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Yields, Caterpillar, Euro, and the Fed · 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,
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  Speaker 2: and Bloomberg experts, along with essential market moving news.
• 0:14
  Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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  Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
• 0:21
  Speaker 1: Let's talk to our Jersey here, chief US interest rates strategist.
• 0:24
  Speaker 1: I just saw Michael McKee leaving here. He's gonna hop
• 0:28
  Speaker 1: on the Assella train, get down and washing it in
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  Speaker 1: DC for that FED meeting tomorrow where you can heckle
• 0:32
  Speaker 1: the chairman with some questions. What do you want to
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  Speaker 1: hear from FED Chairman Jpal tomorrow after the release of
• 0:39
  Speaker 1: the results there?
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  Speaker 3: Well, what I'd like to hear and what we're not
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  Speaker 3: going to hear is wind up being what's the Fed's
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  Speaker 3: reaction function and for when they might cut or raise
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  Speaker 3: interest rates? Obviously, if inflation accelerates meaningfully, they'll raise interest
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  Speaker 3: rates again. They've already mentioned that that they might have
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  Speaker 3: to do more if inflation does except right, although we
• 1:00
  Speaker 3: got some data today that seems like maybe it is
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  Speaker 3: going to moderate a little bit, but really, you know,
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  Speaker 3: what will it take for them to cut? And I
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  Speaker 3: think that the idea that they're going to remain at
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  Speaker 3: the peak for some time, which they've hounded on, it
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  Speaker 3: would be helpful for them, I think.
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  Speaker 4: To basically be a little bit more explicit, like, look.
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  Speaker 3: We're not cutting unless the unemployment rate is you know,
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  Speaker 3: three four percentage points higher than where it.
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  Speaker 4: Is and inflation is close to our target.
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  Speaker 3: Right, So saying something like that, which isn't completely explicit,
• 1:29
  Speaker 3: is but it still has some meaning around it for markets.
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  Speaker 3: I think that that would be helpful for the FED
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  Speaker 3: to maintain monetary policy at this page.
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  Speaker 2: Close to our target is weak talk week talk weak sauce, right,
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  Speaker 2: I mean, do you want a hawkish Why don't they say, like,
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  Speaker 2: we want to get to two percent two hour target?
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  Speaker 5: You know, I mean at.
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  Speaker 2: Least for six months or a year. I mean, weren't
• 1:56
  Speaker 2: they trying to average long term average two percent?
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  Speaker 5: And how many decades would that take?
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  Speaker 3: Yeah, well, that was our old framework. It wouldn't take
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  Speaker 3: you know, it wouldn't take that long because we remember
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  Speaker 3: we were at under two percent at least for quite
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  Speaker 3: a while in the last decade. I think the the
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  Speaker 3: thing for the FED though, is that if look, if
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  Speaker 3: inflation is two point seven percent, two point six percent,
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  Speaker 3: two point five percent trending lower, and you had a
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  Speaker 3: real spike in unemployment, then everyone would be forecasting inflation to.
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  Speaker 4: Be significantly lower, right.
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  Speaker 3: And I think that's the reason why they can say
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  Speaker 3: like near our target or approaching our target, right, something
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  Speaker 3: like that. So the FED doesn't like to be as
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  Speaker 3: explicit as saying, look, we will cut interest rates if
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  Speaker 3: the unemployment rate is above five percent and unemployment and
• 2:42
  Speaker 3: inflation is at two percent if they won't be as
• 2:45
  Speaker 3: explicit as that, because they want to leave themselves flexibility
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  Speaker 3: in case there's a crisis, if there's you know, massive
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  Speaker 3: corporate defaults for example, and unemployment spikes, but you still
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  Speaker 3: have you know, year of a year inflation hasn't fallen
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  Speaker 3: off a cliff. Yet they always want to leave some
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  Speaker 3: of that flexibility. But you know what's interesting about the
• 3:02
  Speaker 3: FED is it's that little minution detail. It's going to
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  Speaker 3: matter because the Fed's probably not going to do anything tomorrow.
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  Speaker 3: The Treasury Department, though, at eight thirty in the morning,
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  Speaker 3: is going to give us some information that might actually
• 3:12
  Speaker 3: be market moving.
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  Speaker 2: So yeah, I mean, yesterday we heard from I guess
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  Speaker 2: Treasury that they need about what eight hundred billion dollars
• 3:23
  Speaker 2: in this quarter.
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  Speaker 3: Seven hundred and seventy six billion in this quarter of
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  Speaker 3: of net debt rays. Effectively, that's a little bit higher
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  Speaker 3: than what our expectation was, a little bit lower than
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  Speaker 3: most expectations, and the reason is is that they want
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  Speaker 3: to keep this pretty big cash balance. They want to
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  Speaker 3: keep a cash balance of around seven hundred and fifty
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  Speaker 3: billion dollars.
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  Speaker 4: So in order to do that, with Social Security.
• 3:47
  Speaker 3: Payments coming and additional additional payments for medicare as well
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  Speaker 3: as just just general government deficits, not to mention interest
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  Speaker 3: payments on the debt, they're going to have to raise,
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  Speaker 3: you know, quite a lot of money.
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  Speaker 4: Now.
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  Speaker 3: Interestingly, remember that seven hundred and seventy six billion dollars
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  Speaker 3: is what they're selling to the public. It's actually not
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  Speaker 3: the total debt that's being raised because there's non marketable debts,
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  Speaker 3: so debt from the Social Security Trust Fund and some
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  Speaker 3: other trust funds that are being paid down. So what
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  Speaker 3: you'll see is a deficit for the quarter of around
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  Speaker 3: half half a trillion dollars.
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  Speaker 4: Round five hundred billion dollars.
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  Speaker 3: But you'll but the actual debt that they need to
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  Speaker 3: raise is much more than that because of the things
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  Speaker 3: that we've known.
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  Speaker 4: For thirty years.
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  Speaker 3: Right, the Sochi Security Trust Fund is is a is
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  Speaker 3: a net negative and that has to be funded out
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  Speaker 3: of out of general revenue. So it's it's you know,
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  Speaker 3: it's all the problems that we've seen over the last
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  Speaker 3: twenty five years, and we said we're going to be
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  Speaker 3: problems for the government debt are actually coming home to
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  Speaker 3: roost right now.
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  Speaker 1: So I right, I mean, nobody likes to ignore treasury
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  Speaker 1: auctions more than me. Will you tell me i'd have
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  Speaker 1: to pay attention to this.
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  Speaker 3: Well, they've been important, they've been market moving events. When
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  Speaker 3: you look at auction demand the last couple of weeks,
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  Speaker 3: they've they've started to slip a.
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  Speaker 4: Little on on on average.
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  Speaker 3: We last week, for example, we had pretty weak auctions
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  Speaker 3: for two year debt and five year notes, but the
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  Speaker 3: seven year on Thursday one. Okay, But I would say
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  Speaker 3: that demand is much more mixed. Prior to this past
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  Speaker 3: month or so, we actually had pretty decent demand at
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  Speaker 3: auctions people, where I think we're taking advantage of the selloff.
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  Speaker 4: We you know, hit five percent.
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  Speaker 3: On ten year notes, and people had, you know, taking
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  Speaker 3: a little stab at maybe owning a little bit more
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  Speaker 3: on at auction. So, yeah, we need to see if
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  Speaker 3: demand is maintained, particularly since tomorrow morning with all of
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  Speaker 3: that seven hundred billion dollars of debt that needs to
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  Speaker 3: be raised, there's going to have to the government's going
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  Speaker 3: to have to increase the size of auctions almost across
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  Speaker 3: the board.
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  Speaker 1: So I'm looking at the two tens. That's another thing
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  Speaker 1: you got me looking at. Unfortunately still inverted, but you know,
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  Speaker 1: much less than it was before, not only about you know,
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  Speaker 1: twenty basis points or so are we going to get
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  Speaker 1: to a point where we actually have longer term yields
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  Speaker 1: higher than shorter term yields.
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  Speaker 3: Yeah, I think I think we will, and it will
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  Speaker 3: probably happen early next year.
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  Speaker 4: I think it really depends. Though.
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  Speaker 3: The important nuance of that is, is it because two
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  Speaker 3: year yields go down a lot, So do we have
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  Speaker 3: a weakening economy? As Ana Wog and the Bloomberg Economics
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  Speaker 3: team correct, And if we do have a meaningful slowdown
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  Speaker 3: in the economy, we could probably see two year yields
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  Speaker 3: go down, you know, twenty five fifty basis points and
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  Speaker 3: ten year yields go down less than that, and that's
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  Speaker 3: how you wind up getting that positively sloped yield curve.
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  Speaker 3: On the other side, if the if the economy stays
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  Speaker 3: reasonably robust, but only because we have all of this
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  Speaker 3: debt issuance, you could see, you know, ten year yields
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  Speaker 3: maybe up above five percent, up to five point two
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  Speaker 3: five five point three percent, and that could you know,
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  Speaker 3: uninvert the yield curve, And that would not.
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  Speaker 4: Surprise me at all.
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  Speaker 3: In fact, we actually think that we're we are in
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  Speaker 3: the process of completely uninverting and we do expect to
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  Speaker 3: see a positively slope yield curve sometime over the next
• 6:57
  Speaker 3: twelve months.
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  Speaker 2: You raise an interesting point that Treasury Secretary Janet Yellen
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  Speaker 2: last week she said, the reason we have high yields
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  Speaker 2: is not to do with the debt and deficits, nothing
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  Speaker 2: to do with that.
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  Speaker 5: Look away from there, don't look there.
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  Speaker 2: It's because of the strength of the economy, because of Bidenomics,
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  Speaker 2: from the middle out, from the what is it middle out,
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  Speaker 2: and I can't remember, he says, he has a catchphrase
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  Speaker 2: that he uses bottom up and middle out. That's what
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  Speaker 2: it is So is that the case? And will we
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  Speaker 2: know from you know, the refunding how much of the
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  Speaker 2: rise in yields is due to you know, the high
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  Speaker 2: debt and deficits, and how much of it is due
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  Speaker 2: to the speeding economy.
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  Speaker 3: Yeah, these are only things that can be estimated. But
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  Speaker 3: our estimate is that around ninety two percent of the
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  Speaker 3: move from the July FED meeting to present in the
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  Speaker 3: tenure yield has been due to the shift in FED expectations.
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  Speaker 3: And so if you go and you look at what
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  Speaker 3: the expectation is that the market's been pricing. We were
• 7:58
  Speaker 3: pricing for two and a half percent FED funds rate
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  Speaker 3: in twenty twenty five, We're now pricing for four percent
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  Speaker 3: in twenty twenty five. So that's a huge move, right,
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  Speaker 3: I talk about a one hundred and fifty basis point
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  Speaker 3: move up in where the FED is going to cut
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  Speaker 3: to or you know, where the market thinks it's going
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  Speaker 3: to cut to. So that had to manifest itself all
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  Speaker 3: throughout the treasury curve, and in particular in the longer end,
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  Speaker 3: because the longer end was anticipating rates to be much
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  Speaker 3: lower and policy rates to be much lower a few
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  Speaker 3: years from now, so I think, I think the debt
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  Speaker 3: dynamics have do have some effect, and they certainly have
• 8:31
  Speaker 3: effect on liquidity, but I.
• 8:33
  Speaker 1: Forget to just leave it there. But we appreciate that.
• 8:35
  Speaker 1: Ira Jersey, Chief US Interest Rate Strategies for Bloomberg Intelligence.
• 8:40
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• 8:54
  Speaker 1: Caterpillar they make the big tractors and all that kind
• 8:57
  Speaker 1: of good stuff back hose. They reported some numbers today
• 9:00
  Speaker 1: which were in line, I guess, pretty solid. But it's
• 9:02
  Speaker 1: all about the outlook for these long cycle industrial companies
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  Speaker 1: and that's what's got some investors spook here. As John mentioned,
• 9:08
  Speaker 1: is stocks down about five percent here today. Let's break
• 9:10
  Speaker 1: it down with the man who knows what's happening with
• 9:13
  Speaker 1: this company, Chris Chield. You know he covers the big
• 9:16
  Speaker 1: industrial companies for Bloomberg Intelligence. He's located down in Princeton,
• 9:19
  Speaker 1: New Jersey, the HQ if you will of a Bloomberg Intelligence. Hey, Chris,
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  Speaker 1: talk to us about Caterpillar you've been calling on I
• 9:27
  Speaker 1: know in the last a few quarters we've been speaking
• 9:30
  Speaker 1: to you about Boy, these companies are putting up great numbers,
• 9:33
  Speaker 1: but investors are really looking forward and they're a little
• 9:35
  Speaker 1: bit concerned that seemed to come to fruition here today.
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  Speaker 7: What'd you see, Yeah, I mean to your point, I mean,
• 9:40
  Speaker 7: the quarter was fine, actually was quite good, with better
• 9:43
  Speaker 7: than expected margin performance and earnings. You know, pricing continues
• 9:47
  Speaker 7: to be really strong, but what we saw was a
• 9:49
  Speaker 7: pretty broad deterioration when it comes to their leading indicators,
• 9:53
  Speaker 7: you know, backlog fail for the first time in three years.
• 9:56
  Speaker 7: Implied orders also dropped sequentially in year over year, and
• 9:59
  Speaker 7: they're fourth quarter sales outlook was somewhat kind of disappointing
• 10:03
  Speaker 7: and below normal seasonality and consensus, and there was a
• 10:06
  Speaker 7: fair amount of trepidation about the macro backdrop heading into
• 10:10
  Speaker 7: the print. And I think these softer orders and backlog
• 10:13
  Speaker 7: trends that we saw aren't necessarily encouraging and what was
• 10:18
  Speaker 7: likely to be a softer economic environment next year and
• 10:21
  Speaker 7: really just kind of intensify some of those concerns around
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  Speaker 7: the duration of the cycle.
• 10:25
  Speaker 2: Yeah, So we saw the year on year decline of
• 10:29
  Speaker 2: one point nine billion dollars in the backlog. What exactly
• 10:33
  Speaker 2: does that mean? Does that mean you know exactly what
• 10:38
  Speaker 2: I think it does that they had orders that were
• 10:41
  Speaker 2: that much lower? I mean, how much were there was
• 10:43
  Speaker 2: the backlog in total?
• 10:45
  Speaker 7: Yeah, So I would say the moderation in the backlog
• 10:49
  Speaker 7: wasn't necessarily surprised, and I think it was somewhat to
• 10:52
  Speaker 7: be expected, just giving normalizing supply chains and some of
• 10:55
  Speaker 7: the lead time shrinking with some of the product availability.
• 10:59
  Speaker 7: But I think the magnitude of the decline was kind
• 11:01
  Speaker 7: of what spook people, particularly on the order front. Orders
• 11:04
  Speaker 7: were down about fifteen percent versus prior year and twenty
• 11:08
  Speaker 7: percent sequentially. So I think that sheer magnitude and just
• 11:11
  Speaker 7: the optics of But.
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  Speaker 2: What's the magnitude of the Is a one point nine
• 11:14
  Speaker 2: billion dollar drop a ten percent drop in the backlog?
• 11:17
  Speaker 2: Or is it a fifty percent drop in the backlog?
• 11:19
  Speaker 7: No, it's it's an eight and a half percent decline sequentially.
• 11:22
  Speaker 6: So while not but.
• 11:25
  Speaker 7: It's the first time we've seen backlogs essentially peaked.
• 11:27
  Speaker 5: This is the first time sequentially We're not talking about
• 11:30
  Speaker 5: the year over year drop.
• 11:31
  Speaker 1: Yeah right, Yeah, that's I could see how that was
• 11:33
  Speaker 1: spook people. What's Kat saying about, like, which, are there
• 11:36
  Speaker 1: any particular customer segments that are maybe weaker than expected?
• 11:40
  Speaker 1: What are they saying about kind of where this might
• 11:42
  Speaker 1: be coming from.
• 11:43
  Speaker 7: Yeah, I think I'll actually maybe start on the construction side.
• 11:47
  Speaker 7: I think that was one positive surprise, particularly in North America.
• 11:51
  Speaker 7: North America continues to be quite resilient, and end user
• 11:54
  Speaker 7: demand continues to be pretty strong really across their business.
• 11:58
  Speaker 7: The energy and transportation business came in a little bit
• 12:01
  Speaker 7: weaker than we had anticipated, and it's some there was
• 12:04
  Speaker 7: some softness on the mining side on the top line,
• 12:07
  Speaker 7: it seems to be some timing issues, but also there
• 12:10
  Speaker 7: was some weakness in the aftermarket business, which was a
• 12:13
  Speaker 7: little surprising just given the age of the fleet and
• 12:15
  Speaker 7: utilization still remains quite high. So those bear kind of
• 12:18
  Speaker 7: watching going forward here.
• 12:20
  Speaker 1: So it give us a sense of a cycle here
• 12:23
  Speaker 1: for like a Caterpillar. I mean, you said, this is
• 12:26
  Speaker 1: the first time in three years they've had down order. Sequentially,
• 12:29
  Speaker 1: that sounds like a pretty good cycle, But is it
• 12:31
  Speaker 1: our downcycles similarly like in length?
• 12:35
  Speaker 7: No, as much as we like to think every cycle
• 12:37
  Speaker 7: is the same, they tend to be different. And I
• 12:39
  Speaker 7: would say, you know, even though backlog had peaked here,
• 12:44
  Speaker 7: you know, we are still at historically very elevated levels
• 12:47
  Speaker 7: and there is really above average production visibility as we
• 12:50
  Speaker 7: look forward to next year. But the optics are I mean,
• 12:53
  Speaker 7: you have a really a cyclical company with declining orders
• 12:56
  Speaker 7: a declining backlog. It doesn't just the optic of that
• 13:00
  Speaker 7: are not a favorable setup for the company moving into
• 13:03
  Speaker 7: next year.
• 13:03
  Speaker 1: How about the Inflation Reduction Act. Isn't that like lots
• 13:07
  Speaker 1: of Caterpillar type stuff you need?
• 13:11
  Speaker 7: So it is, And I guess one of the caveats
• 13:14
  Speaker 7: with this cycle is it's different because we just have
• 13:17
  Speaker 7: an immense amount of fiscal stimulus coming through the pipe,
• 13:20
  Speaker 7: and I'd say a lot of that has really kind
• 13:21
  Speaker 7: of yet to materialize to the financial results of a
• 13:25
  Speaker 7: lot of these companies and as part of what's propping
• 13:27
  Speaker 7: up the backlog here. So I think that does help
• 13:30
  Speaker 7: provide an offset. I think some of the decline is
• 13:33
  Speaker 7: certainly attributable to the normalizing supply chain and shrinking lead time,
• 13:37
  Speaker 7: So maybe a little bit of an overreaction, but yeah,
• 13:41
  Speaker 7: this will certainly provide a multi year tail wind for
• 13:44
  Speaker 7: the company and really probably provides a little bit more
• 13:46
  Speaker 7: of a favorable outlook for a lot of the construction
• 13:49
  Speaker 7: machinery producers relative to some of the other machinery and markets.
• 13:54
  Speaker 2: What are the biggest competitors and do they face a
• 13:57
  Speaker 2: threat there? I mean, I look through all the on
• 14:00
  Speaker 2: the r V page on the Bloomberg and I don't
• 14:02
  Speaker 2: see anything that really stands out as you know, a
• 14:05
  Speaker 2: household name other than maybe Mitsubishi.
• 14:10
  Speaker 5: But you know, who are they facing off against?
• 14:14
  Speaker 7: Yeah, so, I mean, they're the undisputed leader in the
• 14:16
  Speaker 7: construction machinery space. When it comes to mining, it's essentially
• 14:20
  Speaker 7: a duopoly with them in Kamatsu, and Kamatsu is a
• 14:23
  Speaker 7: pretty significant player on the construction side as well. Everyone
• 14:27
  Speaker 7: else tends to be subscale. They do compete with Deer
• 14:30
  Speaker 7: also on construction. They're starting to grow their construction business,
• 14:34
  Speaker 7: so I would expect them to be a more formidable
• 14:37
  Speaker 7: competitor in the years to come. But really it's kat
• 14:40
  Speaker 7: and Kamatsu. Those are the dominant forces in the market.
• 14:44
  Speaker 1: How about geographies, Chris, particularly China. What's their exposure to
• 14:48
  Speaker 1: China and what are they saying about China.
• 14:51
  Speaker 7: China's weak and continues to weaken really no signs of
• 14:55
  Speaker 7: a turnaround yet. So you know, historically China has been
• 14:58
  Speaker 7: roughly ten to ten five to ten percent of consolidated
• 15:01
  Speaker 7: sales at Caterpillar. This year, we're going to be well
• 15:04
  Speaker 7: below the five percent in the lowest and quite some time.
• 15:07
  Speaker 7: Not really hearing any sort of optimism coming out of
• 15:09
  Speaker 7: that region.
• 15:11
  Speaker 1: And how about Europe, because I know I can see
• 15:13
  Speaker 1: here on the p GEO page that's EAM is about
• 15:18
  Speaker 1: twenty percent of revenue. What are they seeing out of Europe?
• 15:21
  Speaker 1: Because I know people are concerned about that, those economies
• 15:24
  Speaker 1: over there.
• 15:25
  Speaker 7: Yeah, and you know that actually held up a little
• 15:27
  Speaker 7: better than I had anticipated. We're just starting to hear
• 15:30
  Speaker 7: this earning season from a number of number of other
• 15:32
  Speaker 7: machinery producers that there had been some weakening and the
• 15:36
  Speaker 7: sentiment over in Europe and even some softer orders. Didn't
• 15:39
  Speaker 7: really get that coming out of cat and some of
• 15:42
  Speaker 7: their retail sales trends didn't seem to suggest a significant
• 15:47
  Speaker 7: deterioration there yet. So again another item worth kind of
• 15:50
  Speaker 7: monitoring moving forward.
• 15:52
  Speaker 2: We just saw the Eurostat growth figures, by the way, Paul,
• 15:55
  Speaker 2: so the European economy contracted zero point one percent in
• 16:01
  Speaker 2: the third quarter, and we were looking for just a segnation,
• 16:04
  Speaker 2: So it's getting smaller there. I guess consumer prices are
• 16:07
  Speaker 2: coming down, which is good. They got a two handle
• 16:10
  Speaker 2: on them, two point nine percent in October.
• 16:11
  Speaker 1: Okay, yeah, hey, Chris, just looking ahead a little bit.
• 16:15
  Speaker 1: My good friends at John Dear the nice Green Tractors
• 16:18
  Speaker 1: are reporting in a few weeks here, and you know,
• 16:21
  Speaker 1: I always load to look at the Deer results because
• 16:23
  Speaker 1: it gives you a great handle on kind of how
• 16:26
  Speaker 1: the state of the farmer out there, how are things
• 16:29
  Speaker 1: at Deer.
• 16:30
  Speaker 7: So I think Deer is going to have a more
• 16:33
  Speaker 7: challenging setup into twenty twenty four relative to Cat. We
• 16:37
  Speaker 7: think the egg market is already peaked, so we're kind
• 16:40
  Speaker 7: of anticipating mid digit volume declines next year. Now, remember Deer,
• 16:46
  Speaker 7: we'll report their fiscal four Q results later in November,
• 16:49
  Speaker 7: so they'll provide the kind of first look at twenty
• 16:51
  Speaker 7: twenty four. But we're certainly expecting a lower volume market.
• 16:54
  Speaker 7: On the ag side, we're coming off a number of
• 16:56
  Speaker 7: strong years, but you're starting to see commodity prices. Is
• 17:00
  Speaker 7: a rural crowd often quite a bit farmer income is
• 17:03
  Speaker 7: going to be down twenty five percent this year, so
• 17:05
  Speaker 7: really i'd say a less favorable outlook on the ag
• 17:09
  Speaker 7: side in twenty twenty four and the farmer.
• 17:11
  Speaker 1: I mean, when the farmer has cash, he or she
• 17:14
  Speaker 1: goes out and buys tractors and stuff like that. But
• 17:17
  Speaker 1: it's it's a cyclical business, so the flip side is true.
• 17:19
  Speaker 7: Right, Yeah, any the magnitudeers sound pretty draconian, but I
• 17:26
  Speaker 7: think we'll still be, you know, second or third highest
• 17:29
  Speaker 7: all time in terms of that farm income. So we'll
• 17:33
  Speaker 7: be down from a peak in twenty twenty two. It's
• 17:36
  Speaker 7: still going to be historically strong. But I would just
• 17:38
  Speaker 7: expect farmers to dial back some of the spending just
• 17:41
  Speaker 7: given what's going on with some of the farm fundamentals
• 17:44
  Speaker 7: and again the weaker crop prices that we've seen.
• 17:47
  Speaker 1: All right, great stuff, I'm just gonna deer right now
• 17:49
  Speaker 1: in the stocks off about fifteen percent year to date,
• 17:51
  Speaker 1: so there's the market discounting good twelve to eighteen months
• 17:54
  Speaker 1: in the future. On that name, Chris Chierlino, we always
• 17:57
  Speaker 1: appreciate getting a few minutes of his time. He's the
• 17:59
  Speaker 1: industrials analysts at Bloomberg Intelligence.
• 18:01
  Speaker 6: You're listening to the tape. Ken's our live program Bloomberg
• 18:05
  Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 18:08
  Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 18:11
  Speaker 6: You can also listen live on Amazon Alexa from our
• 18:14
  Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
• 18:20
  Speaker 1: Looking at Ingo that is the Bloomberg Index browser kind
• 18:25
  Speaker 1: of gives you the performance your day, month to day
• 18:27
  Speaker 1: of all the big indexes out there, and for the
• 18:30
  Speaker 1: fixed income space in the US it is red with
• 18:33
  Speaker 1: one exception, US corporate high yield up four point three
• 18:36
  Speaker 1: eight percent. Why is that? Let's check out with our
• 18:38
  Speaker 1: next guest, Ken Monaghan, co director of high Yield at
• 18:41
  Speaker 1: a Mundi US. He's based in Durham, North Carolina, but
• 18:46
  Speaker 1: up here in New York. Ken twenty twenty two, as
• 18:48
  Speaker 1: we've talked about before, was the mother of all disasters
• 18:52
  Speaker 1: for fixed income investors. This year is not much better
• 18:56
  Speaker 1: through the first you know, nine ten months. What's going
• 18:58
  Speaker 1: on in the corporate high yield mark? Why is that
• 19:00
  Speaker 1: showing some positive returns?
• 19:02
  Speaker 8: You're right, Paul, I think it's been a reasonable year
• 19:05
  Speaker 8: considering how bad we've had in the past, it's a
• 19:09
  Speaker 8: decent year, and it's a year where risk is outperformed.
• 19:12
  Speaker 4: Now.
• 19:13
  Speaker 9: October thus far has been miserable for risk.
• 19:16
  Speaker 8: But if you're looking at the year to date, we
• 19:18
  Speaker 8: see the triple C credits are up, you know, really
• 19:21
  Speaker 8: threefold what double b's are.
• 19:24
  Speaker 9: So we've had a fair amount of spread compression.
• 19:27
  Speaker 1: So but I mean, everybody's been telling Matt and I
• 19:29
  Speaker 1: that we're going to have a recession any day now.
• 19:33
  Speaker 1: If that's the case, why are people taking incremental risk
• 19:36
  Speaker 1: that they need to that they do when.
• 19:37
  Speaker 5: They tie the threads.
• 19:38
  Speaker 2: I mean, if you're paying me, I get it. But
• 19:41
  Speaker 2: if you're not paying me, why am I buying it?
• 19:43
  Speaker 8: Well, if you look at spreads where they are right now,
• 19:45
  Speaker 8: arguably they're only at the five and ten year averages,
• 19:49
  Speaker 8: so they're not looking particularly cheap. On the other hand,
• 19:53
  Speaker 8: that the economy has done pretty well, and I think
• 19:55
  Speaker 8: that that's really what's been driving spreads is you know,
• 19:58
  Speaker 8: we'd all been waiting or expecting a a recession, whether
• 20:01
  Speaker 8: it was in the later half of the back early
• 20:03
  Speaker 8: part of the first half of the year, or then
• 20:06
  Speaker 8: the back half of this year, and then people are
• 20:08
  Speaker 8: forecasting it for early twenty twenty four, and thus far
• 20:12
  Speaker 8: the economy continue to power through, and I think that's
• 20:14
  Speaker 8: what's been driving spreads.
• 20:15
  Speaker 2: But aren't you worried that defaults are going to start
• 20:17
  Speaker 2: to pick up?
• 20:18
  Speaker 8: Well, interestingly enough, if you look at the Moody's estimates,
• 20:21
  Speaker 8: they're expecting defaults will peak sometime or the spring of
• 20:24
  Speaker 8: next year, but at a fairly reasonable rate. But let's
• 20:27
  Speaker 8: remember when Moody's puts out its number is it is
• 20:30
  Speaker 8: an unweighted number, So they count one hundred million dollars
• 20:33
  Speaker 8: default the same way they count a billion dollar default.
• 20:36
  Speaker 8: If you look at it on an adjusted basis, where
• 20:39
  Speaker 8: they're using waitings based on the amount of debt outstanding.
• 20:43
  Speaker 8: The default rate for this year is still running under
• 20:46
  Speaker 8: two percent. Now they're expecting the default rate to rise
• 20:50
  Speaker 8: into the.
• 20:50
  Speaker 9: Mid to high fours. But that's a pretty big differential.
• 20:53
  Speaker 8: So what it tells us is the companies that are
• 20:55
  Speaker 8: getting into more difficulty tend to be smaller companies rather.
• 20:58
  Speaker 9: Than larger ones. At this point, it's.
• 21:00
  Speaker 1: A new issue market. Like I used to love throwing
• 21:02
  Speaker 1: out some high yield from my clients back in the
• 21:04
  Speaker 1: day because I love the media, cable paper what's the
• 21:08
  Speaker 1: what's the new issue market like these days?
• 21:10
  Speaker 8: It's pretty soft right now. Not surprisingly, I think we
• 21:13
  Speaker 8: had a pretty robust calendar coming into September and that
• 21:16
  Speaker 8: there were a number of companies that had financings, whether
• 21:18
  Speaker 8: it was M and A related or LBO related that
• 21:21
  Speaker 8: needed to get done, and they got those done.
• 21:23
  Speaker 9: But since then, obviously, treasuries.
• 21:25
  Speaker 8: Have risen fairly dramatically, and then on the back of
• 21:28
  Speaker 8: the fifty beeps treasury move we've had in the last
• 21:31
  Speaker 8: four or five weeks, we've had about a seventy five
• 21:33
  Speaker 8: basis point widening of high yield. So I think companies
• 21:36
  Speaker 8: have taken a step back and said, let's wait a
• 21:38
  Speaker 8: minute here, let's hope that spreads get tighter, or hope
• 21:41
  Speaker 8: the treasury rates come down and moderate, and we'll find
• 21:44
  Speaker 8: a better financing opportunity. Now, the problem with that, from
• 21:48
  Speaker 8: our perspective is if you wait too long and we
• 21:50
  Speaker 8: are right and we do see more of an economic
• 21:52
  Speaker 8: slowdown in twenty twenty four, which is what our expectation is,
• 21:56
  Speaker 8: that would imply, as you're suggesting, that spreads ought to
• 21:59
  Speaker 8: be wider, not tighter, And if spreads are not wider,
• 22:04
  Speaker 8: then the FEDS likely to keep its foot on their
• 22:07
  Speaker 8: break pretty hard, because that says the economy is powering
• 22:10
  Speaker 8: along too strongly and they're going to have to react.
• 22:13
  Speaker 2: Or else you're playing along too much. You need to
• 22:16
  Speaker 2: get a little bit more vigilante, don't you know?
• 22:19
  Speaker 5: What can you do?
• 22:20
  Speaker 2: By the way, in terms of, you know, pivoting your strategy,
• 22:24
  Speaker 2: you can't. Can you go up in quality if.
• 22:27
  Speaker 8: You're a co director of high Year, Sure, yeah, and
• 22:29
  Speaker 8: we've been doing a fair amount of that, and I
• 22:31
  Speaker 8: think then the other thing you do is you go
• 22:33
  Speaker 8: into sectors where you have a greater degree of certainty.
• 22:36
  Speaker 8: So you know, we look at affluent consumers are still spending.
• 22:39
  Speaker 8: Cruise ship companies happen to be doing extremely well, and
• 22:42
  Speaker 8: actually if you look at their bookings through twenty twenty four,
• 22:45
  Speaker 8: they're solidly booked. You know, we've seen some softness in
• 22:49
  Speaker 8: the airline space, but the cruise ships happen to be different.
• 22:52
  Speaker 8: You know, even if you're looking at something like homebuilders,
• 22:54
  Speaker 8: you would say to yourself, well, how could homebuilders be
• 22:56
  Speaker 8: doing well in this kind of environment? Well, right now,
• 22:59
  Speaker 8: you know, secondary or home sales have dried up because
• 23:03
  Speaker 8: anyone that's got a three and a half percent mortgage
• 23:06
  Speaker 8: or four percent mortgage, isn't going to sell their house
• 23:08
  Speaker 8: and buy something new unless they absolutely have to because
• 23:11
  Speaker 8: they're moving, for example, to a whole other state. So
• 23:15
  Speaker 8: the only game in town right now is buying a
• 23:17
  Speaker 8: new house. And the margins on the home building industry
• 23:20
  Speaker 8: over the last several years have accelerated in a significant way,
• 23:24
  Speaker 8: so they've got room to play around and offer extra
• 23:27
  Speaker 8: financing support for the first two or three years. They
• 23:30
  Speaker 8: can bring down the quality or going to put carpeting
• 23:33
  Speaker 8: in instead of hardwood floors.
• 23:35
  Speaker 9: They've got room to maneuver. But the homebuilders are actually
• 23:37
  Speaker 9: doing quite well.
• 23:38
  Speaker 1: How about the cable slash telecom space, big big issues
• 23:42
  Speaker 1: in the high healed space historically. How about those you
• 23:44
  Speaker 1: guys have exposure there and what do you like or
• 23:46
  Speaker 1: don't we?
• 23:47
  Speaker 10: We do?
• 23:47
  Speaker 9: We do?
• 23:48
  Speaker 6: You know?
• 23:48
  Speaker 9: The cable sector. You know, if we look back.
• 23:50
  Speaker 8: And you look at some of the names in the
• 23:51
  Speaker 8: space on the equity side, over the last couple of years,
• 23:54
  Speaker 8: they've been under pressure ye big time. And I think
• 23:56
  Speaker 8: that that's reflecting a couple of things. And one is
• 23:59
  Speaker 8: the competitiveness of wireless alternatives yep.
• 24:04
  Speaker 9: And then there was.
• 24:05
  Speaker 8: Cord cutting is obviously going on, but I think we've
• 24:08
  Speaker 8: seen some changes in the last several months.
• 24:10
  Speaker 1: They always pay their interest in principle, though.
• 24:12
  Speaker 8: They are always paying their interest in principle, and I think,
• 24:15
  Speaker 8: you know, think about how many of us are still
• 24:16
  Speaker 8: working from home, at least part time, maybe not in
• 24:19
  Speaker 8: the office every day of the week, and those people
• 24:22
  Speaker 8: need that.
• 24:23
  Speaker 1: Average office professional in Durham, North Carolina, what are they
• 24:28
  Speaker 1: doing how many days a week back in the office.
• 24:29
  Speaker 8: I'm going to say we're in at least three days
• 24:31
  Speaker 8: a week, and I'm going to say that's what most
• 24:33
  Speaker 8: people are doing.
• 24:34
  Speaker 1: That's the new normal, man.
• 24:36
  Speaker 5: Yeah, no, I know it's the real world.
• 24:38
  Speaker 1: That's what the real people are doing.
• 24:40
  Speaker 4: Well.
• 24:41
  Speaker 2: I think bosses are trying to change that, but employees
• 24:44
  Speaker 2: are fighting back.
• 24:45
  Speaker 1: Yeah, we just need a good recession, all right, real quick,
• 24:48
  Speaker 1: What do you expect from your Federal Reserve tomorrow?
• 24:51
  Speaker 9: I think it's going to be a quiet day from
• 24:53
  Speaker 9: the Fed.
• 24:53
  Speaker 8: I think that there's you know, there's reasons why they
• 24:55
  Speaker 8: may go the other way and raise rates, but I
• 24:58
  Speaker 8: don't think that that's in the cards right now.
• 25:00
  Speaker 9: I think we're in a holding pattern all right.
• 25:03
  Speaker 1: Again, Looking at the then function of Bloomberg Index Browser,
• 25:07
  Speaker 1: US mortgage backed securities, US aggregate, US government credit, US Treasury,
• 25:11
  Speaker 1: US universal all down two three four percent year to date.
• 25:16
  Speaker 1: The one exception, US corporate high Yield a positive four
• 25:19
  Speaker 1: point three eight percent return. But as you mentioned, Ken,
• 25:22
  Speaker 1: on the month, down one point four percent of all
• 25:24
  Speaker 1: the bonds.
• 25:24
  Speaker 5: If you look at JNK or HyG, they're not doing
• 25:27
  Speaker 5: that great.
• 25:27
  Speaker 1: Yeah, yeah, so interesting stuff there, but positive for the year,
• 25:30
  Speaker 1: not positive for the year. And on Friday we'll talk
• 25:33
  Speaker 1: with Joe Meisek talked about the immunis bond market.
• 25:36
  Speaker 5: I'm very much looking forward up to that.
• 25:38
  Speaker 1: Ken Monahan, thank you so much for joining us. Ken Monahan,
• 25:40
  Speaker 1: co director of High Yield for a Mundi US based
• 25:43
  Speaker 1: in Durham, North Carolina.
• 25:45
  Speaker 6: You're listening to the team Ken's are Live program Bloomberg
• 25:49
  Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
• 25:52
  Speaker 6: the iHeartRadio app, and the Bloomberg Business App, or listen
• 25:55
  Speaker 6: on demand wherever you get your podcasts.
• 26:00
  Speaker 1: We're right smack in the middle of earnings, Marcus digesting
• 26:03
  Speaker 1: them on a daily basis. Got some some more earnings
• 26:06
  Speaker 1: after the close today AMD then of course Apple after
• 26:08
  Speaker 1: the close, we want to go across the pond and
• 26:11
  Speaker 1: see how things are over in Europe with earnings, with markets,
• 26:14
  Speaker 1: where's the performance, where's the risk? And we do that
• 26:17
  Speaker 1: with one Tim Craig at He is a director of
• 26:19
  Speaker 1: research and he's also a senior European strategist for Bloomberg Intelligence,
• 26:23
  Speaker 1: joining us from Queen Victoria Street, the global European global
• 26:27
  Speaker 1: headquarters of Bloomberg and it is the smoking hot building,
• 26:30
  Speaker 1: just crazy the building over there. Hey, Tim, thanks so
• 26:33
  Speaker 1: much for joining us here, give us the headlines. Just
• 26:36
  Speaker 1: step back thirty thousand feet for our listeners and viewers,
• 26:39
  Speaker 1: or maybe aren't really up to date on how the
• 26:41
  Speaker 1: European markets have been performing this year.
• 26:44
  Speaker 11: Yeah, well, we have been behind the US from the
• 26:48
  Speaker 11: standpoint of market performance. We don't have the big tech
• 26:51
  Speaker 11: that's driven the S and P five hundred back up
• 26:55
  Speaker 11: over the course of into autumn. That said, we also
• 27:00
  Speaker 11: don't have the big tech that's been under pressure since
• 27:03
  Speaker 11: the July August peaks. And so while the US has
• 27:08
  Speaker 11: certainly taken a pumbling and we've sold off, we've not
• 27:11
  Speaker 11: sold off as much.
• 27:14
  Speaker 10: So that's sort of the quick synopsis.
• 27:17
  Speaker 2: So we've taken a pumbling, you've sold off, but not
• 27:20
  Speaker 2: as much.
• 27:21
  Speaker 10: Today.
• 27:21
  Speaker 2: We learn though that your third quarter showed a contraction
• 27:26
  Speaker 2: in growth and we were growing five percent.
• 27:28
  Speaker 10: Buddy, Hey, there you go.
• 27:31
  Speaker 2: No, I mean, you know, obviously backward looking isn't what matters.
• 27:34
  Speaker 2: And as Caterpillar I think proves today people really care
• 27:37
  Speaker 2: about the outlook.
• 27:39
  Speaker 5: As if we didn't know that already.
• 27:40
  Speaker 2: How is the outlook for European earnings compared to US earnings?
• 27:45
  Speaker 11: So, Matt, I think it's really interesting thinking about the
• 27:47
  Speaker 11: ernience picture, you know, again, the compared and contrast. You know,
• 27:50
  Speaker 11: the US went through a few quarters of Ernien's contraction
• 27:54
  Speaker 11: while Europe was still gaining a lot of that. Ernians
• 27:57
  Speaker 11: contraction in the US was big tech oriented, and what
• 28:01
  Speaker 11: we're feeling now in Europe and we will see in
• 28:04
  Speaker 11: earnings decline again this quarter, is actually a lagging impact
• 28:09
  Speaker 11: of the decline that we've seen in things like energy
• 28:12
  Speaker 11: and metals prices, which are really big over here, much
• 28:15
  Speaker 11: more so than they are in US markets. The thing
• 28:19
  Speaker 11: I don't think either market has necessarily felt is the
• 28:22
  Speaker 11: full impact of the spike in interest rates that we've
• 28:25
  Speaker 11: had and how that's going to have an impact on
• 28:27
  Speaker 11: consumer and businesses as we go into twenty twenty four,
• 28:31
  Speaker 11: which does play into an awful lot of the earnings
• 28:35
  Speaker 11: commentary that we're hearing through the reporting period. Just to
• 28:40
  Speaker 11: give you a couple of numbers, we're about halfway through
• 28:43
  Speaker 11: here in Europe, a little behind where you are where
• 28:47
  Speaker 11: you are.
• 28:47
  Speaker 10: In the US.
• 28:49
  Speaker 11: It sounds okay that we've got about fifty percent of
• 28:52
  Speaker 11: the companies that have beat earnings expectations, about thirty five
• 28:56
  Speaker 11: that have missed, But in fact that's the worst performance
• 29:01
  Speaker 11: from the standpoint of beats versus misses that we've had
• 29:03
  Speaker 11: since the pandemic low. So I would categorize this it's
• 29:06
  Speaker 11: a pretty disappointing earning season.
• 29:08
  Speaker 1: Hey, Tim, talk to us about valuation. Where are you
• 29:12
  Speaker 1: guys over there in terms of valuation right now?
• 29:17
  Speaker 11: Yeah, So you look at the broad European market where
• 29:20
  Speaker 11: twelve and a half times forward earnings, it's down from
• 29:26
  Speaker 11: a recent highs of thirteen ish, clearly far below where
• 29:33
  Speaker 11: the US trades. You can find markets like the German
• 29:36
  Speaker 11: Docks index that's retraced all the way to ten times
• 29:41
  Speaker 11: forward earnings, and that's with a heavy dose of the
• 29:45
  Speaker 11: big German auto companies that are facing increasing pricing competition
• 29:50
  Speaker 11: and ev competition from China. So you know, it's clearly
• 29:54
  Speaker 11: there's a value tilt from the standpoint of an absolute
• 29:57
  Speaker 11: multiple across the European markets. But I would also say,
• 30:01
  Speaker 11: and you know it's true from a US perspective as well,
• 30:04
  Speaker 11: with interest rates being as high as they are, and
• 30:06
  Speaker 11: they've certainly ratcheted up here market by market over the
• 30:11
  Speaker 11: course of the autumn. You know, that does take a
• 30:15
  Speaker 11: toll on what you're willing to pay in terms of
• 30:18
  Speaker 11: market valuation. So what would seem cheap from an absolute
• 30:23
  Speaker 11: level ten times twelve times a year ago now isn't
• 30:29
  Speaker 11: quite so cheap on our fair value work because interest
• 30:32
  Speaker 11: rates are simply higher.
• 30:34
  Speaker 2: Yeah, I wonder how important China is to European earnings.
• 30:39
  Speaker 2: And I know they haven't fully penetrated the entire continent,
• 30:43
  Speaker 2: but when I was over there, you know, they had
• 30:45
  Speaker 2: made their way up through Africa and straight to the
• 30:49
  Speaker 2: tip of Italy. You know, is it a bigger driver
• 30:54
  Speaker 2: of well, let's say, revenue growth China than it is
• 30:59
  Speaker 2: for US companies significantly?
• 31:01
  Speaker 11: So the recent analysis we did looking at the stock
• 31:05
  Speaker 11: six hundred eighty of the six hundred have got overtly
• 31:13
  Speaker 11: easy to define significant contribution. If you add it up,
• 31:18
  Speaker 11: it's about four hundred and fifty billion in revenue. These
• 31:22
  Speaker 11: companies aggregate to be about thirty percent of the European
• 31:26
  Speaker 11: market in terms of index weight, So any way you
• 31:29
  Speaker 11: want to cut it, there's a lot of companies.
• 31:30
  Speaker 10: They're big companies, and it's a lot of revenue.
• 31:33
  Speaker 11: And what we're seeing in the third quarter maybe no
• 31:36
  Speaker 11: surprise given the faltering, stuttering economic growth in China is
• 31:42
  Speaker 11: that business is also faltering a bit. They already mentioned
• 31:47
  Speaker 11: the German autos as a case in point. Contrast that
• 31:50
  Speaker 11: with Stillantis today, which doesn't have so much China exposure
• 31:54
  Speaker 11: but more US exposure, and it was a little bit better.
• 31:57
  Speaker 11: The luxury good companies have talked about weakening China economic activity,
• 32:04
  Speaker 11: and there are several others that are showing that they're
• 32:09
  Speaker 11: signs of weakness. Now two things other to mention on China,
• 32:14
  Speaker 11: this was still an easy comparison for three Q. Remember
• 32:17
  Speaker 11: they didn't open back up until October and November last year,
• 32:22
  Speaker 11: so it's really the fourth quarter that is going to
• 32:26
  Speaker 11: be a more difficult comparison.
• 32:28
  Speaker 10: And on into the first quarter.
• 32:29
  Speaker 11: Of next year, So if things are still stuttering, that
• 32:33
  Speaker 11: business is going to be more of a challenge. And
• 32:36
  Speaker 11: the other thing, obviously, thinking about twenty twenty four, the
• 32:39
  Speaker 11: more pressure there is on the economy, the more likely
• 32:43
  Speaker 11: there's going to be fiscal and monetary measures to stimulate
• 32:46
  Speaker 11: the economy, which might all of a sudden turn this
• 32:48
  Speaker 11: around as we look into the back half of next year,
• 32:50
  Speaker 11: and clearly the markets will discount that. Right now, everybody's
• 32:53
  Speaker 11: focused on current weakness that may be short lived.
• 32:56
  Speaker 1: Hey, Tim, you travel all around the continent, all around
• 32:59
  Speaker 1: your speaking to institutional investors. What did they want to know?
• 33:02
  Speaker 1: I mean, what's kind of the common question, top question
• 33:05
  Speaker 1: you get asked?
• 33:07
  Speaker 11: Yeah, you know, Paul, I guess a couple things come
• 33:10
  Speaker 11: to mind. It was just in an event last week
• 33:13
  Speaker 11: in Frankfurt, And at this point it really is all
• 33:17
  Speaker 11: about the macro outlook and what's going on with monetary policy,
• 33:22
  Speaker 11: When is the pivot going to happen, and how much
• 33:25
  Speaker 11: of that pivot does then translate into a reduction in
• 33:30
  Speaker 11: things like ten year yields because it's not an immediate
• 33:34
  Speaker 11: feed through, but that's that's crucial because the higher we are,
• 33:37
  Speaker 11: the longer we are on interest rates, the more of
• 33:40
  Speaker 11: an impact there is on business and consumer and you
• 33:43
  Speaker 11: know that's a huge pressure point for the twenty twenty
• 33:46
  Speaker 11: four outlook.
• 33:47
  Speaker 1: All right in suburban London near your pad? What's a
• 33:52
  Speaker 1: good pint going to cost me?
• 33:55
  Speaker 10: A good pint when I go for Halloween today? Paul,
• 33:58
  Speaker 10: there we go?
• 34:00
  Speaker 12: Thank you?
• 34:01
  Speaker 10: Is gonna be about seven pounds for a pint?
• 34:05
  Speaker 9: Wow?
• 34:05
  Speaker 5: Seven pounds?
• 34:06
  Speaker 2: And do you do you do like Guinness extra cold
• 34:10
  Speaker 2: or do you have them pull you an actual ale
• 34:13
  Speaker 2: from one of those old school taps?
• 34:14
  Speaker 6: Oh?
• 34:15
  Speaker 10: I like I like the cast ales definitely. See which delicious?
• 34:21
  Speaker 11: Best best thing is a Trappist dale though from from
• 34:23
  Speaker 11: Belgium that that's the best beer, that's.
• 34:26
  Speaker 1: The best beer.
• 34:26
  Speaker 10: Hey are you?
• 34:27
  Speaker 1: Are you still avoiding the congestion tax in London by
• 34:29
  Speaker 1: riding your bike to the office?
• 34:32
  Speaker 4: I do.
• 34:32
  Speaker 10: I rode this morning. See he's one of those people
• 34:35
  Speaker 10: that I'll write, I'll ride home this afternoon.
• 34:37
  Speaker 5: See that's smart.
• 34:38
  Speaker 2: I'm gonna avoid the congestion charge in New York by
• 34:40
  Speaker 2: getting a garage.
• 34:41
  Speaker 5: On sixtieth Street.
• 34:42
  Speaker 1: Yeah, we're gonna get John Tuckerolle bike.
• 34:43
  Speaker 9: Yeah, I'm going to ride my bike in the morning.
• 34:47
  Speaker 1: The Lincoln Tunnel in the morning.
• 34:50
  Speaker 4: I don't think they allow bikes in Lincoln.
• 34:52
  Speaker 1: All right, Tim, thanks so much for joining us, as
• 34:53
  Speaker 1: I always appreciated. Tim Craig Eddy is the director of
• 34:56
  Speaker 1: research over there in London, uh and he's a senior
• 34:58
  Speaker 1: European strategist for Bloomberg Intelligence. Ton tons of experience in
• 35:03
  Speaker 1: the equity markets. Morgan Stanley did a little hedge fund work,
• 35:05
  Speaker 1: and then we nab them at Bloomberg Intelligence back in
• 35:08
  Speaker 1: the day.
• 35:08
  Speaker 6: You're listening to the tape. Cat's a our live program,
• 35:11
  Speaker 6: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
• 35:15
  Speaker 6: the tune in app, Bloomberg dot Com, and the Bloomberg
• 35:18
  Speaker 6: Business App. You can also listen live on Amazon Alexa
• 35:21
  Speaker 6: from our flagship New York station. Just say Alexa play
• 35:24
  Speaker 6: Bloomberg eleven thirty.
• 35:27
  Speaker 1: Let's take a look at these markets. Where do we
• 35:29
  Speaker 1: go from here? With Rightsmack in the middle of earnings,
• 35:33
  Speaker 1: people starting to think about next year, where to be positioned.
• 35:36
  Speaker 1: Our next guest thinks about that stuff as well. Lucas
• 35:39
  Speaker 1: to Mickey. He's a founder managing partner of LRT Capital Management. Lucas,
• 35:44
  Speaker 1: thanks so much. For joining us here, give us just
• 35:46
  Speaker 1: let's start off by just getting a sense of how
• 35:48
  Speaker 1: you guys deploy capital LRT capital management kind of what's
• 35:52
  Speaker 1: your strategy that you guys deploy.
• 35:55
  Speaker 13: Hey, Matt, thanks for having me.
• 35:57
  Speaker 1: Yeah, to give you a quick overview.
• 36:00
  Speaker 13: Are really trying to focus on business quality and business resilience.
• 36:04
  Speaker 13: So to us, quality means free things.
• 36:06
  Speaker 4: It means some.
• 36:07
  Speaker 13: Kind of durable competitive advantage. It means the ability to
• 36:11
  Speaker 13: grow and reinvest capital at high incremental rates of return,
• 36:15
  Speaker 13: and it means management teams that have demonstrated a good,
• 36:18
  Speaker 13: good track record of allocating shareholder capital.
• 36:23
  Speaker 2: All right, So looking at all those variables, what do
• 36:25
  Speaker 2: you like?
• 36:27
  Speaker 13: Well, I think you know, from a macro perspective, we're
• 36:30
  Speaker 13: likely heading towards an economic slow down, if not an
• 36:33
  Speaker 13: outright recession. And so today, you know, the theme for
• 36:37
  Speaker 13: me is really investing in resilient companies. So the free
• 36:40
  Speaker 13: companies that we like most today are Chemed, which is
• 36:45
  Speaker 13: kind of an odd business. They own two businesses within it.
• 36:49
  Speaker 13: We also love Elevans and trying it.
• 36:53
  Speaker 1: All right, let's start with Kem here, tell me the
• 36:55
  Speaker 1: kind of what business they're in. I'm looking at the
• 36:58
  Speaker 1: stock here. It's it is an eight and a half
• 37:01
  Speaker 1: billion dollar market cap company. Stock stocks up about ten
• 37:04
  Speaker 1: percent year today. So tell us about the call there.
• 37:06
  Speaker 1: What do they do and what's the investment call?
• 37:09
  Speaker 13: Yeah, so Chaman is a very odd company in that
• 37:12
  Speaker 13: they own two businesses that are completely unrelated to each other.
• 37:16
  Speaker 13: They own Vitas, which is a hospice care provider, and
• 37:20
  Speaker 13: Roto Router, which is a commercial and plumbing service. Yeah,
• 37:25
  Speaker 13: I don't see the connection, but go on, No, there's
• 37:29
  Speaker 13: no connection on the surface, but the real connection is
• 37:31
  Speaker 13: that these are very resilient businesses from macroeconomic perspective. So
• 37:36
  Speaker 13: Vitas or Vitas provides end of life care effectively, and
• 37:41
  Speaker 13: Medicare of course is the largest customer. And so for
• 37:45
  Speaker 13: most people, you know, the statistics say you're spending somewhere
• 37:48
  Speaker 13: between twenty five to thirty percent of your entire life's
• 37:53
  Speaker 13: healthcare cost just in the last few months. You know,
• 37:57
  Speaker 13: when you're effectively dying in the hospital, get very expensive care,
• 38:01
  Speaker 13: very expensive treatment, and that's a very big cost for Medicare.
• 38:06
  Speaker 13: And frankly, you know, not everyone sees the benefits of that.
• 38:11
  Speaker 13: So many people opt for hospice care, which is effectively
• 38:15
  Speaker 13: palliative care where you end treatment and you're just receiving
• 38:20
  Speaker 13: medication to manage pain and you know, improve your comfort
• 38:23
  Speaker 13: of life. And obviously that saves costs, and frankly, you
• 38:26
  Speaker 13: know a lot of people see that as a more
• 38:28
  Speaker 13: dignified way to go.
• 38:31
  Speaker 1: And you know, just just looking at this, Lucas, you
• 38:33
  Speaker 1: just don't see many corporate structures like this anymore, just
• 38:36
  Speaker 1: pure holding companies, particularly the ones that that own just
• 38:39
  Speaker 1: two businesses. What kind of attracted you to the company?
• 38:43
  Speaker 13: Well, I followed it for a long time, and I
• 38:45
  Speaker 13: don't think I'm the only one. But what frankly attracted
• 38:48
  Speaker 13: me to their company is up until a few years ago,
• 38:52
  Speaker 13: their website looked like it was straight from the nineteen nineties.
• 38:55
  Speaker 13: And that might sound counterintuitive, but that that was to
• 38:59
  Speaker 13: me very odd signal that this is a company that's
• 39:02
  Speaker 13: really focused on business operations and not promoting things. And
• 39:06
  Speaker 13: so generally speaking, we like non promotional, you know, down
• 39:10
  Speaker 13: to earth kind of management teams.
• 39:12
  Speaker 2: And it's up, yeah, eighty seven percent over the past
• 39:17
  Speaker 2: five years, of ten percent this year, eighty seven percent
• 39:19
  Speaker 2: of the past five years total return.
• 39:21
  Speaker 5: It's done well.
• 39:22
  Speaker 2: The roto Router business also you know, these are two
• 39:25
  Speaker 2: businesses that people are never going to not need. If
• 39:29
  Speaker 2: I can split my infinitive just to make the point,
• 39:32
  Speaker 2: and I get that, do they spin off at some point.
• 39:35
  Speaker 5: One or the other?
• 39:36
  Speaker 2: Do they break into two?
• 39:38
  Speaker 10: Do you think?
• 39:39
  Speaker 13: I think that's long been a theme and the thinking,
• 39:43
  Speaker 13: I frankly don't have a problem with the business the
• 39:46
  Speaker 13: way it is. They have opportunities to deploy capital, primarily
• 39:51
  Speaker 13: in the roto router business by buying out franchisees from
• 39:56
  Speaker 13: some of their territories, and then they have opportunities to
• 39:59
  Speaker 13: buy back stock and the shares you know, are trading down,
• 40:02
  Speaker 13: and as you mentioned, the stock is up a little
• 40:05
  Speaker 13: bit this year, but that's largely happened last week on
• 40:08
  Speaker 13: the back of good earnings. So you know, you're gonna
• 40:12
  Speaker 13: have ups and downs, but it's a very resilient business.
• 40:15
  Speaker 13: They've grown about four percent per year in terms of revenue,
• 40:18
  Speaker 13: but they managed to translate that into a fourteen percent
• 40:21
  Speaker 13: EPs growth over the same you know, last ten years
• 40:24
  Speaker 13: or so.
• 40:25
  Speaker 1: All right, how about E l V. Elevans Health another
• 40:30
  Speaker 1: healthcare name.
• 40:31
  Speaker 13: Yeah, so this is Elevants. This is the former Anthem
• 40:34
  Speaker 13: insurance business. You know, so you may have sort of them.
• 40:38
  Speaker 13: They rebranded themselves. We love the industry, broadly speaking, the
• 40:43
  Speaker 13: health insurance industry. It's a very consolidated business. There's five
• 40:47
  Speaker 13: players that command the majority of the market, a couple
• 40:50
  Speaker 13: of smaller ones. And you know this is this company
• 40:54
  Speaker 13: is called a health insurance company, but that's really a misnomer.
• 40:57
  Speaker 13: Only about ten percent of what they do is tied
• 41:01
  Speaker 13: to carrying risk. The majority of their business is managed
• 41:07
  Speaker 13: care for the government, manage Medicare, Medicaid, and corporate accounts
• 41:13
  Speaker 13: in which companies self insure, and so there's very little
• 41:18
  Speaker 13: insurance risk in this space. It's really a health administrator,
• 41:22
  Speaker 13: if you will. And it's so regulated that they're frankly
• 41:26
  Speaker 13: not allowed to even you know, the amount of profit
• 41:29
  Speaker 13: they're allowed to make is regulated as well. And you
• 41:33
  Speaker 13: see that between all the companies there's very limited competition.
• 41:37
  Speaker 13: And call it GDP plus growth largely tied to the
• 41:41
  Speaker 13: growth and healthcare costs.
• 41:42
  Speaker 2: Yeah, we get that one. Let's get to t neet
• 41:46
  Speaker 2: try net. It's also kind of an employee benefits company, right.
• 41:51
  Speaker 9: Yeah, so this is slightly different.
• 41:53
  Speaker 13: It's a very small company, about a five billion market cap.
• 41:57
  Speaker 13: So this is a company that serves and medium sized
• 42:01
  Speaker 13: businesses that are looking to get employee benefits. And employee
• 42:05
  Speaker 13: benefits may mean many things, primarily HR health insurance.
• 42:10
  Speaker 9: Disability insurance, etc.
• 42:12
  Speaker 13: But in practice ninety percent of what drives their business
• 42:16
  Speaker 13: is health insurance. So what they do is they effectively
• 42:19
  Speaker 13: get a bunch of small employee or employers with small
• 42:24
  Speaker 13: employee numbers. They get them together and using their bulk
• 42:28
  Speaker 13: purchasing power, acquire health insurance at better rates, pass the
• 42:32
  Speaker 13: savings onto their customers, and keep, of course a small
• 42:36
  Speaker 13: part of those savings for themselves.
• 42:39
  Speaker 1: Hey, Lucas, thanks so much for joining us. Appreciate listening
• 42:42
  Speaker 1: to some of your thoughts there on the stocks that
• 42:44
  Speaker 1: you guys own. Some pretty interesting names, some good performers.
• 42:47
  Speaker 1: Lucas Tomickey. He's a founder and managing partner of LRT
• 42:52
  Speaker 1: Capital Management. One of those folks is putting money to work. Who,
• 42:55
  Speaker 1: as Tom Keen would say, has the courage to be
• 42:58
  Speaker 1: in the market. SMP five hundred pretty much unchanged on
• 43:02
  Speaker 1: the day nasdak off about three tenths of one percent,
• 43:05
  Speaker 1: but at the index level, not a lot happening there,
• 43:08
  Speaker 1: of course, a lot of movement under the surface there's
• 43:12
  Speaker 1: company's report earnings for the next week or so. In
• 43:15
  Speaker 1: size you're.
• 43:16
  Speaker 6: Listening to the tape Cat's are live program Bloomberg Markets
• 43:19
  Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune
• 43:23
  Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App.
• 43:26
  Speaker 6: You can also listen live on Amazon Alexa from our
• 43:28
  Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 43:35
  Speaker 2: Claudi Assam is the founder of Some Consulting. She is
• 43:38
  Speaker 2: obviously a former Federal Reserve economist. We'd love to talk
• 43:41
  Speaker 2: to her both here and on Bloomberg Surveillance. She is
• 43:44
  Speaker 2: also the creator of the Sam Rule, which is a
• 43:47
  Speaker 2: recession indicator, and a Dennison University graduate.
• 43:52
  Speaker 1: So the Dutches, you guys, are the fight.
• 43:54
  Speaker 2: I'm from Grandville, Ohio, so you know, for me, that's
• 43:57
  Speaker 2: a big deal, and it's a Dennison fighting.
• 43:59
  Speaker 5: They're the big read I think they read all.
• 44:02
  Speaker 2: It's not really a sports thing, but more.
• 44:05
  Speaker 9: Of a fun school.
• 44:06
  Speaker 2: It was a fun school then it became a very
• 44:08
  Speaker 2: serious school in the nineties when I was living there,
• 44:12
  Speaker 2: although I did.
• 44:12
  Speaker 5: See fish there which was pretty awesome.
• 44:14
  Speaker 2: Claudia joins us to talk about the economy obviously, and
• 44:18
  Speaker 2: not her college experience. And you also wear a column
• 44:21
  Speaker 2: Claudia about Americans basically, you know, trying to answer the
• 44:27
  Speaker 2: question that we're asking every day, which is why are
• 44:29
  Speaker 2: the numbers so good? And Americans feel like the economy
• 44:32
  Speaker 2: is so bad? You know, five percent GDP and yet
• 44:36
  Speaker 2: everyone says a recessions around the corner, how's that going
• 44:38
  Speaker 2: to happen?
• 44:40
  Speaker 7: Right?
• 44:41
  Speaker 12: And to be clear, there's a lot of reasons to
• 44:43
  Speaker 12: be gloomy. Inflation is high, there's a lot of uncertainty.
• 44:48
  Speaker 12: The question is why are the extra gloominess right? And
• 44:52
  Speaker 12: things are as you said, there are a lot of
• 44:55
  Speaker 12: good things. Unemployment is low, it's been low for almost
• 44:58
  Speaker 12: two years, under four percent, Like that's really good. And
• 45:01
  Speaker 12: if you ask people how's it going? What kind of
• 45:05
  Speaker 12: news have you heard about? The economy is as bleak
• 45:08
  Speaker 12: as when you go back to the nineteen seventies and
• 45:10
  Speaker 12: early eighties. Right, it's very hard to say, oh, that
• 45:14
  Speaker 12: totally makes sense. There's these bad things happening in the economy.
• 45:17
  Speaker 12: Is that extra kick? And frankly, that's the piece we
• 45:20
  Speaker 12: want to understand because it could really be telling us
• 45:22
  Speaker 12: something bad is around the corner. People have been doing
• 45:26
  Speaker 12: that for two years and then it's like, Okay, what
• 45:28
  Speaker 12: else is going on here?
• 45:30
  Speaker 2: Well, we can't underplay the importance of inflation to a
• 45:33
  Speaker 2: normal American who is living paycheck to paycheck anyway. You know,
• 45:39
  Speaker 2: economists love to look at core inflation measures, which take
• 45:42
  Speaker 2: out all the stuff that we spend our paycheck on.
• 45:46
  Speaker 2: Right food is expensive right now, cars are incredibly expensive.
• 45:50
  Speaker 5: Plus financing has climbed.
• 45:52
  Speaker 2: Houses are even not even you don't want to talk
• 45:54
  Speaker 2: about because that's not even affordable if you can find one.
• 45:57
  Speaker 2: So is that the main price problem that Americans have.
• 46:03
  Speaker 12: Inflation has always been something that people would get riled up,
• 46:06
  Speaker 12: but rightly so right and the price tags are legitimately
• 46:10
  Speaker 12: higher and they're not coming down. What we've seen this
• 46:12
  Speaker 12: year is it's slowing down. Inflation is coming down. That
• 46:16
  Speaker 12: is a form of relief and that it could have
• 46:19
  Speaker 12: been a lot worse. And there's lots of different pieces
• 46:24
  Speaker 12: of good news that don't come up. We found out
• 46:26
  Speaker 12: last week that household net worths for the typical family
• 46:30
  Speaker 12: jump thirty seven percent pre pandemic to last year, and
• 46:34
  Speaker 12: that was across income groups, demographic groups. You just saw
• 46:37
  Speaker 12: these big increases, and that matters. Living paycheck to paycheck
• 46:42
  Speaker 12: has been a problem in the US economy for decades.
• 46:46
  Speaker 12: Many people have bigger paychecks, and there's a lot of
• 46:48
  Speaker 12: people who have a little bit of a buffer that
• 46:51
  Speaker 12: have never had it. So it's tough to see all
• 46:55
  Speaker 12: those pieces come together and then have this absolutely bleak
• 47:00
  Speaker 12: outlook for the economy.
• 47:01
  Speaker 1: Well, Claudia, how much of it is the income inequality?
• 47:06
  Speaker 1: Wealth inequality in this country where you know, the top
• 47:10
  Speaker 1: ten percent are doing fine, actually better than fine, but
• 47:13
  Speaker 1: the rest are really struggling with inflation, you know that
• 47:17
  Speaker 1: that type of thing. How much is that to kind
• 47:20
  Speaker 1: of account for it?
• 47:23
  Speaker 12: This is the rarest of post recession periods in that
• 47:28
  Speaker 12: we've seen often the bottom do better than they have
• 47:33
  Speaker 12: coming out of any recession. I mean, the top's always
• 47:36
  Speaker 12: going to be fine, right, Wealth inequality. Income inequality has
• 47:38
  Speaker 12: been a problem in the United States for decades and decades.
• 47:41
  Speaker 12: We actually saw some compression of that inequality, so it's
• 47:45
  Speaker 12: shrinking some. I mean you can't hardly see it on
• 47:48
  Speaker 12: the graph, right, it's it's you know, it's still big,
• 47:51
  Speaker 12: So that inequality is out there. People tend to focus
• 47:55
  Speaker 12: on what's in front of them, like what they need
• 47:58
  Speaker 12: to do to put food on the table, roof over
• 48:01
  Speaker 12: their head, and there are some service If you ask
• 48:04
  Speaker 12: people about their own finances, they're more upbeat than when
• 48:08
  Speaker 12: they look out at the economy. And so that's why
• 48:11
  Speaker 12: in my I've written two pieces now at Bloomberg about
• 48:14
  Speaker 12: this extra pessimism, trying to explore what it could be,
• 48:18
  Speaker 12: and often it points to things that go beyond the economy,
• 48:22
  Speaker 12: because we're asking people big picture about their outlook and
• 48:26
  Speaker 12: there are other factors at play. We went through COVID
• 48:30
  Speaker 12: and the war in Ukraine is ongoing. We've had so
• 48:33
  Speaker 12: much bad news since the pandemic began, and then we
• 48:36
  Speaker 12: do have features of how we transmit that bad news
• 48:40
  Speaker 12: out into the public, and that's something that's different than
• 48:44
  Speaker 12: the nineteen seventies.
• 48:45
  Speaker 2: Yes, social media is what you're I assume what you're
• 48:48
  Speaker 2: talking about here, and I think we all know now
• 48:53
  Speaker 2: that the way for Elon Musk and Mark Zuckerberg to
• 48:57
  Speaker 2: make money is for people to get angry and hateful
• 49:02
  Speaker 2: on social media. That drives engagement and at the end
• 49:06
  Speaker 2: of the day, the bottom line. So it kind of
• 49:08
  Speaker 2: amplifies everything that's bad doesn't.
• 49:10
  Speaker 12: It right, And we've always had the case that bad
• 49:14
  Speaker 12: defense happen. The news comes out, it has a bias
• 49:16
  Speaker 12: towards the bad. There's research news organizations, right, it's more
• 49:20
  Speaker 12: negative that leads, it leads, right, So this is not new.
• 49:24
  Speaker 12: But what happens is once it gets on platforms, social
• 49:28
  Speaker 12: media platforms, it can spread far and wide and really fast.
• 49:32
  Speaker 12: So it makes this bad news very personal because it
• 49:36
  Speaker 12: can be conveyed by real people and not necessarily you know,
• 49:39
  Speaker 12: print media or you know, on the TV. And it
• 49:44
  Speaker 12: absolutely is the case that not only does negative spread faster,
• 49:48
  Speaker 12: it gets absorbed fast. Like we're just there's a human
• 49:51
  Speaker 12: tendency towards the negative. So it's like you put these
• 49:54
  Speaker 12: three factors together, really bad events. News has a bias
• 49:58
  Speaker 12: towards the negative. People love the negative, and then we
• 50:01
  Speaker 12: can spread it really fast. So that's one way to
• 50:05
  Speaker 12: think about it that you could get this extra kick.
• 50:09
  Speaker 12: But absolutely we talked about a lot of economic factors
• 50:11
  Speaker 12: that may not be captured and maybe different in the
• 50:14
  Speaker 12: past that could be in there too. So it's really
• 50:16
  Speaker 12: important to kind of pull this apart and figure out
• 50:19
  Speaker 12: what's going on, because if people are really down beat,
• 50:22
  Speaker 12: it can create a self fulfilling prophecy in that they
• 50:26
  Speaker 12: pull back and they get more downbeat, and then before
• 50:28
  Speaker 12: we know it, we're in a recession. So, like, this
• 50:30
  Speaker 12: is an important question. People could be right. I mean,
• 50:35
  Speaker 12: we could really be in a bad place in the
• 50:38
  Speaker 12: next year or two.
• 50:39
  Speaker 2: Well, and a lot of times when we get into
• 50:41
  Speaker 2: a bad place, our leaders will hopefully come together and
• 50:46
  Speaker 2: pull us out of it. And currently doesn't look like
• 50:48
  Speaker 2: that's a possibility in this climate in Washington, with you know,
• 50:53
  Speaker 2: the the lack of any kind of bipartisan In fact,
• 50:59
  Speaker 2: you'll be thrown out a speaker of the House if
• 51:01
  Speaker 2: you reach across the aisle.
• 51:02
  Speaker 5: To make a deal.
• 51:03
  Speaker 2: And deficits continue to climb. Now the latest, uh, the
• 51:09
  Speaker 2: latest look is about two trillion dollars. Does that affect
• 51:13
  Speaker 2: people's outlook? I mean they say that, you say they're
• 51:16
  Speaker 2: doing well at home, but they're gloomy about the economy.
• 51:18
  Speaker 2: Could it be because they see, you know, the USA
• 51:21
  Speaker 2: government train kind of running off the tracks.
• 51:25
  Speaker 12: They're in some of these sentiment surveys they ask people
• 51:27
  Speaker 12: about government economic policy. It probably doesn't surprise anyone that
• 51:31
  Speaker 12: the government scores pretty low and has for some time
• 51:35
  Speaker 12: it's not clear to me that that's changed dramatically. You
• 51:38
  Speaker 12: see it do move in like debt ceiling moments and
• 51:40
  Speaker 12: the path like where people get more negative. It's more
• 51:44
  Speaker 12: of that reality, like what happens if we were to
• 51:48
  Speaker 12: go into a recession. Typically there's this saying we're all
• 51:52
  Speaker 12: Knesians in a fox hole. So the money would go out,
• 51:55
  Speaker 12: like the stimulus checks have gone out. But what's what
• 51:58
  Speaker 12: would be problem is if it were a severe recession
• 52:01
  Speaker 12: I mean we will hopefully never see anything like COVID again,
• 52:05
  Speaker 12: is that it wouldn't last real long, and that ends
• 52:07
  Speaker 12: up hurting people at the bottom the most right because
• 52:11
  Speaker 12: they probably aren't recovered right away. So a government that
• 52:16
  Speaker 12: doesn't have it all together will cause problems for people.
• 52:23
  Speaker 12: Real people are going to suffer in the case of
• 52:26
  Speaker 12: an economy going down.
• 52:28
  Speaker 1: So where are you right now, Claude with with your
• 52:30
  Speaker 1: economic outlook?
• 52:34
  Speaker 12: It's tough. I wrote some on my substack last week,
• 52:38
  Speaker 12: you know, really like we got to celebrate the winds here.
• 52:40
  Speaker 12: We've saen inflation come down pretty notably, whether you're looking
• 52:43
  Speaker 12: at core or.
• 52:46
  Speaker 6: Yeah.
• 52:46
  Speaker 12: I mean I tried to like, hey, there's some good
• 52:48
  Speaker 12: stuff out here. Knowing that this wasn't going to amplify
• 52:51
  Speaker 12: through social media. It's kind of hopeless. But there are
• 52:55
  Speaker 12: plenty of dark clouds on the horizon. Interest rates are
• 53:00
  Speaker 12: they've gone up a lot, and you are starting to
• 53:02
  Speaker 12: see it. And when you ask businesses with their investment
• 53:06
  Speaker 12: plans in some of the consumer credit quality measures, like
• 53:11
  Speaker 12: the delinquencies they fell during after the pandemic, because again,
• 53:15
  Speaker 12: we gave people so much relief, they're moving up and
• 53:20
  Speaker 12: we could be moving back to quote unquote normal or
• 53:22
  Speaker 12: there's just a certain level or this could be a
• 53:25
  Speaker 12: sign that it's getting like people are in a more
• 53:27
  Speaker 12: precarious place. And yet, like we've been kind of saying
• 53:31
  Speaker 12: that at different times over the last two years. Right,
• 53:34
  Speaker 12: the recession is always coming and it will someday, Like
• 53:38
  Speaker 12: we don't escape these over the long term, but it's
• 53:42
  Speaker 12: things have been better than we thought or people were
• 53:45
  Speaker 12: saying or businesses were saying, so we we could still
• 53:50
  Speaker 12: balance it out, moderate some things and keep going. But
• 53:55
  Speaker 12: it's not it's not what should happen, right, What should
• 53:59
  Speaker 12: happen is that we go into a recession. That's not
• 54:02
  Speaker 12: my base case, but I know that's the reality of
• 54:05
  Speaker 12: everything that's lined.
• 54:06
  Speaker 1: Up all right, Claudia, Thanks so much, Je for joining us.
• 54:09
  Speaker 1: I just appreciate getting a few minutes of your time, Claudia,
• 54:12
  Speaker 1: Sam founder and independent economists at some consulting.
• 54:18
  Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
• 54:21
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
• 54:25
  Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 54:29
  Speaker 2: at Matt Miller nineteen seventy three.
• 54:31
  Speaker 9: And I'm fall Sweeney.
• 54:32
  Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
• 54:35
  Speaker 1: can always catch us worldwide at Bloomberg Radio.