Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Business Wait inside from the reporters and
Speaker 2: editors who bring you America's most trusted business magazine, plus
Speaker 2: global business, finance and tech news. The Bloomberg Business Week
Speaker 2: Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
Speaker 3: Carol Master, along with Shanali Bossick. Tim is out today.
Speaker 3: We did Chanali get through this week's inflation reports. We
Speaker 3: had retail sales, consumer sentiment, a lot of things, and
Speaker 3: as we've been saying, the next focal point is really
Speaker 3: next week's FED meeting.
Speaker 4: Yeah, and until then, it's kind of a holding pattern,
Speaker 4: is it. Though we do know some things inflation being
Speaker 4: a little hotter than expected across a.
Speaker 3: Few metrics we know the Fed cares about absolutely, but.
Speaker 4: Also that some of the economic data is starting to weaken,
Speaker 4: which also is not weak enough though to justify not
Speaker 4: cutting rates.
Speaker 3: Well, this is why it's like kind of difficult, I think,
Speaker 3: for investors to figure out it, which is why we
Speaker 3: lean on a couple of folks here at Bloomberg. Let's
Speaker 3: bring in Bloomberg News Economics reporter Steve Matthews. He's out
Speaker 3: there in our Atlanta Bureau and Bloomberg News Economics editor
Speaker 3: Molly Smith here in studio, both of you writing about
Speaker 3: the FED meeting and kind of the backdrop. Steve, I
Speaker 3: want to start with you. It is a top the
Speaker 3: most read on the Bloomberg on this Friday, has been
Speaker 3: there all day about the FED scene sticking with three
Speaker 3: cuts here in twenty twenty four. We get an update
Speaker 3: next week. Tell us about your thinking in the survey
Speaker 3: that you guys kind of came to this inclusion.
Speaker 5: Yeah, it's really interesting. We had a survey of forty
Speaker 5: nine economists and it's a very close call. It's not
Speaker 5: an easy call at all, but a majority of them
Speaker 5: believe that the FED will stick with three right cuts
Speaker 5: in the blot in the summary of Economic projections next week.
Speaker 5: More than a third say that they will shift to two.
Speaker 5: We've had we had a bad inflation report in January,
Speaker 5: just as past week we had a bad CPI worson
Speaker 5: expected and worson next affected a PPI. All of that
Speaker 5: goes into the FEDS inflation measure, the pc measure. So
Speaker 5: the thinking is that there will be at least it
Speaker 5: will take just two of the nineteen FMC participants to
Speaker 5: change their view on dots to shift from three cuts
Speaker 5: as being the median to two cuts being the median,
Speaker 5: and that could well jolt markets because markets are really
Speaker 5: not looking for that. So it's a close call and
Speaker 5: it's going to be really really interesting.
Speaker 6: Mollie.
Speaker 4: Let's bring you in here to talk about what it
Speaker 4: means for what comes next, because even though people will
Speaker 4: be looking at that dot plot, what will fetch your
Speaker 4: Powe will say, the reality is between that FOMC meeting,
Speaker 4: the one we're having next week, and the next set
Speaker 4: of economic data before you have the potential set of
Speaker 4: cuts that you'll see, there's a lot of uncertainty.
Speaker 7: Yeah, and I don't think powers are going to give
Speaker 7: us a great idea of timing. It's all been so
Speaker 7: vague so far from him, from some other of the
Speaker 7: FED speakers.
Speaker 3: Say though, that we would get rate cuts this year.
Speaker 7: Yes, I mean, I mean look where right now at
Speaker 7: March fifteenth. There's a while ago from now to the
Speaker 7: end of the year. So and I think if anything
Speaker 7: more of what you hear that's a little bit more
Speaker 7: specific than this year is later this year, as in
Speaker 7: second half of this year. So I still think that
Speaker 7: I mean, you obviously have next week being the upcoming
Speaker 7: FED meeting. FED meeting, not really a whole lot of
Speaker 7: people seeing may as likely for a starting point June
Speaker 7: even less likely after this week. At that point, that
Speaker 7: gets you closer to July, and then September would be
Speaker 7: the next one. Then you're in the second half of
Speaker 7: the year, so still a very.
Speaker 3: Good closer to a presidential election. Even more so, well,
Speaker 3: you know, Steve, I mean, when it comes down to
Speaker 3: the data points, right, not all data points are equal,
Speaker 3: and I know the FED has a dual mandate, right,
Speaker 3: They're watching certainly the inflation rate. They're also watching unemployment,
Speaker 3: the labor market, maybe some softness, a little bit of
Speaker 3: still pretty tight. Inflation is what it's all about, right,
Speaker 3: and the FED is going to be vigilant on that,
Speaker 3: and that's going to determine ultimately how many rate cuts
Speaker 3: they do when we get to the end.
Speaker 8: Of the year. Yeah.
Speaker 5: Really, over the last year year and a half, inflation
Speaker 5: has been basically the only thing they've been looking at
Speaker 5: when they were raising rates. When they stopped, we've had
Speaker 5: basically good inflation reports until this year, and now that
Speaker 5: is slightly changing though in the last couple of months,
Speaker 5: the unemployment rate is ticked up to three point nine percent.
Speaker 5: It's the highest in two years. You're seeing a little
Speaker 5: bit more balance in the discussion of the different FED
Speaker 5: officials and those who are saying that they're going to
Speaker 5: stick with three rate cuts this year. Many of them
Speaker 5: are pointing to what's happening with the labor market that
Speaker 5: you know, they may be they may not want to
Speaker 5: change to two cuts because they want to have that
Speaker 5: option open to move relatively quickly if things get worse
Speaker 5: for the labor market.
Speaker 4: Steve, what about the election? You know, Carol alluded to
Speaker 4: it a little bit here, but given how much pressure
Speaker 4: there is on the FED to fight inflation, and inflation
Speaker 4: going into the election is still such a massive concern
Speaker 4: for so many Americans, wouldn't there be some pressure on
Speaker 4: the FED here equally not to cut well.
Speaker 5: The Fed, no doubt, is really really focused on inflation,
Speaker 5: and you will hear words every time that Chair Palell speaks.
Speaker 5: He's going to say, we're firmly committed to getting inflation
Speaker 5: back to the two percent targeted and that is an
Speaker 5: overriding goal and it causes pain for everyone, And he's
Speaker 5: going to say all of the right things to kind
Speaker 5: of express concern on inflation. So that is a factor,
Speaker 5: but the timing of meetings is also a factor of
Speaker 5: One of the leading economists, Vince ryan Hard, he used
Speaker 5: to work with the FED, was making the point that
Speaker 5: in some ways it will be easier for the FED
Speaker 5: to move in June than September. At one point he
Speaker 5: was forecasting the first move in September. Now he's in June.
Speaker 5: Because if you had your first move in September, which
Speaker 5: if you had two cuts, it might make sense to
Speaker 5: do September and December. If you were doing that, that
Speaker 5: would be like the last meeting before the presidential election.
Speaker 5: And do you really want to be cutting rights the
Speaker 5: last meeting before the presidential election. I mean, there would
Speaker 5: be lots of accusations. As much as the FED is
Speaker 5: avowedly nonpartisan, there would be accusations that were moving for
Speaker 5: political reasons, and they want to avoid that impression altogether.
Speaker 7: Yeah, just to piggyback off of what Steve said there,
Speaker 7: that in addition to the FED preaching that they are
Speaker 7: firmly committed to bring inflation to two percent, they will
Speaker 7: just as equally be preaching that they are an independent institution,
Speaker 7: that they are not political and that they will not
Speaker 7: wait into politics whatsoever. So I kind of have a
Speaker 7: hard time seeing how you make I think the argument
Speaker 7: could go either way. If if you cut in June
Speaker 7: versus September, of like, how that could be politically motivated
Speaker 7: in either way. I think there are a lot of
Speaker 7: ways to slice and dice that. But either way, they're
Speaker 7: going to be focused on inflation and what the data
Speaker 7: tells them.
Speaker 3: Yeah, and I will say in talking with I have
Speaker 3: a member of the White House Economic Team. We talked
Speaker 3: with Daniel Hornig ahead of remember his name, Deputy director
Speaker 3: with the National Economic Council yesterday and when I asked
Speaker 3: him something about the two percent target, He's like, hey,
Speaker 3: we don't tell the FED what to do. We stay
Speaker 3: away from that. Steve having said that, you know, I
Speaker 3: think about when you're like driving on ice, and I'm
Speaker 3: not saying that that this is kind of what the
Speaker 3: economic situation is, but you know, how you top the
Speaker 3: brakes so that, you know, could the FED try and
Speaker 3: do something earlier rather than later and then maybe leave
Speaker 3: it alone for a couple of months to give it
Speaker 3: some breathing room just in case that there is like
Speaker 3: you talked about some signs of maybe some slowing down
Speaker 3: in the labor market, just to make sure we don't
Speaker 3: ultimately slide into some kind of signal downturn.
Speaker 5: That is absolutely an option. You heard Vice Chair Jefferson
Speaker 5: in a recent speech before the FED went into blackout say,
Speaker 5: you know he referred back to the mid nineteen nineties
Speaker 5: when Alan Greenspan had a right cut and then pause
Speaker 5: for several meetings before resuming cuts. And you know he
Speaker 5: was kind of holding that out as you know, one
Speaker 5: option that they could do. They could do a move
Speaker 5: and then hold for on pause for a few meetings.
Speaker 5: And you know that is absolutely an option. And if
Speaker 5: they're not really sure or if they want to keep
Speaker 5: their options open, that would be a good way to
Speaker 5: do it real quickly.
Speaker 3: Molly ten seconds. What would surprise you in terms of
Speaker 3: the FED meeting next week.
Speaker 7: Probably looking more at the outlook for their inflation projections,
Speaker 7: if they saw maybe mark those up a bit, wouldn't
Speaker 7: be surprised as much if maybe there were modifications to
Speaker 7: the growth forecast, But seeing changes to the inflation on
Speaker 7: that would definitely be market moving.
Speaker 3: That would certainly get the market investors' attention us, Steve,
Speaker 3: same thing ten fifteen seconds to you. A big surprise
Speaker 3: would be what from the FED next week?
Speaker 5: If anyone dissents, I would be surprised because I think,
Speaker 5: you know and talking about the FED big non political.
Speaker 5: I think this is a period of time when they
Speaker 5: want to be united. Some of them are appointed by Republicans,
Speaker 5: some by Democrats. They want to show that they are
Speaker 5: non political, don't they.
Speaker 3: At the end of the meeting, all the hands go
Speaker 3: in the middle of the table and they go yay,
Speaker 3: all for one. No if they don't hold by y'all
Speaker 3: come by ya all right, guys, thanks so much, have
Speaker 3: a great week and Molly Smith, economics edit at Bloomberg News.
Speaker 3: Here in studio. Steve Matthews, of course, our economics reporter
Speaker 3: at Bloomberg News out there in Atlanta Bureau.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Can'tch just
Speaker 2: Live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play and and brout Auto with a
Speaker 2: Bloomberg Business app or wan't us live on YouTube.
Speaker 3: Hey, our next guest says, the alchemy of low rates
Speaker 3: is over. Feels like a very timely conversation. Considering we're
Speaker 3: getting ready for the next FED meeting next week, let's
Speaker 3: get to it. Jeff Klingelhoffer is head of investments for
Speaker 3: Thornberg Investment Management. They've got some forty four billion dollars
Speaker 3: in assets under management. Joining Chanel and me here in studio. Welcome, Welcome,
Speaker 3: How are you doing well?
Speaker 9: Thank you for having me.
Speaker 3: Well, it's great to have you here. And I feel
Speaker 3: like it's an environment, depending on the day, depending on
Speaker 3: the data points, kind of certainly shapes the mood of
Speaker 3: investors a lot to digest. Is there a way that
Speaker 3: you sum up today's investment environment?
Speaker 9: Yeah, I think honestly, the way I would sum it
Speaker 9: up is we are looking to the forward, looking for
Speaker 9: the FED. Right, We're looking to a lot of complacency
Speaker 9: in the market, a lot of uncertainty. The data tells
Speaker 9: us that, unfortunately, the consumer isn't nearly as strong as
Speaker 9: the data is telling us. They're taking on more debt,
Speaker 9: they're dipping into savings, they're defaulting on that additional debt.
Speaker 9: Yet here we have.
Speaker 3: Market talked about.
Speaker 6: Oddly.
Speaker 9: Yeah, markets are very complacent. Pe multiples looking forward are
Speaker 9: very high. Right, spreads on bonds are very very tight,
Speaker 9: Earnings expectations run very high. So what I would say is,
Speaker 9: it's not that embarrashed. We're really really struggling to square
Speaker 9: up what we're seeing in the data versus what markets
Speaker 9: are telling us.
Speaker 4: You know, I think Wall Street does this thing. Big investors,
Speaker 4: they shun off, they shrug off the pains and the consumer.
Speaker 4: But there is a point at which the real economy
Speaker 4: starts to meet the market. And where is that overlap?
Speaker 9: Yeah, I mean I would characterize it. There's been a
Speaker 9: bit of a runaway train recently in terms of sentiment
Speaker 9: to the positive side. And what I worry about as
Speaker 9: we start to see data points that continue to affirm
Speaker 9: the economy is slowing, higher rates are actually having an
Speaker 9: impact that we may see the exact opposite and markets
Speaker 9: pull back. We'll be watching the Fed very closely next week. Right,
Speaker 9: we've in the face of a couple of very strong
Speaker 9: inflation prints the market. The Fed is looking at the
Speaker 9: dot plot. Because the Fed tells us they're going to
Speaker 9: cut rates three times this year. I continue to push back.
Speaker 9: They told us they were going to be very reactive
Speaker 9: on the way up. They need to see inflation above
Speaker 9: two percent, and they needed to stay think it was
Speaker 9: going to stay there, right, the famous transitory language. I
Speaker 9: worry even the FED themself elves they might be making
Speaker 9: a policy mistake on the belief that they're going to
Speaker 9: cut rates in the face of this higher inflation in
Speaker 9: order to prevent that true slowdown.
Speaker 3: So are you saying, because we've had like Towrdsen's lack
Speaker 3: of apollo management, We've all been talking about it was
Speaker 3: a most red story in the Bloomberg that we could
Speaker 3: maybe not get rate cuts this year. Maybe we shouldn't
Speaker 3: get racuts this year.
Speaker 9: Yeah, I'd be a little bit hesitant to say we're
Speaker 9: not going to see a single rate cut. That's where
Speaker 9: I was leading into this, But in reality, the Fed
Speaker 9: is telling us they're probably going to cut rates. What
Speaker 9: I would discount is I don't think they're going to
Speaker 9: cut three times. I think a reasonable base case for
Speaker 9: my view is we'll probably get a single rate cut
Speaker 9: in recognition that inflation isn't running at nine percent, it
Speaker 9: is coming down to three.
Speaker 8: But they don't maybe they.
Speaker 9: Don't need to actually get to two in an incredibly
Speaker 9: fast way, so they're probably going to hold it there
Speaker 9: for a little bit. Longer and adjust their expectations higher.
Speaker 4: Now, the other question is when we've been talking kind
Speaker 4: of just before we got on air about how tomorrow
Speaker 4: is actually the second anniversary since the FED began this
Speaker 4: FED rate hiking cycle, So how long before begins the
Speaker 4: rate cutting one?
Speaker 3: Does it have to be after the election?
Speaker 9: I don't think it has to be after the election.
Speaker 9: I mean my base case would be towards the late summer.
Speaker 9: But what I would say is Wall Street, We on
Speaker 9: Wall Street made a mistake on the back of a
Speaker 9: very fast, very high interest rate hiking cycle. It was
Speaker 9: reasonable to assume that those long and variable lags would
Speaker 9: be a little bit shorter than we're historically accustomed to.
Speaker 9: But history tells us it's about two years before higher
Speaker 9: rates actually start to have a byte. And to your point,
Speaker 9: here we sit two years later and it is having
Speaker 9: a bite. So I think it's around the corner. It
Speaker 9: is slow, but I think it's around the corner, right,
Speaker 9: because we see every single day the data is coming
Speaker 9: in just slightly weaker than markets expect to make.
Speaker 3: The connection between like an Nvidia that's up eighty percent
Speaker 3: this year with the stuff we're seeing on everyday Americans
Speaker 3: what's the connection that maybe we should be making.
Speaker 9: I don't know if we should be making a connection.
Speaker 9: And that's one of the challenges. Right We've got a
Speaker 9: very bifurcated market. A couple of very large companies the
Speaker 9: hype around AI are really what's driving the market higher.
Speaker 9: But the entirety of the rest of the S and
Speaker 9: P five hundred, right the four hundred and ninety three,
Speaker 9: if you will, they're struggling.
Speaker 3: But we have seen a little bit of a broadening out.
Speaker 9: We have, but just earlier this week we saw a
Speaker 9: survey out of small businesses that suggest forward looking hiring
Speaker 9: plans are coming down, and they're consistent with that slowdown,
Speaker 9: and so there is a very big disconnect. And even
Speaker 9: on some of the AI we have concerns because they're
Speaker 9: spending a lot of money historically a lot more than
Speaker 9: they have spent, and their return on that invested capital
Speaker 9: is coming down. So if Wall Street doesn't see that
Speaker 9: return pick up, I worry that that sentiment could soften.
Speaker 4: Their So you know how there was a point in
Speaker 4: time where people looked at some of these big tech
Speaker 4: companies and almost saw them as a haven. Here do
Speaker 4: you think that that same dynamic is starting to face
Speaker 4: the semiconductor stocks. Do you think that in some ways
Speaker 4: that if you believe that a job market is softening,
Speaker 4: or if you believe that there are some struggles in
Speaker 4: the broader environment, that there's still would be investment potentially
Speaker 4: int AI. I mean, does that start to also drop
Speaker 4: off in a way that no longer justifies these valuations.
Speaker 9: Well, what I'll say is, I think semiconductors traditionally are
Speaker 9: actually a fairly cyclical investment and they've bucked that trend
Speaker 9: because of the hype around AI, and every company in
Speaker 9: the world feels like they have to jump in, they
Speaker 9: have to play catchup. But I think, just like the
Speaker 9: Internet or just like robotics, right, AI is something that's
Speaker 9: going to really work to shape the world, not over
Speaker 9: the next one or two or three years. It's over
Speaker 9: the next decades.
Speaker 3: To runways longer.
Speaker 9: So the cycle probably should be longer. But the hype
Speaker 9: has really moved forward to a very savage question.
Speaker 3: I love the savage question.
Speaker 4: The savage question is if companies are investing in this
Speaker 4: environment where dollars are harder to come by, do they
Speaker 4: invest in AI or do they invest in the marginal job.
Speaker 9: I think over time it's going to have to move
Speaker 9: back towards that marginal job because again, what we're not
Speaker 9: seeing is the return on invested capital. So there's a
Speaker 9: bit just like in markets, there's that fear of missing
Speaker 9: out FOMO you have to rush in because it's worked
Speaker 9: across twenty twenty three and twenty twenty four. I feel
Speaker 9: like companies are also playing that catch up. They hear
Speaker 9: their peers are investing in AI, and therefore they have
Speaker 9: to invest in AI. But that should change.
Speaker 3: Do you invest in? So is there an AI play
Speaker 3: that you guys have been investing too in because do
Speaker 3: you kind of have to or your investors are asking
Speaker 3: you to.
Speaker 9: It's less because of that. But what I would say
Speaker 9: is what we want to find is companies with very
Speaker 9: strong modes. And so in the face of all of
Speaker 9: this uncertainty, this data that suggests on one level the
Speaker 9: economy is doing well GDP for instance, but then gross
Speaker 9: domestic income should say the same thing, but it says
Speaker 9: something very opposite. We're really focusing on companies that surround
Speaker 9: the mode around AI. So companies like sk Heinex right
Speaker 9: still involved in that cycle, but not wrapped up in
Speaker 9: nearly the same amount of hype and pe multiple Where else.
Speaker 3: Are you putting Would you commit new money in this environment?
Speaker 9: As you lay it out, Yeah, The biggest takeaway from
Speaker 9: what I'm talking with clients this week is that uncertainty
Speaker 9: is very high. It's not that I think we are
Speaker 9: heading into a recession. It's that the possibility when we
Speaker 9: look at data and we pair these disparate indicators, right,
Speaker 9: things like the establishment survey versus the household surveys, very
Speaker 9: very different thing.
Speaker 3: We've talked a lot about the mixed data points that
Speaker 3: make it tough.
Speaker 9: It's pull back. It's just you don't have to be
Speaker 9: investing in these runaway sectors in order to be involved
Speaker 9: in the markets. So fixed income continues to look tremendously interesting.
Speaker 8: Right.
Speaker 9: Income opportunities across the globe are very high. Global dividend
Speaker 9: pain stocks look very attractive to it.
Speaker 4: I think so on fixed income with where spreads are today.
Speaker 9: Less on spreads, but treasuries right and low four percents
Speaker 9: is still historically, at least over a reasonable history the
Speaker 9: last fifteen twenty years is a very interesting starting place.
Speaker 9: But the reason why I think fixed income in particular
Speaker 9: is interesting is because we debate what the FED is
Speaker 9: going to do. I don't think the next move is
Speaker 9: going to be a hike. It will be a cut.
Speaker 9: I do think it's much longer. But the beauty of
Speaker 9: it is central banks around the world can cut if
Speaker 9: we get that recession.
Speaker 3: Wait did you just say I don't think the next
Speaker 3: move is going to be a hike? So is that
Speaker 3: even a possibility we should keep in our narrative.
Speaker 9: I think it's absolutely we need to keep it in
Speaker 9: our narrative. Right, central banks run an objective where they
Speaker 9: have to react to incoming data. The challenges is inflation
Speaker 9: has stopped falling, and if anything, it's actually started to
Speaker 9: reaccelerate in some sectors. So I think it's premature to
Speaker 9: talk about a hike, but it's not off the table.
Speaker 3: Wow, great conversation. Come back soon. Jeff Klingelhoff, our head
Speaker 3: of investments at Thornberg Investment Management, joining us in studio.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
Speaker 2: each weekday starting at two pm Easter on Applecarplay and
Speaker 2: Android Auto with the Bloomberg Business ad You can also
Speaker 2: listen live on Amazon Alexa from our flagship New York station,
Speaker 2: just say Alexa playing Bloomberg eleven thirty.
Speaker 3: We've been watching a few commodities in the mining space.
Speaker 3: This is prices for two of the world's most important
Speaker 3: mind commodities are diverging quickly, with copper ratling above nine
Speaker 3: thousand a ton as supply cuts into hits the market,
Speaker 3: and iron ore is sinking as demand headwinds mount as well. Copper,
Speaker 3: by the way, surging about five percent this week. And
Speaker 3: then in the iron ore market, you've got futures falling
Speaker 3: below one hundred dollars a ton for the first time
Speaker 3: in seven months. Has to do with China investors betting
Speaker 3: that China's years long property crisis will run through twenty
Speaker 3: twenty four, keeping a lid on demand, so we continue
Speaker 3: to see some pressure on that sector. We've got a
Speaker 3: great guest, we.
Speaker 4: Sure do, and he's joining us from our Bloomberg News
Speaker 4: bureau in Chicago, William Chen, Managing director and head of
Speaker 4: Commodities at Singapore based exchange conglomerate SGX Group. Well, how
Speaker 4: are you welcome? And welcome to a Chicago bureau joining
Speaker 4: us from the US commodities center of the country.
Speaker 8: Really, I'm very well, thank you for having me.
Speaker 10: It's a huge delight to be in Chicago, which is
Speaker 10: really home to one of the earliest trading of commodities contracts.
Speaker 4: How do you see the ability for SGX to really
Speaker 4: expand into different commodities markets and really build on the
Speaker 4: client base that you have trading commodities on your Singapore
Speaker 4: based exchange.
Speaker 10: You know the nature of what we do in the
Speaker 10: Singapore Exchange is to be liquidity builders of key things,
Speaker 10: which represents seaborne flows of commodities going from web to
Speaker 10: east and east to west, in other words, point A
Speaker 10: to point B. So a lot of what we do
Speaker 10: is to mirror what's needed from a resmaragement perspective.
Speaker 8: Some of the things that we have done in the.
Speaker 10: Past would be stuff which is related to industrialization in Asia,
Speaker 10: so we've looked at are in all, shipping is a
Speaker 10: key part of what we do, and recently we've been
Speaker 10: focusing on some of the newer trends in the markets,
Speaker 10: which includes things like cobalt and lithium which are crucial
Speaker 10: in the energy transition story.
Speaker 3: Well, and I am curious about China specifically. How do
Speaker 3: you think you guys can benefit specifically from the general
Speaker 3: loss of confidence in China. Singapore has long played on that,
Speaker 3: for example, people who want to bet on China but
Speaker 3: are too wary to really wade in. Is this good?
Speaker 3: Can you guys specifically benefit of that?
Speaker 10: You know, the key role of an exchange is really
Speaker 10: very much a arbita of a credible price. So in
Speaker 10: many ways, people are typically very surprised when we talk
Speaker 10: about Singapore being the reference price of commodity contracts which
Speaker 10: are traded around the world. The very essence of the
Speaker 10: role we play is one of price discovery. In other words,
Speaker 10: consumers and producers would come to the estecs to look
Speaker 10: for a fair price. You know what kind of determines
Speaker 10: the marginal demand and supply which makes up the price
Speaker 10: that goes into physical contracts. So that's a price that
Speaker 10: that's a role that we play, and we play that
Speaker 10: where the prices are going up or where the prices
Speaker 10: are going down.
Speaker 4: When you look at the macro environment right now, where
Speaker 4: do you think that there are commodities with the most
Speaker 4: promise given where many global economies are now and demand
Speaker 4: that would drive interest in those areas. Do you think
Speaker 4: that there are certain things that you trade now that
Speaker 4: have a lot of upside room.
Speaker 10: You know, I'd love to talk about iron ore because
Speaker 10: iron ore and I really love to phrase you know
Speaker 10: that you use at the very beginning of the program,
Speaker 10: which is the invasion of iron ore. It really very
Speaker 10: much mirrors the evolution of iron ore from a product
Speaker 10: fourteen years ago there was no iron ore futures and
Speaker 10: today it's a product that's grown to one that's traded
Speaker 10: four and a half billion tons of paper back in
Speaker 10: twenty twenty three.
Speaker 8: Now this is a huge contract.
Speaker 10: It's grown, it's got a lot of potential to do
Speaker 10: a lot more, and a lot of that is mirroring
Speaker 10: the role of the role of.
Speaker 8: Iron ore in the urbanization story.
Speaker 10: So while some quarters some clans look at iron ore
Speaker 10: as a China reference because China is the world's largest
Speaker 10: producer of steel.
Speaker 8: Urbanization is a global story.
Speaker 10: So that's one big thing which is kind of evolving
Speaker 10: iron ore into a global story. We also talk about
Speaker 10: the key input of iron o into the making of steel,
Speaker 10: and steel is a key input into the energy transition story.
Speaker 10: So we see iron o to be one which is
Speaker 10: growing and evolving into a global story.
Speaker 3: But we'll kind of play off of again some of
Speaker 3: the uncertainty over in China specifically, I'm curious how you
Speaker 3: get more commodities companies iron ore and others to build
Speaker 3: up your to build up their presence specifically on your
Speaker 3: exchange on SGX. How do you do that?
Speaker 10: So the typical clan segment that we attract would be
Speaker 10: the physical hatches. So both iron ore producers still producers,
Speaker 10: they would come into the astects for hatching purposes. Now
Speaker 10: the product itself is evolving into one from a hatching element,
Speaker 10: to a trading element, to now one of a financial elements.
Speaker 10: In others, iron oy is finding itself into the connorstone
Speaker 10: of many global commodity portfolios. And a lot of that
Speaker 10: mirrors what we say just earlier around the role of
Speaker 10: iron evolving into one of a of a global commodity.
Speaker 4: What about outside of iron ore. You we're asking about
Speaker 4: commodities with upside risk, but what about those with downside risks?
Speaker 4: There are still a lot of recession fears baking through
Speaker 4: the economy, certainly in the United States, but other global
Speaker 4: economy is giving global Central bank great hiking cycles. You
Speaker 4: think about next week alone, forty percent of the world's
Speaker 4: GDP is expected to have a Central Bank meeting in
Speaker 4: which many will make a case for either keeping interest
Speaker 4: rates higher or lower. How will that macro brackdrop that
Speaker 4: worries about a downturn impacts from commodity.
Speaker 10: In your view, you know, all of these macro developments
Speaker 10: will drive increased and enhanced volatility in prices in commodities.
Speaker 10: I think the world have seen since COVID and post
Speaker 10: COVID that the way of doing business which is just
Speaker 10: in time, just enough in the commodity supply chain that
Speaker 10: is very.
Speaker 8: Susceptible to shops in the market.
Speaker 10: Whether it's macro policies, whether it's some of what you've
Speaker 10: mentioned with central bank moves in the market, but all
Speaker 10: of that would drive a lot more I guess usage
Speaker 10: and adoption of what commodities means from a resmanagement perspective.
Speaker 10: So we see a lot of use cases, like I've said,
Speaker 10: you know, both upside and downside. We see a lot
Speaker 10: of clients tending to the ashets for resmanagement services, whether
Speaker 10: this is in commodities, whether this is in equities, whether
Speaker 10: this is in effects. And that's rising across the board
Speaker 10: for us as we see and con volatility and uncertainty.
Speaker 8: In the world.
Speaker 3: What's your goal or what's your mission in terms of
Speaker 3: building up liquidity right on these exchange like this is
Speaker 3: all great, and you talk about the financialization of iron
Speaker 3: ore or others or other commodities if you will, or
Speaker 3: metal based commodities, how do you then'll build up liquidity
Speaker 3: which will bring in investors?
Speaker 10: You know, I guess my mission kind of translates into
Speaker 10: one outcome, which is the poll voting of iron ore
Speaker 10: into the global class of key macro commodity contracts.
Speaker 8: So think copper, think crude oil. We think iron ore.
Speaker 10: Has a very big role to play as it continues
Speaker 10: to follow lithium.
Speaker 3: Is that also part of it? Like a lithium contract.
Speaker 8: We think lithium is interesting.
Speaker 10: It's certainly part of the energy transition story, and it
Speaker 10: will have a role to play. It's small in terms
Speaker 10: of how it kind of mirrors the physical market, but
Speaker 10: we think this will have a very big role to
Speaker 10: play in years to come.
Speaker 3: All right, gott to leave it on. That notes an
Speaker 3: interesting to suddenly to think about, certainly against the macro
Speaker 3: backdrop of some of the trade that we've seen in
Speaker 3: both copper and also more specifically iron ore. Hey, well,
Speaker 3: thank you, so much. Thanks stopping for by our Chicago bureau. Wilchin,
Speaker 3: he's managing director and head of Commodities at SGX Group,
Speaker 3: joining us from our Chicago bureau. Yeah, it's kind of interesting,
Speaker 3: you know, just watching it was funny and to talk
Speaker 3: about China a little bit the trade because it does
Speaker 3: feel like for such a long time economic news would
Speaker 3: come out of China specifically impact the trade here. It
Speaker 3: feels like whether investors are wary of some of the
Speaker 3: data points or not trusting it, or waiting for the
Speaker 3: government to do something that shakes it all up.
Speaker 4: And then we remember those US data points hit at
Speaker 4: ten am Eastern time often, so that changes the trade often,
Speaker 4: doesn't it.
Speaker 3: That's a really good point.
Speaker 8: All right.
Speaker 3: You are listening and watching Bloomberg Business Week.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Can'tch us
Speaker 2: Live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play and then brought auto with a
Speaker 2: Bloomberg Business app or watch us live on YouTube.
Speaker 3: They're still going on, certainly in the crypto world. Every day,
Speaker 3: Bitcoin extending a retreat from its latest record high. This
Speaker 3: on an intensifying debate about whether the bull run in
Speaker 3: cryptocurrencies is evidence of speculative froth and global markets. Bitcoin
Speaker 3: roughly down about seven percent Sanali in the past two
Speaker 3: days alone.
Speaker 4: Yeah, it's interesting that is some leverage popping out of
Speaker 4: the bubble, isn't it. You know, traders aren't the only
Speaker 4: ones that are impacted by the bitcoin price. We are
Speaker 4: going to be joined out right by Adam Slivan, who
Speaker 4: is a great guest right before the Having cycle, president
Speaker 4: and CEO of the small cap, publicly held crypto mining
Speaker 4: firm Core Scientific. Coren Scientific of course emerge from bankruptcy
Speaker 4: just earlier this year, kind of right in time for
Speaker 4: the Having. But when you think about the dynamics that
Speaker 4: are ahead of you, now, what are you most concerned
Speaker 4: about in terms of getting the rewards from bitcoin going
Speaker 4: from more than six bitcoin per block to just over three.
Speaker 6: Yeah, yeah, I mean so Core Scientific. We're the leader
Speaker 6: in bitcoin mining from twenty twenty one to twenty twenty three.
Speaker 6: In terms of bitcoin's mind. We mind more bitcoin than
Speaker 6: another publicly traded mining company in twenty twenty four, and
Speaker 6: so as we look towards the Having, for us, it's
Speaker 6: about maintaining and increasing our share of the total market.
Speaker 6: So today we've seen the total network exca hash continue
Speaker 6: to increase even through really twenty twenty three, when bitcoin
Speaker 6: was pulling back, we didn't necessarily have a bull run.
Speaker 6: Now seeing bitcoin price increase, and so the amount of
Speaker 6: xa hash that's on the network, the compute applied to
Speaker 6: the network has continued to increase, going.
Speaker 3: To the help because the value has gone up.
Speaker 6: Just because the value has gone up, so old equipment
Speaker 6: is actually turning back online to capture these higher bitcoin prices.
Speaker 4: Well, what does that mean for your input costs as
Speaker 4: well the costs of all the things that you need
Speaker 4: to mind that bitcoin in the first place.
Speaker 6: Yeah, So it's not necessarily about the cost, it's about
Speaker 6: the difficulty. So the difficulty. Every two weeks, Bitcoin resets
Speaker 6: how difficult it is to mine a bitcoin, and so
Speaker 6: the difficulty has been increasing steadily over the course of
Speaker 6: the past you know, five six years actually for the
Speaker 6: entirety of bitcoin's existence, but it's been increasing more rapidly
Speaker 6: in twenty twenty four, given the price run up.
Speaker 3: I want to go back to having though, can I
Speaker 3: just want to understand and make sure our audience does so.
Speaker 3: It happens every four years so it means the amount
Speaker 3: you and other miners have right at this point, basically
Speaker 3: your validating blocks are cut in half. So how does
Speaker 3: that Doesn't that impact the top line, the revenue line.
Speaker 6: Absolutely, it definitely does. But people on the networkature.
Speaker 3: Value of as bitcoin goes up, that's also a factor.
Speaker 3: That's a big factor.
Speaker 8: Yeah.
Speaker 6: But once we get to the having part of the
Speaker 6: network will's shut off because they become unprofitable to mine
Speaker 6: at those levels, and so we get an increasing share
Speaker 6: of the overall network post habit.
Speaker 4: When you say part of the network shuts off, do
Speaker 4: you mean that company's rivals of yours will face increased
Speaker 4: financial pressure.
Speaker 6: Absolutely. In twenty twenty two, we saw the down bitcoin price,
Speaker 6: you know, going to kind of a bear cycle. We
Speaker 6: saw energy prices go higher, and so what you saw
Speaker 6: was a number of challenge companies, sell facilities, sell minors,
Speaker 6: and you'll see that again if they haven't.
Speaker 4: Adam, I mean, you're kind of a great person to
Speaker 4: talk to given that corner. Scientific face bankruptcy ones. Why
Speaker 4: is this time.
Speaker 3: Different for you? Guys?
Speaker 4: How did you emerge from bankruptcy and make it into
Speaker 4: this cycle?
Speaker 6: Yeah, I mean it was so it was a thirteen
Speaker 6: month process, and when we came out, we came out
Speaker 6: of much stronger company, so we had a much more
Speaker 6: interesting capital structure. We lowered our debt by almost forty percent,
Speaker 6: and they gave us optionality in the capital.
Speaker 3: Strue hundred million dollars in debt that you guys trimmed.
Speaker 6: Yeah, we trimmed about four hundred million. Yeah, And so
Speaker 6: the rest of our capital structure has optionality in it,
Speaker 6: meaning there's mandatory converts in it, there's cash exercise warrants,
Speaker 6: and so if we perform well, it creates a situation
Speaker 6: where we'll be deat free.
Speaker 4: So what are some of the lessons learned from the
Speaker 4: first ball run we saw in crypto going into now
Speaker 4: the new bull run going into crypto into the having.
Speaker 6: Yeah, it's a bitcoin mining is very much a commodity company, right,
Speaker 6: So you have energy inputs on one side and you
Speaker 6: have bitcoin outputs on the other side, and you have
Speaker 6: to be able to hedge input costs and hedge output costs.
Speaker 6: And so you know, we were a case study in
Speaker 6: we had over six hundred million a bitcoin on balance
Speaker 6: sheet and when bitcoins started to trade down, it not
Speaker 6: only hurt our balance sheet, but our income statements started
Speaker 6: to get constrained as well, and so that was the
Speaker 6: real issue in twenty twenty two.
Speaker 3: So your balance sheet is very different so that you
Speaker 3: can't get into that situation again. Like go played out
Speaker 3: for us a little bit more because you are a
Speaker 3: great case study. I think if I'm an MBA student,
Speaker 3: I want to study your company. You know what happened
Speaker 3: and then how you came out and how you're doing
Speaker 3: something different because I could certainly see similar scenarios and troubles.
Speaker 3: Playing three tends to repeat itself.
Speaker 6: It does, it does. But you know the interesting part
Speaker 6: is our counter parties, our debt holders, understand that. And
Speaker 6: so they built two things into the capital structure, time
Speaker 6: and optionality. So the time is they bought us essentially
Speaker 6: three to four years before there's any larger maturity walls.
Speaker 3: On our jay I didn't have last time, which we
Speaker 3: had a.
Speaker 6: Lot of short term advertising down in a balance sheet before, okay.
Speaker 6: And they also built U in optionality where if we
Speaker 6: trade above certain levels, we were able to eliminate our debt.
Speaker 6: And so really those two things make us a completely
Speaker 6: different company from that perspective.
Speaker 4: Now, let's walk through some of the impacts of the
Speaker 4: having how much do you think it will impact revenue
Speaker 4: at the end of the day.
Speaker 6: Yeah, it's a great, great question because if you look
Speaker 6: back the estmates in twenty twenty, no one was right,
Speaker 6: and so when you look at twenty twenty four and
Speaker 6: you look at the estimates, we have a feeling that
Speaker 6: anywhere between ten to fifteen percent of the network will
Speaker 6: come offline. So that means our revenues will be cut
Speaker 6: by about forty percent now depending on bitcoin price. If
Speaker 6: that trades down, depending on the mix between machines at
Speaker 6: different power prices, more network actash could come offline, and
Speaker 6: so we could have a better or worse scenario depending
Speaker 6: on those factors.
Speaker 3: That's a big number. Is that manageable even with the
Speaker 3: covenants or whatever that you said that you guys are
Speaker 3: doing it differently in terms of how you're managing your
Speaker 3: balance sheet, that's a big hit. How do you manage that?
Speaker 6: Yeah, you manage it through really three different areas, but
Speaker 6: one of the main ones is on the energy side.
Speaker 6: So you need to have flexibility and the ability to
Speaker 6: curtail more often on the grid because you get paid
Speaker 6: to curtail or in some cases in regulated markets, It
Speaker 6: actually brings down your power costs, and so for us,
Speaker 6: as we look at cut the revenue cut, it actually
Speaker 6: provides an opportunity for us to showcase what we've built. Internally.
Speaker 6: We have the most advanced software team, the most advanced
Speaker 6: technology team, and the best operations team in the industry.
Speaker 3: So you can automatically get those power benefits we can. Yeah,
Speaker 3: they're right there. Yeah, okay, So what about others here?
Speaker 4: I mean, I'm kind of curious about how you think
Speaker 4: the industry is changing.
Speaker 3: Are you gonna say dogecoin? Are you going to go there?
Speaker 4: Well, how do you react? Right? How do you re
Speaker 4: I'm actually going to go to another buzz We're going
Speaker 4: to go to AI and do you sit there as
Speaker 4: a bitcoin mining firm and say we're going to diversify
Speaker 4: into other areas as well where certain hardware could be applicable.
Speaker 4: We've heard people talking about things like that, do you
Speaker 4: buy some of your rivals at this point? How do
Speaker 4: you diversify or maybe double down on this industry?
Speaker 6: Yeah, So we actually signed a contractor was announced a
Speaker 6: few weeks ago with core Weave. You, a very large
Speaker 6: HPC company that's really the first fora you know, our
Speaker 6: company has traditional data center roots, and so we're looking
Speaker 6: at converting about three hundred megawatts of our seven hundred
Speaker 6: and twenty four megawats today into actually HPC compute facilities.
Speaker 6: And so absolutely we're taking a look at what it
Speaker 6: means in twenty twenty eight to be competitive and trying
Speaker 6: to work towards the infrastructure is a three year game,
Speaker 6: so it's working towards altering our infrastructure before the next
Speaker 6: you know, having in twenty twenty eight.
Speaker 3: I'm HPC high performance computing. Yes, okay, just want to
Speaker 3: make sure I understand it good.
Speaker 4: I didn't know that.
Speaker 3: Oh, thank you by Google.
Speaker 8: Thank you.
Speaker 4: But you know, when you're thinking about twenty twenty eight
Speaker 4: and you think about this having cycle, even if having
Speaker 4: cycles of the past had paused a run up in
Speaker 4: bitcoin or at least preceded one, how can you be
Speaker 4: sure that that will be the case for the future.
Speaker 4: As somebody who's running a business, do you almost have
Speaker 4: to protect yourself from maybe that not being the case
Speaker 4: every time.
Speaker 6: This business is about protecting your downside risk and preparing
Speaker 6: for downside volatility, because if you can have time and
Speaker 6: market in bitcoin mining, you can actually experiencing you can
Speaker 6: actually experience the bull runs, which if you can't experience
Speaker 6: the bull runs, then you know bitcoin mining is is
Speaker 6: generally just you know, for most of the time, bitcoin
Speaker 6: is you know, about a thirty to forty percent margin business.
Speaker 6: But during bull runs, you know, the margin profile expands rapidly.
Speaker 3: So are you set up? Okay, So we're just below
Speaker 3: seventy thousand dollars on bitcoin? Are you a with bitcoin
Speaker 3: at sixty five thousand?
Speaker 8: Absolutely?
Speaker 3: Sixty thousand, absolutely, fifty five thousand.
Speaker 6: Absolutely, we emerge at it. We emerged at less than
Speaker 6: half of it at seventy thousand.
Speaker 3: There's some kind of significant haircut. You're fine.
Speaker 6: Absolutely, So when you're.
Speaker 4: Rolling back to the capital markets, right, I think one
Speaker 4: thing that fast fascinates me is that a lot of
Speaker 4: these big bitcoin companies and sorry just about a minute
Speaker 4: to answer here, but these big companies are levering up again.
Speaker 4: Does that come with a warning sign?
Speaker 6: It does a little bit, absolutely. I mean this industry is,
Speaker 6: you know, bitcoin, especially the price has been driven by
Speaker 6: leverage in the past. You know, we're seeing a little
Speaker 6: bit different bitcoin price run up today driven by ETFs,
Speaker 6: and I think that's actually a positive sign for our
Speaker 6: industry micro strategy.
Speaker 3: What'd you say?
Speaker 4: Micro strategy just brought a ton of money to be
Speaker 4: buying bitcoin, So leverage looks a little different in the
Speaker 4: system these days, I guess, and I hadn't past well.
Speaker 3: As you can see, we get pretty excited. I know
Speaker 3: you get wrong. We're talking about this topic, Adam, comebacks soon.
Speaker 3: Interesting especially it's a different year, new year for you guys,
Speaker 3: so be interesting to maybe catch up with you real soon.
Speaker 3: Absolutely really appreciate it, Adam Sullivan, President and CEO, as
Speaker 3: we said, small cap publicly al crypto mining firm, course
Speaker 3: scientific you can find it certainly to her as co
Speaker 3: r z.
Speaker 1: Um brother Marco.
Speaker 2: Journal.
Speaker 3: How about you let me drive?
Speaker 2: No, no, no, no, who's going to drive?
Speaker 6: Honey?
Speaker 8: Please, I'll do the riding gravel.
Speaker 9: Let's make I want to try it.
Speaker 6: It's a good question.
Speaker 2: This is the drive to the Globe dot com. I
Speaker 2: think we'll buy an sell it on on Bloomberg Radio.
Speaker 3: All right, TikTok, everybody, Just about eighteen minutes left in
Speaker 3: today's trading session, getting ready to wrap up the Friday
Speaker 3: trade and the week overall. And it's safe to say
Speaker 3: that we are so ready to do it. Let's bring
Speaker 3: in Nancy Tangler. Great to have her back. She's CEO
Speaker 3: and chief investment officer at Laffertangler Investments, author of The
Speaker 3: Women's Guy to Successful Investing with us from Scottsdale, Arizona.
Speaker 3: It is great to have you back. How are you.
Speaker 1: I'm fine, Carol. How are you doing well?
Speaker 3: Doing well? Keeping up, getting ready for the FED meeting
Speaker 3: next week. I am curious you are there before we
Speaker 3: get into that, because there's so much stuff that went
Speaker 3: on this week. But I am curious when you are
Speaker 3: in and around Scottsdale. What is it that's top of
Speaker 3: mind for everybody? Is it the economy? Is it the election?
Speaker 3: Is it FED talk?
Speaker 8: What is it?
Speaker 1: Well, Carol, I wake up at three point thirty in
Speaker 1: the morning and I go home and go to bed
Speaker 1: at six o'clock. At nights, you don't talk to anybody.
Speaker 1: I don't top of mind with too many people. But
Speaker 1: I think in our in the circles that I that
Speaker 1: I do travel in people well. Here, of course they're
Speaker 1: worried about immigration, but from an economic standpoint, they're just
Speaker 1: worried about inflation. I mean only in our business when
Speaker 1: we talk about rate of change. It's coming down, but still,
Speaker 1: you know, costs in grocery stores are up twenty five percent,
Speaker 1: and that's that is that's not the rate to change, right,
Speaker 1: I mean, that's there's hard to take away. I just
Speaker 1: wrote a piece on Walmart. But one of the things
Speaker 1: that struck me the last time I was there, I
Speaker 1: paid seven dollars and twenty cents at Walmart for a
Speaker 1: sixty four ounce jug of chlorox bleach. Wow. Well, it's
Speaker 1: interesting two point fifty pre pandemic.
Speaker 4: Yeah, that inflation story too. We were kind of talking
Speaker 4: a little earlier about who it's impacting and who it's
Speaker 4: not impacting, and how do you think about that divergence
Speaker 4: in the economy right now and how that feeds through
Speaker 4: to the broader market.
Speaker 1: Yeah, it always, I mean, shall it always hurts the
Speaker 1: lower income cohort among us. And I grew up as
Speaker 1: a lower income cohort, and I grew up in the
Speaker 1: seventies when inflation was raging. And you know, I baby said,
Speaker 1: I took care of people's dogs, I cleaned houses. You
Speaker 1: had to do that to make ends meet because my
Speaker 1: mom was a single parent. So I think that's what's
Speaker 1: so troubling and now with gas edging back up and
Speaker 1: the PPI is pretty elevated. They led down when the
Speaker 1: CPI started its descent from nine point two percent. They
Speaker 1: start coming down in the spring of was that last
Speaker 1: year or the year before? So I think the fact
Speaker 1: that the PPI came in so hot is at least
Speaker 1: giving some of us pause because you know, we may
Speaker 1: see a resurgent in inflation and sticky inflation is still
Speaker 1: elevated in the four and a half percent range.
Speaker 3: Well, you know what, Nancy, this is a question I
Speaker 3: asked Jeff Klingelhoffer over at Thornberg Investment Management, who is
Speaker 3: with us on in the last hour like that connection
Speaker 3: or disconnect or how do you draw the line between
Speaker 3: some of the run ups we've seen in the semispace
Speaker 3: and VideA other names versus what's going on on main
Speaker 3: streem in real America people paying six seven dollars for
Speaker 3: Clorox and other things like that. Disconnect between people with
Speaker 3: household debt that has really raised to significant levels and
Speaker 3: is a burden versus again, the run ups that we've
Speaker 3: seen in so many names.
Speaker 1: Yeah, well it's it's always been thus unfortunately. But I
Speaker 1: think the one thing that's different this time than in
Speaker 1: the seventies is that people are still working. And you know,
Speaker 1: we saw the revisions to the jobs gains, but still
Speaker 1: this is a healthy labor market, despite the fact that
Speaker 1: the labor force participation rate just doesn't seem to get
Speaker 1: be able to get out of its own way. But
Speaker 1: I think too, you know, I was looking at the
Speaker 1: Nasdaq just like if you go back two years, so
Speaker 1: twenty two and twenty three, it was down three percent
Speaker 1: cumulatively over that period. You go about three years, it's
Speaker 1: up four percent. So this notion that we're in a bubble,
Speaker 1: I just don't see it. As you know, we've talked
Speaker 1: about this. I've drawn an analogy to the nineteen nineties,
Speaker 1: and this is I think this is the playbook the
Speaker 1: Fed's going to use. You know, Greens band raise rates
Speaker 1: aggressively in ninety four, and then he cut once in
Speaker 1: ninety five, sat there and then cut twice in ninety
Speaker 1: six and kept rates above five and a half percent
Speaker 1: for the rest of the decade. Stocks still were able
Speaker 1: to coexist quite nicely with strong performance. I think that's
Speaker 1: the world we're in unless unless something, you know, unless
Speaker 1: things fall off rails. But Steel Dynamics reported today and
Speaker 1: they beat right right. I mean materially a steel company,
Speaker 1: flat rolled steel. I mean, I own it, and I've
Speaker 1: been thinking about, gee, should I get out of this thing?
Speaker 1: But you know, industrials, the industrial segment, manufacturing is starting
Speaker 1: to turn, and I think that may be the next
Speaker 1: leg of this kind of rolling recession that's going to
Speaker 1: improve good back. So I'm still optimistic.
Speaker 3: Go back forgive me, you said the Nasdaq if you
Speaker 3: go back a couple of years. You said, go back,
Speaker 3: because I'm just looking at the year performances on the NASAQ.
Speaker 3: Make that point again for me. Oh yeah, So for
Speaker 3: the for.
Speaker 1: Twenty two and twenty three, the cumulative return on the
Speaker 1: Nasdaq was a negative two point four percent. If you
Speaker 1: go back three years, so this would be twenty one,
Speaker 1: twenty twenty two, twenty twenty three, we're up like four
Speaker 1: percent ish. That's approximate. I wrote it down, but I
Speaker 1: don't know what I did with it. And and so
Speaker 1: you know that's that's not a bubble. I mean, valuations
Speaker 1: are not crazy. Now in some names they are, but
Speaker 1: in general, I think you know, if you eat even
Speaker 1: if you look at the mag seven the price earnings
Speaker 1: to growth rate is one point five times two and
Speaker 1: a half percent for the rest of the market. So
Speaker 1: I think, you know, investors need to take a breath.
Speaker 1: We needed a correction. If this is it, I'm glad
Speaker 1: because I'll be in buying some of the names like
Speaker 1: Adobe that got clobbered or Palo Alto Networks. They've been
Speaker 1: trimming all those names. But this is an opportunity because
Speaker 1: this bull market is not finished yet.
Speaker 4: Hey, Nancy, what gives you conviction that we won't see
Speaker 4: a bigger correction.
Speaker 1: More than ten percenttionally?
Speaker 4: Yeah, more than ten percent.
Speaker 1: I mean, I think we could tolerate ten to fifteen
Speaker 1: don't I don't. I don't think that's devastating. But I
Speaker 1: don't think we're going to go down into bear market territory.
Speaker 1: And the reason for that is that earnings are still
Speaker 1: pretty robust, so interest rates are not as high as
Speaker 1: they were in the nineteen nineties, and you know, the
Speaker 1: Nasdaq was up over eight hundred percent in the nineties.
Speaker 1: But more importantly, these are real businesinesses. You know, we're
Speaker 1: not valuing them on clicks and eyeballs, and so our
Speaker 1: investing theme has been as we did in the nineties.
Speaker 1: Ours has been old economy companies that are pivoting to
Speaker 1: digitization and cloud computing and robotics. So think Walmart, or
Speaker 1: think Xylum, a water treatment company. It's across all sectors.
Speaker 1: And then we like the suppliers of the picks and shovels,
Speaker 1: and those were the ones that were delivering really reliable
Speaker 1: earnings growth in the bear market of twenty twenty two.
Speaker 1: And so that's why we were in in October increasing
Speaker 1: our exposure to technology and consumer discretionary because we felt
Speaker 1: like it had been way overdone, and indeed it was.
Speaker 1: And many of these companies actually benefited from higher interest
Speaker 1: rates because they have fortress balance sheets.
Speaker 3: Right, Hey, Nancy, thirty seconds left here. I understanding. You
Speaker 3: know you like those companies with reliable earnings. Microsoft is
Speaker 3: one of them. Just quick twenty seconds on Microsoft specifically,
Speaker 3: which as we know, is about ten eleven percent this year.
Speaker 8: Yeah.
Speaker 1: I mean, it's just an extraordinarily well managed company, and
Speaker 1: they are increasing the use cases for generative AI. It's
Speaker 1: going to be you know, throughout the entire system, and
Speaker 1: I think that's going to continue to drive margins. It's
Speaker 1: not as fast as a grower as some of the
Speaker 1: other tech names that we own. But it's a reliable
Speaker 1: grower with a dividend that's growing, So that's what we like.
Speaker 8: All right.
Speaker 3: I'm going to leave it on that note. Hey, listen,
Speaker 3: have a great weekend. Try and get some sleep. Don't
Speaker 3: wake up that early on the weekend. Nancy Tangler, of course,
Speaker 3: CEO and chief investment officer over at Laffertanglar Investments, author
Speaker 3: of the Women's Guide to Successful Investing, Joining us from Scottsdale, Arizona.
Speaker 2: This is the Bloomberg Business Week Podcast. I'll a little
Speaker 2: on Apple, Spotify, and anywhere else you can get your podcast.
Speaker 2: Listen live weekday afternoons from two to five pm Eastern
Speaker 2: on Bloomberg dot com, the iHeartRadio app, tune In, and
Speaker 2: the Bloomberg Business App. You can also watch us live
Speaker 2: every weekday on YouTube and always on the Bloomberg terminal.