Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Sweene. You,
Speaker 1: along with my co host Lisa Brahma wits each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Right now, looking at the equity
Speaker 1: market here smph up slightly, dow up about sixty points. Uh.
Speaker 1: Not much movement in here after this job's report, but
Speaker 1: let's see where the action might be. We've welcome our
Speaker 1: good friend Vince Signarella. Vince is the global market macro
Speaker 1: strategist for Bloomberg. Vince, thanks so much for joining us
Speaker 1: here in a Bloomberg in act the broker studio. What
Speaker 1: did you take out of the jobs data this morning?
Speaker 1: We'll tell you. Larry's right and he's stealing my thunder
Speaker 1: the rat. I wrote about this about seven years ago
Speaker 1: when I was with Wall Street Journal. August is a
Speaker 1: seasonally adjusted month um It often is revised higher. Last year,
Speaker 1: in two thousand eighteen, the number was a blowout like
Speaker 1: two eighties something, and then September was revised lower. So
Speaker 1: you kind of look at the August jobs data and
Speaker 1: you treat it like figure skating. You throw out the
Speaker 1: high and the low, and you get somewhere of an
Speaker 1: average over the summer. Let's just get your big picture
Speaker 1: takeaway from the jobs report. When I looked at it,
Speaker 1: my impulse was, this is a choose your own adventure
Speaker 1: jobs report. There's good, there's bad, pick the narrative you
Speaker 1: want go with it. The Fed certainly will the cut
Speaker 1: rates come September eight. The question is what they're going
Speaker 1: to do with it going forward, probably going to be,
Speaker 1: you know, watching the data, as they've been saying for
Speaker 1: a long time. Does this maturely shift markets in any
Speaker 1: way over the next few weeks Ahead of that f
Speaker 1: o MC getting its shut And I mean, I think
Speaker 1: you were exactly correct. If you look at the private
Speaker 1: payrolls numbers, they were disappointing. So if you if you
Speaker 1: wanted to look at a week job's report, you could
Speaker 1: look at that. You could look at the wage growth,
Speaker 1: which was substantially higher than estimates, and that would give
Speaker 1: you the positive narrative to the story. So there's it's
Speaker 1: definitely a mixed job report. And as I said, August
Speaker 1: is a month I kind of throw out, and I
Speaker 1: think the FED and everybody else in the long run
Speaker 1: will do the same. I think you also correct about September. Um.
Speaker 1: My take for the FED for September is that they
Speaker 1: will do They'll utter the draggy narrative, we don't want
Speaker 1: to stand in the way of economic growth. This will
Speaker 1: be an additional insurance cut, perhaps to keep things smoothing along.
Speaker 1: They've They've shown us they could turn on a dime
Speaker 1: if they need to have data changes, so there's no harm,
Speaker 1: no foul by cutting basis points. And I wonder what
Speaker 1: their messaging will be tho Vince. You know, I think
Speaker 1: the you know, an insurance cut. I don't think it's
Speaker 1: something that the market wants to hear. The market wants
Speaker 1: to hear that we're into an easing cycle. Do you
Speaker 1: think the FED will go that far? I doubt it.
Speaker 1: I don't think they'll change the narrative from the last
Speaker 1: statement that drastically, because the economy and the data don't
Speaker 1: call for an easy cycle right now. They call for
Speaker 1: the potential that they may have, you know, and you
Speaker 1: won't hear this realistically from the Fed, either that they've
Speaker 1: hiked a little bit too aggressively. If you if you
Speaker 1: look at the natural rate of interest, which Williams has
Speaker 1: put out a paper on the Feds Williams a couple
Speaker 1: of years ago, the natural rate of interest right now
Speaker 1: is some forty basis points below the FED funds. Right
Speaker 1: you can easily see a fifty basis points cut in
Speaker 1: the Fed fund rate just to bring us back to
Speaker 1: sort of neutral ground. And they have the room to do,
Speaker 1: all right. So before we dig too much into the
Speaker 1: Job's report, we're gonna be getting more on that coming
Speaker 1: up in the show. But I want to dig into
Speaker 1: the China news overnight. Uh, the fact that they are
Speaker 1: in fact engaging in more stimulus. And you said out
Speaker 1: a note this morning that I thought was really important,
Speaker 1: which is China wouldn't be engaging in additional rounds of
Speaker 1: stimulus if they thought that we were anywhere close to
Speaker 1: a trade deal. Yeah, and I think that that is
Speaker 1: definitely the case. But I will the caveat to that, honestly,
Speaker 1: is my sources from China last tw weeks have gone dark,
Speaker 1: uh no news. So that sort of coincides with that
Speaker 1: if you will, that I'm not hearing anything, which means
Speaker 1: there really isn't any positive news that I can take from,
Speaker 1: which which then raises a question, right, can additional Chinese
Speaker 1: stimulus offset what we have seen in terms of a slowdown,
Speaker 1: and that could actually ameliorate markets or calm them even
Speaker 1: with how a trade A greatment, not not really a
Speaker 1: China stimulus is for their own domestic economy. It's to
Speaker 1: support their businesses. The hope is that the reserve requirement
Speaker 1: cut will add liquidity, which Chinese banks will then lend
Speaker 1: to businesses. And it's a it's a tax season coming
Speaker 1: up at the end of September, so if business demand
Speaker 1: requires capital. China wants to keep the domestic engine going
Speaker 1: because they know the international engine is not there with
Speaker 1: the tariffs, so they need to prop up the domestic
Speaker 1: economy and I think that reserve re cirement cut is
Speaker 1: to do that and that alone, and that to me
Speaker 1: sends a signal that they're not anticipating the international economy
Speaker 1: to lift them anytime soon. Let's bring a good friend,
Speaker 1: Carl Ricka Donna Bloomberg Economics chief US economist. So Carl, welcome,
Speaker 1: You're in our Bloomberg Interreactor Broker Studio. We'll love having
Speaker 1: you here. I want to get your thoughts on the
Speaker 1: job's number again, as we've kind of discussed, you're kind
Speaker 1: of a goldilocks type of report. What was your take.
Speaker 1: I'm gonna go on the side of whichever bear said
Speaker 1: things were a little bit that too cold, So I'm
Speaker 1: not gonna say goldilock scept for this report, although I
Speaker 1: know some analysts are saying that, uh. And certainly if
Speaker 1: we look at the reaction in the treasury market, it
Speaker 1: also seems to have that sentiment that things were a
Speaker 1: little on the chili side here. So what's impressive is
Speaker 1: that the economy is holding up as well as it is.
Speaker 1: So even the manufacturing sector, which is really front and
Speaker 1: center in this trade skirmish and economic uncertainty and strong dollar,
Speaker 1: still managed to eke out positive job games. Now, mind you,
Speaker 1: the I s M earlier this week fell into minor
Speaker 1: contractionary territory. I think it's going to stay there for
Speaker 1: a couple more months. So the economy is weathering the storm,
Speaker 1: but it certainly is not immune to what's happening. And
Speaker 1: we can see that in this slowing pace of job creation.
Speaker 1: So while that headline number one thirty, uh, not very impressive,
Speaker 1: we have to factor out twenty five thousand census workers
Speaker 1: that were hired for is to get an even better
Speaker 1: sense of underlying momentum in the economy. But when we
Speaker 1: do that and instead look at private sector hiring nine thousand,
Speaker 1: that that goldilocks Paul. But I want to push back
Speaker 1: because honestly, you did see better than expected wage growth,
Speaker 1: which indicates that perhaps the labor market is tight and
Speaker 1: that we're not adding as many jobs since simply because
Speaker 1: there aren't that many people looking for work. Sure we
Speaker 1: should be getting some wage pressure as the unemployment rate
Speaker 1: is plunging below four percent. I think the unemployment rate
Speaker 1: could actually hit three point four percent or three point
Speaker 1: five percent by the end of this year. So things
Speaker 1: absolutely are tightening. But remember one thing, Lisa, inflation is
Speaker 1: a lagging economic indicator, and wage inflation is also a
Speaker 1: lagging economic indicator. So what's more important is the activity
Speaker 1: based metrics, things like the pace of hiring, in the
Speaker 1: hours worked, and the aggregate income growth, and those were
Speaker 1: on cooler trajectories in this report. How do you think
Speaker 1: the FED should interpret this data? Well, the Fed has
Speaker 1: to look at this data and say, yes, the economy
Speaker 1: is losing some momentum. We're not at recession risk territory here,
Speaker 1: but we're definitely looking at sub two percent growth in
Speaker 1: the back half of the year. In that environment, the
Speaker 1: Feds should be trying to take some of the steam
Speaker 1: out of the trade weighted dollar, which is at record
Speaker 1: high levels. Uh and therefore they should be cutting twenty
Speaker 1: in September, October, December. In December, they should look at
Speaker 1: their Bloomberg screens. If the yield curve is still inverted,
Speaker 1: then keep those twenty five basis point cuts coming right
Speaker 1: into the new year. Vince, is that what the market
Speaker 1: is looking for? Just cut to zero basically on a
Speaker 1: monthly trajectory. I didn't say zero, but the ten year
Speaker 1: treasury yields at zero, they be They Fed better go
Speaker 1: to zero as well. I think the market would like
Speaker 1: them to do that. I personally would like to see
Speaker 1: them get the ioe R closer to where the tenure is,
Speaker 1: to keep that yield curve a little flatter and not
Speaker 1: so inverted. Um. It makes absolutely no sense to have
Speaker 1: FED funds right seventy five basis points above the tenure yield.
Speaker 1: So the market is definitely asking exactly what Carl said,
Speaker 1: give me that seventy five basis points. Give it to
Speaker 1: me in a little bit out of time. We can't
Speaker 1: really handle it all at once because that'll scare the
Speaker 1: heck out of us. Um whether or not they'll get that,
Speaker 1: that's a good question. I think they'll be a little
Speaker 1: bit more reluctant to go that quickly. All right, Well,
Speaker 1: we'll continue the conversation. Car Down and Bloomberg Economics Chief
Speaker 1: US Economist, Thank you so much. Vince Ignarella, global macro
Speaker 1: strategist for Bloomberg, both of you in our Bloomberg Interactive
Speaker 1: Progra Studios. Thank you so much for being with us. Well,
Speaker 1: it is Jobs Friday, and I think the mixed report
Speaker 1: that we got from the Department would suggest that the
Speaker 1: Fed probably has a little bit more ammunition should they
Speaker 1: decide to cut rates at their next meeting. They get
Speaker 1: a sense of kind of how this may play out.
Speaker 1: We welcome our next guest, Chris Louse. He's a senior
Speaker 1: fellow at the University of Virginia Miller Center. He was
Speaker 1: former Deputy Secretary of Labor under President Obama. He joins
Speaker 1: US from Virginia on the phone, Chris, thanks so much
Speaker 1: for joining us. What was your take of the jobs
Speaker 1: numbers that we saw this morning. You know, it's basically
Speaker 1: what you'd expect in UH, an economy that clearly is
Speaker 1: slowing down. How much is the unclear issue at this point.
Speaker 1: And when you combine this with the consumer confidence numbers
Speaker 1: from last week, the manufacturing numbers from earlier this week,
Speaker 1: this is about what you'd expect. And you when you
Speaker 1: look at the trend not only but particularly compared to
Speaker 1: twenty eighteen, UH, this is a slowing economy and so
Speaker 1: it will leave policymakers not only in Washington in Congress,
Speaker 1: but also in the said trying to figure out, you know,
Speaker 1: what the next step is. So the headline number missed,
Speaker 1: but the wage increase beat. And I think this is
Speaker 1: actually really important because a lot of people have said
Speaker 1: it's been interesting, UH that the headline numbers of job
Speaker 1: creations have been as high as they have, given where
Speaker 1: we are in the credit cycle and the economic cycle,
Speaker 1: and given how many jobs have already come back to
Speaker 1: the market. You know, I'm wondering whether the lower than
Speaker 1: expected number paired with better than expected wage it indicates
Speaker 1: a tight labor market, getting that sort of sweet spotmentum
Speaker 1: that people have been waiting for. Right. You know, the
Speaker 1: wage growth I think with three which is pretty good,
Speaker 1: but again, given the fact that we've been at below
Speaker 1: four percent unemployment for you know, most of this year,
Speaker 1: if not longer than that, you would expect higher wage
Speaker 1: growth in that And I think what confounds us is
Speaker 1: why that hasn't happened, and it may simply reflect a
Speaker 1: changing economy at this point, is that a lot of
Speaker 1: these low wage shops are going to stay low wage jobs,
Speaker 1: in particular with a federal minimum wage that hasn't gone
Speaker 1: up in ten years, and that the economically, the economy
Speaker 1: is just fundamentally different than what we have seen during
Speaker 1: previous economic expansions. It's interesting, Chris, I was just commenting
Speaker 1: recently that you know, you walk down Main Street, USA anywhere,
Speaker 1: and it's almost every single store, every establishment has a
Speaker 1: help wanted sign out there. Um. It just again it
Speaker 1: kind of goes to that wage story. What do you think,
Speaker 1: given where we are in terms of three points seven
Speaker 1: percent unemployment, would you expect to see wages even higher
Speaker 1: in terms of growth than here. Well, I would normally
Speaker 1: expect to see that given everything we've always learned about markets.
Speaker 1: And the other thing that's sort of interesting is that
Speaker 1: labor force participation, while it picked up a little bit
Speaker 1: UH this month, UM, it's essentially kind of been in
Speaker 1: the same band over the last four or five years.
Speaker 1: And so people really are not coming off the sidelines
Speaker 1: right now to get jobs. And in part it's because
Speaker 1: the demographics of this country have changed. People are retiring earlier, UM,
Speaker 1: people are staying in school longer, UM. But a lot
Speaker 1: of the traditional ideas of what it means when you
Speaker 1: have low unemployment, higher wages people coming off the sidelines
Speaker 1: just haven't happened so far. Chris, I want to shift
Speaker 1: gears a little bit because it seems like the job's
Speaker 1: report didn't necessarily shift market expectations that much. And and
Speaker 1: speak to a Bill Dudley column of Federal Reserve, former
Speaker 1: New York Fed President for Bloomberg Opinion where he was
Speaker 1: talking about how right now, given where we are in
Speaker 1: the economy, the Fed shouldn't really be cutting rates all
Speaker 1: that much because it could potentially incentivize President Trump to
Speaker 1: ramp up his trade war and basically hurt the economy
Speaker 1: more in the long run, And I'm wondering whether you'd
Speaker 1: weigh in on that, especially because the Chief Economic Council Director,
Speaker 1: Larry Cudlow is just uh sort of railing against it
Speaker 1: on Bloomberg Television moments ago. So what's your what's your take? Well,
Speaker 1: I think, look, I mean, the what the President has
Speaker 1: been able to do over the last couple of years
Speaker 1: is he knows that the US economy is strong, and
Speaker 1: that it's a it's certainly the strongest of any country
Speaker 1: in the world that's resilient at this point. It's given
Speaker 1: him a fair amount of latitude in waging this trade war,
Speaker 1: not with just with China, but with Europe and our
Speaker 1: friends in North America. It may turn out that he
Speaker 1: has much a much shorter leash now in doing that,
Speaker 1: and it may cause them to rethink this kind of
Speaker 1: uh score short strategy that they're doing and maybe try
Speaker 1: to cut a deal sooner rather than later. Be is
Speaker 1: whether it's will interest rates or frankly, whether it's the
Speaker 1: trillion dollar budget deficits that we're running right now. There's
Speaker 1: not a lot of you know, the traditional levels that
Speaker 1: we would use if this economy really starts to go
Speaker 1: south this point and so um, I you know, I'm
Speaker 1: not sure I can comment one way or another and
Speaker 1: on Bill Dudley's column, other than to say that, Um,
Speaker 1: if the President thinks the economy can withstand these headwinds, um,
Speaker 1: he may be mistaken. Let's sort of shift the question
Speaker 1: on its head, then, which is if the Federals were
Speaker 1: too cut rates to zero, would that materially improve the
Speaker 1: labor market at this point in the economic cycle. Look,
Speaker 1: it certainly would help a little bit. I think the
Speaker 1: challenge we also have to recognize is that we are now,
Speaker 1: you know, nine plus years into this economic expansion. When
Speaker 1: you look historically, Um, that's a long period of time.
Speaker 1: And it's not just what's happening here in the United States,
Speaker 1: but it's a slowing Chinese economy, it's Germany possibly going
Speaker 1: into recession. It's the uncertainty around Brexit. So the U
Speaker 1: s can certainly do a and the FITS can do
Speaker 1: a lot um, But in this global economy, you know,
Speaker 1: if other countries start to move south, it's hard for
Speaker 1: the US to resist that as well. So Chris, do
Speaker 1: you and your kind of outlook, are you discounting a
Speaker 1: recession in the next six to twelve months? Or do
Speaker 1: you think that the consumer can continue to support growing
Speaker 1: US economy. Well, and that's really what has propped up, UM,
Speaker 1: the US economy. I mean, we've seen business investment not
Speaker 1: certainly be what we expected after the tax got in,
Speaker 1: with the consumer confidence numbers from last Friday suggesting that
Speaker 1: people might be pulling back on their own spending. Um. Look,
Speaker 1: I don't think we're heading into recession before the next election,
Speaker 1: but I certainly think you'll see economic growth that's well
Speaker 1: below two percent. And I think, um, the President will
Speaker 1: be running for re election essentially in a similar economic
Speaker 1: time that he criticized Barack Obama for when he ran
Speaker 1: for office in twenty sixteen, So I think that will Um,
Speaker 1: I don't think we're heading into recession, but I think
Speaker 1: for the President's purposes that challenges his re election bid.
Speaker 1: Is consumer spending a leading or lagging indicator from your
Speaker 1: bantage point? You know, that's actually an interesting question. I mean,
Speaker 1: you know, UM, you've what you see now is consumer
Speaker 1: debt at levels we haven't seen since, um, since before
Speaker 1: the recession. So I think sometimes consumers are it's a
Speaker 1: little bit lagging. They're they're kind of spending money, they're
Speaker 1: taking out loans until they realize, wow, you know, maybe
Speaker 1: the plant place I'm working at is not expanding as fast,
Speaker 1: or you know, I was expecting in this pay raise,
Speaker 1: so I'll say it's probably lagging. Um. But you know
Speaker 1: what I'm also troubled by is the fact that, again,
Speaker 1: as they said, not only consumer debt, but you see
Speaker 1: these statistics about Americans not being able to come up
Speaker 1: with four hundred dollars for an emergency expense, and what
Speaker 1: you realize is that even a period of low unemployment,
Speaker 1: a lot of people really are living paycheck to paycheck,
Speaker 1: and it wouldn't take much of a downturn in the
Speaker 1: economy to affect millions of people. Chris Lou thank you
Speaker 1: so much, as always for spending time with us. Your
Speaker 1: insights are very welcome. Chris slew is former Deputy Secretary
Speaker 1: of Labor and senior Fellow at the University of Virginia
Speaker 1: Miller Center. He worked under former President Obama. It took
Speaker 1: a couple of hours, but bond investors have taken a
Speaker 1: look at the job's data and said, no, not so great.
Speaker 1: The economy ain't so hard. We're gonna keep buying right now,
Speaker 1: Let's get a view from one such bond investor, Tad Ravel,
Speaker 1: chief investment officer for fixed income at TCW, joining US
Speaker 1: from Los Angeles. Tad thank you so much for spending
Speaker 1: the time. First, I'd love to get your read on
Speaker 1: the jobs report. Does that sort of confirm your bullish
Speaker 1: stance currently on duration on US treasuries? I thought it
Speaker 1: was a week report. Actually, I think that um when
Speaker 1: you look at the year over year change in the
Speaker 1: actual non farm payroll numbers a number of people at work,
Speaker 1: it's at the lowest growth rate since I think maybe
Speaker 1: two thousand and eleven. It was rising something like one
Speaker 1: point three on a year over year basis very disappointing.
Speaker 1: It's possible, of course, that it could get revised, but
Speaker 1: notwithstanding that, I think it's actually pretty clear that the
Speaker 1: jobs market has slowed down quite a bit. The uh
Speaker 1: the rise in hourly earnings is superficially a could be
Speaker 1: viewed as a as a positive sign, but in point
Speaker 1: of fact, when companies start to pull back on their
Speaker 1: hiring or start to let people go, it's oftentimes felt
Speaker 1: by the lower wage cohort of those companies first, and
Speaker 1: so consequently, when you look at numbers like the hourly
Speaker 1: wages and even the average work week, those are not
Speaker 1: necessarily indicative of actually the underlying health of the of
Speaker 1: the labor market. But this shouldn't be surprising to anybody.
Speaker 1: In our view, we do view ourselves in a pretty
Speaker 1: late cycle type of type of environment. And um, well,
Speaker 1: employment is something of a lagging indicator. It's the slee
Speaker 1: uh follows on the heels of very weak manufacturing data.
Speaker 1: And we have a manufacturing sector that both the US
Speaker 1: and globally is either in recession or on the verge
Speaker 1: of it. So it's it was a weak number, and um,
Speaker 1: not a big surprise, I think. So, Ted, how do
Speaker 1: you expect our friends at the Federal Reserve to interpret
Speaker 1: this data? Oh? I don't actually think that they I
Speaker 1: don't actually think that we should take their their rhetoric
Speaker 1: at at face value. I don't really believe that they're
Speaker 1: that they're data driven or when they say things like
Speaker 1: they are data driven, as they have maintained for a
Speaker 1: long period of time, they never say exactly what kind
Speaker 1: of data that they're looking at. They're gonna ease. Um,
Speaker 1: they've committed to that course of action. We're going to
Speaker 1: get another twenty five fifty basis points of rate reduction.
Speaker 1: I think that that's all baked into the cake. But
Speaker 1: there is a there's almost an absurd disconnect, I think,
Speaker 1: between the both the rhetoric and the actions of the
Speaker 1: Federal Reserve on the one hand, and um the the
Speaker 1: longer term understanding of what monetary policy is supposed to
Speaker 1: be about, and for the idea that the central bank
Speaker 1: is supposed to be independent taking a long term view
Speaker 1: of the UH prosperity of the country as opposed to
Speaker 1: responding to near term blips in the employment data or
Speaker 1: whatever it is that they want to latch onto. But
Speaker 1: the bias from the FED and from central banks around
Speaker 1: the world, complete ridiculous nonsense of how do you really feel?
Speaker 1: Since you ask, well, so look, look, I guess that
Speaker 1: you know. We we can debate what the Fed is
Speaker 1: going to do and how much they should cut, etcetera, um,
Speaker 1: for for for days, and we will. But I'm curious
Speaker 1: how much it matters. I mean, right now, it's not
Speaker 1: as if monetary conditions are particularly tight. I mean, we're
Speaker 1: watching this bond bonanza right now with any company that
Speaker 1: wants to sell bonds can sell bonds, and they can
Speaker 1: borrow at record low rates. So I'm looking at this
Speaker 1: and wondering, let's say the FED cuts to zero, will
Speaker 1: it matter. It's not going to matter in the long run, right,
Speaker 1: Just as you said, seventy five billion dollars worth of
Speaker 1: US corporate debt came to market this week. This idea
Speaker 1: that if you simply lower the cost of borrow the
Speaker 1: cost of credit, that you can maintain prosperity forever. That's
Speaker 1: I think what I was getting on my soapbox about
Speaker 1: a few moments ago. That's kind of the absurdity that
Speaker 1: essentially economic growth is a function of very deep fundamental
Speaker 1: factors that basically relate to having labor and capital work
Speaker 1: together on a ongoing basis to find ways to be
Speaker 1: more efficient and more productive over the course of time.
Speaker 1: Simply lowering the input costs of financing and doing it
Speaker 1: in an artificial way doesn't lead to higher efficiency. In fact,
Speaker 1: it probably does the opposite, because it ends up maintaining
Speaker 1: inefficient enterprises over leveraged enterprises and activities that are probably
Speaker 1: supposed to be even though sort of a politically incorrect
Speaker 1: thing to say, they're supposed to be swept aside. Eventually,
Speaker 1: consumer tastes change, things become obsolete. You need to you
Speaker 1: need to facilitate change, and one of the ways you
Speaker 1: facilitate change actually is through normalizing rates. You failed to
Speaker 1: do that, and maybe you end up in places like
Speaker 1: uh where Europe and Japan have gone, which is just
Speaker 1: long term inefficiency, and you get absolutely nowhere, which I
Speaker 1: guess was sort of the point of your question. So, Ted,
Speaker 1: given where we are late this latent cycle, as you
Speaker 1: mentioned in presumably a continued Doubbish fed how are you
Speaker 1: positioning your portfolio at the current time. Well, I think
Speaker 1: that this is a point in the cycle where you're
Speaker 1: supposed to first and foremost in your thought process is
Speaker 1: supposed to be capital preservation. You're supposed to make your
Speaker 1: bones in the early and mid stages of the cycle
Speaker 1: when it's easy, so to speak, to make money. You
Speaker 1: can almost almost anything you do in those periods is
Speaker 1: going to work out. Well, there's their a beta trades,
Speaker 1: there's lots of dislocation left over from the demise of
Speaker 1: the last cycle. When you're this late in the cycle.
Speaker 1: If you've been fortunate and you've and you've made your bones,
Speaker 1: now you're supposed to be thinking about at least with
Speaker 1: respect to a fixed income portfolio, is how do I
Speaker 1: make my fixed income portfolio truly be a safe asset
Speaker 1: class in the late cycle. If you want to take
Speaker 1: risk elsewhere, I suppose that's that's perfectly reasonable and fine.
Speaker 1: But at least with respect to your fixed income you
Speaker 1: should be biased towards risk off type assets that would
Speaker 1: include treasuries and agency mortgages. You should be looking really carefully,
Speaker 1: in our view, at your high yield and emerging markets
Speaker 1: and thinking, really, if you want significant exposure to these
Speaker 1: asset classes so late in the cycle, a time when
Speaker 1: they oftentimes perform or they will ultimately perform very badly,
Speaker 1: so defensive with respect to credit, slightly overweight with respect
Speaker 1: to duration. And that's I mean, that's those are two
Speaker 1: of the most significant themes. How much have you reduced
Speaker 1: your high old in emerging markets allocations recently? Not much recently. UM,
Speaker 1: I guess we've been on the soapbox that we're in
Speaker 1: a late cycle environment for a couple of years, so, uh,
Speaker 1: we haven't. We haven't had to adjust it because we
Speaker 1: actually moved to a pretty conservative stance going back a
Speaker 1: couple of years ago, and we still think that that's
Speaker 1: appropriate UM, although we did add in the fourth quarter
Speaker 1: of last year, so we with the widening out and spreads,
Speaker 1: we did add to our high yielded on corporate positions,
Speaker 1: but UM as a as a general statement, uh, the
Speaker 1: idea is to be underweight the investment grade component and
Speaker 1: also to be very wary of the fallen angel risk.
Speaker 1: There's been a lot of talk about the growth in
Speaker 1: the triple B minus sector of the investment grade index
Speaker 1: and the concomitant level of rating agency um discretion. I'm
Speaker 1: sure that's exactly the word I'm looking for there. But
Speaker 1: the idea that the forbearance I think is probably a
Speaker 1: better way to put it, that the rating agencies have
Speaker 1: allowed companies to take on levels of leverage that are
Speaker 1: not consistent with long term metrics of being investment great.
Speaker 1: Their companies out there right five turns and more of leverage.
Speaker 1: They shouldn't be investment great, and they won't be basically
Speaker 1: because the rating agencies will swing the axe on them
Speaker 1: when the time comes. Got it. Excellent, stop there, very good,
Speaker 1: Thanks very much. Tad Revelle, chief Investment Officer Fixed Income
Speaker 1: for tc W, joining us on the pode from Los
Speaker 1: Angeles well, it is jobs Day, and what better than
Speaker 1: to talk to actually someone who is instrumental in creating
Speaker 1: those jobs. And then, as the CEO of American Superconductor,
Speaker 1: Daniel McGann, he joins us here in our Bluebgood Active
Speaker 1: Broker Studios. Daniel, thank you so much for being here.
Speaker 1: You came in two thumbs up. We're hiring. So first
Speaker 1: before we get into the fact that you're still hiring. Um,
Speaker 1: what is American Superconductor. American Superconductor is a systems based
Speaker 1: technology provider that provides resiliency for the electricity grid as
Speaker 1: well as for naval ships that go in harm's way.
Speaker 1: So we try to move power with a purpose. So
Speaker 1: for the electrical grid, I actually read the book called
Speaker 1: The Grid about the electrical power business, so I'm I
Speaker 1: was like Keith Grossman recommendation. Shout out to our old
Speaker 1: Frank Keith. Um. The big issue for when people think
Speaker 1: about power grids is security of the grid. Uh, give
Speaker 1: us your sense of kind of where we are and
Speaker 1: how your company fits in there. Yeah, it's the traditional
Speaker 1: system kind of works as a hub and spoke, So
Speaker 1: think about like a bicycle wheel. So anytime power moves
Speaker 1: to where you need it. There's really typically only one
Speaker 1: way for it to get there. There's no way for
Speaker 1: it to get back if you're starting to generate clean
Speaker 1: energy on the ali edge of the grid, and our
Speaker 1: company is about trying to turn that grid really more
Speaker 1: into a network like communications network or computing network. We
Speaker 1: have multiple point connection to multiple point built in redundancy,
Speaker 1: which increases resiliency UM either for outside threats or natural
Speaker 1: threats with climate change. UM. We help bring more renewables
Speaker 1: onto the grid, be it wind onto the transmission grid,
Speaker 1: or be it solar onto the distribution grid. Okay, this
Speaker 1: is such a fascinating topic to me, especially because you
Speaker 1: came in you said we're hiring. There has been actually
Speaker 1: a tremendous amount of hiring when it comes to renewable
Speaker 1: energy sources and when it comes to that entire industry
Speaker 1: and all of sort of the ancillary businesses that arise
Speaker 1: around it. I'm wondering, have you continued to see strong
Speaker 1: growth among your peers, competitors, etcetera. Because this is a
Speaker 1: growing industry, even as people say that industrial production generally
Speaker 1: is slowing down, the coal industry, losing jobs, etcetera. I
Speaker 1: think you generally answer to your questions, Yes, I think
Speaker 1: we're a little bit unique in that we have a
Speaker 1: very high proprietary technology that UM offers a solution today
Speaker 1: that's really needed. Now. We also are starting a new
Speaker 1: business with the U. S. Navy to protect ships. That's
Speaker 1: really where we see a tremendous amount of hiring here
Speaker 1: in the US and across the spectrum of JABS. Be
Speaker 1: at people with former military service that help us in
Speaker 1: field service. Be a production engineer, engineering, be it manufacturing engineers,
Speaker 1: be it support staff and accounting. Where we've been hiring
Speaker 1: across the board. Tell us about the business you're doing
Speaker 1: with the Navy. What's the technology there, what's the goal? Uh,
Speaker 1: and just give us a little sense about that business. Yeah,
Speaker 1: so this is UM. I guess the easiest analogy to
Speaker 1: say is if you understand how noise canceling headphones work.
Speaker 1: You know the idea that you're trying to UM limit
Speaker 1: the ambient noise by putting in almost the opposite signal,
Speaker 1: right and having it be completely quiet. It's that kind
Speaker 1: of stealth technology. We're bringing two ships to protect them
Speaker 1: against mine fields. The way mine fields detective ship UM
Speaker 1: is through a change in magnetism around the ship. The
Speaker 1: Earth is a big magnet. Everything kind of goes in
Speaker 1: the certain directions. Why compasses work. Um, A ship disrupts
Speaker 1: that field locally, which means mind can see it or
Speaker 1: feel it as it passes by. What our technology is.
Speaker 1: It dynamically disguises that ship. Why it's underway, so the
Speaker 1: minefield can't see the ship. Minds are a big deal. Um.
Speaker 1: Non nation state actors can acquire them. Um. It's it's
Speaker 1: a main way to to change or thwart movement of
Speaker 1: our ships at sea. It's something our allies are certainly
Speaker 1: very much involved with in concert with the U. S. Navy.
Speaker 1: So it's very topical and now, but there's a future
Speaker 1: business and power moving power, generating power either to move
Speaker 1: the ship or or make the weapons go. Electrification of
Speaker 1: the Navy is happening now and probably over the next
Speaker 1: decade or so. We're in a very unique position with
Speaker 1: a host of proprietary technology that we can deploy with
Speaker 1: the help of the U. S. Navy. Fascinating. How easy
Speaker 1: is it free to hire people for this expansion. It's
Speaker 1: been great because we try to hire people that have
Speaker 1: a certain level of technical skill. Um. We're based in Massachusetts,
Speaker 1: which is where we do our manufacturing for our grid
Speaker 1: and a Navy business UM, and we've been able to
Speaker 1: find a tremendous amount of talent. We've been able to
Speaker 1: identify that talent, we've been able to retain talent for
Speaker 1: you know, our of our average time of services very
Speaker 1: much longer than our peers, so we're able to retain
Speaker 1: that town as well. It really comes down to the
Speaker 1: mission of the company. UM Smarter, Cleaner, better energy is
Speaker 1: something that people really can get emotionally behind that they
Speaker 1: realize that when they go home to their significant other,
Speaker 1: the things that they're trying to do at work are
Speaker 1: helping humanity. So just looking at your stock, it's kind
Speaker 1: of a I'm not sure how to look at a
Speaker 1: year to date stocks down, that's the bad news. The
Speaker 1: good news over trillion twelve months, it's up thirty seven percent.
Speaker 1: So what's what? What? What? What investors kind of focusing
Speaker 1: on with your company and your stuff. If you go
Speaker 1: back over say the past year we've had UM, you know,
Speaker 1: go back a little bit. We made a decision to
Speaker 1: diversify our product line and expand our total available market.
Speaker 1: That's a mission that we've been on for a few
Speaker 1: years now we're seeing the beginning of that to start
Speaker 1: to pay off. So part of the change in the
Speaker 1: positive inflection points in the stock have been around delivering
Speaker 1: an order for this new resilient electric grid to do
Speaker 1: multipoint connection throughout the grid, delivering not one but to
Speaker 1: ship orders for this new ship protection system. So this
Speaker 1: is a company that's been a lot about a dream
Speaker 1: and a vision for a long time. We're now starting
Speaker 1: to pay that dream often to growth and uh profit.
Speaker 1: We actually we're positive operating cash flow for um to
Speaker 1: two of the four quarters last year. Damn again, thank
Speaker 1: you so much for joining us. Dana is the CEO
Speaker 1: of Americans super Conductor. Joining us here in our Bloomberg
Speaker 1: Interactive Broker Studio American super Conductor stock symbol a m
Speaker 1: SC on your terminal. Thanks for listening to the Bloomberg
Speaker 1: P and L podcast. You can subscribe and listen to
Speaker 1: interviews at Apple Podcast or whatever podcast platform you prefer.
Speaker 1: Paul Sweeney I'm on Twitter at pt Sweeney and Lisa
Speaker 1: abram Boyd's I'm on Twitter at Lisa A. Bramoyd's one
Speaker 1: before the podcast. You can always catch us worldwide I'm
Speaker 1: Bloomberg Radio