Latest / Bloomberg Intelligence / Market Volatility, Supply Chain, And The Economy (Podcast)

Transcript

Market Volatility, Supply Chain, And The Economy (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. I want to get
• 0:21
  Speaker 1: through our next guest right away, to Grant Ron Sanchez,
• 0:24
  Speaker 1: executive vice president, chief Information, chief investment officer for Fiduciary
• 0:28
  Speaker 1: Trust Company International. Ron, thanks so much for joining us here. Boy,
• 0:32
  Speaker 1: when you have a volatile week like this week, we've
• 0:34
  Speaker 1: got you know, two or three four percent moves every
• 0:37
  Speaker 1: day in equity indices, what's the conversation like with your
• 0:41
  Speaker 1: portfolio managers? Do you buy the dips? Do you sell
• 0:43
  Speaker 1: the rips? Do you add the names you like? What's
• 0:46
  Speaker 1: the conversation like? Uh, thank you and good morning. Thanks
• 0:51
  Speaker 1: for having me on. Obviously the zero challenging um conversations.
• 0:55
  Speaker 1: Markets are particularly complicated right now, and you mentioned a
• 0:59
  Speaker 1: week like we've had. Nonetheless, the sort of the profile
• 1:02
  Speaker 1: we've had on a year to day basis um to
• 1:04
  Speaker 1: this week would be described as UM almost violently unchanged UM,
• 1:09
  Speaker 1: and so we are UM positions close to neutral here
• 1:14
  Speaker 1: UM and UM. I'm not sure that we have actually
• 1:19
  Speaker 1: seen the lows here. I would say, though, that we're
• 1:22
  Speaker 1: preparing both portfolio matches and clients to continue to see
• 1:27
  Speaker 1: challenging environment unfold over the next couple of months. And
• 1:31
  Speaker 1: the reason I say that is, I think what some
• 1:34
  Speaker 1: of the major challenges for the economy and for policy
• 1:38
  Speaker 1: makers UM. You don't necessarily get a degree of clarity
• 1:42
  Speaker 1: in the next month or two UM, and it's really
• 1:46
  Speaker 1: a second half development. So I think we need to
• 1:48
  Speaker 1: sort of buckle up and continue to see UM volatile
• 1:52
  Speaker 1: markets and most likely unchanged markets here as we sort
• 1:56
  Speaker 1: of choppy for the next month or two RON. What
• 1:58
  Speaker 1: does it mean to you that we see the tenure
• 2:00
  Speaker 1: yield back above three for the first time in years.
• 2:05
  Speaker 1: It's it's actually extraordinary to think about just the magnitude.
• 2:09
  Speaker 1: I mean, if you go back to the beginning of
• 2:10
  Speaker 1: the year, we've essentially doubled. We were one seven at
• 2:14
  Speaker 1: or call it in one and a half an hour
• 2:15
  Speaker 1: at three. I think what we're experiencing UM is a
• 2:19
  Speaker 1: rapid um acceleration of monetary policy UM. And again, as
• 2:24
  Speaker 1: it's been talked about, the fetters is in fact behind
• 2:28
  Speaker 1: the curve and they are in major catch up mode UM.
• 2:32
  Speaker 1: And I think the tenure as well as the two
• 2:34
  Speaker 1: years for that matter, are UM. I wouldn't necessarily say ahead,
• 2:38
  Speaker 1: but more mature in the normalization of interest rates. And
• 2:42
  Speaker 1: so what I mean by that is the fellow reserve
• 2:43
  Speaker 1: again move this week for the second time, but the
• 2:47
  Speaker 1: interest rate complex is already reflecting UM a continuation of
• 2:52
  Speaker 1: that tightening throughout year end. And I think that markets
• 2:55
  Speaker 1: in terms of tightening financial conditions probably are I wouldn't
• 3:01
  Speaker 1: say all, but reflect about the tightening cycle that will
• 3:05
  Speaker 1: inevitably occur within the next six to twelve months. Al Right,
• 3:09
  Speaker 1: So as the fed UH focuses on battling inflation, let's
• 3:13
  Speaker 1: think about economic growth and the impact that can have
• 3:15
  Speaker 1: on economic growth. Do you have a recession in your model,
• 3:18
  Speaker 1: do you have stagflation coming into your model? How do
• 3:21
  Speaker 1: you think about economic growth? So currently economic growth is
• 3:26
  Speaker 1: UM is really solid and I think the underpinnings, if
• 3:29
  Speaker 1: you will UM from a both corporate and consumer fundamental
• 3:33
  Speaker 1: balance sheet, UM wage growth will remain solid. So we
• 3:37
  Speaker 1: do not expect over the next twelve months and economic recession.
• 3:42
  Speaker 1: We do expect giving tightening financial conditions, UM, high inflation
• 3:48
  Speaker 1: which will create a high energy costs, create some demand
• 3:51
  Speaker 1: destruction as we move further away from the fiscal stimulus
• 3:55
  Speaker 1: UM that was that we experienced UM last year. UM.
• 4:00
  Speaker 1: I do think that we are definitely going to experience
• 4:03
  Speaker 1: a moderating economic backdrop and a convergence over the balance
• 4:07
  Speaker 1: of the year as the economy moderates UM and supply
• 4:12
  Speaker 1: issues sort of a bait. Over the second half of
• 4:14
  Speaker 1: the year, I think we'll see a better realignment of
• 4:18
  Speaker 1: economic growth and the ability to produce, which should ease
• 4:22
  Speaker 1: inflationary pressures. But again that's the second half story. As
• 4:26
  Speaker 1: we get so many superlatives UM that that compare what's
• 4:33
  Speaker 1: happening now to two tho nine. I wonder what your
• 4:36
  Speaker 1: thoughts are on the housing market. I mean, everyone seems
• 4:38
  Speaker 1: so sanguine, UM, but prices, you know, people are paying
• 4:44
  Speaker 1: any price that sell or swat, as Paul can attest
• 4:47
  Speaker 1: to having recently sold his crib. And UM, now we're
• 4:51
  Speaker 1: seeing mortgage rates at five point three percent. At what point, UM,
• 4:55
  Speaker 1: does this housing market start to look problematic? UM? I
• 5:00
  Speaker 1: think today UM. I think the you know, we talked
• 5:03
  Speaker 1: about the tenure doubling. The same could be said for
• 5:05
  Speaker 1: mortgage rates. As you pointed out, we are north of
• 5:08
  Speaker 1: five percent UM, and we have been in a sort
• 5:11
  Speaker 1: of a pandemic induced UM housing market, and so UM
• 5:18
  Speaker 1: there's very little supply UM and affordability though has meaningfully
• 5:23
  Speaker 1: changed in the last six months. And I do think
• 5:25
  Speaker 1: that on its own UM, the demand wasn't sustainable UM.
• 5:29
  Speaker 1: It was clearly reflective of a shift and a preference
• 5:33
  Speaker 1: for for housing post pandemic and work from home. I
• 5:36
  Speaker 1: think that will moderate UM, but I don't think it's
• 5:39
  Speaker 1: necessarily You want to probably make a distinction between price
• 5:43
  Speaker 1: UM and UM and and sort of value UM. So
• 5:47
  Speaker 1: I think that UM, we're probably going to see a
• 5:49
  Speaker 1: peak in housing prices probably UM. It's really difficult to
• 5:55
  Speaker 1: envision prices continuing to surge UM during the second half
• 6:00
  Speaker 1: the year. But I think more importantly UM, given the
• 6:03
  Speaker 1: low supply, I do think it comes off the boil,
• 6:05
  Speaker 1: so to speak, UM, and maybe a modest pulled back,
• 6:08
  Speaker 1: but the leverage from a consumer standpoint relative to O
• 6:14
  Speaker 1: eight is not comparable. So again, headwinds from housing UH
• 6:19
  Speaker 1: and consumption again will moderate this economy, and I actually
• 6:22
  Speaker 1: think that's most most favorable. We do not want to
• 6:25
  Speaker 1: run hot, so the most interest rate sensitive sectors will
• 6:29
  Speaker 1: show it first, and I think housing is a prime example.
• 6:31
  Speaker 1: All Right, Ron, we're pretty much through the earning season
• 6:34
  Speaker 1: for the sp you know, more than eight percent the
• 6:37
  Speaker 1: companies have reported. Any key takeaways from you, anything that
• 6:40
  Speaker 1: changed your investment outlook, No, I think we had. Uh.
• 6:46
  Speaker 1: What we received here is validation from companies that the
• 6:49
  Speaker 1: current environment UM is robust. Um. We've seen mostly beats
• 6:54
  Speaker 1: both in the top line and bottom line. But what
• 6:57
  Speaker 1: is sort of irking markets and clean ourselves is the
• 7:00
  Speaker 1: lack of clarity for the second half of the year UM.
• 7:03
  Speaker 1: And I think that's a that's a challenge for businesses,
• 7:06
  Speaker 1: leads a challenge for consumers, and it's certainly a challenging
• 7:09
  Speaker 1: for environment for investors. There is necessarily no model here, UM.
• 7:15
  Speaker 1: As you move from seeing rates adjust so quickly, UM
• 7:19
  Speaker 1: a sort of reopening two point up in the economy
• 7:22
  Speaker 1: here as as we sort of move at least temporarily
• 7:25
  Speaker 1: past post COVID and sort of uh, you know, a
• 7:29
  Speaker 1: pick up in consumer demand but not but again it's
• 7:33
  Speaker 1: a lack of clarity, but the under underpinnings at the
• 7:36
  Speaker 1: corporate corporate level of pretty good all right, Ron, good
• 7:39
  Speaker 1: good stuff there, Ron Sanchez E V P and c
• 7:41
  Speaker 1: I O Fuduciary Trust Company International. Again, non farm perils
• 7:50
  Speaker 1: came in better than expected four or twenty eight thousand.
• 7:53
  Speaker 1: Consensus was thousand, So pretty good number there. Um. We
• 7:58
  Speaker 1: had wages also on the rise year of year about
• 8:00
  Speaker 1: five and a half percent. Pretty solid numbers there. Let's
• 8:03
  Speaker 1: dig under the hood on those numbers. Johnny Biley, chief
• 8:06
  Speaker 1: workforce analysts at employee Bridge, joins us. Johnny, what were
• 8:10
  Speaker 1: your key takeaways? What from seams on the surface like
• 8:13
  Speaker 1: some pretty good employment numbers. Well, it was it was
• 8:16
  Speaker 1: a strong report, better than expected, as you mentioned, and
• 8:21
  Speaker 1: you know, it's great to see that we're still having
• 8:24
  Speaker 1: job creation. I was a little nervous that we might
• 8:27
  Speaker 1: not see that big of a number, and it's not
• 8:29
  Speaker 1: because of demand. Uh, certainly, we see a very very
• 8:33
  Speaker 1: strong demand, but there's still a tremendous challenge with supply
• 8:39
  Speaker 1: of labor and getting people actually back to work. So
• 8:43
  Speaker 1: you know, when you dig into this report though, there
• 8:46
  Speaker 1: there is a lot of good news. My biggest concern
• 8:49
  Speaker 1: in this report remains to be with labor participation. We
• 8:54
  Speaker 1: just don't have enough part. You know, people participating in
• 8:58
  Speaker 1: the labor force in the United Did States to meet
• 9:01
  Speaker 1: the demand for today. And that's why is it to
• 9:04
  Speaker 1: be such a challenge. Is that because employers aren't paying enough,
• 9:09
  Speaker 1: people are still sitting on the sidelines because they want
• 9:11
  Speaker 1: more money. Well, I think it's a number of issues,
• 9:16
  Speaker 1: UM that are really impacting the labor force. UM. We
• 9:20
  Speaker 1: are seeing wages move up nicely, but they're not keeping
• 9:25
  Speaker 1: up with inflation. I do believe that due to inflation,
• 9:30
  Speaker 1: we are going to see people forced to have to
• 9:33
  Speaker 1: participate back in the workforce UM. But there's there's a
• 9:36
  Speaker 1: number of reasons why it's so low. You know, baby
• 9:39
  Speaker 1: boomers have been retiring, the younger generation still maybe staying
• 9:44
  Speaker 1: in school for additional education before you know, just getting
• 9:48
  Speaker 1: a four year degree and getting UM into the workforce,
• 9:52
  Speaker 1: maybe staying for a master's or continuing education. So the
• 9:56
  Speaker 1: numbers are low there. We see women have opted out
• 10:00
  Speaker 1: of the workforce UM, and it's that has declined since
• 10:04
  Speaker 1: the pandemic UM. So it's it really is a number
• 10:08
  Speaker 1: of factors. The other issue is we're hearing that people
• 10:11
  Speaker 1: don't want to come back to work UM. They don't
• 10:14
  Speaker 1: want to come back into the office. They want flexibility,
• 10:18
  Speaker 1: they want the ability to work you know, remotely UM.
• 10:23
  Speaker 1: And that is very appealing to UM workers today. So
• 10:27
  Speaker 1: companies that are trying to attract talent, you know, should
• 10:31
  Speaker 1: think about if they could offer that option. That is
• 10:34
  Speaker 1: very attractive to people. Right now, Johnny, we have the
• 10:39
  Speaker 1: participation rate, which you called out at sixty two. What's
• 10:44
  Speaker 1: a healthy number in your mind? Well, I think you know,
• 10:48
  Speaker 1: at all time highs were probably six seven percent UM
• 10:53
  Speaker 1: was the highest it ever was. So, you know, it
• 10:55
  Speaker 1: would be great to see us get back up even
• 10:58
  Speaker 1: to UM sixty four sixty five UM. But unfortunately that
• 11:03
  Speaker 1: number just you know, hasn't hasn't been moving. We've we've
• 11:07
  Speaker 1: been at this level UM really since the pandemic. It
• 11:12
  Speaker 1: was a little bit higher before the pandemic. We were
• 11:16
  Speaker 1: hovering around maybe sixty three, getting up closer to six.
• 11:20
  Speaker 1: It would be great to see that number closer to
• 11:22
  Speaker 1: sixty five. In terms of wage increases, we saw I
• 11:28
  Speaker 1: think zero point three percent month over month UM year
• 11:32
  Speaker 1: of a year five point five percent in normal times
• 11:35
  Speaker 1: that would be good to great right for labor, but
• 11:39
  Speaker 1: right now it's it's it's barely half of inflation. Are
• 11:43
  Speaker 1: workers having a really difficult time keeping up? Workers are,
• 11:48
  Speaker 1: especially the hourly workers. You know, when you look at
• 11:52
  Speaker 1: the jobs, more of the blue collar jobs or lower
• 11:57
  Speaker 1: level jobs, it's having a tremendous impact to those workers
• 12:02
  Speaker 1: and to their families. And we all see it, right
• 12:04
  Speaker 1: the price at the pump, the price at the grocery store,
• 12:08
  Speaker 1: just everything is costing more money and their dollar just
• 12:13
  Speaker 1: doesn't go as far. So that is a real challenge.
• 12:16
  Speaker 1: I think when you look at the lower to middle
• 12:20
  Speaker 1: you know range for workers, um when when it comes
• 12:24
  Speaker 1: to salaries, they're feeling it and they're getting hit the hardest.
• 12:28
  Speaker 1: Um Now, I will say employers are are realizing it.
• 12:32
  Speaker 1: We are seeing on the front lines that employers are
• 12:35
  Speaker 1: increasing pay and they're doing it for a number of reasons.
• 12:38
  Speaker 1: It's not only to attract new workers, but they're having
• 12:40
  Speaker 1: to do it to retain their current workers. We've all
• 12:44
  Speaker 1: heard about, you know, the great resignation. I mean that's
• 12:48
  Speaker 1: real and that's here and it's a big challenge for
• 12:51
  Speaker 1: employers today. So they are raising wages. I'm surprised we're
• 12:55
  Speaker 1: not seeing more of that reflective in this report. Joy,
• 12:58
  Speaker 1: thank you so much for us. Was appreciate getting your
• 13:01
  Speaker 1: perspective here on these jobs numbers. Uh, Joni Bailey, chief
• 13:05
  Speaker 1: workforce Analysts for Employee Bridge, And again a better than
• 13:09
  Speaker 1: expected number there, four twenty eight thousand jobs added last months.
• 13:14
  Speaker 1: That's a solid number. We've seen some good, good recovery
• 13:18
  Speaker 1: presumably of all those jobs that were lost on a
• 13:20
  Speaker 1: pandemic now recovered. Let's get to our next guest, right,
• 13:25
  Speaker 1: Alf Kurt Seaver's president and CEO of n XP Semiconductors.
• 13:29
  Speaker 1: All right, Kurt, you're in here in our Bloomberg getting
• 13:30
  Speaker 1: after Broker studio. We appreciate you making the trip in here.
• 13:34
  Speaker 1: Semiconductor shortage, I just don't get it because my feeling is,
• 13:41
  Speaker 1: you guys have got floor after floor after floor in
• 13:43
  Speaker 1: your headquarters of NBA students and graduates who do nothing
• 13:47
  Speaker 1: but forecast semiconductor chip demand. How did the industry fall
• 13:51
  Speaker 1: so short and why is it taking so long to
• 13:53
  Speaker 1: get back to normalcy? Yeah? So, thanks Matt and Paul. Indeed,
• 13:58
  Speaker 1: um demand is exploding in our particular case with a
• 14:02
  Speaker 1: very very strong exposure to automotive in industrial, so half
• 14:05
  Speaker 1: half of our company is automotive. The most striking trend,
• 14:08
  Speaker 1: which lets demand explode, is actually the trend to xtvs SO.
• 14:13
  Speaker 1: Electric vehicles hybrid electric vehicles um together with premium cars
• 14:17
  Speaker 1: make now thirty percent of the total car production this year.
• 14:21
  Speaker 1: SOT of all cars being produced this year are electric
• 14:25
  Speaker 1: or premium. I'm stressing that because electric and premium vehicles
• 14:29
  Speaker 1: have two to three times more semiconductor content than a
• 14:32
  Speaker 1: conventional vehicle. That wasn't really foreseen, especially not through the
• 14:36
  Speaker 1: COVID breakdowns in early twenty twenty. Now, just to put
• 14:41
  Speaker 1: it in perspective, because it feels like we are crippled
• 14:43
  Speaker 1: from a supply perspective, not quite true. We did grow
• 14:47
  Speaker 1: our automotive revenues last year by forty percent year on year,
• 14:52
  Speaker 1: and that is not including pricing. So I just want
• 14:55
  Speaker 1: to be sure this is raw volume up. In the
• 14:58
  Speaker 1: first quarter of this year, we had earnings. Just this
• 15:01
  Speaker 1: week we did grow another and I just guided another
• 15:04
  Speaker 1: twenty six percent year on year growth in the second
• 15:07
  Speaker 1: quarter and second half of this year. Again, it is
• 15:09
  Speaker 1: going to be larger. Long story short, the ship record
• 15:14
  Speaker 1: volumes quarter after quarter. However, the demand is even growing steeper.
• 15:19
  Speaker 1: Now you asked, what's the way to fix this, how
• 15:22
  Speaker 1: to how to get out of this situation? The most
• 15:25
  Speaker 1: structural way obviously is building new chip factories. And as
• 15:29
  Speaker 1: a matter of fact, it takes say four to five
• 15:32
  Speaker 1: years to build a chip factory, qualify all the twos
• 15:36
  Speaker 1: until product comes out. So you see record capex numbers
• 15:40
  Speaker 1: in the industry. The industry is building new factories. The
• 15:43
  Speaker 1: Chip s ACT here in the US, the Chips ACT
• 15:45
  Speaker 1: in Europe is helping that big time. Um, but it's
• 15:48
  Speaker 1: gonna take well into i'd say twenty four until that
• 15:52
  Speaker 1: is going to yield from that perspective supply demand balance.
• 15:56
  Speaker 1: So wow, not until two thowenty four do we see equilibrium.
• 16:01
  Speaker 1: And to be honest, I'm hearing that from automotive CEOs
• 16:04
  Speaker 1: as well, UM that we're still going to have shortages
• 16:09
  Speaker 1: throughout this year into next year. Um, what about n
• 16:13
  Speaker 1: XP in terms of capex, in terms of building new factories,
• 16:17
  Speaker 1: in terms of an equilibrium for for you and your customers.
• 16:21
  Speaker 1: Let me start in the short term, UM, for this year,
• 16:25
  Speaker 1: in all fairness, we are sold out. UM. So it's
• 16:28
  Speaker 1: just it's just not any any revenue growth this year
• 16:31
  Speaker 1: is only gated by supply UM. From a capex perspective,
• 16:36
  Speaker 1: m we hiked up our capex two ten percent of revenue,
• 16:40
  Speaker 1: and that in an environment where our revenue was massively
• 16:43
  Speaker 1: growing Historically we've had four to five capex spending, so
• 16:46
  Speaker 1: it doubled from a percentage perspective, but actually in dollar
• 16:49
  Speaker 1: terms much more since our revenue was growing so much UM.
• 16:53
  Speaker 1: And that is we have two sorts of factories. We
• 16:58
  Speaker 1: have back and test an assembly fact trees, and we
• 17:01
  Speaker 1: have chip factories. So you you first produced the chip,
• 17:03
  Speaker 1: then you have to assemble the chip in order to
• 17:05
  Speaker 1: ship it to customers. The back end testing assembly is
• 17:09
  Speaker 1: relatively quick, so we are in equilibrium. So we there
• 17:13
  Speaker 1: is enough capacity. The other half of our tempers and
• 17:17
  Speaker 1: CABECK spending goes indeed in in building out our chip facilities.
• 17:21
  Speaker 1: We have chip three chip factories here in the US,
• 17:23
  Speaker 1: one in Europe, another chair venture in in Singapore, and
• 17:27
  Speaker 1: that takes time. So the investments from last year will
• 17:31
  Speaker 1: start to yield product next year. What we invest this
• 17:35
  Speaker 1: year and I talked about big numbers, will start to
• 17:38
  Speaker 1: yield product in twenty four And that's the reason why
• 17:42
  Speaker 1: I said there is a phase shift between the capex
• 17:44
  Speaker 1: investment and the equilibrium. Now, I have to say all
• 17:48
  Speaker 1: of that, of course, considers a continued strong demand. Now,
• 17:53
  Speaker 1: the chip industry has always been cyclic um so it
• 17:56
  Speaker 1: cannot be excluded. At some point. There's also at least
• 18:00
  Speaker 1: the softening in demand, and in some markets we don't
• 18:03
  Speaker 1: serve them. But in the PC market, in the in
• 18:06
  Speaker 1: the mobile market, I'm hearing that there is already some
• 18:09
  Speaker 1: softening that could be a short to midterm relief because
• 18:13
  Speaker 1: some of the technology is being used for for mobile
• 18:15
  Speaker 1: and compute could be funcible. Let's focus on automotive because, frankly,
• 18:22
  Speaker 1: who cares about the other stuff? I just I finally
• 18:26
  Speaker 1: put in the order from my new truck. I got
• 18:28
  Speaker 1: a Chevy coming that has heated and cooled seats, It's
• 18:31
  Speaker 1: got heated steering wheel, it's got front and rear park assist,
• 18:35
  Speaker 1: automated cruise control. All of these things lane keep assist.
• 18:39
  Speaker 1: All of these things need chips. And that's why you
• 18:41
  Speaker 1: know many of the orders are coming without the luxurious
• 18:46
  Speaker 1: extras and they're saying the dealer will retrofit them later.
• 18:49
  Speaker 1: Which are the chips that you're selling? What? What are
• 18:52
  Speaker 1: you allowing car makers to offer customers actually everything you
• 18:56
  Speaker 1: just said it more so we are We are the
• 19:01
  Speaker 1: largest micro controller and microprocesses supplier to the automotive industry.
• 19:05
  Speaker 1: And there is no application in the car which would
• 19:09
  Speaker 1: not need micro controllers and microprocesses. And I have to
• 19:12
  Speaker 1: agree with you. There is unfortunately some d featuring going
• 19:16
  Speaker 1: on because the priorities, of course, on the essential drive functions.
• 19:21
  Speaker 1: I mean you cannot you cannot drawn the car without
• 19:25
  Speaker 1: engine management, hybrid hybrid management, without electronic brakes, etcetera, which
• 19:31
  Speaker 1: means there is some d featuring when it's about seat electronics,
• 19:34
  Speaker 1: wireless charging for your iPhone in the dashboard. And trust me,
• 19:40
  Speaker 1: this is as painful for me as it is for
• 19:42
  Speaker 1: you as a customer. I would love to make the business.
• 19:44
  Speaker 1: I just don't have the capacity. All right, Kurt Seivers,
• 19:47
  Speaker 1: thank you so much for joining us. Kurt Sievers, President
• 19:49
  Speaker 1: and CEO of an XP Semiconductors in the Boomberg Interactive
• 19:52
  Speaker 1: Progress Studio. We appreciate him coming in. You know, we
• 19:59
  Speaker 1: had a like good jobs number this morning, so the
• 20:02
  Speaker 1: labor market seems to be in shape. That's a good thing.
• 20:05
  Speaker 1: We've got an inflation that's a bad thing. And we've
• 20:07
  Speaker 1: got a federal reserve that is get increasingly the aggressive
• 20:10
  Speaker 1: and raising rates, and that presumably could be a challenge
• 20:13
  Speaker 1: as well. Does that all add up to a recession
• 20:16
  Speaker 1: or staflation? I don't know, but I know somebody who
• 20:18
  Speaker 1: might have some good opinions there, Jeffrey Cleveland, Director and
• 20:21
  Speaker 1: chief economists at paid In and Regal. Jeff, thanks so
• 20:24
  Speaker 1: much for joining us here in your twenty two maybe
• 20:26
  Speaker 1: even twenty three outlook. Do you have a recession baked in?
• 20:30
  Speaker 1: Not yet? For me, the best real time indicator for
• 20:34
  Speaker 1: growth is actually this payroll survey. So now we have
• 20:37
  Speaker 1: that data through April, and you know, the three month
• 20:41
  Speaker 1: average still above five thousand in terms of monthly job growth.
• 20:45
  Speaker 1: That is a really that is really solid momentum. So
• 20:49
  Speaker 1: in the in the near term, I think the US
• 20:51
  Speaker 1: economy is good new momentum. The main I think the
• 20:55
  Speaker 1: question is people say recession, clients ask about it, the
• 20:58
  Speaker 1: question become was, Okay, what's going to be the cause?
• 21:02
  Speaker 1: And by and large people point to the Fed. The
• 21:05
  Speaker 1: Fed is going to tighten too much, and that might happen,
• 21:09
  Speaker 1: but it's gonna I still think that's down the road.
• 21:12
  Speaker 1: I mean we are now with one percent on the
• 21:15
  Speaker 1: upper end of the Fed Funds range. I don't think neutral.
• 21:18
  Speaker 1: I think neutrals around three and a half, maybe a
• 21:20
  Speaker 1: little bit higher than that. So they need to get
• 21:23
  Speaker 1: to three and a half before I'm gonna get overly
• 21:26
  Speaker 1: concerned about tightening too much and causing a downturn. So
• 21:30
  Speaker 1: I think that turns are premature. At the same time, Jeffrey,
• 21:33
  Speaker 1: we're seeing mortgage rates now at five point three percent,
• 21:36
  Speaker 1: and I know there are a lot of homebuyers who
• 21:39
  Speaker 1: are itching to way overspend um if they were able
• 21:43
  Speaker 1: to find anything out there, who now are saying, you
• 21:46
  Speaker 1: know what, I I don't think I can I really
• 21:49
  Speaker 1: can't stretch enough to afford that. Yeah, I think you
• 21:53
  Speaker 1: are a healthy critic of my view. You would say, hey,
• 21:57
  Speaker 1: the Fed Funds rate is not the rate to fall
• 22:00
  Speaker 1: low the you need to look at financial conditions, how
• 22:03
  Speaker 1: it's hitting the consumer right now. And I think in
• 22:05
  Speaker 1: case you know, exhibit A is the mortgage rate. Uh,
• 22:09
  Speaker 1: we were at to fifty on thirty year fixed in
• 22:12
  Speaker 1: the summer of so we're up almost three hundred basis points.
• 22:17
  Speaker 1: This is going to hit the marginal buyer. I mean that.
• 22:19
  Speaker 1: I guess the tricky thing is it will slow housing.
• 22:22
  Speaker 1: The marginal buyer is going to step away. Demand will
• 22:24
  Speaker 1: pull back, so we'll take some of the excess out
• 22:27
  Speaker 1: of housing the existing owner though. I mean, if you
• 22:30
  Speaker 1: have locked in a thirty year fixed this is not
• 22:32
  Speaker 1: hitting you your pocketbook at all. Um, you're sort of
• 22:34
  Speaker 1: insulated from the recent rising prices, So it might not
• 22:37
  Speaker 1: have this, you know, broader impact on consumer spending that
• 22:41
  Speaker 1: people fear so. Jeffrey also today in the in the
• 22:45
  Speaker 1: data we got regarding employment, uh, five point five percent
• 22:49
  Speaker 1: average average hourly earnings on a year of a year
• 22:51
  Speaker 1: basis that five point five percent growth. Ordinarily I would
• 22:54
  Speaker 1: say that's pretty darn good. But we've got inflation, headline
• 22:57
  Speaker 1: inflation north of eight percent, so my real wages went down.
• 23:01
  Speaker 1: How do you think about that? How do you think
• 23:03
  Speaker 1: the Fed Reserve thinks about that? Especially for lower income people,
• 23:06
  Speaker 1: right the only thing they're buying is gas and food
• 23:09
  Speaker 1: and paying rent. So for them, inflation is much higher
• 23:12
  Speaker 1: than eight percent, and they're just not keeping up. That's right.
• 23:16
  Speaker 1: I mean, I think one counter argument to that would
• 23:19
  Speaker 1: be to look at core inflation, you know, so closer
• 23:22
  Speaker 1: to six percent year on year, the five and a
• 23:25
  Speaker 1: half percent average generally earnings, you're you're you're getting close
• 23:27
  Speaker 1: to keeping up, do have, Jeffrey? Those are the core
• 23:31
  Speaker 1: inflation excludes all of the things those people need to buy, right, yes,
• 23:37
  Speaker 1: who cares what core inflation? That you can't eat an
• 23:39
  Speaker 1: iPad is. Someone famously told Ben Burn nanky, right, you've
• 23:42
  Speaker 1: got to put gas in the car and food in
• 23:44
  Speaker 1: your mouth. This is my favorite UH topic of conversations.
• 23:48
  Speaker 1: The reason I think economists focus on food and energy
• 23:52
  Speaker 1: excluded that you know, the core measure is not to
• 23:54
  Speaker 1: ignore food and energy. It's just that they tend to
• 23:57
  Speaker 1: be volatile in the shorter run, and they could be
• 23:59
  Speaker 1: down as much as they're up, so gas prices could
• 24:01
  Speaker 1: be down in the months ahead, and then if you're
• 24:04
  Speaker 1: looking at the underlying trend, you have to focus on core.
• 24:07
  Speaker 1: I actually would prefer investors not to do the traditional
• 24:11
  Speaker 1: core measures, but to look at trimmed mean inflation. That's
• 24:14
  Speaker 1: a better measure of core because to your point, it
• 24:17
  Speaker 1: doesn't just exclude arbitrarily food and energy. It excludes whatever
• 24:21
  Speaker 1: are the outliers in that given month. So we look
• 24:24
  Speaker 1: at trimmed mean PC on a year on your basis
• 24:27
  Speaker 1: for example, it's three point seven, so it's much better shape.
• 24:31
  Speaker 1: That is ultimately where those headline measures will end up
• 24:35
  Speaker 1: over a twelve month rise in my view. So that's
• 24:39
  Speaker 1: I know, it's tough in the short run, but that's
• 24:40
  Speaker 1: kind of where we're gonna end up. And if we
• 24:42
  Speaker 1: can hear what you're saying, but you know, what we had.
• 24:44
  Speaker 1: We had Simon Kennedy on sorry Will Kennedy on yesterday
• 24:47
  Speaker 1: from Bloomberg News saying that if it weren't for the
• 24:51
  Speaker 1: lockdowns in China, Brent crude would be closer to one
• 24:54
  Speaker 1: thirty nine, you know, than where it is now. You
• 24:59
  Speaker 1: think gas prices, you think oil prices are really going
• 25:01
  Speaker 1: to come down in the next few months, Well, it's
• 25:05
  Speaker 1: I think just looking at the history of food and
• 25:09
  Speaker 1: energy prices, you do tend to have pretty volatile swings
• 25:12
  Speaker 1: in those in those categories. So on I think on
• 25:15
  Speaker 1: a long enough time horizon, it's possible. So long enough
• 25:18
  Speaker 1: time arizing for me is you're talking about your twelve
• 25:21
  Speaker 1: month um the next four six weeks, next month, I don't,
• 25:25
  Speaker 1: I don't know. That's that's more difficult to say, but
• 25:27
  Speaker 1: I think, you know, looking more at those trend mean
• 25:31
  Speaker 1: measures of core inflation is probably a fair estimate of
• 25:33
  Speaker 1: where inflation will get to in a In a year's time,
• 25:37
  Speaker 1: that would still be let's say, roughly a four um
• 25:40
  Speaker 1: inflation rate. But if average atily earnings is five and
• 25:44
  Speaker 1: a half six percent, then the the U. S. Consumer
• 25:47
  Speaker 1: is doing pretty well. I think it's it's also worth
• 25:50
  Speaker 1: contrasting that with what you're seeing overseas. U. S. Consumer
• 25:54
  Speaker 1: is in much better footing than what we're seeing in
• 25:56
  Speaker 1: either continental Europe or the UK, where real incomes are
• 25:59
  Speaker 1: actually declining, which I think you know is the the
• 26:02
  Speaker 1: point that you're keen in on. Hey, Jeff, thanks so
• 26:05
  Speaker 1: much for joining us. Really appreciated. Jeffrey Cleveland, director and
• 26:09
  Speaker 1: chief economists at Paydon and Regal. Appreciate getting his thoughts
• 26:13
  Speaker 1: here on his economic outlook. And again, you know, I'll
• 26:16
  Speaker 1: be interested to see matter if we get more and
• 26:17
  Speaker 1: more economists start to say yeah and kind of thinking
• 26:20
  Speaker 1: about a recession. You know, right now, I think it's
• 26:23
  Speaker 1: a little bit of a minority. But how that's gonna
• 26:25
  Speaker 1: evolve over the next several weeks and months. Yeah, No,
• 26:27
  Speaker 1: I see, um, I just see base case percentages rising
• 26:32
  Speaker 1: for a recession, you know, from thirty five percent up
• 26:35
  Speaker 1: to fifty percent. I see more and more pessimists. Great
• 26:39
  Speaker 1: to hear from Jeff because it's it's it's nice to
• 26:43
  Speaker 1: hear from somebody on the other side of that argument.
• 26:45
  Speaker 1: For for once, I feel like we talk to people
• 26:48
  Speaker 1: who are more concerned about a slowdown, If not a recession,
• 26:51
  Speaker 1: at least, you know, a slowdown in growth, a stagnation
• 26:56
  Speaker 1: and um that coupled with inflation is just at news,
• 27:00
  Speaker 1: especially for lower wage earners. Thanks for listening to the
• 27:05
  Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
• 27:09
  Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm
• 27:13
  Speaker 1: Matt Miller. I'm on Twitter at Matt Miller three. On
• 27:18
  Speaker 1: Fall Sweeney, I'm on Twitter at pt Sweeney before the podcast.
• 27:21
  Speaker 1: You can always catch us worldwide at Bloomberg Radio.