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Speaker 2: All right, let's get more on the market. How to
Speaker 2: manage all of this? At James Abatte's managing director and
Speaker 2: chief investment officer at Center Asset Management. I mean, here's
Speaker 2: my really dumb question, like do you sell and or
Speaker 2: is there a level to buy? Like, I don't know
Speaker 2: a more sophisticated question than that.
Speaker 3: I don't know if it's a level. I mean, let's
Speaker 3: think about what markets are doing with us today. But
Speaker 3: let's look back at Friday. The selling on Friday, which
Speaker 3: just indiscriminate. We have the highest volume day ever on
Speaker 3: US trading. I mean ETF volume account for about forty
Speaker 3: percent of the volume, which in these there was a
Speaker 3: rush to either hedge or de lever positions. And I
Speaker 3: think one of the things that was telling to us
Speaker 3: is it even the safe havens like consumers, staples, healthcare, utilities,
Speaker 3: even domestic infrastructure stocks participated fully in the drawdout, and
Speaker 3: I told us that even for the short term, maybe
Speaker 3: we might see some stabilization or of vicious counter trendorality
Speaker 3: like we're seeing this morning. You know, the bottom line
Speaker 3: for us is this is a terrific opportunity, you know,
Speaker 3: for true active management, because we think we're on the
Speaker 3: cusp of a potential market leadership pivot. We've been in
Speaker 3: an environment for the last two years where it's been
Speaker 3: the mag seven being the only source of returns, leading
Speaker 3: to some extreme concentration. In fact, you know, we saw
Speaker 3: a lot of large cap core mutual funds have to
Speaker 3: change your investment policies to become non diversified funds because
Speaker 3: of the top heavy buyes of the benchmark. So going
Speaker 3: back to November, we came out very skeptical of the
Speaker 3: analog of just following the Trump trade playbook despite the
Speaker 3: post election rally, and stayed that way. But we've had
Speaker 3: a tremendous reset in prices. We've seen a rallying treasuries
Speaker 3: that I think, you know, leads to opportunities in certain segments.
Speaker 4: Of the market, like the regional banks.
Speaker 3: You've got treasuries that have prepared the balance sheets fed cuts.
Speaker 3: We're the most bullsh on regional banks probably since nineteen
Speaker 3: ninety six. I don't want to date myself, because they're
Speaker 3: going to be growing and really be the leadership of
Speaker 3: the market, we think, because they'll be financing the industrial
Speaker 3: heartwain and build out. So our point of investors is
Speaker 3: now is the time to have a main street portfolio,
Speaker 3: not a Wall Street portfolio. And that's really a key
Speaker 3: thing for us.
Speaker 5: So what is I guess the constituents of that kind
Speaker 5: of portfolio, what are the themes driving it?
Speaker 3: The themes that would drive it are basically regional banks, utilities,
Speaker 3: other domestic infrastructure plays. I think the first thing to
Speaker 3: remember and why we were kind of bearish heading into
Speaker 3: this year, was that markets with price with perfection, you know,
Speaker 3: inequity risk premium that was essentially zero credit risk was
Speaker 3: essentially dismissing any potential of disruption for us.
Speaker 4: Deep Seat, the announcement of deep Seat.
Speaker 3: Was the first match that was thrown on an over
Speaker 3: valued mag seven driven market. The teriffs were kind of
Speaker 3: an accelerate. So I think the real key thing to
Speaker 3: look here for is on the other side of this trade,
Speaker 3: where we do get a rally. I would expect this
Speaker 3: to be in an environment where a mag seven does
Speaker 3: not lead the other side of the cell here, and
Speaker 3: I think that will be confirmation that a Main Street
Speaker 3: driven portfolio, not a Wall Street driven portfolio, will be
Speaker 3: the one to.
Speaker 4: Lead us out.
Speaker 2: Main Street has also and will be hit. I mean,
Speaker 2: as we were just talking about earlier with Morgan Stanley
Speaker 2: is downgrading all the banks. Yes, the ones with the
Speaker 2: capital market exposure get hit first, but the mid size banks,
Speaker 2: the regional banks, they're not going to be spared either.
Speaker 4: Well, we'll think about that or how much of that
Speaker 4: has already reflected.
Speaker 3: Many of these regional banks, whether it's key regions, they're
Speaker 3: trading it less than book value. Many of them have
Speaker 3: seen an inflection and the return on equity. But most
Speaker 3: of the pain in the regional banks occurred when we
Speaker 3: had the sell off driven by the failure of Silicon
Speaker 3: Valley Bank and some.
Speaker 4: Of the others. They have not yet been in the
Speaker 4: growth mode.
Speaker 3: Clearly, there could be some credit issues on the lower
Speaker 3: end of the consumer, but the concentration of commercial real
Speaker 3: estate problems is really dominated in the money center bank.
Speaker 3: So as we would avoid the money centers and really
Speaker 3: for the first time have an opportunity further down on
Speaker 3: the capitalization spectrum with the regional banks.
Speaker 5: So what's the how do you price in this environment
Speaker 5: where now, James, do you think it's something that is
Speaker 5: going to be a longer term issue for this economy?
Speaker 3: Well, I think when we saw President Trump announced potentially
Speaker 3: that there'll be a stay on most tariffs except for China.
Speaker 3: I mean, China is the primary target and going to
Speaker 3: be the biggest loser. I mean the fact that the
Speaker 3: market sold off on their retaliation to the US on
Speaker 3: Friday is kind of, in a fundamental sense immaterial.
Speaker 4: I mean, our biggest exports of.
Speaker 3: China are soybeans, coal, almonds and other things. I mean,
Speaker 3: the US owns the asset that China and everybody needs.
Speaker 3: The US consumer market the key theater.
Speaker 4: And remember with all of this is.
Speaker 3: That you know it's we should stay away from blaming China.
Speaker 3: It was the US multinational companies that closed down US
Speaker 3: production facilities to gain access to cheaper labor and loose
Speaker 3: environmental concerns, and now they're the ones that have to
Speaker 3: reap the negative consequences of those technology transfers.
Speaker 4: As well as the intellectual.
Speaker 5: Property teams that the proper allocation of capital. Why produce something,
Speaker 5: don't you want to produce it in the lowest cost
Speaker 5: environment to pass on the cost savings to US consumers
Speaker 5: through lower prices and lower inflation.
Speaker 4: Sure, would you.
Speaker 3: Rather be unemployed and have access to a seventy nine
Speaker 3: dollars flore having jobs?
Speaker 5: Unemployee? We've got apployment, James, James, we've got full employment here.
Speaker 5: Who's unemployed?
Speaker 3: Well, it's it's the quality of the jobs. It's terming
Speaker 3: about the competitive edge that you can have as a country.
Speaker 3: There are security concerns, I think when you look back.
Speaker 5: Okay, so it's not economic, it's security.
Speaker 4: It's both.
Speaker 3: Actually, you have to have national security issues. I mean,
Speaker 3: let's forget that, Chuck Schumer back.
Speaker 5: Into the fact that we widgets are being made in China.
Speaker 5: That's a security concern to you.
Speaker 4: That's not where Trump is going after. He wants the
Speaker 4: high value out of things like automrkety is going out.
Speaker 3: Technology, pharmaceuticals. That's where he's trying to gear it up, toys,
Speaker 3: other things.
Speaker 4: Those are not really on the radar.
Speaker 5: Pharmaceutical companies are in New Jersey, James, Thanks for journey
Speaker 5: Appreciate it. James About, the managing director and chief investment
Speaker 5: officer of Center Asset Management, Appreciate it.
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Speaker 2: All right, let's go to the autos because they ain't
Speaker 2: getting any love you got. GM stock is down by
Speaker 2: about another three point seven percent. Kevin Tynan is director
Speaker 2: of research at the Presidio Group A joining us to
Speaker 2: discuss all things auto. Kevin, I mean, how bad can
Speaker 2: it get for these guys? Like, where's the low here
Speaker 2: in these in the stocks?
Speaker 5: You know?
Speaker 6: The interesting thing, Alex is that if this is, if
Speaker 6: tariffs are a supply constraint for the auto industry, for
Speaker 6: the US auto industry going forward, the last time we
Speaker 6: had a supply constraint, from twenty twenty to twenty twenty
Speaker 6: three was actually the most profitable time for the dealer
Speaker 6: groups and for manufacturers. So it kind of puts supply
Speaker 6: and demand, or has the potential to put supply and
Speaker 6: demand back in balance and or utilize more of the
Speaker 6: domestic capacity. And this actually could be a good thing
Speaker 6: because we're not oversupplied with this narrow margin environment that
Speaker 6: this industry has struggled with for decades. So it's kind
Speaker 6: of interesting that it looks like an opportunity because you're
Speaker 6: talking about tightening up pricing or firming up pricing and
Speaker 6: expanding margins going forward.
Speaker 2: Guys jump in on that for one second. Yeah, but
Speaker 2: then we've heard like you have Ford, I think Volkswagen
Speaker 2: also like Volkswagen's laying off some workers in the US,
Speaker 2: Ford is now discounting their cars or to get people
Speaker 2: in the lot. That feels really different from twenty twenty.
Speaker 4: Well, the difference is it effects.
Speaker 6: Where twenty twenty was supply chain disruption across the board, right,
Speaker 6: almost everybody was impacted the same. Because the supply chain
Speaker 6: is common through a lot of automakers. This is very
Speaker 6: different depending on what your production footprint looks like. So
Speaker 6: for those right, for example, if you look at US
Speaker 6: automotive factories in the fourth quarter, utilization was sixty five percent,
Speaker 6: right where you're really looking for eighty eighty plus to be,
Speaker 6: you know, utilization for your auto factories in this country.
Speaker 6: So the idea is that you're going to have manufacturers
Speaker 6: that don't have enough capacity here to ramp up and
Speaker 6: are going to be penalized by that. And then you
Speaker 6: have the ability for manufacturers who do have capacity here
Speaker 6: that is being underutilized to ramp up output output to
Speaker 6: make up some of that difference or those lost units.
Speaker 6: The way I look at it as this right, sixteen
Speaker 6: million units were sold in the US in twenty twenty four,
Speaker 6: about eleven million were produced here. So if you think
Speaker 6: about five million units in play, whether they get built
Speaker 6: or not built, there's the opportunity for domestic capacity to
Speaker 6: absorb some of those five million units. And when you
Speaker 6: think about it, twenty twenty two, which was the most
Speaker 6: profitable year for manufacturers and dealers, was only a thirteen
Speaker 6: point eight million unit market, So this can be profitable
Speaker 6: for manufacturers on smaller volume. And I think the headline
Speaker 6: is this takes units out overall and that all sales
Speaker 6: are good sales, which isn't necessarily true. This will improve
Speaker 6: the quality of sales because supplying the man will be
Speaker 6: in balance.
Speaker 5: Okay, that's what I thought too. That's why I'm very
Speaker 5: surprised that auto stocks have been trading down. Shouldn't this
Speaker 5: be the tariff environment? Should this not be good news?
Speaker 6: Eventually it should be right if that's if it goes
Speaker 6: according to plan, where now we're at eighty percent capacity
Speaker 6: for our automotive factories. The other thing too, and I
Speaker 6: think Paul the burden on the manufacturers because they have
Speaker 6: to right size or utilize more of that capacity. That
Speaker 6: lift is heavier for the manufacturing base than it is
Speaker 6: for the retailers. The retailers went through this process of
Speaker 6: supply constraint fewer units and have sort of rationalized their
Speaker 6: cost structure more recently than the manufacturers did. Right, They
Speaker 6: idled plants, but they really didn't take out that capacity.
Speaker 6: So I think there's a little bit more of a
Speaker 6: longer lead time to get that production where it needs
Speaker 6: to be. And that's a global issue, right. Automotive capacity
Speaker 6: globally is a problem and some of it needs to
Speaker 6: come out. So I think you're going to see a
Speaker 6: different impact on the manufacturing stocks versus the retailer stocks.
Speaker 6: And at the end of the day, the consumer ultimately
Speaker 6: just pays more for everything.
Speaker 2: That's such an interesting take. Let me add on one
Speaker 2: more layer. What about the steel and aluminum tariffs and
Speaker 2: pretty much tariffs. That's the input part. You mentioned that
Speaker 2: we could maybe absorb about those five million cars that
Speaker 2: were bought that weren't made in the US. What's the
Speaker 2: layer though on top of that when it comes to
Speaker 2: these derivative tariffs, and I.
Speaker 6: Think that's an impact on the supply base, right, You're
Speaker 6: going to have some suppliers smaller and depending again what
Speaker 6: your production footprint looks like, that are very much impacted.
Speaker 6: Where there may be one or few big contracts where
Speaker 6: margins are razor thin that this throws everything out of balance.
Speaker 6: But again, even if you think about that at the
Speaker 6: materials and the supplier tier two three going to be
Speaker 6: a problem at the end of the day, that's supply constraint,
Speaker 6: and as you move through the value chain, that impacts
Speaker 6: the manufacturers differently or the retailers differently. If you think
Speaker 6: about the US auto market going back, it's least profitable
Speaker 6: when there's the most inventory we're and it's the most
Speaker 6: profitable when there's the least inventory. So we're moving to
Speaker 6: this period where we're coming out of a rebuild of
Speaker 6: inventory back to dangerous levels, I would argue, and that
Speaker 6: gets right sized back to a two to one ratio
Speaker 6: inventory to sales, and it's actually a good thing longer term.
Speaker 6: There's going to be some pain right now in the uncertainty,
Speaker 6: but if it's according to plan, supply and demand come
Speaker 6: and balance and margins are just better.
Speaker 5: Kevin, we got about a minute left. Does this uncertainty
Speaker 5: in the auto business impact the changeover to EV's I'm
Speaker 5: not even sure where we are there, but is there
Speaker 5: an impact?
Speaker 6: Yeah, I mean, and I think that was happening happening
Speaker 6: organically anyway. I think what's what this does, or this
Speaker 6: administration does, is it takes some of the demand levers
Speaker 6: out of there, which relieves some of the financial pressure
Speaker 6: on manufacturers to do a technology that has proven unprofitable.
Speaker 6: So I think you're starting to see that at state
Speaker 6: by state level. In terms of the California Air Resources
Speaker 6: Board waivers, Virginia didn't go for theirs. There's talk about
Speaker 6: every other state saying like, we can't go one hundred
Speaker 6: percent EV or battery electric and plug in harbrid by
Speaker 6: twenty thirty five, we're going to lose units to noncarved states.
Speaker 6: So I think you're starting to see that that pressure
Speaker 6: from government back off a little bit and let the
Speaker 6: market be a little bit more organic and grow that
Speaker 6: demand naturally.
Speaker 5: All right, Kevin, Kevin, great to talk with you, as always.
Speaker 5: Kevin Tyn and Director of Research at the Presidio Group,
Speaker 5: joining us from New Jersey via zoom. Appreciate getting some
Speaker 5: of his time.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 5: Think back to the election, to the turn of the calendar.
Speaker 5: You're into twenty twenty five animal spirits, and nowhere did
Speaker 5: animal spirits run more rampant than on Global Wall Street.
Speaker 5: Let's get some deal making. You're gonna have be easy money.
Speaker 5: We're gonna have less regulation, we're gonna have pro business policies.
Speaker 2: Capital market, it's gonna be wide open, yep.
Speaker 4: And let's go rip it.
Speaker 5: A little bit different tone here today, particularly punctuated by
Speaker 5: the letter from Jamie Diamond to his shareholders.
Speaker 6: Here.
Speaker 5: Stritenana Rogen joins us here a Bloomberg News He's a
Speaker 5: senior financial reporter. Sree Times have changed, my friend, over
Speaker 5: the last few months. What are your sources on Wall
Speaker 5: Street saying about deal making IPOs? I see a big
Speaker 5: loan got postponed today to fund the buyout.
Speaker 4: So what's happening?
Speaker 7: And they're looking for dog walking appointments. I mean, look,
Speaker 7: the sentiment is honestly captured by Isabel's story today, where
Speaker 7: if you look at the big take we have out
Speaker 7: on Bloomberg today, the Headlindal trays Wall Street is just
Speaker 7: collateral damage in Trump's trade war. Both of you are
Speaker 7: right five months ago, when after the election, the biggest
Speaker 7: reaction in the markets came from these firms index to
Speaker 7: Wall Street, Index to deal Making Index to Capital Markets,
Speaker 7: who were certain that regulation was going to go down,
Speaker 7: all the obstacles going to get out of their way,
Speaker 7: and it was going to be boom time for their business.
Speaker 7: The only problem was they were not taking President Donald
Speaker 7: Trump seriously, or at least President elect Donald Trump or
Speaker 7: the man who was campaigning to be president seriously when
Speaker 7: on the campaign trail repeatedly he talked about his decades
Speaker 7: long desire to change the global trade order. Tariffs are
Speaker 7: not something that's an idea that's been injected in Trump's
Speaker 7: head in the last week or two weeks or a
Speaker 7: few weeks before that. He's been talking about that for
Speaker 7: nearly forty years. The problem was Wall Street refused to
Speaker 7: take that seriously. Now they're being forced to confront it,
Speaker 7: and the reaction hasn't been great.
Speaker 2: And Jamie Diamond talked about in his letter right that
Speaker 2: there could be irreversible damage if it's not turned around
Speaker 2: or change relatively quickly. What did that entail? What was
Speaker 2: that really speaking to and to.
Speaker 7: Me, it was interesting that Jamie said that again his
Speaker 7: annual shareholder letters something that people look forward to, not
Speaker 7: necessarily the Warren Buffett letter, but with his stature as
Speaker 7: the elder statesman in the banking sector, every time Jamie
Speaker 7: Diamond has something to say, people pay attention. It's a
Speaker 7: sixty page missive, so most of it was written weeks
Speaker 7: and months in advance, but there was a lot of
Speaker 7: changes made in the last forty eight hours. And the
Speaker 7: one that we're all drilling into is the is this
Speaker 7: commentary on Tariff's and he's clear that that the longer
Speaker 7: this goes on, the negative effects negative impact will be cumulative,
Speaker 7: and that's what a lot of people have been talking
Speaker 7: about even if you start trying to change course, you
Speaker 7: try to negotiate those a commentary from a Goldman partner
Speaker 7: over the weekend who said, it's really hard to put
Speaker 7: the toothpaste back in the tube once it's out. And
Speaker 7: that's the concern for Waltreet. If you are taking away
Speaker 7: the critical ingredient that businesses need, that bankers need, that
Speaker 7: the economy needs, which is certainty that gives you confidence,
Speaker 7: then what hope do you have?
Speaker 5: Did the big global investment banks just refresh my memory?
Speaker 5: Do they provide earnings guidance?
Speaker 7: Typically they generally tend to talk about what their quarter
Speaker 7: is looking like. But the problem is when they start
Speaker 7: reporting earnings starting Friday and through the middle of next week,
Speaker 7: you will see that a lot of the numbers that
Speaker 7: they forecast, a lot of the numbers they talked about,
Speaker 7: which was especially relative to trading expectations and even deal
Speaker 7: making expectations, they will match them, perhaps even beat them.
Speaker 7: But nobody really cares anymore because we do not want
Speaker 7: to know what they did between jan one and March thirty.
Speaker 7: First one is paying attention to how badly they will
Speaker 7: be hit going forward. Morgan Stanley's out with a note
Speaker 7: today downgrading the entire banking sector and the breakdown there
Speaker 7: is interesting. They talk about how someone like a Goldman Sachs,
Speaker 7: you will see the immediate impact because the twitch reaction
Speaker 7: in capital markets and deal making is just it's a snap,
Speaker 7: you see it. It's evident with respect to slowing down
Speaker 7: of loan growth and consumer books at banks or consumers
Speaker 7: falling behind on their loans, that is still something that's
Speaker 7: out in the future. And perhaps you know, if you're
Speaker 7: able to somehow navigate through this tariff, whether it's a
Speaker 7: negotiation or a negotiation, whether he goes away with with
Speaker 7: sort of the worst case scenario or dials it back
Speaker 7: a bit, that could have an impact on those things.
Speaker 7: But where you're seeing the immediate impact just the fact
Speaker 7: that it is hanging out there is deal making, is
Speaker 7: capital markets, and when that is shut, banks and firms
Speaker 7: that are indexed to that part of the business are
Speaker 7: going to bear the brunt of it.
Speaker 2: Okay, but but but but just there's not a last
Speaker 2: Like ten minutes stocks have just turned around. Now you
Speaker 2: have the S and p up say one and a
Speaker 2: half percent. You got bonds selling off hard on that
Speaker 2: back end, like kind of out of nowhere. Isn't that
Speaker 2: volatility supposed to be good for banks?
Speaker 7: It turned around is a strong word, because yes, if
Speaker 7: you if you checked that, if you if you're checked
Speaker 7: out Friday evening and came in Monday morning and you're
Speaker 7: down one and a half percent, that's still bad news.
Speaker 7: But yes, if your weekend ended at six pm Sunday
Speaker 7: and you were watching Bloomberg surveillance last night and you
Speaker 7: saw stock futures at down five percent, you started this
Speaker 7: morning down four and a half percent, down one and
Speaker 7: a half percent, is not that bad. But again, this
Speaker 7: is this is not your volatility. This is not good volatility.
Speaker 7: This is not even informed market reaction. At this point,
Speaker 7: people are just trying to get how long can this last?
Speaker 7: Will there be a flip? Donald Trump himself has come
Speaker 7: out with tons of messages, including his excitement about meeting
Speaker 7: the Dodgers at the White House this morning. So maybe
Speaker 7: that's what's causing the positive market reaction.
Speaker 5: We just don't know, right, We'll.
Speaker 4: Stick with that.
Speaker 5: I think that might be the winning forecast there. Shread
Speaker 5: Don Roger, and thanks so much for joining us giving
Speaker 5: us the thoughts kind of how Wall Street's trying to
Speaker 5: price in some of this uncertain to hear from the terrorist.
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