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Ford's EV Credit, Bitcoin, Powell, and Equinix (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
0:17
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
0:21
Speaker 1: Let's bring in Data Peterson. She's a chief economist this
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Speaker 1: conference board. Dana, thanks so much for joining us here.
0:25
Speaker 1: Talk to us about the Leading Economic Index. What it,
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Speaker 1: what you guys reported today, what it tells you, and
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Speaker 1: what should we take away from all this?
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Speaker 3: Absolutely so, the Leading Economic indicator fell again for I
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Speaker 3: think the fourteenth consecutive months, and the weakness was definitely
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Speaker 3: in expectations from the ism in terms of manufacturing and
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Speaker 3: also from consumers. And then the yield curve continued to
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Speaker 3: be negative, and also the leading credit indicator was negative.
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Speaker 3: So that's all telling us that there's still some weakness
0:58
Speaker 3: out there. There's still expectations that maybe we'll go into
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Speaker 3: a recession. Certainly it's pointing to recession starting probably about now.
1:06
Speaker 3: I know we keep forecasting it, but the key thing
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Speaker 3: is that there's been strength in the labor market that's
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Speaker 3: definitely forestalling what we think is the inevitable.
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Speaker 4: It's interesting because even though it's a leading economic index,
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Speaker 4: a lot of investors look at it more as lagging,
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Speaker 4: just because of when you're looking at the economy, and
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Speaker 4: since investors are looking you know, six months twelve months out,
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Speaker 4: do you think that's why we're seeing the stock market
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Speaker 4: more supported. Do you think investors think the worst of
1:31
Speaker 4: the pain is already passed?
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Speaker 3: Well, I think investors are looking at data like labor markets,
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Speaker 3: and indeed, in the leading economic indicator and even in
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Speaker 3: our current economic indicator, the labor market data are holding up. Why.
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Speaker 3: It's because of labor shortages and so many businesses instead
1:49
Speaker 3: of letting people go, they're holding on to their workers.
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Speaker 3: And then you also still have a number of sectors
1:54
Speaker 3: that are still trying to catch up from losses during
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Speaker 3: the pandemic, especially services that are in high demand. And
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Speaker 3: so if you're looking at that, you know, I understand
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Speaker 3: why investors might look at our measure and say, well,
2:05
Speaker 3: what's going on here? Right?
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Speaker 1: So talk to us about the housing market data that
2:10
Speaker 1: continues to kind of befuddel me in the midst of
2:12
Speaker 1: rising interest rates, still strong. How do you think about
2:16
Speaker 1: the housing market right here?
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Speaker 3: Well, I think you're coming off of very low levels.
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Speaker 3: When you look at most of the housing market data,
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Speaker 3: it really slowed dramatically last year, so and it seems
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Speaker 3: like we kind of reached the bottom. So you're still
2:29
Speaker 3: you're in a hole and you're just trying to climb
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Speaker 3: out of that hole. And so the thing is that
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Speaker 3: we're probably not going to see a real resurgence in
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Speaker 3: housing activity until next year, when we think the Fed
2:39
Speaker 3: will begin cutting interest rates.
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Speaker 4: So if you're expecting more of that weakness in the
2:44
Speaker 4: economy to start around, Now, where is it being driven by?
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Speaker 4: Is it the consumer, which obviously you know propelling GDP
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Speaker 4: by more than two thirds of when you were looking
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Speaker 4: at economic growth.
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Speaker 3: Well, it's got to come from several places already. Like
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Speaker 3: I said, the housing market, it has collapsed, and we
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Speaker 3: don't we think it's just going to be middling, so
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Speaker 3: it's not going to be a contributor. But businesses have
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Speaker 3: been pulling back certainly on spending on equipment and also
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Speaker 3: structures because the cost of capital is rising for many
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Speaker 3: of them, and you definitely need consumers to spend less.
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Speaker 3: So we have seen a little bit of moderation in
3:24
Speaker 3: terms of spending on big ticket items that you have
3:27
Speaker 3: to finance. The consumers are still spending a lot of
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Speaker 3: money on services, especially travel and restaurants, things they couldn't
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Speaker 3: really spend on during the pandemic. So the key thing
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Speaker 3: is when that excess income that consumers have, you know,
3:40
Speaker 3: the excess savings go away. We think they're going to
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Speaker 3: run out of steam in the second half of this year.
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Speaker 3: And also we think consumers are going to become a
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Speaker 3: little bit more concerned about job prospects and that might
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Speaker 3: cause them to pull back on some of the spending
3:53
Speaker 3: as well.
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Speaker 4: A follow up I have to that is when it
3:56
Speaker 4: comes to the repayment for the student debt that was
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Speaker 4: delayed off and going through forbearance during the pandemic, that's
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Speaker 4: supposed to presume in October. So when you're thinking about
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Speaker 4: the consumer and those types of payments that are going
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Speaker 4: to start up again, is that also going into those
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Speaker 4: calculations of a pullback there.
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Speaker 3: Absolutely we have folded that into our forecast for the
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Speaker 3: last the second half of this year. And then also
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Speaker 3: let's not forget the debt ceiling deal. While that's not
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Speaker 3: really going to affect the fiscal year twenty twenty three,
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Speaker 3: it does affect fiscal year twenty twenty four, and that
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Speaker 3: starts in October as well.
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Speaker 5: Dan, to talk to.
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Speaker 1: Us about your view of the labor market here still,
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Speaker 1: you know, very strong by historical measures here, and I
4:38
Speaker 1: know the Fed is talking about they expect the unemployment
4:41
Speaker 1: rate to go up and you know, maybe I have
4:43
Speaker 1: a fore handle here in a not too distant future.
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Speaker 5: What's your view at the conference.
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Speaker 3: Ward, Yes, we think also that we're probably going to
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Speaker 3: have a four handle, that the unemployment rate may ultimately
4:53
Speaker 3: rise by one percentage point to four and a half percent,
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Speaker 3: But that's that's not going to happen probably until early
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Speaker 3: next year, because the unemployment rate really lags what goes
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Speaker 3: on with GDP. And so certainly if the Fed continues
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Speaker 3: to hike interest rates, which is strongly signaling a chair
5:13
Speaker 3: Powell signaled that certainly to Congress very recently, then that's
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Speaker 3: also going the weigh on the economy and consequently the
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Speaker 3: labor market.
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Speaker 4: What industries do you think are most vulnerable to layoffs
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Speaker 4: right now?
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Speaker 3: So those pandemic darlings, those industries now are very vulnerable,
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Speaker 3: so tech, finance, residential construction, and some of the sectors that.
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Speaker 4: We've continued to see those cost cutting efforts, those are
5:40
Speaker 4: going to still be the ones that we'll.
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Speaker 3: See absolutely because there's not as much demand for their
5:45
Speaker 3: products and services.
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Speaker 1: All right, Dan, thank you so much for joining us.
5:49
Speaker 1: I always appreciate getting some thoughts from you. Dana Peterson,
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Speaker 1: Chief Economists at the Conference Board. The Leading Economic Indicator
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Speaker 1: data out today kind of showing some continuedness, and I
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Speaker 1: think that Dantas had fourteen months in a row with
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Speaker 1: a negative number, so it's very interesting to keep out
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Speaker 1: an eye on that.
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Speaker 5: Again.
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Speaker 1: It came in it negative zero point seven percent on
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Speaker 1: the Leading Index versus negative zero point six percent last month.
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Speaker 6: You're listening to the Team Ken's are Live program Bloomberg
6:18
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
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6:24
Speaker 6: on demand wherever you get your podcasts.
6:30
Speaker 1: Let's pivot here to the Big Take story of the
6:33
Speaker 1: day on the Bloomberg terminal. This is we love the
6:35
Speaker 1: Big Take stories. They are so well researched, so well reported.
6:38
Speaker 4: Away the best.
6:39
Speaker 5: Yeah, deep, good team efforts.
6:41
Speaker 1: They really dive deep here and today is a good
6:43
Speaker 1: one talking about the electric vehicle market in Ford Motor
6:46
Speaker 1: Company in particular, they're racing as is GM and stillant
6:50
Speaker 1: Is to kind of really take the lead here in
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Speaker 1: this ev transformation. Ford gets nine point two billion dollars
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Speaker 1: from the US government for the effort. Oxshot Rathi one
7:01
Speaker 1: of the reporters on the story. He's a senior climate
7:03
Speaker 1: reporter with Bloomberg News. He joins us here. Okshot talk
7:06
Speaker 1: to us about Ford and the support it is receiving
7:10
Speaker 1: from the government authorities to kind of make this transformation
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Speaker 1: to electric vehicles.
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Speaker 7: Right, every car maker has to make this transformation and
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Speaker 7: it's not going to be cheap. It has to be made,
7:21
Speaker 7: but it's not going to be cheap. And that's where
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Speaker 7: the US government is coming in. Ford last year said
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Speaker 7: it's going to spend us but just fifty billion dollars
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Speaker 7: over the next four years towards electrification strategy. And this
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Speaker 7: nine point two billion dollar loan, it's a conditional loan.
7:37
Speaker 7: The conditions are very light and they'll meet them, no doubt,
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Speaker 7: but that will go towards building three battery factories. And
7:45
Speaker 7: that is a lot of battery factories, but still not enough.
7:48
Speaker 7: Ford has an ambition to electrify its entire fleet, but
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Speaker 7: it's starting out with increasing its number of electric vehicles
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Speaker 7: made from one hundred and thirty thousand last year to
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Speaker 7: two million by twenty twenty six. So that's quite a
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Speaker 7: jump and they need all the help they can and
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Speaker 7: Joe Biden's Climate Plan is allowing the government to be
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Speaker 7: able to give these billions out right now to be
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Speaker 7: able to encourage these companies down the transition.
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Speaker 4: And what you were mentioning for. Did have an investor
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Speaker 4: event last month actually, where they were focusing on this
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Speaker 4: fifty billion dollar plan for EV models and the availability
8:25
Speaker 4: in the cost of these crucial battery metals, and when
8:28
Speaker 4: you were thinking about nickel and cobalt, they've been key
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Speaker 4: concerns for years among EV makers trying to build out
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Speaker 4: their electric lineup. So what do you think are the
8:37
Speaker 4: main hurdles at play?
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Speaker 7: So the main order from a Ford perspective actually is profitability.
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Speaker 7: Ford is going to lose three billion dollars this year
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Speaker 7: on its TV business, and it says it's going to
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Speaker 7: turn the losses into profit by twenty twenty six. Of course,
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Speaker 7: that is just from a company's perspective, but you're right,
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Speaker 7: metals are going to be another constraint. And so this program,
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Speaker 7: the US government program, it's called the Loan Program's Office,
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Speaker 7: which gave this nine point two billion dollar loan for
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Speaker 7: a battery manufacturing facility, is also giving out billions of
9:12
Speaker 7: dollars in battery recycling facility. And so the goal would
9:16
Speaker 7: there be to take the batteries that are already in
9:20
Speaker 7: the United States, recycle their metals, and reuse them. So
9:23
Speaker 7: that's one way in which you can deal with the
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Speaker 7: metal crunch that is coming. But another is that you're
9:29
Speaker 7: going to have to mine metals. And now is America
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Speaker 7: ready to do it domestically? That remains unclear. It's very
9:35
Speaker 7: much a live topic in the US Congress.
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Speaker 1: So actually, I just gave us a sense of this
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Speaker 1: nine point two billion dollars, the two or three plants
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Speaker 1: they're thinking about here. Where is that in total the
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Speaker 1: total need that they will have.
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Speaker 5: For these types of facilities.
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Speaker 1: Is this just kind of a good first step or
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Speaker 1: is this kind of a giant leap for fulfilling their
9:55
Speaker 1: ultimate needs.
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Speaker 7: I guess it's actually both, which is to say, they're
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Speaker 7: going from zero battery facilities to three. So it's a giantly,
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Speaker 7: but it's the first step because if you're going to
10:05
Speaker 7: have to electrify your entire fleet, you're going to have
10:08
Speaker 7: to build many more battery factories. And that's probably why
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Speaker 7: this loan makes sense. If it's a giant leap, companies
10:17
Speaker 7: are typically conservative in taking those and getting a bit
10:21
Speaker 7: of government support, which would be in terms of a
10:23
Speaker 7: loan with conditions that are easier than what you would
10:27
Speaker 7: get on Wall Street, can make the difference between making
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Speaker 7: a decision or not, and so that's going to help forward.
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Speaker 7: But you're absolutely right, there is a long way to
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Speaker 7: go for to transition to a fully electric vehicle company,
10:41
Speaker 7: which there is already one giant one in America called Tesla.
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Speaker 4: I was just taking a look at Ford stock. Let's
10:47
Speaker 4: stick your simple afforts up about twenty two percent this
10:50
Speaker 4: year after that investor day last month, do you think
10:54
Speaker 4: they were successfully able to persuade investors on the merits
10:57
Speaker 4: of this plan when you are looking at this sixteen
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Speaker 4: four increase an EV production in the span of just
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Speaker 4: a few years.
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Speaker 7: Well, Ford is trying to convince the investors as hard
11:07
Speaker 7: as it can. So there was a long conversation internal
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Speaker 7: I'm sure even longer to try and see whether it
11:14
Speaker 7: is worth splitting the company into its TV business and
11:17
Speaker 7: into and its separate traditional engine business. But Ford came
11:21
Speaker 7: to a conclusion that that wouldn't be right because there
11:24
Speaker 7: are certain specializations between the two companies on design et cetera.
11:29
Speaker 7: On manufacturing also some components that are just too good
11:34
Speaker 7: to give up. You would have to replicate, you would
11:36
Speaker 7: have to actually increase costs. And so they decided in
11:40
Speaker 7: the end to stick with one company doing two things.
11:44
Speaker 7: But they are going to separate out the business in
11:46
Speaker 7: reporting terms, and that's going to give investors an insight
11:50
Speaker 7: into whether this transition is going as for things it
11:53
Speaker 7: can go with this current business structure. And you know,
11:59
Speaker 7: given that the stock prices up, clearly businesses clearly investors
12:03
Speaker 7: are in a position thinking that Ford's going in the
12:07
Speaker 7: right direction. But it's going to be analyzing as things go.
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Speaker 7: There are clearly plans and Ford is starting to execute them.
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Speaker 7: Now how well it executes them is the caution.
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Speaker 1: Ok, shot, how about the Fords competitors in the US
12:22
Speaker 1: Stillantis and GM. Is the US government prepared to support
12:26
Speaker 1: those as well.
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Speaker 7: So the US goverment has already funded a GM battery plant.
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Speaker 7: So GM got two point five billion dollars last year
12:37
Speaker 7: in December twenty twenty two.
12:39
Speaker 8: And.
12:41
Speaker 7: STILLANTIS is actually getting money from the Canadian government. Okay,
12:46
Speaker 7: So in Canada, Volkswagen got ten billion dollars and STILLANTIS
12:51
Speaker 7: is in conversation to get something similar for its battery factories.
12:56
Speaker 7: But yes, it's one of those industries where profitability is hard,
13:00
Speaker 7: upfront investments high, and they tend to be national champions,
13:05
Speaker 7: so to speak, and governments want to protect them both
13:08
Speaker 7: for having the company domestically but also from the perspective
13:13
Speaker 7: of jobs that they give to many many different states
13:16
Speaker 7: that they.
13:17
Speaker 1: All right, Okshott, great reporting for you and your team.
13:20
Speaker 1: Appreciate that. Oxshot Rothy a senior reporter for climate for
13:23
Speaker 1: Bloomberg News. He and his team put out this Big
13:25
Speaker 1: Take story. Always good stories. You can find those stories
13:28
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13:32
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13:53
Speaker 1: Just meant Paul Sweeney here the Bloomberg Interactive Workers Studio.
13:56
Speaker 5: We're going to Mike McLoone.
13:57
Speaker 1: He's a senior macro strategist for Bloomberg Intelligence.
14:00
Speaker 5: Just should we tell Mike what we.
14:01
Speaker 4: Just yes, nicknamed him Miami Mike, Miami Mike.
14:06
Speaker 1: That's where we're going with Mike. That's that's You can
14:08
Speaker 1: thank Katie Greifeld for that. But you are forever known
14:10
Speaker 1: up here in the Bloomberg radio circles as Miami Mike.
14:13
Speaker 5: How do you like that?
14:14
Speaker 9: I'll take it.
14:15
Speaker 10: I actually last night got to shake of Mayor Mayor
14:18
Speaker 10: Suarez's hand for the fourth time last night, So I
14:21
Speaker 10: feel like I'm entrenched in the city.
14:22
Speaker 5: You are.
14:23
Speaker 1: You are our guy down there, and that's great. Hey, Mike,
14:26
Speaker 1: you know what we've been hearing about a lot over
14:28
Speaker 1: the last few days is that this equity market is
14:32
Speaker 1: over bought.
14:33
Speaker 5: A do you buy that?
14:34
Speaker 1: And b If so, what do you look at that
14:37
Speaker 1: kind of give you that sense.
14:39
Speaker 10: Well, I really appreciated your conversation about Gene and Martin
14:42
Speaker 10: Adams earlier. She has been spot on. But right now
14:45
Speaker 10: we have a little dichotomy, which we're supposed to with
14:47
Speaker 10: pure research professionals with on a Wong. On a Wong
14:51
Speaker 10: is our our chief economist. Now, she points out the
14:54
Speaker 10: term she's used for second half is ugly for the
14:57
Speaker 10: US economic It's trajectory.
15:00
Speaker 9: Now.
15:00
Speaker 10: She started saying this a year ago, and she said
15:02
Speaker 10: it would start in basically three Q she moved a
15:05
Speaker 10: little forward the banking crisis. So I'm going with that,
15:08
Speaker 10: and I look at it for first, you look at
15:10
Speaker 10: it a simple risk asset manager or a trader. Markets
15:13
Speaker 10: have bounced in this opium for a soft landing in
15:17
Speaker 10: the FED eventually ease. So the risk is it all
15:20
Speaker 10: tilts back towards a recession. The FED not easy in
15:23
Speaker 10: what you're seeing testifying right now from Erman Pow. He
15:26
Speaker 10: is banging hard and he has no incentive all to
15:28
Speaker 10: let the markets know they're going to provide more liquidity.
15:30
Speaker 9: So the lessons of liquidity and contraction.
15:33
Speaker 10: Money supplight minus five percent you mentioned LII, the annual
15:36
Speaker 10: measure is down has dropped the most in about thirty years.
15:39
Speaker 10: It's down almost eight percent. To me, that all tilts
15:41
Speaker 10: towards a pretty ugly second half, and I think that's
15:46
Speaker 10: the risk. Also, there was one little thing metric going
15:48
Speaker 10: with just last Friday and Tuesday, the Nasdaq reached about
15:52
Speaker 10: twenty four percent above its two hundred day movement average.
15:55
Speaker 10: It has not stayed sustained above that level, that high
15:58
Speaker 10: lofty level the Internet bubble that ended in two thousand.
16:03
Speaker 4: Now when it comes to what's happening with the bitcoin space,
16:07
Speaker 4: because I know you cover all things with this, it
16:10
Speaker 4: actually hit its highest soele level since April yesterday after
16:14
Speaker 4: obviously when you're thinking the correlation with this ETF type
16:18
Speaker 4: optimism that Katie Greyfield was just here talking to us
16:21
Speaker 4: about that what are you seeing there with bitcoin? And
16:24
Speaker 4: because the last time you were here, we were talking
16:26
Speaker 4: about how that thirty thousand sort of threshold level was
16:29
Speaker 4: the psychologically key level that investors were watching exactly.
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Speaker 10: I stick with that, Jess, and I just sent an
16:36
Speaker 10: editorial I'm going to point that out for publishing tomorrow,
16:39
Speaker 10: that there's so much enthusiasm about this thirty thousand level.
16:43
Speaker 10: I think the risk is similar to the stock market.
16:45
Speaker 10: If we get a little bit of rollover the fastest
16:48
Speaker 10: horse in the race that went up the most this year,
16:50
Speaker 10: again it bounds, risks go back, going back down. Now,
16:53
Speaker 10: this ETF from Blackrock, Eric Belchunus points out it might
16:58
Speaker 10: not get approved until next We don't know that for sure,
17:01
Speaker 10: but there's so much enthusiasm here at this level. Here,
17:04
Speaker 10: I look at it as the macro is still unfavorable.
17:07
Speaker 10: Bitcoin phases its first recession. It's one of the riskiest
17:10
Speaker 10: assets in the business. It's still the least risky crypto,
17:13
Speaker 10: and it's at this key threshold. And my senses from
17:16
Speaker 10: digging into all the crypto people as they're all a
17:18
Speaker 10: little too giddy. I sense this around sixty thousand when
17:21
Speaker 10: Mayor Suarez took his salary in bitcoin.
17:23
Speaker 9: So I'm concerned at.
17:25
Speaker 10: These levels that we're gonna have here's the bottom line.
17:27
Speaker 10: I'm concerned we're gonna have that ebbing tied in the
17:30
Speaker 10: stock market. Hopefully Gino will be right, but I'm sensing
17:33
Speaker 10: more at least get a correction, and then Bitcoin will
17:36
Speaker 10: drop with that. So what we need eventually is bitcoin
17:38
Speaker 10: to either I'll perform the Nasdaq. But the problem is
17:40
Speaker 10: it's been the same level with the NASTEK since twenty seventeen.
17:42
Speaker 9: It's about two to one right now versus a.
17:44
Speaker 10: Nasdaq and it or we needed to transition in a
17:49
Speaker 10: recession towards trading more like treasury bonds or gold.
17:52
Speaker 9: And it's just not there yet. Maybe it's starting, but
17:54
Speaker 9: I don't see it yet.
17:55
Speaker 5: Mike.
17:56
Speaker 1: If we're having a top second half economically in the
18:00
Speaker 1: commodities space, are you looking at is this is my
18:02
Speaker 1: time to go out and b like pork bellies?
18:04
Speaker 5: What should I be thinking about?
18:05
Speaker 9: Yeah?
18:06
Speaker 10: Gold, I the only think I think goes backed up,
18:08
Speaker 10: it's rallied, but it's still a five percent in the
18:10
Speaker 10: I think gold's going to be the best performing commodity,
18:13
Speaker 10: probably one of the best reporting commodities as we tilt
18:16
Speaker 10: this recession specifically get to a serious recession. But the
18:19
Speaker 10: problem I see for most commodities it's still a bear market,
18:22
Speaker 10: and typically to bottom a bear market need a long
18:25
Speaker 10: lag to significant amount of federal reserve easy and we're
18:29
Speaker 10: still tightening, and that to me is the key thing.
18:31
Speaker 10: So just today, right now cordill is down another four percent,
18:34
Speaker 10: set sixty nine dollars a bill. I'm still looking afford
18:36
Speaker 10: to head towards fifty dollars a barrow, and there's precedent
18:39
Speaker 10: for that. It's done it since twenty fourteen to keep
18:42
Speaker 10: its actually since the financial crisis in two thousand and
18:44
Speaker 10: this year already natural gas has done the equivalent.
18:47
Speaker 9: So I look at.
18:48
Speaker 10: Commodities, there are still bear marketing. The bottom line is
18:50
Speaker 10: you have to ask yourself what ends that. All the
18:52
Speaker 10: data from China is disappointing, and the FED and most
18:57
Speaker 10: central banks are still tightening. We just saw the Bank
18:59
Speaker 10: of England just did a surprise fifty based point hike.
19:03
Speaker 10: That's not a good environment for commodities.
19:05
Speaker 9: Mike.
19:05
Speaker 4: When it comes to the gold to copper ratio, last
19:09
Speaker 4: time you were here, it was moving lower. Now it's
19:11
Speaker 4: actually moving higher this month. What do you think this
19:13
Speaker 4: is telling us in relation to when we're especially when
19:16
Speaker 4: it comes to copper and what that means for the
19:19
Speaker 4: trajectory of the global economy.
19:21
Speaker 10: Yes, so the gold outpracing copper is what I fully expect,
19:25
Speaker 10: and that's normally what happens in a recession, and when
19:29
Speaker 10: the FED starts it has to ease for that. So
19:32
Speaker 10: I think that's going to really break out and potentially
19:34
Speaker 10: make new highs. That's what it did during we had
19:37
Speaker 10: that big pump and liquidity, right they had twenty twenty one,
19:40
Speaker 10: And this is things like the bond manager Jeff Gunnle
19:43
Speaker 10: like watches. So gold to copper, I think is going
19:45
Speaker 10: to break out higher. And also remember the enduring propensity
19:49
Speaker 10: over time is for gold to beat most commodities. Certainly
19:52
Speaker 10: when it comes from having to hold that asset, it's
19:54
Speaker 10: the easiest, the cheapest to store. And so I'm quite
19:58
Speaker 10: bullish gold versus most combintic to my particularly crudel, particularly copper.
20:02
Speaker 9: Copper and crudel the most industrial sensitive.
20:04
Speaker 10: And if Onna Wong's right and I leading indicators are right,
20:08
Speaker 10: and the yield curves right, the inverted deal curve, which
20:11
Speaker 10: I think it will be, then we should expect copper
20:14
Speaker 10: to underperform gold and go to outperform in the next
20:17
Speaker 10: year or so.
20:18
Speaker 4: It's interesting because that indicator actually rose with US stocks
20:21
Speaker 4: after the lows in two thousand and nine, twenty eleven,
20:23
Speaker 4: twenty eighteen, and in twenty twenty. So does that actually
20:26
Speaker 4: point to brighter times ahead?
20:29
Speaker 10: Well, it's it's it will point to brighter times ahead
20:33
Speaker 10: once copper starts outperforming goal.
20:35
Speaker 9: So this case right now points to recession.
20:39
Speaker 10: It fits in with Anna's model, it fits in with
20:41
Speaker 10: the UH, the inverted Yeeld curve, and with plunging commodities.
20:47
Speaker 10: So I fully expect that we need some kind of shock.
20:50
Speaker 10: We need to not have this recession and the FED
20:53
Speaker 10: a year from now to sa oh, we're still at
20:54
Speaker 10: the same rates because economy is doing great. That will
20:58
Speaker 10: repress gold. Remember gold is a good competition for gold
21:00
Speaker 10: is high rates. You're getting five percent in a T bill,
21:02
Speaker 10: that's great, and the stock market out performing the rest
21:05
Speaker 10: of the world, the US stock market. If that starts
21:07
Speaker 10: tilting lower, gold's gonna beat most asset. So I see
21:11
Speaker 10: it right now is look at copper on the year
21:14
Speaker 10: it was, it's basically up about two percent.
21:16
Speaker 9: But here's a key thing.
21:16
Speaker 10: The way to look at copper the dollar price of copper,
21:19
Speaker 10: if you overlay that with the S and P five hundred,
21:21
Speaker 10: just take the S and P five hundred and divide
21:23
Speaker 10: it by a thousand. They've been almost the exact same
21:26
Speaker 10: for about five years. So right now the dollar price
21:29
Speaker 10: of copper implies that S and P five hundred should
21:32
Speaker 10: be about three thousand, nine hundred and it's currently about
21:35
Speaker 10: four thousand, four hundred. The question we'll see within the
21:39
Speaker 10: next few months if that ration has that relationship and
21:42
Speaker 10: broken down, or is copper being the leading indicator and
21:44
Speaker 10: showing us what leading indicators are telling us that they
21:47
Speaker 10: were heading towards a pretty bad recession, which means the
21:50
Speaker 10: stock market's gonna have a problem.
21:51
Speaker 1: All right, I got your gold call. You've been very
21:53
Speaker 1: consistent on that, Mike. How about the poor man's gold silver?
21:58
Speaker 9: Bilver has been a really good performing this year.
22:00
Speaker 10: The problem with silver is it's no longer a monetary ascid.
22:04
Speaker 10: It's much more an industrial metal. It's been replaced by gold,
22:08
Speaker 10: and Sir Isaac Newton started that in the seventeenth century
22:11
Speaker 10: when he was head of the US I'm sorry the
22:15
Speaker 10: British mint. So I think what we've seen this year
22:23
Speaker 10: so far as a bounce in silver, just like you've
22:25
Speaker 10: seen in some of the other commodities. I'm sorry, like
22:30
Speaker 10: it's the stock market, but I think silver is going
22:31
Speaker 10: to more succumb to the recession. The industrial metals like
22:34
Speaker 10: copper trade lower and gold outperform, but overall the price
22:39
Speaker 10: of gold versus copper is really I'm sorry versus silver.
22:43
Speaker 10: The gold silver ratio has appreciated over time. I expect
22:46
Speaker 10: that to kick in and to rally go to outperform silver,
22:49
Speaker 10: particularly if we get to a New York's recession.
22:52
Speaker 1: All right, Mike, thanks as always for joining us. Always
22:54
Speaker 1: appreciate getting your input there. Mike yep aka Miami Mike
22:59
Speaker 1: Senior Mac was strategist for Bloomberg Intelligence. We can talk
23:01
Speaker 1: to him about anything on a commodity space.
23:06
Speaker 6: You're listening to the team Ken's are Live program Bloomberg
23:10
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
23:13
Speaker 6: the iHeartRadio app and the Bloomberg Business app, or listen
23:16
Speaker 6: on demand wherever you get your podcasts.
23:20
Speaker 1: I just met in Paul Sween here in a Bloomberg
23:22
Speaker 1: INTERACTI broker studio. It just here's a company, Jess, Equinix.
23:27
Speaker 1: It's like a June sized company and I don't know
23:30
Speaker 1: anything about it.
23:31
Speaker 4: Data center provider.
23:33
Speaker 1: Yeah, I mean that's like that is call it the
23:35
Speaker 1: backbone of technology.
23:36
Speaker 5: Got to the data center somewhere.
23:38
Speaker 1: It's a seventy billion market cap company, Equinix. Eqix is
23:41
Speaker 1: a ticker. The good news is we have the CFO
23:44
Speaker 1: in our Bloomberg Interactive Broker studio. Keith Taylor, CFO of
23:47
Speaker 1: Equinox again eq Ix. We also have Jeff Langbaum. He
23:50
Speaker 1: is the reet analyst who covers all of the reats,
23:53
Speaker 1: including Equinix, because Equinox is a REAT. So we're gonna
23:57
Speaker 1: be brought Jeff in here because he's the smartest guy
23:59
Speaker 1: we having to build. Need to talk about this company.
24:01
Speaker 1: So Keith, let's start with you talk to us about Equinix.
24:03
Speaker 1: What do you guys do? Number one and number two?
24:06
Speaker 1: I knew you guys had a big investor day yesterday.
24:08
Speaker 1: What was kind of the message you were trying to
24:09
Speaker 1: get across?
24:10
Speaker 11: Yeah, Paul looks largest data center company in the world.
24:14
Speaker 11: Think of all things digital coming into our environment. We
24:18
Speaker 11: sit on a foundation of two thousand networks, three thousand
24:21
Speaker 11: cloud and IT services companies. We've got two hundred and
24:23
Speaker 11: fifty data centers about around the world, and we're investing
24:27
Speaker 11: a tremendous amount of capital. All things digital belong inside Equinics.
24:31
Speaker 4: What specific companies are you providing these connected digital infrastructures too,
24:37
Speaker 4: because I've seen you also work with companies like Google, Cloud, Zoom, Oracles,
24:41
Speaker 4: so these are some big names.
24:42
Speaker 11: No, absolutely, but first and form, the top ten customers
24:46
Speaker 11: for us represent about eighteen percent of our business, and
24:49
Speaker 11: it's the large hyperscalers. And think of us as effectively
24:53
Speaker 11: on an off ram to the Internet and to the cloud.
24:56
Speaker 11: We have again two thousand networks, three thousand IT and
24:59
Speaker 11: cloud companies. We have majority of the forty percent of
25:03
Speaker 11: the cloud on ramps. And so it's how data transfers
25:07
Speaker 11: through basically the systems. And for us, they need proximity,
25:11
Speaker 11: they need diversity, and we provide that. We're in seventy
25:14
Speaker 11: one markets around the world, will soon soon be in
25:17
Speaker 11: in seventy five and thirty one country is going to
25:19
Speaker 11: thirty five. So a very exciting time for us.
25:23
Speaker 12: Well, and from from the rep perspective, it paints a
25:26
Speaker 12: very different picture than a lot of the other asset
25:28
Speaker 12: classes that we typically talk about.
25:30
Speaker 5: Right, demand is through the roof.
25:33
Speaker 12: I mean, they spent a lot of time yesterday talking about,
25:35
Speaker 12: you know, the demand drivers for their business and just
25:37
Speaker 12: you know, the just the connectivity.
25:40
Speaker 5: We haven't even touched on AI.
25:42
Speaker 12: I'm sure Keith is nun is tired of talking about it,
25:45
Speaker 12: but I mean that's probably the next wave, right, the
25:48
Speaker 12: demand for the data center business is through the roof
25:51
Speaker 12: and you can see it extending out over the next
25:55
Speaker 12: whatever timeframe you choose.
25:57
Speaker 5: So what do you think about AI.
25:59
Speaker 11: Well, at first, the opportunities amous if you believe that
26:03
Speaker 11: all things digital have a home inside Aquinics, and you
26:06
Speaker 11: think about AI where it will take us. I just
26:09
Speaker 11: think it's a broader opportunity for us. So it's exciting.
26:12
Speaker 11: Whether it's autonomous driving, you know, whether it's AI, whether
26:16
Speaker 11: it's electronic trading, all those have a home inside Aquinics.
26:19
Speaker 11: So a lot of our message Paul was yesterday was
26:22
Speaker 11: really about the opportunity that's in front of us, and
26:25
Speaker 11: Charles talked about, you know, the size of the market opportunity.
26:28
Speaker 11: We see it as roughly one hundred and forty billion
26:30
Speaker 11: dollars opportunity and we'll play inside that space. So it's
26:34
Speaker 11: an exciting time for us. And sort of the back
26:37
Speaker 11: end of the conversation was really about we're no, we're
26:41
Speaker 11: the best representative of a very strong financial financially strong
26:46
Speaker 11: company that has the balance sheet, has the liquidity, has
26:49
Speaker 11: the wherewithal to invest to scale where I think others
26:53
Speaker 11: are going to have a tougher time over the next
26:55
Speaker 11: the next little while.
26:56
Speaker 12: And Keith, you can you talk a little bit about
26:59
Speaker 12: what the growth looks like from you, you know, from
27:02
Speaker 12: your perspective in terms of top line bottom line, you know,
27:06
Speaker 12: and frankly how that differentiates you from your data center piers,
27:10
Speaker 12: but also reads broadly.
27:12
Speaker 11: Yes, well, the top line. What we told the market
27:15
Speaker 11: yesterday we had our analyst day and today's our twenty
27:18
Speaker 11: fifth anniversary. Interestingly enough, and so twenty five years into
27:22
Speaker 11: our history. We basically told them, you know, just despite
27:25
Speaker 11: our scale and size today that we can still grow
27:27
Speaker 11: the top line eight to ten percent. But I said
27:31
Speaker 11: there's accelerants to that that we're not willing to share
27:34
Speaker 11: just yet, and one of them is AI and just
27:36
Speaker 11: the opportunity, and largely we said that because of it's
27:40
Speaker 11: in its infancy. The other aspect of it was really
27:43
Speaker 11: digital services. It's going to be an adjacency service to
27:46
Speaker 11: our to are for our customers. And again it's just
27:49
Speaker 11: a little bit early on the flip side. When we
27:52
Speaker 11: look at we look at profitability, we said that we
27:55
Speaker 11: can grow AFFO per share seven to ten percent. And
27:59
Speaker 11: part of the reason we said seven to ten percent,
28:01
Speaker 11: as many people know, there's an element of refinancing that
28:04
Speaker 11: we have to do, and the cost of capital, of
28:06
Speaker 11: course is larger today. But despite that, we also committed
28:10
Speaker 11: and suggested that we could spend three billion dollars a
28:13
Speaker 11: year for the next five years. That's fifteen billion dollars
28:16
Speaker 11: and the majority of us going to be funded from
28:18
Speaker 11: internal resources. It means the cash flow in the business
28:21
Speaker 11: is fueling that growth, which is which I think is
28:24
Speaker 11: just a great opportunity, unparalleled compared to anyone else.
28:26
Speaker 4: You're based in California. I wanted to get your view
28:29
Speaker 4: after we saw a lot of those regional banking stresses
28:32
Speaker 4: back in March, what your outlook is for growth and
28:35
Speaker 4: if you were impacted at all by that.
28:37
Speaker 9: Yeah, just the.
28:40
Speaker 11: Obviously there were stress in the system. I think what
28:42
Speaker 11: it did was it created an environment where decisions were
28:45
Speaker 11: paused and it caused people to stop and reflect on
28:49
Speaker 11: what really was happening within the financial segment. A large
28:52
Speaker 11: component of our business is certainly in with the banking industry.
28:57
Speaker 11: A lot of the electronic trading takes place inside Equin
29:00
Speaker 11: that all said, the implications to us was very, very minor,
29:04
Speaker 11: and I'm saying minor in the sense that we had
29:06
Speaker 11: Silicon Valley Bank we first Republican some of the others,
29:09
Speaker 11: but it wasn't a meaningful part of our revenue exposure.
29:13
Speaker 12: Keith, you mentioned just a minute ago the potential to
29:17
Speaker 12: spend three billion dollars a year fifteen billion dollars in
29:19
Speaker 12: total on capex. That's expanding your portfolio domestically globally. Can
29:27
Speaker 12: you talk about the demand trends that is fueling the
29:30
Speaker 12: need for so much space and why you feel comfortable
29:33
Speaker 12: putting that much capital to work.
29:34
Speaker 11: Yeah, well, right now, we have fifty projects underway today
29:38
Speaker 11: of size in thirty seven marcus in twenty five countries,
29:41
Speaker 11: so it gives you a sense of the breadth of
29:44
Speaker 11: our business. One of the things I shared with the
29:46
Speaker 11: investors yesterday also was seventy five percent of our revenues
29:50
Speaker 11: come from customers who want to operate in more than
29:52
Speaker 11: one region of the world, and so we're the best
29:54
Speaker 11: manifestation of that. So we draw comfort from I think
29:58
Speaker 11: we have something that's very uni relative to the majority
30:01
Speaker 11: of the marketplace. Number two, all things digital feel like
30:04
Speaker 11: they should have a home and equinics. And then number three,
30:07
Speaker 11: I suggest they are posited that, you know, in with
30:10
Speaker 11: the difficulties in the marketplace. It feels like the supply
30:13
Speaker 11: over time is going to get constrained because cost capital
30:16
Speaker 11: is high, is harder to build. You have supply chain
30:19
Speaker 11: implications to power, access to power, access to water. These
30:23
Speaker 11: all would suggest that for the unsophisticated it's going to
30:26
Speaker 11: be harder build. And therefore we think we can we
30:28
Speaker 11: can fill that void, and in many ways we even
30:31
Speaker 11: believe that pricing can move up favorably towards us. But
30:35
Speaker 11: you know the beauty is look, I suggested three billion
30:37
Speaker 11: dollars a year. We have, we have levers. We can
30:41
Speaker 11: pull them as we see the information. We're making decisions,
30:44
Speaker 11: and their decisions are long term based. You have to
30:46
Speaker 11: decide today what you're going to do years years from now,
30:49
Speaker 11: and we can pull back in those if we need to.
30:51
Speaker 1: So Keith, you know your CEO was just on the
30:54
Speaker 1: desk start a little bit earlier. But we prefer to
30:56
Speaker 1: get the money guy in the studio here because you guys,
30:59
Speaker 1: you really pull the I'm looking at your balance sheet here,
31:02
Speaker 1: I see about fifteen billion of net debt. I see
31:04
Speaker 1: you know a little bit more than three billion dollars
31:05
Speaker 1: three and a half million dollars for free cashally she
31:07
Speaker 1: gets some.
31:07
Speaker 5: Leverage on the balance sheet.
31:09
Speaker 1: Is it too much leverage? Is it optimal leverage? Where
31:13
Speaker 1: are you in terms of your balance sheet? And if
31:15
Speaker 1: you need to fund fifteen billion dollars, where's that coming from?
31:17
Speaker 9: Again?
31:17
Speaker 11: Yeah, well, look, I'll tell you a few things. First
31:22
Speaker 11: and foremost, we're lever three point four times when you
31:24
Speaker 11: look at an industry average at about six point one times,
31:27
Speaker 11: So that's one. Number two. We have two point six
31:30
Speaker 11: billion dollars of cash on our balance sheet, is correct.
31:33
Speaker 11: We have a four billion dollar unused line of credit,
31:35
Speaker 11: So I feel that we have the liquidity, but more
31:38
Speaker 11: than anything, the affo that we generate in the business.
31:41
Speaker 11: Think of that as the cash flow because it's after tax,
31:44
Speaker 11: after interest, after running the business and investing.
31:46
Speaker 5: Ros I tried to teach me, fine it.
31:50
Speaker 12: Paul loves dividends.
31:51
Speaker 11: Talk to you, but think about that's a three billion
31:54
Speaker 11: dollar number or they're about that's growing in the range
31:58
Speaker 11: of seven to ten percent per year. So Number one,
32:01
Speaker 11: you've got the cash and because of our structure, we
32:04
Speaker 11: only have to distribute out forty two cents of every
32:07
Speaker 11: dollar to the shareholders in the form of a dividend,
32:11
Speaker 11: and as a result, you're keeping fifty eight cents. And
32:14
Speaker 11: when you do that, unless just you three billion for
32:16
Speaker 11: a simple number times sixty percent, you get to keep
32:19
Speaker 11: one point eight billion dollars a year just to fund
32:22
Speaker 11: your growth. And of course it's a growing number. So
32:26
Speaker 11: it's actually the model works exceedingly well. So the dividend
32:29
Speaker 11: is going up, the investment is going up, but I
32:31
Speaker 11: think the opportunity is going up even more so.
32:33
Speaker 4: If you have that cash, are you looking to acquire
32:36
Speaker 4: any particular companies to expand your network globally?
32:40
Speaker 11: Just the answer is, Look, we're alway, We're always going
32:44
Speaker 11: to look at acquisitions. We've done thirty in our time,
32:48
Speaker 11: thirty plus. But the best use of our capital is
32:52
Speaker 11: actually investing in organic bill that's where we get the
32:54
Speaker 11: highest return. But we are expanding in the Aussian countries.
32:58
Speaker 11: We want to be another markets. So it's an exciting time.
33:01
Speaker 11: But I rather build organically than buy somebody.
33:05
Speaker 5: All right, Keith, So glad to get some of your
33:07
Speaker 5: time here.
33:08
Speaker 1: Keith Taylor, CFO Equinox, joining us as well as Jeff Langboun,
33:11
Speaker 1: who covers all the reats including Equinics for Bloomberg Intelligence.
33:15
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
33:19
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
33:22
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
33:25
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33:28
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
33:35
Speaker 1: I want to talk about this economy.
33:36
Speaker 5: We want to talk about this FED.
33:37
Speaker 1: We want to see where we're going here, and to
33:39
Speaker 1: do that, we have a welcome guest, returning, Chevin yeltikin
33:43
Speaker 1: the dean at the University of Rochester Business School, joining
33:47
Speaker 1: us live here in our Bloomberg Interactive Brooker Studio. Chevin,
33:49
Speaker 1: so great to see you again. What do you make
33:52
Speaker 1: of this Federal Reserve? We've heard FED Chairman Pal today
33:55
Speaker 1: in front of the Senate, yesterday in front of the House,
33:57
Speaker 1: and every other FED president is speaking all over the place.
34:00
Speaker 1: This FED seems pretty consistent about raising rates here.
34:03
Speaker 8: Yes, he definitely wanted to signal that they did. They're
34:08
Speaker 8: not pausing for good. I mean see, you know, even
34:11
Speaker 8: though they've they've paused for a bit, and they might
34:13
Speaker 8: pause through that the summer or something, but until that
34:16
Speaker 8: inflation figures come down to about two percent or somewhere
34:19
Speaker 8: close to it. They're not pausing for a long period
34:22
Speaker 8: of time, So that was that was quite a strong statement.
34:25
Speaker 4: And also pointing out that at least two more rate increases,
34:29
Speaker 4: which something James Bullard had already pointed to about a
34:32
Speaker 4: month ago, and that's been priced into their dot plots.
34:34
Speaker 4: What do you think it's going to take and when
34:36
Speaker 4: do you think the next potential rate increase could be?
34:38
Speaker 4: Paul and I've been talking about this a lot this morning,
34:40
Speaker 4: because there's not a ton of data between now and
34:42
Speaker 4: the next FED meeting in late July.
34:44
Speaker 8: I mean, one of the interesting things about his statement
34:46
Speaker 8: was he was saying, you know, monetary policy takes a
34:49
Speaker 8: little while to sort of percolate throughout the economy, and
34:52
Speaker 8: what we're really doing is kind of giving it a
34:55
Speaker 8: chance to percolate, rather than what we're seeing is very
34:58
Speaker 8: strong data for us to stop the inflationary you know,
35:03
Speaker 8: suppressing inflation. So I don't think much is going to
35:06
Speaker 8: come between now and then. It's just that they're going
35:07
Speaker 8: to look at some very micro data, very low frequency data,
35:10
Speaker 8: to be able to tell whether, you know, if the
35:13
Speaker 8: economy is not plunging into any kind of major you know,
35:17
Speaker 8: slow down. I think they're going to continue to raise.
35:20
Speaker 1: Rates, all right, smart people like you tell tell me
35:22
Speaker 1: about this long and variable lags of FED policy. I
35:26
Speaker 1: mean the Fed raise it's in strate over five hundred
35:29
Speaker 1: basis points within a year. Why don't we just stop
35:32
Speaker 1: and just see how it plays out over the next
35:34
Speaker 1: several months. Why do they feel the need to kind
35:36
Speaker 1: of keep talking very hawkishly about raising rates, do you think?
35:40
Speaker 8: I think because they know that people are going to
35:42
Speaker 8: be making investment decisions and certainly pricing things into long
35:46
Speaker 8: term and they don't want to signal that they're done.
35:51
Speaker 8: They want to leave a lot of kind of gray
35:53
Speaker 8: room for them to maneuver. I think that's part of
35:55
Speaker 8: it as well, because we're not there yet, We're not
35:57
Speaker 8: seeing inflation, especially core inflation is still kind of high,
36:02
Speaker 8: and I think it really gives them an opportunity to
36:05
Speaker 8: be able to maneuver the economy in whatever way that
36:08
Speaker 8: they see fit at the time that the data arrives.
36:10
Speaker 8: I mean, this is not a perfect science, but nowhere
36:13
Speaker 8: near it. Right, there's a lot of weight and see
36:16
Speaker 8: and feel the ground and feel the data and crutch
36:19
Speaker 8: the numbers and do another kind of you know, projection.
36:24
Speaker 8: So I think what we're seeing is just really that
36:27
Speaker 8: kind of work being played out. But now we get
36:30
Speaker 8: to see that data very very frequently ourselves, which we
36:33
Speaker 8: didn't used to do twenty thirty years ago.
36:35
Speaker 4: I like to use the ECFC function in the terminal
36:38
Speaker 4: to kind of gauge where economy is pulled by Bloomberg
36:41
Speaker 4: are gauging where the economy is headed. And coming into
36:44
Speaker 4: this year, as you know, a lot of economists were
36:47
Speaker 4: expecting that we would already be in a recession at
36:49
Speaker 4: this point. Now it continues to get pushed back, but
36:51
Speaker 4: it's more when you're looking at a quarter over quarter basis,
36:54
Speaker 4: not year over year. Now it's looking maybe for the
36:56
Speaker 4: tail end of this year. What do you think, how
36:59
Speaker 4: do you where this away when you still see resilient
37:02
Speaker 4: consumer data versus the inflation backdrop, and this whole coming
37:07
Speaker 4: into this year where everybody was telegraphing a recession that
37:10
Speaker 4: hasn't necessarily come to fruision just yet.
37:13
Speaker 8: I would like to say that I was one of
37:15
Speaker 8: the very few economists who kept saying, even on record
37:17
Speaker 8: in this show, that I actually thought that the economy
37:21
Speaker 8: had a lot of pockets of resilience that that recession.
37:24
Speaker 8: You know, what we see where the recession it, you know,
37:27
Speaker 8: signs there's a lot in the expectations, but that's because
37:30
Speaker 8: we're also talking a lot about it. I mean, a
37:32
Speaker 8: lot of the news we receive are negative these days,
37:35
Speaker 8: from Ukraine to relations with China to a whole variety
37:39
Speaker 8: of things. A lot of the news that we receive
37:40
Speaker 8: are negative. So that's affecting expectations. But consumers are very resilient,
37:45
Speaker 8: and I don't think it's just that fiscal stimulus that
37:48
Speaker 8: but that fiscal stimulus had run its course a while ago.
37:51
Speaker 8: Our savings direct are down back to close to zero again,
37:54
Speaker 8: so it's not really people spending the money that they
37:56
Speaker 8: had been given, you know, two years ago during the pandemic.
38:00
Speaker 8: There's a lot of consumer resilience. There's a lot of
38:02
Speaker 8: resilience in the service market. Housing market is still doing
38:06
Speaker 8: relatively well. I mean, it's not what it was a
38:08
Speaker 8: year and a half ago. I just I think it's
38:11
Speaker 8: still really really pessimistic to say that we're going to
38:14
Speaker 8: go into a recession. Labor market is very tight, we
38:17
Speaker 8: can't hire people fast enough, and we're losing people every day.
38:21
Speaker 1: How about your students at University of Rochester, the business
38:23
Speaker 1: school there, how are they doing in the job market.
38:25
Speaker 8: They're doing really well. So one of the places that
38:28
Speaker 8: they go to typically is the tech market. So the
38:32
Speaker 8: tech market certainly has taken a hit. What we are
38:36
Speaker 8: seeing is a little bit of a slow down in
38:38
Speaker 8: decision making. They're not pulling out of the market, they're
38:41
Speaker 8: not you know, stopping interviews, but they are taking a
38:45
Speaker 8: little longer to extend or putting out the start dates
38:49
Speaker 8: further into the summer rather than a Junie start date,
38:52
Speaker 8: a September start date or a little bit later. But
38:55
Speaker 8: we haven't really consulting as one of the areas that
38:57
Speaker 8: where we do see actually a slow down.
39:00
Speaker 4: Okay, what do you think the catalysts could really be
39:02
Speaker 4: to actually see growth slow more significantly, because are we
39:08
Speaker 4: really headed for a recession or is it just kind
39:09
Speaker 4: of a little bit more of a slower growth regime
39:11
Speaker 4: for the next few quarters. It's really hard.
39:15
Speaker 8: I mean, I know this is such an economist answer,
39:17
Speaker 8: but at the same time, you know, we're talking about
39:19
Speaker 8: the housing market slowing down at the same time inventory
39:23
Speaker 8: is really low, you know, and at the same time,
39:26
Speaker 8: we know that the cost of building is going up,
39:28
Speaker 8: so people who want to build want to build sooner
39:30
Speaker 8: rather than later, because we still have a lot of
39:33
Speaker 8: supply issues going on at the same time, we have geopolitics, right,
39:37
Speaker 8: and then we have a very strong dollar.
39:39
Speaker 6: There's just so.
39:40
Speaker 8: Many mixed signals and mixed sort of information coming through
39:44
Speaker 8: that it's really hard to make a very strong prediction.
39:47
Speaker 8: And that's why I think all of us are having
39:50
Speaker 8: a really hard time to pinpoint exactly what's going to
39:52
Speaker 8: happen and when it's going to happen. But I've been
39:55
Speaker 8: much more optimistic because the resilience is certainly there. I
39:58
Speaker 8: think if we see a La Baber market really tightness
40:02
Speaker 8: go away, that's when we're going to get worried.
40:04
Speaker 4: Why are so many people overlooking some of these resilient
40:08
Speaker 4: pockets and still going toward ward this kind of gloom scenario.
40:14
Speaker 8: Maybe it sells more.
40:18
Speaker 4: Obviously what we saw with decades high inflation exactly.
40:22
Speaker 8: I mean, because typically I think historically too, if you
40:25
Speaker 8: saw inflation and that kind of numbers in inflation almost
40:28
Speaker 8: close to sort of double digits, historically when we look back,
40:31
Speaker 8: those were followed by recessions.
40:33
Speaker 4: And then also the Fed obviously not having the best
40:35
Speaker 4: track record when it comes to say these soft type.
40:39
Speaker 8: They have absolutely so I think looking back historically, people
40:44
Speaker 8: are right to assume that there is going to be
40:46
Speaker 8: some sort of a slow down. But again, we're seeing
40:50
Speaker 8: a lot of growth in the service sector at least
40:53
Speaker 8: sort of going towards back to the pandemic levels. We're
40:55
Speaker 8: seeing a lot of sort of consumer resilience and labor
40:58
Speaker 8: market resilience. And I'm not quite sure that you know,
41:01
Speaker 8: firms are really holding onto labor because you know, there's
41:04
Speaker 8: a lot of talk about labor hoarding, and it's it's
41:09
Speaker 8: certainly new. You know, placements are just not getting the
41:13
Speaker 8: applications that we used to see pre pandemic. So it's hard.
41:18
Speaker 8: It's hard to replace people.
41:19
Speaker 1: Let's talk about Turkey. Oh, central Bank hikes policy eight
41:23
Speaker 1: to fifteen percent. Liar drops to a record low. I'm
41:28
Speaker 1: you're expert on Turkey, I know, just give us their
41:32
Speaker 1: thirty thousand foot view.
41:33
Speaker 5: What's happening there.
41:34
Speaker 8: I mean, it's a good sign that they're reversing the
41:36
Speaker 8: policy of low interest rates, this idea that you know,
41:39
Speaker 8: low interest rates with curb inflation is diametrically opposed to
41:43
Speaker 8: anything that we know about how any economy works. So
41:46
Speaker 8: they have raised it, but not raised it fast or
41:49
Speaker 8: large enough. They now have, you know, a new finance
41:53
Speaker 8: minister along with a new central Bank governor, so hopefully
41:56
Speaker 8: we'll see a little bit more orthodox policies coming.
41:59
Speaker 9: Out of it.
42:00
Speaker 8: The lira is a huge I mean it's now down
42:02
Speaker 8: to about one dollar to twenty lirias or so. Election, well,
42:07
Speaker 8: he's got another five year term, so there will be
42:10
Speaker 8: at least you know, we'll see how that pans out too.
42:13
Speaker 8: But Turkey, it's going to take a while before investors
42:16
Speaker 8: come back.
42:17
Speaker 1: I know, there's been so many challenges in Turkey in
42:19
Speaker 1: terms of natural disasters, and so how are the people doing?
42:23
Speaker 8: They are, at least the people that I'm in touch with,
42:26
Speaker 8: and they have a very negative outlook. They have a
42:29
Speaker 8: very negative outlook about the you know, they don't trust
42:32
Speaker 8: the inflation numbers. They don't really trust some of the numbers.
42:35
Speaker 5: Yet they put er one back in for another five years.
42:37
Speaker 8: Yes, absolutely, all.
42:39
Speaker 5: Right, you're an expert, so we're going to.
42:42
Speaker 1: Be coming here.
42:44
Speaker 8: I want to say it was a very fair election, right.
42:48
Speaker 1: Yep, we'll leave it there all right. Chevin Yeltakain, thank
42:51
Speaker 1: you so much for join us. Always appreciate getting your perspective.
42:54
Speaker 1: Chevin is the dean at the University of Rochester Business School.
42:57
Speaker 1: I'm a big fan of Rochester. They turn out a
43:00
Speaker 1: lot of good graduates there. I've hired a bunch of
43:02
Speaker 1: myself back in the day.
43:03
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
43:07
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43:10
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43:13
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43:16
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
43:22
Speaker 4: I'm really excited for our next guest, first time I've
43:25
Speaker 4: been able to meet him in person. What is work
43:27
Speaker 4: for you?
43:28
Speaker 5: Oh boy, this must be a street for you.
43:30
Speaker 1: Barry Ridholt's host of Masters in Business. I mean for me,
43:33
Speaker 1: it's nothing, but it's just Barry just host some Masters
43:35
Speaker 1: of business. I think you run some money too. He's
43:37
Speaker 1: a chairman in chief Investment off Serbert Holts Wealth Management. Hey,
43:41
Speaker 1: Barry s and P five hundred. It's up fourteen percent
43:44
Speaker 1: this year. Why don't I just index my money and
43:46
Speaker 1: just go onto the golf course.
43:48
Speaker 13: I don't know, why don't you?
43:49
Speaker 1: I don't know, I mean, why am I sitting her
43:51
Speaker 1: waits and trying to do research and all that kind
43:52
Speaker 1: of stuff just by the index?
43:54
Speaker 13: I mean, at the very least, having the core of
43:57
Speaker 13: your investment portfolio be index and then you know, I
44:02
Speaker 13: like to describe it as the Christmas tree and the ornaments.
44:05
Speaker 13: If your core is the S and P five hundred,
44:08
Speaker 13: you know you're never going to be that far off
44:09
Speaker 13: from the market. You'll at the very least compound at
44:13
Speaker 13: a different at a pretty close to market rate. And
44:17
Speaker 13: then if you feel like you're enthusiastic about different things,
44:22
Speaker 13: maybe you like value, maybe you like technology, maybe you
44:24
Speaker 13: want to go regional and say I think India is
44:27
Speaker 13: the next great growth region or whatever it happens to be.
44:30
Speaker 13: I'm just randomly pulling examples out of the air. That's
44:34
Speaker 13: perfectly fine. You can absolutely start with the index, especially
44:39
Speaker 13: when you look at how easy it is to go
44:42
Speaker 13: out and buy an ETF and the cost is four
44:45
Speaker 13: or five basis points' it's practically free. So for the
44:49
Speaker 13: average you know, home viewer listening at home. It's a
44:53
Speaker 13: great place to start.
44:54
Speaker 4: And you had a column recently specifically about this and
44:57
Speaker 4: why indexing should be a part of investors core investment strategy.
45:01
Speaker 4: What were these five issues? Can you walk us through
45:04
Speaker 4: with sure?
45:05
Speaker 13: You know, it's funny because there's sort of been a
45:09
Speaker 13: cottage industry trashing indexing. If you remember a couple of
45:13
Speaker 13: years ago, we heard it was un American, it was
45:15
Speaker 13: anti competitive. When Jack Bogel and Vanguard first launched in
45:20
Speaker 13: seventy four, they were told it was literally communistic. The
45:25
Speaker 13: advantage so let's start out first and foremost costs. And
45:31
Speaker 13: while the active side has gotten much better on costs
45:34
Speaker 13: used to be about two hundred basis points for the
45:36
Speaker 13: average active mutual fund, that's now somewhere between let's call
45:40
Speaker 13: it fifteen seventy five basis points. It's not four BIPs.
45:44
Speaker 13: It's you know, appreciably higher over thirty years. If you're
45:49
Speaker 13: gonna compound with fees of seventy five basis points just
45:52
Speaker 13: for the fund, say nothing about the advice or trading
45:55
Speaker 13: or taxes or anything like that, that's gonna end up
45:58
Speaker 13: being about twenty percent of your total returns. It really
46:01
Speaker 13: has a giant impact so costs are a big part
46:05
Speaker 13: of it. Second of the five things is simply behavior.
46:09
Speaker 13: You know, if you're just buying an index, you're not
46:12
Speaker 13: engaging in stock selection, you're not market timing, you're not
46:16
Speaker 13: jumping in and out, you're not thinking about all the
46:19
Speaker 13: things that lead human beings to make bad investment decisions.
46:24
Speaker 13: It turns out people are full of cognitive errors and
46:28
Speaker 13: behavioral biases, and it leads us to places that not
46:33
Speaker 13: the greatest when it comes to to making investing. I
46:36
Speaker 13: mentioned stock selection, which you don't do. That's the third thing.
46:41
Speaker 13: There have been a number of studies. Hendrik Besting Minder
46:44
Speaker 13: is probably the most famous of the studies. Most stocks
46:49
Speaker 13: don't really do anything. Some stocks go up a little,
46:52
Speaker 13: some stocks go down a little. A couple really crash
46:54
Speaker 13: and burn. But it turns out the market indexes are
46:57
Speaker 13: primarily driven by the big winners, and that's one one
47:02
Speaker 13: and a half percent of the total stocks. So not
47:05
Speaker 13: only do you have to find that needle in a haystack,
47:08
Speaker 13: you also have to avoid all the rest of the
47:11
Speaker 13: mass stocks really really hard. When you buy an index
47:15
Speaker 13: like the S and P five hundred that's cap weighted,
47:18
Speaker 13: not only are you pretty much guaranteed to have those
47:20
Speaker 13: winners in them, but as they get bigger, you own
47:24
Speaker 13: more of them. The Apple is the largest component in
47:27
Speaker 13: the S and P five hundred. It's also the biggest
47:30
Speaker 13: US company in the world. And what a surprise. It
47:33
Speaker 13: used to be a tiny percentage of the S and
47:35
Speaker 13: P five hundred in the nineties and now it's large.
47:40
Speaker 13: And then the last couple of things are really I
47:44
Speaker 13: don't know, a little Pickyn, but those three are the
47:50
Speaker 13: where you start from.
47:51
Speaker 5: Yep, ye, hey, Barry.
47:53
Speaker 1: When I started out in the business, we went to
47:55
Speaker 1: the mutual funds because that's where all the money was.
47:57
Speaker 1: As a sellside analysts, I'd got the Boston three or
47:59
Speaker 1: four times a year, walk around town seeing Fidelity and
48:02
Speaker 1: Puttingham and all those because that's where the money was.
48:05
Speaker 1: Now I'm asking my question, is there any future for
48:08
Speaker 1: the mutual fund business? ETFs is gobbling up all the
48:11
Speaker 1: money I've got mutual funds converting to ETFs. It's a
48:14
Speaker 1: race to the bottom on costs. What's the future of
48:17
Speaker 1: the mutual fund business?
48:18
Speaker 12: Do you think so?
48:19
Speaker 13: The single biggest advantage of ETFs is that there's no
48:23
Speaker 13: phantom capital gains tax. Maybe This is a little controversial.
48:28
Speaker 13: This is my opinion, but it's hard to argue that
48:31
Speaker 13: if I own a mutual fund and I don't sell it, right,
48:35
Speaker 13: I continue to hold it. But there are sales and
48:37
Speaker 13: transactions within and people who own that fund buy it
48:40
Speaker 13: or sell it. Suddenly I get a tax bill that's terrible.
48:44
Speaker 13: So I could understand why in taxable accounts there's a
48:49
Speaker 13: built in preference for ETFs. However, the mutual fund structure
48:55
Speaker 13: is well known, it's well understood in many ways. It's
48:59
Speaker 13: scale very nicely, whereas you have some issues with ETF scaling.
49:04
Speaker 13: So in qualified tax accounts, in iras and four oh
49:08
Speaker 13: one k's, of course you want to go with the
49:11
Speaker 13: mutual fund. They don't trade during the day, so there's
49:13
Speaker 13: none of that headache. You get priced daily. That's all
49:16
Speaker 13: you really need. The costs have come down dramatically, and
49:21
Speaker 13: your biggest concern is that phantom tax that goes away
49:24
Speaker 13: in a four oh one K or an IRA. So
49:27
Speaker 13: I think the future of mutual funds is going to
49:29
Speaker 13: be in those retirement accounts. Yeah, ETFs give you some thematics,
49:35
Speaker 13: they give you some indexes, they give you some other
49:37
Speaker 13: things that work better in the non tax exempt accounts.
49:42
Speaker 13: There's room for both of them. They each serve a
49:44
Speaker 13: different role.
49:45
Speaker 4: Money market mutual funds have been such a hot topic,
49:47
Speaker 4: and especially given just with investors being able to yield more,
49:51
Speaker 4: and last week actually the Investment Company Institute showed how
49:55
Speaker 4: there were flows coming out of that for the first
49:57
Speaker 4: time in about two months. I'm wondering, what's the catalyst
50:00
Speaker 4: push more of the cash that's sitting there into the
50:03
Speaker 4: equity market.
50:05
Speaker 13: That's that's always a key question. I Mean, the amazing
50:08
Speaker 13: thing is, you know, you got zero in money market
50:12
Speaker 13: funds and practically nothing in bonds for a long time. Wait,
50:16
Speaker 13: I could put money in a money market fund can
50:18
Speaker 13: get five and a half percent pretty safely. I mean,
50:22
Speaker 13: as long as it's a name brand that you don't
50:24
Speaker 13: have to worry about it somehow being tied to some
50:26
Speaker 13: stable coin that blows up. But like if you want
50:30
Speaker 13: a Vanguard or a Fidelity or a Franklin Templeton money
50:34
Speaker 13: market fund, you're gonna get five percent. That's pretty safe money.
50:38
Speaker 13: If I'm gonna rotate some of that into the equity market,
50:42
Speaker 13: there really has to be a promise or an expected
50:46
Speaker 13: return appreciably higher than five percent, and you know, up
50:52
Speaker 13: fourteen percent for the year halfway through the year. That's
50:56
Speaker 13: a good year, right, you know the equity market. Could
50:59
Speaker 13: you know, right, gone fishing and take the rest of
51:02
Speaker 13: your gear off and it's a good year. Not that
51:04
Speaker 13: that's gonna happen unless your own pal goes fishing and
51:07
Speaker 13: takes the rest of the year off and then we're
51:09
Speaker 13: off to the races.
51:10
Speaker 4: Yeah, NASAK one hundred is off to its best first
51:13
Speaker 4: six months to a year ever.
51:14
Speaker 13: Actually be fair, it's coming off a horrific.
51:18
Speaker 4: Yes, right for last year.
51:20
Speaker 5: But by the way, people.
51:23
Speaker 13: Don't think this way, but NASDAK down thirty percent. I'm
51:27
Speaker 13: absolutely a buyer anytime. Maybe not the whole position. Maybe
51:31
Speaker 13: you're waiting to see if you're down forty percent or more.
51:34
Speaker 13: But anytime you have that sort of a selloff in
51:37
Speaker 13: that rapid period of time, you have to you have
51:42
Speaker 13: to think, hey, this is fallen so far out of
51:46
Speaker 13: favor that the valuations have become attractive.
51:48
Speaker 1: Thirty seconds balance power, I'm sorry, master's in business.
51:51
Speaker 5: Who you got coming up?
51:53
Speaker 13: So coming up in two weeks of Jenny Johnson of
51:55
Speaker 13: Franklin Templeton next week is going to be Alana Weinstein,
52:02
Speaker 13: one of the Hedge fun Hunter and this weekend Peter
52:05
Speaker 13: Borish pulled Tudor Jones' partner and runs the Robin Hood Foundation.
52:10
Speaker 5: You get players every time every Tuesday. His recording here
52:13
Speaker 5: and a lot of fun.
52:14
Speaker 1: I kind of just make sure I kind of walk
52:15
Speaker 1: by the studio to see who's there.
52:17
Speaker 5: Ye kind of like stargazing Barry Ridolts.
52:19
Speaker 1: He's host of Masters in Business fantastic podcast, check it out.
52:24
Speaker 1: He also is a chairman and chief investment officer Rit
52:26
Speaker 1: Holtz Wealth Management. Love getting him here and it's good
52:29
Speaker 1: to get him in studio.
52:33
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
52:36
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
52:40
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
52:44
Speaker 2: at Matt Miller nineteen seventy three and on.
52:46
Speaker 1: Faull Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
52:50
Speaker 1: you can always catch us worldwide at Bloomberg Radio Time