Latest / Bloomberg Intelligence / Housing Market, Apple Downgrade, Recession Impact on Minorities

Transcript

Housing Market, Apple Downgrade, Recession Impact on Minorities · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
• 0:15
  Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. All right, let's bring
• 0:20
  Speaker 1: a Nika Group that she's a director of macro economic
• 0:23
  Speaker 1: research at Wisdom Tree, and Nika loved it. You start,
• 0:26
  Speaker 1: we can talk about your economic call here, but how
• 0:28
  Speaker 1: do you think about the housing market? Here? Matt and
• 0:30
  Speaker 1: I are just talking about the you know, the mortgage
• 0:32
  Speaker 1: rate surging. What do you think what do you think
• 0:34
  Speaker 1: the impact is on housing and housing market on the economy.
• 0:37
  Speaker 1: Thanks for having me. Yes, you know, you're you're hitting
• 0:41
  Speaker 1: what you're you're you're really targeting one of the most
• 0:44
  Speaker 1: important sectors that showing signs of pain at this point
• 0:48
  Speaker 1: in time. You know, higher rates have clearly been reflected
• 0:52
  Speaker 1: in the higher mortgage trades in the US, UH you know,
• 0:55
  Speaker 1: which is at an extremely high rate right now and
• 0:58
  Speaker 1: it's clearly impacting you know, the US average household UM
• 1:03
  Speaker 1: you know, we've already seen signed the slowdown in Canada,
• 1:06
  Speaker 1: in the Australian housing market, UM, and it's it's slowly
• 1:10
  Speaker 1: trickling down into United Kingdom as well. UM. You know,
• 1:14
  Speaker 1: and we and obviously you we've seen UM record stimulus
• 1:18
  Speaker 1: package that he's been UM unleashed in in UK and
• 1:23
  Speaker 1: at the same time you've got bank in England, you know,
• 1:27
  Speaker 1: trying to figure out how they're supposed to health the economy. UM.
• 1:31
  Speaker 1: Through this phase is you know, we've seen a big
• 1:34
  Speaker 1: a clash with the sterling in response to the moves
• 1:37
  Speaker 1: that we've seen from the government and UM, you know
• 1:41
  Speaker 1: clearly Andrew Bailey's hands it tied. So far, all we've
• 1:44
  Speaker 1: seen is an intervention UM. And that's really the save
• 1:48
  Speaker 1: the pension market. So I think broadly with rising weights, uh,
• 1:53
  Speaker 1: you know, the first pain is being felt by the
• 1:55
  Speaker 1: housing market, and I think it's really a squeezeably cudity
• 2:00
  Speaker 1: that is impactingly invested globally. Well, what about Anika. Your
• 2:06
  Speaker 1: sounds like you're based in London. I know you studied
• 2:08
  Speaker 1: at Oxford for example. UM. How much of the U
• 2:13
  Speaker 1: sort of self inflicted pain out of the UK is
• 2:18
  Speaker 1: spreading around the world. Are are we seeing even in
• 2:21
  Speaker 1: US treasury markets contagion um from what's being viewed as
• 2:27
  Speaker 1: like the biggest policy policy mistake in a generation from
• 2:30
  Speaker 1: your government. Well, it's very much. Uh, you know, it's
• 2:34
  Speaker 1: I think if we didn't see that intervention by the
• 2:37
  Speaker 1: Bank of England yesterday, um, we could we could have seen,
• 2:41
  Speaker 1: you know, some widespread impact across financial markets. So I
• 2:45
  Speaker 1: think they did just about managed to save uh, you know,
• 2:50
  Speaker 1: the pension system here in the UK, uh, you know,
• 2:54
  Speaker 1: and and try to arrest those margin goals that the
• 2:56
  Speaker 1: pension sector was was being faced with. Uh. But you know,
• 3:00
  Speaker 1: they're they're very very There was a very high likelihood
• 3:04
  Speaker 1: that this could have spread, uh you know, spread across
• 3:07
  Speaker 1: to the US and globally. Um, if those margin calls
• 3:11
  Speaker 1: were not arrested, and if uh, you know, it's the
• 3:14
  Speaker 1: extension sounds just hit a hit a scenario where the
• 3:17
  Speaker 1: it was, you know, sell whatever you can to get
• 3:19
  Speaker 1: that liquidity back back on board. But doesn't it look
• 3:22
  Speaker 1: like we did see some margin calls. I mean, doesn't
• 3:25
  Speaker 1: it look like we are seeing some just liquidation in
• 3:27
  Speaker 1: these markets. I see on the S and P five hundred,
• 3:31
  Speaker 1: for example, only five stocks are rising, so fourde or down. Um.
• 3:37
  Speaker 1: We saw you know, US rates to ten US tenure
• 3:42
  Speaker 1: one above four percent. So it wasn't just the guilt
• 3:45
  Speaker 1: market that went haywire. It was treasuries as well, I
• 3:48
  Speaker 1: guess because of low liquidity, but also surely um, British
• 3:53
  Speaker 1: pension companies had to sell treasuries to meet margins. Uh,
• 3:58
  Speaker 1: that's absolutely right. I think you know, the psychology on
• 4:01
  Speaker 1: the market right now is of extreme anxiousness um. And
• 4:05
  Speaker 1: and that is that is why we we've been seeing
• 4:07
  Speaker 1: this sharp sell off this week. But that that set
• 4:11
  Speaker 1: off really was triggered when the market started to take
• 4:13
  Speaker 1: the send a lot more seriously for what they were
• 4:15
  Speaker 1: actually saying. You know, until this, until this, until the
• 4:19
  Speaker 1: Said meeting took place, I think the market was expecting
• 4:22
  Speaker 1: the SAID to pivot. We saw that mid rally take place,
• 4:25
  Speaker 1: and especially essentially we were you know, what we were
• 4:28
  Speaker 1: seeing um across equili markets was this brief turnaround of um,
• 4:35
  Speaker 1: you know, hope that the SAID would pivot. Uh, you know,
• 4:38
  Speaker 1: growth would come back into limelight and um, everything would
• 4:41
  Speaker 1: would be okay. But the Fed you know, has drawn
• 4:45
  Speaker 1: the line and said we are going to quite fixed
• 4:48
  Speaker 1: on raising great until uh, you know, we have the
• 4:51
  Speaker 1: Insotian story under control and and I think with that
• 4:56
  Speaker 1: in the background, in addition with Q three earning, UH
• 5:00
  Speaker 1: for us to look forward to UM, you know that
• 5:03
  Speaker 1: that I think that's that's opening up a lot of concerns,
• 5:06
  Speaker 1: especially in the US because uh, you know everyone if
• 5:10
  Speaker 1: everyone is now coming to terms with the fact that
• 5:12
  Speaker 1: you know, you have this extremely strong dollar that is
• 5:15
  Speaker 1: reading have a cross risk asset. UM. If you look
• 5:19
  Speaker 1: at concerned to learning expectations for earnings, they you know,
• 5:22
  Speaker 1: they're still quite high. They are correcting, but they still
• 5:25
  Speaker 1: remain quite high. UM. And you know, the strong dollar
• 5:29
  Speaker 1: certainly puts a lot of pressure for UH international US
• 5:33
  Speaker 1: companies that are now not going to be that competitive.
• 5:37
  Speaker 1: So UM I think invested essentially bracing for a bit
• 5:42
  Speaker 1: of bad news that that could be triggered in uh
• 5:45
  Speaker 1: you know the Q three earning scenario where you could
• 5:47
  Speaker 1: see a lot more companies being FedEx Right, all right,
• 5:50
  Speaker 1: A great stuff. Really appreciate you taking the time out
• 5:53
  Speaker 1: of your busines schedule to check in with us. A.
• 5:55
  Speaker 1: Nika Gupta, director of macroeconomic research at Wisdom Tree, journey
• 5:59
  Speaker 1: US from London, where it has been a tumultuous week,
• 6:03
  Speaker 1: particularly in that uh English bond market there, the guilt
• 6:07
  Speaker 1: market there, just a crazy week there as they try
• 6:10
  Speaker 1: to kind of prevent uh you know, a real contagient
• 6:13
  Speaker 1: in that market, and apparently fairly successful in some of
• 6:16
  Speaker 1: the interventions this week. Dave Harden joins us. He's a
• 6:21
  Speaker 1: founder president of Summit Global Advisors. And initially I thought
• 6:24
  Speaker 1: it was in Summit, New Jersey. You were hoping. I
• 6:26
  Speaker 1: was hoping, but I wasn't even close. Bountiful, Utah. Dave,
• 6:31
  Speaker 1: where is Bountiful Utah? Well, it's on the It's in
• 6:35
  Speaker 1: the most beautiful place on earth. We're setten here in Utah,
• 6:38
  Speaker 1: right next to Salt Lake City just north and uh,
• 6:41
  Speaker 1: you know, the fall is amazing. You guys need to
• 6:43
  Speaker 1: come out here and experience it. Good stuff. I'm out there.
• 6:47
  Speaker 1: You know this. This is what happens with me and
• 6:48
  Speaker 1: my ski buddies in New Jersey. We all talk a
• 6:50
  Speaker 1: big game in like around September. Let's go to tell
• 6:53
  Speaker 1: you ride. Let's go to like Montana, and then when
• 6:55
  Speaker 1: push comes to show, we say, a screw it, Let's
• 6:57
  Speaker 1: go out to Salt Lake and we'll ski all the
• 6:59
  Speaker 1: great places out there. That's what always happens. Well, that's right,
• 7:02
  Speaker 1: that's a bounty of them right there is also you
• 7:06
  Speaker 1: could go to Park City and all that good stuff.
• 7:08
  Speaker 1: Like the canyon. You just have to pick your You
• 7:10
  Speaker 1: just have to pick your canyon you want to go
• 7:11
  Speaker 1: up to. All right, Dave, are we are we capitulating?
• 7:14
  Speaker 1: I'm not sure if I used that correctly. Are we
• 7:16
  Speaker 1: seen a capitulation here? Or it's just just another day?
• 7:21
  Speaker 1: Well so far in just another day, but we'd like
• 7:24
  Speaker 1: to get it better. At the VIX up ten percent today,
• 7:27
  Speaker 1: we're getting closer thirty three. We want to see that
• 7:29
  Speaker 1: VIX about forty. That's real, true capitulation capitulation. So if
• 7:33
  Speaker 1: you if you look back at the past corrections when
• 7:36
  Speaker 1: those bottoms hit, we gotta get that bickx up to forty.
• 7:39
  Speaker 1: So not quite there. We're getting closer, but I'm afraid
• 7:43
  Speaker 1: there's still some more downside ahead. So why aren't we
• 7:46
  Speaker 1: pricing in a deeper, darker recession? Are people still sticking
• 7:51
  Speaker 1: with the forecast for um short and shallow one? Well,
• 7:55
  Speaker 1: I think I think there's still some hope out there. Right,
• 7:57
  Speaker 1: We've been through COVID where the government build US out.
• 7:59
  Speaker 1: We've been through COVID where the FED beld is out,
• 8:01
  Speaker 1: We've been through pivot changes constantly throughout the year where
• 8:05
  Speaker 1: the Fed's beild is out. So why can't they do
• 8:08
  Speaker 1: it one more time? Dave, I'd noticed on some of
• 8:12
  Speaker 1: the names that you guys are buying Lockheed Martin, simple
• 8:15
  Speaker 1: L M T. Is that just simply you know there's
• 8:18
  Speaker 1: a big war on over in Europe and they need stuff.
• 8:21
  Speaker 1: Is that kind of the play there? Well, for certainly
• 8:24
  Speaker 1: that's that's that's a defensive nature. We absolutely know that
• 8:27
  Speaker 1: in the down markets, defensive plays tend to play better,
• 8:31
  Speaker 1: and so you want to be defensive here in this
• 8:33
  Speaker 1: in this situation. So it's also diversification. I think Blackey
• 8:37
  Speaker 1: Martin is a great option that goes with a lot
• 8:39
  Speaker 1: of people's tech stocks, It goes with a lot of
• 8:41
  Speaker 1: people's utilities, whatever they're buying, banks, financials, et cetera. But
• 8:45
  Speaker 1: let's face it, locked themselves have solid rings, they have
• 8:48
  Speaker 1: a low p they're cheap, and the war is not
• 8:51
  Speaker 1: going away anytime soon. It seems like as the US
• 8:53
  Speaker 1: just told everybody to get out of Russia. So what
• 8:56
  Speaker 1: else do you like? Are your other plays? Defensive. I see,
• 8:59
  Speaker 1: for example, kind of o phillips here, is that a
• 9:01
  Speaker 1: defensive play? Well, Conics a little bit of a defense
• 9:04
  Speaker 1: in the sense that it could be diversification. But I
• 9:07
  Speaker 1: think energy stocks have pulled back throughout the summer. You
• 9:10
  Speaker 1: saw crude oil fall tremendously, and so I think a
• 9:13
  Speaker 1: lot was taken off the table there. But Conical has
• 9:15
  Speaker 1: a pretty good exposure to supplies, natural gas, et cetera.
• 9:19
  Speaker 1: You know, those supplies issues create higher demand. We got
• 9:23
  Speaker 1: Winner coming on. They have a great dividend yesterday, so
• 9:29
  Speaker 1: yesterday and they were up more than four So you
• 9:32
  Speaker 1: love that. You love to get paid to have a dividend. Yeah.
• 9:36
  Speaker 1: So in this studio, Dave, we are a meta and
• 9:40
  Speaker 1: alphabet free studio. So Facebook is one of the names
• 9:44
  Speaker 1: or Meta that's the ticker. But Facebook's a name that
• 9:48
  Speaker 1: you're avoiding. Why still, Well, I think I think, let's
• 9:53
  Speaker 1: face it, Facebook is going through a business model change
• 9:55
  Speaker 1: they started a while back. They changed their ticker now
• 9:58
  Speaker 1: from you know, Facebook to Meta. They're trying to go
• 10:00
  Speaker 1: away from this social media and the negativeness. When Mark
• 10:03
  Speaker 1: would come before Congress, it just didn't work out very
• 10:05
  Speaker 1: good for him. So they've been trying to transition their
• 10:09
  Speaker 1: revenues from Instagram and Facebook to this metaverse, and it's
• 10:12
  Speaker 1: gonna take some time. And over the last four consecutive quarters,
• 10:16
  Speaker 1: they've missed journeys, they've missed estimates. Analysts aren't really getting
• 10:18
  Speaker 1: their arms around kind of where the money is coming
• 10:21
  Speaker 1: from and how this business model is going to pan out.
• 10:23
  Speaker 1: I think long term, if you've got twenty years, great,
• 10:26
  Speaker 1: maybe that's a great business model to be into and
• 10:28
  Speaker 1: and the and the future, so to speak. But until
• 10:31
  Speaker 1: they get there and create that space right now, I
• 10:34
  Speaker 1: would just say you need to avoid that until their
• 10:37
  Speaker 1: business model completely changes. Isn't there a certain point? I mean,
• 10:39
  Speaker 1: they're trading for eleven times earnings. Isn't there a certain
• 10:42
  Speaker 1: point when it gets cheap enough? Well? I think so
• 10:45
  Speaker 1: we've gotta be careful of those cheap traps, right in
• 10:48
  Speaker 1: the sense that you think, wow, look how cheap this is,
• 10:51
  Speaker 1: but you've got it continues to miss earnings, So how
• 10:53
  Speaker 1: cheap can it go? And so I think it can
• 10:56
  Speaker 1: go a little bit cheaper. And with volatility in the market,
• 10:59
  Speaker 1: I think there's just some better things you can purchase
• 11:02
  Speaker 1: for right now. Maybe maybe look at them in six
• 11:04
  Speaker 1: months or maybe look at them in about a year.
• 11:07
  Speaker 1: Dave talked to us about the Salt Lake. How's the
• 11:09
  Speaker 1: economy there? How, how are folks doing there? How how
• 11:12
  Speaker 1: is it on the other end of this pandemic here. Well,
• 11:15
  Speaker 1: it's interesting. Utah has a lot of small business. It's
• 11:19
  Speaker 1: had a lot of big players come in with silicon slopes.
• 11:21
  Speaker 1: We're talking the Apples and the Googles and the technologies
• 11:24
  Speaker 1: of the world. And Adobe very big in Utah, so
• 11:27
  Speaker 1: a lot of you know, it's Golden Sacks second biggest
• 11:31
  Speaker 1: employer area. So from an economy standpoint, I think we're
• 11:34
  Speaker 1: doing very very well. Housing is starting to soffer though
• 11:36
  Speaker 1: at the six point you know whatever, it feels like
• 11:39
  Speaker 1: ten percent interest rates on mortgages, and so I think
• 11:42
  Speaker 1: you're seeing some of those investors kind of get nervous,
• 11:45
  Speaker 1: and that's making some people a little bit nervous. Definitely,
• 11:48
  Speaker 1: recession is on the mind, even in the small towns. Yea,
• 11:52
  Speaker 1: all right, Dave, good stuff. Well we'll think snow certainly
• 11:54
  Speaker 1: at this time of year. For our good friends out West,
• 11:56
  Speaker 1: Dave Harden found their president in Summit Global Investments. I
• 11:59
  Speaker 1: mean he got his under grad from like, where is
• 12:01
  Speaker 1: it Boston College? And then gets his masters from Boston
• 12:04
  Speaker 1: University and then he says, I'm not heck with this stuff.
• 12:08
  Speaker 1: I'm heading out west. You Yeah, I mean why not.
• 12:11
  Speaker 1: You can manage money any We can do a lot
• 12:12
  Speaker 1: of things anywhere that We've proven that with the pandemic.
• 12:16
  Speaker 1: So we're bringing on a rock Rana. He covers all
• 12:19
  Speaker 1: things technology for Bloomberg Intelligence. Just give us your updated
• 12:24
  Speaker 1: view of Apple. Where are we here? Is this? How
• 12:28
  Speaker 1: is the story holding up here? Because I know there
• 12:30
  Speaker 1: was some concerns about the new iPhone and maybe the
• 12:33
  Speaker 1: demand wasn't there. What's what's your call right here? Yeah, So, Paul,
• 12:36
  Speaker 1: we talked about over a month ago when we basically
• 12:38
  Speaker 1: said that iPhone putein is not going to move the
• 12:41
  Speaker 1: needle just because of two reasons. And the first is
• 12:44
  Speaker 1: the economic backdrop of the global economy is fared worse
• 12:47
  Speaker 1: than it was a year ago. Second is that Europe
• 12:52
  Speaker 1: in China makes up for total revenue for Apple, and
• 12:56
  Speaker 1: that those two geographies up pretty much, you know, in
• 13:00
  Speaker 1: really bad shape right now. And I would say the
• 13:02
  Speaker 1: third element would be that the iPhone puotein is not
• 13:05
  Speaker 1: the hardware upgrade that you normally see on a three
• 13:07
  Speaker 1: year cycle. That's going to be next year. So we
• 13:10
  Speaker 1: have been a lot more cautious than most people, I
• 13:13
  Speaker 1: would say, for some time, and I think I would
• 13:15
  Speaker 1: say the rest of the street is catching up at
• 13:17
  Speaker 1: this point. What more can an iPhone do? I mean,
• 13:21
  Speaker 1: if it doesn't make me breakfast, like, I don't see
• 13:23
  Speaker 1: how it can get any more advanced than it already is.
• 13:27
  Speaker 1: So I mean, I said this last time. Also it does.
• 13:30
  Speaker 1: They don't need to find new users. They have an
• 13:32
  Speaker 1: installed bait of installed base of over eight hundred million users.
• 13:36
  Speaker 1: Every year they're gonna sell two twenty million bits, no
• 13:39
  Speaker 1: matter what that is plus a minus one to two.
• 13:43
  Speaker 1: In good years they're going to sell a few more,
• 13:45
  Speaker 1: and bad years they're going to sell a few less.
• 13:47
  Speaker 1: So next if you didn't upgrade this year, you may
• 13:49
  Speaker 1: upgrade the year after all the year after, but eventually
• 13:52
  Speaker 1: you will upgrade. And the reason you're gonna upgrade is
• 13:55
  Speaker 1: battery life. When the battery life starts to bother you,
• 13:57
  Speaker 1: you're gonna say, you know what, I'm going to go
• 13:59
  Speaker 1: out and get another phone, keep it for three years
• 14:02
  Speaker 1: and then go out and um, you know, upgrade at
• 14:05
  Speaker 1: that time. Do they do They engineer them so that
• 14:07
  Speaker 1: the battery starts to die right at the end of
• 14:09
  Speaker 1: your two year contract. It's not two years. It's usually
• 14:13
  Speaker 1: a little more around three and a half to four years.
• 14:16
  Speaker 1: So I mean a lot of people upgrade two years.
• 14:18
  Speaker 1: I upgrade about two years. A lot of people upgrade
• 14:21
  Speaker 1: five years. But you take the average of it, it's
• 14:23
  Speaker 1: about three point seven, you know, three point six years
• 14:25
  Speaker 1: or so. And that's all Apple cares about at any
• 14:27
  Speaker 1: given time. The reason why this company is so stable
• 14:31
  Speaker 1: in terms of free cash flow is because that installed
• 14:34
  Speaker 1: base is sacred. People do not it doesn't matter economies
• 14:37
  Speaker 1: go to bad. They're not going to get rid of
• 14:39
  Speaker 1: their iPhone and go buy a Nokia. But so what,
• 14:41
  Speaker 1: So what do we read into this bloomberg um scoop
• 14:45
  Speaker 1: that you know they were going to upgrade. They were
• 14:47
  Speaker 1: at least thinking about upgrading. They were telling their suppliers
• 14:49
  Speaker 1: like an upgrade in terms of you know, producing more,
• 14:52
  Speaker 1: selling more, and now they're not and they're gonna do
• 14:55
  Speaker 1: flat flat is very good, Matt. Flat flat revenues from
• 14:58
  Speaker 1: this year the next year for Apple would be very good.
• 15:01
  Speaker 1: They're going to generate in three cash flow. If they
• 15:04
  Speaker 1: go flat, that's not bad for me. Yeah, but the
• 15:07
  Speaker 1: stock is down four and a half percent today, so
• 15:09
  Speaker 1: it's bad for somebody. It's bad for praatos. That's I mean,
• 15:13
  Speaker 1: this is again depending on who's the buyer of the stock,
• 15:15
  Speaker 1: if you have long term holders versus short term traados. Alright,
• 15:18
  Speaker 1: So when I hear you know, smart people like you
• 15:22
  Speaker 1: who analyze Apple on a day to day basis and
• 15:25
  Speaker 1: you speak to institutional investors on a day to day basis,
• 15:28
  Speaker 1: it seems to me that the story for here that
• 15:30
  Speaker 1: I guess the delta for the Apple income statement and
• 15:34
  Speaker 1: it's stock is the services business? Is that is that
• 15:37
  Speaker 1: still something people focus on? Yeah, and again you know,
• 15:41
  Speaker 1: services has been very strong over the last two and
• 15:43
  Speaker 1: a half years, and that's another area we think, you know,
• 15:45
  Speaker 1: it's going to be probably the first time next year
• 15:48
  Speaker 1: that it's not going to be in double digits, and
• 15:51
  Speaker 1: that is not something that people are used to. People
• 15:53
  Speaker 1: started reading Apple like a growth stock over the last
• 15:56
  Speaker 1: I would say three years or so, and I think
• 15:58
  Speaker 1: a lot of people are not coming to realization that
• 16:01
  Speaker 1: this company is going to have a made too high
• 16:03
  Speaker 1: single digit growth rate. And I think that's a lot
• 16:06
  Speaker 1: of the market is digesting it. You know, we published
• 16:08
  Speaker 1: another note last week which says the delta that we
• 16:11
  Speaker 1: see between evaluation delta between Microsoft and Apple is not
• 16:15
  Speaker 1: fair enough of you. We think Microsoft is a far
• 16:18
  Speaker 1: more diversified business model than Apple, and yet Apple trades
• 16:21
  Speaker 1: is a much higher multiple. What we are seeing over
• 16:24
  Speaker 1: the last seven eight days is kind of a rerating
• 16:26
  Speaker 1: of that. All right, So is there anything in the
• 16:29
  Speaker 1: Apple story? And I think I already know the answer here,
• 16:31
  Speaker 1: But you look at all the cash on the bounty,
• 16:33
  Speaker 1: look at all the free cash flow. Is there anything
• 16:36
  Speaker 1: I'm not gonna say transformative, but something that would move
• 16:40
  Speaker 1: the needle for this company. I don't know whether it's
• 16:42
  Speaker 1: an acquisition, whether it's a change in, maybe a return
• 16:45
  Speaker 1: neck of capital shareholders a car. Is there anything out there? Yeah?
• 16:53
  Speaker 1: So from a transformative fine, I don't think it is
• 16:55
  Speaker 1: going to be anything. From a product point, I would
• 16:58
  Speaker 1: hope that the company is going to be far more
• 17:00
  Speaker 1: aggressive of their buy backs. I mean, exactly speaking, they
• 17:02
  Speaker 1: can they can spend billion dollars a year on buy back.
• 17:07
  Speaker 1: If they do that, our calculations say that EPs is
• 17:10
  Speaker 1: going to go up anywhere from four to five, that's
• 17:13
  Speaker 1: not bad. If you get flat earning the PLATFOM revenue growth,
• 17:16
  Speaker 1: or let's say even a high single digit, a low
• 17:19
  Speaker 1: single digit revenue growth you add some buy backs to it,
• 17:22
  Speaker 1: that's ten percent EPs growth. That's not bad in a recession.
• 17:25
  Speaker 1: That's actually very impressive in our you all right, So
• 17:28
  Speaker 1: what's the across your universe? You got? You see everything
• 17:31
  Speaker 1: across the tech space where you know, given that the
• 17:33
  Speaker 1: economic backdrop we're in, when you as you talk to
• 17:36
  Speaker 1: institutional investors, where are they putting their money these days
• 17:39
  Speaker 1: in tech? I think they're all running away from tech
• 17:42
  Speaker 1: arctually because of inflation. And I think that is um
• 17:45
  Speaker 1: that is going to remain the same trend unless we
• 17:48
  Speaker 1: see a Regerson inflation. And I said this yesterday on
• 17:52
  Speaker 1: the TV also that the delta over here is what's
• 17:55
  Speaker 1: the discount rate. If the two year and the ten
• 17:58
  Speaker 1: year remain at these levels and we find out that
• 18:01
  Speaker 1: inflation is going down, then the Pick universe is going
• 18:04
  Speaker 1: to have a blast. You're going to see a massive
• 18:05
  Speaker 1: reversal of trends here. But the problem is people don't
• 18:09
  Speaker 1: know which way inflation is going to go. If inflation
• 18:12
  Speaker 1: keeps the way it is, and we keep on raising grades,
• 18:14
  Speaker 1: then the discount rate for growth sox gets hammered and
• 18:18
  Speaker 1: the valuations remain where it is or even down. Let
• 18:21
  Speaker 1: me just ask quickly. We only have a minute left
• 18:22
  Speaker 1: about the car um It seems like you're kind of
• 18:25
  Speaker 1: poop pooing it, and in fact, nobody seems that pumped
• 18:27
  Speaker 1: about it. But they do keep hiring people to work
• 18:30
  Speaker 1: on it. So what's the deal. Yeah, it's our Our
• 18:33
  Speaker 1: thesis on that is it's going to really help their
• 18:35
  Speaker 1: market cap. Frankly speaking, just because tess Like is such
• 18:38
  Speaker 1: a hot s it is coming. They're making their own car. Yeah,
• 18:42
  Speaker 1: but I do not know whether it's coming this year
• 18:44
  Speaker 1: or next year or the year after. I have no
• 18:45
  Speaker 1: way of figuring out when that's going to come. But
• 18:48
  Speaker 1: something is going to happen there there. You're right, they
• 18:50
  Speaker 1: hide a lot of people in that area. They're talking
• 18:52
  Speaker 1: to portion about something. So something's gonna come, but I
• 18:55
  Speaker 1: have no way of figuring out when it is. In
• 18:57
  Speaker 1: my view, it's going to once again not be that
• 18:59
  Speaker 1: in her mental to the sales and bottom line, but
• 19:02
  Speaker 1: it's going to really help their market cap. All right,
• 19:04
  Speaker 1: on a rock, ran I thank you appreciate it as
• 19:06
  Speaker 1: always phoning it in from some remote location, which I note,
• 19:11
  Speaker 1: but he does come in, you know, regularly. But he
• 19:13
  Speaker 1: I think he absconded from the metro New York region.
• 19:17
  Speaker 1: But during the pandemic, he's one of those smart guys. Rana.
• 19:20
  Speaker 1: He covers all things technology. Vince Wignarella. He does all
• 19:26
  Speaker 1: the trading stuff for Bloomberg News and he has just
• 19:30
  Speaker 1: made working from home a science and art. But something
• 19:33
  Speaker 1: got him into the city today, so we we we
• 19:35
  Speaker 1: grabbed him and Vince, what a great day, I mean,
• 19:37
  Speaker 1: another rough day out in the markets here. I'd love
• 19:40
  Speaker 1: for you to put in what we're seeing over the
• 19:41
  Speaker 1: last six seven weeks. Put it in the context here. Yeah,
• 19:44
  Speaker 1: like like you said, tough, tough playing in the sandbox today,
• 19:48
  Speaker 1: traders getting a little bit confused and spank. Today we
• 19:51
  Speaker 1: saw a little bit of a bit in sterling, a
• 19:52
  Speaker 1: little bit of a bid for UK gilts. That usually
• 19:55
  Speaker 1: spells positive for risk. And there was a hope that
• 19:58
  Speaker 1: the downside we about today, which came from the data
• 20:01
  Speaker 1: you mentioned earlier, um would turn a bit and and
• 20:05
  Speaker 1: markets would pick pack up. And that really hasn't happened.
• 20:09
  Speaker 1: And so the traders that I'm talking to are feeling
• 20:11
  Speaker 1: a little bit more pain than normal because I think
• 20:13
  Speaker 1: they feel like they got sucked in by the moves
• 20:16
  Speaker 1: in the UK and that was supposed to lead to
• 20:17
  Speaker 1: something which it hasn't. So what do you think about
• 20:20
  Speaker 1: the moves in the UK that we saw. It seemed
• 20:24
  Speaker 1: really dramatic, thirty year guilds moving, swinging a hundred basis
• 20:27
  Speaker 1: points in both directions after kind of a catastrophic economic
• 20:32
  Speaker 1: plan was announced and followed by intervention of the b
• 20:35
  Speaker 1: o E. How much did that move US markets? Move
• 20:39
  Speaker 1: US markets a lot? I think there was some sentiment
• 20:41
  Speaker 1: out there yesterday that maybe, uh, something similar could happen
• 20:45
  Speaker 1: here and the FED would have to pause a little bit,
• 20:47
  Speaker 1: that this, uh, the fiscal situation um, the little bit
• 20:51
  Speaker 1: of an instability in the bond market over in the
• 20:53
  Speaker 1: UK might might pour into the US, and that the
• 20:57
  Speaker 1: central banks in general might have to say, wait a minute,
• 20:59
  Speaker 1: you know, and place it's really bad, but you know,
• 21:01
  Speaker 1: fiscal stability is obviously far more important, and maybe move
• 21:05
  Speaker 1: a little bit more towards this. They are not doing that.
• 21:08
  Speaker 1: They're not saying it. Every every voice we've heard, I
• 21:10
  Speaker 1: we're gonna hear two more later today at least off
• 21:13
  Speaker 1: top of my head and Mr and daily Uh, and
• 21:16
  Speaker 1: they are most likely they're gonna come off the top
• 21:18
  Speaker 1: rope and continue the preaching from the same hymno about
• 21:22
  Speaker 1: higher rates. So how high are they going to go?
• 21:24
  Speaker 1: I mean four point six percent at one point Pal
• 21:26
  Speaker 1: in the last press conference alluded to. But he also
• 21:29
  Speaker 1: you know, mentioned five they could be headed at that
• 21:32
  Speaker 1: far and he just said they want to get real
• 21:34
  Speaker 1: rates up. Um, you know, two levels that would shock
• 21:40
  Speaker 1: the economy. Um, how far do you think they're going
• 21:43
  Speaker 1: to go? I personally think they have one more in them,
• 21:45
  Speaker 1: and then I think they're gonna shock the economy, and
• 21:47
  Speaker 1: I think we're gonna be going into a recession and
• 21:49
  Speaker 1: they're gonna have to pause. But they don't seem to care.
• 21:51
  Speaker 1: And you know, and it is troubling, to be perfectly
• 21:53
  Speaker 1: honest with you, because I'm not really sure where it
• 21:56
  Speaker 1: says in the f O m C mandate. Uh, we're
• 21:58
  Speaker 1: allowed to take out the paddle and old the economy,
• 22:01
  Speaker 1: uh and punish people just they have to keep procession
• 22:04
  Speaker 1: inflation down. So well, you know, the inflation is coming down.
• 22:07
  Speaker 1: I mean, other than we saw the data this morning,
• 22:09
  Speaker 1: But in general, the anecdotal evidence we're seeing from data
• 22:12
  Speaker 1: is that inflation is coming down, just not coming down
• 22:14
  Speaker 1: fast enough for the FED. And the question is, you know,
• 22:17
  Speaker 1: is it is it legitimate that the FED should be
• 22:20
  Speaker 1: impatient and try and get it back to where they'd
• 22:23
  Speaker 1: like to see it in a very, very short They
• 22:25
  Speaker 1: don't want to make an Arthur Burn's mistake, right. I
• 22:27
  Speaker 1: think they already have. Um, they made it in the
• 22:30
  Speaker 1: middle of the pandemic by saying it was transitory. I mean,
• 22:34
  Speaker 1: that was the reverse Arthur Burns mistake. And I think
• 22:36
  Speaker 1: now it's almost more of an ego game where they're
• 22:38
  Speaker 1: so afraid of losing credibility that that that's what's really
• 22:41
  Speaker 1: driving them, not the economy. But they can't. I mean,
• 22:44
  Speaker 1: what what reason does Jerome Powell have to turn around?
• 22:47
  Speaker 1: He's he's got like a hundred fifty million dollars, right,
• 22:50
  Speaker 1: so he's doing well on his own. Um, he doesn't care.
• 22:53
  Speaker 1: He's been confirmed for this term. Um Uh. I just
• 22:57
  Speaker 1: can't imagine anything that would convince him. You, Elizabeth Warren
• 23:00
  Speaker 1: can tweet all day long and he's going to continue
• 23:04
  Speaker 1: on this path. Yeah, they don't. They don't care what Jesus. Actually,
• 23:08
  Speaker 1: most of the street doesn't really carry you. So when
• 23:11
  Speaker 1: you go out and and I'm assuming you're in a city,
• 23:13
  Speaker 1: so you're gonna probably meet a couple of your trader
• 23:15
  Speaker 1: buddies and have a beverage of your choice. As Tom
• 23:17
  Speaker 1: would say, what do you think you hear from the
• 23:20
  Speaker 1: trader's day to day or we're in this market? Are
• 23:22
  Speaker 1: they just kind of staying on the sidelines, trading around
• 23:25
  Speaker 1: the edges? I mean, I can't imagine trying to catch
• 23:27
  Speaker 1: a falling knife here. Yeah, no, they're they're trading around
• 23:29
  Speaker 1: the edges. It's a little bit of stick and move
• 23:31
  Speaker 1: kind of thing. You know, they'll step in briefly, um,
• 23:34
  Speaker 1: look for look for a quick profit. Perhaps if lucky,
• 23:37
  Speaker 1: um quick quick stops. If if they're unlucky, and and
• 23:40
  Speaker 1: they're just getting in and out, um, you know they
• 23:43
  Speaker 1: do keep asking The general question is when is it, like,
• 23:47
  Speaker 1: when do we feel comfortable stepping in for a more
• 23:50
  Speaker 1: longer term play And that's just not there yet. That's
• 23:53
  Speaker 1: a lot of folks will say, Like as it relates
• 23:55
  Speaker 1: to the VIX, for example, in the VIX today is
• 23:58
  Speaker 1: up about eight percent to just uh, just about thirty three.
• 24:01
  Speaker 1: You need to see a VIX up around forties. That
• 24:03
  Speaker 1: something that that you think about when you when you're
• 24:06
  Speaker 1: trying to identify are we add or near close to
• 24:09
  Speaker 1: a bottom or pass the bottom? Fix? Really isn't something
• 24:11
  Speaker 1: I paid that close attention to. To be honest, I've
• 24:13
  Speaker 1: never really had UM. I think that the key thing
• 24:17
  Speaker 1: to pay attention to, you know that it is really
• 24:20
  Speaker 1: going to be the data. And I think the data
• 24:21
  Speaker 1: is starting to show inflation coming down. We need to
• 24:24
  Speaker 1: see it's coming down far more aggressively UH to get
• 24:27
  Speaker 1: Powell off the gas pedal, but I think it will
• 24:31
  Speaker 1: and certainly recession will do the trick. What do you
• 24:33
  Speaker 1: watch for in terms of UH volatility measures? I have
• 24:38
  Speaker 1: to move up on my screen. It's you know, off
• 24:40
  Speaker 1: the chart at this point. In terms of capitulation signs,
• 24:46
  Speaker 1: what what do you watch? I mean, I think we're
• 24:48
  Speaker 1: just seeing it across the board. You know you mentioned
• 24:49
  Speaker 1: but UK gilst did yesterday and that was just a
• 24:52
  Speaker 1: pure short covering, nasty move and we saw it with
• 24:56
  Speaker 1: equities following through yesterday. A lot of a lot of
• 24:59
  Speaker 1: what we're seeing is driven by a smaller positions and
• 25:02
  Speaker 1: that's what's causing the higher volatility. People not sticking and
• 25:06
  Speaker 1: that they're not staying with what they have, They're they're
• 25:08
  Speaker 1: getting chased out easily, and a lot of that chase
• 25:11
  Speaker 1: is machine driven. I mean, the the algos are really
• 25:13
  Speaker 1: running the game at this point because the moves are
• 25:16
  Speaker 1: so fierce. I mean, people have been saying the Algoes
• 25:18
  Speaker 1: are running the game since I've been in this job,
• 25:20
  Speaker 1: and that's really true. I mean, it's it's totally true.
• 25:22
  Speaker 1: It's one of the things I think the s sc
• 25:24
  Speaker 1: SEC is blown in a major way by taking humans
• 25:28
  Speaker 1: out of the picture and making it, you know, completely
• 25:32
  Speaker 1: a machines driven and it feels like they're all they're
• 25:35
  Speaker 1: all written by the same programmer. Actually, it's it's kind
• 25:37
  Speaker 1: of odd. Do we get parody on the pound? I
• 25:41
  Speaker 1: feel like it's in the cards. Um we're not seeing
• 25:44
  Speaker 1: the fiscal policy being altered in any way by the
• 25:47
  Speaker 1: Prime Minister. It runs at odds to monetary policy. Those
• 25:52
  Speaker 1: things usually uh and badly for our currency. I think
• 25:56
  Speaker 1: we're seeing, you know, again, a bit of a relief rally.
• 25:58
  Speaker 1: It's been sold off so aggressively, more short covering today
• 26:01
  Speaker 1: back on a one ten handle. But um as my
• 26:05
  Speaker 1: trader friend buddies would have say, better levels to sell, right,
• 26:08
  Speaker 1: all right, good stuff. Hey, Matt, I have to note
• 26:10
  Speaker 1: that we got Vincent's studio, but I have to note
• 26:12
  Speaker 1: he has not taken off his coat. I don't think
• 26:14
  Speaker 1: he plans on didn't take it off on TV either. Okay,
• 26:17
  Speaker 1: so sometimes I don't take off my jacket. You know,
• 26:19
  Speaker 1: it's can be a little chilly. Just I just take
• 26:22
  Speaker 1: away like he's got one eye on the door already. Yeah,
• 26:24
  Speaker 1: so that's kind of was my take away. Great to
• 26:27
  Speaker 1: see my friend. Thanks for coming and give us sharing
• 26:29
  Speaker 1: some of your thoughts here on these marks another rough
• 26:32
  Speaker 1: day out there for the trader types as well. Jay
• 26:37
  Speaker 1: Bryson joins us well as Fargo chief economists. Jay, thanks
• 26:40
  Speaker 1: so much for joining us here. I love to just
• 26:42
  Speaker 1: start off by saying, or just asking if this economy
• 26:47
  Speaker 1: is either in a recession or goes into a recession
• 26:51
  Speaker 1: in a in a time when we've got high inflation.
• 26:53
  Speaker 1: It seems like, you know, some of the some groups
• 26:56
  Speaker 1: are gonna be that can't really afford to be hit
• 26:58
  Speaker 1: by this, are gonna be hit the heart. How do
• 27:00
  Speaker 1: you think about that? Well, that's that's true. I mean
• 27:04
  Speaker 1: when you go into into recession. I mean, obviously the
• 27:06
  Speaker 1: unemployment rate rises, and you know people who um are
• 27:11
  Speaker 1: are are working and who are particularly in particularly simply
• 27:15
  Speaker 1: called sensitive sort of industries that you see a lot,
• 27:18
  Speaker 1: that's where the layoffs tend to occur, and so um,
• 27:22
  Speaker 1: you know people who are working in those industries, and
• 27:24
  Speaker 1: I would account Hispanics among that group could be hit
• 27:28
  Speaker 1: harder than other people. I was, I have a canned
• 27:32
  Speaker 1: question I've been asking this week. A viewers sent it
• 27:34
  Speaker 1: to me and I thought a listeners send it to me,
• 27:36
  Speaker 1: and I thought it was good enough to save, so
• 27:38
  Speaker 1: I'll pitch it to you as well. He says, I'm
• 27:39
  Speaker 1: curious to know last year's inflation is transitory, seems to
• 27:44
  Speaker 1: be this year's short and shallow recession. What changes the
• 27:47
  Speaker 1: short and shallow to uh, you know, longer and deeper. Well, so,
• 27:53
  Speaker 1: first of all, I guess it would be if inflation
• 27:55
  Speaker 1: doesn't come down as much. And so you know, right
• 27:58
  Speaker 1: now the market is priced for terminal said funds rate
• 28:01
  Speaker 1: of roughly four and a half percent. If inflation doesn't
• 28:04
  Speaker 1: come down, maybe it's six percent. And the more the
• 28:07
  Speaker 1: higher rates go, the more things are going to start
• 28:09
  Speaker 1: to break, and the other thing would just be some
• 28:13
  Speaker 1: hidden vulnerabilities that we don't really know about. I mean,
• 28:17
  Speaker 1: looking for example, look what's happened in the UK this
• 28:19
  Speaker 1: week and right now that's causing a fair amount of
• 28:23
  Speaker 1: dislocations in the treasury market here. Um, maybe there's more
• 28:29
  Speaker 1: things like the UK out there that we're not thinking
• 28:32
  Speaker 1: about right now that are deep beneath the surface. But
• 28:35
  Speaker 1: if those things start to break, then potentially, you know,
• 28:38
  Speaker 1: you could have a bunch of financial unwinding occurring other
• 28:43
  Speaker 1: places around the world. It could be could lead the
• 28:45
  Speaker 1: continent around the world. What do you worry about right now?
• 28:48
  Speaker 1: I mean, I saw, um, the CarMax earnings come out
• 28:51
  Speaker 1: earlier and the shares are down, But really across the
• 28:56
  Speaker 1: across the industry, those companies that are public, like Carbona
• 28:59
  Speaker 1: or On Automotive, they're all trading down big time, General
• 29:02
  Speaker 1: Motors and Ford as well, because the concern is consumer
• 29:06
  Speaker 1: sentiment is weakening and rates are rising hitting demand right
• 29:12
  Speaker 1: as those car makers and manufacturers are finally getting supply
• 29:16
  Speaker 1: back up to speed. Yeah, I mean, so you know,
• 29:18
  Speaker 1: in general kind of goes back to what I was
• 29:20
  Speaker 1: talking about before in terms of cyclically sensitive interest rate
• 29:23
  Speaker 1: sensitive sort of industries. You mentioned the car industry, you know,
• 29:27
  Speaker 1: that's obviously interest rate sensitive. Another industry that's really interest
• 29:31
  Speaker 1: rate sensitive is housing. I mean, we're already seeing housing
• 29:35
  Speaker 1: weakening significantly. You know, you mentioned earlier that the yield
• 29:39
  Speaker 1: on the on the the you know, for the third
• 29:41
  Speaker 1: year sixth or eight mortgages up to six and three
• 29:44
  Speaker 1: quarters per cent. We haven't seen that in decades, um,
• 29:47
  Speaker 1: and so you could see, you know, you could really
• 29:49
  Speaker 1: start to see the housing work is starting to weaken
• 29:50
  Speaker 1: here as well. So, J I know you and your
• 29:53
  Speaker 1: team are out with this report about you know, the
• 29:55
  Speaker 1: potential impact on Hispanic workers here in a potential recession.
• 29:59
  Speaker 1: Where are we just it just feels like for the
• 30:01
  Speaker 1: broader economy, we're at our near full employment here. Give
• 30:05
  Speaker 1: us the picture in the Hispanic community and maybe how
• 30:09
  Speaker 1: that might play out if we do, in fact, you know,
• 30:11
  Speaker 1: have a material recession. Yeah. So you know, I've said
• 30:16
  Speaker 1: a few times now already about cyclically sensitive sort of industries.
• 30:21
  Speaker 1: And when you look at where Hispanics are, I'll call
• 30:24
  Speaker 1: them overrepresented, um. And so keep in mind a Hispanics
• 30:28
  Speaker 1: account for a roughly ent or so of the workforce. Okay,
• 30:33
  Speaker 1: if you look at construction, Hispanics account for a third there.
• 30:37
  Speaker 1: Construction cyclically sensitive. If you look at transportation and warehousing, um,
• 30:44
  Speaker 1: you know again Hispanics account for more than of the
• 30:48
  Speaker 1: workforce there. Non durable manufacturing account for more than These
• 30:53
  Speaker 1: are all cyclically sensitive sort of industries. And so if
• 30:56
  Speaker 1: the economy were go into recession or if we see,
• 30:59
  Speaker 1: you know, a long period of weak economic growth, that's
• 31:03
  Speaker 1: where you're probably gonna get some more layoffs in those
• 31:06
  Speaker 1: sorts of industries. And I would expect to see the
• 31:08
  Speaker 1: unemployment rate among Hispanics, which is kind of close to
• 31:12
  Speaker 1: the overall national rate right now, I would expect to
• 31:15
  Speaker 1: see that rise more. And we definitely have seen that
• 31:18
  Speaker 1: in the last three cycles, where the Hispanic rate tends
• 31:22
  Speaker 1: to go up more during the recession than what it
• 31:24
  Speaker 1: does for the overall population. All right, j let's talk hoops.
• 31:29
  Speaker 1: Is North Carolina even gonna be able to field a
• 31:31
  Speaker 1: basketball team this year? Are you kidding me? Carolina? You
• 31:35
  Speaker 1: know they have all these guys coming back, who are
• 31:38
  Speaker 1: you know, seniors? You know the team that beat Duke
• 31:41
  Speaker 1: last year in the final in the final four, they're
• 31:44
  Speaker 1: all they're all back, And who does Douke have. I
• 31:47
  Speaker 1: mean they have a bunch of freshmen who have never
• 31:48
  Speaker 1: played together. So we have and we have a new
• 31:51
  Speaker 1: coach though, So that you have a new coach, you
• 31:53
  Speaker 1: can allow your players to drive stolen cars where Oh yes,
• 31:58
  Speaker 1: that's a d u I right, there's a little d
• 32:00
  Speaker 1: o I issue for my for my dukeys. All right, Jake,
• 32:02
  Speaker 1: thanks so much for joining us. Jay Brice and he's
• 32:04
  Speaker 1: the chief economist for Wells Fargo and he is all
• 32:07
  Speaker 1: in U n C. He's got the undergrad and economics
• 32:10
  Speaker 1: from UNC. Dr philosophy economics from the University of North Carolina.
• 32:14
  Speaker 1: He lectures there. He's on the economic board. He is
• 32:17
  Speaker 1: all in tar heels. I'm sure he bleeds tar Heel blue.
• 32:20
  Speaker 1: And if God's not Atario, why is the sky Carolina blue?
• 32:23
  Speaker 1: See that's kind of I learned in my two years
• 32:25
  Speaker 1: of Duke. Thanks for listening to the Bloomberg Markets podcast.
• 32:29
  Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
• 32:32
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
• 32:36
  Speaker 1: on Twitter at Matt Miller V three pen on ball
• 32:40
  Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast.
• 32:43
  Speaker 1: You can always catch us worldwide at Bloomberg Radio