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The BOJ, Housing, Investing, and Retail Sales (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Let's get over right
0:21
Speaker 1: now to Bloomberg Intelligence analyst Erica Heidelberg. She's the MBS
0:25
Speaker 1: strategists with Bloomberg Intelligence, so she's going to talk to
0:28
Speaker 1: us about UH mortgage rates and her housing research as
0:32
Speaker 1: well as an outlook for the real estate industry. Erica,
0:35
Speaker 1: thanks so much for joining us in the Bloomberg Interactive
0:37
Speaker 1: Broker Studio. UM mortgage rates seem to have sustainably turned
0:41
Speaker 1: lower from the over seven percent that we saw for
0:44
Speaker 1: a month or so. Where where are we right right now? UM,
0:48
Speaker 1: as of this morning, I think we hit six twenty
0:50
Speaker 1: three or something like that. Yeah, on the Bortgage Banker
0:53
Speaker 1: Association thirty or eight. That's you know, a few days old,
0:57
Speaker 1: So that's of course not quite taking into account today.
1:00
Speaker 1: Uh so maybe even a little bit lower now, but
1:02
Speaker 1: that that's a full one hundred base points below where
1:04
Speaker 1: we were at the peak in October, and we are
1:07
Speaker 1: seeing that begin to filter through, probably marginally into you know,
1:12
Speaker 1: slightly higher loan applications and even a tiny bit of
1:15
Speaker 1: higher refinancing. A lot of people are all excited about
1:18
Speaker 1: the twenty seven increase in refinancing loan and you know,
1:22
Speaker 1: um increases week over week. But you know, a hundred
1:26
Speaker 1: one hundred is thirty times below the peak is not
1:31
Speaker 1: that much, you know, it's it's a it's a very
1:33
Speaker 1: small increase. We should really talk about numbers, and the
1:35
Speaker 1: numbers aren't up that much, but they are up a
1:37
Speaker 1: little bit, and certainly the purchasing number increases a trend
1:40
Speaker 1: to watch to see if that's pulling homeowners back into
1:43
Speaker 1: the market. I also noticed the National Association of Home
1:46
Speaker 1: Buyers index ticked up a little bit. It's still at
1:49
Speaker 1: thirty five off of thirty one. Below fifty means they're pessimistic. Um,
1:54
Speaker 1: it's a different usion index, so you know, not super promising,
1:57
Speaker 1: but you know, certainly the first reversal we've seen in
1:59
Speaker 1: quite a while. So Erica, we were talking about that
2:02
Speaker 1: bet that Matt and I said, what was that six seven,
2:05
Speaker 1: seven months ago, which, by the way, I think the
2:07
Speaker 1: bet was for. Was it dairy Queen? Yes, yeah, you
2:10
Speaker 1: had to buy me dinner at dairy Queen, but it
2:13
Speaker 1: was a specific dairy queen at the Pilot truck stop
2:17
Speaker 1: off of Route seventy nine and Hebrew in Ohio. And
2:20
Speaker 1: then he went, yeah, so you see my problem, America.
2:23
Speaker 1: She just gasped for radio audience. But then he went
2:27
Speaker 1: on the diet so we couldn't go to dairy Queen,
2:29
Speaker 1: which end up becoming our issue. But the point is
2:30
Speaker 1: one of my uh, basically pillars of my thesis here
2:35
Speaker 1: on that bet was simply the idea of the housing
2:37
Speaker 1: market isn't going to slow down anytime soon. Talk to
2:39
Speaker 1: us a little bit about the slowdown that But the
2:41
Speaker 1: housing market slowed down drastically, it did, but it's still
2:43
Speaker 1: extremely hot relative to uh what it should be, right,
2:47
Speaker 1: I mean, Erica, can you tell me, well, it depends
2:49
Speaker 1: on the area we're talking about. There's certainly areas that
2:52
Speaker 1: blew up to the upside during the crisis, you know,
2:56
Speaker 1: during the pandemic, like Austin and Boise, Idaho, or canaries
3:00
Speaker 1: in the coal mine that a lot of people refer
3:02
Speaker 1: to and their prices are down, and in fact, you know,
3:05
Speaker 1: it's really hard to distinguish seasonal downturns versus um you know,
3:12
Speaker 1: just just regular downturchs. Will have to wait till you
3:14
Speaker 1: see year year numbers and about a you know, a
3:16
Speaker 1: few months. But in general, they non seasonally adjusted numbers
3:21
Speaker 1: off about ten percent from their highs. When you look
3:23
Speaker 1: at something like existing home prices, you know, of course
3:25
Speaker 1: they're always down a little bit. We're just we're down
3:27
Speaker 1: more than more than usual. So it's hard to kind of,
3:31
Speaker 1: you know, fully appreciate or just for how much of
3:33
Speaker 1: a downturn that is. And who knows, you know, if
3:35
Speaker 1: if mortgage rates continue trending downwards a little bit, which
3:39
Speaker 1: I think, you know, at least our head of rates
3:41
Speaker 1: believes that treasuries are going to continue rallying um and
3:45
Speaker 1: mortgage spreads have been tightening very well. We've seen a
3:47
Speaker 1: great January effect this year for mortgages that that could
3:51
Speaker 1: push mortgage rates back below six percent, which could encourage
3:55
Speaker 1: more homeowners to jump in, which could support the housing
3:58
Speaker 1: market a little more than you know, if rates for
4:00
Speaker 1: rates didn't do that, we're still double where we were
4:03
Speaker 1: a year ago, but you know, at the same time
4:06
Speaker 1: double where we were in terms of rates. In terms
4:09
Speaker 1: of mortgage rates. Mortgage rates are around three three or
4:12
Speaker 1: just because my understanding is that the single family home
4:14
Speaker 1: market had just ground to a halt. I mean, people
4:16
Speaker 1: who were selling homes had to rent them instead because
4:19
Speaker 1: they couldn't find any buyers. Yeah. No, we definitely got
4:22
Speaker 1: into the level of you know, as they as a
4:25
Speaker 1: technically call it affordability, being below the median homeowners affordability level.
4:32
Speaker 1: So um, yeah, but people are people are finding ways
4:35
Speaker 1: around that. Certainly builders are finding ways around that. I've
4:38
Speaker 1: talked to people who worked for builders trying to sell
4:40
Speaker 1: new homes, and they're offering all sorts of buyouts and
4:44
Speaker 1: incentives in the rates, So you know, suddenly or six
4:46
Speaker 1: percent rate becomes a four percent rate um at least
4:50
Speaker 1: for a while. So there there are ways that people
4:52
Speaker 1: are trying to get around that. The other side of
4:54
Speaker 1: the market is that inventories remain very very low, in part,
4:58
Speaker 1: especially in existing homes sales, because people aren't willing to
5:03
Speaker 1: sell their homes into what they proceed to be a
5:04
Speaker 1: falling uh price market. But if the prices don't fall,
5:07
Speaker 1: then maybe they're more willing to sell. So I just
5:10
Speaker 1: got about thirty seconds left. Um, I don't know if
5:12
Speaker 1: you've talked to Ira Jersey today. What's happened in the
5:15
Speaker 1: treasury market. We were at five fifty six yesterday, sorry,
5:18
Speaker 1: three fifty six yesterday, and now we're at three thirty seven.
5:21
Speaker 1: We dropped you know, twenty basis points. Yeah, that's primarily
5:25
Speaker 1: about p p I and the continuation of the feeling
5:27
Speaker 1: that the Fed will be able to pause sooner than later. Um,
5:32
Speaker 1: you know some other positive you know, bad is good,
5:34
Speaker 1: so some other you know, lower retail sales numbers and
5:37
Speaker 1: things like that today make people think that maybe we
5:40
Speaker 1: are headed for that soft landing after all. Alright, so
5:43
Speaker 1: the treasury market really moved by the pp I. Guess
5:47
Speaker 1: the final demand month of a month number UM is
5:50
Speaker 1: the most stark, at a drop of a half a
5:52
Speaker 1: percent UM. But we got some real slow down story
5:57
Speaker 1: news in terms of retail sales UH, in terms of
6:01
Speaker 1: p p I, in terms of I guess industrial production
6:04
Speaker 1: at least came in in line with the s No.
6:06
Speaker 1: Industrial production month over month also down zero point seven percent.
6:09
Speaker 1: We were looking for drop of zero point one percent.
6:11
Speaker 1: So real drops there, Erica, thanks so much for joining us.
6:14
Speaker 1: Erica Heidelberg there, MBS strategist mortgage backed security strategists with
6:18
Speaker 1: Bloomberg Intelligence talking to us about the mortgage rates and
6:22
Speaker 1: the housing market. Now one of the major stories that
6:28
Speaker 1: is moving this market this morning. It's on the stock markets,
6:31
Speaker 1: sort of, in the bond markets, definitely in the currency
6:33
Speaker 1: market dollar again one handle. As of course, we had
6:36
Speaker 1: the b o J overnight say well, actually we're not
6:39
Speaker 1: going to make any changes that of course shocking the market.
6:41
Speaker 1: Given their last meeting they actually widened the bands of
6:44
Speaker 1: their yield curve control. Who better to break this all
6:47
Speaker 1: down on what it means for the American listener is
6:50
Speaker 1: Ben Emmon's head of fixed income and managing director from
6:53
Speaker 1: New Edge Wealth. Of course he's joining the program to
6:55
Speaker 1: talk all things Japan and frankly, why we should care?
6:59
Speaker 1: Ben walk us the IT crety. Yeah, why should we
7:03
Speaker 1: care about this? Because you know it's a technical story
7:07
Speaker 1: and the Bank of Japan has really specific communication about
7:13
Speaker 1: how it wants to conduct this policy really really different
7:16
Speaker 1: in the Federal Reserve. But why we should care is
7:19
Speaker 1: that no one Japan is in a place where a
7:25
Speaker 1: lot of money is there and has been over the years,
7:29
Speaker 1: reinvested outside of Japan in treasury, bonds and stocks and
7:33
Speaker 1: command its emerging markets. Most of all because the Japanese
7:37
Speaker 1: yend being weak weaker at times, especially when Crewder took
7:43
Speaker 1: office and Japanese industry is being negative, it was a
7:47
Speaker 1: cheap source of funding so to speak, and say you
7:50
Speaker 1: can borrow negative rates, it's a cheap curency and reinvest
7:54
Speaker 1: that into higher yielding assets. And that's why you should care.
7:58
Speaker 1: That's why investors should watch for this bankage span is
8:00
Speaker 1: going to do as it looks like that it will
8:04
Speaker 1: really change this policy between placed since sixteen, When do
8:08
Speaker 1: you think they're going to change it? And then what
8:10
Speaker 1: are the reverberations going to look like in markets? Yes,
8:16
Speaker 1: so there's an anticipation today man, and that they may
8:19
Speaker 1: make the final change. I think that was more of
8:22
Speaker 1: a respective rumor in the market and that officially furthered
8:26
Speaker 1: by official. But during this press conference in between the lines,
8:31
Speaker 1: Crew and did hinted it like the more tweets are
8:33
Speaker 1: could be comings. They just very tactical opportunity uses the
8:38
Speaker 1: last press cuss March to make another tweet to the
8:41
Speaker 1: policy just to set the new governor for Okay, you
8:46
Speaker 1: know here you have it. It's pretty flexible. Now you
8:49
Speaker 1: can do what you want with it. And most of all,
8:52
Speaker 1: you know, the infasition data is just far above the
8:55
Speaker 1: bankuage spence target. Right tonight's infliction data will come out.
8:59
Speaker 1: It's like four. And Japan is very energy dependent. So
9:04
Speaker 1: I think there is concerned with in Japan that they
9:06
Speaker 1: can't go on with the policy. That's that's the place
9:09
Speaker 1: they have finished. Then let's talk about the trade here specifically,
9:14
Speaker 1: if we're talking about kind of the read through from
9:17
Speaker 1: the BOJ and to say the US treasury market, what
9:20
Speaker 1: might that look like. Well, for one creating, I think
9:25
Speaker 1: that we've seen it to an extensive at least in
9:28
Speaker 1: December when Coula announced the first change that Japanese investors
9:35
Speaker 1: seemed to be no few of them participating in transfy auctions.
9:38
Speaker 1: So I think that's one effect that you could see
9:41
Speaker 1: coming through. But the more important one was at the end,
9:44
Speaker 1: it's appreciated, its appreciated value since and has been really
9:48
Speaker 1: de contributor to the weakness of the dollar. And the
9:53
Speaker 1: weakness of the dollar is the big macro factor that's
9:56
Speaker 1: been seeing financial markets currently. It's leading to merger markets revived.
10:01
Speaker 1: That needs super European markets revive. That's the big phase here.
10:06
Speaker 1: That state changed that policy and the end has strength
10:10
Speaker 1: and the dollark is more downcraft emerging markets European actually
10:15
Speaker 1: Marcus auto markets out before. I think that's the trade
10:19
Speaker 1: for markets relative to Yeah, I say, Japanese guys, Mark,
10:24
Speaker 1: all right, Uh, we are looking at right now a
10:27
Speaker 1: US tenure down at three UM a substantial, substantial drop
10:33
Speaker 1: from where we saw it yesterday. Right, We're off already
10:35
Speaker 1: today seventeen basis points, which is a huge move. I
10:38
Speaker 1: think Eric Heidelberg said she really thinks it's the the
10:42
Speaker 1: miss in terms of p P I. Um. You know,
10:45
Speaker 1: I guess to the good side, right, dropped of more
10:48
Speaker 1: than we expected. That pushed it down so much. Um, Ben,
10:52
Speaker 1: what does that mean to you in terms of the Fed? Also? Um,
10:56
Speaker 1: you know, this narrative that inflation is coming down pretty
10:59
Speaker 1: quickly seems to have been confirmed by today's data. Yeah,
11:05
Speaker 1: the narrative is definitely shifting. I think Master yesterday declare
11:09
Speaker 1: that that the fat is really quelling inflation and even
11:13
Speaker 1: barred to day in the five Q and A with
11:16
Speaker 1: the Bolster Journals. This good news for Fallacy here that
11:20
Speaker 1: this is that the inflation is coming off a quicker
11:22
Speaker 1: than they dissipated. And even though Ballard is the most
11:26
Speaker 1: hawkish person and wants to continue to raise rates about five,
11:30
Speaker 1: I think the narrative is shifting to they can bring
11:34
Speaker 1: it back to the twenty five baseball and being marked
11:37
Speaker 1: stop the tightening cycle. This full period of time last
11:45
Speaker 1: in June July, Matt only at that time the most
11:48
Speaker 1: well actually put off guard with a rapid increase of
11:51
Speaker 1: inflation in the subsequent months. I think this time we're
11:55
Speaker 1: in the situation where it may be decelerating a bit faster,
11:59
Speaker 1: and that for the fat Candison moved through the pause
12:03
Speaker 1: that everyone's been distending so much, and then we'll just
12:06
Speaker 1: have to see what happened. So I think that's where
12:08
Speaker 1: we has all right, Ben, Thanks very much, Ben Emmons. Uh,
12:13
Speaker 1: they're talking to us about the b O J joining
12:20
Speaker 1: us in the studio, which we really appreciate. Monica, thanks
12:23
Speaker 1: so much for coming in. Thank you. Let's talk about
12:26
Speaker 1: first of all, your expectations have they changed? You know,
12:29
Speaker 1: we we've we've noticed a shift um amongst our guests
12:33
Speaker 1: over the past couple of months in that they were
12:35
Speaker 1: very pessimistic about three and it's uh, we're now hearing
12:40
Speaker 1: more and more people say they expect the soft landing
12:43
Speaker 1: well when it goes to the US. Honestly, how our
12:45
Speaker 1: ward is goes to the second half of next year
12:48
Speaker 1: and we haven't changed that much our expectation. Where we've
12:52
Speaker 1: been upgrading the expectation is on the U area. And
12:56
Speaker 1: again gas process is definitely one of the reasons. And
12:59
Speaker 1: I'm trying due to a faster than expected reopening, so
13:05
Speaker 1: shovel the session possibly in the in the US, Germany
13:09
Speaker 1: struggling in the euro area, but Flatish could also Yesterday
13:13
Speaker 1: yesterday Chancellor Schultz told John Michael Thwaite he doesn't expect
13:16
Speaker 1: your recession this year obviously, but you know, because of
13:21
Speaker 1: the proximity in and the energy dependence. Definitely German and
13:26
Speaker 1: it's indust reproduction is what it's a matter of concern
13:29
Speaker 1: for Europeans well. One of the growing consensus as well.
13:34
Speaker 1: We've talked about this with many of our guests on
13:35
Speaker 1: the show, is simply that we're going to see a
13:37
Speaker 1: soft landing in the US and in Europe, and in in fact,
13:40
Speaker 1: a lot of people turning very bullish on Europe altogether.
13:43
Speaker 1: Despite the war Ukraine becoming an ongoing issue. Is that
13:47
Speaker 1: an issue that is now just getting pushed back a year?
13:51
Speaker 1: Well after one year. Obviously this is a terrible situation,
13:54
Speaker 1: But when it goes to the energy dependence, I think
13:57
Speaker 1: that Europeans have done a lot in order to dilute
14:01
Speaker 1: a bit the dependence from the from the gas out
14:04
Speaker 1: of out of Russia. So all in all, after one
14:08
Speaker 1: year we are in a fairly better position. But even
14:11
Speaker 1: with that commodity uh calm down for lack of a
14:13
Speaker 1: better term, we're still seeing extremely high inflation in the
14:16
Speaker 1: Netherlands and the UK um across Europe. Those are just
14:20
Speaker 1: the worst places. But talk to us a little bit
14:22
Speaker 1: about how long that's actually going to last before we
14:24
Speaker 1: start to see some semblance of normal again. We think
14:27
Speaker 1: that inflation is going to shift from energy into core
14:32
Speaker 1: food for example, so it is really broad based. And
14:36
Speaker 1: if I look at our computation for next year, we
14:38
Speaker 1: are still above seven percent, which is definitely much much
14:43
Speaker 1: higher than what is in the in the US and
14:45
Speaker 1: above the target of DCB. Having in mind that wage
14:48
Speaker 1: inflation unfortunately is not there in terms of investments. You
14:53
Speaker 1: want to get back to bonds and look at entry
14:56
Speaker 1: points for equities. So you're not pessimistic when it comes
14:59
Speaker 1: to the markets. I would say that we are cautious. Um,
15:02
Speaker 1: you need to disentangle economic recession from profit recession, and
15:07
Speaker 1: we do believe that we are in a profit recession
15:09
Speaker 1: at the corporate level, and this is what is making
15:12
Speaker 1: us today more worried. Then when we move along the here,
15:17
Speaker 1: we do expect producer price prices get a little bit milder.
15:24
Speaker 1: You need labor cost to to fade a bit and
15:27
Speaker 1: this should uh leave some let leave out some pressure
15:31
Speaker 1: on the margins and have earnings to recover. And this
15:35
Speaker 1: is where you might change the emphasis of your portfolio
15:39
Speaker 1: being on capital preservation going into res accomolation in the
15:43
Speaker 1: second half. Yeah, what what's going to be the I mean,
15:46
Speaker 1: other than the shift in the calendar, what's gonna be
15:50
Speaker 1: the point that shows you it's time to go back
15:52
Speaker 1: in the central banks? People? So when the Fed and
15:57
Speaker 1: this will be there, this will for sure give some
16:00
Speaker 1: more clarity at to us in the positioning. We're speaking
16:04
Speaker 1: about positioning. You're now starting to see in the debt
16:07
Speaker 1: markets once again, people very bullish on European equities, but
16:10
Speaker 1: also getting a little bit more bullish on European debt
16:12
Speaker 1: as well. What could change that in the face of
16:15
Speaker 1: the ECB now looking to slow down, we should the
16:19
Speaker 1: ECB um go too too far and and too fast.
16:24
Speaker 1: This might be really detrimental for the economy that itself
16:28
Speaker 1: is much more fragile and less resilient than than the US.
16:32
Speaker 1: It's a bigger problem than the FED. The Fed can overshoot,
16:34
Speaker 1: you're saying, but the ECB needs to be much more careful. Yeah,
16:37
Speaker 1: you know, it's really an into regenious picture. I think
16:40
Speaker 1: about Germany, Italy, frost Spain, different countries with different economic
16:44
Speaker 1: future and resilience. Well, how can they then already make
16:48
Speaker 1: forecasts on what they're going to hike in March? Then
16:51
Speaker 1: we're talking about reporting I believe from yesterday or maybe Monday,
16:54
Speaker 1: where there's talking about fifty basis points of a hike
16:56
Speaker 1: in in February. Second, I believe it's the ECB meeting
16:58
Speaker 1: and then twenty five followed in more. How can you
17:00
Speaker 1: even look that far? Well, we might be you know,
17:04
Speaker 1: also big critics on what the easy B is saying
17:07
Speaker 1: to us. It is really important that it is clear
17:09
Speaker 1: that their focus is a fight inflation. But going back
17:12
Speaker 1: to financing condition, this is what they should really look
17:16
Speaker 1: at and what should be plugged into the forward guidance
17:19
Speaker 1: back again, I mean Frenchois Pillroy today told France and
17:22
Speaker 1: you can't look that far right, um, which I think
17:26
Speaker 1: was smart. They're sticking with fifty for February, but who
17:31
Speaker 1: knows what's going to happen in March. I guess that's
17:33
Speaker 1: pretty far out for the US as well. We can't
17:37
Speaker 1: get a clear consensus on whether the Fed is going
17:39
Speaker 1: to go twenty five or fifty before that on February one,
17:43
Speaker 1: Well we are we stay in the camp of the
17:45
Speaker 1: twenty five and seventy five up to the people. So
17:48
Speaker 1: we have this is a five five and three five
17:51
Speaker 1: three fifty on the e CYB. What we did on
17:54
Speaker 1: our side was to try to stress these apothies. Having
17:58
Speaker 1: higher termin rate, well you end up lower growth even
18:01
Speaker 1: a protractive recession and inflation that eventually does not correct
18:05
Speaker 1: that much in particularly in Europe where it is not
18:08
Speaker 1: demand driven. It's really uh mostly on energy. By the way,
18:12
Speaker 1: E s G themes something that you're paying close attention to.
18:16
Speaker 1: There seems to be a bit of a backlash at
18:18
Speaker 1: least here in the US on E, S G. Do
18:21
Speaker 1: you feel that in Europe? Not really? Maybe this might
18:24
Speaker 1: be related to our attention to renewables. They need to
18:29
Speaker 1: get faster in order to get a strategical autonomy and
18:32
Speaker 1: energy independence. So on that front at least, how we
18:35
Speaker 1: are moving quiet. You're you're concerned more with the E,
18:37
Speaker 1: it seems than the S energy. Well, I think that
18:41
Speaker 1: they are there. Three of them are quite important. Think
18:44
Speaker 1: about Yes, the sure issues that we got last year,
18:47
Speaker 1: Social is going to be quite a relevant subject moving forward.
18:51
Speaker 1: Inequalities back on track unfortunately and on the again it's
18:56
Speaker 1: we've done a lot and we will continue to do.
18:59
Speaker 1: Is the inequality think more of a concern in Europe?
19:02
Speaker 1: I mean, do you have are you further behind in
19:05
Speaker 1: terms of, for example, gender equality on boards than we
19:07
Speaker 1: are here in the US. I'm more worried not on
19:10
Speaker 1: gender inequality, because this is really something on top of
19:14
Speaker 1: the list. It's really on the income inequalities. In the
19:18
Speaker 1: aftermath of a very difficult period to think about the pandemic,
19:23
Speaker 1: how low income people have been hit by that or
19:28
Speaker 1: by all the immigration waves that we are seeing, so
19:31
Speaker 1: social is really at top spot in Europe. All right, Well,
19:36
Speaker 1: great having in the studio. Thanks so much for joining us.
19:38
Speaker 1: Really appreciate you stopping by. Monica Defend there she is
19:41
Speaker 1: heading a chief strategist at a Monday in Student's Europe's
19:44
Speaker 1: largest asset management manager, talking to us about her outlook. Fore,
19:52
Speaker 1: we're gonna talk a little bit right now. I've been
19:54
Speaker 1: looking forward to this for a couple of days because
19:56
Speaker 1: our next guest was on Bloomberg Business Week the other day.
19:59
Speaker 1: Were you in the room there? Probably not with her,
20:02
Speaker 1: but I think you were in the room. I feel
20:05
Speaker 1: like maybe you were leaving when she was coming in. Anyway,
20:06
Speaker 1: she contractor joins us here in the Bloomberg Interactive Broker studio.
20:11
Speaker 1: She's the E S G Research analysts for Bloomberg Intelligence.
20:14
Speaker 1: And I always find it fascinating to talk to you, Shane,
20:16
Speaker 1: just because you're so good at your job. Thank you mainly.
20:19
Speaker 1: But um, we were talking with Monica Defend earlier from
20:22
Speaker 1: a Monday and she's Italian, and it struck me that,
20:26
Speaker 1: you know, Europe is still fully embracing E S g um,
20:32
Speaker 1: whereas here in the US we've had such a backlash
20:34
Speaker 1: that we don't even bother to talk about it anymore.
20:37
Speaker 1: What what's what's the division is? That is my anecdotal
20:40
Speaker 1: experience represented in the in the data. Yes, Matt, so
20:43
Speaker 1: so very much so. Just to put a few numbers
20:46
Speaker 1: around it, the U S E S g Eta flews.
20:50
Speaker 1: They dropped from nine zero, while Europe sort of continued
20:56
Speaker 1: to show strength. It definitely slowed, but less than the
20:59
Speaker 1: broadom market. Now on one side, you have to sort
21:03
Speaker 1: of realize that Europe has more favorable regulation, which has
21:06
Speaker 1: sort of driven it forward. It's got fund labeling, all
21:10
Speaker 1: that stuff is promoted fund rebrandings and nanny as she
21:13
Speaker 1: into ears, she the U S sort of I feel
21:17
Speaker 1: like the growth in the US traditionally was because of
21:20
Speaker 1: a lot of a few investors putting large chunks of money,
21:24
Speaker 1: creating this concentration risks, and we're starting to see that unravel.
21:28
Speaker 1: Who are like you A few investors like black Rock,
21:30
Speaker 1: I mean like no, like like the finished pension fund
21:33
Speaker 1: right they ceded two E S E D s in
21:36
Speaker 1: the US with one billion in allocation each and last
21:40
Speaker 1: year for example, Calsters and these this group of pension
21:43
Speaker 1: funds seeded black Rocks carbon transition funds, So that again
21:46
Speaker 1: created another jump in assets, and then if that goes
21:50
Speaker 1: out of that stuff is coming in, people cry. That's
21:53
Speaker 1: what we saw in two. Well, Shane, let's go even
21:56
Speaker 1: further back Tober. One of the stories than being the
22:00
Speaker 1: s G E t F s were surging in popularity
22:03
Speaker 1: state side, and it was really a function if you
22:06
Speaker 1: look deeper in about what the components were. Right, if
22:08
Speaker 1: you want to tech trade, you go to the s
22:10
Speaker 1: G T s because the exposure is better from an
22:12
Speaker 1: environmental perspective. How much of the appeal of E s
22:16
Speaker 1: G E t F s in the US three years
22:19
Speaker 1: later is still a function of tech. So I think
22:23
Speaker 1: you're referring to performance sort of like when tech was
22:25
Speaker 1: out performing, everyone should When tech went down, sort of
22:28
Speaker 1: we slow down and flows. I think that has a
22:31
Speaker 1: lot to do with it, at least the slow down
22:34
Speaker 1: I think if you go back to also the large
22:37
Speaker 1: jumps and flows also due to things like clean energy.
22:40
Speaker 1: So clean energy went from eight billion and eight so sorry,
22:44
Speaker 1: eight million to ten billion, million to billion. Now you
22:47
Speaker 1: can imagine what that does for top line numbers. It
22:49
Speaker 1: just takes it straight up. So there were many pieces
22:52
Speaker 1: of this that caused the growth, um that has has
22:56
Speaker 1: caused this the accelerational so that we see only your
23:00
Speaker 1: they're big differences. I note between Europe and the US
23:03
Speaker 1: is gender diversity. Now they have mandated gender diversity in
23:07
Speaker 1: many European countries on boards, but when it comes to
23:11
Speaker 1: who's running the shop, UM, in the US, I feel
23:15
Speaker 1: like it's far more likely that you find a woman
23:18
Speaker 1: at the helm than in Europe. So we can compare
23:22
Speaker 1: board numbers and sort of one level down which is
23:24
Speaker 1: maybe maybe not one level down, but sort of female executives.
23:27
Speaker 1: What do you said? Is interesting because that's true in
23:30
Speaker 1: Europe sort of leads in terms of women on boards
23:32
Speaker 1: because there it's mandated by lower they have to. But
23:36
Speaker 1: if you look at the US, it leads on female executives.
23:39
Speaker 1: So it's very clear that that sort of flips around.
23:43
Speaker 1: The US doesn't have any policies, doesn't have any mandates.
23:45
Speaker 1: That actually took a backstep, but they do have a
23:48
Speaker 1: higher share of female executives and than you. In finance. Uh,
23:53
Speaker 1: what we just had um a female run e t
23:57
Speaker 1: F on last week and she was saying that they're
23:59
Speaker 1: not nearly enough women in that area of finance. In ETFs.
24:05
Speaker 1: Wouldn't it make sense though, to to want as an
24:08
Speaker 1: investor more diversity um in your fund managers, just like
24:13
Speaker 1: you want more diversity in your investments. Of course, I
24:15
Speaker 1: think if you're if you're if you're focused on reducing
24:17
Speaker 1: volatility for example, Yeah, of course, so you can take
24:21
Speaker 1: you know, leading a company to be kind of akin
24:23
Speaker 1: to like you know, fund management or leading a fund.
24:26
Speaker 1: It's the leadership. And we found we did this interesting
24:29
Speaker 1: study and we found that sort of when we back
24:31
Speaker 1: tested women on boards, we found that it led to
24:34
Speaker 1: lower volatility across most regions. It didn't lead to better
24:38
Speaker 1: returns across our regions, but it did lead to lower volatility.
24:41
Speaker 1: So I translate that to sort of women in leadership
24:45
Speaker 1: positions can bring about some benefits in the form of diversity. Well,
24:50
Speaker 1: I also have said, then ask how much of that
24:52
Speaker 1: is even a factor on the u S side? Then,
24:55
Speaker 1: So in the US we did see low volatility and
24:59
Speaker 1: lower and of higher returns, and your we we saw
25:03
Speaker 1: the same in a pack. We actually didn't see any
25:06
Speaker 1: correlation with returns, but we did see lower volatility. So
25:09
Speaker 1: I think the volatility pieces across the board. So you're
25:12
Speaker 1: gonna come on our E t F program this afternoon
25:15
Speaker 1: one pm. What are we going to talk about? Probably
25:19
Speaker 1: this E s G E t FM US flows that
25:23
Speaker 1: we just discussed in the beginning. Sort of there's a
25:26
Speaker 1: lot of confusion and misconception around why the US has
25:29
Speaker 1: fallen so much. Everyone attributes it to the backlash. I
25:33
Speaker 1: think it has nothing to do with the back lad.
25:35
Speaker 1: You don't think it's because of the anti woke, not
25:38
Speaker 1: at all. What do you think it is? So the
25:40
Speaker 1: three things. First is concentration risks. Assets have grown because
25:44
Speaker 1: of larger one allocations. When the market sort of slows
25:48
Speaker 1: down or when those allocations taper off, it's very noticeable.
25:52
Speaker 1: The second is model portfolio changes. A lot of money
25:56
Speaker 1: sort of moves out on one single day, which is
25:59
Speaker 1: sort of not necessarily E s G. You can have
26:02
Speaker 1: a fund that basically doesn't want equity anymore and it
26:05
Speaker 1: goes to cash and it just sells. It's the S
26:06
Speaker 1: three positions. That's the second and the third one is
26:10
Speaker 1: clean energy. Clean energy just came off its high back
26:14
Speaker 1: to averages and contributed to that downtown. And this is
26:17
Speaker 1: kind of like the tech hypothesis that Trety was presented. No,
26:21
Speaker 1: not for clean energy, because clean energy searched because Biden
26:24
Speaker 1: came into pout and late it searched one and anticipation
26:30
Speaker 1: of favorable clean energy policy and that manifested it, I
26:34
Speaker 1: guess in the I R A. And then we're coming
26:36
Speaker 1: back down to averages. Interesting, all right, So we'll talk
26:40
Speaker 1: about that, and we'll talk about diversity as well. I
26:44
Speaker 1: wonder if there isn't a problem in terms of the taxonomy,
26:46
Speaker 1: you know, because it's so difficult to tell one person's
26:51
Speaker 1: idea of E, S, G is very different from another person's,
26:53
Speaker 1: and we haven't really standardized it. Um. I also wonder
26:58
Speaker 1: if you could break the three apart. You know, many
27:00
Speaker 1: people are concerned with the E, but not as much
27:03
Speaker 1: about the S and the G as we just um
27:07
Speaker 1: as we just kind of stated. In Europe, you know,
27:09
Speaker 1: they're fighting for the E, but they don't really seem
27:14
Speaker 1: to care that much about the S energy even though
27:16
Speaker 1: they had the mandates in place on the on the
27:19
Speaker 1: actual retail and consumer level, they're just not as concerned
27:22
Speaker 1: about it. So I think with the definition of E, S,
27:26
Speaker 1: she said it right, E, S, she is subjective, like
27:28
Speaker 1: I can think, you know, genetically modified crops are a
27:30
Speaker 1: solution forward and go, and you can think that sort
27:33
Speaker 1: of the evil thing out there, so that makes it
27:35
Speaker 1: wait that is good or bad? No, people might have
27:38
Speaker 1: differing opinions, like GM crops are pretty controversial. I might
27:41
Speaker 1: think that great, you might not. It's it's it's like
27:43
Speaker 1: a subjective nuclear power for example. Subject the Germans think
27:47
Speaker 1: the biggest evil that there could be. Everyone else seems
27:51
Speaker 1: to think it's clean energy exactly, so that becomes that
27:54
Speaker 1: sort of makes me believe that regulators and actually classifying
27:59
Speaker 1: it in a tax on me is the only way though,
28:02
Speaker 1: I mean, good luck to them, right trying to deal
28:05
Speaker 1: with the subjectivity. But what's what's the other way? And
28:08
Speaker 1: you said breaking up E, S and G I don't know.
28:11
Speaker 1: I mean, at the end of the day, they're all
28:12
Speaker 1: non financial indicators, which is how I see things, just
28:16
Speaker 1: you know, getting a view of the material non financial
28:19
Speaker 1: E S, RG risks that might impact the company. You've
28:22
Speaker 1: been studying this though for years. What's the solution again? Materiality?
28:27
Speaker 1: So different issues impact different sectors, like for mining, I
28:31
Speaker 1: would say, you know, safety is very important because it's
28:33
Speaker 1: a dangerous industry and it can lead to sort of
28:36
Speaker 1: mind shutting down lots of productivity. Cement is very carbon intensive,
28:40
Speaker 1: so let's say the or carbon is more important. So
28:44
Speaker 1: it's very specific to each industry. So you can't really
28:47
Speaker 1: separate three because different things matter for different sectors. Fascinating,
28:53
Speaker 1: fascinating stuff. All right, Shaheen, thanks so much for joining us.
28:56
Speaker 1: Pleasure having you in the Bloomberg Interactive broker studio, Shame
28:58
Speaker 1: contractors and e s G research analysts with Bloomberg Intelligence.
29:06
Speaker 1: Let's bring in Dana Telsey right now, chief Research Officer
29:09
Speaker 1: and CEO of Telsey Advisory Group to talk about, uh,
29:13
Speaker 1: what's going on with the consumer as it looks like. Dana,
29:17
Speaker 1: first of all, good morning, and thank you so much
29:18
Speaker 1: for joining us. UM, it looks like this market as
29:22
Speaker 1: all of a sudden concerned about a recession, looking for
29:25
Speaker 1: safety and selling off risk assets. UM. When you look
29:29
Speaker 1: at the US consumer, that's a huge part of whether
29:31
Speaker 1: we get into a recession. Right. Aren't we still seeing
29:34
Speaker 1: you know, uh, consumers out there with decent bank balances
29:38
Speaker 1: that aren't at all over leveraged and still ready to
29:42
Speaker 1: shop a couple of things. Yes, you are still seeing
29:46
Speaker 1: consumer which is by all intents and purposes healthy. But
29:49
Speaker 1: there's moderation all over the place. We obviously have the
29:52
Speaker 1: retail sales figures today which not only showed moderation in December,
29:57
Speaker 1: but don't forget that November's results were also takedown all
30:01
Speaker 1: from original expectations, as was Nova, as was the month
30:05
Speaker 1: of October. Inventory levels are coming down, which is encouraging,
30:09
Speaker 1: and you're laughing some of the supply chain headwinds that
30:12
Speaker 1: you had last year. The ability of the consumer to
30:15
Speaker 1: spend is really the question mark. That we're seeing a
30:18
Speaker 1: trade down from many different income levels, and even at
30:22
Speaker 1: the high end, there's a moderation and growth from what
30:25
Speaker 1: you had seen earlier, whether it's stock market volatility or
30:29
Speaker 1: real estate headwinds. At the same time as you're as
30:33
Speaker 1: you're having unemployment um which frankly continues to remain low,
30:38
Speaker 1: but in certain industries you're seeing a tick up and layoff. Dana,
30:42
Speaker 1: when you talked about the retail sector specifically, I want
30:45
Speaker 1: to say, throughout your forecast for three was we're still
30:49
Speaker 1: going to see a lot of promotions, still going to
30:50
Speaker 1: see a lot of markdowns, a lot of clearance items.
30:52
Speaker 1: Is that gonna be enough to entice the consumer, the
30:55
Speaker 1: American consumer to keep spending. There's certainly is the reason
30:59
Speaker 1: why they can keep spendings. Do they have the ability
31:01
Speaker 1: to spend will be the question. I think as the
31:04
Speaker 1: inventory levels continue to be promoted and get leaner by
31:08
Speaker 1: the end of the first half of the year, then
31:10
Speaker 1: we'll see the next the next element. I think that
31:13
Speaker 1: the wherewithal with the savings rate having dropped down is
31:16
Speaker 1: going to be one of the question marks. But across
31:18
Speaker 1: the board, we certainly have seen a step down from
31:22
Speaker 1: the growth rate that we've saught earlier in two so
31:26
Speaker 1: the savings rate is dropped substantially, but the unemployment rate
31:30
Speaker 1: is still to me unbelievably low, I mean three point
31:35
Speaker 1: five percent, and we've seen some decent wage gains. They
31:38
Speaker 1: haven't kept up with inflation. M I right saying that, right,
31:42
Speaker 1: but you know people have jobs and they have big
31:45
Speaker 1: bank balances. Um, what's your expectation for unemployment and for
31:50
Speaker 1: wage gains going forward? I think overall, there certainly is
31:54
Speaker 1: demand for workers out there. Is it going to be satisfied?
31:58
Speaker 1: And certainly with the pullback and spending that you're getting
32:01
Speaker 1: on the consumer side, will adjustments may be made that
32:04
Speaker 1: can easily be easily be part of it. I think
32:07
Speaker 1: the pullback um the consumer spending. Consumer spending had been
32:11
Speaker 1: so resilient for quite some time, and now the fourth
32:14
Speaker 1: quarter data is showing some some capitulation in the face
32:18
Speaker 1: of the inflationary headwinds. I think, both in terms of
32:22
Speaker 1: labor and in wage growth. I think you can see
32:25
Speaker 1: wage growth paps moderate a little bit, and hopefully we
32:28
Speaker 1: see some jobs filled, particularly in the discretionary sector where
32:33
Speaker 1: whether it's restaurants or other areas needs needs those employees
32:37
Speaker 1: at what rate still remains to be seen. So Dana,
32:41
Speaker 1: let's push ahead twelve months or Gus eleven months down
32:44
Speaker 1: the road. Are we still going to see the same
32:47
Speaker 1: patterns that we're seeing right now going to next holiday season.
32:50
Speaker 1: I know it's early to be even thinking about that,
32:52
Speaker 1: but some of that preparation happens in just a few months.
32:55
Speaker 1: Walk us through what you think. I think overall, we're
32:58
Speaker 1: going to continue to see inventory level remain very lean.
33:01
Speaker 1: We could certainly see a pick up in margins from
33:04
Speaker 1: what you had this holiday season, because I don't think
33:07
Speaker 1: the level of inventory coming in at mismatched times will occur.
33:11
Speaker 1: And I think as you go into four you'll have
33:15
Speaker 1: more stabilization perhaps and even more resilient consumer than what
33:19
Speaker 1: you have right now. In terms of the stores out there,
33:23
Speaker 1: the retailers, who's dealing the best and who's dealing the
33:27
Speaker 1: worst with this situation. The luxury goods companies obviously are
33:31
Speaker 1: handling it. They have limited inventory and they have a
33:34
Speaker 1: stronger consumer with the ability to pay, so you're definitely
33:37
Speaker 1: seeing that. I think you're continuing to see cosmetics um
33:41
Speaker 1: do very well and be strong given the fact that
33:44
Speaker 1: you're getting both the specialty stores and the brands performing
33:48
Speaker 1: well and the category remains solid. I think you have
33:51
Speaker 1: a seat change going on in apparel with denim slowing,
33:54
Speaker 1: and you're seeing a pick up in other fabrications and
33:57
Speaker 1: more of a focus perhaps on occasion are than what
34:00
Speaker 1: than what we've had in the past. And also look
34:03
Speaker 1: at food and essentials. You're seeing the grocers and the
34:06
Speaker 1: discounters be certainly a magnet for a greater share of wallet.
34:11
Speaker 1: What about car sales, It's been a huge issue in
34:15
Speaker 1: terms of the inflation picture, and I guess we've seen
34:19
Speaker 1: a dramatic turnaround there, have we not, as financing costs
34:22
Speaker 1: just skyrocket, Yes, and it's and also the availability too
34:26
Speaker 1: I think that's going to be a question mark also,
34:29
Speaker 1: definitely when I think about high ticket items overall. I mean,
34:33
Speaker 1: you think about some of the the relief that we've
34:35
Speaker 1: gotten at the gasoline pump. It was interesting that gas
34:38
Speaker 1: station sales even declined in the most recent month of December,
34:42
Speaker 1: given the sharp ball off and gasoline prices. But we
34:45
Speaker 1: have I mean, you've got a double wammy there and
34:47
Speaker 1: that for example for the auto manufacturers. I don't know
34:50
Speaker 1: about other high ticket items, but the supply is now
34:54
Speaker 1: there and financing costs make it too expensive. Affordable affordability
34:59
Speaker 1: has gone, you know, to the roof. Yeah, and you
35:03
Speaker 1: saw up sales of big ticket items this month was
35:05
Speaker 1: download single digits, and furniture sales was down even a
35:09
Speaker 1: little bit more along with electronics and appliance sales. Where
35:13
Speaker 1: for electronics and appliances it was the eighth consecutive months
35:17
Speaker 1: of decline for the category. It's a lot of pain
35:21
Speaker 1: in retail, yeah, cross board on the big ticket It's
35:25
Speaker 1: it's interesting to see. I wonder how much the FED
35:27
Speaker 1: pays attention to financing costs. I guess very much, right,
35:30
Speaker 1: because you see it in the financial conditions. Dana great
35:33
Speaker 1: having you on the program today. Thanks so much for
35:35
Speaker 1: joining us. Dana Telsey there, she's a Chief Research Officer
35:38
Speaker 1: and the CEO of the Telsey Advisory Group, and she
35:41
Speaker 1: is our go to voice when we want to talk
35:44
Speaker 1: anything retail. The numbers we got out today certainly prompted
35:48
Speaker 1: that and really moved the markets. Thanks for listening to
35:52
Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to
35:56
Speaker 1: interviews with Apple Podcasts or whatever podcast plat form you prefer.
36:01
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.
36:05
Speaker 1: On Fall Sweeney, I'm on Twitter at pt Sweeney before
36:08
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg Radio.