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Trade, Fixed Income, Kelley Blue Book · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl podcast on Paul Swing You.
0:05
Speaker 1: Along with my co host Lisa Brahma Waits, each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money, whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: that Bloomberg dot com. President Trump said there is a
0:24
Speaker 1: quote very good chance to make a trade deal with China,
0:27
Speaker 1: but the unrest in Hong Kong is a quote complicating factor.
0:31
Speaker 1: He was speaking on Fox and Friends earlier this morning.
0:33
Speaker 1: He also said that he would not commit necessarily or
0:36
Speaker 1: didn't necessarily say whether he was going to sign the
0:39
Speaker 1: bill that was passed by both houses of Congress, basically
0:43
Speaker 1: saying that that that that the U S stands by
0:45
Speaker 1: Hong Kong. Brendan Murray joining us now Bloomberg's Bloomberg's reporter
0:49
Speaker 1: and editor covering all things trade. Can you give us
0:52
Speaker 1: a sense of where we are and what kind of
0:55
Speaker 1: credence we can give to a statement like this by
0:57
Speaker 1: President Trump? Well, you heard the President's say, uh, I
1:00
Speaker 1: send a couple of different signals there one was yes,
1:03
Speaker 1: we're very close to a deal. But he also talked
1:05
Speaker 1: about some of the tougher issues that they still have
1:09
Speaker 1: yet to resolve, among those being, uh, the intellectual property
1:16
Speaker 1: oversight that China that the US wants China to have
1:18
Speaker 1: greater uh control over and and and and the and
1:21
Speaker 1: the forced transfer of technology. So these are these are
1:24
Speaker 1: issues that uh you know that that they still have
1:27
Speaker 1: yet to to come to an agreement on. Uh. You know,
1:30
Speaker 1: Trump has said four weeks now that we're very close
1:33
Speaker 1: to a trade deal. It was six weeks ago today
1:36
Speaker 1: when he sat in the Oval Office and said, we
1:38
Speaker 1: have a deal. All we have to do is get
1:40
Speaker 1: it on paper. Uh so, and he said we could
1:42
Speaker 1: do that in three to five weeks. Here we are
1:44
Speaker 1: week six and he's still saying it. And we still
1:47
Speaker 1: don't have any sign that that that an agreement is
1:51
Speaker 1: in fact imminent. Um, it could come any day now,
1:55
Speaker 1: or it could drag on from several more weeks. So Brendan,
1:58
Speaker 1: both sides, the U S And China have said that
2:00
Speaker 1: they ideally would like to keep the Hong Kong issue
2:04
Speaker 1: and the trade negotiation issue separate. Do you think that's possible?
2:09
Speaker 1: I think this is one of the things that that
2:12
Speaker 1: that that President Trump will offer as a concession to
2:16
Speaker 1: his Chinese counterpart if if they can indeed get close
2:19
Speaker 1: to a deal, he could just say, you know what,
2:22
Speaker 1: I won't sign that bill, and but you know, this
2:24
Speaker 1: is what I want from you. It's it's it's leverage
2:27
Speaker 1: in trade negotiations and and uh, and that's that's what
2:31
Speaker 1: this piece of legislation is likely to become. What are
2:34
Speaker 1: we hearing from the Chinese side? We heard President Shi
2:37
Speaker 1: Jim ping speak overnight about the need for mutual respect
2:41
Speaker 1: and equality in a deal, which is which are some
2:44
Speaker 1: guiding principles that China has demanded all along. But is
2:47
Speaker 1: that significant? Because I saw that headline and I was thinking,
2:50
Speaker 1: how do I frame that in terms of does this
2:52
Speaker 1: make a trade deal more or less likely? It is
2:54
Speaker 1: significant when you hear President Trump, as he did just
2:57
Speaker 1: you know, a few hours ago, say I don't like
2:59
Speaker 1: that we're equality. China has been ripping us off for
3:02
Speaker 1: decades now. Uh, you know that this can't be a
3:06
Speaker 1: fair deal. This is going to be a deal that
3:08
Speaker 1: benefits us. So you you add those two things together,
3:11
Speaker 1: and you've got two leaders who are still apparently very
3:15
Speaker 1: far apart, brendon what are next steps? I think the
3:19
Speaker 1: last thing I read was a US delegation had been
3:23
Speaker 1: invited to Beijing by China. Is there anything on the calendar?
3:27
Speaker 1: We don't have any information that that invitation has been
3:31
Speaker 1: accepted yet. Uh that that uh was made last week
3:36
Speaker 1: and the the U s Trade representative, Robert Leitheiser, has
3:40
Speaker 1: been running around Capitol Hill in the past few days
3:42
Speaker 1: trying to work out the US Canada Mexico deal and
3:46
Speaker 1: get a speaker Pelosi to sign up to that. So
3:50
Speaker 1: he said his hands full with with some other things.
3:52
Speaker 1: Now he can do multiple things at once, but his
3:56
Speaker 1: priority is not flying to Beijing in the next couple
3:58
Speaker 1: of days. Uh uh. And certainly with the US holiday
4:01
Speaker 1: next week, you know it's it would be. It would
4:05
Speaker 1: be a stretch to think it could come together before
4:07
Speaker 1: the middle of next week. As Paul was mentioning, the
4:10
Speaker 1: trade negotiators on both sides are trying to distinguish the
4:13
Speaker 1: Hong Kong issue is unique and separate from other negotiations
4:17
Speaker 1: having to do with trade. What's the tipping point here
4:21
Speaker 1: for when that is impossible? Well, I think the real
4:25
Speaker 1: this whole thing will I think tip when the US
4:31
Speaker 1: agrees or disagrees to roll back tariffs that are already
4:35
Speaker 1: in place. That seems to be where the US is.
4:40
Speaker 1: You know, China really wants the US to to give
4:42
Speaker 1: some ground on that, and the US is, you know,
4:45
Speaker 1: the whole, the whole US economic strategy with China is
4:49
Speaker 1: to apply tariffs and keep them applied until you extract
4:54
Speaker 1: you know, changes out of China that you know, bringing
4:56
Speaker 1: it more in line with you know, other sort of
4:59
Speaker 1: market economy. Uh. So that is where sort of the
5:04
Speaker 1: rubber meets the road in this whole, in this whole saga. Um,
5:09
Speaker 1: the Hong Kong issue, as President Trump said, you know,
5:12
Speaker 1: it is definitely complicating things. But whether it's enough to
5:15
Speaker 1: you know, totally throw it off the rails, uh, you
5:18
Speaker 1: know as a total as a different question that I
5:20
Speaker 1: don't I don't see it happening. So, Brendan, we're talking
5:23
Speaker 1: really about a phase one type of deal. That's all
5:26
Speaker 1: we're talking about right now, Is that right? That's right?
5:29
Speaker 1: So Phase one, as President Trump laid out a couple
5:33
Speaker 1: of weeks ago, involves agriculture purchases on China's behalf, you know,
5:37
Speaker 1: protection of intellectual property of American companies and some of
5:41
Speaker 1: these other sort of structural issues, whether they can get those,
5:46
Speaker 1: you know, as a whole. Another question the you know
5:48
Speaker 1: they've we've heard you know, phase two. Well we'll come
5:51
Speaker 1: right afterwards, and maybe even a phase three, so you know,
5:55
Speaker 1: these things we're we're about to head into year number
5:58
Speaker 1: three of these negotiations with you know, not even the
6:01
Speaker 1: simplest issues worked out in phase one. So we could
6:05
Speaker 1: be you know, we could be looking at something that lasts,
6:08
Speaker 1: you know, through the election next year and beyond. Perhaps
6:11
Speaker 1: Brendon Mury, thanks so much for joining us. Brendan Murray
6:13
Speaker 1: covers all things trade for Bloomberg News, joining us from
6:15
Speaker 1: our London bureau DIDGA. Under the surface of credit markets,
6:30
Speaker 1: you could find a bit of a conundrum. You can
6:32
Speaker 1: see that everything seems to be chugging along on average,
6:35
Speaker 1: but if you take a look at the riskiest credits,
6:37
Speaker 1: the triple C rated debt, it has sold off and
6:41
Speaker 1: continued to sell off, with yields on the securities extra
6:44
Speaker 1: yields now rising to the highest since two thousand sixteen.
6:46
Speaker 1: Joining us is Ken Monahan, co director of Global High
6:49
Speaker 1: Yield in a Moondy pioneer in our Bloomberg Interactive Broker Studios, Ken,
6:54
Speaker 1: do you think that this is a harbinger of more
6:57
Speaker 1: pain to calm the weakness that's been persistent with in
7:00
Speaker 1: the triple C rated UH category here? Well, a Lisa,
7:03
Speaker 1: you know, the triple C portion of the market has
7:05
Speaker 1: often been viewed as kind of a big risk indicator
7:08
Speaker 1: for the overall credit markets, and when those trade to
7:10
Speaker 1: very high levels, which they're at right now, where spreads
7:13
Speaker 1: are wide, yields are high, and they've underperformed woefully in
7:16
Speaker 1: two thousand and nineteen, usually people say, Okay, well, that's
7:19
Speaker 1: a sign of not such good things to come and
7:21
Speaker 1: perhaps a recession. I would think in this case, actually
7:23
Speaker 1: it's a little different because there's so much of it
7:25
Speaker 1: that's tied up with the energy sector and then a
7:27
Speaker 1: few other idiosyncratic situations that that's really driving it. You know.
7:32
Speaker 1: You know, we had said earlier that sometimes triple cs
7:35
Speaker 1: are the tail that wagged the dog. This time, I
7:37
Speaker 1: don't think the fact that the dog the tail is
7:39
Speaker 1: wagging that hard is indicative of a major problem. And
7:42
Speaker 1: this is what a lot of people are saying. This
7:44
Speaker 1: is a specific sector issue energy and then there are
7:48
Speaker 1: a couple of retailers, etcetera that have also struggled, along
7:51
Speaker 1: with some pharmaceutical companies a number of other uh types
7:54
Speaker 1: of stories. I'm just wondering what it says about a
7:58
Speaker 1: time when we have so much, such a liquidity, when
8:01
Speaker 1: we have you know, such a risk on kind of
8:04
Speaker 1: overall feel that there are an increasing number of companies
8:07
Speaker 1: going bankrupt, even in some of these troubled sectors right Well,
8:10
Speaker 1: you know, I think the energy is a key piece
8:12
Speaker 1: of that. And I think if you look at the
8:15
Speaker 1: energy sector and you recognize how much money had gone
8:17
Speaker 1: into it over the previous ten years and really facilitated
8:21
Speaker 1: the expansion of the shale boom in the United States, um,
8:25
Speaker 1: you maybe had too much money chasing too few opportunities.
8:29
Speaker 1: And I think if you look at those companies, by
8:31
Speaker 1: and large, they have not been able to generate a
8:34
Speaker 1: sustainable return on capital. And companies that can't return capital
8:39
Speaker 1: or generator return on capital over time, I just can't
8:42
Speaker 1: raise new money, which is why these companies are in difficulty.
8:45
Speaker 1: So I actually talked to a lot of it distressed
8:48
Speaker 1: investors and they are actually highlighting energy as one of
8:51
Speaker 1: the sectors they think they can actually find value and
8:54
Speaker 1: add value? Is it if you do your real bottoms
8:58
Speaker 1: up research. Are there still opportunities there? I think you're
9:01
Speaker 1: right that there are opportunities and uh, you know, but
9:04
Speaker 1: they're they're not a whole lot of them out there.
9:06
Speaker 1: I think you really kind of look under rocks here,
9:09
Speaker 1: um and uh, but there are some out there, and
9:11
Speaker 1: I think we are looking at them. But I would
9:14
Speaker 1: not expect in two thousand and twenty necessarily that you'll
9:17
Speaker 1: see a wholesale return or surge or returns for the
9:21
Speaker 1: energy sector. And if you do, because it's not impossible,
9:25
Speaker 1: what it will probably indicate is that a lot of
9:27
Speaker 1: the companies have washed out of the index. So when
9:30
Speaker 1: a company goes bankrupt, it drops out of the index.
9:33
Speaker 1: So if you had enough energy companies going bankrupt in
9:35
Speaker 1: early two thousand twenty, um, the rest of them that
9:38
Speaker 1: are maybe sustainable, they could have a big rally. How
9:41
Speaker 1: far in the shake up are we It's interesting. I
9:44
Speaker 1: was up with the capital markets team of one of
9:47
Speaker 1: the largest banks yesterday and and talking to them about it,
9:50
Speaker 1: and it's amazing how few companies have gotten religion. Um,
9:55
Speaker 1: you know, they were offered a second lean paper early
9:58
Speaker 1: this year at seven percent, then by midsummer it was
10:01
Speaker 1: nine percent. Now there maybe eleven or twelve percent, and
10:04
Speaker 1: they still haven't gotten on board. They still haven't figured
10:07
Speaker 1: out there's still hope springs eternal. But you know, it's
10:09
Speaker 1: the old adage hopes is not a business plan and
10:12
Speaker 1: uh and we're we're stuck in that situation right now
10:14
Speaker 1: for many of these companies. All right, so energies, dicey
10:17
Speaker 1: only for the brave. What are some of the sectors
10:20
Speaker 1: that you think are attractive range? I mean high you market,
10:22
Speaker 1: I guess up eleven twelve percent this year, it's had
10:24
Speaker 1: a pretty good year. Are there still areas that you
10:26
Speaker 1: still find attractive? You know, it's it's we're still looking
10:29
Speaker 1: under rocks as well in general in this market because
10:31
Speaker 1: the returns have been so significant this year. Let's recognize, though,
10:35
Speaker 1: what happened is in the fourth quarter of last year,
10:37
Speaker 1: we all experienced misery. If anything you had that was risk,
10:41
Speaker 1: whether it's equities or high yield, got absolutely pummeled. So
10:44
Speaker 1: effectively the return that should have taken place in two
10:46
Speaker 1: thousand and eighteen got sucked into two thousand and nineteen,
10:49
Speaker 1: so effectively is supercharged the performance for two thousand and nineteen.
10:53
Speaker 1: But where we look at when we look at things
10:55
Speaker 1: where they are now, it's much going to be much
10:58
Speaker 1: more difficult to generate a return Next year. Two thousand
11:01
Speaker 1: twenties not going to be a double digit year for
11:03
Speaker 1: for high yield. It's just not possible. What's it going
11:05
Speaker 1: to be? I think you're looking at kind of mid
11:07
Speaker 1: single digits. It could be even lower depending on what
11:09
Speaker 1: happens with the washout of certain sectors like energy. Do
11:13
Speaker 1: you think that you are guaranteed bigger returns going into
11:16
Speaker 1: the double B or into the single B or into
11:18
Speaker 1: the triple C. That's the big question. I would tell
11:23
Speaker 1: you that the problem with double bees right now is
11:26
Speaker 1: one they've got a lot of interest rate to risk
11:28
Speaker 1: on them. And to the other problem I would suggest
11:31
Speaker 1: is that there's been so much money that's gone into
11:33
Speaker 1: double bees from what we call crossover investors otherwise investment
11:38
Speaker 1: grade buyers that are so desperate to get some extra
11:40
Speaker 1: yield into their portfolio that they're dipping down into buy
11:43
Speaker 1: things they don't normally buy. Double be credits, that they've
11:46
Speaker 1: compressed the spread on those bonds, And if we look
11:48
Speaker 1: at those new issues that come out recently a little
11:51
Speaker 1: last several weeks, for example, in the double B space,
11:53
Speaker 1: very few of them are trading up significantly. They kind
11:56
Speaker 1: of come out, they price it par four and a
11:58
Speaker 1: half four and three quarter coupon, and it just sits
12:00
Speaker 1: there now arguably, you know, maybe if you know, if
12:04
Speaker 1: it stays there at that level for all, the two
12:05
Speaker 1: thousand and twenty four and three quarter return may not
12:08
Speaker 1: look so bad relative to investment grade, particularly if interest
12:11
Speaker 1: rates rise a bit from here. But it's not exactly
12:15
Speaker 1: attracting a lot of interest. So outside of energy, how's
12:18
Speaker 1: the credit quality in your portfolio? I would say that,
12:21
Speaker 1: you know, if we look at our portfolio, historically, we
12:24
Speaker 1: generally own credits that on average rated about a notch
12:28
Speaker 1: below that of the index. So we tend to seek
12:31
Speaker 1: seek value in single bees and that's where we are
12:34
Speaker 1: right now. Doesn't mean we're not buying double bees. We are,
12:36
Speaker 1: we're a bit more selective about it, but we're very
12:38
Speaker 1: much overweight single bees. We're kind of underweight double bees,
12:41
Speaker 1: and we're about market way triple cs right now. How
12:43
Speaker 1: close are we to our session? Um? Well, not between
12:47
Speaker 1: here and Christmas? How's that? And? Uh, I don't think
12:50
Speaker 1: it's you know, and I don't think it happens in
12:55
Speaker 1: twenty either, but will you know, it will remains to
12:57
Speaker 1: be seen obviously, the however happens. We supposedly are on
13:01
Speaker 1: the verge, as we have been for over a year now.
13:03
Speaker 1: It seems of of of a completion of these trade talks,
13:08
Speaker 1: uh and if that keeps getting pushed out or there's
13:11
Speaker 1: more saber rattling that goes on on either side, that
13:15
Speaker 1: could facilitate something. Yeah, alright, alright, I mean, come on,
13:18
Speaker 1: this is literally what we live every day. So can
13:22
Speaker 1: just real quickly what's the most attractive area that you
13:24
Speaker 1: guys are looking at right now? You know, it's interesting
13:27
Speaker 1: the the auto sector had been beaten up fairly bad
13:31
Speaker 1: um and there's a bit of a recovery going on there.
13:33
Speaker 1: We've found some opportunities there and that's one of the
13:36
Speaker 1: places we would point to where there's it maybe had
13:38
Speaker 1: gotten oversold. People thought perhaps a recession was coming, people
13:43
Speaker 1: sales were going to come down, and that really has
13:44
Speaker 1: not happened. Bonds backed by the cyber truck exactly hopefully.
13:51
Speaker 1: Ken Monahan, co director at Global Hi, a Monday pioneer
13:54
Speaker 1: joining us here in our Bloomberg Interactive Broker Studio. He's
13:57
Speaker 1: based in Durham, North Carolina, home of the Durham Bowl,
14:00
Speaker 1: amongst other institutions down there and Derham. Looking at quick
14:03
Speaker 1: data check right here the SMP. We are absolutely flat
14:07
Speaker 1: on the SMP today, no change now at forty two
14:10
Speaker 1: uh nasdak off just a little bit. Looking at yields again,
14:14
Speaker 1: not much movement there to ten year up three thirty seconds,
14:17
Speaker 1: pushing that ten year yield down just slightly to one
14:20
Speaker 1: point seven six. Compared that to the two year at
14:24
Speaker 1: one point, So the curve flattening just a little bit.
14:28
Speaker 1: This is Bloomberg twos, the era of forecasts. A lot
14:48
Speaker 1: of the big banks are coming out with the predictions.
14:51
Speaker 1: Joining us now is Dan Skelly, head of Equity Model,
14:53
Speaker 1: Portfolios and market Strategy at Morgan Stanley Wealth Management, joining
14:57
Speaker 1: us here in New York. I'm trying to unders and
15:01
Speaker 1: the consensus so far, which is a resurgence in a
15:04
Speaker 1: way at least in equities next year that potentially could
15:07
Speaker 1: even see double digit returns in the US and perhaps
15:10
Speaker 1: even bigger in Europe. Do you agree with that consensus? So,
15:13
Speaker 1: I think that at this point in the cycle, you
15:15
Speaker 1: want to be more selective. In the US market in particular,
15:18
Speaker 1: we think there's less upside to the index in the
15:21
Speaker 1: US where we could see more absolute returns as overseas.
15:24
Speaker 1: In Europe in particular, just given how much it's lagged,
15:27
Speaker 1: and then also given the potential for some rising catalysts
15:31
Speaker 1: on the fiscal front. You know, the only game in
15:33
Speaker 1: town forever in Europe has been monetary stimulus, and I
15:36
Speaker 1: think should we see some fiscal improvement there, that could
15:39
Speaker 1: be a potential catalyst. You think we will see that
15:42
Speaker 1: because I know, you know, particularly Germany, which is where
15:45
Speaker 1: everybody I think kind of focuses, has been pretty resolute
15:48
Speaker 1: and saying they're not into that game. Yes, So I
15:50
Speaker 1: think that's an interesting question. It's right now. I would
15:52
Speaker 1: label it a small probability, but a rising probability, and
15:56
Speaker 1: guard and ECB. Maybe she's the you know, the she
15:59
Speaker 1: could be the cha agent. I think Merkel, who had
16:01
Speaker 1: always been loath to do more spendings obviously leaving. So
16:04
Speaker 1: I think that swap in personnel is actually net positive
16:07
Speaker 1: for the for the potential um And you know, listen
16:10
Speaker 1: when you heard Mario dragging on his way out addressing policymakers.
16:14
Speaker 1: He was basically saying, we've gotten to the point of
16:16
Speaker 1: diminishing returns on negative interest rates. So I'm trying to
16:20
Speaker 1: understand how much a trade truce is priced into the
16:23
Speaker 1: idea that we're going to see pretty good year next year.
16:27
Speaker 1: I think that's part of it. I think the other
16:29
Speaker 1: driving factor has been liquidity. And when you look at
16:31
Speaker 1: what's happened in the US the last call it three months,
16:34
Speaker 1: the FETE isn't calling it qui, but effectively we're seeing
16:37
Speaker 1: QUEI four in terms of generating more liquidity. So I
16:40
Speaker 1: think there's this expectation that you're going to continue to
16:43
Speaker 1: have the FETE at your back and a tail win
16:45
Speaker 1: in the markets. And we don't see that this program
16:48
Speaker 1: ends early next year, as we all know, and so
16:50
Speaker 1: that could be a potential source of altility next year.
16:53
Speaker 1: I'm looking right now at equities uh SMP and NASTAC
16:56
Speaker 1: a little little down, but the doubt up all of
16:59
Speaker 1: them near the highs. And how much of the gains
17:02
Speaker 1: of next year have already been brought forward and priced
17:04
Speaker 1: in now. So that's a key question, and I think
17:06
Speaker 1: we would argue Morgan Stanley, a majority of the gains,
17:09
Speaker 1: and we rely not just our own on our own
17:12
Speaker 1: judgment and experience, but also on quantitative models, and our
17:15
Speaker 1: earnings model a year ago was telling us that earnings
17:17
Speaker 1: were at risk, and what we've seen the last three
17:20
Speaker 1: quarters is a meaningful slowdown from we've seen flat to
17:24
Speaker 1: down earnings, and frankly, our numbers for next year is
17:28
Speaker 1: predicting flat earnings once again in the streets at plus
17:31
Speaker 1: ten percent. So we're that spread to normalize in the
17:34
Speaker 1: street to come down ten percent. We think that provides
17:38
Speaker 1: the genesis behind a potential ten percent correction. I want
17:41
Speaker 1: to be perfectly clear though, because we think that's all
17:43
Speaker 1: it is. We don't think it's more than that. We
17:45
Speaker 1: think we're still amid a twenty year secular bowl market
17:49
Speaker 1: that started in and we're just going through some volatility
17:52
Speaker 1: and some potential hiccups. So if you see the potential
17:55
Speaker 1: for perhaps a ten percent pull back in the equity markets,
17:58
Speaker 1: what are you telling your clients to do today to
18:00
Speaker 1: get some build some cash or just get defensive. Interestingly,
18:04
Speaker 1: our clients are already fairly conservatively positioned already, so when
18:09
Speaker 1: you look at our system, cash levels are above average
18:12
Speaker 1: versus the last ten years, so we wouldn't be telling
18:14
Speaker 1: folks to necessarily raise more cash. Here it goes back
18:17
Speaker 1: to my earlier comment at the onset about where you
18:20
Speaker 1: position within the equity market. We're saying avoid some of
18:23
Speaker 1: the more crowded, expensive areas of the market, like technology
18:26
Speaker 1: like growth that have really been on fire this year,
18:29
Speaker 1: and being some of the more value oriented areas of
18:31
Speaker 1: the market. If text not leading, what will I think
18:35
Speaker 1: that's a it's a really great question because you need
18:38
Speaker 1: something of size to lead mathematically. And so if I
18:41
Speaker 1: look at what has size today, the money center, banks,
18:44
Speaker 1: or really what could what could lead so that to us?
18:46
Speaker 1: If the FED stays on pause and we have a
18:49
Speaker 1: resurgence in the old curve like we've already seen the
18:52
Speaker 1: last couple of months. Wait wait, I'm sorry, we need
18:55
Speaker 1: to have a just data check because we are seeing
18:58
Speaker 1: an eighth straight day of yield curve latining today, which
19:01
Speaker 1: I believe is the longest streak in about two years.
19:03
Speaker 1: So we're seeing a bit of a reversal already of
19:05
Speaker 1: that trade. Yeah, and that's I think related to this
19:08
Speaker 1: day to day headline back and forth around China and trade. Right,
19:12
Speaker 1: But I think the greater point of the larger point
19:14
Speaker 1: I'd like to make is that if the FED truly
19:17
Speaker 1: is on hold next year, you could see it an
19:19
Speaker 1: environment where the yeld curve does steep and eventually, and
19:22
Speaker 1: given how cheap the banks are, and given how big
19:24
Speaker 1: again their market caps are, that could be an area
19:27
Speaker 1: of leadership. Once you're once you're selling out of large
19:29
Speaker 1: cap technology, you need something else of size to buy into.
19:33
Speaker 1: You're not just gonna go into microcap stocks or small
19:35
Speaker 1: cap stocks, so that, in our opinion, is a logical
19:38
Speaker 1: source of funds. Dan Skelly, thanks so much for joining us.
19:41
Speaker 1: Really appreciate your smart thoughts there. Dan Skelly, head of
19:44
Speaker 1: Equity Model Portfolios, a market strategy at Morgan Stanley Wealth Management,
19:48
Speaker 1: joining us here in our Bloomberg Interactive Broker studio. Kind
19:51
Speaker 1: of you know a little bit of caution there. Perhaps
19:53
Speaker 1: you know the potential for a pullback into markets next year,
19:57
Speaker 1: but uh, not interrupting the longer term bowl market. I
20:01
Speaker 1: think it's interesting the idea of yield curve steepening. And
20:03
Speaker 1: this goes to something that Priamsra was talking about of
20:06
Speaker 1: TV securities earlier today, where she was saying she expects
20:10
Speaker 1: the FED to cut rates actually at the beginning of
20:12
Speaker 1: the year, and some people are expecting the consumer to
20:15
Speaker 1: show a couple of signs of weakness heading into the
20:17
Speaker 1: new year, as you see a stabilization in the manufacturing
20:20
Speaker 1: sector and that that could push the FED over. And
20:23
Speaker 1: that's sort of the base is increasingly becoming the base
20:27
Speaker 1: case of a number of these reflationary trade bets, which
20:31
Speaker 1: is interesting because the market is pricing in a September
20:34
Speaker 1: eight cut, not in March. I just think it's an
20:38
Speaker 1: interesting kind of dissonance there. Yeah, exactly, exactly. Just a
20:42
Speaker 1: quick data check here, we do have the SMP just
20:44
Speaker 1: again continues very flat today up only one percent and
20:47
Speaker 1: now up so fifty seven points. So very quiet day
20:52
Speaker 1: on the US equity market. I want to shift gears.
21:08
Speaker 1: We've been talking about the auto sector and it was
21:10
Speaker 1: interesting Ken Monahan was saying that he likes bonds of
21:13
Speaker 1: automakers have gotten a little bit beaten up. A big
21:15
Speaker 1: question in my mind is resell values of used cars.
21:18
Speaker 1: And joining us now is Karl Brower. He's executive publisher
21:21
Speaker 1: of the Telly Blue Book US as sort of the
21:24
Speaker 1: bible when it comes to determining what the value of
21:27
Speaker 1: your car is that you're trying to resell. Carl, I'd
21:30
Speaker 1: love to get your sense of what we're seeing in
21:32
Speaker 1: terms of trend lines, Uh, for car and truck values.
21:36
Speaker 1: It's a great question. And uh, you know, for years,
21:39
Speaker 1: the used car values have been very strong. Uh, and
21:42
Speaker 1: we kept thinking they we're gonna drop with all these
21:44
Speaker 1: cars coming off least so many, so many times in
21:46
Speaker 1: the last three years, a lot of vehicles coming off least.
21:49
Speaker 1: We are finally now starting to see a shift down
21:53
Speaker 1: in used car values. Not a tanking, not a dramatic shift,
21:57
Speaker 1: but a shift down, you know, to to a degree
21:59
Speaker 1: we hadn't see in years. So it looks like the
22:02
Speaker 1: new car pricing that's gotten, you know, high keeps going up.
22:05
Speaker 1: It's up around thirty eight thousand dollars now for the
22:07
Speaker 1: average new car. I think it's finally starting to drive
22:10
Speaker 1: some new car buyers back into the used market. Um.
22:13
Speaker 1: And I used car values are are are dropping a
22:16
Speaker 1: little bit as well. So, Carl, I know you guys
22:19
Speaker 1: just published your blue book best Buy Award winners. What
22:23
Speaker 1: are some of the highlights. Well, you know, there's sixteen
22:27
Speaker 1: categories and we've got a bunch of vehicles that we've
22:29
Speaker 1: been testing for resale value and ownership costs, plus of
22:33
Speaker 1: course things like fuel efficiency, safety and technology and how
22:36
Speaker 1: well they drive. And I think the big winner this
22:39
Speaker 1: year was the keya Telier Ride. First year, the Key
22:41
Speaker 1: has made a three row suv and a one not
22:44
Speaker 1: just the three row suv category, but also our best
22:46
Speaker 1: New Vehicle category, which is kind of like just the
22:48
Speaker 1: overall car we're most impressed with for the year. So
22:52
Speaker 1: really a lot of value packed in that car starting
22:54
Speaker 1: around thirty dollars, and a loaded one for low forties
22:57
Speaker 1: that has he didn't cool seats and all sorts of features.
23:01
Speaker 1: All right, Carl, I'm sorry we can't have you on
23:03
Speaker 1: and not ask you about the cyber truck. I mean,
23:06
Speaker 1: you must have known that it was going to be coming,
23:08
Speaker 1: the Elon Musk cyber truck that was tested on stage
23:12
Speaker 1: and failed the shadow proof window test. What do you
23:15
Speaker 1: think of it? Did you like it? You know, he
23:19
Speaker 1: threatened to have some kind of a sci fi you know,
23:21
Speaker 1: a blade runner truck, and he didn't. He didn't disappoint
23:24
Speaker 1: He had a truck that nobody I think thought was real,
23:27
Speaker 1: myself included. I kept waiting seriously, for him to say,
23:30
Speaker 1: all right, right, this is kind of an early sketch,
23:32
Speaker 1: here's the real truck. No, it was it was that
23:34
Speaker 1: was the truck. Uh. And I'm gonna be interesting to
23:38
Speaker 1: see if the final production version looks like that. But
23:40
Speaker 1: I really think that it's good. There's this kind of
23:42
Speaker 1: built up fan club for Tesla models because there'll be
23:46
Speaker 1: plenty people who will want that truck. And you're not
23:48
Speaker 1: going to answer what you really think of this truck,
23:49
Speaker 1: are you? That's quite clear what I'm saying. I think
23:53
Speaker 1: it's just gonna be hard for traditional truck buyers to
23:55
Speaker 1: buy into it. I think that it's just been a
23:56
Speaker 1: pure electric truck with traditional styling that would have been
23:59
Speaker 1: somewhat of a leaf traditional truck fires, but you add
24:01
Speaker 1: in the styling. I just don't think he's going to
24:03
Speaker 1: get much of that. You know, one and a half
24:05
Speaker 1: million volume full size truck market, which is a great
24:08
Speaker 1: market that tapped into now a couple of years go by.
24:11
Speaker 1: It's dependable, it doesn't have any issues. Maybe you'll start
24:14
Speaker 1: to pull, you know, stifon off some of that huge segment,
24:17
Speaker 1: but for the near term, you're going to mostly get
24:19
Speaker 1: Tesla or tech oriented fans, not really truck fans on
24:22
Speaker 1: that truck. So Carl looking again at your best Buy
24:25
Speaker 1: award winners, you know, outside of the pickup trucks, and
24:29
Speaker 1: again the cybertruck is Leasa's favorite. I think now you're
24:32
Speaker 1: trying to get back to real stuff high I think,
24:34
Speaker 1: I mean, I don't see. It's pretty much all uh
24:37
Speaker 1: international nameplates. Where are the US carmakers in terms of
24:41
Speaker 1: quality right now? They've come a long way and there
24:45
Speaker 1: the truth is, the markets more competitive than it's been
24:47
Speaker 1: in a long time. Every you know, continent is contributing
24:51
Speaker 1: great cars, whether it's Asia or Europe or the US. UM.
24:55
Speaker 1: But you're right, that's set, you know, when it comes
24:57
Speaker 1: to resell value, which is a key part of Kelly
25:00
Speaker 1: u book, you know, and how we value vehicles and
25:02
Speaker 1: we want people to buy a car and had to
25:04
Speaker 1: suffer the least drop in value over time. That's one
25:07
Speaker 1: of the biggest most expensive things. People don't think about.
25:09
Speaker 1: They buy the car, and they don't often think about
25:10
Speaker 1: the drop in value and the and a lot of
25:13
Speaker 1: the you know, Japanese cars and uh, some of the
25:16
Speaker 1: European cars they do better in those areas than a
25:18
Speaker 1: lot of the US cars. Still it's a much tighter race.
25:21
Speaker 1: US cars keep getting better and they're closer, but Honda's,
25:25
Speaker 1: Hyundai's auties, they still have a lot of the advantage
25:28
Speaker 1: in that area. Carl, just real quick here thirty seconds.
25:31
Speaker 1: I'm wondering which kind of vehicle is seeing the biggest
25:34
Speaker 1: price drop in resale values? Uh? You know, uh sedans.
25:40
Speaker 1: As you know, the market has just kind of abandoned them.
25:44
Speaker 1: So I think when you've got uh Sadan's, especially non
25:47
Speaker 1: popular sedans, you still have strength in like the Honda
25:50
Speaker 1: Accord or a Toad to camera. But I think the
25:53
Speaker 1: reason that all the domestics bailed out of this of
25:55
Speaker 1: the sedan market is, among other things beyond not selling
25:58
Speaker 1: them when they're new, is they don't hold their value
26:00
Speaker 1: when they're used. They're just not just not popular cars
26:03
Speaker 1: with consumers today. Carl Brower, thank you so much for
26:05
Speaker 1: joining us. Carl is the executive publisher of Kelly Blue
26:08
Speaker 1: Book the Phone. They're based in Irvine, California. Giving us
26:12
Speaker 1: some thoughts about the some of the hot and maybe
26:15
Speaker 1: not so hot cars coming for of course, I guess
26:19
Speaker 1: we now when we think about one, we can think
26:21
Speaker 1: about this cybertruck I thought what he said was actually
26:24
Speaker 1: a really important point, which is, it's one thing if
26:28
Speaker 1: they had a truck that just was the Incorporated Electric Technologies.
26:32
Speaker 1: It's another if it looks like it's yes, I'm going
26:35
Speaker 1: to repeat this Doctor Who all over again. If you
26:37
Speaker 1: start to, you know, have this sort of sci fi aspect,
26:40
Speaker 1: you're not going to get the rank and file truck
26:43
Speaker 1: buyer exactly, which is an interesting point, but that probably
26:46
Speaker 1: wouldn't have been in keeping with who Elon Musk is. Anyway,
26:50
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
26:52
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Speaker 1: Twitter at pt Sweeney. I'm Lisa Abramo Woods. I'm on
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Speaker 1: Twitter at Lisa abramow Woods. One before the podcast, you
27:04
Speaker 1: can always catch us worldwide on Bloomberg Radio