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Speaker 2: Let's switch gears here, little M and A. Here in
Speaker 2: the satellite television space. I never thought i'd see the
Speaker 2: day Direct TV and Dish they're going to merge to
Speaker 2: create the largest US PayTV provider. Let's get the latest
Speaker 2: on that. Keitha Raganathan joins as she's a US media
Speaker 2: anas for Bloomberg Intelligence. Keitha, this is big news in
Speaker 2: a satellite business. You've only got two satellite players out there,
Speaker 2: and now looks like they're going to be merging.
Speaker 3: Here.
Speaker 2: What's driving this deal?
Speaker 4: What's really driving this deal is desperate times kind of
Speaker 4: call for desperate measures. Paul So, Satellite TV has steadily
Speaker 4: seen an erosion of its subscripase. I mean, at one
Speaker 4: point it was the only other game in town, along
Speaker 4: with cable TV, for people to get access to different
Speaker 4: PATV packages. Today the world is a completely different place.
Speaker 4: I mean, you have cable you have satellite, which is
Speaker 4: of course the traditional facilities based operators, but then you
Speaker 4: also have a whole slew of new internet based options,
Speaker 4: whether you know it's a YouTube TV which gives you
Speaker 4: all of the linear TV options, or whether it's like
Speaker 4: completely different what are known as sphalts services subscription video
Speaker 4: on demand services like an Amazon Prime or Netflix, and
Speaker 4: so the world today is completely different. And because of this,
Speaker 4: satellite TV has seen a huge, huge erosion of its
Speaker 4: subscriber base. Dish and direct TV once upon a time,
Speaker 4: you know, they were some of the largest PATV operators.
Speaker 4: They've lost about sixty three percent of their satellite subscriber
Speaker 4: base just over the past seven years.
Speaker 5: That's unbelievable. Did two wrongs then make a right slash
Speaker 5: for regulators like it?
Speaker 4: So regulators of course squashed this deal back, you know,
Speaker 4: about twenty years ago, but then again it was a
Speaker 4: completely different landscape. They have to kind of understand that
Speaker 4: things have completely changed today. One of the main appeal
Speaker 4: you know, or you know, appealing points of satellite TV,
Speaker 4: why people even taken in the first place, is because
Speaker 4: in a lot of areas in rural America, this is
Speaker 4: the only way that you can get access to PATV.
Speaker 4: But things have been changing because you know, we've had
Speaker 4: this whole initiative to narrow the digital divide. So more
Speaker 4: and more houses in rural America are getting wired up,
Speaker 4: and with that they now have the option to switch
Speaker 4: to internet based TV, which is you know, exactly what
Speaker 4: Distion Direct TV are saying, this is the reason why
Speaker 4: they've lost subscribers. So this is the reason why there
Speaker 4: is more competition, and therefore regulators should allow the deal
Speaker 4: to pass.
Speaker 2: And I guess a parallel announcement here today is that
Speaker 2: TPG Group, the private equity company, is going to acquire
Speaker 2: AT and t's seventy percent stake in direct TV that
Speaker 2: TVG doesn't already own. So in effect, a private equity
Speaker 2: owner is now going to own the entire US satellite
Speaker 2: television business. What's going on there?
Speaker 1: Why?
Speaker 2: Why is this happening?
Speaker 4: Yeah, exactly, Paul. So it's you know, Charlie ergan walking
Speaker 4: away from the PATV business, and in many ways again
Speaker 4: T you know, AT and T also walking away from
Speaker 4: the PATV business. And as you well know, AT and
Speaker 4: T had invested heavily in the media businesses. They had
Speaker 4: bought the whole Warner Brothers operation, which they kind of
Speaker 4: got rid of selling that to Discovery. And then of
Speaker 4: course they had also bought the Direct TV operations, which
Speaker 4: they sold a thirty percent stake to TPG. They still
Speaker 4: retained a seventy percent stake, and of course today with
Speaker 4: that deal with TPG, they are completely exiting that business.
Speaker 4: And for both of them, if you kind of look
Speaker 4: at what you know is the final endgame here for
Speaker 4: both AT and T and you know EchoStar or the
Speaker 4: the other part of the dish business, it's they really
Speaker 4: want to kind of focus on their core business, which
Speaker 4: is the wireless business for AT and T. Of course
Speaker 4: it's the wireless business for EchoStar. They have you know, built,
Speaker 4: they've mastered a huge amount of spectrum, and they ultimately
Speaker 4: want to become the fourth largest wireless player in the
Speaker 4: United States and this deal really helps them do that
Speaker 4: and kind of focus their resources, investments, time and energy
Speaker 4: on just that part of the operation.
Speaker 5: This might be a dumb question, but do they grow
Speaker 5: their customer base at this point? Is there a customer
Speaker 5: base to grow, or as you said, do they just
Speaker 5: become better at execution and they kind of cut with
Speaker 5: synergies and that's how they become successful.
Speaker 4: Yes, so, yes, they are looking at about the outline
Speaker 4: about a billion dollars in synergies. A lot of those
Speaker 4: will of course be programming costs. They still will be
Speaker 4: with the combination. They still will be the largest PATV operator.
Speaker 4: They will have about nineteen to twenty million subscribers, but
Speaker 4: there's not a whole lot to really grow ALEX. So
Speaker 4: it's really more kind of stemming the declines, if you will,
Speaker 4: just reducing the bleeding and becoming much much more efficient
Speaker 4: in kind of delivering customized, tailor made packages for you know,
Speaker 4: the PATV market.
Speaker 2: He githin' about thirty seconds left. What's your forecast for
Speaker 2: just the overall pay TV business? Are paying subscribers going to.
Speaker 3: Go to zero?
Speaker 2: Is where we're going to be all streaming stuff soon?
Speaker 4: I hope not, but we're definitely seeing that. You know,
Speaker 4: YouTube tv is becoming a major major player in the
Speaker 4: market again. They are delivering linear TV channels. Uh they
Speaker 4: right now are you know, about the third or the
Speaker 4: fourth largest operator eight million subscribers, So they actually have
Speaker 4: more subscribers than Dish has on a satellite business. But
Speaker 4: we eventually in the next two to three years see
Speaker 4: them becoming the largest player, and then that of course
Speaker 4: changes the whole dynamics of the whole PATV market because
Speaker 4: then you have a streaming based operator that's providing, that's
Speaker 4: the largest operator of you know, the patv's market.
Speaker 2: And again you know the DirecTV and Dish getting together.
Speaker 2: DirecTV is paying one dollar for the equity and assuming
Speaker 2: all the debts. So talk about a inglorious and to
Speaker 2: the PATV business from the great Charlie Ergan, who you know,
Speaker 2: built that satellite business from scratch about thirty years ago.
Speaker 3: KEITHA.
Speaker 2: Roganatha, thanks so much for joining us US media analysts
Speaker 2: for Bloomberg Intelligence, joining us from Princeton and again kind
Speaker 2: of an end of an ear for Charlie Ergen, again
Speaker 2: one of the leaders in satellite television, in satellite technology
Speaker 2: in general, and commercial telecommunications putting up the satellite thirty
Speaker 2: forty fifty years ago. So just walking away from that
Speaker 2: satellite television business, focusing on the wireless spectrum that he
Speaker 2: still retains.
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Speaker 5: Let's get to this story. Danny Berger, Bloomberg Television anchored
Speaker 5: It joins us. Now.
Speaker 6: She is at the.
Speaker 5: Port Newark Elizabeth in Newark, New Jersey. So she's on
Speaker 5: the ground. She's been talking to the people. Walk us through, Danny,
Speaker 5: what's the scene there? Set the scene for us. What's
Speaker 5: it like?
Speaker 7: So we are at this point, just some sixteen hours
Speaker 7: away from a potential strike. The next update we're waiting
Speaker 7: for is the International Longshoreman. They're set to release an
Speaker 7: update at eleven am New York time on the current
Speaker 7: status of this strike, but by all accounts, it will
Speaker 7: be going forward at twelve oh one am on Tuesday,
Speaker 7: that's when the current contract expires. There are no scheduled
Speaker 7: talks until then, so it seems like we're unlikely to
Speaker 7: get an agreement. The two major sticking points. One is
Speaker 7: about wages and benefits. They want a some eighty percent
Speaker 7: increase in pay over the next six years. They say
Speaker 7: what's currently on offer is quote stingy. They also want
Speaker 7: language in the new contract that prevents further automation of
Speaker 7: these ports. Automation, I should say, there's really prevalent in
Speaker 7: other places like Amsterdam and Asia. It's pretty standard, but
Speaker 7: they don't want it here because they don't want the
Speaker 7: jobs removed. They have a pretty strong hand to play
Speaker 7: at the moment. They have an administration in the Biden
Speaker 7: administration that's very friendly to labor, and we also have
Speaker 7: a supply demand issue. There's not enough people who want
Speaker 7: these jobs, which of course is part of the reason
Speaker 7: that the workers here, the employers want to automate these ports.
Speaker 2: So what's the expectation here. It doesn't seem to be
Speaker 2: any emergency feeling that they need to get something done here.
Speaker 2: Is there a sense that this could be a long
Speaker 2: potential strike here.
Speaker 7: Most of the people that I've been speaking to think
Speaker 7: that this will just last a couple of days, really,
Speaker 7: just because there is so much pressure. There is so
Speaker 7: much money at stake. Not to mention, as I said,
Speaker 7: this is a friendly administration to them. If they stretch
Speaker 7: this out and it gets closer to the November election,
Speaker 7: what happens if they realize that the next administration coming
Speaker 7: in won't be as friendly to them?
Speaker 3: Now?
Speaker 7: A lot of companies, a lot of retailers have been
Speaker 7: trying to stock up in anticipation of this. So if
Speaker 7: it just lasts a couple of days, the thinking is
Speaker 7: is that most people could go around it. But if
Speaker 7: it does last longer than a couple of days, it
Speaker 7: takes time. Ships will kind of build up on the
Speaker 7: ports around me, like you see, and they need to
Speaker 7: offload it. So something last let's say a week, it
Speaker 7: could end up taking months to resolve itself. There's not
Speaker 7: also not a lot of other options for ships to
Speaker 7: go to the West coast ports Canada. They can't handle
Speaker 7: the same amount of volume and really absorb everything that's
Speaker 7: supposed to be happening here on these East coast ports.
Speaker 5: All right, Danny, thanks a lot, really appreciated Danny Berger
Speaker 5: joining us there on the port strike. She joins us
Speaker 5: from Port Newark, Elizabeth over in Newark, New Jersey. Let's
Speaker 5: get more analysis with Lee las Gal Bloomberg Intelligence senior
Speaker 5: transport logistics and shipping analysts joining us on this, Hayley.
Speaker 5: What can be rerouted, what can't? And how does this
Speaker 5: all work?
Speaker 8: These are great questions. So what can be rerouted?
Speaker 6: Are things that shippers needed to have the foresight to
Speaker 6: reroute a couple months ago. So if a ship is
Speaker 6: going to expected to hit the East coast sports, it's
Speaker 6: not so easy for it to find another port of
Speaker 6: call to find because they're schedules that these ships have
Speaker 6: to adhere to.
Speaker 8: So the more sophisticated shippers.
Speaker 6: Probably have been plans in place that are currently you know,
Speaker 6: bringing freight to the West coast or maybe East coast.
Speaker 8: In Canada, and we're seeing that.
Speaker 6: We're seeing that in the really huge volumes in imports
Speaker 6: at La Long Beach last month. So we're seeing that
Speaker 6: it's happening now obviously as if there is a strike
Speaker 6: and it appears that there's going to be a strike
Speaker 6: and there's high value, time sensitive freight that needs to
Speaker 6: get somewhere on the East coast, there's always air freight.
Speaker 6: We haven't seen that much movement into air freight right now.
Speaker 6: It's really just being diverted to.
Speaker 9: Other ports where they can come in and once they
Speaker 9: come from the West Coast, they either can get shrucked
Speaker 9: across the country or they can put on trains through
Speaker 9: intermodal And this is actually a net positive for.
Speaker 6: A lot of companies that I cover. So I cover
Speaker 6: companies like Union Pacific and JB. Hunt and Werner and
Speaker 6: night Swift. These are all companies that will probably benefit
Speaker 6: from this in the short term because it's really should
Speaker 6: provide a boost to spot rates in the market, and
Speaker 6: a lot of this business is going to go in
Speaker 6: the spot market.
Speaker 2: Well, how about some of the shipping companies and logistics
Speaker 2: companies that you cover. Are they what are they saying
Speaker 2: from their perspective about how much pain they're willing to take,
Speaker 2: how much flexibility they're willing to have in these negotiations.
Speaker 6: Well, well, mask you know, mentioning that they're going to,
Speaker 6: you know, put out a surcharge for the additional costs
Speaker 6: that they're going to face. So they're looking to pass
Speaker 6: on any additional costs that they might have, whether if
Speaker 6: they're ships waiting by the ports and to unload or
Speaker 6: whatever those additional costs might be. So they're hedging themselves.
Speaker 6: But it really seems like the two sides are really
Speaker 6: far apart from you know, what I've been able to glean.
Speaker 6: It seems like, you know, the rays that the port
Speaker 6: workers want the poor it's about fifty percent below what
Speaker 6: they're looking for. So there's a lot of middle ground
Speaker 6: that has to be made, and we do expect a
Speaker 6: strike to act to happen, But like a lot of
Speaker 6: the people that have been speaking before me, a strike
Speaker 6: probably won't last that long, and if it lasts more
Speaker 6: than a week or two, call it. I think the
Speaker 6: federal government will definitely step in with the taff had Lay.
Speaker 5: Act right, which basically says that they can get involved
Speaker 5: and restrict the activities and power of labor unions when
Speaker 5: it winds up upsetting the country basically and they can't
Speaker 5: sort of function as a whole. So to this point,
Speaker 5: then if we get something, let's just say fifty to
Speaker 5: seventy percent wage increases over six years, what does that
Speaker 5: look like for the companies that will be involved for that?
Speaker 8: So I don't cover the coort operators themselves. I cover Maris,
Speaker 8: which has some port operations. I mean, it will just
Speaker 8: mean that their costs are arising.
Speaker 6: Right now, those are pretty good businesses.
Speaker 8: I think the more interesting thing for my repetive is.
Speaker 10: The U the union's inability to accept the reality of automation. Obviously,
Speaker 10: you know, they want to protect jobs, but in a
Speaker 10: world of AI, you know, and productivity improvements whether that's
Speaker 10: you know, in offices or on docks.
Speaker 8: Uh, there's really a lot to be said there. Uh,
Speaker 8: and it would be a shame that, you know, the.
Speaker 6: US sports wouldn't be as competitive to other ports around
Speaker 6: the world.
Speaker 2: All right, Lee, thanks so much for joining us. Always
Speaker 2: appreciate getting your time. Lee Clasgow. He's the senior transport,
Speaker 2: Logistics and shipping analyst for Bloomberg Intelligence. He follows everything
Speaker 2: the rails, the trucks, the sea ships, the all that
Speaker 2: kind of stuff logistics companies, so he's our supply chain expert.
Speaker 2: He joins us from b I down in Princeton, New Jersey.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on fo card Playing and
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Speaker 1: wherever you get your pod, or watch us live on YouTube.
Speaker 5: This is Bloomberg Intelligence Radio. We cover all the top
Speaker 5: news and business, economic and finance through our lens of
Speaker 5: our Bloomberg Intelligence folks. They cover two thousand companies in
Speaker 5: one hundred and thirty industries worldwide. We alsotimes go outside
Speaker 5: that and just take a look at the broader market
Speaker 5: and get the nice macro view from some people who
Speaker 5: run money, and for that we go to Jerry Kudzil,
Speaker 5: Group Managing Director and Generalist portfolio manager over at TCW.
Speaker 5: He joins us now from LA. There's lots of different
Speaker 5: ways to go with this, but I'm looking at a
Speaker 5: stock market that's a little softer. You have yields on
Speaker 5: the front end there a little bit higher. What is
Speaker 5: gonna What is the pain trade right now for you?
Speaker 5: Considering the massive move into Chinese equities that we've seen.
Speaker 5: Where's the pain trade right now?
Speaker 3: Well?
Speaker 11: Thanks a lot, I appreciate being on the show.
Speaker 12: I'll tell you this this rumor about two to eighty
Speaker 12: gas prices as me, I think you guys are.
Speaker 11: Lying at lass. It's a five dollars Still.
Speaker 5: You have a whole different problem there in LA. So
Speaker 5: there's that we.
Speaker 11: Have a for a whole different problem.
Speaker 12: But I will what I will say is, you know,
Speaker 12: pat trade for for markets appears to be a concern
Speaker 12: about inflation, and what we would what we would say
Speaker 12: is that that's not I don't think anyone anyone is
Speaker 12: really concerned about that.
Speaker 3: It feels like.
Speaker 12: It feels like the Fed is trying to and I think, look,
Speaker 12: how tip to have tip to the Fed? So far,
Speaker 12: they've controlled the narrative really well. I mean, you've you've
Speaker 12: reset expectations only from June first to move rates one
Speaker 12: hundred basis points lower. We had we had one cut
Speaker 12: priced in by the end of the year June first,
Speaker 12: we're now going to have it, but we're now going
Speaker 12: to have about six and.
Speaker 3: And ultimately the.
Speaker 11: Evaluations really have been have been unimpacted.
Speaker 3: So so hat tip to the Fed.
Speaker 12: So far feels like, you know, the market's embracing the
Speaker 12: idea of a soft landing, uh, the idea that.
Speaker 11: You know, lowering of inflation is a good thing.
Speaker 3: Uh.
Speaker 12: And we'll see ultimately, Ultimately, we'll see what proves out.
Speaker 12: But I think the data, certainly there's something, there's something
Speaker 12: in there for everyone as it relates to economic data
Speaker 12: right now, the bulls.
Speaker 3: And the bears.
Speaker 2: How much risk should fixed income investors be taking these days,
Speaker 2: given that rates are coming down?
Speaker 3: That's a that's that's a good question.
Speaker 12: Look, I think as we think about it, there's a
Speaker 12: bunch of ways to answer that question, Paul.
Speaker 11: But the reality is.
Speaker 12: Rates rates are going to come down because inflation, inflation
Speaker 12: expectations are are stable. I think the right question to
Speaker 12: ask is why are rates coming down? Are rates coming
Speaker 12: down because demand economy is slowing? Have a potential issue,
Speaker 12: and I think we'll learn a lot more as we
Speaker 12: as we moved through the week.
Speaker 3: We're going to get We're going to get a you.
Speaker 11: Know, a couple of a couple of economic numbers.
Speaker 12: This week that that will probably be pretty pretty impactful.
Speaker 12: I would say we we like fixed income broadly. You
Speaker 12: can create income and portfolios. We like the belly of
Speaker 12: the curve, but we do what we don't think you
Speaker 12: should be doing, taking significant amount of credit risk in portfolios.
Speaker 11: We talked about this a bunch on the on the show,
Speaker 11: and the reality.
Speaker 12: Is the risk free rate gives you eighty five percent
Speaker 12: of your yield when you consider investment grade corporate bonds.
Speaker 12: And when you pull this back historically, when you look
Speaker 12: whether you're looking at high yield or you're looking at
Speaker 12: investment grade credit, at the at the end of the day,
Speaker 12: you can get the majority that yield in the risk
Speaker 12: free rate.
Speaker 3: And we like the belly.
Speaker 12: We like the belly of the curve and the front
Speaker 12: end of the curve because we think inflation expectations are stable,
Speaker 12: the curve will continue to steep in, and you'll be
Speaker 12: able to generate some some healthy income without taking this volatility.
Speaker 12: We don't think you need to introduce that in your
Speaker 12: portfolios with with significant amount of credit risk.
Speaker 5: There's still money though, flowing into money market funds kind
Speaker 5: of like unbelievably, and the money hasn't come out of
Speaker 5: money market funds to say the least, When does it
Speaker 5: and where does it belong? In fixed income? After that?
Speaker 3: What's it that?
Speaker 12: That's the seven trillion dollar question, right, that's the that's
Speaker 12: the real where where's the where's.
Speaker 3: The money gonna go?
Speaker 12: The The market at the at the moment is comfortable
Speaker 12: that rates are coming down, but ultimately you need the
Speaker 12: rate to come You need the rate to come down.
Speaker 12: We think to see that, to see that money move,
Speaker 12: and where's where's that money gonna go?
Speaker 3: Well, it's it's gonna kind of it's gonna kind of go,
Speaker 3: It's gonna kind of go everywhere.
Speaker 12: I think our our opinion is, our opinion is it
Speaker 12: will it will benefit the markets.
Speaker 3: But the reality I would just pause and and.
Speaker 12: And for us, what we would what we would say
Speaker 12: is we're a little bit more concerned about the direction
Speaker 12: of the economy, uh, where it's heading and really a
Speaker 12: function of of the labor market. And and I think
Speaker 12: we're seeing some slowing in the labor market. Whether you
Speaker 12: have a lot of money in monkeys or a little
Speaker 12: money in money markets, when people lose their jobs, they
Speaker 12: don't spend money, and that's slowing in the economy.
Speaker 3: Is gonna, I think, we think is gonna gonna.
Speaker 12: Overwhelm any kind of short term movement of money and
Speaker 12: go to challenge risk assets at least performance or risk
Speaker 12: assets in the near to medium term.
Speaker 2: Hey, Jerry, thanks so much for joining us. Appreciate getting
Speaker 2: your thoughts there. Jerry Kutzel, He's a group managing director
Speaker 2: and a generalist portfolio manager at tc W. Joining us
Speaker 2: from their home in Los Angeles.
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Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: Let's get to the other significant story I think out
Speaker 2: of the day, which is just this real sell off
Speaker 2: in global auto stocks. Here Stillantis with a profit warning
Speaker 2: that came in much more egregious than maybe I think
Speaker 2: people were discounting that stock US off thirteen fourteen percent.
Speaker 2: Craig Trudell, Bloomberg Global Autos analyst, he's an editor or
Speaker 2: there I'm sorry, Bloomberg Global Autos editor on a slow
Speaker 2: down in the European auto industry. So, Craig, it seems
Speaker 2: like this auto industry globally, certainly for the European operators,
Speaker 2: the North American operators, this transition to electric vehicles is
Speaker 2: proving much more, I guess, difficult than maybe the market
Speaker 2: had anticipated. Where are we here, what's happening with these
Speaker 2: big auto companies?
Speaker 13: Yeah, I think that's spot on. I think in the
Speaker 13: case of Stilantis, you had a company that, especially in
Speaker 13: North America, was really taking its sweet time in terms
Speaker 13: of going electric, and they're now really caught in a
Speaker 13: buying because they've spent an awful lot on playing catch up.
Speaker 13: They have, you know, some electric vehicles, some plug in
Speaker 13: hybrids coming to market just as as that market really
Speaker 13: slows down, and they've maybe invested in that at the
Speaker 13: expense of some of you know, some of the vehicles
Speaker 13: in their lineup that you know really were strong sellers
Speaker 13: and and that dealers were quite fond of. If you
Speaker 13: look at you know, Jeep or Ram, you know, some
Speaker 13: of the major brands that you know, Chrysler, you know,
Speaker 13: has for a long time been shepherding in the UI. Yes,
Speaker 13: this is a company that you know, has way too
Speaker 13: much inventory, has been trying to take too much price
Speaker 13: for too long. And you know, the CEO, Carlos Tavares,
Speaker 13: has taken some blowback over that, even from dealers, and
Speaker 13: in a really unusual way, for the head of the
Speaker 13: US Dealer Council to issue a public letter a few
Speaker 13: weeks back criticizing him and criticizing the company was really remarkable.
Speaker 5: What I'm having a hard time understanding is why it's
Speaker 5: hard for these companies to get a true handle on
Speaker 5: why things are bad. So just the idea that Stalantis
Speaker 5: cuts its forecast again in just a few months, Why
Speaker 5: is it so hard for them to get a read
Speaker 5: on their own business?
Speaker 13: Well, I think in the case of Stalantis, you've seen
Speaker 13: actually sort of a reluctance for them to lower their guidance.
Speaker 13: So they did release a very disappointing first half result
Speaker 13: a couple months back. But you know, the the companies
Speaker 13: that maybe have had a harder time getting a handle
Speaker 13: on on earnings, I would I would put Volkswagen in
Speaker 13: that camp. They've had their second warning in the matter
Speaker 13: of a short period. I think Nissan maybe next. As
Speaker 13: we reported earlier today, I do think that this is
Speaker 13: a case where you know, automakers globally, you know, very
Speaker 13: quickly went from this position of being you know, production
Speaker 13: constrained and you know, looking to move as quickly as
Speaker 13: they possibly could to ramp production back up. And you know,
Speaker 13: once they were able to get through the many supply
Speaker 13: chain issues that they've had over the last few years
Speaker 13: coming out of the pandemic, they were it really took
Speaker 13: them some time to adjust to the fact that, you
Speaker 13: know what, at some point they were going to get
Speaker 13: to where they were no longer you know, production constrained,
Speaker 13: that you know, demand wasn't going to live up to
Speaker 13: what everyone was making, and it was kind of a
Speaker 13: matter of who was going to blink first. And you know,
Speaker 13: I think Stillantis maybe is getting you know bonked on
Speaker 13: the head today because they were one of the last
Speaker 13: to really sort of bow to reality that they had
Speaker 13: way too much supply relative to to the demand that
Speaker 13: was out there.
Speaker 2: So what do you Is there a consensus growing here,
Speaker 2: Craig about how this industry is going to continue to
Speaker 2: make this transition to EV because it seems like it's
Speaker 2: slower than maybe they had thought as recent recently as
Speaker 2: a year ago, more bumpier. How is this going to
Speaker 2: play out? Is there any consensus building?
Speaker 12: You know?
Speaker 13: I think there's probably going to be more collaboration. We've heard,
Speaker 13: you know, the CEO of Reno in France call for
Speaker 13: an airbus of autos, you know, coming together of European
Speaker 13: companies to try and you know, confront these challenges together.
Speaker 13: I think you've seen some analysts call for more collaboration
Speaker 13: among Western companies and Chinese companies.
Speaker 2: Uh.
Speaker 13: And we're seeing that in Stillantis right where they're teaming
Speaker 13: up with Leap Motor, one of the smaller EV makers
Speaker 13: in China. But I do think that there are some
Speaker 13: real limits to that latter strategy, given this sort of
Speaker 13: appetite for that in Washington, right. I think it's it's
Speaker 13: the one thing that's really uniting Republicans and Democrats, is
Speaker 13: this idea that you know, we shouldn't be at all
Speaker 13: reliant on China going forward, and that there are enemy
Speaker 13: and not our friend.
Speaker 5: So what I also find interesting is that it's not
Speaker 5: just China and it's not just EVS, I mean specifically
Speaker 5: Salantas said jeep sales like. So it's easy to blame
Speaker 5: China cheap EV's, It's easy to blame the fact that
Speaker 5: people don't want to buy evs right now, but that's
Speaker 5: not necessarily the only problem.
Speaker 13: I think that's a really key insight. I think this
Speaker 13: was a case of mismanagement on Stillantis's part, and you've
Speaker 13: seen some analysts come out with really sort of harsh words,
Speaker 13: not only for the way that they've sort of bungled things,
Speaker 13: but the way they've communicated. You know, even just last week,
Speaker 13: the CFO of the company, you know, was talking about
Speaker 13: the sort of outlook, and you know, the company has
Speaker 13: not necessarily been forthcoming, even as you know, one European
Speaker 13: company after another was was issuing profit warnings for them too,
Speaker 13: you know, sort of drag their feet and only do
Speaker 13: so now when the writing maybe seemed to be on
Speaker 13: the wall, even when they were doing first half results.
Speaker 13: I think that's part of why you're seeing this negative
Speaker 13: reaction because some are saying, you know, how can we
Speaker 13: trust this management team, you know, going forward, giving the
Speaker 13: way they've messaged this.
Speaker 5: All right, Craig, thanks a lot, really appreciate it. Cred
Speaker 5: Trudel joining us Bloomberg and no, you're not Bloomberg Intelligence,
Speaker 5: he's Bloomberg Global Autos editor. I weirdly promoted him.
Speaker 2: I think, yeah, I did the same thing.
Speaker 5: You did the same thing, and yeah, so cool. It
Speaker 5: just means that you're super smart.
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Speaker 13: All right.
Speaker 5: Joining us now in the bond market because you're taking
Speaker 5: a look at the sell off pretty much across the curve.
Speaker 5: You got the two year yield up by five basis
Speaker 5: points three point six. You're also looking at the tenure
Speaker 5: up by about two three basis points up at three
Speaker 5: point seven seven. Joining us now.
Speaker 14: R J.
Speaker 5: Gallow, Senior portfolio Manager, Fixed Income at Federated Hermes joining
Speaker 5: us on the space. All right, what's your best bet
Speaker 5: on the curve right now?
Speaker 3: Well, good morning.
Speaker 14: Our view on the curve has been for quite some time,
Speaker 14: and this is a pretty widely held view, is that
Speaker 14: the US economy is unlikely to turn into a recession.
Speaker 14: But at the same time, the FED is completely shifted
Speaker 14: their focus. They had been almost like a soul mandate
Speaker 14: inflation fighting central bank when we had CPI north of
Speaker 14: six percent all the way up to nine. If you recall,
Speaker 14: they now have shifted gears and the sort of the
Speaker 14: weight now is more on the employment side of the mandate.
Speaker 14: So the Fed's an easy mode that should bring shorter
Speaker 14: yields down. At the same time we're heading into an election.
Speaker 14: The economy, according to the Atlanta Fed GDP is still
Speaker 14: growing around three percent, so longer yields might not come
Speaker 14: down nearly as much. That's a bit of a steepener,
Speaker 14: and we've had a good success generating some excess returns
Speaker 14: to that on a year to day basis. On duration,
Speaker 14: we thought bonds we're gonna have a pretty good year
Speaker 14: this year, and they are. Since April thirtieth, the US
Speaker 14: Aggregate Index is up eight point twenty four percent, and
Speaker 14: the Treasury Index is up seven point six percent. How's
Speaker 14: that for a heck of a run for less than
Speaker 14: a year's time in.
Speaker 2: The bottom up exactly like these guys doing the lapse here.
Speaker 2: How about the high yield business that's actually been the
Speaker 2: best performer year to date r J.
Speaker 15: Why is that?
Speaker 2: And kind of how do you look at that market
Speaker 2: going forward?
Speaker 14: Yeah, it's you're absolutely right on an internet basis. Uh,
Speaker 14: The Treasury Index, just to give some context, is only
Speaker 14: up four point oh eight percent, the number I shared
Speaker 14: before with some April thirtieth. So the Treasury Index is
Speaker 14: just over four and the AG is around four to seventy.
Speaker 14: High yield is almost eight seven point nine eight percent.
Speaker 3: Why is that?
Speaker 14: Well, the economy has proven resilient beyond nearly anyone's expectations
Speaker 14: with respect to the drastic FED hiking and now easing
Speaker 14: that has gone on and the disinflation process that has occurred.
Speaker 14: The view of a soft landing is a risk asset winner. Really,
Speaker 14: look at stocks, they're up double digits here to date.
Speaker 14: If you can have the ability to slow down inflation
Speaker 14: without sharply slowing down the economy, that's very favorable to
Speaker 14: risk assets, and that's been win at the back for
Speaker 14: high yield pretty much all year as a firm. I'll
Speaker 14: be frank, this is a tough business. Sometimes you get
Speaker 14: them right, sometimes you don't. We've been a little underweight
Speaker 14: high yield in our multi sector portfolios and that's been
Speaker 14: a little difficult. However, we've made up some of that
Speaker 14: pain by being overweight mortgages and by playing the curve
Speaker 14: it and the rates direction to some degree. So there's
Speaker 14: a lot of levers to push and pool and fixing.
Speaker 5: When we talk about say job's data that's going to
Speaker 5: come out on Friday, right, I'm wondering, what do you
Speaker 5: think the reaction function of the bond market is going
Speaker 5: to be to that number.
Speaker 14: With the FEDS shift and mandate. Like I was saying
Speaker 14: a few moments ago, the job's data becomes all the more.
Speaker 14: I we went through an extended period there where jobs
Speaker 14: data took a backseat to inflation. Now that is the opposite.
Speaker 14: I think that Chairman Powell at the podium recently after
Speaker 14: the September FMC suggested that they're going to be sort
Speaker 14: of mentally haircutting the employment report, especially the non farm
Speaker 14: payroll numbers sort of the headline figure, and that has
Speaker 14: everything to do with the fact that data out of
Speaker 14: the Commerce Department, which is used to periodically revise the
Speaker 14: payrolls data that we're familiar with from the Bureau of
Speaker 14: Labor Statistics, the Commerce Department data has been weaker less
Speaker 14: job creation, so that took about I think it was
Speaker 14: eight hundred and ninety thousand jobs or so off the board,
Speaker 14: and that is as a result, sort of casting some shade,
Speaker 14: if you will, in terms of the quality of the
Speaker 14: data that we get from your Bureau of Labor Statistics.
Speaker 14: So if we get numbers like you know, one twenty one,
Speaker 14: thirty one forty, I think that the market will view
Speaker 14: that somewhat dubbishly in a bond friendly sense that it
Speaker 14: sort of keeps the FED in the game of sequence
Speaker 14: easing significant easing to come. Conversely, if the data is
Speaker 14: really strong, I don't know if yields would rise that much.
Speaker 14: I think that yield direction in your term is more symmetric,
Speaker 14: in part because we're heading into an election season or
Speaker 14: season we're heading into an election itself. We've been in
Speaker 14: the season for a while, the outcome of which could
Speaker 14: have a significant impact on overall fiscal policy, to include
Speaker 14: stimulus from extending expiring tax cuts. If President Trump is
Speaker 14: to return to the White House, we have tariff and inflation.
Speaker 14: Tariffs and inflation concerns to think about. If it's if
Speaker 14: it's Kamala Harris, then it's another picture. She also increases
Speaker 14: the deficit, maybe a little less. Those are factors I
Speaker 14: think that are going to become pretty important as we
Speaker 14: get past the election and see what happens next.
Speaker 2: I'm a big fan of municipal bond market RJ. I
Speaker 2: love to get your thoughts on munich here.
Speaker 5: You couldn't just wait till Friday.
Speaker 14: Come on, man, I know you have the MUNI moment,
Speaker 14: but I'm happy to do it here too. You know,
Speaker 14: it's funny the muni market came into the year at
Speaker 14: a relatively rich point, and for those who are in munis,
Speaker 14: it tends to be a playground for individuals who want
Speaker 14: relatively high quality investments. You know, the average credit quality
Speaker 14: of the uni markets around double a much higher.
Speaker 8: Than corporate bonds.
Speaker 14: They also are very drawn by the tax benefits of
Speaker 14: interest free tax free interest, and so that's going to
Speaker 14: bring in people who can benefit the most from it,
Speaker 14: people who are the top few tax brackets. So the
Speaker 14: year started out with a lot of optimism on bond returns.
Speaker 14: Higher absolute yields that increases the value of that tax
Speaker 14: exemption in a sort of taxable equivalent sense. So demand
Speaker 14: has been pretty good for muni's pretty much all year,
Speaker 14: but that meant we started the year at a sort
Speaker 14: of a rich point, and then supply has served. We've
Speaker 14: had one of the busiest supply years in a very
Speaker 14: long time. It's up like thirty five percent year of
Speaker 14: a year. It might even be a record year when
Speaker 14: it's all said and done. So when you supply and
Speaker 14: demand and relative price matter, Muni's on a year to
Speaker 14: day basis are not up quite as much.
Speaker 3: I said.
Speaker 14: Treasuries are up four the ags for eight Muni's with
Speaker 14: no adjustment for their tax benefits are only up around
Speaker 14: two point nine percent two point two percent, depending upon
Speaker 14: which index you look at. And that's because of that
Speaker 14: supplied demand pricing picture that we've seen. Right now, Muni's
Speaker 14: look sort of reasonably valued, maybe a little bit to
Speaker 14: the rich side, but their tax benefits are still bringing
Speaker 14: people in. The Munique credit picture looks really good. A
Speaker 14: number of years ago, people used to fret about unique
Speaker 14: credit quality crumbling all over the place at the state level,
Speaker 14: at the local level. Right now it's very strong, great stuff.
Speaker 3: See Munich. Yeah yeah, yeah, yeah, Focus, Get Friday, Get ready.
Speaker 3: R J.
Speaker 2: Gallow, Senior portfolio manager Fixing Home and Federated at Hermes,
Speaker 2: given us the breakdown here on the fixed income markets.
Speaker 3: Again.
Speaker 2: Year to date, returns across the fixed income space has
Speaker 2: been solid, you know, kind of mid high single digits
Speaker 2: and even better performs coming off that April low there
Speaker 2: that we saw a little bit of a dip there,
Speaker 2: so as good returns for fixed income investors, and that
Speaker 2: is a good thing.
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Speaker 5: I'm Alex d alongside Paul Sweeney. This is Bloomberg Intelligence Radio.
Speaker 5: We bring you all the top news and business, economics
Speaker 5: and finance. There are lens of our Bloomberg Intelligence folks.
Speaker 5: They cover two thousand companies and one hundred and thirty
Speaker 5: industries all around the world. And every Monday at this
Speaker 5: time we tap our great folks over at Bloomberg BNF
Speaker 5: originally or previously known as New Energy Finance. They are
Speaker 5: the team in Bloomberg that tracks and analyzes the energy transition,
Speaker 5: and I mean like anything from power to transport, commodities
Speaker 5: to financing and government and government policy basically. So joining
Speaker 5: us now is Tommins Rowlands Rees. He is a b
Speaker 5: an EF head of research, so he does it all.
Speaker 5: We wanted to focus though today on the Inflation Reduction Act.
Speaker 5: It is very much on the chopping block and it
Speaker 5: feels like a buyinary trade when it comes to the
Speaker 5: US elections come November. What has happened over the last
Speaker 5: two years in terms of deployment and projects and what
Speaker 5: is still left to do.
Speaker 15: I think the main thing that has happened, you know,
Speaker 15: you'll see most of the money will have flowed through
Speaker 15: into the build out of the power sect, particularly into
Speaker 15: solar and wind and storage. Now there's a question of
Speaker 15: whether that was all going to get built anyway, and
Speaker 15: what you would say the real value of the Inflation
Speaker 15: Reduction Act. There is been more of a buffer against
Speaker 15: changing commodities prices. So when the Act, when the Act
Speaker 15: was passed, natural gas was pretty expensive. It's come down
Speaker 15: a whole lot since then. So at the time it
Speaker 15: you know, you might have argued that that stuff was
Speaker 15: going to get built anyway, but it it it. Yeah,
Speaker 15: with the drop in prices, I think that actually maybe
Speaker 15: it wouldn't happen, So it gave that stability to that sector.
Speaker 15: Then outside of that, one of the big things we've
Speaker 15: seen is the development of supply chains. You know, where
Speaker 15: the US was really at a standing start with regards
Speaker 15: batteries and so in particular, now we're seeing a lot
Speaker 15: of factories being announced in different states across the country.
Speaker 15: And then finally a real uptick in investment in hydrogen
Speaker 15: electoralizer orders have significantly ticked upwards. Those are some of
Speaker 15: the it's kind of kept the power sector on the
Speaker 15: steady path that was on, and then it's really poured
Speaker 15: fertilizer on the ground of some of these more nascent
Speaker 15: technologies in.
Speaker 2: Your world of you know, kind of managing this transition
Speaker 2: to a cleaner energy. What is the political risk that
Speaker 2: for this market, for this part of the world, if
Speaker 2: we were to get a reelection of former President Trump,
Speaker 2: what would that mean.
Speaker 15: It's something we get asked about a lot, and actually
Speaker 15: we're producing some research right now to really answer that question.
Speaker 15: I think one of the things that we have concluded
Speaker 15: is that actually the main provisions of the Inflation Reluction
Speaker 15: Act are probably safe for a couple of reasons. One
Speaker 15: is that in the US, it's so hard to change legislation,
Speaker 15: you know, with you don't have a trifector, and you know,
Speaker 15: whatever the result of the election, a trifector is somewhat unlikely.
Speaker 15: And even if there was a Republican trifector, a lot
Speaker 15: of the investment from the Inflation Reduction Act is going
Speaker 15: into states and into districts represented by Republicans, So there's
Speaker 15: they would have to have a really big majority in
Speaker 15: both chambers of the House. So I think there are
Speaker 15: certain aspects of the Inflation Reduction Act that could change.
Speaker 15: There's how the laws are implemented. There's a lot of
Speaker 15: regulations still being written around some of the tax credits,
Speaker 15: and that could be written differently because that happens in
Speaker 15: government agencies which report up to the executive branch. But
Speaker 15: I think there's less risk than maybe one might assume how.
Speaker 5: Much money still needs to get deployed. I just was
Speaker 5: really struck by Sarah Week for example. It's where all
Speaker 5: the energy people go and talk about stuff. It's a
Speaker 5: big conference, happens in Houston every year, happens in March,
Speaker 5: and Senator Secretary Granholm is really like, guys, come and
Speaker 5: get money, like we have it, we will give it
Speaker 5: to you. Come to us to let us give us money.
Speaker 5: And some people don't like that. Some people are like
Speaker 5: that just shows that we're spending money on stuff that
Speaker 5: we don't necessarily need to spend money on.
Speaker 15: Yeah, I mean, it's it's an interesting one because for
Speaker 15: the most part, the Inflation Reduction Act is not a
Speaker 15: pot of money, in that the majority of the investment
Speaker 15: would come through tax credits, which are really just dependent
Speaker 15: on how much stuff gets built. Where there is a
Speaker 15: pot of money, and I should have come in with
Speaker 15: the actual figure is the amount that's been authorized for
Speaker 15: the Loan Program's office. So and that is the one
Speaker 15: that is really politically under threat because that you know,
Speaker 15: that was the the program in the past that was
Speaker 15: associated with Cylendra. So there is this perception that this
Speaker 15: is money being allocated to two companies that may fail,
Speaker 15: and there's there's a lot of that money still yet
Speaker 15: to be spent currently, and it's it's it's an ongoing process.
Speaker 2: What industries are doing relatively well versus their bench marks,
Speaker 2: versus maybe some industries that aren't. We were just talking
Speaker 2: to Brian Egger from Boomberg Intelligence about the cruise industry
Speaker 2: and their carbon footprint and trying to manage that. Which
Speaker 2: industries are doing well, which maybe you're struggling.
Speaker 15: I suppose on I think of things on a really
Speaker 15: macro level, so you know, I divide the world into
Speaker 15: power and transport and industry, which obviously is a real,
Speaker 15: real simplification. Most of them are. Momentum in decarbonization to
Speaker 15: date in the US has been in the power sector, okay,
Speaker 15: and most of that has been because of gas plants
Speaker 15: replacing coal plants, which doesn't get you to zero. It
Speaker 15: just brings emissions down in the near term. So wind
Speaker 15: and solar is then the next wave, and that's really
Speaker 15: starting to kick in now. So there is good progress
Speaker 15: in power. Then transport historically hasn't had great success in
Speaker 15: reducing its emissions, but I think we're just at the
Speaker 15: start of the electric vehicle wave, which is gonna, I think,
Speaker 15: be a slow burn over the a couple of decades,
Speaker 15: because even if electric vehicle sales increase quickly, it takes
Speaker 15: time for the whole vehicle fleet to turn over. But
Speaker 15: there is a downward trajectory in transport. So it's really
Speaker 15: industry where what we call the hard to abate sectors,
Speaker 15: where there's.
Speaker 5: More work to be done, like some men steel that
Speaker 5: kind of fun stuff before I let you go. What
Speaker 5: I've also noticed when it comes to the IRA specifically,
Speaker 5: it really helped ignite the demand side of it, right
Speaker 5: excuse me, the supply side of it with tax credits,
Speaker 5: but not the demand side. So the gap between here's
Speaker 5: my cool hydrogen thing that I just built and then
Speaker 5: here's this company buying that cool hydrogen thing that I
Speaker 5: just built is wide. Yes, how do we solve that?
Speaker 15: I mean, that's very especially true for hydrogen, and that
Speaker 15: is fundamentally the issue around the policy support that hydrogen
Speaker 15: receives is it's so much has been focused on supply,
Speaker 15: but I think it speaks to a deeper issue of
Speaker 15: what policy has to come next, because I think the
Speaker 15: nature of the Inflation Reduction Act was really throwing a
Speaker 15: lot at all these different industries to get things kick started.
Speaker 15: It's a bit like putting petrol in the engine. Maybe
Speaker 15: not the best analogy such, but it put petrol in
Speaker 15: the end of the energy transition in the US. But
Speaker 15: whatever comes next needs to be more like a steering
Speaker 15: wheel because it's established this momentum. But there are all
Speaker 15: these questions now that are you know, we never knew
Speaker 15: we'd have this problem of oh, there's too much supply,
Speaker 15: where's the demand because at the time there was no
Speaker 15: supply in no demand. Yeah, so the next wave of
Speaker 15: a legislation has to address that, whether it's some hydrogen
Speaker 15: or a steering wheel.
Speaker 4: I like that.
Speaker 5: We're gonna use that, We're gonna steal it, all right, Thomas,
Speaker 5: thanks a lot. Thomas Rowlands rees he is a bl
Speaker 5: Bloomberg be any app head of research.
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