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Investor Sentiment Has Moved To The Negative Side: Grohowski · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. This
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  Speaker 1: is Bloomberg Markets with Them Fox and Lisa Abramowitz on
• 0:31
  Speaker 1: Bloomberg Radio. My co host and colleague, Lisa Abramowitz is
• 0:36
  Speaker 1: on holiday for this July fourth week. But he's not
• 0:40
  Speaker 1: on holiday, Leo Grohowski. He is the chief investment officer
• 0:43
  Speaker 1: for b n y Melon Wealth Management, helping to manage
• 0:47
  Speaker 1: nearly two hundred and fifty billion dollars. He joins us
• 0:50
  Speaker 1: in our eleven three oh studios. Leo, thanks for coming
• 0:53
  Speaker 1: in happy July four Um, tell me about people's perception
• 0:57
  Speaker 1: of how markets, how equity more cots specifically have behaved,
• 1:01
  Speaker 1: because if you look at the SMP five hundred, we're
• 1:04
  Speaker 1: up not even one and a half percent so far
• 1:07
  Speaker 1: for the year. But if you're invested in stocks like
• 1:10
  Speaker 1: Netflix or Amazon dot Com, you've got a different perspective
• 1:15
  Speaker 1: on how the market is done. Yeah, no, no doubt, PAM.
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  Speaker 1: I think UM. Also, after last year, I think investors, UM,
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  Speaker 1: most of them ratcheted down their expectations for this year
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  Speaker 1: as a whole. And so as we tally sort of
• 1:28
  Speaker 1: the mediear report card, you know, returns are very unexciting, UM,
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  Speaker 1: low single digits for most balanced portfolios. And this remains
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  Speaker 1: a very unloved market. I mean an investors sentiment has
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  Speaker 1: actually moved to the negative side and uh, and so
• 1:45
  Speaker 1: there's enough skepticism out there where it's become more palpable.
• 1:50
  Speaker 1: And UM, I think when you combine that with investors,
• 1:52
  Speaker 1: you know, looking at a lot of profits over the years, UM,
• 1:55
  Speaker 1: it's not a surprise to see some selling pressure here
• 1:58
  Speaker 1: on the on the equity markets. Where does the activity
• 2:00
  Speaker 1: come from? Oh my goodness, I think, uh, just you know,
• 2:04
  Speaker 1: open up the paper, you know, watch the TV programs,
• 2:07
  Speaker 1: and most of it is on the geo political front.
• 2:09
  Speaker 1: And certainly today market participants are very concerned about UM
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  Speaker 1: tariffs and trade and UH elections and what's going on
• 2:19
  Speaker 1: in Germany and the UK with Brexit. So that the
• 2:22
  Speaker 1: big picture macro geo political front UM is I think
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  Speaker 1: of most concern The good news is we're going to
• 2:29
  Speaker 1: quickly you know, move into earning season here and and
• 2:31
  Speaker 1: finally we'll have more fundamental news to sink our teeth into.
• 2:35
  Speaker 1: But it's really been about the the global headlines macroeconomically
• 2:38
  Speaker 1: and geo politically. The earnings reports. Uh, you've got to
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  Speaker 1: kind of make the sort of distinction between gap earnings
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  Speaker 1: and non gap earnings, right, because when you look at
• 2:48
  Speaker 1: the non gap burnings, things that doing just great, but
• 2:52
  Speaker 1: when you look at gap earnings, it kind of tells
• 2:54
  Speaker 1: a different story. Yeah, I think I think most market
• 2:57
  Speaker 1: participants and most strategists are looking at you know, operating
• 3:01
  Speaker 1: earnings for the SMP this year, um, and we are,
• 3:05
  Speaker 1: you know, somewhere between one and one sixties. So if
• 3:08
  Speaker 1: you take the midpoint of that and a market at
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  Speaker 1: you know, the market's trading at what I think is
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  Speaker 1: a pretty undemanding pe multiple of seventeen times in the
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  Speaker 1: context of a tenure treasury at two eight five. Take
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  Speaker 1: that out to next year, we've got what we think
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  Speaker 1: is a pretty conservative thought around earnings at one seventy
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  Speaker 1: the markets that are multiple of just under sixteen times.
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  Speaker 1: So UM, the market feels more expensive than it really is,
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  Speaker 1: and the market not having done much while earnings have
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  Speaker 1: been so strong, has really allowed valuation to get back
• 3:38
  Speaker 1: into what we consider to be the reasonable territory. Does
• 3:41
  Speaker 1: the FED continue to raise interest rates along that four
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  Speaker 1: plant path? And you know it's a tough call, but
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  Speaker 1: if you forced me into the yes or no, I
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  Speaker 1: would have to say yes. Particularly on the heels of
• 3:53
  Speaker 1: Friday's PC report, right, we're sort of getting into holiday mode.
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  Speaker 1: I didn't find a lot of investors focusing on but
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  Speaker 1: the personal consumption expenditure index at the core came into
• 4:04
  Speaker 1: two percent, right, and the headline was two point three,
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  Speaker 1: a little hotter than what most we're expecting. And I
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  Speaker 1: think with that being a critical component in the FEDS
• 4:13
  Speaker 1: quis and art of decision making, um, I would say
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  Speaker 1: that that the leaning is for them to end up
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  Speaker 1: doing four. So add to your equity holdings. Now, uh,
• 4:22
  Speaker 1: you know we're we have been and remain overweight equity. Okay,
• 4:25
  Speaker 1: So a lot depends on you know, have you rebalanced lately, right,
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  Speaker 1: but we would be modestly overweight in equities, favoring US
• 4:33
  Speaker 1: equities and favoring small and mid cap small cap unlike
• 4:36
  Speaker 1: our comments earlier, you know, had a really good quarter
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  Speaker 1: up nearly eight percent on the Russell on the Russell
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  Speaker 1: two thousand. I would be looking at this more as
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  Speaker 1: an entry point than exit point for most investors. And
• 4:48
  Speaker 1: we're still looking at money market funds here in the
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  Speaker 1: US with two point eight three trillion dollars in cash.
• 4:53
  Speaker 1: There's a lot of dry powder out there, and are
• 4:55
  Speaker 1: they waiting what for interest rates to increase and then
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  Speaker 1: make something out of that money, because yet's still going
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  Speaker 1: to be taxed and you're not going to really end
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  Speaker 1: up with much more than inflation. And a lot of
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  Speaker 1: that cash has been waiting for quite some time really
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  Speaker 1: for the big pullback in the market, right, the twenty
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  Speaker 1: percent plus correction that many have felt. You know, clearly,
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  Speaker 1: with all of the challenges out there and how well
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  Speaker 1: the markets have done, we must be due for that correction.
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  Speaker 1: There are a lot of market timers, I mean, people
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  Speaker 1: really think they can time this well. I think there
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  Speaker 1: are enough of them that certainly have a lot of
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  Speaker 1: money sitting in either cash or near cash, that have
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  Speaker 1: really set out a pretty good portion of this bull market. Right.
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  Speaker 1: It's been very dangerous to be an investor concerned about
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  Speaker 1: wealth preservation when you also have to digest the news
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  Speaker 1: flows weekend in week out. Yet, uh, you know, we're
• 5:45
  Speaker 1: looking at a market that's up in nine years, and
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  Speaker 1: so I think a lot of investors field they missed
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  Speaker 1: that big run and need to wait for sort of
• 5:54
  Speaker 1: the big pull back. That's not our view, but that's
• 5:56
  Speaker 1: what I sense when I'm out traveling the country. Do
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  Speaker 1: you get the impression and that people are really paying
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  Speaker 1: attention to what's going on with the U S treasuries?
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  Speaker 1: And excuse me, whether that three percent threshold, you know,
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  Speaker 1: is such a big deal, particularly for the thirty year
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  Speaker 1: or even for the ten years, not not so much.
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  Speaker 1: I was in here a few months ago and we were,
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  Speaker 1: you know, sort of where we are now on the
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  Speaker 1: cusp of three percent, and we actually exceeded that three
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  Speaker 1: percent for a while. I think it's a psychological level
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  Speaker 1: which will cause a pause, right, But I think we've
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  Speaker 1: already recalibrated, right. A lot of the the earlier part
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  Speaker 1: of this year was about recalibrating first to higher earnings
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  Speaker 1: and then quickly to the potential for higher interest rates,
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  Speaker 1: including a three percent treasury. So I would argue most
• 6:37
  Speaker 1: of that is in the market. But let's have the
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  Speaker 1: conversation if fields or three and a half to four
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  Speaker 1: percent on the tenure Treasury note, that would be a
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  Speaker 1: surprise and something the market is not equipped to handle
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  Speaker 1: at these levels. What about consumer spending? Will that filter
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  Speaker 1: into let's say a call for this consumer discretionary stocks.
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  Speaker 1: You know, consumer discretionary stocks have really taken it on
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  Speaker 1: the chin um and um. The consumer balance sheet and
• 7:01
  Speaker 1: now income statement is in very very good shape. So
• 7:05
  Speaker 1: you know here too, we we we are and have
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  Speaker 1: been underweight in the sector. But if we're thinking about
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  Speaker 1: the next twelve to eighteen months entry or exit point,
• 7:13
  Speaker 1: probably be looking more at an entry point given how
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  Speaker 1: weak the group has been. But let's keep in mind
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  Speaker 1: a lot of these stocks are dependent on imports, supply
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  Speaker 1: chain involving China, and so there's gonna be a bit
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  Speaker 1: of a cloud of uncertainty. I think overhanging this consumer
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  Speaker 1: discretionary sector for a bit. But consumer balance sheets, income
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  Speaker 1: statements are in good shape. And this Friday we get
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  Speaker 1: an employment report that should be another good one. What
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  Speaker 1: do you think, what are we going to get? Kind
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  Speaker 1: of well, the over under on nonfarm payroll is looking
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  Speaker 1: like around two hundred, right, and uh, I think many
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  Speaker 1: folks won't be around to be seeing it, but I
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  Speaker 1: would be, you know, thinking that that feels about right.
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  Speaker 1: I think the bigger number to watch will be average
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  Speaker 1: hourly earnings, right, because that's what set the market, and
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  Speaker 1: it is in in February when we got a hot
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  Speaker 1: number there, so that's the number we're focusing on. Thanks
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  Speaker 1: very much as always, Leo Grohowski. He is the chief
• 8:03
  Speaker 1: investment officer for b n y Melon Wealth Management, helping
• 8:06
  Speaker 1: to manage nearly two hundred and fifty billion dollars. You're
• 8:11
  Speaker 1: listening to Bloomberg Markets, I'm pim Fox Tesla. The company
• 8:16
  Speaker 1: says it has reached a milestone that is critical to
• 8:20
  Speaker 1: Elon Musk's goll to bring electric cars to the masses.
• 8:23
  Speaker 1: Is having to do with the production target for the
• 8:25
  Speaker 1: Model three five thousand of the Sedans in the last
• 8:28
  Speaker 1: week of the second quarter. Here to tell us more,
• 8:31
  Speaker 1: Liam Denning our energy mining and commodities columnists for Bloomberg Opinion,
• 8:37
  Speaker 1: and you can follow Liam on Twitter at Liam Denning.
• 8:41
  Speaker 1: All right, Liam Denning as the energy mining and commodities calumnists.
• 8:46
  Speaker 1: You get a nice little sort of change in a
• 8:49
  Speaker 1: way because you get to talk about an auto company.
• 8:52
  Speaker 1: You wouldn't necessarily get that in most things. But um,
• 8:56
  Speaker 1: this has to do with the battery technology and the
• 8:59
  Speaker 1: ability of of Tesla to sort of leverage this technology.
• 9:04
  Speaker 1: What do you make of the milestone achievement? So, um,
• 9:09
  Speaker 1: you know, it's it's a milestone, it's been achieved. I
• 9:13
  Speaker 1: think the bigger question we have to ask ourselves with
• 9:16
  Speaker 1: Tesla is what do these milestones really means? So you know,
• 9:20
  Speaker 1: if we break it down, last week of of June,
• 9:24
  Speaker 1: they produced just over five thousand model threes. Um. You know,
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  Speaker 1: thereby reaching the target that that Elon Musk had set
• 9:34
  Speaker 1: we should say, a much reduced target from what was
• 9:36
  Speaker 1: originally envisaged about two years ago. Um. But then if
• 9:41
  Speaker 1: you if you look at the rest of the quarter,
• 9:44
  Speaker 1: actually production taking last week out averaged about two thousand
• 9:48
  Speaker 1: a week. So clearly this, uh, this final kind of
• 9:52
  Speaker 1: burst week for the quarter was was really engineered by
• 9:56
  Speaker 1: the company. They really wanted to hit that target. Um.
• 9:59
  Speaker 1: But you know, we're talking about a sixty billion dollar
• 10:02
  Speaker 1: company here, and if you're really going to value Tesla
• 10:06
  Speaker 1: at that level, it needs to be able to show
• 10:09
  Speaker 1: that it can actually produced, you know, high quality cars
• 10:13
  Speaker 1: at high volume, day in, day out, and I think
• 10:16
  Speaker 1: as much as people bid the stock up Monday morning,
• 10:20
  Speaker 1: it's actually slightly down at this point, correct. But that
• 10:23
  Speaker 1: initial pop I think reflected people saying, hey, let's hit
• 10:27
  Speaker 1: the target. That's great, um, but really you need to
• 10:31
  Speaker 1: be thinking about the bigger picture here, which is, you know,
• 10:35
  Speaker 1: what's the sustainable production rate? All right? You you before
• 10:38
  Speaker 1: you came in, you said that you had been in
• 10:41
  Speaker 1: a conference in Las Vegas having to do with one
• 10:46
  Speaker 1: if you could just describe sort of your larger, your
• 10:49
  Speaker 1: bigger picture perspective on the future of battery powered, electric
• 10:54
  Speaker 1: charged vehicles, So I will. I'm definitely in the camp
• 11:00
  Speaker 1: that I think electrification of vehicles is at this point
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  Speaker 1: and unstoppable trend, unstoppable, unstoppable now and certainly the the
• 11:13
  Speaker 1: the theme I took away from last week's conference on
• 11:16
  Speaker 1: on lithium is that, broadly speaking, the the line showing
• 11:23
  Speaker 1: where electrification of vehicles is going m is going up. Now.
• 11:27
  Speaker 1: People debate what the steepness of that line is, you know,
• 11:32
  Speaker 1: but even the most bearish skeptical guys that I met
• 11:35
  Speaker 1: last week don't think that electrification is a fad uh
• 11:39
  Speaker 1: and will kind of just peter out. I think there
• 11:42
  Speaker 1: are good reasons, particularly pertaining to the biggest growth market
• 11:46
  Speaker 1: for auto's i China and to an extent, India, they
• 11:50
  Speaker 1: have good reasons to electrify their vehicle fleet. They also
• 11:53
  Speaker 1: don't have quite the same um infrastructure legacy that we
• 11:59
  Speaker 1: have here, uh, which in some ways gets in the
• 12:02
  Speaker 1: way of electrification. Do costs need to keep coming down, Yes,
• 12:06
  Speaker 1: but historically they have been coming down, and there are
• 12:09
  Speaker 1: just good reasons to to to go for that, whether
• 12:12
  Speaker 1: it's it's um you know, it's combating pollution, whether it's
• 12:16
  Speaker 1: combating dependence on oil imports, which is a growing problem
• 12:19
  Speaker 1: for for China and India. So yeah, I am. I
• 12:23
  Speaker 1: am optimistic about the future of electric cars, whether Tesla
• 12:27
  Speaker 1: will dominate that and thereby justify at sixty billion dollar valuation.
• 12:32
  Speaker 1: I'm much more skeptical. The electric car scenario though, comes
• 12:37
  Speaker 1: with a big sort of input, which is someone's going
• 12:40
  Speaker 1: to have to produce that electricity in order to charge
• 12:43
  Speaker 1: all those batteries. Is that going to be renewable sources
• 12:47
  Speaker 1: or do you believe it's going to be a mix
• 12:48
  Speaker 1: of renewable as well as fossil fuel. I think if
• 12:52
  Speaker 1: you're talking today, it's absolutely a mix of both, and
• 12:55
  Speaker 1: in China, for example, a lot of it is coal.
• 12:58
  Speaker 1: And that's one of the criticism and level against electric
• 13:01
  Speaker 1: vehicles that were simply swapping one set of emissions for another.
• 13:05
  Speaker 1: I think what that misses is that over time, renewables
• 13:10
  Speaker 1: are becoming a much bigger part of the generation mix.
• 13:12
  Speaker 1: And if you think about a battery electric vehicle, it's
• 13:15
  Speaker 1: essentially a platform that allows you to use different forms
• 13:20
  Speaker 1: of energy inputs over time, whereas obviously an internal combustion
• 13:23
  Speaker 1: engine it burns oil. That's all it ever does in
• 13:27
  Speaker 1: that In that scenario, do you believe that the US
• 13:31
  Speaker 1: automobile makers like GM and Ford and even uh Fiart Chrysler,
• 13:36
  Speaker 1: do they have the technological wherewithal to take advantage of
• 13:39
  Speaker 1: this trend. I'm certain they have the technological know how,
• 13:47
  Speaker 1: and GM, you know, obviously is making pretty good progress
• 13:51
  Speaker 1: on it in a much less flashy way than say
• 13:54
  Speaker 1: Tesla UM. I think the bigger problem for those companies
• 13:59
  Speaker 1: is that UM they're they're having to deal with a
• 14:03
  Speaker 1: much more multi speed world. In yeah, they have to
• 14:07
  Speaker 1: do to at least two things. At the same time,
• 14:09
  Speaker 1: they've got to make profits selling the cars that currently
• 14:11
  Speaker 1: exist given the infrastructure, Plus they have to plan for
• 14:14
  Speaker 1: the future that you're describing. And also a third element,
• 14:17
  Speaker 1: which is that a lot of their growth is in
• 14:19
  Speaker 1: other countries that have a very different outlook from what
• 14:23
  Speaker 1: we have here in in the US, and so in
• 14:26
  Speaker 1: some ways they're having to spread their R and D
• 14:28
  Speaker 1: budgets in a in a much more complex way than
• 14:30
  Speaker 1: they would have had to do. You know, ten twenty
• 14:32
  Speaker 1: years ago, what did you take away from the conference
• 14:35
  Speaker 1: that you went to in Las Vegas having to do
• 14:37
  Speaker 1: with lithium. Of course one of the inputs for lithium
• 14:40
  Speaker 1: IAM batteries. I think the biggest takeaway was that this
• 14:44
  Speaker 1: industry is sort of at this moment where it's poised
• 14:47
  Speaker 1: between greed and fear. So uh, lithium stocks sold sold
• 14:53
  Speaker 1: off quite heavily earlier this year after a massive run
• 14:56
  Speaker 1: up in sen and I think the problem is is
• 15:01
  Speaker 1: this they do will see this future of greater electrification,
• 15:05
  Speaker 1: which will require much higher lithium production. Most people are
• 15:09
  Speaker 1: looking at the horizon of the early The problem is
• 15:15
  Speaker 1: they need to get financing to produce the lithium and
• 15:17
  Speaker 1: a lot of these companies are pretty small, and even
• 15:22
  Speaker 1: though the the investment needs put it like fifteen to
• 15:25
  Speaker 1: twenty billion, that's a lot of money for this sector.
• 15:27
  Speaker 1: So they need to persuade people to actually start investing
• 15:30
  Speaker 1: in these projects. Thank you very much for being with me.
• 15:34
  Speaker 1: Liam Denning always a pleasure, Energy mining and commodities columnist
• 15:38
  Speaker 1: for Bloomberg Opinion. Follow him on Twitter at Liam Denning.
• 15:42
  Speaker 1: Coming up Bloomberg Politics, Policy, power and Law. Thanks for listening.
• 15:47
  Speaker 1: I'm Pim Fox. This is Bloomberg Markets with Pim Fox
• 15:54
  Speaker 1: and Lisa Abramowitz on Bloomberg Radio. As Amazon explorers ways
• 16:00
  Speaker 1: to expand its delivery capacity, from leasing its own cargo
• 16:04
  Speaker 1: planes to experimenting with drones, it is also moving into
• 16:07
  Speaker 1: a new business to allow individuals to start their own
• 16:11
  Speaker 1: delivery business with as little as ten thousand dollars of
• 16:16
  Speaker 1: an investment. Here to tell us more about this is
• 16:18
  Speaker 1: Satisha Jendal. He is the president of s J Consulting Group.
• 16:23
  Speaker 1: And Satisha, you're an expert when it comes to moving
• 16:26
  Speaker 1: things from point A to point B. Just give people
• 16:29
  Speaker 1: a little bit of your background and what would you
• 16:31
  Speaker 1: do if you were running a logistics company? In Amazon
• 16:34
  Speaker 1: said they're getting into your business. Well do you know
• 16:38
  Speaker 1: do then it is so relevant here that what Amazon
• 16:42
  Speaker 1: is doing is in many ways duplicating with minor changes
• 16:48
  Speaker 1: the model that RPS, which is today known as FedEx
• 16:52
  Speaker 1: ground with generals fifteen sixteen billion and annual revenue, started
• 16:57
  Speaker 1: with that model, and that is to leverage it's the
• 17:00
  Speaker 1: entrepreneurial spirit of American people and give them an opportunity
• 17:05
  Speaker 1: to own a business and be part of a bigger enterprise.
• 17:09
  Speaker 1: And FedEx clown approach to this is what they called
• 17:13
  Speaker 1: i s P. Independent service provider. Amazon calls them, you know,
• 17:19
  Speaker 1: delivery service partners, and it has got the similar model
• 17:24
  Speaker 1: here where individual can set up a business, hires some
• 17:29
  Speaker 1: employees to drive for them least vehicles, so buy them.
• 17:33
  Speaker 1: And what Amazon is doing is no surprise to the
• 17:37
  Speaker 1: companies like UPS and fair X because Amazon is such
• 17:41
  Speaker 1: a huge shipper with seven million packages a day and
• 17:45
  Speaker 1: tim to put it in context, that is almost two
• 17:48
  Speaker 1: and a half times more then the volume DHL was
• 17:52
  Speaker 1: delivering in two thousand eight to night before it left
• 17:55
  Speaker 1: this country. So she's how people your expertise when it
• 18:00
  Speaker 1: comes to OURPS, which is as you describe this now
• 18:03
  Speaker 1: FedEx Ground, so they understand where you're coming from. You know,
• 18:06
  Speaker 1: I was part of the founding team. I helped with
• 18:09
  Speaker 1: that model, with the change that that went about. I've
• 18:11
  Speaker 1: worked directly for the CEO, Den Sullivan, who was a
• 18:15
  Speaker 1: great mentor for me. And the success of FedEx Ground
• 18:19
  Speaker 1: is to a large extent based upon being able to
• 18:22
  Speaker 1: leverage that model, which allows you to have a large
• 18:26
  Speaker 1: fleet of delivery vehicles and people without you having to
• 18:31
  Speaker 1: put up the Capitol's just kind of like the way
• 18:33
  Speaker 1: McDonald's and Subway and and other companies expand using a
• 18:38
  Speaker 1: franchise model. This is in some ways akin to that,
• 18:43
  Speaker 1: and I think it is a very good approach for
• 18:46
  Speaker 1: Amazon to have expanded delivery capability because it cannot rely
• 18:51
  Speaker 1: upon the other three big partners that it has to
• 18:55
  Speaker 1: meet its growing need. What role do you think the
• 18:58
  Speaker 1: brand of having Amazon on the side of those trucks
• 19:01
  Speaker 1: and on the uniforms of those making the deliveries will
• 19:03
  Speaker 1: have on the success of this business. It is huge
• 19:07
  Speaker 1: that brand is more recognized than the ups and FedEx
• 19:11
  Speaker 1: at this point, Steven. Though it's a younger company, startup
• 19:15
  Speaker 1: costs are estimated to be as low as ten thousand dollars.
• 19:19
  Speaker 1: Do you buy that? Yeah, because you don't need much
• 19:22
  Speaker 1: in startup cost, and you can lease vehicles, You can
• 19:25
  Speaker 1: lease the technology you're gonna need, which most people already
• 19:28
  Speaker 1: have is your smartphone. Every driver had its own personal one.
• 19:32
  Speaker 1: Just reward them for making use off it. And you
• 19:35
  Speaker 1: can start with a few drivers, and as you expand,
• 19:39
  Speaker 1: you have the resources and you can uh it just
• 19:43
  Speaker 1: exactly the way FedEx does it. Will this take business
• 19:46
  Speaker 1: away from FedEx and UPS? Now that's a little complicated question,
• 19:52
  Speaker 1: and I'll try and answer it for your audience. One
• 19:54
  Speaker 1: is the about of Amazon. Business today is being done
• 20:01
  Speaker 1: by USPS, UPS and FedEx in that order. In terms
• 20:05
  Speaker 1: of volume going forward, I expect the total volume between
• 20:12
  Speaker 1: the three to remain the same from Amazon. But because
• 20:15
  Speaker 1: Amazon is growing at all, that growth that they're bringing in,
• 20:21
  Speaker 1: I see that moving to these new options and approaches
• 20:25
  Speaker 1: that they're taking, so they will get the smaller percentage
• 20:28
  Speaker 1: of Amazon volume, but an absolute volume, it will not
• 20:32
  Speaker 1: be any less. Last point to you, the President has
• 20:38
  Speaker 1: talked about a potential reset of US postal service shipping
• 20:43
  Speaker 1: rates because of Amazon. What can you tell us about
• 20:47
  Speaker 1: that relationship? Just to put it into some context. You know,
• 20:50
  Speaker 1: it is a relationship that works for both Uh. Post
• 20:54
  Speaker 1: Office is better off as a result of having Amazon volume,
• 20:57
  Speaker 1: and Amazon is better off. But I would say that
• 21:00
  Speaker 1: the if this DSP program that Amazon has rolled out
• 21:05
  Speaker 1: probably was in the making already. But hearing that the
• 21:09
  Speaker 1: President is putting his weight behind this relationship, that could
• 21:14
  Speaker 1: potentially result in a slightly higher price the Post Office
• 21:18
  Speaker 1: may have to ask Amazon. Amazon is prepared to say,
• 21:21
  Speaker 1: you know, there's a certain limit to which I can absorb. Otherwise,
• 21:24
  Speaker 1: I've got my own network to create a competitive response.
• 21:29
  Speaker 1: So you know, yeah, you can relate, but I've got
• 21:32
  Speaker 1: other option. Thanks very much. Satis Jendle, He is the
• 21:36
  Speaker 1: president of s J Consulting, talking about Amazon and the
• 21:39
  Speaker 1: logistics business. Shares of Amazon are up nearly forty year
• 21:44
  Speaker 1: to day. You're listening to Bloomberg Markets with Tim Fox
• 21:49
  Speaker 1: and Lisa Bramoetz on Bloomberg Radio. Bloomberg Markets has brought
• 21:54
  Speaker 1: you by Commonwealth Financial Network, home to the industry's most
• 21:57
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• 22:10
  Speaker 1: Well chocolate specifically chocolate from Hershey and other food items
• 22:14
  Speaker 1: from Treehouse Foods. They are going to feel the effects
• 22:18
  Speaker 1: of counter tariffs that were put in place by Canada.
• 22:21
  Speaker 1: They're just some of the companies that are going to
• 22:24
  Speaker 1: be affected by this move. Here to tell us more
• 22:26
  Speaker 1: about what's going to happen in Canada as a result
• 22:29
  Speaker 1: of these countermeasures is Carl Schramada. He is the chief
• 22:32
  Speaker 1: strategist for Cambridge Global Payments, joining us from Toronto. Carl,
• 22:37
  Speaker 1: thank you very much for being with us. Maybe you
• 22:40
  Speaker 1: could just outline exactly what you believe the effects are
• 22:43
  Speaker 1: going to be on the Canadian economy and then we
• 22:46
  Speaker 1: can kind of get into the details. Sure, so you know,
• 22:50
  Speaker 1: certainly the escalation intentions and the direct costs of the
• 22:54
  Speaker 1: Canadian economy are likely to be fairly substantial. Here. Um,
• 22:58
  Speaker 1: there's been a real shift and sentiment among Canadian businesses
• 23:02
  Speaker 1: in recent months, a lot of concern about whether the
• 23:06
  Speaker 1: US markets will remain as robust as they have been,
• 23:09
  Speaker 1: and as a result, we're seeing a toll taken on
• 23:12
  Speaker 1: business investment. However, you know, when we look at the
• 23:15
  Speaker 1: Grand scheme of things. This still remains effectively a rounding
• 23:19
  Speaker 1: error in the in the grand scheme of trade between
• 23:22
  Speaker 1: Canada and the United States. If NAFTA is not renegotiated successfully,
• 23:28
  Speaker 1: will that still be a rounding error? No? Uh no,
• 23:34
  Speaker 1: that would certainly be sort of the nuclear option with
• 23:37
  Speaker 1: respect to trade between the two countries. Um. That would
• 23:40
  Speaker 1: reset US most likely to w t O rules, which
• 23:44
  Speaker 1: would imply a rise in tariffs and a dramatic slowdown
• 23:48
  Speaker 1: in trade as well as investment flows into Canada, and
• 23:52
  Speaker 1: Canada does remain heavily dependent on investment flows from the
• 23:56
  Speaker 1: international community, so you know, this is something that that
• 24:00
  Speaker 1: negotiators on both sides I believe are looking to avoid
• 24:03
  Speaker 1: at this point. Would this be a short term or
• 24:06
  Speaker 1: a long term effect? If we see NAP to fall apart,
• 24:12
  Speaker 1: we have a short term knee jerk reaction that would happen,
• 24:16
  Speaker 1: and that would uh you know, likely push Canada very
• 24:20
  Speaker 1: close to recession. Um. However, in the longer run you
• 24:23
  Speaker 1: would see things equalize a bit. So the first thing
• 24:26
  Speaker 1: and probably most important thing that happens with this type
• 24:29
  Speaker 1: of trade negotiation is a effects related effect. If we
• 24:33
  Speaker 1: see depreciation and the Canadian dollar. That puts Canada on
• 24:37
  Speaker 1: a more competitive footing and tends to uh outweigh some
• 24:40
  Speaker 1: of the impact of higher terraffs. And so you know,
• 24:44
  Speaker 1: in the long run, which you could see here is
• 24:46
  Speaker 1: a bit of a snap back in the in the
• 24:48
  Speaker 1: Canadian economy. UM. But of course that initial toll would
• 24:52
  Speaker 1: be quite devastating, Carl. Would we see an increase in
• 24:55
  Speaker 1: inflation in Canada in as much as the Canadian government
• 25:00
  Speaker 1: is putting tariff on steel products, ten percent on aluminum
• 25:04
  Speaker 1: and consumer goods uh so far so, as far as
• 25:09
  Speaker 1: our models suggests, we're looking at a point one percent
• 25:13
  Speaker 1: increase in Canada's official inflation rate. UM. The reason being
• 25:17
  Speaker 1: that this is you know, extremely small. Um. If you
• 25:19
  Speaker 1: look at the overall amount that's involved, it's about twelve
• 25:23
  Speaker 1: point six billion US dollars UM. So you know, when
• 25:26
  Speaker 1: you look at that against overall trade, that is not
• 25:30
  Speaker 1: enough to you know, really shake the household budget in Canada. UM.
• 25:35
  Speaker 1: Of course, if Trump does move forward with auto tariffs
• 25:39
  Speaker 1: and things like that, that would change that picture and uh,
• 25:42
  Speaker 1: and you would have a resulting impact on inflation. Now,
• 25:45
  Speaker 1: all of that said, uh, you know, that's the tariff impact,
• 25:48
  Speaker 1: but the fact is that the Canadian dollar has fallen
• 25:51
  Speaker 1: roughly five percent on trade related fear, and that also
• 25:55
  Speaker 1: has a follow through effect on inflation in Canada. And
• 25:59
  Speaker 1: if I devely crimp's household budgets, what is the current
• 26:03
  Speaker 1: thinking in Canada about the potential for automobile tariffs. The
• 26:11
  Speaker 1: current thinking, I think is that it's mutually assured destruction. Um.
• 26:15
  Speaker 1: The numbers really suggest that the United States runs a
• 26:19
  Speaker 1: small surplus with Canada in autos and auto parts um,
• 26:23
  Speaker 1: and that that Trump will run into, you know, very
• 26:26
  Speaker 1: stiff domestic opposition if he does move forward with with
• 26:30
  Speaker 1: applying tariffs on the sector. Um. And of course you know,
• 26:33
  Speaker 1: if he does apply it to Canada, he also has
• 26:36
  Speaker 1: to apply it to the EU in some sense, and that,
• 26:40
  Speaker 1: you know, brings US really into a full scale trade
• 26:42
  Speaker 1: trade war against uh, you know, parties that Trump may
• 26:46
  Speaker 1: not want to antagonize to that degree. UM. But I think,
• 26:50
  Speaker 1: you know, the interesting thing here is that if if
• 26:52
  Speaker 1: you look at how the EU and Canada are responding
• 26:56
  Speaker 1: so far, it is very much a political political game
• 27:00
  Speaker 1: that is a foot here. Um. You know, I think
• 27:03
  Speaker 1: the Canadian negotiators and the EU negotiators understand that trade
• 27:07
  Speaker 1: imbalances are fund are fundamentally financial imbalances. So what they're
• 27:12
  Speaker 1: doing is targeting Trump allies, congressional districts that that support Trump,
• 27:19
  Speaker 1: and and particularly large businesses in those congressional districts. And
• 27:23
  Speaker 1: so you know, if you look at one sector that
• 27:26
  Speaker 1: that commands an immense amount of respect in the American
• 27:29
  Speaker 1: political establishment, that's the auto sector. So I would not
• 27:33
  Speaker 1: suspect that that, you know, that things go too too
• 27:36
  Speaker 1: far in that in that area. Carl Schamana, thank you
• 27:39
  Speaker 1: very much, Chief strategist Cambridge Global Payments, joining us from Toronto,
• 27:46
  Speaker 1: speaking about Canada's economy and retaliatory tariffs against the United States.
• 27:52
  Speaker 1: You're listening to Bloomberg Markets. Thanks for listening to the
• 27:57
  Speaker 1: Bloomberg P and L podcast. You can subscut, gribe and
• 28:00
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 28:04
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• 28:11
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