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Markets, Shipping, and Lending · Bloomberg Intelligence

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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
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Speaker 1: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 2: you listen to podcasts, and at Bloomberg dot Com slash podcast. Again,
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Speaker 2: it feels like this market is just really has it
0:59
Speaker 2: gotten too far over? That's what it feels like to me,
1:01
Speaker 2: at least in the short term. But what do I know.
1:03
Speaker 2: I've only been doing this since nineteen eighty six. I
1:06
Speaker 2: still don't get it. Robert Teetert, he knows what's going on.
1:08
Speaker 2: He's a head of investment policy in a strategy group
1:10
Speaker 2: at silver Cress Asset Management. Robert, does it feel like
1:13
Speaker 2: we're a little ahead of ourselves here based upon what
1:16
Speaker 2: we heard from FED Chairman J Powell last week?
1:18
Speaker 3: It does.
1:18
Speaker 4: We've gotten a lot of progress in the last six
1:20
Speaker 4: weeks as we've seen the yield and the tenure come
1:22
Speaker 4: down from five to four. We've added a lot on
1:24
Speaker 4: the valuation side. Seems like we're fairly valued here rather
1:28
Speaker 4: than undervalued. Need a lot of progress next year on
1:31
Speaker 4: inflation and FED talk to keep holding those gains in valuation.
1:34
Speaker 4: So I think we're sort of at the end of
1:36
Speaker 4: this phase of the of the FED rate cut cycle
1:38
Speaker 4: or FRED rate cycle. Exc you get me flipping from
1:40
Speaker 4: ice to cuts and there I am getting ahead of myself.
1:44
Speaker 5: Right right, So how are you advising your clients to
1:48
Speaker 5: position heading into next year? Because you were mentioning to
1:50
Speaker 5: me earlier that you felt like what is transpired in
1:53
Speaker 5: the past seven weeks you were thinking was going to
1:55
Speaker 5: actually take about six months to happen.
1:57
Speaker 4: Yes, I do think it makes next year a bit
1:59
Speaker 4: more allenging. We've compressed a lot of gains into a
2:02
Speaker 4: short period of time. The earnings picture still looks reasonably
2:05
Speaker 4: encouraging for next year. So while the streets at plus
2:07
Speaker 4: eleven or so, my forecast is for around six percent
2:09
Speaker 4: on the earning side, I'm not really looking for any
2:12
Speaker 4: valuation progress next year. We've had that in the last
2:14
Speaker 4: six weeks and that probably isn't going to happen next
2:17
Speaker 4: year now, But that still sets the stage for a
2:19
Speaker 4: pretty decent year of midsignal digit returns driven mainly by valuation,
2:23
Speaker 4: And maybe when we get to the end of the year,
2:24
Speaker 4: we're starting to be into the fed cycle and can
2:27
Speaker 4: get a little more clarity on the outlook beyond that.
2:29
Speaker 2: Now, Jess, she won't admit to it, but she's owned
2:31
Speaker 2: the Magnificent seven. She's belong those stocks, so she says,
2:34
Speaker 2: you know, going right to the bank. Me, on the
2:36
Speaker 2: other hand, I have not What do I do here?
2:38
Speaker 2: Do I chase them into twenty twenty four? Do I
2:40
Speaker 2: try to find some of the sectors that have not performed?
2:44
Speaker 2: How do you think about where to go in twenty four?
2:46
Speaker 4: The likely scenario in my mind is that the seven
2:49
Speaker 4: still continue to keep pace, driven mainly by the earning side.
2:52
Speaker 4: They've got strong earnings potential that should continue. But small
2:55
Speaker 4: caps will catch up. They've been out of favor for
2:58
Speaker 4: a long time. There's a lot of valuation pressure that's
3:01
Speaker 4: closed the gap a bit in the last six weeks,
3:03
Speaker 4: but I think still more room to go. There are
3:05
Speaker 4: a lot of segments within small cap two that have
3:07
Speaker 4: been pressured a lot by the rate cycle. So as
3:09
Speaker 4: you have an easy rate environment, some of the finance
3:11
Speaker 4: and concerns are taken off of the table there. That's
3:14
Speaker 4: probably beneficial for margins and the small cap side to
3:16
Speaker 4: tend to carry a bit more debt. So I'm not
3:18
Speaker 4: really afraid of the seven here. They'll continue to carry
3:21
Speaker 4: their own on earnings, but the rest of the market
3:23
Speaker 4: will catch up a bit more. How do you view financials, Yes,
3:27
Speaker 4: that's an interesting and challenging sector, but I think the
3:30
Speaker 4: same as the small cap space.
3:31
Speaker 5: Well, it's also very broad because you have the bigger banks,
3:35
Speaker 5: you have insurers, and then you also had fintech in
3:38
Speaker 5: it that was not originally in that sector but got
3:41
Speaker 5: moved over because of the GIGS changes in the spring.
3:43
Speaker 4: Yeah, I think a lot of that nuance will be
3:46
Speaker 4: super interesting next year. We've had this easy knee jerk
3:49
Speaker 4: reaction of lower rates good for everybody, especially good for financials,
3:53
Speaker 4: And in my mind, the story of twenty twenty four
3:55
Speaker 4: is going to be a stock picking story, a nuanced
3:58
Speaker 4: story of not just sectors, but industry groups, and not
4:00
Speaker 4: even just industry groups, but individual companies and how they're
4:03
Speaker 4: navigating the challenges of a slower growth environment, which frankly
4:06
Speaker 4: is in front of us, so they have to be
4:08
Speaker 4: paying attention to margins.
4:09
Speaker 2: How about energy here, we've seen a lot of volatility
4:12
Speaker 2: in the price of crude oil across the globe, supply demand,
4:17
Speaker 2: all the geopolitical issues here. Is that a space that
4:20
Speaker 2: you like into twenty twenty four or is that kind
4:23
Speaker 2: of had its run because it's been a sector that
4:25
Speaker 2: everybody forgot about for a decade, it seemed like, and
4:27
Speaker 2: then it's just been really performing well over the last
4:29
Speaker 2: couple of years.
4:30
Speaker 4: It has been It's hard to see an environment where
4:33
Speaker 4: those prices continue a lot higher, absent more geopolitical risk,
4:36
Speaker 4: again just on the basis of a slowing economy. So globally,
4:39
Speaker 4: you know, Asia had been a real powerhouse of growth
4:41
Speaker 4: that slowed down US. They'd had a massive rebound, of
4:44
Speaker 4: course in terms of growth, but next year, with a
4:47
Speaker 4: backdrop of probably two percent economic growth, hard to see
4:50
Speaker 4: a lot of upside pressure on commodities next year.
4:52
Speaker 5: How are your clients feeling right now?
4:55
Speaker 4: I think they, like most of the rest of the world,
4:58
Speaker 4: are feeling a bit surprised how quickly the last six
5:01
Speaker 4: weeks unfolded. You know, it was sort of very easy
5:03
Speaker 4: back in October to look at the year and say,
5:05
Speaker 4: it's been an okay year, but there are a lot
5:07
Speaker 4: of things that have been lagging, and a lot's.
5:09
Speaker 5: Happened from the past six seven weeks, I don't think.
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Speaker 4: So we've done a pretty good job, I think of
5:15
Speaker 4: keeping clients invested, and our view for most of this
5:18
Speaker 4: year had been relatively optimistic, so we hadn't been in
5:21
Speaker 4: the Barish camp. We had been in the optimistic camp
5:23
Speaker 4: on the year on the basis of the progress that's
5:25
Speaker 4: been made in inflation and economy. Mainly on the economy.
5:28
Speaker 4: You know, a lot of folks had a really strong
5:30
Speaker 4: recessionary bias and we have not had that, and so
5:33
Speaker 4: I think for the most part, we've kept a pretty steady,
5:36
Speaker 4: steady course through the year and not feeling like we're
5:38
Speaker 4: missing out on anything.
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Speaker 5: How do you view the trajectory of the economy next year.
5:43
Speaker 4: Definitely slowing. I'm not in the recession camp mainly on
5:47
Speaker 4: the basis that I think we'll I think we'll see
5:49
Speaker 4: it coming. And that sounds like very dangerous words, but
5:51
Speaker 4: with the availability of real time data that we have
5:54
Speaker 4: and the fact that we're still adding jobs in the economy,
5:57
Speaker 4: that means economic growth. And we can debate a lot
5:59
Speaker 4: whether that's half a percent or two percent, but it
6:02
Speaker 4: is still growth. And I think until we start seeing
6:04
Speaker 4: some signals that economic activities turning negative, we're in a
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Speaker 4: slow growth.
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Speaker 5: What are some of your favorite signals that you like
6:10
Speaker 5: to gauge, because I feel like there's sort of the
6:12
Speaker 5: telltale signs that Wall Street likes to look at. But
6:14
Speaker 5: what do you like to use from more of an
6:16
Speaker 5: investment perspective, maybe contrarian perspective too, to see if certain
6:19
Speaker 5: things are weakening where you start loading up on stocks.
6:21
Speaker 4: Yeah, that's a great question. We look a lot at
6:23
Speaker 4: We do a lot of factor work. We do a
6:25
Speaker 4: lot of work on spreads between sectors and attribution and
6:28
Speaker 4: then tying that to where we are in the economic cycle,
6:31
Speaker 4: So just looking at rates of change on different indicators
6:33
Speaker 4: on the economy, both real time and jobs growth, and
6:36
Speaker 4: basically trying to link those two pieces together. So our
6:38
Speaker 4: story for twenty twenty three had been avoiding recession and
6:42
Speaker 4: we thought that would be good for earnings, and that's
6:43
Speaker 4: buying large played out, and the story for next year
6:46
Speaker 4: is sort of more of the same but at a
6:47
Speaker 4: much smaller level. No recession, very slow earnings growth and
6:51
Speaker 4: eking out mid single digit gains and.
6:52
Speaker 2: Earnings about outside the US. Any opportunities there for you guys,
6:56
Speaker 2: it's been a really tough area.
6:58
Speaker 4: You know, every time we and other look at it,
7:00
Speaker 4: there's that nice looking valuation gap that never seems to close.
7:04
Speaker 4: And the challenge there, I think is growth. You know,
7:06
Speaker 4: Asia growth has been slowing. Europe's had a really tough
7:09
Speaker 4: time generating growth. The sectors that are that are growth
7:12
Speaker 4: oriented in terms of generating organic earnings are really in
7:16
Speaker 4: the US, and so it's very hard to get excited
7:19
Speaker 4: about those areas. There are, of course, great companies that
7:21
Speaker 4: are very undervalued because they're based overseas, So there are
7:24
Speaker 4: some selective opportunities but more of a stock picking opportunity
7:27
Speaker 4: rather than a broad based international play.
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Speaker 2: All right, Robert, thanks so much for joining us. Really
7:31
Speaker 2: appreciate it as always, Robert Teeter. He's head of investment
7:34
Speaker 2: Policy and a strategy strategy group at Silvercress Asset Management.
7:39
Speaker 2: Looking at these markets holding on to some modest gains
7:42
Speaker 2: here the S and P five hundreds up about four
7:44
Speaker 2: tens a one percent, of Dow up a half a percent,
7:47
Speaker 2: Russell up one point five percent. So that's better breadth. Right,
7:51
Speaker 2: as the technicians like to say, you're listening to the team.
7:55
Speaker 6: Ken's are Live program Bloomberg Markets weekdays at ten am Eastern,
8:00
Speaker 6: Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business app,
8:04
Speaker 6: or listen on demand wherever you get your podcasts.
8:08
Speaker 2: Let's love transports, all right. I'm not a big podcast guy,
8:11
Speaker 2: but I actually do subscribe to this thing called Talking Transports.
8:15
Speaker 2: Lee Klascal from Bloemberg Intelligence, He's got it because I mean,
8:18
Speaker 2: when you got one entitled werner on better trucking conditions
8:21
Speaker 2: in twenty twenty four, Boom, I hit that. Yeah, I
8:23
Speaker 2: care about the truckers, I care about the railroads, the
8:25
Speaker 2: ocean stuff, it's it's a I used to cover those companies,
8:28
Speaker 2: but b they give you a great insight into the
8:31
Speaker 2: Lee Clasical joins us here in our Bloomberg interactor broker's studio.
8:35
Speaker 2: He's been covering the transports for a long time. He
8:37
Speaker 2: does that for Bloomberg Intelligence. Now, Lee, I want to
8:39
Speaker 2: start with FedEx. Man, that stock is ripping up sixty
8:44
Speaker 2: two year to date. They're gonna report numbers after the close.
8:47
Speaker 2: What do you expect to hear?
8:49
Speaker 7: You know what we expect to hear is share gains.
8:51
Speaker 7: So there won some share gains from UPS. As you
8:54
Speaker 7: should probably remember UPS at a labor contract negotiation that
8:57
Speaker 7: went down to the wire and UH shippers diverted their
9:01
Speaker 7: freight away from UPS. And FedEx was a big winner
9:03
Speaker 7: in that. They're also one share from Yellow. Yellow is
9:07
Speaker 7: back in the day in your transportation today. Yeah, they
9:11
Speaker 7: were a large lesson truckload provider. They shipped about fifty
9:15
Speaker 7: thousand shipments a day, so they had about.
9:17
Speaker 8: Six to seven percent of the market and they poof
9:19
Speaker 8: went away.
9:20
Speaker 7: So that's a lot of a lot of Paletts that
9:23
Speaker 7: went up for grabs and FedEx. FedEx Freight is the
9:26
Speaker 7: largest LTL carrier in North America, so they were able
9:28
Speaker 7: to benefit.
9:29
Speaker 2: I didn't know that.
9:30
Speaker 5: So when you're looking at FedEx, LTL means LTL.
9:34
Speaker 2: Less than truckload. Yeah, as opposed to Tel, which is
9:39
Speaker 2: not team leader. It's truckload team leaders.
9:42
Speaker 7: And Paul, if you want to learn more about it,
9:43
Speaker 7: we actually we have a new podcast today, you do
9:46
Speaker 7: with the CEO from ARC Best.
9:48
Speaker 2: ARC Best celebrated centennial.
9:50
Speaker 8: They did Happy Birthday arc Best.
9:52
Speaker 2: Yeah, very cool. So and so ARC Best are they
9:54
Speaker 2: sort of their private trucking company LTL trucking company their
9:56
Speaker 2: public The problem a ARC b Oh, I didn't do
9:59
Speaker 2: that deal? Did they get public? I took all those
10:02
Speaker 2: public back in the day they.
10:03
Speaker 7: Were public, and then they a while ago they had
10:05
Speaker 7: some activists investor and then they took themselves private and
10:08
Speaker 7: they went public again.
10:09
Speaker 2: Fort Smith, Arkansas. That's where I went when I was
10:12
Speaker 2: doing this truck Really, God, what do we do with
10:14
Speaker 2: the heart land? I don't know, des moines I or something.
10:17
Speaker 5: Oh yeah, yea yeah, that sounds like it's awesome. Sounds
10:19
Speaker 5: about right. Looking at the Dow transports from their October
10:22
Speaker 5: low up close to twenty percent, when you're thinking about
10:26
Speaker 5: we will hear like you, we're talking about FedEx after
10:28
Speaker 5: the bell today, but when it comes to these transport companies,
10:31
Speaker 5: what are they telling us about the economy.
10:34
Speaker 8: That's that's a good question.
10:35
Speaker 7: So we've been in a freight recession for quite some
10:37
Speaker 7: time and we're coming out of that freight recession. The
10:40
Speaker 7: less than truckload mark is actually negative right now. And
10:44
Speaker 7: one of the good things about when we were talking
10:45
Speaker 7: about FedEx earlier, why it's a good thing that they
10:48
Speaker 7: got all this market share from Yellow and it comes
10:50
Speaker 7: at a time when volumes were down because demand has
10:53
Speaker 7: been down, so they've been able to mitigate that impact.
10:56
Speaker 7: But you know, what we're seeing is from our vantage
10:58
Speaker 7: point and conversations that we have in our channel checks,
11:01
Speaker 7: is that you know, in the truckload market, we seem
11:04
Speaker 7: to be at the bottom, we're bouncing along the bottom,
11:08
Speaker 7: and demand is poised to do better next year, not great,
11:13
Speaker 7: but better, uh, And we could see some growth. And
11:16
Speaker 7: you know, we expect growth from the rails railroads, whether
11:19
Speaker 7: it's commodities or intermodal volumes in the mid single digit
11:22
Speaker 7: next year. We expect truckload volume growth in the low
11:27
Speaker 7: single digits next year.
11:28
Speaker 2: So that's not that's not recessionary data from your transportation.
11:32
Speaker 7: So I think what we're doing is we're reflecting positively
11:35
Speaker 7: on a lot of these industries because like we've been
11:37
Speaker 7: down for a while, and some of that has to
11:39
Speaker 7: do with the economy and someone has to do with
11:41
Speaker 7: really difficult comparisons.
11:42
Speaker 2: Right because everybody was stocking up like crazy back.
11:44
Speaker 7: In Beta, okay, and the destocking cycle appears to be
11:47
Speaker 7: over from a lot of the retailers, which is really
11:50
Speaker 7: good for the truckload market.
11:52
Speaker 2: So I mean, I look at FedEx again, up sixty
11:54
Speaker 2: two percent, but ups down seven percent? Is that reflective
11:59
Speaker 2: of just they're operating?
12:01
Speaker 5: Also the strikes strikes?
12:04
Speaker 7: Yeah, so so what you see there? So you know,
12:06
Speaker 7: it's all about, you know, your two points from a
12:09
Speaker 7: performance standpoint, and this year it's a little bit about
12:12
Speaker 7: you know, ups dealing with their labor contract issues and
12:15
Speaker 7: FedEx kind of getting hammered last year and coming off
12:20
Speaker 7: their lows, they've initiated a bunch of new strategies. They
12:26
Speaker 7: call it Network two point oh, their Drive initiative. It's
12:28
Speaker 7: supposed to say about six billion dollars. They're really FedEx
12:33
Speaker 7: became a fat company and they're trimming the fat right now,
12:35
Speaker 7: and they're also looking at ways that they never really
12:38
Speaker 7: looked at before, like combining their ground and express networks.
12:41
Speaker 7: It's going to take time, it's gonna be messy, it's
12:44
Speaker 7: gonna be lumpy, if you will, But you know, I
12:47
Speaker 7: think the market is actually starting to believe that management
12:51
Speaker 7: can finally execute.
12:52
Speaker 5: How did the what's going on in the Red Sea
12:55
Speaker 5: and it comes to shipping, how do you foresee that
12:58
Speaker 5: affecting transport companies?
13:00
Speaker 7: Yeah, so it's just another kind of shock to the
13:03
Speaker 7: supply chain. We've seen container liner rates which are down
13:07
Speaker 7: twenty nine percent from last year.
13:08
Speaker 8: They're up ten percent over the last two weeks.
13:11
Speaker 7: And that's really driven on that because at the end
13:14
Speaker 7: of the day, if a ship can't go through the
13:15
Speaker 7: Suez Canal, it's got to.
13:17
Speaker 8: Go south along Africa.
13:19
Speaker 7: It adds about ten to twelve days, and so that
13:22
Speaker 7: you know, time is money, So it's going to add
13:24
Speaker 7: costs to shippers and listen, it's going to be inflationary.
13:29
Speaker 7: But that inflationary pressure I'm not gonna say transitory because
13:32
Speaker 7: I think someone will trouble for that, but it's definitely
13:35
Speaker 7: going to be short term in nature because the US
13:37
Speaker 7: government is and its allies they have.
13:39
Speaker 8: A coalition to deal with the houthy rebels.
13:43
Speaker 7: And you know, it might not create the most fluid
13:47
Speaker 7: supply chains because you know, ships might have to operate
13:49
Speaker 7: in a convoy if you will.
13:51
Speaker 2: Wow.
13:52
Speaker 8: But but it'll be.
13:54
Speaker 7: Safer for ships to transverse the traversity of the Red Sea.
13:58
Speaker 2: I do even quite frankly, have to be honest, I
14:00
Speaker 2: need to know where the Red Sea was a couple
14:02
Speaker 2: of days ago, and I had to go.
14:03
Speaker 5: Like Google map it and air you thought it was.
14:06
Speaker 2: It's Jerry Garcia on it. I thought that until very
14:10
Speaker 2: recently in my adult life. So but I mean twelve
14:14
Speaker 2: percent of you of global shipping goes through the Red Sea,
14:17
Speaker 2: so I mean that's marish. Those are the companies you cover, right,
14:19
Speaker 2: the big Yeah.
14:20
Speaker 7: So a lot of a lot of the liners like Maris, Capac, Lloyd,
14:22
Speaker 7: the two private ones MSc and CMA, they all announced
14:26
Speaker 7: that they're not going to go in the Red Sea
14:29
Speaker 7: because of the risk not only to their crews but
14:32
Speaker 7: to cargo and ship ships are pretty expensive there, around
14:34
Speaker 7: seventy to one hundred million dollars each, so you know
14:37
Speaker 7: that's very expensive and insurers do not want insurance insurance
14:41
Speaker 7: companies don't want the ships that they're ensuring to be
14:44
Speaker 7: in those waters because obviously it'll increase their cost.
14:48
Speaker 2: Talk to us about the railroads, what's the what's the
14:51
Speaker 2: the theme for twenty twenty four for these railroads? Is
14:54
Speaker 2: it kind of just riding the economy? I mean, what
14:57
Speaker 2: are you thinking about or what are investors thinking about?
14:59
Speaker 8: Well, I'm thinking about service.
15:01
Speaker 7: So you know, rails talk a big game about service,
15:05
Speaker 7: but I really think they.
15:06
Speaker 8: Need to deliver on that.
15:08
Speaker 7: More and more of the railroads are kind of have
15:10
Speaker 7: pivoted to a precision schedule railroading or precision railroading. They
15:15
Speaker 7: like to call it different things, but at the end
15:16
Speaker 7: of the day, it's six sigma for the rail industry,
15:20
Speaker 7: and in order to lower costs, it can't come.
15:23
Speaker 8: At the expense of service. And so you know, you'll
15:26
Speaker 8: see railroads maybe have.
15:28
Speaker 7: More employees during down cycles and they might normally have
15:32
Speaker 7: just so they're prepared for when the uptick happens. And also,
15:35
Speaker 7: in addition to service, I think it's growth. It's where
15:38
Speaker 7: are they going to grow from? Because they're not going
15:39
Speaker 7: to grow for major M and A because the.
15:42
Speaker 8: Large class ones will just not be able to merge.
15:44
Speaker 8: It's just they're just too big.
15:46
Speaker 7: So it'll be tucking acquisitions of short lines and kind
15:49
Speaker 7: of looking to take advantage of trends like cross border
15:53
Speaker 7: near shoring, that kind of stuff.
15:55
Speaker 5: We only have about a little maybe like a minute
15:58
Speaker 5: and a half left, but I want to get into
16:00
Speaker 5: airlines because it is the holiday travel season. I know
16:02
Speaker 5: airlines going into the fourth quarter had cut some of
16:05
Speaker 5: their outlooks because of they're worried about demand. But what
16:08
Speaker 5: are you seeing because it seems like people are still traveling.
16:11
Speaker 7: Well, the only thing I know about airlines is that
16:13
Speaker 7: I'm on them. That's George Ferguson, my colleague at BI.
16:17
Speaker 8: I do not cover.
16:18
Speaker 7: Airlines, but I do cover some of the freight, the
16:20
Speaker 7: air freight carriers, and what we're seeing there is capacity
16:24
Speaker 7: kind of getting back to.
16:26
Speaker 8: Pre pandemic levels.
16:28
Speaker 7: And it's interesting because you know, I mentioned earlier that
16:31
Speaker 7: liner rates are down twenty nine percent. Air freight rates
16:35
Speaker 7: are only down like high single digit, low double digits,
16:40
Speaker 7: So they've been a lot more resilient since the pandemic.
16:43
Speaker 7: And that's really because there hasn't beant while the capacity
16:47
Speaker 7: is nearing pre pandemic levels. There's not a lot of
16:50
Speaker 7: slack capacity out there, all right.
16:52
Speaker 2: Lee Classical, thanks so much for joining us. Lee Clasow,
16:54
Speaker 2: he is a senior analyst covering all the transports and
16:56
Speaker 2: logistics for Bloomberg Intelligence. He's also got a podcas Us
17:00
Speaker 2: out there talking transports. The focus will be on trucking, railroads,
17:05
Speaker 2: ocean and air freight markets and everything in between, so
17:08
Speaker 2: check that out. He always gets a lot of good
17:10
Speaker 2: guests on there. And again this most recent week, our
17:12
Speaker 2: best one of the biggest trucking companies out there. We
17:14
Speaker 2: got their chairman, president and CEO on to talk about
17:18
Speaker 2: the transport business. So good stuff. Check that out.
17:21
Speaker 6: S and P.
17:21
Speaker 2: Five hundred Here today holding on to the gains up
17:24
Speaker 2: about a half a percent, saying for the dall saying
17:26
Speaker 2: for the Nasdaq, the small cappers haveing their day up
17:28
Speaker 2: one point seven percent.
17:30
Speaker 6: Here you're listening to the tape Cat's are live program
17:33
Speaker 6: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
17:37
Speaker 6: the tune in app, Bloomberg dot Com, and the Bloomberg
17:40
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17:43
Speaker 6: from our flagship New York station, just say Alexa play
17:46
Speaker 6: Bloomberg eleven thirty.
17:50
Speaker 5: Jess and paulse wean to hear in the Bloomberg Interactive
17:53
Speaker 5: Brokers studio and tiss the season Paul, because we talk
17:56
Speaker 5: so much about seasonality heading into year end. And who
18:00
Speaker 5: better to bring in than Jeff Hersh CEO at her
18:03
Speaker 5: Sholdings and the editor of The Stock Traders Amanac joining
18:07
Speaker 5: us on Zoom to discuss his correct market call this year,
18:10
Speaker 5: what to expect for the Santa Claus rally period as
18:13
Speaker 5: well as the outperformance here in small caps. So just
18:16
Speaker 5: to want to point out, Jeff correctly called the S
18:18
Speaker 5: and P five hundreds correction coming out of the summer
18:21
Speaker 5: into the fall, and then also the rebound that we're
18:24
Speaker 5: seeing here at year end. He also, over a decade ago,
18:27
Speaker 5: he predicted that there would be a Dow super boom
18:29
Speaker 5: in the wake of the global financial crisis that would
18:31
Speaker 5: drive the blue chip average to above thirty eight thousand
18:34
Speaker 5: in the mid twenty twenties. If you look where the
18:36
Speaker 5: Dows trading at now around records again and currently trading
18:40
Speaker 5: around thirty seven five hundred, so not too far away
18:44
Speaker 5: from that call you made a while ago. But Jeff,
18:47
Speaker 5: it's always really great speaking with you, and thank you
18:49
Speaker 5: for taking the time to join us, because I know
18:52
Speaker 5: you're busy this morning and had a doctor's appointment, so
18:54
Speaker 5: you made times for us. But I wanted to start
18:56
Speaker 5: off first because Paul and I always talked to people
18:59
Speaker 5: and portfolio managers will come in and you know, once
19:02
Speaker 5: we get to the fourth quarter, as you've known because
19:04
Speaker 5: you've done this for so long, people will talk about
19:06
Speaker 5: the Santa Claus rally period, But can you break down
19:08
Speaker 5: to our listeners what the indicator is and what time
19:12
Speaker 5: span it actually crosses over.
19:15
Speaker 3: Yeah, it gets misused.
19:17
Speaker 9: I mean, it's a fun phrase, Santa Claus Rally rolls
19:19
Speaker 9: off the tongue, but it's something my father discovered and
19:22
Speaker 9: devised back in nineteen seventy two. Is published in a
19:25
Speaker 9: seventy three almanac, and it's this short seven trading day
19:29
Speaker 9: rally the last five trading.
19:30
Speaker 3: Days of the year to the first two of the
19:32
Speaker 3: new year.
19:33
Speaker 9: And it's not this huge, you know gain, It's about
19:36
Speaker 9: a one and a half one point three percent gain
19:38
Speaker 9: on the S and PN average. But the key thing
19:40
Speaker 9: is that it's not a strategy, it's an indicator. And
19:43
Speaker 9: when that period is not up, it's an indication that
19:46
Speaker 9: there's something amiss in the markets. Usually have you know,
19:50
Speaker 9: traders and and prop desks, people picking up stocks that
19:54
Speaker 9: are sold off for tax laws selling. The rest of
19:56
Speaker 9: us are you know, sort of away, celebrating with family
20:00
Speaker 9: and friends and traveling and that.
20:02
Speaker 3: Sort of thing.
20:02
Speaker 9: So, as my father said, you know, some sixty seventy
20:06
Speaker 9: years ago, if Santa Claus should failed to call, bears
20:11
Speaker 9: may come to broaden wall.
20:13
Speaker 3: So it's you know.
20:15
Speaker 9: An indication that it's a catchy tune he could turn
20:18
Speaker 9: a phrase. But we've combined that with the January barometer,
20:23
Speaker 9: another one of.
20:23
Speaker 3: His inventions back in seventy two.
20:25
Speaker 9: At the same time, they're both in that seventy three
20:27
Speaker 9: Almenac the full month January barometer. Everyone knows as January goes,
20:30
Speaker 9: so goes the year, and then there's the first five
20:33
Speaker 9: days early warning system.
20:35
Speaker 3: January has become a bit of a profit taking periods.
20:38
Speaker 9: It's lost some of its luster in recent years, and
20:41
Speaker 9: we've had some errors in the January barometer recently. So
20:44
Speaker 9: we combined all three to this this January Indicator trifecta,
20:48
Speaker 9: and you know, the bulls win when we hit that trifecta.
20:51
Speaker 3: We hit it this year in January twenty three.
20:54
Speaker 9: Since nineteen fifty excuse me, doing all three year up
20:58
Speaker 9: Santa claus Rally first five days full month January barometer
21:01
Speaker 9: the year is up twenty eight of thirty one years,
21:04
Speaker 9: ninety point three percent of the time, for an average
21:06
Speaker 9: game of seventeen and a half percent. The subsequent eleven
21:11
Speaker 9: months February December up twenty seven of those thirty one
21:15
Speaker 9: for a twelve point three percent game.
21:17
Speaker 3: So you know, we didn't have that traffic in twenty
21:20
Speaker 3: twenty two.
21:21
Speaker 9: Interesting, you know, we were going we were going into
21:23
Speaker 9: a midterm years, so we're already concerned. So we'll be
21:28
Speaker 9: looking at those things right now. I'm pretty bullished. I mean,
21:30
Speaker 9: this is the pre election year. We've got a good
21:33
Speaker 9: chunk of new highs we're seeing right here. Happened in
21:35
Speaker 9: December of the pre election year, a lot of them
21:37
Speaker 9: on the last trading day. Everyone started getting you know,
21:41
Speaker 9: all the bears are now getting on the soft landing bandwagon.
21:43
Speaker 9: So we'll be watching these indicators and market action going
21:46
Speaker 9: through January. And you know, our forecast, early forecast is
21:50
Speaker 9: already pretty bullish for twenty four power of a sitting president.
21:55
Speaker 9: But we'll be we'll be fine tuning that in the
21:57
Speaker 9: newsletter on Thursday for subscribers, and then we'll be watching
22:01
Speaker 9: the market. And if things go awry, you know, whether
22:05
Speaker 9: with Santa Claus or January barometer, or something.
22:08
Speaker 3: Happens with the election.
22:10
Speaker 9: I mean, if something we're changed where Biden's not you know,
22:13
Speaker 9: the city president running, that would change our outlook a
22:17
Speaker 9: little bit.
22:18
Speaker 2: Jeff, you know, we've seen since late October this S
22:21
Speaker 2: and P five hundred rally fifteen percent. It's been such
22:24
Speaker 2: a moving in November and in December here, what do
22:27
Speaker 2: you make of that?
22:30
Speaker 9: It's pretty typical for your cycle seasonal behavior. It's encouraging
22:35
Speaker 9: everyone had you know, had this. The small caps we're
22:39
Speaker 9: in the doghouse. But you know, I've put out some
22:41
Speaker 9: of the recent charts about the small cap out performance
22:44
Speaker 9: starting you know, picking it around late October, and really
22:47
Speaker 9: the bulk of it is the last half of December.
22:51
Speaker 3: I mean games, we get games.
22:52
Speaker 9: It's supportive or starting to seeing some breath, you know,
22:55
Speaker 9: supporting it. We're seeing you know, broader participation in this.
23:00
Speaker 9: You know, it's it's a it's a rally based upon
23:03
Speaker 9: you know, the success of the economy. There's this productivity
23:08
Speaker 9: anticipation with AI market maybe a.
23:11
Speaker 3: Little ahead of itself.
23:12
Speaker 9: We're gonna have some corrections you know, throughout the you know,
23:16
Speaker 9: the the year, just like we had in twenty three,
23:19
Speaker 9: a very bullish year, but we had a nice you know,
23:21
Speaker 9: ten percent plus correction depending upon the index you look at.
23:25
Speaker 6: I make.
23:27
Speaker 9: What I make of it is that it's a bullish
23:28
Speaker 9: indication that we're we've got further upside here.
23:31
Speaker 3: So my biggest concern at the.
23:33
Speaker 9: Beginning of this year, I don't know if you remember,
23:36
Speaker 9: Jess when when I was talking, is that I wasn't
23:39
Speaker 9: bullish enough. I mean, we were already forecasting you know,
23:42
Speaker 9: fifteen to twenty percent gains for the for the S
23:45
Speaker 9: and P here we are with that, so again, you know,
23:49
Speaker 9: maybe I wasn't bullish enough, but pretty close.
23:53
Speaker 5: What I'm wondering is because you're walking us through the
23:56
Speaker 5: seasonality with small caps, typically we tend to see that
23:59
Speaker 5: usually history and more in mid December and then as
24:02
Speaker 5: you know, going into year end with some of that
24:04
Speaker 5: window dressing, is some of the gains, especially the bulk
24:07
Speaker 5: of it that we've seen like you were talking about
24:08
Speaker 5: that started out towards the end of October. Does that
24:11
Speaker 5: potentially steal some of the typical games we would see
24:14
Speaker 5: in the last couple of weeks in December. Do you
24:16
Speaker 5: expect us to continue for small caps to continue.
24:21
Speaker 9: I think the small caps were catching up with the
24:25
Speaker 9: rest of the ball market based upon you know, the
24:27
Speaker 9: interest rates finally settling down.
24:29
Speaker 3: That seems to have a bigger impact on the small caps.
24:33
Speaker 9: I don't know if we're going to get as much
24:34
Speaker 9: of that you know, small cap out performance as we've
24:38
Speaker 9: just add.
24:38
Speaker 3: I don't think it's over whatsoever.
24:40
Speaker 9: I think we're going to get that regular, you know
24:43
Speaker 9: small cap effect what used to be the January effect
24:45
Speaker 9: in last half of December.
24:47
Speaker 3: And into into January. I don't think it's taken away
24:50
Speaker 3: from it.
24:50
Speaker 9: I think it's just catching up and setting us up
24:54
Speaker 9: for another for a continuation of small cap back performance.
24:57
Speaker 2: Jeff, what do you make of the magnificence been here
25:00
Speaker 2: in twenty twenty three that was a unique aspect to
25:03
Speaker 2: this market performance this year.
25:06
Speaker 9: There's always been leaders, they're still leading. You know, there
25:09
Speaker 9: was the nifty to fifty back in the late sixties.
25:13
Speaker 9: You know, these companies are doing you know, fabulous things.
25:17
Speaker 9: We're using their software and their their products right now
25:21
Speaker 9: as we speak. They some of the other you know,
25:25
Speaker 9: industries are catching up. But I mean, you've always got leaders.
25:29
Speaker 9: I'm not so concerned that the markets, you know, being
25:31
Speaker 9: led by seven stocks. There's plenty of other positive you know,
25:35
Speaker 9: advancing declining situations and new highs. And you know, I
25:39
Speaker 9: think we had the most new high since twenty one
25:41
Speaker 9: on the S and P. You know, it's it's not
25:45
Speaker 9: just the Magnificen seven. That's an old story. It's kind
25:48
Speaker 9: of like the people who are calling for the bear
25:50
Speaker 9: mar kid looking at that. It's yield, you know, curb
25:52
Speaker 9: in version from from O two, from twenty two. So
25:56
Speaker 9: I'm not afraid of the Magnificent seven.
25:58
Speaker 3: Let them lead. There'll be other people stepping in.
26:01
Speaker 5: We only have about twenty seconds left. But you were
26:03
Speaker 5: talking to us earlier about how coming into this year
26:06
Speaker 5: you should have been even more bullish, even though you're
26:08
Speaker 5: already seeing a fifteen to twenty percent rise in stocks
26:11
Speaker 5: this year. What percentage are you expecting in twenty twenty four.
26:15
Speaker 9: My early handicapping is about eight to twelve percent on
26:18
Speaker 9: the Dow maybe a little bit more at SMP and
26:20
Speaker 9: NASDAK and I'll be fine tuning that over the next
26:23
Speaker 9: couple of days.
26:24
Speaker 3: As we finalize our annual forecast in the newsletter.
26:28
Speaker 9: So yeah, I mean above average the election year performance.
26:33
Speaker 3: You know what a sitting president's running.
26:34
Speaker 9: The Dow's up twelve point eight percent on average, when
26:37
Speaker 9: it's an open field it's minus one and a half percent.
26:39
Speaker 3: I think we've got a lot of tailwinds here going
26:42
Speaker 3: into twenty twenty.
26:42
Speaker 9: Four election, technology, AI and a rising market.
26:48
Speaker 2: All right, jeff, thanks so much for being with us,
26:50
Speaker 2: really appreciated. Jeffrey Hirsch, CEO of Hirsh Holdings and editor
26:52
Speaker 2: in chief of The Stock Traders Almanac.
26:54
Speaker 6: You're listening to the tape catcher line program Bloomberg Markets
26:58
Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune
27:02
Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App.
27:05
Speaker 6: You can also listen live on Amazon Alexa from our
27:07
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
27:14
Speaker 2: Only in my career, Jess, I was at lead Chasemanton Bank,
27:17
Speaker 2: and I survived their credit training program, which is a
27:19
Speaker 2: beast on the street still is, and we were in
27:23
Speaker 2: the media group. So we lent not against assets, not
27:26
Speaker 2: against like receivables and stuff like that. Cash flow baby
27:29
Speaker 2: leverage lending. That's how we did. We go up to
27:32
Speaker 2: six times leverage lending on some of these stupid things.
27:35
Speaker 2: We did fleet call, which was we'd give them five
27:37
Speaker 2: hundred million dollars and we went to our credit committee
27:39
Speaker 2: and said, we want to lend them. They have no assets,
27:42
Speaker 2: no cash flow, no revenue, but they have air, so
27:45
Speaker 2: we were lending against air. Wow, you got that deal done.
27:48
Speaker 2: So I love the leverage lending business for Bertic austroians
27:50
Speaker 2: a scene managing director at pre Team Partners. I have
27:53
Speaker 2: no idea what predium means. What does pretty mean means?
27:56
Speaker 9: Value?
27:57
Speaker 2: Value in Latin will go? Yes, good enough from me.
28:01
Speaker 2: How do you guys talk to us about twenty twenty
28:03
Speaker 2: three in kind of the credit market, because you know,
28:06
Speaker 2: I'm looking at across a lot of fixing come positive
28:08
Speaker 2: returns this year, which is good versus twenty twenty two
28:12
Speaker 2: when it wasn't so much, but how was How do
28:13
Speaker 2: you view the kind of the credit markets out there?
28:15
Speaker 2: So we've had.
28:16
Speaker 10: A pretty volatile two years but twenty twenty three very
28:22
Speaker 10: strong across the board for leverage. Credit leverage loans as
28:26
Speaker 10: of now up almost twelve and a half percent after
28:31
Speaker 10: effectively a flat year in twenty twenty two. Most of
28:35
Speaker 10: that coming from the absolute yield, so you know, all
28:39
Speaker 10: loans are floating rate, and so the base rate at
28:42
Speaker 10: over five percent provides a lot of carry in the
28:47
Speaker 10: current market. I think as we go forward into twenty
28:51
Speaker 10: twenty four, it's going to be, you know, a different
28:57
Speaker 10: type of year in terms of of earnings and dispersion
29:02
Speaker 10: across the board in terms of credit selection.
29:04
Speaker 5: Talk to us more about the earnings picture. What do
29:07
Speaker 5: you foresee and where do you see areas of weakness?
29:10
Speaker 5: Where do you see areas of strength?
29:11
Speaker 10: Sure, so, as we've gone through twenty twenty three, and
29:15
Speaker 10: in particular Q three earnings, I think surprised to the upside,
29:19
Speaker 10: and that's not surprising as we look back with very
29:22
Speaker 10: strong GDP numbers here in the US. I think as
29:26
Speaker 10: we go into twenty four, we're going to see more differentiation.
29:32
Speaker 10: What we've seen over the last couple of years is
29:36
Speaker 10: normalization as we've dealt with inflation factors, be it supply chain, labor,
29:42
Speaker 10: and just cost of inputs. I think as we go
29:46
Speaker 10: through twenty twenty four and the US consumer is going
29:50
Speaker 10: to play a big part in this, does that start
29:53
Speaker 10: to impact top line? We've had very strong top line
29:57
Speaker 10: for the last couple of years, margins have been on
30:00
Speaker 10: all over the place. But I think, uh, you know,
30:03
Speaker 10: we're going to have, you know, some sort of slow
30:06
Speaker 10: down in the top line, and the degree to that
30:09
Speaker 10: slow down is what's going to be most impactful.
30:13
Speaker 2: Private credit, Yes, I knew this is guys. How do
30:18
Speaker 2: you guys interact with the private credit business?
30:21
Speaker 10: Right, So we're focused at Predium almost exclusively on the
30:27
Speaker 10: broadly syndicated market.
30:30
Speaker 2: I think, so you buy loans from banks from banks,
30:33
Speaker 2: So I would do my chase Manhattan Bank. I'd syndicate
30:36
Speaker 2: ninety percent because I don't want take any risk. I'm
30:38
Speaker 2: in the business degenerating fees, right, so I would sell
30:41
Speaker 2: it to you. Yes, nice.
30:43
Speaker 10: And so private credits now creating more competition for the
30:47
Speaker 10: likes of JP Morgan. What that for sponsors? What they're
30:53
Speaker 10: prepared to do is pay up for certainty of execution,
30:58
Speaker 10: and that was very important in twenty two twenty three
31:01
Speaker 10: when the broadly syndicated market was you know, pretty much
31:06
Speaker 10: shut for parts for parts of the year.
31:11
Speaker 2: Why was it shut?
31:12
Speaker 10: We've seen substantial outflows and COLO creation, which lateralized loan
31:19
Speaker 10: obligations represent about three quarters of the buying base for
31:25
Speaker 10: broadly syndicated loans, and issuance was slow to start this year.
31:31
Speaker 10: So the private credit market generally cost sponsors about two
31:36
Speaker 10: hundred basis points more in terms of yeah.
31:40
Speaker 2: And why go there because I can't get a bank
31:43
Speaker 2: to do it?
31:44
Speaker 10: Certainty of execution?
31:46
Speaker 6: Okay?
31:47
Speaker 10: And I think that that started to shift as the
31:49
Speaker 10: broadly syndicated primary markets opened up and is quite strong
31:54
Speaker 10: right now. So I think the sponsors want both markets
31:59
Speaker 10: and include high yield as well, to be you know,
32:05
Speaker 10: are you accessible?
32:06
Speaker 2: Are you surprised that the banks have allowed that business
32:09
Speaker 2: to walk across the street. I never would have done that.
32:12
Speaker 10: Yeah, I think they've been surprised as well. So private
32:15
Speaker 10: credit now is comparable in size, you know, a trillion
32:20
Speaker 10: plus to high yield and loans. I think they're the
32:24
Speaker 10: banks are playing catch up in terms of what role
32:27
Speaker 10: they have in that market.
32:28
Speaker 5: Yes, private debt was thought to be really pressured as
32:32
Speaker 5: rates were going to rise, but that didn't happen. Walk
32:35
Speaker 5: us through why that didn't happen.
32:37
Speaker 2: Yeah.
32:38
Speaker 10: So I think that, you know, one thing with private
32:42
Speaker 10: debt that we've experienced or not experienced, but seen over
32:45
Speaker 10: the last uh, you know, a few quarters, is they're
32:49
Speaker 10: very aggressive in terms of terms and as rates have risen,
32:55
Speaker 10: and I think some of these companies and multiples that
33:00
Speaker 10: sponsors are paying, they're having a hard time dealing with
33:03
Speaker 10: the increased interest cost and so we're starting to see
33:07
Speaker 10: and this I think is scary. And I was also
33:10
Speaker 10: trained at JP Martin so goes back to my training days.
33:16
Speaker 10: First lean pick loans, Oh boy, sixteen percent first lian
33:22
Speaker 10: pick that.
33:24
Speaker 5: Yes, is.
33:26
Speaker 10: You know, put in place because they don't have the
33:30
Speaker 10: cash flow to service and cash interest. I think setting
33:35
Speaker 10: up for you know, volatility in the future, but as
33:41
Speaker 10: purely a function of where rates sit today.
33:44
Speaker 2: How do you think that twenty twenty four deal market
33:46
Speaker 2: will be ergo the kind of the stuff that you
33:49
Speaker 2: guys are going to see coming out of the bank syndication.
33:52
Speaker 10: Yeah, I think we're going to see a real pick
33:54
Speaker 10: up in primary activity next year. I think the biggest
33:59
Speaker 10: factor this year has just been the gap between buy
34:03
Speaker 10: and sell side multiples. I think that started to contract.
34:08
Speaker 10: We've started to see m and a pick up. I
34:10
Speaker 10: would expect that to continue next year. And I think
34:14
Speaker 10: as you know, as our market you know, continues to
34:18
Speaker 10: remain open and is active, you'll see a resurgence of.
34:23
Speaker 2: Are you guys at Predium raising capital now?
34:26
Speaker 10: Yes, yes, we are raising capital across all products.
34:30
Speaker 2: And what's the pitch here, like, what's the what's the
34:33
Speaker 2: reason that.
34:34
Speaker 8: You get right?
34:35
Speaker 10: So we think that next year we're going to have
34:38
Speaker 10: a lot of dispersion and that credit selection is going
34:43
Speaker 10: to be a big differentiator among performance. And I think
34:48
Speaker 10: this goes to sector selection and individual name selection, and
34:53
Speaker 10: that's our strong suit.
34:55
Speaker 5: Yes, So looking at credit, what do you think is
34:58
Speaker 5: tells us about economic growth?
35:01
Speaker 10: Well, I think as we saw in Q three earnings
35:06
Speaker 10: were you know, continue to be strong and actually accelerated
35:09
Speaker 10: from the first half. I actually think the US economy
35:14
Speaker 10: is doing quite well. And that's what we've experienced in
35:18
Speaker 10: in pretty broad based industries.
35:21
Speaker 5: What would you need to see in the credit space
35:24
Speaker 5: to raise any sort of red flags to you? I
35:26
Speaker 5: mean it seems like you're not seeing those yet, But
35:28
Speaker 5: what particular indicators would you need to see for them
35:31
Speaker 5: kind of alarms go off in your mind. As far
35:33
Speaker 5: as growth stalling out.
35:34
Speaker 10: Yeah, so what we haven't seen is a deceleration of
35:38
Speaker 10: the top line, and that to me is a function
35:42
Speaker 10: of strength in the US consumer. We've seen a deceleration
35:48
Speaker 10: of growth to some degree, but not negative growth year
35:52
Speaker 10: on year, quarter and quarter. I think we'd need to
35:56
Speaker 10: see that in a more broad based way across consumer
36:02
Speaker 10: driven sectors, which we haven't seen at all.
36:05
Speaker 2: Interesting. Roberta, thank you so much for joining us. Roberta
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Speaker 2: os She's a senior managing director at Pretium Partners, which
36:12
Speaker 2: again means value value. Thank you listening the new language. Yeah,
36:16
Speaker 2: maybe one ear and other ear.
36:20
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36:33
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