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Bloomberg Intelligence: Bitcoin Surges Past $60,000 · Bloomberg Intelligence

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Speaker 2: Say the action here is not in a stock market today.
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Speaker 2: It's in bitcoin up seven point eight four hundred, almost
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Speaker 2: forty five hundred dollars higher. For now it's sixty one
0:34
Speaker 2: thousand and ninety. What is going on there? I have
0:37
Speaker 2: no idea, but I know somebody who does. That's Mike mcloan.
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Speaker 2: He's a senior commodity strategist for Bloomberg Intelligence. He joins
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Speaker 2: is on Zoom from our Miami BI outpost down there
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Speaker 2: in South Beach. Mike, you've been on this thing since
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Speaker 2: day one, consistent from day one. You know, fixed supply,
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Speaker 2: presumably ever increasing use cases which will drive demand and
1:00
Speaker 2: that's all you need. So is that still the case here?
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Speaker 3: It's certainly the case. So I appreciate you saying consistent,
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Speaker 3: because I haven't been that consistent. I was quite concerned
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Speaker 3: that it was getting a little too speculatively excessive around
1:12
Speaker 3: the launch all of the ETFs in the beginning of
1:13
Speaker 3: the year, but it's still the case. In April, we'll
1:16
Speaker 3: have The having is when you cut the supply right
1:19
Speaker 3: now you can only mind nine hundred bit coins a day,
1:22
Speaker 3: it'll drop to four hundred and fifty. That's every four years,
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Speaker 3: so it'll cut the supply. And we have obviously from
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Speaker 3: ETF flows just in the last week this week a
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Speaker 3: loan one billion of in flows since ETF's have been launched,
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Speaker 3: a total of about seven billion. Yeah, Eric Belchun has
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Speaker 3: been all but that's it, and I'm glad you mentioned
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Speaker 3: so there's a key. But the thing that really struck
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Speaker 3: me is that the ETF conference, the big one they
1:44
Speaker 3: have in Miami every year.
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Speaker 2: So that wasn't the one in Cleveland in February. This
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Speaker 2: is one in Miami. If okay, right, no hurry to
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Speaker 2: go to Cleveland February.
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Speaker 3: But so Eric was moderated, a panel in the room
1:55
Speaker 3: was packed, So I went to another presentation room at
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Speaker 3: the same time where actually bigger and no one was
2:01
Speaker 3: no one really cared what they were presenting on. So everybody,
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Speaker 3: all these professional money managers were really looking at watching
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Speaker 3: bitcoin and want to learn about bitcoin.
2:08
Speaker 1: ETFs.
2:09
Speaker 4: Wait, can you just break down this whole having thing.
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Speaker 4: I don't understand how that's okay to do that.
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Speaker 3: You got, Hello, it's it's in the code. I have
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Speaker 3: a son who's a programmer, I asked. Thembuddy says, no,
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Speaker 3: it's the code dead. It's just by by by code.
2:25
Speaker 3: Every four years the supply gets cut in half. So
2:28
Speaker 3: right now all the miners in the world will only
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Speaker 3: be going to creating nine hundred coins a day, and
2:32
Speaker 3: then as of having it cut the four fifties, so
2:35
Speaker 3: it doesn't have that high price cure that you really
2:38
Speaker 3: see effect most commodities and why most commodities are in
2:41
Speaker 3: bear markets with exception of goal, but also on the
2:45
Speaker 3: supply side, it's just the way it set up. And
2:47
Speaker 3: as our colleague Zeke false roade out wrote, number go up. Well,
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Speaker 3: that's bitcoin is designed to go up. But now it's
2:53
Speaker 3: becoming an alternative currency on a global basis, and the
2:56
Speaker 3: US is jumping in that frame. We also a key
2:58
Speaker 3: thing you have to look at it from a macroeconomic
3:01
Speaker 3: standpoint is China's kind of pushing back. Remember China's going
3:05
Speaker 3: for gold, the largest gold buyer in the world, and
3:07
Speaker 3: they were associated with this war and the US is
3:10
Speaker 3: just to prove ETFs and bitcoins. So you see where
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Speaker 3: the world's going towards intangible assets and bitcoins the most
3:15
Speaker 3: significant in cryptos.
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Speaker 2: So how do we let me go back to something
3:20
Speaker 2: really fundamental, How do we value this thing? How do
3:23
Speaker 2: we decide whether it's expensive or not? Is there any
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Speaker 2: fundamental analysis here or is it just the it's a
3:28
Speaker 2: commodity and supplying demand, it'll go up and then you.
3:31
Speaker 4: Should buy it at some point. Yes, well I do.
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Speaker 3: I do appreciate that pole Typically coming from an equity
3:36
Speaker 3: kind of person, that's a question often getting commodities. The
3:39
Speaker 3: one way you can value it is by watching the
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Speaker 3: hash rate. That's just the amount of transactions and and
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Speaker 3: and I guess you could say computer power in the
3:50
Speaker 3: space kind of looking at the voltage and things, and
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Speaker 3: it's it's exponential, still rising rapidly. But one thing also
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Speaker 3: like the tilt over to when people push back on
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Speaker 3: this particular crypto, I mean, rememb there's thirty thousand wannabes.
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Speaker 3: Is I like to say, when you go on any
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Speaker 3: of the major crypto sites and you click on volume,
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Speaker 3: the number one traded crypto is the dollar via tokens
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Speaker 3: and then one and that is Tether basically trades double
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Speaker 3: the volume of bitcoins, So I'd say bitcoin's the leading
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Speaker 3: one is like gold in the space. But when people
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Speaker 3: push back to the technology, I'm saying, it's really the
4:21
Speaker 3: whole world's gone for the space, and the base layer
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Speaker 3: they've gone for is the dollar, not any other currency.
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Speaker 4: That's actually quite interesting. What about ether though, for example,
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Speaker 4: Like you mentioned tether, but ether I've read like ethere
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Speaker 4: ETFs maybe coming too, and I'm wondering what the effect
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Speaker 4: of that would be on the thesis that you have.
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Speaker 3: Well, to answer your question, Alex, to me, it's a
4:41
Speaker 3: matter of time get ETFs to track a broad index
4:44
Speaker 3: in the space. So Bloomberg Intaligence first proposed the Bloomberg
4:47
Speaker 3: Galaxy Crypto index in twenty seventeen and we launched that
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Speaker 3: in twenty eighteen, so that's what almost six years now.
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Speaker 3: It's just a matter of time. But ethereum ether ETFs
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Speaker 3: will come. It's a question of when the key that
5:00
Speaker 3: theorem has it, do you do have a yield in ethereum?
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Speaker 3: And that's where most equity people come in and say, oh, well,
5:07
Speaker 3: I can do that and then cost. So it's part
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Speaker 3: of it's the technology e theorem is really kind of
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Speaker 3: making possible. What's happening in the space is NFTs might
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Speaker 3: be speculative, but also coaching token's tokenization of most assets.
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Speaker 3: As I mentioned, the dollar is the most widely traded crypto.
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Speaker 2: All right, so let's let's back away. We got to
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Speaker 2: let cryptos going higher. I get it in the commodity
5:27
Speaker 2: space that you look at, Mike, you look at everything,
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Speaker 2: and we'll get the pork bellies later. That's that's my
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Speaker 2: air of expertise. What do you like right now? What
5:34
Speaker 2: are you talking to clients about these days?
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Speaker 1: Gold?
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Speaker 3: I have to say, because that's what that's what really
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Speaker 3: brought me into cryptos in the first place. And gold
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Speaker 3: is the most enduring, outperforming commodity over time, particularly in
5:46
Speaker 3: times when you have maybe i'd say, in the back
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Speaker 3: end of FED rate hikes, which we're heading towards easing
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Speaker 3: and with China potentially declining. So right now gold is
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Speaker 3: up about ten percent on a one year basis, and
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Speaker 3: broad commodity and this they're down about ten percent. I
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Speaker 3: think that's going to accelerate. The key thing I think
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Speaker 3: that's been saying about gold forever now is you can't
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Speaker 3: really hold gold anymore without some bitcoin in space and
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Speaker 3: the mess you're willing to take a risk that the
6:12
Speaker 3: world is not going to continue advancing towards a digitalization.
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Speaker 3: So I see gold going higher. And here's a key
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Speaker 3: take is I think crude oil at seventy eight dollars
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Speaker 3: a barrel WTI is more likely head towards fifty. And
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Speaker 3: there's a good indication for that, and that's natural gas.
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Speaker 3: US natural gas, the number one measure for heat, electricity
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Speaker 3: and fertilizer, has dropped at least a monthly a couple
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Speaker 3: of weeks ago. It dropped to the lowest price when
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Speaker 3: it was first traded in futures in nineteen ninety.
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Speaker 1: Wow.
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Speaker 4: Yeah, it's pretty bad. But I mean there's reasons for
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Speaker 4: that in terms of demand here in the US, which
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Speaker 4: is different than say the broader look for oil. So
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Speaker 4: why do you think we're going to go to fifty?
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Speaker 4: I mean, there's no way that OPEC plus will be.
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Speaker 5: Down with that.
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Speaker 3: That's the problem. They don't control oil anymore, which just
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Speaker 3: look at the facts. The excess of US and Canadian fuel,
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Speaker 3: liquid fuel and crude oil supply over demand now is
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Speaker 3: about six million barrels a day. And guess what OPEC's
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Speaker 3: spare capacity is about six million barrels a day. So
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Speaker 3: they're fighting a losing battle. But the key fact is
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Speaker 3: if Crudell catches up to industrial metals, it kept us
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Speaker 3: up to grains and corn and virtually all the other commodities,
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Speaker 3: it will go to fifty dollars a barrel. So I
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Speaker 3: look at the premium, the geopolitical premium. Right now, Crudell
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Speaker 3: is about twenty bucks.
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Speaker 4: Twenty buck really yeah, that's really interesting because the thesis
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Speaker 4: out there, like the common thought on the street, is
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Speaker 4: that there is no geopotical growth premium, or it's there,
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Speaker 4: it's like a couple bucks. Because you've had the backsup
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Speaker 4: of US supply that's kind of helped offset that. And
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Speaker 4: because Russia is still doing their thing despite sanctions.
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Speaker 3: Yes, I do appreciate that. And then it's oftentimes they
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Speaker 3: ignore the other commodities. So number one natural gas, number
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Speaker 3: two corn, number three copper, You look at all of them,
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Speaker 3: they're all in pretty severe beer markets. And the laggard
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Speaker 3: in this commodity bear market is crude oil at the moment.
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Speaker 3: So I look at it to me, I just published.
7:51
Speaker 3: I think it's on a cliff's edge. And obviously I've
7:53
Speaker 3: been a bit early. If I was a trader, I
7:55
Speaker 3: would have been stopped out. But now the trend is
7:56
Speaker 3: clearly lower and you have to ask yourself what keeps
7:59
Speaker 3: it elevated? And I say, you have to have sustained
8:02
Speaker 3: deal political risk. But every day we turn around that
8:05
Speaker 3: these prices right are above the US average cost of production,
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Speaker 3: which is around fifty five dollars a barrel. You just
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Speaker 3: see more supplying coming on and demand is not really
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Speaker 3: picking up. And here's a key fact that I can
8:16
Speaker 3: mentioned is diesel demand in this country is stagnated to
8:19
Speaker 3: about the same level as it was in twenty seventeen.
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Speaker 3: That's virtually never happened without a recession, unlet a gas
8:25
Speaker 3: to manage declining paperboard demand is declining. So certainly from
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Speaker 3: the largest economy standpoint, we have a problem. And then
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Speaker 3: you look over at China, the number one importer. They
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Speaker 3: are completely dependent on fiscal monetary stimulus for economic buoyancy
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Speaker 3: at the moment. So the outlook for me for crude oils,
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Speaker 3: I'll put phil kill on it. This year. Initially I
8:42
Speaker 3: said forty about two years ago, and I'm going to
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Speaker 3: at least give it this year if it's going to
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Speaker 3: make it.
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Speaker 2: There, Phil and killing nice.
8:48
Speaker 4: Yeah.
8:49
Speaker 2: So when you get stopped out of a trade, did
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Speaker 2: you put it right back on Mike back in the day.
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Speaker 6: Well, I used to have hair and you can see
8:57
Speaker 6: on the YouTube, but no, it's it all depends a
9:00
Speaker 6: lot of times it was with my own money, with clients,
9:03
Speaker 6: or with institutional money.
9:04
Speaker 3: But that was the key thing that really struck me
9:06
Speaker 3: is I was way early. But now that's the advantage
9:08
Speaker 3: I have is being an X trader. I can see
9:10
Speaker 3: where I would have been stopped out, and as an analyst,
9:12
Speaker 3: I can point out the macro. But I think the
9:14
Speaker 3: key thing that people really missed last two years was
9:17
Speaker 3: the significant macro economic stimulus of this unlimited friendship between
9:22
Speaker 3: President Z and President Putin. It's tilted the whole world
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Speaker 3: backwards versus against China, and China was an emoral source
9:28
Speaker 3: at demand poll for comminities. And then you also had
9:30
Speaker 3: this incentive of high prices because of a war which
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Speaker 3: really kicked in that elasticee. A supplying demand which has
9:36
Speaker 3: been US has been leading that way in almost all
9:38
Speaker 3: commodities I mean yeah, so I think it just accelerated
9:42
Speaker 3: those forces.
9:43
Speaker 4: Hey, Mike, we gotta leave it there.
9:44
Speaker 2: And we're gonna do port bellies next time. Don't worry
9:46
Speaker 2: about it.
9:46
Speaker 4: I'm all up for pork bellies, man. We can definitely
9:49
Speaker 4: hit that for sure. Cattle chicken anyway. Mikelgon on Boomberg Intelligence,
9:53
Speaker 4: Senior Commodity Strategists, you're listening.
9:57
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10:15
Speaker 4: The S and P is just down one tenth and
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Speaker 4: one percent. I mean, we can say that investors are conscious,
10:19
Speaker 4: we can say the stocks are lower, but volume is light.
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Speaker 4: It's hard to get excited about any kind of quote
10:24
Speaker 4: unquote selloup. And my real question is like, what's it
10:26
Speaker 4: going to take for the markets to actually consistently go down?
10:31
Speaker 4: An Barry is founder and managing partner over at thread Needle.
10:34
Speaker 4: She joins us, right now, what's it going to take
10:36
Speaker 4: in for markets to really go down? Here?
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Speaker 7: Alex, I think it's going to take one of two things.
10:41
Speaker 7: At the macro levels.
10:42
Speaker 8: Why they're going to take really strong inflation and then
10:45
Speaker 8: for even more resetting by the market of what they
10:48
Speaker 8: think the FED is going to do in terms of
10:50
Speaker 8: continuing to push out rate cuts or is that the
10:53
Speaker 8: macro level or when it comes looking at fundamentals, we
10:55
Speaker 8: need to see a flew of earnings. So we sort
10:59
Speaker 8: of through the season now, but looking ahead for another
11:01
Speaker 8: three months that basically continues to sort of reset expectations
11:04
Speaker 8: to be a bit more realistic around some of these
11:07
Speaker 8: big productivity boosts and AI boosts that people have been sitting.
11:09
Speaker 7: We've seen that.
11:10
Speaker 8: Break a little bit already in places like Palowel to networks,
11:14
Speaker 8: for example. But I think we need some more expectation
11:17
Speaker 8: resetting and it just hasn't happened as any season I
11:19
Speaker 8: think some people thought it might.
11:21
Speaker 2: So that kind of brings me to valuation here and
11:25
Speaker 2: should we have some valuation concerns in this market because
11:27
Speaker 2: we've seen a big move off of the October lows,
11:30
Speaker 2: yet I'm not sure we saw a commentsar horizon earnings
11:33
Speaker 2: per share of this market. How do you think about valuation?
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Speaker 8: I think I've long been saying and Alex I've had
11:39
Speaker 8: this conversation that this market feels extremely overvalued on a
11:42
Speaker 8: couple of different dimensions. If you take a look at
11:44
Speaker 8: the equity of RESC premium, it's absolutly low relative to
11:48
Speaker 8: some of the macro risk factors out there, and if
11:50
Speaker 8: you look back historically, so that's number one. Number two,
11:53
Speaker 8: we're looking at p ratios p to growth ratios that
11:57
Speaker 8: are completely unprecedented across the entire industry and then within sectors,
12:01
Speaker 8: particularly within tech. So I've long been of the view
12:04
Speaker 8: that we were in over valued territory. I think the
12:07
Speaker 8: question is what is that capitalist going to be to
12:09
Speaker 8: get people to focus on.
12:10
Speaker 7: That again, rather than the sort of vague euphoria.
12:13
Speaker 4: HSBC had the most reluctant call change I'm beginning I've
12:17
Speaker 4: ever seen. They've had a tactical underweight stands for a while,
12:22
Speaker 4: and they finally said that sentiment and positioning have been
12:25
Speaker 4: stretched and remain elevated, but it isn't enough to prompt
12:27
Speaker 4: a significant correction and risk assets at the same time,
12:31
Speaker 4: and we have I don't I mean Goldman, I'm trying
12:34
Speaker 4: to think Barclays that ubs all kind of chasing the
12:37
Speaker 4: rally and upgrading their price forecasts for the S and
12:40
Speaker 4: P for this year. I mean, what does that tell you?
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Speaker 8: I mean there's a little bit of function alex of
12:46
Speaker 8: upgrading of certain of the really big stocks that take
12:49
Speaker 8: up such a big chunk of the S and P
12:51
Speaker 8: and of the NASDAC. So when you're getting big companies
12:54
Speaker 8: like Nvidio getting rerated upwards, when you're getting a lot
12:56
Speaker 8: of the big tech companies rerated up with that sort
12:58
Speaker 8: of lifting the entire And that's where I get really nervous.
13:01
Speaker 8: Back to this point, I think tech has been such
13:03
Speaker 8: a massive driver of uplift. I do think the sector
13:06
Speaker 8: is over valued and that's spilling over into much broader
13:10
Speaker 8: market sort of bubble charity, and so I'm nervous about it.
13:14
Speaker 2: So what does that mean for kind of when you
13:17
Speaker 2: talk to your clients here, is it kind of get
13:20
Speaker 2: out of tech those names are lightening up on some
13:22
Speaker 2: of those tech names, try to sign find some value
13:24
Speaker 2: in other parts of the market, or like hold.
13:29
Speaker 7: Well, it's a little bit of a hybrid.
13:31
Speaker 8: So it's really trying to look the secular tailwinds I
13:33
Speaker 8: think are going to be there in the long term.
13:35
Speaker 7: And I'll give you an example cybersecurities that they.
13:37
Speaker 8: Throw out their pallele outer networks I have invested, for example,
13:40
Speaker 8: this is on the private side of as you clients
13:42
Speaker 8: in a private company that is in the of deep
13:45
Speaker 8: fake detection. So if you think about whether it's Taylor
13:47
Speaker 8: Swift Images or whether it's President Biden's voice being deep faked,
13:51
Speaker 8: this is an area in cybersecurity that's really picking up
13:54
Speaker 8: in terms of public attention. That's the kind of space
13:56
Speaker 8: that is going to be I think why for consolidation,
14:00
Speaker 8: and players like the Palo Alto Networks and others I
14:02
Speaker 8: think are going to be the acquirers of these companies.
14:05
Speaker 8: So this is one where I say, look, you've got
14:07
Speaker 8: to look for industries of sexuler tael Insider being one
14:10
Speaker 8: of them.
14:10
Speaker 7: Look for breakpoints. In this case, I did buy that stop.
14:13
Speaker 8: When I saw it go down with a ninety billion
14:16
Speaker 8: dollars set off, just because the CEO had dared to say,
14:19
Speaker 8: we need a real strategy around pricing, and it's going
14:21
Speaker 8: to be a little bit less, a little bit more aggressive,
14:25
Speaker 8: a little bit less casually positive than someone you thought.
14:28
Speaker 8: So those are the breakpoints I like CEOs that are
14:30
Speaker 8: coming out in these kinds of sectors saying, look, here's reality.
14:32
Speaker 8: It's really tough to execute, but here's a plan. This
14:35
Speaker 8: is how we're going to do it. And when we
14:36
Speaker 8: see cell offs in those names, that's why I'm looking
14:38
Speaker 8: to go back in.
14:40
Speaker 4: What about what do you do with the big guys
14:41
Speaker 4: like say Google that's gotten hit hard and also Apple,
14:44
Speaker 4: which were making a bit a lot of hay about
14:46
Speaker 4: technical levels. The chart doesn't look that great when you're
14:49
Speaker 4: looking at maybe a breakdown of some of the big
14:51
Speaker 4: tech names. Do you go on and buy I do.
14:54
Speaker 7: Alex And it really depends on why the breakdown has happened.
14:57
Speaker 8: I thought that I think a bit more forgiveness when
14:59
Speaker 8: it to big companies that at the end of the day,
15:02
Speaker 8: our cash flow machines have real market share and big
15:07
Speaker 8: growing markets. When those companies come out and say, look,
15:10
Speaker 8: we've made a mistake or we're going to shut your
15:12
Speaker 8: product line, as Apple has done when it comes to
15:14
Speaker 8: ev for example, or when we see GEM and I
15:17
Speaker 8: get rolled out too quickly and we see therefore a
15:19
Speaker 8: missteff put Google and therefore Alphabet now saying look, we're
15:23
Speaker 8: really going to have to invest behind slowing this down
15:25
Speaker 8: and fixing it. I've got patience for that, Alex because
15:27
Speaker 8: I think those are still fundamentally good businesses. Where again,
15:30
Speaker 8: we're seeing these companies experiments.
15:32
Speaker 7: Sometimes they'll get it wrong.
15:34
Speaker 8: I'd like to make sure they're not shredding too much
15:35
Speaker 8: capital in the process, and they're being disciplined in their allocation.
15:38
Speaker 8: But at the end of the day, you can't take
15:40
Speaker 8: away the fact these companies aren't going anywhere. They will
15:42
Speaker 8: redirect resources to more profitable outlets, and I've got patients
15:46
Speaker 8: for that. I see those are buying opportunities of them.
15:49
Speaker 8: The rest of the market's running in those.
15:50
Speaker 2: Moments talking about making a pivot or having some patients
15:54
Speaker 2: for a business line. How about Apple kind of saying
15:56
Speaker 2: back and away from the electric vehicle business, autonomous vehicle business.
16:02
Speaker 2: That's a pretty big move, would it? Would you make
16:03
Speaker 2: of that?
16:05
Speaker 7: It is a big move.
16:06
Speaker 8: But here's what I say about Apple again, to compare
16:09
Speaker 8: it specifically and deliberately to another tech names, and that's Amazon.
16:12
Speaker 7: If you take a look at Amazon, the amount of.
16:14
Speaker 8: Forgiveness that there has been over the over the decade
16:17
Speaker 8: for that company to experiment throw a bunch of money
16:20
Speaker 8: into big new ideas, whether it's in grocery or whether
16:23
Speaker 8: it's in healthcare, and if it fails, Amazon shuts down
16:27
Speaker 8: relatively quickly those experiments. The market thinks that's great, and
16:31
Speaker 8: they say this is called to its culture and this
16:32
Speaker 8: is why it's such an agile.
16:34
Speaker 7: Nimble company and will continue to win in the long run.
16:36
Speaker 8: For some reason, that attitude has faded when it comes
16:39
Speaker 8: to the Apples of the world. I have forgiveness for
16:43
Speaker 8: that because Apple tried. It's still got a huge cash
16:46
Speaker 8: flow machine in its core iPhone eye.
16:48
Speaker 7: Products, and if easy it's not going to generate return.
16:51
Speaker 7: I'd much rather they.
16:52
Speaker 8: Shut up, shut up shop in that front, and go
16:54
Speaker 8: refocus and reinvest behind more profitable lines. So I think
16:59
Speaker 8: it's a good thing when companies come out and say
17:01
Speaker 8: didn't work, to move.
17:02
Speaker 4: On right and thanks lot really appreciate it. Always fun
17:05
Speaker 4: to get your perspective. And Barry founder and managing partner
17:07
Speaker 4: at Thread Needle, I kind of say when I interviewed CEOs,
17:10
Speaker 4: I feel the same way, like when you deliver information
17:12
Speaker 4: to the CEO and they're like, no, no, it's great,
17:14
Speaker 4: Like this is a great buying opportunity for our stock.
17:16
Speaker 4: Everything's amazing. You're like, okay, yea, we know, we know
17:19
Speaker 4: what you're doing. Guys, we can see through that.
17:21
Speaker 2: And I saw, yeah, Apple just kind of coming right out. Well,
17:24
Speaker 2: I guess they didn't say it's Mark Drman re reporting. Yeah,
17:27
Speaker 2: they haven't had a statement that I was correct on
17:29
Speaker 2: that earlier today, But basically Mark German Bloomberg News reporting
17:31
Speaker 2: that you know, we're going to back away from electric
17:33
Speaker 2: vehicle business. A lot of employees assigned to it, some
17:36
Speaker 2: of them will be re allocated to their AI efforts,
17:40
Speaker 2: some probably losing the jobs. But again it's a big,
17:42
Speaker 2: big pivot there.
17:43
Speaker 4: I mean, it also makes sense like if you want
17:45
Speaker 4: to be a services business at the end of the day,
17:47
Speaker 4: how does a car kind of fit into that.
17:51
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
17:55
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17:58
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18:00
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18:04
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18:06
Speaker 4: David Welch is our Detroit bureau chief. He joins us
18:09
Speaker 4: now on Zoom from Detroit. Hey David, when we talked
18:12
Speaker 4: about Apple pushing back from the EV market, Is there
18:15
Speaker 4: a China connection there, that China's flooding the market with
18:18
Speaker 4: their own cheap evs, every other car maker's having a
18:20
Speaker 4: hard time with it. Is there something to that?
18:24
Speaker 9: Very very little, honestly, I mean.
18:28
Speaker 3: I think, sorry, thanks, No, it's in a way in
18:34
Speaker 3: the sense that the EV market's tough.
18:36
Speaker 9: It's very competitive in China, even Tesla's losing share there,
18:40
Speaker 9: and it's even tougher here, and then there's a lot
18:43
Speaker 9: of competition in Europe. But look, really, you take the
18:46
Speaker 9: airplane up about twenty thousand feet on Apple's decision, their
18:50
Speaker 9: margins are what thirty or forty percent, and gross margins
18:54
Speaker 9: for Tesla and General motors about the same these days
18:56
Speaker 9: at about sixteen percent, And you have to spend billions
18:59
Speaker 9: of dollars to make this vehicle. Why would they do that?
19:02
Speaker 9: So I think that's really what this is about. And
19:06
Speaker 9: it's you know, they're also looking at they were looking
19:09
Speaker 9: at a an electric vehicle that was going to be
19:12
Speaker 9: about one hundred thousand dollars, So this was gonna be
19:13
Speaker 9: a luxury Apple EV and we're you know, we see Rivian,
19:18
Speaker 9: we see Lucid. Yeah, you know, that's rarefied air that's
19:21
Speaker 9: a tough sell. There's just they're just don't that many
19:23
Speaker 9: people who can afford one hundred thousand dollars vehicle. And
19:26
Speaker 9: then one other thing I'd like to bring up with
19:29
Speaker 9: Apple is they talked about Apple TV for a long
19:31
Speaker 9: time and everyone thought we were going to have this
19:34
Speaker 9: Apple TV hanging on the wall. But making television just
19:37
Speaker 9: allows you high capital the bow marching business kind of
19:41
Speaker 9: like automobiles. And then they gave us a box with content.
19:44
Speaker 9: So you know, Apple supplies car plator automakers. You know,
19:48
Speaker 9: they may still have an auto play with some kind
19:50
Speaker 9: of content sort of thing in their vehicles. But I
19:54
Speaker 9: think they looked at the capital side of this and
19:56
Speaker 9: and said, you know, that's not what they do. They
19:58
Speaker 9: create cool stuff and kind track someone else to make it.
20:01
Speaker 9: The business just never made a lot of sense.
20:03
Speaker 2: But hey, David, what's the feeling in Detroit these days
20:06
Speaker 2: as to kind of how this ev thing is going
20:10
Speaker 2: to evolve going forward? I mean, it seems to have
20:13
Speaker 2: hit kind of a lull here in terms of the enthusiasm,
20:16
Speaker 2: and I guess a lot of folks are trying to
20:17
Speaker 2: get a sense of is it because the costs is
20:19
Speaker 2: just too high. Is it because people just don't like evs?
20:23
Speaker 2: Is it because there's not enough choice, there's not enough
20:26
Speaker 2: charging stations. What's the feeling in Detroit is how this
20:29
Speaker 2: thing will evolve?
20:31
Speaker 9: It's all of that, But I would say especially choice and.
20:39
Speaker 1: Price.
20:39
Speaker 9: I mean, look, there's one EV on the US market
20:41
Speaker 9: that sells for less than forty thousand dollars. Now it's
20:43
Speaker 9: a Nissan Lead. It's a compact hatchback, which Americans hate,
20:48
Speaker 9: that gets about two hundred miles of range, which nobody thinks,
20:50
Speaker 9: isn't it, And so everything else is much more expensive
20:54
Speaker 9: than that, and for most Americans that doesn't cut it,
20:59
Speaker 9: particularly when the charging network is bad. So all these
21:02
Speaker 9: things are sort of related. But you know, I think
21:06
Speaker 9: the carmakers are now really cautiously watching this, and in
21:11
Speaker 9: the vehicle to watch in the next year is General
21:14
Speaker 9: Motors is going to sell an electric Chevy Equinox. So
21:17
Speaker 9: the Equinox is a small crossover suv. It's that's kind
21:21
Speaker 9: of the new family car because no one buys Sidanzen.
21:24
Speaker 9: And they're going to sell that EV for thirty five
21:26
Speaker 9: thousand dollars and it'll go three hundred and twenty miles
21:28
Speaker 9: on a charge, which is pretty good, and that will
21:32
Speaker 9: kind of tell us if the mass market is ready
21:34
Speaker 9: to go electric, because right now, a lot of the
21:36
Speaker 9: people who buy evs, they're not just early adopters and
21:38
Speaker 9: rich people. They are early adopters and rich people with
21:40
Speaker 9: three or four other cars in the garage. So if
21:42
Speaker 9: they need to drive on a long road trip, they
21:45
Speaker 9: pull the land rover out, gass it up, and go.
21:49
Speaker 9: And so can the industry sell evs to people who
21:54
Speaker 9: have one car in their garage?
21:56
Speaker 7: And we'll see.
21:57
Speaker 9: So that's going to tell us a lot about what's
21:59
Speaker 9: going to happen with this market and how flat the
22:01
Speaker 9: middle of this S curve is in order to get
22:04
Speaker 9: to the next way.
22:05
Speaker 4: Those are the people that can qualify for the one
22:08
Speaker 4: it in that survey, right, so some of us may
22:11
Speaker 4: fall short. David, I'm also wondering just the mood, I mean,
22:15
Speaker 4: to Paul's point, the mood in Detroit, Like, how do
22:18
Speaker 4: the workers feel about all of this? Right? I mean,
22:21
Speaker 4: we know the shift to evs eventually, when you're just
22:23
Speaker 4: making EV's, you need less workers, et cetera. And I'm
22:27
Speaker 4: just wondering, kind of, yeah, like how do they feel
22:30
Speaker 4: right now?
22:31
Speaker 10: So?
22:33
Speaker 9: I'm not totally convinced by the way that it's going
22:35
Speaker 9: to need fewer workers. I think over a long period
22:37
Speaker 9: of time maybe, but that's a different issue. That the
22:40
Speaker 9: union worker does think that, and they also think that
22:43
Speaker 9: the engine and transmission jobs will be gone and batteries
22:47
Speaker 9: will come in from someplace else and they won't be
22:49
Speaker 9: the ones making them.
22:50
Speaker 5: So there is a lot.
22:51
Speaker 9: Of fear, and I think they're breathing some kind of
22:53
Speaker 9: a sigh of relief that maybe a lot of these
22:55
Speaker 9: workers are a bit older, they'll be retired before this
22:58
Speaker 9: is a real issue. And so I think if you're
23:01
Speaker 9: the union, you're looking at this transition as being longer
23:04
Speaker 9: and slower than everybody thought probably two years ago, and
23:09
Speaker 9: so to be more manageable. You know that the you know,
23:11
Speaker 9: the attrition can be just done by retirements and people
23:15
Speaker 9: want to lose their jobs and be left with nothing.
23:19
Speaker 2: It'll just But it is the commitment from the car
23:21
Speaker 2: companies still there, David, because I could make an argument
23:26
Speaker 2: I think half of this country will never go electric
23:28
Speaker 2: for reasons other than economics, other than powertrain.
23:32
Speaker 4: Was it like, look or what politics?
23:34
Speaker 2: I'm not going green?
23:36
Speaker 9: You know that's interesting I've sort of thought for a
23:41
Speaker 9: long time that Elon Musk has gone conservative for two reasons. One,
23:45
Speaker 9: he's been fighting with the government, so he hates regulators.
23:48
Speaker 9: Democrats get pinned with regulation, so he went conservative. I
23:52
Speaker 9: think the other is that guy's a brilliant marketer. It's
23:54
Speaker 9: the most underrated thing about Elon Musk. And he knows
23:58
Speaker 9: that EV's have been politicized. He knows those conservatives don't
24:01
Speaker 9: like them, and so I think he went conservative because
24:04
Speaker 9: maybe they'll buy evs from their guy. Right, he's the
24:06
Speaker 9: guy on Twitter letting them say whatever they want. And
24:11
Speaker 9: I've always sort of thought, with no evidence, that maybe
24:14
Speaker 9: that's what he's doing.
24:15
Speaker 7: But look, I.
24:16
Speaker 9: I eventually everyone's going to go EV because I'll just
24:19
Speaker 9: be the powertrain available. Question is how long does it
24:21
Speaker 9: take to get there? And I do think it's going
24:25
Speaker 9: to take a very long time. Price is one thing,
24:27
Speaker 9: and the Parker dwellers and all of that. I mean,
24:29
Speaker 9: there's just practical reasons why not. But look, you know,
24:33
Speaker 9: in the eighties, cell phones were the sides of a suitcase.
24:36
Speaker 9: They were very expensive, the services obuseeing. A lot of
24:38
Speaker 9: people said I'll never get a cell phone and now
24:39
Speaker 9: everyone's eighty seven percent of the market has a smartphone
24:43
Speaker 9: glued to their head or in their hands, So you know,
24:47
Speaker 9: never is a very long time. I think it will happen,
24:49
Speaker 9: but it's not twenty thirty five or twenty thirty like
24:52
Speaker 9: Mercedes and General Motors tell this. It's like twenty forty five.
24:55
Speaker 2: Okay, because I'm you know, I think there's a reasonable
24:58
Speaker 2: argument to be made in the boardrooms, like what if
25:01
Speaker 2: this isn't the mass market we thought it was, And
25:04
Speaker 2: I don't know, everything else has been politicized, why not that?
25:08
Speaker 4: But then at some point you're just gonna have regulations
25:09
Speaker 4: that's going to demand it, so you don't have a choice,
25:11
Speaker 4: which is kind of where we were, and now some
25:13
Speaker 4: of that's being rolled back a little bit. So I
25:15
Speaker 4: think it's it's the whole idea that you're in an
25:17
Speaker 4: industry that is in a structural shift, but there's all
25:20
Speaker 4: these short term headwinds, like how do you manage a
25:22
Speaker 4: business like that? That must be very difficult.
25:24
Speaker 2: Yep, that's why.
25:25
Speaker 4: Then again, I don't buy a car from Mary Barra, right, No,
25:28
Speaker 4: I mean, I guess only Tesla. You'd buy it for
25:30
Speaker 4: ELM maybe.
25:31
Speaker 2: Yeah, I don't know. All right, David, thanks so much
25:33
Speaker 2: for joining us. David Welch, Detroit bureau chief for Bloomberg News.
25:37
Speaker 2: He's in Detroit. I mean he's got his you know,
25:39
Speaker 2: feet to the ground, ear to the ground, that all
25:41
Speaker 2: that kind of stuff for what's happening in the auto business.
25:43
Speaker 2: But it's tough. I mean, it's tough to to make
25:46
Speaker 2: the case to invest in GM or Ford Stock is tough.
25:48
Speaker 2: I know, these industries that are in fundamental transition, and
25:52
Speaker 2: I equate the auto industry to the entertainment industry fundamental.
25:56
Speaker 4: Change and the energy industry.
25:58
Speaker 2: But yeah, yeah, exactly right, exact fundament change to their
26:00
Speaker 2: core business model, and you want me to invest in
26:04
Speaker 2: the equity of this thing.
26:05
Speaker 4: I mean, I think the difference is that there's a
26:06
Speaker 4: manufacturing element, whether you're in media or whether you're in
26:09
Speaker 4: a car company, versus energy where it's the underlying hydrocarbon.
26:12
Speaker 4: It's different. So they can actually make money. Well, this
26:16
Speaker 4: is all happening, which is a novel idea.
26:19
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
26:23
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26:27
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26:30
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26:33
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26:37
Speaker 4: We also got that data that was pretty solid, right,
26:40
Speaker 4: you get a second quarter of the second read on
26:42
Speaker 4: the fourth quarter GDP coming a little lighter than estimated,
26:45
Speaker 4: but really that was an inventory issue. The personal consumption
26:48
Speaker 4: part added about two points to that at three percent.
26:51
Speaker 4: Again super solid. It's a big head scratcher. It is
26:55
Speaker 4: joining us now, Heaving in a trades managing partner and
26:57
Speaker 4: director of economic policy at Beta partners Man. There's a
27:00
Speaker 4: lot to get through. There's this, there's politics. But if
27:03
Speaker 4: I'm Biden's campaign, do I like these numbers?
27:07
Speaker 5: I mean, there's a double edged sword here. On one hand,
27:10
Speaker 5: you want the Fed to cut interest.
27:12
Speaker 11: Rates, not that they're encouraging them to or in any
27:15
Speaker 11: way manipulating it, but the perceived benefit of the Fed
27:21
Speaker 11: cutting interest rates is something that any administration running for
27:24
Speaker 11: reelection would like to see going into an election year.
27:27
Speaker 11: But simultaneously, strong GDP growth, which is what we're forecasting
27:30
Speaker 11: and expecting and is consensus at this point and even
27:34
Speaker 11: being revised upwards by NAB and groups like it, is
27:37
Speaker 11: also a strong indicator. So I have to say, I
27:39
Speaker 11: don't know that there's losing data for Biden in the
27:43
Speaker 11: upcoming economic information that we're about to be getting out.
27:47
Speaker 11: What you really want to see, and I think is
27:49
Speaker 11: a really interesting dynamic, is actual inflation come down, particularly
27:53
Speaker 11: on household.
27:54
Speaker 5: Goods and groceries.
27:56
Speaker 11: There is some a study that I conducted a few
27:59
Speaker 11: weeks back about the the gap between women's perception of
28:03
Speaker 11: the US economy and men's perception, and in a number
28:07
Speaker 11: of cases it's you know, sixty seventy eighty, even ninety
28:10
Speaker 11: three percent negative views amongst on the economy from Republican women.
28:16
Speaker 11: And it's an outsized portion of women versus men who
28:19
Speaker 11: believe the economy is struggling right now, and.
28:21
Speaker 5: That's mostly because of inflation.
28:22
Speaker 11: So I think the most important data for the Biden
28:25
Speaker 11: campaign writ large is really just inflation on household goods
28:28
Speaker 11: and groceries.
28:29
Speaker 2: So on that end, I guess, Henriette, Tomorrow's going to
28:33
Speaker 2: be an important day here with the PC deflator data.
28:35
Speaker 2: What do you expect me to see here?
28:38
Speaker 11: I mean, we've seen economic expectations and forecasts for consumer
28:44
Speaker 11: sentiment come down. You have to think that there's some
28:47
Speaker 11: inflation related components to that, but it could also just
28:50
Speaker 11: be that the four month rise that we've seen is
28:52
Speaker 11: you know, just sort of plateauing or something along those lines.
28:56
Speaker 11: So I don't think inflation is going to be cured
28:59
Speaker 11: by any PC is still going to be a problem.
29:01
Speaker 11: I think it's just really slow going and a struggle
29:04
Speaker 11: for the Fed, which is why the market is repricing
29:07
Speaker 11: so aggressively on whether there will be interest freecuts. One
29:09
Speaker 11: of the conversations that I used to have a lot
29:12
Speaker 11: was how many cuts are we going to get, you know,
29:15
Speaker 11: between March and June, And now it's more question of
29:18
Speaker 11: are they actually going to cut in March or will
29:20
Speaker 11: it come in June? And I think that signals that
29:23
Speaker 11: there's still a long way to go on inflation.
29:25
Speaker 4: Right, like no longer how many, but sort of when
29:27
Speaker 4: it actually starts, it does feel like maybe some of
29:29
Speaker 4: the repricing has finally worked its way through. Henrietta tie
29:34
Speaker 4: this into the Michigan primaries yesterday. What did we learn?
29:39
Speaker 4: And I say that because it did feel like anti
29:43
Speaker 4: Israel pro Palestinian group there really sort of put the
29:47
Speaker 4: screws to the Biden campaign, right, And I wonder how
29:50
Speaker 4: much that's going to start affecting the campaign versus say,
29:54
Speaker 4: how much I'm paying for eggs at the grocery store.
29:57
Speaker 11: Well, I obviously Michigan is a critic state. There's two
30:01
Speaker 11: hundred to three hundred thousand Muslim or Arab voters in
30:04
Speaker 11: that state. Biden was able to win the state by
30:07
Speaker 11: one hundred and fifty thousand last time around, so he
30:11
Speaker 11: does have a cushion. But you know, if female voters,
30:15
Speaker 11: if youth voters, if black voters are migrating to Trump,
30:18
Speaker 11: which is what the polling is suggesting but not necessarily
30:21
Speaker 11: representative of primary turnout data, then you have a problem
30:24
Speaker 11: when every vote counts. You know, in twenty sixteen, the
30:27
Speaker 11: threshold was just a couple ten or so thousand voters.
30:32
Speaker 5: So you really want to work for everyone.
30:35
Speaker 11: But I think there's a misunderstanding of what happened last
30:39
Speaker 11: night because a lot of the takeaways were sort of
30:44
Speaker 11: gelled in the public consciousness a little early in the night.
30:47
Speaker 11: It takes fifteen percent for the undeclared vote to send
30:51
Speaker 11: a delegate to the DNC this summer, and they're only
30:54
Speaker 11: at thirteen percent.
30:55
Speaker 5: As of this morning.
30:57
Speaker 11: So this is really the last hurrah in terms of
31:00
Speaker 11: national attention that Michigan and these voters specifically are going
31:04
Speaker 11: to have in a way that I think will carry
31:06
Speaker 11: any of the weight that we've seen for the Biden
31:08
Speaker 11: team to be worried about for the last you know,
31:10
Speaker 11: three or four weeks now that they're not.
31:12
Speaker 5: Worried about the Israel Kaza situation in general.
31:15
Speaker 11: They ask for a massive funding request, including humanitarian aid,
31:18
Speaker 11: all the way back in October, and Congress has yet
31:21
Speaker 11: to authorize that, which makes it difficult for Biden to
31:24
Speaker 11: get any messages across. But in general, I think the
31:28
Speaker 11: undeclared vote was not the political earthquake that a lot
31:32
Speaker 11: of folks in that community wanted it to be. And
31:35
Speaker 11: I think that there should be a lot of breathing
31:38
Speaker 11: room for the Biden administration understanding that they will not
31:41
Speaker 11: have to worry about a delegate from this contingency at
31:43
Speaker 11: the DNC this summer.
31:45
Speaker 2: All right, So staying on the political front, here are
31:49
Speaker 2: good friends in Congress. So I guess they're getting back
31:51
Speaker 2: to work today or tomorrow, who knows. Let's put that
31:53
Speaker 2: in quotes, yam, Yes, what are they going to do
31:56
Speaker 2: here about keeping this government open? Should the markets be concerned.
32:00
Speaker 2: Learned that we could have an issue here, but either
32:02
Speaker 2: this Friday or next Friday.
32:04
Speaker 11: Next Friday would be a big issue, and it comes
32:06
Speaker 11: at a very precarious time for the Biden administration specifically.
32:10
Speaker 11: But here's the state of play as I understand it.
32:12
Speaker 11: We're going to get another short term cr It's just
32:15
Speaker 11: a matter of how long. This Friday's deadline only covers
32:19
Speaker 11: about twenty five percent of US federal spending.
32:23
Speaker 5: It is a three.
32:23
Speaker 11: Hundred and twenty one billion dollars if I'm not mistaken.
32:26
Speaker 11: Next Friday is the big cahuna at one point two trillion.
32:29
Speaker 5: So I do think that there's.
32:30
Speaker 11: Going to be a deal to avert a shutdown this week.
32:33
Speaker 11: That's contrary to my earlier view. What happened is the
32:36
Speaker 11: House changed its schedule. They decided to actually come back
32:38
Speaker 11: into town, as you point out, instead of being gone
32:41
Speaker 11: all week, they are coming back today so that they
32:44
Speaker 11: will be in a position to at least.
32:45
Speaker 5: Take some votes.
32:46
Speaker 11: But you can tell from Speaker Johnson's reticence to even
32:49
Speaker 11: release text that this is going to get slammed and
32:52
Speaker 11: Daylight is going to kill it.
32:53
Speaker 5: If he releases it too early.
32:55
Speaker 11: So we need to see text, you know, no earlier
32:58
Speaker 11: than tonight, and a vote would come on Friday, but
33:01
Speaker 11: the potential for a short team CR is effectively guaranteed.
33:06
Speaker 11: The real lynchpin here is that, for the first time
33:09
Speaker 11: in two cycles, the Senate Republican conference is really hoping
33:13
Speaker 11: not to lose their races through unforced errors or through
33:18
Speaker 11: endorsing MAGA candidates. This is their last best chance in
33:21
Speaker 11: a while, and they've got eight Democratic seats in purple
33:24
Speaker 11: states that are highly at risk. On that list is Arizona, Michigan, Nevada, Wisconsin, Ohio, Pennsylvania, Montana. Certainly, so,
33:33
Speaker 11: the Senate Republicans are effectively trying to pull rank on
33:36
Speaker 11: House Republicans here and say, yo, let me get a
33:39
Speaker 11: majority in Congress and in the US Senate. Don't shut
33:43
Speaker 11: it down. Don't ruin our chances by making us all
33:45
Speaker 11: look dysfunctional. Let's keep the government open. I on the prize,
33:48
Speaker 11: focus on the White House, focus on immigration, and move
33:52
Speaker 11: on from these, you know, sort of futile efforts to
33:56
Speaker 11: cut federal spending from very popular programs like so.
34:01
Speaker 5: I think that is very helpful.
34:02
Speaker 11: I would like to see Minority Leader McConnell have a
34:05
Speaker 11: little bit more sway over House Republicans and particularly Speaker Johnson.
34:09
Speaker 11: I think we will get there and we'll avoid a
34:11
Speaker 11: shutdown on Friday, and then optimistically, we'll avoid a bigger
34:16
Speaker 11: one next Friday. The one caveat or the several caveats
34:19
Speaker 11: are one. It's super Tuesday, next Tuesday. The President will
34:23
Speaker 11: deliver the State of the Union address on Thursday, and
34:25
Speaker 11: then that big shutdown would come on Friday.
34:27
Speaker 5: So there's a lot of moving parts here to be watching.
34:29
Speaker 4: Oh I love It's like, I don't want to be
34:31
Speaker 4: the most dysfunctional person in my friting. I like that's
34:34
Speaker 4: the bar for some Hey, Henritta, thanks a lot, Henry
34:36
Speaker 4: to tre Is, managing partner and director of Economic Policy
34:38
Speaker 4: at Veda Partners. But I also wonder we didn't get
34:41
Speaker 4: a chance to ask about Nikki Haley. But we know
34:44
Speaker 4: the nomination is not going to happen, but she keeps
34:46
Speaker 4: making the case like thirty to forty percent of the
34:48
Speaker 4: voters in this state don't want Trump, and I wonder
34:51
Speaker 4: how that eventually evolves over the next few months.
34:55
Speaker 2: Yeah, and a lot of folks we talked to in
34:56
Speaker 2: the political front say that she may stay in this
34:59
Speaker 2: race longer, if for no other reason than to get
35:02
Speaker 2: to the convention and just kind of be there.
35:04
Speaker 4: And just sit there and see what happens. Yeah, I've
35:06
Speaker 4: heard that too. I wonder what that winds up looking
35:09
Speaker 4: like and if the polling winds up showing up.
35:11
Speaker 2: The conventions this year are actually going to be very interesting,
35:14
Speaker 2: I think, I mean, I think both of them are
35:16
Speaker 2: going to be very interesting, and maybe not for the incumbents,
35:19
Speaker 2: but there's gonna be a lot of rhetoric out there,
35:21
Speaker 2: so we'll pay attention to them this summer.
35:25
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
35:29
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35:33
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35:39
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35:43
Speaker 4: Let's drill deeper now into the bond market here. We
35:46
Speaker 4: had a ton of supply coming on this week in
35:48
Speaker 4: the corporate bond market. We had record February issuance for
35:52
Speaker 4: the month. We had seven two fives for the treasury market,
35:56
Speaker 4: all doing really well. I want to bring in Jerry Kudziel,
35:58
Speaker 4: He's a group managing director in General's generalist portfolio manager
36:02
Speaker 4: at t c W. Let's kind of get into fixed
36:05
Speaker 4: income here. What is the pain trade headed into tomorrow's
36:08
Speaker 4: PCE in the bond market?
36:12
Speaker 10: Well, good afternoon, Thanks for having me. I appreciate it.
36:17
Speaker 10: It's a it's a it's a great question. I think
36:19
Speaker 10: the reality is the the market has set itself up
36:24
Speaker 10: for complacency kind of across the board. What we would
36:28
Speaker 10: say is the pain trade is probably for a little
36:31
Speaker 10: bit of a of a of a higher print on inflation,
36:35
Speaker 10: although what you know, the the reality is that there's
36:39
Speaker 10: not a lot of room for error price into the
36:41
Speaker 10: markets at all either way.
36:43
Speaker 2: So it feels like, is it safe to say, though, Jerry,
36:47
Speaker 2: that from your perspective that we've seen peak inflation? Can
36:50
Speaker 2: we at least say that.
36:53
Speaker 10: I think we would say we've definitely seen piece whether
36:58
Speaker 10: whether or not inflation ticks back up a little bit
37:02
Speaker 10: or or we see we're both a little bit stronger.
37:06
Speaker 10: I think ultimately, when you look at the numbers of
37:09
Speaker 10: the three month or six month annualized the Feds already
37:12
Speaker 10: hit their target. You know, we're already at we're already
37:15
Speaker 10: at two percent inflation numbers. And I think the data
37:18
Speaker 10: that we're seeing the micro up time internally here is
37:22
Speaker 10: that macro views and formed by the micro you know,
37:26
Speaker 10: laural of anecdote is data a little bit. We're seeing
37:31
Speaker 10: a lot of things under the surface that lead us
37:34
Speaker 10: to believe that the economy is not as healthy and
37:37
Speaker 10: that inflation is not is not going to remain as
37:41
Speaker 10: strong as so, yes, we've already seen peak inflation.
37:43
Speaker 4: In our view, does that mean that you like steepeners
37:46
Speaker 4: even though if you were in steepeners the last six
37:48
Speaker 4: months you got you got hurt.
37:51
Speaker 10: Indeed, I think the calling the timing of a FED cut,
37:56
Speaker 10: and I think we all want to everyone wants to
37:58
Speaker 10: know everyone's opinion of when is the FED going to
38:01
Speaker 10: get moving on interest rate cuts? Are they going to cut?
38:03
Speaker 10: How are they going to roll it back? I think
38:06
Speaker 10: our view is inflation is peaked, real comfortable adding duration, uh,
38:13
Speaker 10: and we think the curve is going to and will normalize,
38:17
Speaker 10: and so we we do we do like steepeners. I
38:20
Speaker 10: think the reality is this has been you know, obviously
38:24
Speaker 10: the market's pushed pushed just out it. But our view
38:26
Speaker 10: is that's a little bit reflexive. There's a there's a
38:29
Speaker 10: lot of complacency in the market. You can see that
38:33
Speaker 10: in VIX, you can see that in S and P,
38:35
Speaker 10: you can see that in individual equities. You can see
38:39
Speaker 10: that in the corporate bond, in disease UH, in the
38:41
Speaker 10: face of record issue with alex as you mentioned, we're
38:45
Speaker 10: staring at just about all time tights or you know,
38:48
Speaker 10: definitely post GFC tights, and the and the reality is
38:52
Speaker 10: is not, in our opinion, not a lot of not
38:55
Speaker 10: a lot of room for error. But yeah, I think
38:56
Speaker 10: the short answer to the question is we we like steepeners,
38:59
Speaker 10: and we like and we like duration.
39:01
Speaker 2: How about corporate credit, how do you feel about going
39:04
Speaker 2: out on the risk premium a little bit?
39:07
Speaker 10: Well, I think let's look at it this way. We'd
39:11
Speaker 10: say you're supposed to be high grading your credit portfolios
39:16
Speaker 10: right now. When you think about the investment grade credit
39:21
Speaker 10: diet of eighty seven over treasuries, the high yield index
39:25
Speaker 10: trades at three oh seven. But when you start stripping
39:27
Speaker 10: out distressed the high yield index, if you take out
39:30
Speaker 10: the four percent of the high old index that's distressed,
39:33
Speaker 10: the high yield index trades that have spread at two forty.
39:36
Speaker 10: If you pull that back historically, that's a really difficult
39:41
Speaker 10: time to invest in high yield, and it's a really
39:44
Speaker 10: difficult time to go out the risk spectrum. We've seen
39:46
Speaker 10: spread compression, whether that's between credit quality, between high yield
39:50
Speaker 10: and investment grade, and so we would not recommend going
39:54
Speaker 10: out this picture. The risk spectrum was thing's supposed to
39:57
Speaker 10: be high grading portfolios, being moving up in quality, and
40:01
Speaker 10: we don't. We would not recommend moving out the risk
40:04
Speaker 10: spectrum right now. We've we've been highgrading our portfolios across
40:08
Speaker 10: the board.
40:09
Speaker 4: Where do you think you could be wrong? Is it
40:12
Speaker 4: going to be the when the FED cuts?
40:15
Speaker 8: Is it?
40:16
Speaker 4: Is it going to be a consistently stronger economy? And
40:20
Speaker 4: I was talking to someone earlier today. They talk very
40:22
Speaker 4: much about a two speed economy. On the one hand,
40:25
Speaker 4: you have big banks, you have a lot of liquidity,
40:28
Speaker 4: and that's pointing us in a positive direction, consumer spending
40:31
Speaker 4: relatively okay. And then the flip side, you have mid
40:32
Speaker 4: sized banks, small caps not doing really well. And it's
40:35
Speaker 4: hard to kind of look at those two and see
40:37
Speaker 4: who's going to win.
40:39
Speaker 10: Yeah, No, it's we asked this are to ourselves all
40:42
Speaker 10: the time, Where could we where could we be wrong?
40:44
Speaker 10: I'd say the consumer has been significantly more resilient than
40:50
Speaker 10: certainly we anticipated. I think certainly that. I think that
40:52
Speaker 10: probably the majority of the markets anticipated. Could you get
40:56
Speaker 10: a productivity enhanced you know, expansion and boom and the
41:01
Speaker 10: you know a AI you know a AI productivity boom.
41:05
Speaker 10: I think we we ask ourselves this all the time.
41:08
Speaker 10: It's really can the can the economy grow? Can the
41:11
Speaker 10: consumer remain resilient? And can you continue to see uh
41:16
Speaker 10: upward momentum in or sustained growth in wages. I think
41:22
Speaker 10: we've we've considered all these things. We would say we
41:25
Speaker 10: think we're closer to consumer exhaustion then than not. Excess
41:29
Speaker 10: savings have been spent down. We think the labor market
41:33
Speaker 10: underneath is definitely a little bit weaker than the headline
41:36
Speaker 10: would imply. So we do ask ourselves out all the time.
41:38
Speaker 10: The reflation, growth, productivity boom, those are kind of the
41:42
Speaker 10: things that would where where you know, kind of a
41:46
Speaker 10: duration long and a steepener call would certainly prove to
41:50
Speaker 10: be premature, you know.
41:53
Speaker 2: I finally Jerry got around yesterday truly to watching the
41:56
Speaker 2: Big Short, so I got to ask a question about
41:58
Speaker 2: mortgage back secure agency mortgages. How do you feel about
42:02
Speaker 2: that part of the market.
42:04
Speaker 10: Yeah, I was, it's that's a great question. So agency
42:07
Speaker 10: mortgages look attractive nominally, but they look really attractive relative
42:13
Speaker 10: to corporals. You think about where agency mortgages, you know,
42:17
Speaker 10: the spread on agency mortgage I'll just put it this way.
42:19
Speaker 10: The spread on agency mortgages relative to corporates looks like
42:25
Speaker 10: looks like multi standard deviations, differential, and so our opinion
42:30
Speaker 10: is that we like we like agency mortgages. Essentially, what
42:36
Speaker 10: you're doing is trading duration risk for credit risk, you know,
42:41
Speaker 10: full faith and credit of the government. Our thought is
42:45
Speaker 10: at one hundred and fifty five over on current coup
42:47
Speaker 10: on agency mortgages, and we can adjust for negative convexity
42:51
Speaker 10: and some other things that we don't need to get into. Ultimately,
42:53
Speaker 10: we think they're really attractive. There are parts of the
42:57
Speaker 10: mortgage market, commercial mortgages, some other areas that are a
43:02
Speaker 10: little bit more concerting. We think there'll be a lot
43:04
Speaker 10: of opportunity there, but ultimately, you know, we're being but
43:10
Speaker 10: we're certainly buying DC mortgages and we like agency mortgages
43:13
Speaker 10: a lot.
43:14
Speaker 4: All right, Jerry, thanks a lot, really appreciate. Jerry Kudz,
43:16
Speaker 4: Group Managing Director and Generalist Portfolio manager at TCW. So
43:20
Speaker 4: did you like it most? Kay? Everybody think it's better though.
43:24
Speaker 2: But yeah, I mean, you know, but no, it's good.
43:27
Speaker 4: So you're only catching up to that now exactly. Time
43:31
Speaker 4: to kill us time.
43:33
Speaker 2: Going to the Nick game last night, and my day
43:35
Speaker 2: is over at twelve, literally over at twelve, so I
43:37
Speaker 2: had to wait around the Nick game, So I went up.
43:41
Speaker 4: What does one do? You can't make fun of him
43:42
Speaker 4: because you're watching a documentary on the Crimean War. Okay,
43:45
Speaker 4: so I'm up to part three now, Yeah, okay, that's
43:49
Speaker 4: just what we do for fun.
43:50
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