Latest / Bloomberg Intelligence / Trump, Home Depot, Retail Sales, and Maui (Podcast)

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Trump, Home Depot, Retail Sales, and Maui (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.
• 0:05
  Speaker 2: Every business day we bring you interviews from CEOs, market pros,
• 0:09
  Speaker 2: and Bloomberg experts, along with essential market moving news.
• 0:14
  Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
• 0:17
  Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
• 0:21
  Speaker 1: All right, let's get to the political story that is
• 0:24
  Speaker 1: of the day. That would be the fourth criminal indictment
• 0:27
  Speaker 1: of former President Donald Trump. I want to bring in
• 0:31
  Speaker 1: Kayley Lines, Bloomberg Television, TV and radio host. She joins
• 0:35
  Speaker 1: us here, plus former federal prosecutor for the Department of
• 0:38
  Speaker 1: Justice Michael Zelden joins us as well. So we appreciate that.
• 0:42
  Speaker 3: Kaylie. Let's start with you here.
• 0:44
  Speaker 1: What's the feeling in DC about this fourth indictment and
• 0:50
  Speaker 1: likely presumably the last one we'll get here.
• 0:53
  Speaker 4: Well, we've all been waiting a really long time for this.
• 0:56
  Speaker 4: It had been some time that Fannie Willis, the district
• 0:58
  Speaker 4: attorney in Fulton County, had said that you would bring
• 1:01
  Speaker 4: these charges in August. So there is some relief I
• 1:03
  Speaker 4: guess that that has finally happened, and we all have
• 1:06
  Speaker 4: to stop the waiting game, and now it really is
• 1:08
  Speaker 4: more of the what happens next game. That said, this is,
• 1:12
  Speaker 4: as you say, the fourth indictment. We have already seen
• 1:14
  Speaker 4: this song and dance three times already, so I feel
• 1:17
  Speaker 4: like there is a bit more of a Okay, it's
• 1:21
  Speaker 4: another one since here relative to you know, the history
• 1:23
  Speaker 4: being made of that first state indictment in New York
• 1:26
  Speaker 4: and then the first federal indictment in the classified documents case,
• 1:30
  Speaker 4: and so the fourth one, while definitely significant, giving given
• 1:34
  Speaker 4: its wide range, how the violation of the Rico Act
• 1:37
  Speaker 4: he is accused of does carry a minimum sentence if
• 1:40
  Speaker 4: found guilty, of five years, it definitely is significant. But
• 1:45
  Speaker 4: it's a moment we have long been expecting.
• 1:48
  Speaker 2: Michael, first of all, thanks for joining us. I got
• 1:51
  Speaker 2: to ask you about the tactic tactical differences between the
• 1:56
  Speaker 2: Jack Smith prosecution of just Trump and and you know,
• 2:01
  Speaker 2: it seems like he's really honed in. He doesn't want
• 2:03
  Speaker 2: to be distracted by any other defendants. And Fannie Willis,
• 2:08
  Speaker 2: who has how many people has she indicted for? Eighteen people,
• 2:15
  Speaker 2: nineteen people, nineteen people. It seems like that would just take.
• 2:19
  Speaker 3: A long time.
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  Speaker 2: Everybody's got a different scheduling problem. I mean, how is
• 2:23
  Speaker 2: this gonna work out?
• 2:25
  Speaker 5: Well, A whole lot of people are going to enter.
• 2:27
  Speaker 5: Please all of the people on sort of page two
• 2:29
  Speaker 5: of the indictment, they have to get out from under
• 2:32
  Speaker 5: the Rico charge. Rico charge carries the five year mandatory minimum,
• 2:38
  Speaker 5: and these lesser people are all gonna say to the prosecutor,
• 2:43
  Speaker 5: please let me plead guilty to something other than Rico.
• 2:47
  Speaker 5: If you need me to cooperate, let's see if I
• 2:49
  Speaker 5: have anything that's worthwhile to you. But this case, I
• 2:51
  Speaker 5: think is gonna get skinnied down pretty quickly because of
• 2:55
  Speaker 5: the Rico charge, and I think you'll have a multiple
• 2:58
  Speaker 5: defendent case. But Fanny Willis decided that that was what
• 3:03
  Speaker 5: she wanted to tell the jury, this multi part, multipurpose
• 3:07
  Speaker 5: indictment with a lot of people trying to undermine the
• 3:12
  Speaker 5: voter's rights in Georgia, and that's her prerogative. It's a
• 3:15
  Speaker 5: sovereign state, and that's what she chose to do. I
• 3:19
  Speaker 5: don't know what the timing will be in relationship to
• 3:22
  Speaker 5: Jack Smith case, and I don't know how it'll work
• 3:24
  Speaker 5: with some of the overlapping witnesses, but that's for them
• 3:27
  Speaker 5: to work out between them.
• 3:29
  Speaker 1: Hey, Kaylee, the Biden administration has been noticeably quiet during
• 3:34
  Speaker 1: the prior three indictments and just kind of during the
• 3:36
  Speaker 1: whole process here. Is there any reason to think that
• 3:39
  Speaker 1: will be different here or now that we've kind of
• 3:41
  Speaker 1: got the final one, maybe they'll have a holistic kind
• 3:44
  Speaker 1: of comment.
• 3:46
  Speaker 4: Well, certainly this isn't going to be an issue that
• 3:49
  Speaker 4: the administration, or more specifically, the Biden campaign, is going
• 3:53
  Speaker 4: to be able to avoid, especially in the general election, should,
• 3:56
  Speaker 4: as is presumed now, Donald Trump be the Republican they
• 4:00
  Speaker 4: are going to have to deal with this litany of
• 4:02
  Speaker 4: legal issues and address them and make the case why
• 4:05
  Speaker 4: Biden would be a better president than Trump, in part
• 4:07
  Speaker 4: for those reasons. That said, given a perception on the
• 4:12
  Speaker 4: side of many in the Republican Party that this Justice
• 4:15
  Speaker 4: Department under President Biden is being weaponized against the former president,
• 4:18
  Speaker 4: I think the administration is being very careful here to
• 4:22
  Speaker 4: not comment for concern about how that may be perceived
• 4:26
  Speaker 4: and feed into that notion that this is politically motivated.
• 4:29
  Speaker 4: As the former president himself and others close to him
• 4:32
  Speaker 4: have suggested that all of these indictments.
• 4:35
  Speaker 1: Are, and Michael, I just want to get your thoughts here.
• 4:38
  Speaker 1: Now that we have four of these indictments, could you
• 4:42
  Speaker 1: help us just put it all in context. Where is
• 4:44
  Speaker 1: the real risk here for former.
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  Speaker 2: But by the way, I got to say, just quickly, Paul,
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  Speaker 2: it's a strong presumption that this is the last indictment
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  Speaker 2: Donald Trumpay is that's a fair statement.
• 4:53
  Speaker 3: That's a fair statement of we currently no.
• 4:56
  Speaker 1: I guess that's probably the way to phrase. So, Michael,
• 4:58
  Speaker 1: how do you put him in? Where's the real scared
• 5:00
  Speaker 1: for the president?
• 5:01
  Speaker 5: I think they all present different risks, you know, if
• 5:04
  Speaker 5: you were going to say which is the most serious,
• 5:06
  Speaker 5: which is the least serious, perhaps Georgia is the most
• 5:09
  Speaker 5: serious because of the mandatory minimum. But each of these
• 5:13
  Speaker 5: cases is an important case for the president former president.
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  Speaker 5: Each has the opportunity for him to come forward and
• 5:23
  Speaker 5: testify and say why this isn't true. We'll see whether
• 5:27
  Speaker 5: he chooses to testify in any of these cases. So
• 5:30
  Speaker 5: I think, you know, it's hard to ball, you know,
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  Speaker 5: sort of guess which one is the most significant, because
• 5:37
  Speaker 5: they're all significant. All of them are felony, you know, indictments,
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  Speaker 5: and all of them carry jail time. This one just
• 5:42
  Speaker 5: carries mandatory jail time, which why is why I'm putting
• 5:45
  Speaker 5: it at the top of the list. But it's very
• 5:47
  Speaker 5: hard to handicap them in that way because they all
• 5:51
  Speaker 5: have different issues and present different opportunities for Trump and
• 5:55
  Speaker 5: opportunities for the prosecutors.
• 5:57
  Speaker 2: Michael, I want to ask about not the former president's
• 6:01
  Speaker 2: indictment issues, but the current president's son, Hunter Biden, was
• 6:05
  Speaker 2: assigned the probe of Hunter Biden a special special council
• 6:13
  Speaker 2: and what difference does it make. I mean, this investigation
• 6:17
  Speaker 2: has already been going on for five years by a
• 6:19
  Speaker 2: Trump appointee. How do you see the you know, the
• 6:25
  Speaker 2: the difference here as a special counsel.
• 6:27
  Speaker 5: I think it's really more form over substance. I think
• 6:30
  Speaker 5: that because the Plea deal broke down, and therefore because
• 6:35
  Speaker 5: the case is ongoing, and because there are possible Foreign
• 6:40
  Speaker 5: Agent Registration Act links, that the least the politicians have
• 6:45
  Speaker 5: been saying take us back to President Biden when he
• 6:48
  Speaker 5: was vice president, that Garland just made a safe decision
• 6:52
  Speaker 5: to say, let's just designate him as a special counsel
• 6:55
  Speaker 5: and strip the politics of this even further. But I
• 6:59
  Speaker 5: think it's really more form of substance. Wis is the
• 7:01
  Speaker 5: guy who's been investigating this for all these years. He's
• 7:04
  Speaker 5: the Special Counsel, and I think business will go on
• 7:07
  Speaker 5: as usual, except, of course, nothing is usual in this.
• 7:09
  Speaker 3: Case, Kaylee.
• 7:11
  Speaker 1: Just following off from the Washington perspective here as it
• 7:14
  Speaker 1: relates to Hunter Biden.
• 7:15
  Speaker 3: In his legal issues.
• 7:18
  Speaker 1: What are we hearing from the Biden administration, the Biden
• 7:20
  Speaker 1: campaign as to the risk.
• 7:23
  Speaker 4: Here, basically nothing at all. To be honest with you, Paul,
• 7:26
  Speaker 4: this is an issue that President Biden is very reluctant
• 7:30
  Speaker 4: to touch. He actually didn't even say anything about it
• 7:33
  Speaker 4: on the day on Friday when the Special Council was named.
• 7:38
  Speaker 4: To this extent, when we heard the Plea deal first announced,
• 7:41
  Speaker 4: that of course, has subsequently fallen apart. Earlier this summer,
• 7:44
  Speaker 4: all the President and the First Lady said in a
• 7:46
  Speaker 4: statement was that they love her their son, and they
• 7:48
  Speaker 4: support him as he continues to rebuild his life. This
• 7:50
  Speaker 4: is a very touchy subject for the President in regard
• 7:54
  Speaker 4: to his son. Again, like Trump's legal issues, this isn't
• 7:58
  Speaker 4: going to be something as he campaigns for election in
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  Speaker 4: twenty twenty four that he is going to be able
• 8:02
  Speaker 4: to avoid forever. This is something that is going to
• 8:05
  Speaker 4: continually be a focus on him and his family, especially
• 8:09
  Speaker 4: not just in terms of this probe that is happening
• 8:13
  Speaker 4: with the Special Counsel, but also in Congress where they're investigating,
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  Speaker 4: to use the words of the chair of the Oversight Committee,
• 8:19
  Speaker 4: James Comer, the Biden crime family. It's something that's going
• 8:23
  Speaker 4: to continue to dog him. But it's something to this
• 8:24
  Speaker 4: point he's proven very reluctant to actually openly talk about.
• 8:28
  Speaker 1: Yeah, Michael, the former president Trump now faces four criminal indictments.
• 8:34
  Speaker 1: Who is representing him and is he getting quality representation?
• 8:41
  Speaker 6: Well?
• 8:41
  Speaker 5: This newest lawyer, Lauro, is reputed to be a very
• 8:45
  Speaker 5: good lawyer. I have friends who know him from Florida,
• 8:49
  Speaker 5: and I think he will do a good job for
• 8:52
  Speaker 5: the president if the President does a good job for
• 8:55
  Speaker 5: him as a client. Right now, the biggest problem with
• 8:59
  Speaker 5: Donald Trump, from a lawyer's perspective, is containing him. He
• 9:03
  Speaker 5: was just in court the other day and Judge Chutkin
• 9:06
  Speaker 5: in the DC District Court in the January sixth style
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  Speaker 5: of case said to Trump, here are the parameters of
• 9:14
  Speaker 5: what you can and can't talk about. We're not going
• 9:16
  Speaker 5: to try this case in the public domain. Does everyone
• 9:18
  Speaker 5: understand what's going on here? Everyone yes, agrees, Laura says, yes,
• 9:21
  Speaker 5: I'm me have my client. He understands the protective order.
• 9:24
  Speaker 5: The next day he violates the protective order. So we're
• 9:27
  Speaker 5: gonna have to see how Laura can control his client.
• 9:30
  Speaker 5: We're gonna have to see how Judge Chutkin, if he
• 9:32
  Speaker 5: can't get under control sanctions the behavior of the president.
• 9:37
  Speaker 5: So he's got good lawyers, he's just not a good client.
• 9:40
  Speaker 5: And you know, good lawyers can only do so much
• 9:42
  Speaker 5: with a bad client.
• 9:44
  Speaker 3: All right, Michael, thank you so much for joining us.
• 9:45
  Speaker 1: Really appreciate getting your informed perspective. Michael Zelden, former federal
• 9:50
  Speaker 1: prosecutor for the US Department of Justice, and Kaylee Lynes
• 9:54
  Speaker 1: Bloomberg Radio and Television joining us from Washington, d C.
• 9:58
  Speaker 3: Giving us the perspective there as well.
• 10:00
  Speaker 1: So again, the fourth indictment of former President Donald Trump,
• 10:03
  Speaker 1: we now that's now been released, and now I guess
• 10:07
  Speaker 1: it's a political issue as well as.
• 10:10
  Speaker 3: A legal issue, so we'll stay on top of that.
• 10:11
  Speaker 7: Of course, you're listening to the Team Ken's Are Live
• 10:16
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• 10:20
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• 10:24
  Speaker 7: or listen on demand wherever you get your podcasts.
• 10:28
  Speaker 1: I'm looking at Home Depot. The stock is up at
• 10:31
  Speaker 1: one percent. They reported some results that beat estimates. Apparently
• 10:35
  Speaker 1: the door yourselfers out there are still spending. I don't
• 10:39
  Speaker 1: relate to that whatsoever. But I do have a toolbox
• 10:42
  Speaker 1: in my house, but that doesn't get a lot.
• 10:44
  Speaker 2: I have so many tools you do, but I don't
• 10:48
  Speaker 2: really do that much.
• 10:50
  Speaker 1: I'm not your guy for that. But Drew Redding is.
• 10:52
  Speaker 1: He's a research annelys. He covers all the home builders
• 10:55
  Speaker 1: for Bloomberg Intelligence here. So Drew, it looks like, I mean,
• 10:59
  Speaker 1: you know, people crazy during the pandemic, you know, buying
• 11:02
  Speaker 1: stuff and fixing up their houses, and I thought we'd
• 11:04
  Speaker 1: see a big, big drop off post pandemic.
• 11:07
  Speaker 3: Doesn't appear that that's happening.
• 11:11
  Speaker 8: Yeah, it's right. I mean, Home Depot is still going
• 11:13
  Speaker 8: to do somewhere around one hundred and fifty billion dollars
• 11:16
  Speaker 8: in sales for the year. That's up more than forty
• 11:18
  Speaker 8: percent since twenty nineteen. But we are seeing a slow
• 11:21
  Speaker 8: down this year. The company called out ongoing pressure in
• 11:26
  Speaker 8: bigger ticket discretionary items. Part of that has to do
• 11:30
  Speaker 8: with the inflation we've seen. Part of it has to
• 11:32
  Speaker 8: do with the pull forward of demand over the last
• 11:34
  Speaker 8: couple of years. So I think of certain categories like
• 11:37
  Speaker 8: patios or grills or appliances, where you make that purchase
• 11:41
  Speaker 8: one year, it's going to be a while before you
• 11:43
  Speaker 8: purchase it again. So that's part of the slowdown. They
• 11:47
  Speaker 8: have noted a little bit of strength in smaller tickets,
• 11:49
  Speaker 8: which was which has helped to offset some of that weakness,
• 11:53
  Speaker 8: But generally speaking, the company still expects sales to be
• 11:56
  Speaker 8: down two to five percent this year.
• 11:58
  Speaker 2: How are they doing in terms of competition, Drew, I mean,
• 12:03
  Speaker 2: do they do they Are they winning the fight with
• 12:06
  Speaker 2: lows or does it really just come down to whoever
• 12:09
  Speaker 2: has the store nearest you get your business.
• 12:13
  Speaker 8: I think that's part of it. And home depots massive
• 12:15
  Speaker 8: store store footprint has always been a competitive advantage for them. Well,
• 12:20
  Speaker 8: you know, one of the reasons why we like them
• 12:22
  Speaker 8: and why they've they've been winning over the last couple
• 12:24
  Speaker 8: of years is because they're exposure to professional customers. It's
• 12:28
  Speaker 8: about forty five percent of sales, it's about twenty five
• 12:31
  Speaker 8: percent for lows. So the pros, while their backlogs are
• 12:35
  Speaker 8: starting to slow a bit little bit, they're still very
• 12:38
  Speaker 8: elevated from where they were over the last couple of years.
• 12:41
  Speaker 8: And you know, as we look forward, they're starting to
• 12:44
  Speaker 8: dive deeper into the pro category through what they call
• 12:47
  Speaker 8: complex projects. So you think of a contractor who has
• 12:51
  Speaker 8: relationships with, you know, many suppliers, whether it's for paint, flooring,
• 12:56
  Speaker 8: you name it, and you know they have to go
• 12:59
  Speaker 8: to ten different suppliers. Home DEEPO wants to consolidate all
• 13:01
  Speaker 8: that and be the single supplier for larger contractors taken
• 13:04
  Speaker 8: on more complex jobs, and we think that's a big
• 13:06
  Speaker 8: growth opportunity for them.
• 13:08
  Speaker 1: So when I walk into a home depot, which granted
• 13:10
  Speaker 1: isn't very often, but when I do walk in there,
• 13:12
  Speaker 1: I'm just blown away by all of the inventory they have,
• 13:16
  Speaker 1: their the skews as you retailer call it. How how
• 13:20
  Speaker 1: are they managing inventory? I mean, are they like a
• 13:22
  Speaker 1: lot of other retailers where they had too much inventory
• 13:25
  Speaker 1: there coming out of the pandemic.
• 13:28
  Speaker 8: Yeah, they've really worked their inventory levels down very significantly.
• 13:32
  Speaker 8: You know, they've highlighted they still have a little bit
• 13:33
  Speaker 8: of more work to do. But at the same time,
• 13:36
  Speaker 8: what they've done is they've improved their in stock position,
• 13:39
  Speaker 8: which is has been a focal point for them. So
• 13:41
  Speaker 8: their in stocks are actually better than where they were
• 13:44
  Speaker 8: over the last couple of years. So that's really you know,
• 13:47
  Speaker 8: what they're focused on, and they've made good, good headway
• 13:49
  Speaker 8: in that regard.
• 13:50
  Speaker 2: I was in there on Sunday.
• 13:52
  Speaker 7: No.
• 13:53
  Speaker 2: I was, yeah, we have a big home depot out
• 13:56
  Speaker 2: in Yonkers. I was looking for one eighth inch BSP
• 14:01
  Speaker 2: pipe cap.
• 14:02
  Speaker 3: You were, yes.
• 14:03
  Speaker 2: I was wow because I uh, because I blew the
• 14:06
  Speaker 2: two censor bung off the exhaust pipe of my Ducati Monster.
• 14:09
  Speaker 3: Sure. I hate when it happened.
• 14:10
  Speaker 2: And I was looking for some high heat lock tap.
• 14:12
  Speaker 2: Now they lock tight. Now they had the pipe cap,
• 14:15
  Speaker 2: which I was impressed by. In fact, I looked first
• 14:17
  Speaker 2: online and saw they had ten in store, and I
• 14:19
  Speaker 2: was like, wow, they never have it in store, but
• 14:21
  Speaker 2: the lock tight they didn't have.
• 14:23
  Speaker 3: You know what you're gonna do?
• 14:25
  Speaker 7: Uh?
• 14:26
  Speaker 2: So Sunday dealership closed, Monday dealership closed. Motorcycle dealers always
• 14:30
  Speaker 2: closed Sunday and Monday. Today.
• 14:32
  Speaker 3: I'm gonna go get it fixed, that's right.
• 14:34
  Speaker 1: Yeah, Hey, Drew talk to us about the just the
• 14:36
  Speaker 1: housing market in general.
• 14:38
  Speaker 6: Here.
• 14:38
  Speaker 1: I mean, we've got interest rates, mortgage rates, you know,
• 14:41
  Speaker 1: north of seven percent. Nobody wants to get out of
• 14:44
  Speaker 1: our house with their three percent mortgage and try to
• 14:46
  Speaker 1: move to somewhere else with a higher mortgage. Is there
• 14:49
  Speaker 1: a level that you hear from maybe some of your
• 14:51
  Speaker 1: home builders where they think if mortgages get down to
• 14:55
  Speaker 1: some level, is it five percent, is a four point
• 14:57
  Speaker 1: five percent, then that'll free up the market.
• 15:00
  Speaker 2: This is Paul hoping that mortgage rates come down next
• 15:02
  Speaker 2: year because he has an adjustable rate mortgage that he
• 15:05
  Speaker 2: wants to refinance.
• 15:06
  Speaker 8: Yes, it's a great question. We've been describing the housing
• 15:10
  Speaker 8: market as a tale of two markets. You've got activity
• 15:13
  Speaker 8: in the existing home market pretty much frozen because, as
• 15:16
  Speaker 8: you mentioned, people don't want to trade in their sub
• 15:18
  Speaker 8: four sub three and a half percent rate for what's
• 15:20
  Speaker 8: now seven and a quarter. On the other side, you've
• 15:23
  Speaker 8: got the builders who have benefited because they've brought new
• 15:26
  Speaker 8: supply to the market. They've been able to work with
• 15:27
  Speaker 8: their buyers through offering lower mortgage rates. And to your question,
• 15:32
  Speaker 8: what we've heard from a majority of the builders is
• 15:35
  Speaker 8: that five five and a half percent mortgage rate is
• 15:38
  Speaker 8: kind of the sweet spot where they've seen much more
• 15:42
  Speaker 8: buyer activity. But you know, I will say that we've
• 15:45
  Speaker 8: also heard as rates have started to creep up, not
• 15:47
  Speaker 8: all of their buyers are using rate bydowns, even from
• 15:50
  Speaker 8: some of the larger builders, like at d R. Horten,
• 15:52
  Speaker 8: you're somewhere around sixty percent. So there is some aspect
• 15:56
  Speaker 8: that consumers have become more comfortable with higher rates. I mean,
• 16:00
  Speaker 8: we've been at these elevated levels for you know, call
• 16:03
  Speaker 8: it more than a year, so there has been kind
• 16:06
  Speaker 8: of some decree of acceptance here among consumers, and you know,
• 16:09
  Speaker 8: what they've had to do is kind of just adjust
• 16:11
  Speaker 8: their expectations. Builders are also adjusting the size of their houses.
• 16:15
  Speaker 8: That's another way that they could get to that monthly
• 16:17
  Speaker 8: mortgage payment.
• 16:19
  Speaker 2: I wonder about the labor situation right now. Did we
• 16:23
  Speaker 2: learn anything from home Depot about that? Because I noticed
• 16:26
  Speaker 2: on Sunday when I was in there, they had a
• 16:28
  Speaker 2: lot of employees Like I was always able to get
• 16:32
  Speaker 2: help in every aisle when I needed it, which is
• 16:35
  Speaker 2: not my typical retail experience over the past year.
• 16:40
  Speaker 8: So actually believed that home Depot has made this year,
• 16:43
  Speaker 8: a massive investment in its employees, for its hourly employees
• 16:47
  Speaker 8: in the stores. You know, their model tends to flex
• 16:52
  Speaker 8: with demand, so you'll see their staffing levels within their
• 16:57
  Speaker 8: store adjust as demands ebbs and flows. But they have
• 17:00
  Speaker 8: made that concert of effort and investing in their employees
• 17:05
  Speaker 8: because you know, the labor environment has been so tough
• 17:08
  Speaker 8: over the last couple of years. We think that this
• 17:10
  Speaker 8: is you know, it's the time to do it. While
• 17:12
  Speaker 8: the market might not be as strong as it's been,
• 17:14
  Speaker 8: now's a good time for them to get out ahead
• 17:15
  Speaker 8: of it so when things do rebound, they have the
• 17:18
  Speaker 8: the employees there.
• 17:19
  Speaker 1: So you know, when you think about building new homes,
• 17:23
  Speaker 1: it doesn't seem like the builders are building what the
• 17:25
  Speaker 1: market really needs.
• 17:26
  Speaker 3: The market needs starter homes for people.
• 17:30
  Speaker 1: They do we need another MC mansion or subdivision of
• 17:34
  Speaker 1: MC mansions with the five and six vedders. Now, I
• 17:36
  Speaker 1: understand that's where the profit margin is for the builders,
• 17:38
  Speaker 1: but I'm wondering is there any supply to meet that
• 17:42
  Speaker 1: demand on the lower end.
• 17:44
  Speaker 8: So that's actually been an area of focus for the
• 17:46
  Speaker 8: builders over the last couple of years. You know, you've
• 17:51
  Speaker 8: got names like Deer who are in Leonard, who are
• 17:53
  Speaker 8: pretty big in the entry level market. You know, we
• 17:58
  Speaker 8: think that's where most of the supply is going to come,
• 18:00
  Speaker 8: because that's really one of the only ways at this
• 18:02
  Speaker 8: point where you could kind of help the bridge that
• 18:04
  Speaker 8: affordability gap. You're seeing builders start to offer lower square
• 18:08
  Speaker 8: footage plans that are more preferred by buyers, just starting
• 18:11
  Speaker 8: to take out some of the bells and whistles in
• 18:14
  Speaker 8: the houses as well, which helps to lower that payment too.
• 18:18
  Speaker 2: What are the next data points, Drew that you're going
• 18:21
  Speaker 2: to be watching closely in terms of the housing market,
• 18:24
  Speaker 2: and you know, which which direction we're to decide which
• 18:29
  Speaker 2: direction we're moving here.
• 18:31
  Speaker 8: So it's going to be interesting to hear the next
• 18:33
  Speaker 8: round of home builder earnings calls to see how this
• 18:38
  Speaker 8: you know, resurgence and rates to seven and a quarter
• 18:40
  Speaker 8: percent is going to impact the business. We just got
• 18:44
  Speaker 8: data from the NHB today built sentiment and it's actually
• 18:49
  Speaker 8: the first decline in several months, and a lot of
• 18:51
  Speaker 8: that has to do with the fact that rates have
• 18:53
  Speaker 8: risen so much so buyer traffic is down, you know,
• 18:55
  Speaker 8: So if this situation persists, we would expect that builders
• 18:59
  Speaker 8: are going to return to a more elevated use of
• 19:01
  Speaker 8: sales incentives to drive traffic, which could impact profitability. So
• 19:06
  Speaker 8: that's really what we're gonna be listening to. How has
• 19:08
  Speaker 8: this most recent rise and rates impacted the business.
• 19:11
  Speaker 2: It's pretty amazing. I look at the bank rate thirty
• 19:14
  Speaker 2: year mortgage and right now seven spot five to one percent.
• 19:19
  Speaker 3: Yeah, brutal ouch.
• 19:20
  Speaker 1: Yes, so I thought I was getting rooked with my
• 19:23
  Speaker 1: six handle, But I look kind of smart these days.
• 19:25
  Speaker 1: Drew reading research channels covers all the homebuilders for Bloomberg Intelligence.
• 19:29
  Speaker 1: Appreciate that getting that update on home depot.
• 19:33
  Speaker 7: You're listening to the tape cans are live program Bloomberg
• 19:36
  Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 19:40
  Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 19:43
  Speaker 7: You can also listen live on Amazon Alexa from our
• 19:46
  Speaker 7: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 19:53
  Speaker 1: I'm all a dark old car, joins us. He's global
• 19:55
  Speaker 1: head of Corporates for Chatham Financial. He's been doing this
• 19:59
  Speaker 1: stuff over twenty years. He's got his NBA from some
• 20:01
  Speaker 1: trade school down in Philadelphia. But certainly the key part
• 20:04
  Speaker 1: of his resume for me is he's a Penn State
• 20:07
  Speaker 1: graduate chemical engineering and economics.
• 20:10
  Speaker 3: Penn State.
• 20:10
  Speaker 1: By the way, the football team is preseason ranked number seven,
• 20:13
  Speaker 1: which is great to see.
• 20:14
  Speaker 3: Old.
• 20:14
  Speaker 1: I think it might be a little high. But anyway, Amal,
• 20:17
  Speaker 1: thanks so much for joining us here.
• 20:19
  Speaker 3: That is so uncool.
• 20:21
  Speaker 1: Well, I'm a huge Penn State fan, but I'm just
• 20:23
  Speaker 1: feeling like seven might be a little high too much.
• 20:26
  Speaker 3: They can earn their way into it.
• 20:27
  Speaker 2: But mall, what do you say?
• 20:28
  Speaker 3: Does seven sound good?
• 20:30
  Speaker 9: We don't have enough time to talk about Penn State football.
• 20:33
  Speaker 9: I think seven sounds pretty good to start.
• 20:34
  Speaker 1: That sounds pretty good to start, all right, Amal? What
• 20:36
  Speaker 1: are you looking at here again? I'm looking at the
• 20:38
  Speaker 1: real yield on the tenures. Some people like Lisa Brahmins
• 20:41
  Speaker 1: tell me that's important. We're here at one point eight three.
• 20:43
  Speaker 1: That's the highest it's been since I think like two
• 20:45
  Speaker 1: thousand and nine or something. So what do you make
• 20:47
  Speaker 1: out there in the marketplace?
• 20:49
  Speaker 9: Well, nominal yields are are pretty high too, And what
• 20:53
  Speaker 9: we have seen is there's just been this adjustment in
• 20:55
  Speaker 9: the market to coming around to the view that rates
• 20:58
  Speaker 9: might be higher for longer. I mean, we saw the
• 21:00
  Speaker 9: retail sales data out this morning that was quite strong.
• 21:04
  Speaker 9: And again the market is slowly adjusting and multinational corporate
• 21:09
  Speaker 9: CFOs treasures are starting to really try to understand what
• 21:13
  Speaker 9: that means for them as they look forward.
• 21:17
  Speaker 1: So is your sense that we are in fact in
• 21:19
  Speaker 1: for kind of a soft landing, that maybe the Federal
• 21:23
  Speaker 1: Reserve has kind of done a pretty decent job here.
• 21:26
  Speaker 9: Well, that's what the market seemed to be feeling right
• 21:28
  Speaker 9: now that I remember all that talk of the goldilocks
• 21:33
  Speaker 9: ending to this inflation story a year or so ago.
• 21:37
  Speaker 9: There was a lot of naysayers on that, and right
• 21:39
  Speaker 9: now the market seem to be adjusting to the possibility
• 21:42
  Speaker 9: that the Fed has.
• 21:44
  Speaker 2: In fact stuck the landing. There's a lot of room
• 21:46
  Speaker 2: to go here.
• 21:47
  Speaker 9: And again, I think one of the big challenges for
• 21:50
  Speaker 9: risk managers out.
• 21:51
  Speaker 3: There, for CFOs and treasures.
• 21:53
  Speaker 2: Is looking at that and saying, what does this mean?
• 21:55
  Speaker 9: I have certainly a significant amount of maturity coming up
• 21:59
  Speaker 9: when you look at both investment grade and high yield bonds.
• 22:03
  Speaker 9: How should we finance ourselves in a very different market
• 22:06
  Speaker 9: environment than any of us have seen in over two.
• 22:08
  Speaker 2: Decades in a much more expensive way. I'm guessing, right.
• 22:12
  Speaker 2: I mean, if you're financing a deal now, or if
• 22:15
  Speaker 2: you're refinancing existing debt, you're going to just be prepared
• 22:18
  Speaker 2: to pay more.
• 22:20
  Speaker 3: That's right.
• 22:20
  Speaker 9: It's not just home mortgages that are north of seven anymore,
• 22:24
  Speaker 9: and everything has gotten a lot more expensive, and so
• 22:28
  Speaker 9: it's led to what we often see in financial markets
• 22:30
  Speaker 9: is lots of innovation. One of the biggest areas of
• 22:34
  Speaker 9: innovation we've seen is the growth of private capital. So
• 22:37
  Speaker 9: not necessarily bank lending, but now we have all these
• 22:40
  Speaker 9: funds out there, as you've probably reported on many times,
• 22:43
  Speaker 9: that's creating new sources of liquidity for a lot of
• 22:47
  Speaker 9: mid market and even large cap type of firms or
• 22:51
  Speaker 9: infrastructure projects. It's been a pretty dynamic change in the
• 22:56
  Speaker 9: lending environment that we've seen amongst our clients.
• 22:59
  Speaker 2: And I expecting that to continue to grow.
• 23:01
  Speaker 6: Right.
• 23:02
  Speaker 2: Private capital, I mean, private lending is a business that
• 23:05
  Speaker 2: just keeps getting bigger.
• 23:07
  Speaker 9: Absolutely, it keeps getting bigger, and it will be really
• 23:10
  Speaker 9: interesting to see what happens once banks resume, you know,
• 23:14
  Speaker 9: as firms start to really underwrite that. Yeah, there's a
• 23:18
  Speaker 9: bit of a recession that could come, but maybe it's
• 23:20
  Speaker 9: not going to be too strong of one banks come
• 23:23
  Speaker 9: back into the market. There's a lot of competition from
• 23:25
  Speaker 9: private capital. You wonder how quickly the credit cycle can turn,
• 23:29
  Speaker 9: and whether institutions are going to be able to refinance
• 23:34
  Speaker 9: into maybe not better rates, but possibly better terms than
• 23:37
  Speaker 9: they could otherwise.
• 23:38
  Speaker 1: Get Hey, Mall, I mean, you know, if I were
• 23:41
  Speaker 1: to come back and restart my career on Wall Street,
• 23:43
  Speaker 1: I would definitely look at the private credit business because
• 23:45
  Speaker 1: it just seems to be such a fast growing part
• 23:47
  Speaker 1: of the marketplace. But Jamie Diamond and others have called out, Hey,
• 23:50
  Speaker 1: but these guys are kind of like a shadow banking system.
• 23:53
  Speaker 1: They're not really regulated, and man, there could be some
• 23:56
  Speaker 1: real problems there. Are you concerned about that about kind
• 23:59
  Speaker 1: of how much capital is going to the private credit market.
• 24:03
  Speaker 9: I think the private credit itself is just a continuation
• 24:08
  Speaker 9: of a trend that we've seen in finance over many,
• 24:10
  Speaker 9: many decades. That is, there are places where there are
• 24:15
  Speaker 9: different institutions that are better poised to offer liquidity for
• 24:19
  Speaker 9: different firms. As we look forward, though, there are going
• 24:22
  Speaker 9: to be some challenges for private credits. They don't offer
• 24:25
  Speaker 9: the full services.
• 24:27
  Speaker 6: That banks do.
• 24:28
  Speaker 9: At Chatham we work in the debt and derivative space.
• 24:31
  Speaker 9: And one of the places that a lot of borrowers
• 24:34
  Speaker 9: get into some challenges with private credit is they might
• 24:37
  Speaker 9: be able to borrow on a floating rate basis from
• 24:39
  Speaker 9: private capital private debt funds, but they may not be
• 24:43
  Speaker 9: able to actually hedge their risk as effectively as they
• 24:46
  Speaker 9: could if they did borrow from from a bank or
• 24:49
  Speaker 9: syndicative banks. And so you know, especially in a rising
• 24:52
  Speaker 9: rate environment, that can create some incremental friction, some incremental costs,
• 24:57
  Speaker 9: or some incremental risk that firms don't really want.
• 25:00
  Speaker 3: To take on.
• 25:02
  Speaker 1: So well, will I know you guys at Chatham, you
• 25:04
  Speaker 1: talked to a lot of the largest corporations in the
• 25:07
  Speaker 1: world and about their hedging programs.
• 25:09
  Speaker 3: What do you What kind of.
• 25:11
  Speaker 1: Hedging programs are you focused on? Are you hearing from
• 25:13
  Speaker 1: your clients that they needed expertise on Is it interest
• 25:16
  Speaker 1: rates as a currencies, as the commodities or some combination.
• 25:20
  Speaker 9: You know, it's all three of those actually, And one
• 25:23
  Speaker 9: of the biggest areas, of course, for the last year
• 25:25
  Speaker 9: has been around interest rate risk management. Lots lots in
• 25:29
  Speaker 9: the news, but if we rewind to about a year ago,
• 25:33
  Speaker 9: you might recall that FX was pretty big in the news.
• 25:36
  Speaker 9: The euro was below parody around this time last year,
• 25:41
  Speaker 9: strolling that they were going through a run of prime
• 25:44
  Speaker 9: ministers very quickly that that was making its way towards parody.
• 25:49
  Speaker 2: Since then, the dollar has.
• 25:50
  Speaker 9: Weakened, which has led to a little bit of complacency
• 25:53
  Speaker 9: amongst very large cap and multinationals. But there are some
• 25:57
  Speaker 9: other interesting areas is to look at as well. Part
• 26:02
  Speaker 9: of the other big theme that we've seen from these
• 26:04
  Speaker 9: multinationals is looking for places where they can reduce their
• 26:09
  Speaker 9: cost of funds, so back to higher interest rates in
• 26:12
  Speaker 9: the US, there are other places around the globe that
• 26:14
  Speaker 9: are actually cutting interest rates. At China, as we all
• 26:18
  Speaker 9: saw this morning, is one of them, and that's leading
• 26:21
  Speaker 9: to some interesting opportunities for firms to do some arbitrage
• 26:25
  Speaker 9: for lack of a better term, between dollar funding and
• 26:28
  Speaker 9: could be funding in other currencies.
• 26:31
  Speaker 2: Em All, let me just finally ask you what you
• 26:33
  Speaker 2: like in corporate credit. Are there areas that you and
• 26:37
  Speaker 2: Chatham find attractive right now?
• 26:40
  Speaker 9: You know, we're not too focused on the credit cycle
• 26:43
  Speaker 9: at this time. I think one of the big questions
• 26:46
  Speaker 9: that investors are asking is how are these firms actually
• 26:49
  Speaker 9: managing their risks, especially as we go into the possibility
• 26:52
  Speaker 9: of some type of a downturn. We recently did a
• 26:56
  Speaker 9: study and we found that an interesting fact is that
• 26:59
  Speaker 9: newly public companies tend to manage their risk less proactively
• 27:03
  Speaker 9: than firms that have been public for a longer period
• 27:06
  Speaker 9: of time. And I think that's an interesting area that
• 27:08
  Speaker 9: investors are going to be paying more and more attention
• 27:10
  Speaker 9: to as we go forward.
• 27:12
  Speaker 3: All right, mo On, thanks so much for joining us.
• 27:14
  Speaker 1: I really appreciate getting some of your time among a
• 27:17
  Speaker 1: Darkall car Global head of Corporates for Chadam Financial.
• 27:22
  Speaker 7: You're listening to the team ken'shur Live program Bloomberg Markets
• 27:26
  Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
• 27:29
  Speaker 7: iHeartRadio app, and the Bloomberg Business App, or listen on
• 27:32
  Speaker 7: demand wherever you get your podcasts.
• 27:36
  Speaker 1: All right, let's talk rates here. What the Fed is
• 27:37
  Speaker 1: going to do? We hit its strong economic data this morning.
• 27:40
  Speaker 1: Retail sales came in gangbusters.
• 27:41
  Speaker 3: How about that.
• 27:42
  Speaker 1: Let's bring in a couple of smart people roundtable this
• 27:45
  Speaker 1: whole thing. Michael Schumacher, head of macro strategy and rates
• 27:48
  Speaker 1: at Wells Fargo, and Neil Grossman, co founder of TK
• 27:53
  Speaker 1: n G.
• 27:53
  Speaker 3: Kapitel.
• 27:54
  Speaker 1: He joins us in the studio Michael's via zoom. Michael,
• 27:57
  Speaker 1: let's start with you here. What are you telling the
• 27:59
  Speaker 1: good client of Wells Fargo about kind of where this
• 28:03
  Speaker 1: FED is going to go? Where rates are going to go?
• 28:05
  Speaker 1: How high are they going to stay?
• 28:06
  Speaker 3: Here?
• 28:06
  Speaker 1: What's your call out of Wells Fargo these days?
• 28:09
  Speaker 10: Yeah, as far as the FED goes, I think where
• 28:11
  Speaker 10: most people begins, Hey, is the Fed done or not?
• 28:14
  Speaker 10: And it's probably close maybe done. That's the call for
• 28:17
  Speaker 10: Maricon team possibly goes one more time. Either way, neither
• 28:21
  Speaker 10: one's a surprise. I think the bigger question is how
• 28:24
  Speaker 10: long does the FED keep policy quite tight? And that
• 28:27
  Speaker 10: could be in a pretty extended period here. Nonetheless, when
• 28:30
  Speaker 10: you put these things together, we do recommend the client
• 28:33
  Speaker 10: scale in and buy bonds.
• 28:34
  Speaker 5: Right now.
• 28:34
  Speaker 10: You might say, well, it sounds kind of odd given
• 28:37
  Speaker 10: the backdrop with FED policy rates staying hi. But the
• 28:40
  Speaker 10: reason is the reason we have this view is that
• 28:42
  Speaker 10: the markets typically don't believe what the FED is trying
• 28:45
  Speaker 10: to sell. So J. Powell almost certainly comes out of
• 28:48
  Speaker 10: Jackson hole, says we'll be on hole for a long time.
• 28:51
  Speaker 10: But if people get the sense the last hike is in,
• 28:54
  Speaker 10: they'll be raced into buy bonds. In our view, so
• 28:56
  Speaker 10: we do think the yields come down a fair bit
• 28:58
  Speaker 10: by the end of the year. I've got the ten
• 29:00
  Speaker 10: year treasury sub three fifty eight year end, so maybe
• 29:04
  Speaker 10: it's the peak. Maybe it's not in yields, but it's
• 29:06
  Speaker 10: time to scale in.
• 29:07
  Speaker 2: But in terms of Michael, the FED funds rate, you know,
• 29:10
  Speaker 2: Jerome Powell is saying it's going to be years at
• 29:13
  Speaker 2: these levels. At the same time, he gives us a
• 29:16
  Speaker 2: dot plot that shows cuts four of them next year
• 29:21
  Speaker 2: and then even more the following year. How do you
• 29:23
  Speaker 2: square that circle?
• 29:26
  Speaker 10: Basically you don't. So Jay Powell is going to say, hey,
• 29:29
  Speaker 10: the dots are not forecasts or individual members something or others.
• 29:32
  Speaker 10: But you can't really account for the difference between Powell's
• 29:36
  Speaker 10: view and the dots. So really, what the market folks
• 29:39
  Speaker 10: typically do is discount a lot of the dots and
• 29:43
  Speaker 10: try to latch onto commentary from Powell, from Williams, from
• 29:46
  Speaker 10: a couple other senior folks, and really let that be
• 29:49
  Speaker 10: the north star. But the dots themselves don't really jibe
• 29:52
  Speaker 10: with what the Fed's been saying at least a senior leadership.
• 29:55
  Speaker 3: Neil, what do you kind of make of what's happening
• 29:57
  Speaker 3: out there?
• 29:58
  Speaker 1: You look at the markets, you look at kind of
• 29:59
  Speaker 1: some the ego data we're seeing.
• 30:01
  Speaker 3: What's your story these days?
• 30:04
  Speaker 6: I think my story is consistent with what we've discussed.
• 30:07
  Speaker 6: Number one. I think for the moment, you've seen the
• 30:09
  Speaker 6: best of the inflation data, the rather sharp drop was
• 30:13
  Speaker 6: due primarily to year on year comparisons. But over the
• 30:17
  Speaker 6: next six months those comparisons turn around. I think the
• 30:21
  Speaker 6: last half of last year average like about zero at
• 30:23
  Speaker 6: two point one. So the odds are you're going to
• 30:25
  Speaker 6: start to see Number one, prices push higher, which should
• 30:29
  Speaker 6: work against the Feds or the markets perceived perspective of
• 30:33
  Speaker 6: the Fed cutting number one. Number two, these labor agreements
• 30:38
  Speaker 6: are telling you there's a lot of upward pressure on wages.
• 30:41
  Speaker 6: And yes, if productivity is sufficient, that's one thing, but
• 30:45
  Speaker 6: it's still embedding a lot of upward pressure on prices.
• 30:49
  Speaker 6: Number three. Again, I know the FED has a habit
• 30:53
  Speaker 6: of speaking one way when it means being accommodating and
• 30:57
  Speaker 6: going the other one. It's not, but they spent years
• 30:59
  Speaker 6: to time talking about averaging well by the end of
• 31:02
  Speaker 6: this year, you'll have had two years at seven plus
• 31:04
  Speaker 6: percent plus someplace between four and five on headline inflation.
• 31:08
  Speaker 6: I don't know how long it's going to take them,
• 31:10
  Speaker 6: but even if you get to two percent at the
• 31:12
  Speaker 6: end of the year after this, and that's an if,
• 31:16
  Speaker 6: you've allowed a lot of embedded price pressures to arise.
• 31:19
  Speaker 6: So my person, they're going to let that.
• 31:21
  Speaker 2: I mean, well, let's you don't need to hold them
• 31:24
  Speaker 2: to their word. They're going to let that roll off
• 31:26
  Speaker 2: their back like.
• 31:27
  Speaker 6: Well, but here's the problem, Matt. The thing that I
• 31:30
  Speaker 6: have is a couple of things. One, this economy is
• 31:34
  Speaker 6: actually doing reasonably well all things considered, with the Fed
• 31:38
  Speaker 6: having acted fairly aggressively. They're not aggressive from my perspective.
• 31:44
  Speaker 6: It took them a year to do one vulgar. The
• 31:48
  Speaker 6: simple fact of the matter is is where it's full employment,
• 31:51
  Speaker 6: you have upward pressure on wages, you have a reasonable economy. Again,
• 31:55
  Speaker 6: the data, although it has is mixed periodically, seems to
• 31:58
  Speaker 6: be showing the economies actually picking up speed. I want
• 32:02
  Speaker 6: to know why anybody outside of the equity market who
• 32:05
  Speaker 6: needs rate cuts to justify silly valuations should think that
• 32:10
  Speaker 6: an economy doing this well needs to have any rate adjustments,
• 32:14
  Speaker 6: We're going to need to have something, in my perspective
• 32:17
  Speaker 6: that is significant, either some sort of catastrophic equity event
• 32:21
  Speaker 6: or some really sharp deceleration in the economy and employment.
• 32:25
  Speaker 6: I justify this.
• 32:26
  Speaker 3: That's where I want to go.
• 32:27
  Speaker 1: Michael Schumacher, Our good friends of Goldman Sachs are looking
• 32:30
  Speaker 1: for a rate cut in the first one in the
• 32:34
  Speaker 1: second quarter of.
• 32:34
  Speaker 2: Next year, and then one a quarter.
• 32:36
  Speaker 3: Right, yeah, So what do you think about that?
• 32:39
  Speaker 10: It seems quick. I think Denil's point something would have
• 32:42
  Speaker 10: to break. Something in the neighborhood of one cut a
• 32:46
  Speaker 10: quarter is not consistent with a disastrous event in the markets.
• 32:50
  Speaker 10: But it's pretty clear to us the Fed really wants
• 32:53
  Speaker 10: to stay on hold for a long time, at least
• 32:55
  Speaker 10: Jay Powell goes, and whether he wins that debate or
• 32:57
  Speaker 10: not remains to be seen, but it does seem pretty
• 33:00
  Speaker 10: fast to us. If you think about the typical time lag,
• 33:03
  Speaker 10: for instance, I know the apparels and looking at historical cycles,
• 33:06
  Speaker 10: but still let's start there. Over the last four to
• 33:09
  Speaker 10: five cycles, the average lag between the last tike and
• 33:12
  Speaker 10: the first cut is something like ten months, and if
• 33:15
  Speaker 10: you consider the inflation scenario we've all experienced over the
• 33:18
  Speaker 10: last couple of years. It seems to me it argues
• 33:20
  Speaker 10: for a longer period, not shorter. So something would have
• 33:24
  Speaker 10: to give pretty sharply for let's say early Q two
• 33:28
  Speaker 10: to be in the picture next year.
• 33:29
  Speaker 2: What do you think about Neil's supposition that we've seen
• 33:33
  Speaker 2: the best of declining inflation and we could be in
• 33:38
  Speaker 2: for higher inflation from here on out. I mean, we've
• 33:41
  Speaker 2: heard a lot of other people say that as well.
• 33:42
  Speaker 2: When you look at oil prices, airline tickets, healthcare costs,
• 33:46
  Speaker 2: a lot of these things are only going up.
• 33:50
  Speaker 10: Yeah, whether it's higher or sticky, take your pick. I
• 33:52
  Speaker 10: agree with Neil that the basically the big winnings have
• 33:56
  Speaker 10: already been cashed in, if you will, and our recon team,
• 33:59
  Speaker 10: our economy Sarah House is a great term. She calls
• 34:01
  Speaker 10: it the last mile. That last mile is tough. So
• 34:05
  Speaker 10: you've got core CPI the run rate down to low
• 34:08
  Speaker 10: threes right now, begetting that to two and a half
• 34:11
  Speaker 10: or heaven forbid too, that will be a very tough slog.
• 34:14
  Speaker 10: So I'm on the same page as Neil.
• 34:16
  Speaker 6: Here, by the way, one point on that everybody's looking
• 34:19
  Speaker 6: at getting to two. The question is is that a
• 34:22
  Speaker 6: stable rate. It's quite possible that we get down to
• 34:26
  Speaker 6: two or near two, and then all of a sudden
• 34:27
  Speaker 6: it starts to rise. So just because the Fed manages
• 34:31
  Speaker 6: to get closer, you're going to want them to maintain
• 34:35
  Speaker 6: that whole show it that's actually a stable rate.
• 34:38
  Speaker 2: But so, Neil, do you think that the Fed could
• 34:40
  Speaker 2: actually raise rates even further?
• 34:43
  Speaker 6: Well, it depends on the price pressures and employment. My view, man,
• 34:47
  Speaker 6: and it's been this way for a while, is I'm
• 34:49
  Speaker 6: less concerned about rates five four and a half percent,
• 34:52
  Speaker 6: four to six. They need to sell assets from their
• 34:56
  Speaker 6: balance sheet. The balance sheet, i think is a big
• 34:58
  Speaker 6: piece of the problem. It's still providing even though there's
• 35:01
  Speaker 6: a you know, I call a quantitative dribble. It's slowly
• 35:05
  Speaker 6: falling in size. But there are a lot of factors.
• 35:08
  Speaker 6: By the way, one of the other things we haven't discussed,
• 35:10
  Speaker 6: I mean, there is still enormous amounts of pent up
• 35:13
  Speaker 6: fiscal stimulus tied to some of the last programs that
• 35:18
  Speaker 6: were passed by the Biden administration, which is also going
• 35:21
  Speaker 6: to work against the economy slowing down. So the answer
• 35:24
  Speaker 6: to me is they need to take some of the
• 35:27
  Speaker 6: liquidity out of the market, and that's more important than
• 35:29
  Speaker 6: the rates.
• 35:30
  Speaker 1: Hey, Michael Jackson Hole next week. By the way, I'm
• 35:34
  Speaker 1: still searching my inbox for my invite. I can't find
• 35:37
  Speaker 1: it anywhere. I must have just missed it. But Jackson Hole,
• 35:40
  Speaker 1: what do you expect to come out of there? If anything?
• 35:45
  Speaker 10: Usually it's a non event.
• 35:46
  Speaker 5: Now.
• 35:47
  Speaker 10: Last year was interesting, of course, with the famous eight
• 35:49
  Speaker 10: minute speech, and I'm going to head for the trails.
• 35:52
  Speaker 10: But this year, I suspect the message is, Hey, we've
• 35:55
  Speaker 10: done a lot of good work. Inflations down quite a bit.
• 35:59
  Speaker 10: There's still residual benefit lowering whatever you might want to
• 36:02
  Speaker 10: call it, from tightening the pipeline. We're going to stay
• 36:06
  Speaker 10: on Hole for a long time. We're not going to
• 36:08
  Speaker 10: cut anytime soon. And I think the market probably buys
• 36:11
  Speaker 10: the first part of that talk and not the second part.
• 36:14
  Speaker 10: So it's a really difficult sales job, if you will.
• 36:18
  Speaker 10: One interesting point about jackson Hole thoughs there's almost certainly
• 36:21
  Speaker 10: no Q and A, so it's a set piece. I'll
• 36:24
  Speaker 10: can stick to his message. Really, no chance of being
• 36:27
  Speaker 10: thrown off guard by a strange question. So in a
• 36:30
  Speaker 10: sense it's a fairly easy setup. But it's hard for
• 36:33
  Speaker 10: and consistently Jackson Hole hasn't mattered too much to the markets.
• 36:36
  Speaker 10: It's hard for that to be radically different this year.
• 36:39
  Speaker 6: I happy I would add one quick thing. Anything that
• 36:43
  Speaker 6: sends the stock market up, provides liquidity, works against the
• 36:47
  Speaker 6: Fed and in my perspective going forward. So you've got
• 36:50
  Speaker 6: that other character balance.
• 36:51
  Speaker 3: All right, Well, I'll keep looking for my invite to
• 36:53
  Speaker 3: Jackson Hole.
• 36:54
  Speaker 1: I got the surveillance Jed gassed up and ready to go,
• 36:57
  Speaker 1: so we'll see if I can.
• 36:58
  Speaker 2: I think they're going without you, buddy, I.
• 36:59
  Speaker 3: Think they are. I think they are. That's the cold truth.
• 37:01
  Speaker 3: Let's be honest.
• 37:02
  Speaker 1: I offered to Carrie Luggage nothing. Michael Schumacher had a
• 37:05
  Speaker 1: macro strategy and rates for Wells Fargo and joining us,
• 37:09
  Speaker 1: so we appreciate that as well as well as our
• 37:12
  Speaker 1: good friend Neil Grossman, former CIO at TKNG Capital. He
• 37:16
  Speaker 1: comes in the studio and he comes bearing gifts in.
• 37:19
  Speaker 3: The form of some lovely looking one. Oh, I'm sure
• 37:22
  Speaker 3: it's going to taste just great as well.
• 37:23
  Speaker 7: You're listening to the tape cans Are Live program Bloomberg
• 37:27
  Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 37:30
  Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 37:34
  Speaker 7: You can also listen live on Amazon Alexa from our
• 37:36
  Speaker 7: flagship New York station, Just Say Alexa play Bloomberg eleven thirty.
• 37:43
  Speaker 3: Issue of the Day.
• 37:44
  Speaker 1: The story that just kind of keeps on giving that
• 37:45
  Speaker 1: as former President Trump and his legal challenges, most recently
• 37:49
  Speaker 1: from the state of Georgia, we want to bring in
• 37:51
  Speaker 1: a couple of heavyweights. Mat I don't know who put
• 37:53
  Speaker 1: these two together. Tim O'Brien, Senior executive editor with Bloomberg Opinion,
• 37:57
  Speaker 1: and June Grasso, legal analyst with Bloomberg News. June, I'd
• 38:01
  Speaker 1: like to start with you just from the legal perspective,
• 38:04
  Speaker 1: what is unique or what's important for us to know
• 38:06
  Speaker 1: about what the indictment from Georgia yesterday.
• 38:09
  Speaker 11: Well, I think you know what's important is the scope
• 38:11
  Speaker 11: of this indictment and it goes, you know, it shows
• 38:15
  Speaker 11: the White House from the Oval Office to this rural
• 38:18
  Speaker 11: county in Georgia, and it's very detailed.
• 38:21
  Speaker 12: It, as you.
• 38:22
  Speaker 11: Say, it sets out one hundred and sixty one separate
• 38:26
  Speaker 11: acts that were done and as opposed to Jack Smith's
• 38:29
  Speaker 11: the special Council's January sixth, which was very narrow and
• 38:32
  Speaker 11: targeted toward Trump and getting it to trial early.
• 38:36
  Speaker 12: This one is really broad.
• 38:37
  Speaker 11: It even includes things that happened in other states where
• 38:41
  Speaker 11: there were fake elector plans. So you see this broad
• 38:44
  Speaker 11: conspiracy to try to change the election, even including stealing
• 38:49
  Speaker 11: election data. I mean, what you see in this is
• 38:52
  Speaker 11: almost some of it is just unbelievable. And then it
• 38:54
  Speaker 11: goes to the heart of what we saw during the
• 38:58
  Speaker 11: January sixth committee hearings, Ruby Freeman. Remember everyone remembers that
• 39:02
  Speaker 11: worker who was crying because she was harassed by people
• 39:06
  Speaker 11: associated with Trump to change to say that the election
• 39:10
  Speaker 11: was fraudulent, and she one of the counts concerns her,
• 39:13
  Speaker 11: and there are three people who allegedly harassed her who
• 39:17
  Speaker 11: are charged as part of the defendants.
• 39:20
  Speaker 2: Tim O'Brien, it's I mean, this is the first time
• 39:24
  Speaker 2: Donald Trump has ever been charged under RICO, Right. Isn't
• 39:30
  Speaker 2: that a little surprising when you say that out loud?
• 39:32
  Speaker 2: But it's true. What's your reaction to this prosecution, to
• 39:36
  Speaker 2: this indictment. We can't hear you. We can't hear Tim. Guys,
• 39:41
  Speaker 2: can we get to his audio or you muted.
• 39:46
  Speaker 13: Can you hear me now?
• 39:47
  Speaker 2: Yes, yes, you guys muted me.
• 39:50
  Speaker 13: I'm back, you know. I think on the rico thing,
• 39:54
  Speaker 13: one of the things that's just really interesting from sort
• 39:56
  Speaker 13: of the historical perspective is, let's not forget that Rudy
• 39:59
  Speaker 13: Jrul as a young prosecutor in the Southern District of
• 40:02
  Speaker 13: New York, made his bones by pursuing rico cases against
• 40:06
  Speaker 13: the mob and against insider traders on Wall Street. And
• 40:11
  Speaker 13: he essentially gave a lot of muscularity to federal rico prosecutions.
• 40:15
  Speaker 13: And now decades later, that's the long armor of the
• 40:19
  Speaker 13: law is revisiting itself on his doorstep in the same fashion.
• 40:23
  Speaker 13: I think, you know, this is I think, like the
• 40:25
  Speaker 13: two Special Council indictments, this is an evidence rich prosecution
• 40:30
  Speaker 13: or indictment. It is full of just raw evidence that
• 40:35
  Speaker 13: I think would be very hard to refute in a
• 40:38
  Speaker 13: courtroom in terms of how it's tied to the allegations
• 40:41
  Speaker 13: of trying to torpedo the election.
• 40:43
  Speaker 7: I mean, there's a.
• 40:44
  Speaker 13: Taped phone call. He is taped saying, go and find
• 40:47
  Speaker 13: me eleven thousand votes his minions, whether it's his lawyers
• 40:53
  Speaker 13: or a chief of staff, like Mark Meadows or people
• 40:57
  Speaker 13: in the Justice Department are all literally conspiring in an
• 41:02
  Speaker 13: organized fashion to try to overturn election results when they
• 41:06
  Speaker 13: knew that the results of the election and were repeatedly
• 41:09
  Speaker 13: told that the results of the election were sound. So
• 41:12
  Speaker 13: I think it's I think he's got a long hill
• 41:14
  Speaker 13: to climb here as a defendant, and and there is
• 41:18
  Speaker 13: the possibility he gets re elected that he can dismiss
• 41:21
  Speaker 13: the two federal indictments and investigations that are circling around
• 41:25
  Speaker 13: him now, but he won't be able to touch the
• 41:27
  Speaker 13: Georgia case. So they're they're looking at they're looking at
• 41:30
  Speaker 13: a real legal problem.
• 41:32
  Speaker 1: Hey, Tim, Tim, you've known Donald Trump as well or
• 41:36
  Speaker 1: better than anyone in media, given your longtime dealings with him.
• 41:40
  Speaker 1: How do you think he's going to react here? How
• 41:43
  Speaker 1: is he going to play this whole thing out? How
• 41:46
  Speaker 1: do you think he's going It'll be televised, It'll be
• 41:47
  Speaker 1: televised in Georgia.
• 41:48
  Speaker 3: But how do you think just all for these indictments,
• 41:50
  Speaker 3: what's his what do you think his strategies?
• 41:53
  Speaker 13: Well, his playbook has been to say it's a witch hunt,
• 41:55
  Speaker 13: that it's entirely partisan, that there is nothing behind this
• 41:59
  Speaker 13: other than an effort to knock out a robust competitor
• 42:02
  Speaker 13: in the Republican Party. And of course he's ignoring the
• 42:06
  Speaker 13: need for the rule of law. He's ignoring the fact
• 42:08
  Speaker 13: that the evidentiary trail is damning, he's overlooking the fact
• 42:13
  Speaker 13: that it's happening in multiple venues. But he certainly has
• 42:17
  Speaker 13: the ear of his core supporters, and he always will.
• 42:20
  Speaker 13: I don't think there's a single indictment that can be
• 42:23
  Speaker 13: brought against Donald Trump that will dislodge how warmly his
• 42:27
  Speaker 13: core supporters feel about him. What the real political element
• 42:32
  Speaker 13: of this is is what independent what moderate Republicans and
• 42:36
  Speaker 13: independent voters think about this. That's where this will swing.
• 42:40
  Speaker 13: But I think he's he's scared, you know. For all
• 42:42
  Speaker 13: of his bluster and this myth that he has nine
• 42:45
  Speaker 13: legal lives, he has never faced prosecutions that are this
• 42:49
  Speaker 13: detailed and with prosecutors who have really done their homework
• 42:53
  Speaker 13: and involve criminal charges, not civil shenanigans in a courtroom
• 42:57
  Speaker 13: where he's happy to wage the battle in the press
• 43:00
  Speaker 13: as much as in court. And he's sort of been
• 43:02
  Speaker 13: told by one judge in one of the federal cases
• 43:06
  Speaker 13: that he can't go lollygagging around in the media trying
• 43:11
  Speaker 13: to win the case there, or she's going to start
• 43:13
  Speaker 13: to sanction him.
• 43:14
  Speaker 2: So I think he's nervous to that point. Tim, I
• 43:18
  Speaker 2: have a quote from Lewis Kaplan in another case, unrelated entirely,
• 43:23
  Speaker 2: but I think it's interesting to read it out. So
• 43:27
  Speaker 2: Caplin says, in regards to Sam Bankman Freed, a defendant's
• 43:31
  Speaker 2: speech is not protected to the extent that it is
• 43:34
  Speaker 2: intended to bring about a crime. And June, I want
• 43:36
  Speaker 2: to ask you about this. What happens if Donald Trump
• 43:40
  Speaker 2: is found to be attempting to tamper with witnesses? What
• 43:43
  Speaker 2: happens if Donald Trump is trying to intimidate people with
• 43:46
  Speaker 2: his speech? Can he always say that's political speech, free
• 43:50
  Speaker 2: speech and claim First Amendment? Or will any judge you
• 43:54
  Speaker 2: have the power and the kahonas to say no, you
• 43:57
  Speaker 2: can't do that.
• 43:58
  Speaker 11: Yes, there will be judges who will have the power
• 44:00
  Speaker 11: to say no. And the judge in DC has already
• 44:04
  Speaker 11: said no to that. So they're raising First Amendment claims.
• 44:08
  Speaker 11: But First Amendment is about speech, and I think, as
• 44:11
  Speaker 11: Tim referred to, what he's charged with is not what
• 44:14
  Speaker 11: he said, it's what he did. And every conspiracy that's charged,
• 44:19
  Speaker 11: the people talk about it.
• 44:20
  Speaker 2: Right.
• 44:20
  Speaker 12: Speech is always part of a conspiracy.
• 44:23
  Speaker 11: So that's a way for them to attack this, but
• 44:25
  Speaker 11: I think it's almost the weakest way, and it's also
• 44:29
  Speaker 11: something that plays in the public. So his supporters are
• 44:32
  Speaker 11: saying he's a political candidate, he has the right to speak. Well,
• 44:35
  Speaker 11: the judge in DC said, you know, that's your day job,
• 44:39
  Speaker 11: what you do in this courtroom. You're a defendant here
• 44:41
  Speaker 11: and your speech here is different and you can't do
• 44:44
  Speaker 11: you can't say anything you want. Now she's testing him.
• 44:48
  Speaker 11: He already since that, she said, I'm gonna be watching
• 44:51
  Speaker 11: what you do, what you post on social media. He
• 44:53
  Speaker 11: already yesterday or the day before said to the Lieutenant
• 44:57
  Speaker 11: governor that he shouldn't go Who the Lieutenant governor, Jeff Duncan,
• 45:00
  Speaker 11: who testified at the grand jury and had testified at
• 45:04
  Speaker 11: the investigative.
• 45:04
  Speaker 12: Grand jury in Georgia.
• 45:06
  Speaker 11: He said he shouldn't go to testify. So I'm wondering
• 45:09
  Speaker 11: if the judge in DC is going to be looking
• 45:11
  Speaker 11: at that and saying intimidation of witness. Obviously she's trying
• 45:14
  Speaker 11: to intimidate a witness. Intimidation of witnesses, and will she
• 45:18
  Speaker 11: try in as Sam In Sam Bankminfried's case, Lewis, Judge
• 45:22
  Speaker 11: Kaplan tried in different ways to curtail what he was doing,
• 45:26
  Speaker 11: to curtail his outreach to to different people there, so
• 45:30
  Speaker 11: will she try in different ways?
• 45:32
  Speaker 12: And another thing she said is.
• 45:34
  Speaker 11: If this keeps up, I'm going to have to have
• 45:36
  Speaker 11: the trial sooner than we thought because you're trying to
• 45:38
  Speaker 11: taint the jury pool.
• 45:40
  Speaker 12: So she has a lot of things that she could
• 45:42
  Speaker 12: use against him.
• 45:43
  Speaker 11: However, it is Donald Trump, and I don't think he's
• 45:46
  Speaker 11: ever kept quiet about anything.
• 45:48
  Speaker 2: We have a listener writing in with a question June,
• 45:52
  Speaker 2: what if Trump's team moves to have this shifted to federal.
• 45:55
  Speaker 11: Court, don't let will work. I don't think that will work.
• 45:58
  Speaker 11: I mean he could, he will try that. He also
• 46:00
  Speaker 11: tried to get the judge changed in the case of Manhattan.
• 46:04
  Speaker 11: But there is no real reason for him to be
• 46:06
  Speaker 11: in federal court. And here you have a case that's
• 46:10
  Speaker 11: all about Georgia law, which could be tried in federal court.
• 46:13
  Speaker 12: But I don't see what the reason for him.
• 46:15
  Speaker 2: Still, he might be able to pardon himself if he doesn't.
• 46:18
  Speaker 11: Right, Well, that's the reason why he wants to would
• 46:20
  Speaker 11: still be state charges.
• 46:21
  Speaker 12: That's interesting. Whether he still could pardon it's still a
• 46:24
  Speaker 12: state case.
• 46:25
  Speaker 11: I think that it would be rejected, and I think
• 46:27
  Speaker 11: he'll probably try to appeal that. But what are his
• 46:30
  Speaker 11: reasons for moving it to federal court? That he can't
• 46:32
  Speaker 11: get a fair jury, which he's been trying to say
• 46:35
  Speaker 11: all along. So Florida is fine for him of the jury,
• 46:38
  Speaker 11: but DC's not.
• 46:39
  Speaker 1: Hey, Tim, you know what I've kind of noticed here
• 46:41
  Speaker 1: during this whole process on the four indictments, I've not
• 46:44
  Speaker 1: heard much from his family in terms of defending. What
• 46:47
  Speaker 1: do you think the family dynamics are in the dynamics
• 46:50
  Speaker 1: of some of his core core supporters outside of some
• 46:54
  Speaker 1: of the members of Congress, I guess well.
• 46:57
  Speaker 13: Eric Trump and Don Trump Junior have been very vocal,
• 46:59
  Speaker 13: I think on their social media feeds and on used programs.
• 47:02
  Speaker 13: I think Ivanka and Jared have headed for the hills.
• 47:06
  Speaker 13: You know they are. They are extremely conscious of how
• 47:10
  Speaker 13: they're perceived socially, including in Manhattan, even though they've fled
• 47:15
  Speaker 13: to Florida. So I think we're not hearing for them
• 47:19
  Speaker 13: from them because they have their own self interest in mind.
• 47:22
  Speaker 13: But Eric and Don Junior are still true believers and
• 47:25
  Speaker 13: are saying the same things that their father is saying,
• 47:27
  Speaker 13: that that his free speech rights are being violated and
• 47:30
  Speaker 13: that this is a witch hunt. I think, you know,
• 47:34
  Speaker 13: what's more interesting is the great silence from members of
• 47:37
  Speaker 13: the Party.
• 47:38
  Speaker 2: Of Law and Order agreed, you know, or support even Tim.
• 47:42
  Speaker 2: It's it's amazing how much support he gets from Congress,
• 47:45
  Speaker 2: and I guess silence from the Senators.
• 47:48
  Speaker 13: Because because he has enormous traction with about thirty to
• 47:51
  Speaker 13: thirty five percent of the party, and he has the
• 47:54
  Speaker 13: ability to destroy GOP candidates who he has a distaste for.
• 47:58
  Speaker 13: And I think this is essentially a moment. It's a
• 48:01
  Speaker 13: profile profiles encouraged moment. These are people who are more
• 48:05
  Speaker 13: worried about getting elected again than they are about doing
• 48:09
  Speaker 13: the right thing, even in the face of robust and
• 48:12
  Speaker 13: danding evidence.
• 48:14
  Speaker 1: So Tim, just real quick, third, thirty seconds left. I mean,
• 48:16
  Speaker 1: house is going to play out over the next months
• 48:18
  Speaker 1: until we get till November of twenty four. I know
• 48:21
  Speaker 1: it's probably an open ending question, but boy, it seems
• 48:24
  Speaker 1: to be one of the defining ones.
• 48:26
  Speaker 13: Well, I think it depends on how quickly these things
• 48:28
  Speaker 13: go to trial. You know, I think one of the
• 48:31
  Speaker 13: reasons he's seeking to move the Georgia case to federal
• 48:33
  Speaker 13: court is just for the delay. I don't think I
• 48:35
  Speaker 13: agree with you, and then I don't think it'll happen.
• 48:37
  Speaker 13: But if he can slow down the gears sufficiently till
• 48:42
  Speaker 13: he potentially gets into the White House, he then would
• 48:45
  Speaker 13: be in the Enva little position of being able to
• 48:47
  Speaker 13: dismiss both of the federal cases against him, telling the
• 48:50
  Speaker 13: Justice Department to just drop it. He would still have
• 48:53
  Speaker 13: to contend with the Georgia case. But I think what's
• 48:55
  Speaker 13: really important about these things going to court is that
• 48:58
  Speaker 13: it will then there'll be a nave presented to the
• 49:01
  Speaker 13: public that the public can decide upon. And I think
• 49:04
  Speaker 13: a lot of the poles and analysis of TV ratings
• 49:08
  Speaker 13: around these indictments that have showed waning interest. The same
• 49:11
  Speaker 13: was true of the January sixth investigations, and once those
• 49:14
  Speaker 13: were televised and a public narrative was laid out, it
• 49:17
  Speaker 13: really affected people's opinion.
• 49:19
  Speaker 3: All right, Tim, thanks so much for joining us.
• 49:20
  Speaker 1: Tim O'Brian, Senior executive editor with Bloomberg Opinion. In June,
• 49:24
  Speaker 1: Grosso legal analysts with Bloomberg News and the host of
• 49:27
  Speaker 1: Bloomberg Law, appreciate getting a couple of very smart voices
• 49:31
  Speaker 1: there to help us kind of put some context around
• 49:33
  Speaker 1: and evolving issue that will be with us, presumably right
• 49:37
  Speaker 1: up until the election and maybe past that.
• 49:39
  Speaker 7: You're listening to the tape cans our live program, Bloomberg
• 49:42
  Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 49:46
  Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 49:49
  Speaker 7: You can also listen live on Amazon Alexa from our
• 49:52
  Speaker 7: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
• 49:58
  Speaker 1: Whyan elector In industries, under pressure of the stock there
• 50:02
  Speaker 1: under concerns that perhaps there might be some connection between
• 50:05
  Speaker 1: some of the utilities and that terrible fire in Hawaii.
• 50:09
  Speaker 1: The stock is down eleven percent today, down fifty four
• 50:11
  Speaker 1: percent a year to date. Let's get some more color
• 50:15
  Speaker 1: and analysis on that. We do that with Andy Bischoff,
• 50:17
  Speaker 1: utility strategists at Morning Star. Andy, as you take a
• 50:21
  Speaker 1: look at the situation in Hawaii, this terrible situation, what's
• 50:25
  Speaker 1: your view of kind of Hawaiian electric industries? Because we
• 50:28
  Speaker 1: don't know if the utility was the cause at all,
• 50:33
  Speaker 1: it has nothing's been proven, But what's your take Hereay.
• 50:39
  Speaker 14: Good afternoon, thanks for having me. You know, as you mentioned,
• 50:42
  Speaker 14: the very terrible situation and very unfortunate. You know, as
• 50:47
  Speaker 14: for Hawaiian Electric, you know, there has been numerous reports
• 50:50
  Speaker 14: of they may or may not have been responsible. O
• 50:53
  Speaker 14: the lines have been tied to the fire. And so
• 50:56
  Speaker 14: what you're I think seeing as investors selling first than
• 51:00
  Speaker 14: asking questions later, because if you had noted that there
• 51:04
  Speaker 14: has been no cause identified yet to date. But you know,
• 51:09
  Speaker 14: if if Hawaiian is found to be negligent or has
• 51:14
  Speaker 14: would have provided a reasonable law, then they could have
• 51:18
  Speaker 14: a liability related to the fires at Awi.
• 51:22
  Speaker 2: So I mean, even if they were found some way
• 51:28
  Speaker 2: even partially responsible for setting the fire off, it's not
• 51:31
  Speaker 2: their fault that we're in an al nino, right, It's
• 51:34
  Speaker 2: not their fault that we've had the hottest months on
• 51:38
  Speaker 2: plus the hurt on the record, and the wind. I mean,
• 51:41
  Speaker 2: there's so many natural effects that certainly helped to boost
• 51:48
  Speaker 2: the destructive potential of this fire. I can't imagine they
• 51:53
  Speaker 2: could be held liable to such an extent. What are
• 51:56
  Speaker 2: your estimates?
• 51:59
  Speaker 14: Yeah, we don't put an asset on it at this point,
• 52:02
  Speaker 14: just given the kind of wide variation of potential damages
• 52:07
  Speaker 14: and liability there. You know, people like to point to
• 52:10
  Speaker 14: the other bankruptcy PG and E that had wildfire, but
• 52:13
  Speaker 14: it's a different situation. They're held to a higher legal
• 52:16
  Speaker 14: standard in Hawaii than they were in California. So I
• 52:20
  Speaker 14: under the kind of a legal aspects in Hawaii they
• 52:25
  Speaker 14: would have to have could they have reasonably prevented a loss?
• 52:28
  Speaker 14: And I think that's where the question UH is going
• 52:30
  Speaker 14: to come up. There's been discussions of should they have
• 52:34
  Speaker 14: pre emptively shut the power off if they do that
• 52:38
  Speaker 14: in some states, whether that's reasonable or not in this situation,
• 52:43
  Speaker 14: I think will definitely be up for debate in the
• 52:45
  Speaker 14: court system. But it's not as clear cut of liability
• 52:49
  Speaker 14: as you live in California when you have in Hawaii.
• 52:53
  Speaker 1: And you give us a sense of kind of the
• 52:56
  Speaker 1: the financial health of this company, Hawaiian Electric Industries, in
• 53:00
  Speaker 1: terms of balance sheet liquidity, that kind of thing.
• 53:04
  Speaker 14: Yeah, I mean, up until you know, last week, there
• 53:07
  Speaker 14: was zero concerns of the financial health of both the
• 53:12
  Speaker 14: utility and they also have a bank subsidiary, you know,
• 53:16
  Speaker 14: absent what happened the last week. They were looking at
• 53:18
  Speaker 14: a few headwindes from the bank, so they were going
• 53:20
  Speaker 14: to look in at roughly two hours per share good
• 53:23
  Speaker 14: cash flow to support their dividends. But now as we
• 53:27
  Speaker 14: kind of head into this new era, it's really going
• 53:30
  Speaker 14: to be a question of their capacity to access the
• 53:32
  Speaker 14: markets to fund these capital requirements going into both to
• 53:37
  Speaker 14: repair the that's their infrastructure in Mali and kind of
• 53:41
  Speaker 14: their capital going forward.
• 53:43
  Speaker 2: We did see that the rating credit rating was cut
• 53:47
  Speaker 2: to junk by S and P. How much of a
• 53:50
  Speaker 2: problem is that ratings cut for the company, regardless of
• 53:54
  Speaker 2: you know, the outcome of the investigation into the fire.
• 54:00
  Speaker 14: Every healthy utility needs access to the credit markets, and
• 54:04
  Speaker 14: all utilities like to have that investment grade credit rating.
• 54:09
  Speaker 14: Uh and that's going to be very important, not just
• 54:12
  Speaker 14: for Hawaiian but for all utilities. Utility have significant capital
• 54:17
  Speaker 14: programs in place. For example, Hawaiian Electric is looking at
• 54:21
  Speaker 14: transitioning to renewable energy, so that's going to take a
• 54:25
  Speaker 14: lot of capital, and that also funds not just your
• 54:28
  Speaker 14: maintenance expenditures, but your growth capital expenditures. And so this
• 54:32
  Speaker 14: could be very vital for a line to have access
• 54:34
  Speaker 14: to the capital markets going forward.
• 54:36
  Speaker 1: So and have we heard anything from the company, or
• 54:40
  Speaker 1: do we expect to hear or when do we expect
• 54:42
  Speaker 1: to hear anything from the company.
• 54:45
  Speaker 14: We haven't heard anything you know, official there that that
• 54:48
  Speaker 14: you know basically that the cause is under investigation, that
• 54:51
  Speaker 14: investigation could take weeks or months, so that that creates
• 54:55
  Speaker 14: a lot of uncertainty for investors, and that's uncertainty is
• 54:59
  Speaker 14: not something that you're typical utility investor likes to have.
• 55:04
  Speaker 14: But I would expect that this is going to take months,
• 55:08
  Speaker 14: if not years, for to work through to provide clarity
• 55:11
  Speaker 14: for the underlying investors in Hawaiian Electrics.
• 55:15
  Speaker 1: So we'll just talk to us about this management team
• 55:19
  Speaker 1: here in this company. Is this a company and management
• 55:21
  Speaker 1: team that's considered or well regarded by investors. Is this
• 55:26
  Speaker 1: a utility that's considered to be a quality utility or
• 55:28
  Speaker 1: maybe it's one that maybe cuts cost cuts corners.
• 55:33
  Speaker 14: Yeah, I don't think that's fair. I mean, I think
• 55:35
  Speaker 14: it's a solid management team. They've promoted within. They have
• 55:40
  Speaker 14: a new CEO that just came in recently from the
• 55:44
  Speaker 14: long ten yured CEO previously. You know, I think they
• 55:48
  Speaker 14: run the company with providing reliable electricity to the citizens
• 55:53
  Speaker 14: of Hawaii, you know, and there's zero indications from me
• 55:57
  Speaker 14: to see that they were cutting any costs and in
• 56:00
  Speaker 14: any respect. You know, the utilities number one job with
• 56:03
  Speaker 14: regulators to provide power, reliable power to its systems, and
• 56:08
  Speaker 14: regulators oversee that, so.
• 56:10
  Speaker 1: Any not maybe just aside from UH Hawaiian electrics. More
• 56:15
  Speaker 1: generally speaking about utilities, how do utilities I mean, with
• 56:18
  Speaker 1: all the climate change issues and all the extreme weather
• 56:21
  Speaker 1: that we seem to be experiencing over the last couple
• 56:23
  Speaker 1: of decades, whether it's fires in California or hurricanes, how
• 56:27
  Speaker 1: do utilities typically I don't know, do they ensure against that?
• 56:32
  Speaker 1: What is the reliability there?
• 56:36
  Speaker 14: You know, there's there's definitely some insurance, but you know,
• 56:39
  Speaker 14: take a take a hurricane, for example in Florida. If
• 56:42
  Speaker 14: there's damage to the infrastructure, a utility should recover all
• 56:47
  Speaker 14: reasonable costs to get the grid back up and performing
• 56:52
  Speaker 14: and providing electricity to its customers. You bring up the
• 56:56
  Speaker 14: clean energy you know that's going to be a significant
• 57:00
  Speaker 14: expense for utilities going forward, capital investment opportunity. But you know,
• 57:05
  Speaker 14: as we look forward and you know, incorporate some of
• 57:09
  Speaker 14: these significant weather events that you mentioned, utilities are gonna
• 57:13
  Speaker 14: have to continue to plan and hider their infrastructure to
• 57:16
  Speaker 14: be able to adapt to the significant weather events and
• 57:21
  Speaker 14: get up in a reasonable time to provide electricity.
• 57:24
  Speaker 1: So and I'm just looking at the SMP Utilities index
• 57:28
  Speaker 1: off about ten and a half percent this year to
• 57:30
  Speaker 1: date and over the prior fifty two weeks off about
• 57:33
  Speaker 1: seventeen and a half percent. What's been the kind of
• 57:35
  Speaker 1: the narrative around utilities these days?
• 57:39
  Speaker 14: Yeah, last year it was a great year for utilities.
• 57:42
  Speaker 14: They have performed at the SMB and that switched this year.
• 57:45
  Speaker 6: Yep.
• 57:46
  Speaker 14: You know, two significant risks for utility or higher indust
• 57:48
  Speaker 14: rates and higher inflation, and you have both of those
• 57:53
  Speaker 14: right now for utilities to where we actually think utilies
• 57:56
  Speaker 14: are a bit undervalued. But you know, going forward, you
• 58:00
  Speaker 14: really have to have strong conveinence in a underlying growth
• 58:03
  Speaker 14: and that that management team can really contain costs so
• 58:06
  Speaker 14: they could be able to support that growth without having
• 58:10
  Speaker 14: significant cost increases to it and customers creating making sure
• 58:14
  Speaker 14: portability for customers.
• 58:16
  Speaker 2: I wonder if the distance from the capital markets demands
• 58:19
  Speaker 2: any kind of risk premium. What do you think about that?
• 58:22
  Speaker 2: I just was reading that the company Hawaiian Electric Industries
• 58:26
  Speaker 2: was started in eighteen ninety one, a decade after King
• 58:29
  Speaker 2: Kullakawa met Thomas Edison to see the incandescent light bulb,
• 58:34
  Speaker 2: which is fascinating. But if you read history of these
• 58:36
  Speaker 2: Hawaiian kings, they traveled so far and it took them
• 58:40
  Speaker 2: so long, obviously because of their remoteness. Does the distance
• 58:44
  Speaker 2: of Hawaiian Electric or any of these companies from the
• 58:48
  Speaker 2: capital markets demand a risk premium?
• 58:52
  Speaker 14: You know, I don't think though, you know, Hawaii leafters.
• 58:55
  Speaker 14: Obviously it's probably the firsest way you can get for
• 58:59
  Speaker 14: a US utility from the capital markets. But there's a
• 59:03
  Speaker 14: no indication for me that distance as a relative risk
• 59:07
  Speaker 14: factor for utilities.
• 59:09
  Speaker 3: Hey, Andy, thanks so much for joining us.
• 59:10
  Speaker 1: Appreciate getting your thoughts there, Andy Bischoff, he's a utility
• 59:13
  Speaker 1: strategist at morning Star. Again, Hawaiian Electric stock under pressure.
• 59:19
  Speaker 1: Investors obviously concerned about potential liability there, although no cause
• 59:24
  Speaker 1: of this fire has been determined at all as.
• 59:27
  Speaker 2: Well, so he cuts them to junk.
• 59:29
  Speaker 3: Saw that yep.
• 59:30
  Speaker 1: So I'm kind of getting out before so I have
• 59:32
  Speaker 1: to see how that plays out.
• 59:37
  Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
• 59:40
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
• 59:44
  Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 59:48
  Speaker 2: at Matt Miller nineteen seventy three and on Fall.
• 59:51
  Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
• 59:54
  Speaker 1: you can always catch us worldwide at Bloomberg Radio