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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: All right, let's get more on the market. How to

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Speaker 2: manage all of this? At James Abatte's managing director and

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Speaker 2: chief investment officer at Center Asset Management. I mean, here's

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Speaker 2: my really dumb question, like do you sell and or

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Speaker 2: is there a level to buy? Like, I don't know

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Speaker 2: a more sophisticated question than that.

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Speaker 3: I don't know if it's a level. I mean, let's

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Speaker 3: think about what markets are doing with us today. But

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Speaker 3: let's look back at Friday. The selling on Friday, which

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Speaker 3: just indiscriminate. We have the highest volume day ever on

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Speaker 3: US trading. I mean ETF volume account for about forty

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Speaker 3: percent of the volume, which in these there was a

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Speaker 3: rush to either hedge or de lever positions. And I

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Speaker 3: think one of the things that was telling to us

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Speaker 3: is it even the safe havens like consumers, staples, healthcare, utilities,

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Speaker 3: even domestic infrastructure stocks participated fully in the drawdout, and

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Speaker 3: I told us that even for the short term, maybe

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Speaker 3: we might see some stabilization or of vicious counter trendorality

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Speaker 3: like we're seeing this morning. You know, the bottom line

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Speaker 3: for us is this is a terrific opportunity, you know,

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Speaker 3: for true active management, because we think we're on the

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Speaker 3: cusp of a potential market leadership pivot. We've been in

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Speaker 3: an environment for the last two years where it's been

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Speaker 3: the mag seven being the only source of returns, leading

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Speaker 3: to some extreme concentration. In fact, you know, we saw

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Speaker 3: a lot of large cap core mutual funds have to

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Speaker 3: change your investment policies to become non diversified funds because

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Speaker 3: of the top heavy buyes of the benchmark. So going

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Speaker 3: back to November, we came out very skeptical of the

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Speaker 3: analog of just following the Trump trade playbook despite the

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Speaker 3: post election rally, and stayed that way. But we've had

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Speaker 3: a tremendous reset in prices. We've seen a rallying treasuries

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Speaker 3: that I think, you know, leads to opportunities in certain segments.

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Speaker 4: Of the market, like the regional banks.

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Speaker 3: You've got treasuries that have prepared the balance sheets fed cuts.

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Speaker 3: We're the most bullsh on regional banks probably since nineteen

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Speaker 3: ninety six. I don't want to date myself, because they're

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Speaker 3: going to be growing and really be the leadership of

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Speaker 3: the market, we think, because they'll be financing the industrial

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Speaker 3: heartwain and build out. So our point of investors is

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Speaker 3: now is the time to have a main street portfolio,

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Speaker 3: not a Wall Street portfolio. And that's really a key

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Speaker 3: thing for us.

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Speaker 5: So what is I guess the constituents of that kind

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Speaker 5: of portfolio, what are the themes driving it?

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Speaker 3: The themes that would drive it are basically regional banks, utilities,

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Speaker 3: other domestic infrastructure plays. I think the first thing to

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Speaker 3: remember and why we were kind of bearish heading into

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Speaker 3: this year, was that markets with price with perfection, you know,

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Speaker 3: inequity risk premium that was essentially zero credit risk was

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Speaker 3: essentially dismissing any potential of disruption for us.

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Speaker 4: Deep Seat, the announcement of deep Seat.

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Speaker 3: Was the first match that was thrown on an over

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Speaker 3: valued mag seven driven market. The teriffs were kind of

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Speaker 3: an accelerate. So I think the real key thing to

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Speaker 3: look here for is on the other side of this trade,

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Speaker 3: where we do get a rally. I would expect this

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Speaker 3: to be in an environment where a mag seven does

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Speaker 3: not lead the other side of the cell here, and

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Speaker 3: I think that will be confirmation that a Main Street

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Speaker 3: driven portfolio, not a Wall Street driven portfolio, will be

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Speaker 3: the one to.

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Speaker 4: Lead us out.

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Speaker 2: Main Street has also and will be hit. I mean,

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Speaker 2: as we were just talking about earlier with Morgan Stanley

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Speaker 2: is downgrading all the banks. Yes, the ones with the

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Speaker 2: capital market exposure get hit first, but the mid size banks,

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Speaker 2: the regional banks, they're not going to be spared either.

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Speaker 4: Well, we'll think about that or how much of that

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Speaker 4: has already reflected.

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Speaker 3: Many of these regional banks, whether it's key regions, they're

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Speaker 3: trading it less than book value. Many of them have

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Speaker 3: seen an inflection and the return on equity. But most

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Speaker 3: of the pain in the regional banks occurred when we

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Speaker 3: had the sell off driven by the failure of Silicon

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Speaker 3: Valley Bank and some.

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Speaker 4: Of the others. They have not yet been in the

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Speaker 4: growth mode.

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Speaker 3: Clearly, there could be some credit issues on the lower

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Speaker 3: end of the consumer, but the concentration of commercial real

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Speaker 3: estate problems is really dominated in the money center bank.

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Speaker 3: So as we would avoid the money centers and really

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Speaker 3: for the first time have an opportunity further down on

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Speaker 3: the capitalization spectrum with the regional banks.

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Speaker 5: So what's the how do you price in this environment

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Speaker 5: where now, James, do you think it's something that is

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Speaker 5: going to be a longer term issue for this economy?

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Speaker 3: Well, I think when we saw President Trump announced potentially

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Speaker 3: that there'll be a stay on most tariffs except for China.

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Speaker 3: I mean, China is the primary target and going to

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Speaker 3: be the biggest loser. I mean the fact that the

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Speaker 3: market sold off on their retaliation to the US on

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Speaker 3: Friday is kind of, in a fundamental sense immaterial.

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Speaker 4: I mean, our biggest exports of.

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Speaker 3: China are soybeans, coal, almonds and other things. I mean,

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Speaker 3: the US owns the asset that China and everybody needs.

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Speaker 3: The US consumer market the key theater.

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Speaker 4: And remember with all of this is.

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Speaker 3: That you know it's we should stay away from blaming China.

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Speaker 3: It was the US multinational companies that closed down US

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Speaker 3: production facilities to gain access to cheaper labor and loose

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Speaker 3: environmental concerns, and now they're the ones that have to

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Speaker 3: reap the negative consequences of those technology transfers.

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Speaker 4: As well as the intellectual.

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Speaker 5: Property teams that the proper allocation of capital. Why produce something,

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Speaker 5: don't you want to produce it in the lowest cost

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Speaker 5: environment to pass on the cost savings to US consumers

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Speaker 5: through lower prices and lower inflation.

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Speaker 4: Sure, would you.

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Speaker 3: Rather be unemployed and have access to a seventy nine

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Speaker 3: dollars flore having jobs?

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Speaker 5: Unemployee? We've got apployment, James, James, we've got full employment here.

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Speaker 5: Who's unemployed?

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Speaker 3: Well, it's it's the quality of the jobs. It's terming

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Speaker 3: about the competitive edge that you can have as a country.

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Speaker 3: There are security concerns, I think when you look back.

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Speaker 5: Okay, so it's not economic, it's security.

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Speaker 4: It's both.

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Speaker 3: Actually, you have to have national security issues. I mean,

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Speaker 3: let's forget that, Chuck Schumer back.

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Speaker 5: Into the fact that we widgets are being made in China.

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Speaker 5: That's a security concern to you.

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Speaker 4: That's not where Trump is going after. He wants the

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Speaker 4: high value out of things like automrkety is going out.

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Speaker 3: Technology, pharmaceuticals. That's where he's trying to gear it up, toys,

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Speaker 3: other things.

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Speaker 4: Those are not really on the radar.

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Speaker 5: Pharmaceutical companies are in New Jersey, James, Thanks for journey

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Speaker 5: Appreciate it. James About, the managing director and chief investment

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Speaker 5: officer of Center Asset Management, Appreciate it.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten a m. Eastern on Applecarcklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: All right, let's go to the autos because they ain't

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Speaker 2: getting any love you got. GM stock is down by

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Speaker 2: about another three point seven percent. Kevin Tynan is director

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Speaker 2: of research at the Presidio Group A joining us to

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Speaker 2: discuss all things auto. Kevin, I mean, how bad can

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Speaker 2: it get for these guys? Like, where's the low here

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Speaker 2: in these in the stocks?

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Speaker 5: You know?

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Speaker 6: The interesting thing, Alex is that if this is, if

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Speaker 6: tariffs are a supply constraint for the auto industry, for

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Speaker 6: the US auto industry going forward, the last time we

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Speaker 6: had a supply constraint, from twenty twenty to twenty twenty

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Speaker 6: three was actually the most profitable time for the dealer

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Speaker 6: groups and for manufacturers. So it kind of puts supply

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Speaker 6: and demand, or has the potential to put supply and

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Speaker 6: demand back in balance and or utilize more of the

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Speaker 6: domestic capacity. And this actually could be a good thing

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Speaker 6: because we're not oversupplied with this narrow margin environment that

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Speaker 6: this industry has struggled with for decades. So it's kind

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Speaker 6: of interesting that it looks like an opportunity because you're

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Speaker 6: talking about tightening up pricing or firming up pricing and

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Speaker 6: expanding margins going forward.

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Speaker 2: Guys jump in on that for one second. Yeah, but

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Speaker 2: then we've heard like you have Ford, I think Volkswagen

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Speaker 2: also like Volkswagen's laying off some workers in the US,

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Speaker 2: Ford is now discounting their cars or to get people

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Speaker 2: in the lot. That feels really different from twenty twenty.

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Speaker 4: Well, the difference is it effects.

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Speaker 6: Where twenty twenty was supply chain disruption across the board, right,

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Speaker 6: almost everybody was impacted the same. Because the supply chain

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Speaker 6: is common through a lot of automakers. This is very

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Speaker 6: different depending on what your production footprint looks like. So

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Speaker 6: for those right, for example, if you look at US

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Speaker 6: automotive factories in the fourth quarter, utilization was sixty five percent,

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Speaker 6: right where you're really looking for eighty eighty plus to be,

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Speaker 6: you know, utilization for your auto factories in this country.

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Speaker 6: So the idea is that you're going to have manufacturers

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Speaker 6: that don't have enough capacity here to ramp up and

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Speaker 6: are going to be penalized by that. And then you

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Speaker 6: have the ability for manufacturers who do have capacity here

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Speaker 6: that is being underutilized to ramp up output output to

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Speaker 6: make up some of that difference or those lost units.

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Speaker 6: The way I look at it as this right, sixteen

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Speaker 6: million units were sold in the US in twenty twenty four,

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Speaker 6: about eleven million were produced here. So if you think

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Speaker 6: about five million units in play, whether they get built

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Speaker 6: or not built, there's the opportunity for domestic capacity to

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Speaker 6: absorb some of those five million units. And when you

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Speaker 6: think about it, twenty twenty two, which was the most

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Speaker 6: profitable year for manufacturers and dealers, was only a thirteen

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Speaker 6: point eight million unit market, So this can be profitable

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Speaker 6: for manufacturers on smaller volume. And I think the headline

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Speaker 6: is this takes units out overall and that all sales

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Speaker 6: are good sales, which isn't necessarily true. This will improve

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Speaker 6: the quality of sales because supplying the man will be

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Speaker 6: in balance.

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Speaker 5: Okay, that's what I thought too. That's why I'm very

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Speaker 5: surprised that auto stocks have been trading down. Shouldn't this

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Speaker 5: be the tariff environment? Should this not be good news?

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Speaker 6: Eventually it should be right if that's if it goes

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Speaker 6: according to plan, where now we're at eighty percent capacity

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Speaker 6: for our automotive factories. The other thing too, and I

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Speaker 6: think Paul the burden on the manufacturers because they have

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Speaker 6: to right size or utilize more of that capacity. That

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Speaker 6: lift is heavier for the manufacturing base than it is

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Speaker 6: for the retailers. The retailers went through this process of

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Speaker 6: supply constraint fewer units and have sort of rationalized their

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Speaker 6: cost structure more recently than the manufacturers did. Right, They

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Speaker 6: idled plants, but they really didn't take out that capacity.

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Speaker 6: So I think there's a little bit more of a

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Speaker 6: longer lead time to get that production where it needs

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Speaker 6: to be. And that's a global issue, right. Automotive capacity

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Speaker 6: globally is a problem and some of it needs to

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Speaker 6: come out. So I think you're going to see a

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Speaker 6: different impact on the manufacturing stocks versus the retailer stocks.

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Speaker 6: And at the end of the day, the consumer ultimately

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Speaker 6: just pays more for everything.

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Speaker 2: That's such an interesting take. Let me add on one

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Speaker 2: more layer. What about the steel and aluminum tariffs and

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Speaker 2: pretty much tariffs. That's the input part. You mentioned that

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Speaker 2: we could maybe absorb about those five million cars that

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Speaker 2: were bought that weren't made in the US. What's the

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Speaker 2: layer though on top of that when it comes to

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Speaker 2: these derivative tariffs, and I.

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Speaker 6: Think that's an impact on the supply base, right, You're

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Speaker 6: going to have some suppliers smaller and depending again what

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Speaker 6: your production footprint looks like, that are very much impacted.

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Speaker 6: Where there may be one or few big contracts where

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Speaker 6: margins are razor thin that this throws everything out of balance.

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Speaker 6: But again, even if you think about that at the

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Speaker 6: materials and the supplier tier two three going to be

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Speaker 6: a problem at the end of the day, that's supply constraint,

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Speaker 6: and as you move through the value chain, that impacts

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Speaker 6: the manufacturers differently or the retailers differently. If you think

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Speaker 6: about the US auto market going back, it's least profitable

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Speaker 6: when there's the most inventory we're and it's the most

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Speaker 6: profitable when there's the least inventory. So we're moving to

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Speaker 6: this period where we're coming out of a rebuild of

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Speaker 6: inventory back to dangerous levels, I would argue, and that

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Speaker 6: gets right sized back to a two to one ratio

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Speaker 6: inventory to sales, and it's actually a good thing longer term.

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Speaker 6: There's going to be some pain right now in the uncertainty,

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Speaker 6: but if it's according to plan, supply and demand come

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Speaker 6: and balance and margins are just better.

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Speaker 5: Kevin, we got about a minute left. Does this uncertainty

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Speaker 5: in the auto business impact the changeover to EV's I'm

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Speaker 5: not even sure where we are there, but is there

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Speaker 5: an impact?

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Speaker 6: Yeah, I mean, and I think that was happening happening

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Speaker 6: organically anyway. I think what's what this does, or this

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Speaker 6: administration does, is it takes some of the demand levers

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Speaker 6: out of there, which relieves some of the financial pressure

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Speaker 6: on manufacturers to do a technology that has proven unprofitable.

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Speaker 6: So I think you're starting to see that at state

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Speaker 6: by state level. In terms of the California Air Resources

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Speaker 6: Board waivers, Virginia didn't go for theirs. There's talk about

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Speaker 6: every other state saying like, we can't go one hundred

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Speaker 6: percent EV or battery electric and plug in harbrid by

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Speaker 6: twenty thirty five, we're going to lose units to noncarved states.

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Speaker 6: So I think you're starting to see that that pressure

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Speaker 6: from government back off a little bit and let the

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Speaker 6: market be a little bit more organic and grow that

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Speaker 6: demand naturally.

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Speaker 5: All right, Kevin, Kevin, great to talk with you, as always.

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Speaker 5: Kevin Tyn and Director of Research at the Presidio Group,

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Speaker 5: joining us from New Jersey via zoom. Appreciate getting some

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Speaker 5: of his time.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 5: Think back to the election, to the turn of the calendar.

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Speaker 5: You're into twenty twenty five animal spirits, and nowhere did

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Speaker 5: animal spirits run more rampant than on Global Wall Street.

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Speaker 5: Let's get some deal making. You're gonna have be easy money.

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Speaker 5: We're gonna have less regulation, we're gonna have pro business policies.

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Speaker 2: Capital market, it's gonna be wide open, yep.

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Speaker 4: And let's go rip it.

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Speaker 5: A little bit different tone here today, particularly punctuated by

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Speaker 5: the letter from Jamie Diamond to his shareholders.

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Speaker 6: Here.

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Speaker 5: Stritenana Rogen joins us here a Bloomberg News He's a

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Speaker 5: senior financial reporter. Sree Times have changed, my friend, over

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Speaker 5: the last few months. What are your sources on Wall

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Speaker 5: Street saying about deal making IPOs? I see a big

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Speaker 5: loan got postponed today to fund the buyout.

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Speaker 4: So what's happening?

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Speaker 7: And they're looking for dog walking appointments. I mean, look,

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Speaker 7: the sentiment is honestly captured by Isabel's story today, where

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Speaker 7: if you look at the big take we have out

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Speaker 7: on Bloomberg today, the Headlindal trays Wall Street is just

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Speaker 7: collateral damage in Trump's trade war. Both of you are

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Speaker 7: right five months ago, when after the election, the biggest

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Speaker 7: reaction in the markets came from these firms index to

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Speaker 7: Wall Street, Index to deal Making Index to Capital Markets,

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Speaker 7: who were certain that regulation was going to go down,

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Speaker 7: all the obstacles going to get out of their way,

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Speaker 7: and it was going to be boom time for their business.

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Speaker 7: The only problem was they were not taking President Donald

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Speaker 7: Trump seriously, or at least President elect Donald Trump or

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Speaker 7: the man who was campaigning to be president seriously when

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Speaker 7: on the campaign trail repeatedly he talked about his decades

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Speaker 7: long desire to change the global trade order. Tariffs are

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Speaker 7: not something that's an idea that's been injected in Trump's

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Speaker 7: head in the last week or two weeks or a

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Speaker 7: few weeks before that. He's been talking about that for

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Speaker 7: nearly forty years. The problem was Wall Street refused to

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Speaker 7: take that seriously. Now they're being forced to confront it,

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Speaker 7: and the reaction hasn't been great.

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Speaker 2: And Jamie Diamond talked about in his letter right that

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Speaker 2: there could be irreversible damage if it's not turned around

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Speaker 2: or change relatively quickly. What did that entail? What was

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Speaker 2: that really speaking to and to.

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Speaker 7: Me, it was interesting that Jamie said that again his

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Speaker 7: annual shareholder letters something that people look forward to, not

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Speaker 7: necessarily the Warren Buffett letter, but with his stature as

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Speaker 7: the elder statesman in the banking sector, every time Jamie

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Speaker 7: Diamond has something to say, people pay attention. It's a

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Speaker 7: sixty page missive, so most of it was written weeks

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Speaker 7: and months in advance, but there was a lot of

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Speaker 7: changes made in the last forty eight hours. And the

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Speaker 7: one that we're all drilling into is the is this

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Speaker 7: commentary on Tariff's and he's clear that that the longer

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Speaker 7: this goes on, the negative effects negative impact will be cumulative,

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Speaker 7: and that's what a lot of people have been talking

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Speaker 7: about even if you start trying to change course, you

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Speaker 7: try to negotiate those a commentary from a Goldman partner

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Speaker 7: over the weekend who said, it's really hard to put

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Speaker 7: the toothpaste back in the tube once it's out. And

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Speaker 7: that's the concern for Waltreet. If you are taking away

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Speaker 7: the critical ingredient that businesses need, that bankers need, that

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Speaker 7: the economy needs, which is certainty that gives you confidence,

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Speaker 7: then what hope do you have?

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Speaker 5: Did the big global investment banks just refresh my memory?

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Speaker 5: Do they provide earnings guidance?

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Speaker 7: Typically they generally tend to talk about what their quarter

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Speaker 7: is looking like. But the problem is when they start

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Speaker 7: reporting earnings starting Friday and through the middle of next week,

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Speaker 7: you will see that a lot of the numbers that

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Speaker 7: they forecast, a lot of the numbers they talked about,

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Speaker 7: which was especially relative to trading expectations and even deal

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Speaker 7: making expectations, they will match them, perhaps even beat them.

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Speaker 7: But nobody really cares anymore because we do not want

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Speaker 7: to know what they did between jan one and March thirty.

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Speaker 7: First one is paying attention to how badly they will

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Speaker 7: be hit going forward. Morgan Stanley's out with a note

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Speaker 7: today downgrading the entire banking sector and the breakdown there

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Speaker 7: is interesting. They talk about how someone like a Goldman Sachs,

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Speaker 7: you will see the immediate impact because the twitch reaction

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Speaker 7: in capital markets and deal making is just it's a snap,

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Speaker 7: you see it. It's evident with respect to slowing down

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Speaker 7: of loan growth and consumer books at banks or consumers

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Speaker 7: falling behind on their loans, that is still something that's

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Speaker 7: out in the future. And perhaps you know, if you're

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Speaker 7: able to somehow navigate through this tariff, whether it's a

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Speaker 7: negotiation or a negotiation, whether he goes away with with

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Speaker 7: sort of the worst case scenario or dials it back

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Speaker 7: a bit, that could have an impact on those things.

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Speaker 7: But where you're seeing the immediate impact just the fact

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Speaker 7: that it is hanging out there is deal making, is

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Speaker 7: capital markets, and when that is shut, banks and firms

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Speaker 7: that are indexed to that part of the business are

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Speaker 7: going to bear the brunt of it.

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Speaker 2: Okay, but but but but just there's not a last

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Speaker 2: Like ten minutes stocks have just turned around. Now you

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Speaker 2: have the S and p up say one and a

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Speaker 2: half percent. You got bonds selling off hard on that

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Speaker 2: back end, like kind of out of nowhere. Isn't that

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Speaker 2: volatility supposed to be good for banks?

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Speaker 7: It turned around is a strong word, because yes, if

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Speaker 7: you if you checked that, if you if you're checked

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Speaker 7: out Friday evening and came in Monday morning and you're

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Speaker 7: down one and a half percent, that's still bad news.

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Speaker 7: But yes, if your weekend ended at six pm Sunday

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Speaker 7: and you were watching Bloomberg surveillance last night and you

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Speaker 7: saw stock futures at down five percent, you started this

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Speaker 7: morning down four and a half percent, down one and

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Speaker 7: a half percent, is not that bad. But again, this

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Speaker 7: is this is not your volatility. This is not good volatility.

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Speaker 7: This is not even informed market reaction. At this point,

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Speaker 7: people are just trying to get how long can this last?

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Speaker 7: Will there be a flip? Donald Trump himself has come

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Speaker 7: out with tons of messages, including his excitement about meeting

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Speaker 7: the Dodgers at the White House this morning. So maybe

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Speaker 7: that's what's causing the positive market reaction.

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Speaker 5: We just don't know, right, We'll.

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Speaker 4: Stick with that.

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Speaker 5: I think that might be the winning forecast there. Shread

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Speaker 5: Don Roger, and thanks so much for joining us giving

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Speaker 5: us the thoughts kind of how Wall Street's trying to

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Speaker 5: price in some of this uncertain to hear from the terrorist.

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Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,

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