker 1: electric vehicles well on the way Um and again the
12:53
Speaker 1: performance that I experienced, which is awesome. Now the question is,
12:56
Speaker 1: you know, getting more and more autonomous. Looking at the
13:01
Speaker 1: shares of the Nicola U N K L A is
13:05
Speaker 1: your ticker, you can put in there. Trading at three
13:07
Speaker 1: dollars and eight cents to share. It's off five percent today,
13:09
Speaker 1: off year to date, fifty two week low. It is ugly.
13:13
Speaker 1: But we want to talk about, and that's so much
13:15
Speaker 1: the stock. But what's going on with it's founder? Ed Ludlow,
13:18
Speaker 1: joins us. Ed Ludlow's west coast correspondent, but he's in
13:21
Speaker 1: New York, but he's from England, so I don't know
13:25
Speaker 1: where he calls home here, but he joins us here
13:28
Speaker 1: talk about the trial of Nicola founder Trevor Milton and
13:31
Speaker 1: give us the background here on the issue here, at
13:34
Speaker 1: the trial here. What's going on, a kind of where
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Speaker 1: are we? So Nikola was the post to child right
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Speaker 1: of this wave of EV companies that went public. Vis
13:43
Speaker 1: Back Special Purpose Act was in company one and Milton
13:49
Speaker 1: was like bill to be the next mosque. He was
13:52
Speaker 1: this visionary who would make hydrogen powered fuel cell semi trucks.
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Speaker 1: That's a reality, and retail investors poured money into this stock.
14:02
Speaker 1: But you know, things change really quick. You know, at
14:05
Speaker 1: one point they had a market cap bread and forward,
14:07
Speaker 1: but just after they went public, Bloomberg reported that their
14:11
Speaker 1: first truck, their debut truck that they'd unveiled in twenty six,
14:15
Speaker 1: was grossly exaggerated, never worked, missing parts. The next thing
14:19
Speaker 1: that happens a short seller takes notice, cites that Bloomberg report,
14:24
Speaker 1: looks into Trevor Milton and basically accuses him of deceiving investors.
14:28
Speaker 1: The SEC gets involved, looks into him and ultimately by
14:32
Speaker 1: September of that year. He resigns. A year later he's indicted,
14:36
Speaker 1: charged with securities and wire fraud and that is the
14:38
Speaker 1: trial that's ongoing in Manhattan right now. So walk us
14:43
Speaker 1: through now what comes next in the trial and walks
14:46
Speaker 1: through the timeline. What have we seen? Where are we
14:49
Speaker 1: see next? So we're in day ten of the trial
14:52
Speaker 1: to working weeks in and it's just been astonishing. Um,
14:57
Speaker 1: you know, we've had key witnesses, including Nicholas current outgoing CEO,
15:02
Speaker 1: Mark Russell, who basically testified and told the jury that
15:05
Speaker 1: he did have a lot of concerns about things that
15:08
Speaker 1: Milton was saying, that in fact most of what much
15:11
Speaker 1: of what he said was not true and that he
15:13
Speaker 1: and other executives had warned Milton that, as the executive
15:17
Speaker 1: chairman at the company, he everything he said equated to
15:22
Speaker 1: a press release, equated to a securities filing. We heard
15:25
Speaker 1: from Nicolas Social Media Manager, and a big part of
15:28
Speaker 1: the story around Milton is he was a big user
15:30
Speaker 1: of twitter, sounds familiar, right, and Instagram, and she testified
15:36
Speaker 1: that they had a policy that non public information must
15:39
Speaker 1: not be shared on social media. She testified that only
15:43
Speaker 1: herself and Milton had access to the company's accounts and
15:46
Speaker 1: she testified that Milton was breaching his own company social
15:49
Speaker 1: media policies. Next we hear from the CFO. We heard
15:53
Speaker 1: from a retail investor that says they lost a hundred
15:56
Speaker 1: and sixty thousand dollars because of investing in the company
15:59
Speaker 1: based on what Milton says. That's the crux of the case,
16:01
Speaker 1: by the way. So I look at I see Steve
16:04
Speaker 1: Gursky is the chairman of the board, who's a long
16:06
Speaker 1: time auto executive, longtime analyst. He and I used to
16:10
Speaker 1: work together way back in the day when he covered
16:12
Speaker 1: the auto stocks. He's a savvy investor, savvy auto person.
16:18
Speaker 1: It looks like Trevor Milton perhaps duped a lot of
16:21
Speaker 1: smart people, not just kind of retail investors as well, potentially. Yes,
16:25
Speaker 1: I think it's important to say, like the defense are
16:27
Speaker 1: going to argue and they're trying to prove and convince
16:30
Speaker 1: a jury that a Milton genuinely believed what he was
16:33
Speaker 1: saying was true, but also that he was the CEO
16:36
Speaker 1: of the company right, it was his duty to market
16:39
Speaker 1: the company. He was following the marketing plan and the
16:43
Speaker 1: burden of proof this is the American justice system is
16:45
Speaker 1: on the prosecution to not just prove that he lied,
16:48
Speaker 1: but those lies in fact did prompt investors to invest.
16:53
Speaker 1: And Steve Gursky is really interesting and that that's the
16:56
Speaker 1: extra bit of this trial that we're learning what really
16:59
Speaker 1: took ace at the time. For example, yesterday a GM
17:03
Speaker 1: current GM employee and engineer testified that the pickup truck,
17:07
Speaker 1: the Badger, that GM had agreed initially to build on
17:10
Speaker 1: Nikola's behalf was not going to contain any parts from Nikola. Well,
17:16
Speaker 1: Trevor Milton gave an interview saying seventy of the parts
17:19
Speaker 1: would come from Nikola. So we're kind of filling the
17:21
Speaker 1: blanks of what we knew at the time. What is
17:23
Speaker 1: the fine here? What is the what is the defense
17:26
Speaker 1: APP or the prosecution, excuse me, after when it comes
17:29
Speaker 1: to if they win this case, do the investors benefit?
17:33
Speaker 1: What is Trevor Milton cast a great question. This is
17:37
Speaker 1: a criminal trial and he faces two counts of securities fraud,
17:41
Speaker 1: two counts of wire fraud. The most severe penalty for
17:45
Speaker 1: one of the counts is twenty five years in prison,
17:48
Speaker 1: and so I think most legal experts and based on president,
17:52
Speaker 1: he is unlikely, I found guilty, to face that much
17:54
Speaker 1: prison time. But the other way looking at it is
17:56
Speaker 1: the holistic picture that they were the poster child of
17:59
Speaker 1: the EB back wave. There are many commentators that would
18:02
Speaker 1: say this is kind of the shot across the bow
18:05
Speaker 1: from the government and regulators about the perils of investing
18:10
Speaker 1: in companies that when public virus back, and also the
18:13
Speaker 1: behavior some of those companies. We know there are many
18:15
Speaker 1: that have encountered financial trouble. Um You know. It's kind
18:19
Speaker 1: of an interesting tale of a market that's changed, the
18:22
Speaker 1: specific market. What's the timing here? I mean I know
18:25
Speaker 1: you're here in part to cover this trial. What's the
18:28
Speaker 1: expectation when we might get a kind of windingness up
18:31
Speaker 1: and when we get a ruling? Yes, so it's it's
18:32
Speaker 1: built to be a five week trial winding up around
18:35
Speaker 1: October fourteenth. That's at least what the judge brief the jury.
18:39
Speaker 1: You know, the government will need a few weeks to
18:42
Speaker 1: present their case and they have a long list of
18:43
Speaker 1: witnesses that they've been calling, Um you know, and that
18:47
Speaker 1: would leave about a week for the defense before closing arguments.
18:50
Speaker 1: And you know this is being really closely followed. That
18:53
Speaker 1: people want to know what happened to this guy, but
18:55
Speaker 1: many stuck with nickle. But you pointed out the stock.
18:58
Speaker 1: You know, the stock breached four dollars for the first
19:00
Speaker 1: US time. Um, you know, the background being that most
19:03
Speaker 1: SPECTA quad companies, Star trading attend. There's a share. So
19:07
Speaker 1: you're out of the money right if if you held
19:09
Speaker 1: onto your your shares. You know it's become in the background.
19:13
Speaker 1: Has Become a boring truck company and at a really
19:16
Speaker 1: hard time. I'm looking at some of the stockholders, shore
19:18
Speaker 1: Vanguard Group, nor just bank, Black Rock, h some state streets.
19:21
Speaker 1: So a lot of the some big big funds own
19:24
Speaker 1: this thing. So I'm sure there's a lot of folks
19:25
Speaker 1: paying attention, in addition to obviously all the retail uh
19:28
Speaker 1: investors as well. Ed Ludlow, thanks so much for joining us.
19:31
Speaker 1: There are we got in our studio here, Leo Kelly,
19:37
Speaker 1: CEO Verdon's capital visors. I have no interest in any
19:40
Speaker 1: of that. I just found out, first of all, he's
19:42
Speaker 1: a graduate of the College of New Jersey in Ewing,
19:43
Speaker 1: New Jersey, which I have. I grew up in that
19:45
Speaker 1: area so I'm very familiar with that. That school has
19:47
Speaker 1: gotten so good so quickly, but then you just worked
19:50
Speaker 1: a couple of summers at Bloomberg and Princeton. Well, you
19:53
Speaker 1: just found his new best friends. Yeah, exactly. I mean
19:56
Speaker 1: I can't believe he still doesn't have his badge or
19:57
Speaker 1: his badge doesn't work. Who says it doesn't? Late night
20:05
Speaker 1: snack there? You've got to get a free lunch sometimes. Exactly.
20:08
Speaker 1: All Right, Leo, you've been doing this wealth management stuff
20:10
Speaker 1: for a long time in Merrila Kelly wealth management and
20:13
Speaker 1: I got your own firm here. What do you talk
20:16
Speaker 1: to well, what do you say to your clients these
20:17
Speaker 1: days when they see their performance in yes one, great years,
20:23
Speaker 1: this year just brutal equities and fixed income. Where do
20:25
Speaker 1: you go? So what do you what do you tell
20:26
Speaker 1: your clients? Well, the first thing we tell them is
20:30
Speaker 1: that they have to remain calm as always and Um.
20:36
Speaker 1: But in the bigger picture we've been talking about this
20:38
Speaker 1: inflation and rising interest rates now for a couple of years.
20:41
Speaker 1: It's never made sense to me, Um, that we could
20:44
Speaker 1: put this much money, grow M to a percent a
20:47
Speaker 1: year and not have inflation. We didn't buy into the
20:50
Speaker 1: transitory we didn't buy into rates would remain low. So
20:54
Speaker 1: they've been prepared. I don't think you can be prepared
20:58
Speaker 1: for this, though. I don't think you'd be prepared for
20:59
Speaker 1: eight or nine. We're running up to four on the
21:02
Speaker 1: ten year Um and the result of this, in my opinion,
21:06
Speaker 1: all of the money being flooded into the system, is
21:09
Speaker 1: we're moving into a secular change in interest rates and
21:13
Speaker 1: that's going to change a lot of things in the market.
21:15
Speaker 1: So what people have relied on to be constants in
21:18
Speaker 1: the market in the past, it's all going to change
21:20
Speaker 1: and that's what we're talking to our clients about. Well,
21:24
Speaker 1: one of the things that we've been talking about throughout
21:26
Speaker 1: this show has been the C word capitulation, not clients Um,
21:30
Speaker 1: and I'm curious if you're in the camp that says
21:34
Speaker 1: to see a sustainable rebound in the stock market you
21:37
Speaker 1: have to see capitulation. And if you answers yes, tell
21:40
Speaker 1: me how we discover like, how you detect it. For
21:43
Speaker 1: Answers No, tell me why not. Well, this is starting
21:45
Speaker 1: to feel like we're getting there. I don't think we're
21:47
Speaker 1: there yet and I think if you think seasonally, we
21:49
Speaker 1: we did get to a bear market. Bear markets do
21:52
Speaker 1: not typically go down touch a bottom and then run
21:55
Speaker 1: off to the races. It takes a few of these
21:57
Speaker 1: tests and often a new low before we see the
22:01
Speaker 1: bottom of the market. So we have been talking to
22:03
Speaker 1: our clients about get ready. September seasonally bad. Um, November,
22:07
Speaker 1: December seasonally better. Right, we recover from that. Normally there's
22:10
Speaker 1: actually one more tempt at the bottom before you run
22:13
Speaker 1: off to the races. But sorry, really quickly. They're seasonally
22:16
Speaker 1: bad because it's a reaction, from what I've seen historically,
22:19
Speaker 1: to usually a summer rally like a or a Santa Rally,
22:22
Speaker 1: followed then by some sort of correction when you have
22:25
Speaker 1: higher volume. Now, well, we did have a rally. We
22:28
Speaker 1: had a rally off the down from the summer and
22:32
Speaker 1: Um again, I think more than seasonality, and I don't
22:36
Speaker 1: want to I don't want to make this a technical conversation. Right,
22:39
Speaker 1: more than a seasonal rally. We have to take a
22:40
Speaker 1: step back. We have higher energy prices still, even though
22:43
Speaker 1: they've come down. We've got really large inflation, we've got
22:46
Speaker 1: rapidly rising interest rates, we have an extraordinarily aggressive fed
22:52
Speaker 1: and replicate that everywhere in the world. That is not
22:57
Speaker 1: exactly what I would call stimulus. So us that says
23:02
Speaker 1: be prepared for volatility. What we're telling clients is be
23:05
Speaker 1: prepared for volatility. We have to be active in the markets.
23:09
Speaker 1: Going to sleep on a sixty pass of portfolio? Those
23:11
Speaker 1: days are done, they're behind us. That's exactly right. I
23:14
Speaker 1: mean that you think about it, this year, I guess
23:15
Speaker 1: you know the S and p off more than most
23:18
Speaker 1: of the bonding disease that we look at here on
23:21
Speaker 1: the bloomber criminal off. You know ten there's really been
23:24
Speaker 1: nowhere to hide here Tis and you've got some clients
23:27
Speaker 1: who want to, you know, maybe take a little bit
23:28
Speaker 1: more risk, maybe put some cash into the market. Where
23:30
Speaker 1: are you suggesting? They look well, and I will be specific,
23:35
Speaker 1: but the first place is um not what has been
23:37
Speaker 1: successful prior okay, as we go and we have higher
23:41
Speaker 1: interest rates and more volatility, right, that's going to impact pe.
23:44
Speaker 1: So the the higher pe steady growth companies, I don't
23:48
Speaker 1: think perform as well. Now, it's not to say that
23:51
Speaker 1: they're going to go down necessarily, but I just don't
23:53
Speaker 1: think they perform as well. We like earnings power. Strong
23:56
Speaker 1: dollar means small cap looks interesting to us right, small
23:59
Speaker 1: cap growth and small cap value growth, because it's down
24:02
Speaker 1: so much value because there's value there. Um, we like
24:06
Speaker 1: the international markets, but there's gonna be tremendous volatility. International,
24:10
Speaker 1: developed international is two to three standard deviations lower evaluation,
24:16
Speaker 1: relative valuation, than what we see in the norm, than
24:18
Speaker 1: the medium. So to me that says let's put some
24:21
Speaker 1: money there and yes, we're gonna have to go through
24:24
Speaker 1: the gyrations of the market. But, as we tell our clients,
24:28
Speaker 1: when you invest in equity you sign a contract and
24:30
Speaker 1: that contract says I know there's going to be volatility,
24:33
Speaker 1: I accept that for a higher rate of return and
24:35
Speaker 1: I'm willing to put up with it. Well, now is
24:37
Speaker 1: the time to now's the time to earn your money
24:40
Speaker 1: to make good on that. All Right, Leo Kelly, thank
24:41
Speaker 1: you so much for joining us. Leo Kelly is the
24:43
Speaker 1: CEO of verdant's capital Advisors, joining us uh live in
24:47
Speaker 1: our Bloomberg interactive broker studio here today. So we've got
24:53
Speaker 1: central bankers around the world raising interest rates to trying
24:56
Speaker 1: to tame inflation at the risk of recession, and then
25:00
Speaker 1: I wake up this morning, and that includes the Bank
25:02
Speaker 1: of England, and then, you know, we wake up this
25:04
Speaker 1: morning we see the UK announces his biggest tax cut
25:07
Speaker 1: since nineteen seventy two. What is up with that? Talk
25:09
Speaker 1: about it seems like a lack of coordination. So we
25:12
Speaker 1: figured we've got to get ED price in here. He's
25:14
Speaker 1: a senior fellow and former British trade official, uh at,
25:18
Speaker 1: from M N Y U. and what do you make
25:20
Speaker 1: of your English government and this tax cut vs V
25:24
Speaker 1: kind of what the Bank of England is trying to
25:26
Speaker 1: do with other central banks? Sure, thank thanks. At odds,
25:29
Speaker 1: I think is a fair enough description. Straight off the BAT.
25:32
Speaker 1: At odds Um, I would say that the the the
25:36
Speaker 1: point of the Conservative Party is, in part as we
25:39
Speaker 1: said earlier, cutting taxes. So that doesn't that's not surprising, Um,
25:43
Speaker 1: but it's sort of it's kind of ignoring context. And
25:45
Speaker 1: so the other point of the Conservative Party is fiscal responsibility. Um,
25:50
Speaker 1: fiscal responsibility. This ain't so if you're asking me, what
25:52
Speaker 1: the you know what the Bank of England is doing.
25:54
Speaker 1: Probably not enough. We're at two in a quarter. They'll
25:56
Speaker 1: they'll have to go higher. And the the the let's see,
26:00
Speaker 1: mixture of the policy posture in the UK seems to
26:03
Speaker 1: me to be inflationary. Um, in an inflationary context. Now, well,
26:08
Speaker 1: I guess my question here is if you are, and
26:11
Speaker 1: I'm trying to be as empathetic as possible, so help
26:14
Speaker 1: me be in their shoes. But literally, if you are
26:17
Speaker 1: Um Andrew Bailey, you are in the Bank of England,
26:19
Speaker 1: it totally makes sense to be restrictive right now. If
26:21
Speaker 1: you are on the political side and you're seeing people
26:23
Speaker 1: getting laid off, not being able to afford housing bills, etcetera,
26:28
Speaker 1: then it makes sense to stimulate the economy from from
26:31
Speaker 1: that perspective. But why is this not being done in
26:33
Speaker 1: a coordinated manner? I mean less trust was very open
26:36
Speaker 1: about wanting to do this when she was campaigning. Right,
26:40
Speaker 1: is economic policy ever coordinated? You tell me. I don't
26:43
Speaker 1: think it is. I don't know if that's a cop
26:45
Speaker 1: out answer, but I don't think it is. And I
26:47
Speaker 1: think that, yes, let's trust, the prime minister was open
26:50
Speaker 1: about being someone who would cut taxes. And yes, of
26:53
Speaker 1: course our back is against the wall. visit the energy
26:56
Speaker 1: so of course, again there has to be some sort
26:58
Speaker 1: of fiscal intervention because people are going to be cold.
27:02
Speaker 1: It's that simple, rights Um. But again, the Bank of
27:05
Speaker 1: England is probably thinking our independence is the most important thing.
27:10
Speaker 1: And to what extent do we have to hike to
27:13
Speaker 1: demonstrate that our independence is the most important thing? Let's
27:16
Speaker 1: remember that we're facing an inflationary supply side shock on
27:20
Speaker 1: the energy side, right. So that that if you look
27:23
Speaker 1: at rates, that's kind of also a bit on the
27:25
Speaker 1: one hand. On the other you might say, well, let's
27:28
Speaker 1: cut rates to fight the deflationary pressure the unemployment that
27:32
Speaker 1: results from that. On the other hand, and I think
27:34
Speaker 1: at nine this is what you should do. You should
27:37
Speaker 1: hike to fight, to fight that inflation, right, but that sorry,
27:40
Speaker 1: they're they're at odds with each other at the end
27:43
Speaker 1: of the day. So it's kind of like neither side
27:45
Speaker 1: almost has gets the full effect of what they're trying
27:48
Speaker 1: to achieve because they counteract. talked to us a little
27:51
Speaker 1: about the politics of it as well. When you walked
27:53
Speaker 1: in here. I asked you about the Conservative Party specifically.
27:56
Speaker 1: They haven't cut taxes for I think three years, but
28:00
Speaker 1: that's part of their party line, that's part of the
28:04
Speaker 1: DNA right. If you vote conservative, you're voting for a
28:08
Speaker 1: tax cart Um and they and they've delivered right. They've
28:10
Speaker 1: cut what is it? They've cutty the top right down
28:13
Speaker 1: to four. The timing is impecable because they haven't done
28:15
Speaker 1: it for three years and now they're doing it right, right, well,
28:18
Speaker 1: it's always a good time to cut taxes if you're
28:19
Speaker 1: a tor here, right, don't yeah, I don't think it's
28:21
Speaker 1: a Um, a bad time. So that's that's two billion
28:25
Speaker 1: and then five billion out of the basic rate. So
28:29
Speaker 1: I think again, I'll go back to context pretty and
28:31
Speaker 1: say that makes sense without context. In context, it seems
28:35
Speaker 1: to me like it's sort of shooting your load a bit. Earli.
28:38
Speaker 1: I think what we're doing as a country is saying
28:42
Speaker 1: bet on us in the medium term. Bet On us
28:45
Speaker 1: after this spending comes through, the system, comes through the economy.
28:48
Speaker 1: There's probably a two year lag on economic policy anyway.
28:51
Speaker 1: Then take another look at us, right, because at that
28:54
Speaker 1: point we will be in different shape relative to other
28:58
Speaker 1: jurisdictions and other economies. So, looking at the pound, sterling here,
29:02
Speaker 1: Brook Blow One ten were now one spot, zero nine
29:05
Speaker 1: three to a couple of people of today have said
29:09
Speaker 1: the UK economy looks kind of like an emerging market. Here.
29:11
Speaker 1: I'm currency, I'm outrage. I'm leaving immediately. Exactly. I mean,
29:16
Speaker 1: it's what do you make of the sterling here in
29:20
Speaker 1: the training. Well, I came on your show previously and
29:23
Speaker 1: said that parity was something we should be talking about.
29:25
Speaker 1: So I think that that's I'm not going to deny that.
29:29
Speaker 1: That is realistic. Um Emerging markets. I mean, that's a
29:33
Speaker 1: bit of a that's a bit of a cheeky. That's me,
29:36
Speaker 1: isn't it? That's something for twitter. Well, to be fair.
29:38
Speaker 1: To be fair, I saw this on yen's Nord big who,
29:41
Speaker 1: who's the CEO and founder ex anti data and the
29:44
Speaker 1: former FEX, head of Goldman, I believe, and he said
29:47
Speaker 1: that the way you define an emerging market currency, forgive me,
29:51
Speaker 1: I'm ready for it. I'm ready for it. Says the
29:53
Speaker 1: way you you need define emerging market currency is when
29:57
Speaker 1: you have a basically in the United States, for example,
30:00
Speaker 1: when you have yields go higher, it supports the dollar
30:01
Speaker 1: interest rate differentials. They said emerging mark currency is the
30:04
Speaker 1: opposite of that which the pound, the cable rate, is
30:08
Speaker 1: actually supporting. So technically, in theory, by that definition, I'll
30:14
Speaker 1: split the difference. I'll split the difference with you and
30:15
Speaker 1: say a very high quality emerging market. Okay, and again, British,
30:19
Speaker 1: have you. I'm very British, but I think that the
30:23
Speaker 1: future is unwritten. And again, this is all that. This
30:25
Speaker 1: is all coming out of Brexit, right. So sterling is
30:28
Speaker 1: rewriting its core narrative. The old sterling narrative was we've
30:32
Speaker 1: got Anglo Saxon innovation and European market size. That was
30:35
Speaker 1: that was very juicy. Now that that has to change
30:38
Speaker 1: because we've left the EU, I don't think that that
30:40
Speaker 1: rules out future roles for sterling as a hedge in
30:44
Speaker 1: the world against other narratives. That will also change. So
30:46
Speaker 1: I'm optimistic in the sense that the UK is like
30:49
Speaker 1: front loading its twenty century supply side shock or one
30:53
Speaker 1: of them, and reacting to these these things that we're seeing,
30:56
Speaker 1: like covid and Ukraine, in a way that ultimately is
30:59
Speaker 1: add aisle. And ultimately, you know, with agility there's always
31:02
Speaker 1: a premium in the medium term. What's the feeling how
31:05
Speaker 1: tough of this winter be for Europe, for the UK? Um,
31:08
Speaker 1: what's the thinking these days in terms of energy and
31:11
Speaker 1: all that time? Yeah, well, tough, tough, I think. I
31:15
Speaker 1: think that if we sort of move over the channel
31:17
Speaker 1: to the Germans, M Schultz is not happy. We saw
31:20
Speaker 1: that the other day. Um, I said earlier, people are
31:23
Speaker 1: gonna get cold and I think I'll stand by that.
31:25
Speaker 1: I think some people are going to be cold and
31:26
Speaker 1: it might be worse than that. If you think about
31:28
Speaker 1: elderly people, if you think about children, if you think
31:31
Speaker 1: about businesses and firms shutting down, it's not just temperature,
31:34
Speaker 1: it's also going to be activity. So I think it's
31:36
Speaker 1: very tough. But looking even further right, further east, I'm
31:41
Speaker 1: not sure that Puson is having the best time that
31:44
Speaker 1: he you know, the best time that he thought he would.
31:47
Speaker 1: So yeah, a lot of Geo political issues out there today.
31:51
Speaker 1: Just happened to be in the United Kingdom again. A
31:53
Speaker 1: big big tax cuts in the face of rising interest
31:57
Speaker 1: rates and a slowing economy, ed price joints as his
32:00
Speaker 1: a senior fellow to N Y U formers, British trade
32:02
Speaker 1: official joining us here in our Bloomberg interactive broker studio.
32:08
Speaker 1: Thanks for listening to the Bloomberg markets podcast. You can
32:11
Speaker 1: subscribe and listen to interviews with apple podcasts or whatever
32:15
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on twitter
32:19
Speaker 1: at Matt Miller. Three on ball Sweeney, I'm on twitter
32:23
Speaker 1: at PT Sweeney. Before the podcast you can always catch
32:26
Speaker 1: US worldwide at Bloomberg radio.