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Speaker 2: Let's get to the other big news of the day,
Speaker 2: which was actually the ECB cut rates by twenty five
Speaker 2: basis points. The future, though really questionable downgrade their broke
Speaker 2: growth forecast through twenty twenty six. Inflation, though, is still
Speaker 2: a very big concern for Europe, particularly when it comes
Speaker 2: to services. Hugh Worthington is Bloomberg Intelligence European rate strategist.
Speaker 2: I'm looking at a two year over in Germany and
Speaker 2: boon yields up by over six basis points. What was
Speaker 2: your take? Was it a dubbish hike a hawkish hike?
Speaker 2: The market is looking like a hawkish hike right now.
Speaker 3: Wells obviously, but.
Speaker 4: I think we're suffering a little bit of a hangover
Speaker 4: possibly the cut that the ECB did in June, which
Speaker 4: they signaled to the market in April, and then I
Speaker 4: think basically decided that they probably shouldn't have signaled it,
Speaker 4: you know, quite so soon. I don't think someone on
Speaker 4: the Governing Council we're clearly probably not really happy about that.
Speaker 4: And right now I think they're they're they're very keen
Speaker 4: not to give too much away as to be pre
Speaker 4: committing themselves to do anything in October or even in December.
Speaker 4: Hence this big focus that the ECB is going to
Speaker 4: be data dependent and they're not. They don't want to
Speaker 4: give a strong signals as to as to what's what
Speaker 4: they're going to do next, the one they will say
Speaker 4: about and some.
Speaker 3: Sort of the move from yields.
Speaker 4: I think it was it was suppose lightly predictable if
Speaker 4: they did go down this route and decide not to
Speaker 4: give us too much of a clue as to what
Speaker 4: a they're going to do next. You know, we had
Speaker 4: a big we had a big rally in rates in
Speaker 4: Europe two yels down around seventy five basis points, you know,
Speaker 4: going into that decision over the last couple of months
Speaker 4: or so summer, and expectations where policy rates are going
Speaker 4: to be in a year's time down around two percent
Speaker 4: now and they were running at around three percent at
Speaker 4: the time of the June meeting. So you know, we've
Speaker 4: had a big, you know, a big expectation from markets
Speaker 4: in particular that the ECB is going to cut quite aggressively.
Speaker 5: Also, we are covering the part portions of Christina the
Speaker 5: Guard's speech here talking about slower growth really for the
Speaker 5: foreseeable future. For your peer give us kind of your
Speaker 5: thoughts and what you're seeing from your marketplace as to
Speaker 5: the growth outlook for the EU.
Speaker 4: Yeah, I mean the growth outlook is it's pretty terrible really,
Speaker 4: particularly in core Europe and in particular in Germany. I
Speaker 4: think the Ones Bank penciled in growth of twenty twenty
Speaker 4: or zero point one percent, if you can call that growth.
Speaker 4: You know, France isn't isn't a great deal better either,
Speaker 4: But generally speaking, it's pretty sclerotic the growth outlook going forward,
Speaker 4: and actually it got downgraded slightly you know again today
Speaker 4: from those those what were previously pretty unimpressive figures.
Speaker 3: Anyway, but I.
Speaker 4: Think a lot of the focus this week in Europe
Speaker 4: as well as has been on this Dragi report, which
Speaker 4: is basically focusing on the fact that you know, growth
Speaker 4: in in Europe and in the EU in particular is
Speaker 4: very much underperforming. What's going on around the world particularly,
Speaker 4: but I think underforming a lot of what's going on
Speaker 4: in America and that sort of big reforms are needed
Speaker 4: in that there's this as a structural fundamental issue in
Speaker 4: terms of low growth in Europe, and obviously we're seeing
Speaker 4: the outcome of that at the moment. And it's interesting
Speaker 4: actually obviously the you know, with the ECB saying that
Speaker 4: they that they want to keep rates in restrictive territory
Speaker 4: and focus on inflation more than anything. Well, you know,
Speaker 4: they're not too much to help that because I think,
Speaker 4: you know, one of the main things that it is
Speaker 4: driving that sclerotic growth is very poor internal demand. And
Speaker 4: the one way suppose that they can improve on that
Speaker 4: is the cut rates in prime and pump a bit.
Speaker 4: But they don't seem cam to be to be deliving
Speaker 4: that at the moment.
Speaker 2: So do you think that the UCV is in or
Speaker 2: headed forest tangulation about forty seconds stagflation?
Speaker 3: I suspect not.
Speaker 4: Actually, I think we're probably now really a little bit
Speaker 4: too negative. But on inflation, I think things like oil
Speaker 4: prices are coming down, Signs of other bits of inflation
Speaker 4: are coming down. If I give anything, you know, the
Speaker 4: signs that they may well possibly understoose. On the inflation front,
Speaker 4: what you might get is inflation playing ball. But you know,
Speaker 4: I would say the growth side of things just being
Speaker 4: you know, remaining very unimpressive, very unexciting.
Speaker 6: Indeed.
Speaker 2: All right, Hugh, thanks a lot. We really appreciate it.
Speaker 2: Thank you very much. Hugh Worthington, Bloomberg Intelligence, European rate Strategies.
Speaker 2: I was talking about economists earlier this morning, and basically
Speaker 2: it's like, look, fiscal spend is all all what it's about. Like,
Speaker 2: if you got high fiscal spend, your growth is going
Speaker 2: to be okay.
Speaker 7: You know what.
Speaker 2: Europe doesn't really have the fiscal spend. That's just super capped.
Speaker 2: And that's the problem. They don't have a physical union,
Speaker 2: they have monetary union.
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Speaker 2: All right, let's get to the eco data. Charl McGill
Speaker 2: god says that's not a movie market, but maybe Michael
Speaker 2: McKee will disagree. International Economics and Policy corresponded. All right,
Speaker 2: so you got the producer prices for August, Mike, Did
Speaker 2: this tell us anything?
Speaker 8: Not a whole lot.
Speaker 9: It tells you that there's still a sort of a
Speaker 9: range bound inflation level in producer prices, some categories up,
Speaker 9: some categories down, But it doesn't suggest any major building
Speaker 9: inflationary pressures, which is what the the FED would be
Speaker 9: worried about. Interesting thing was that trade services rose six
Speaker 9: tens of a percent, a fairly large increase, and that
Speaker 9: is based on retailer and wholesaler margins. So it's good
Speaker 9: news for profits.
Speaker 5: It appears, Oh okay, all right, very good. So you
Speaker 5: take this along with the CPI data. Does this give
Speaker 5: the Fed greater confidence that they in fact have inflation
Speaker 5: under control here and they can start easing interest rates.
Speaker 9: They can certainly start easing interest rates. I think the
Speaker 9: fact that we saw a little bit higher PPI on
Speaker 9: a month over month basis, a little bit higher CPI
Speaker 9: core on a month over month basis tells the Fed
Speaker 9: that they are they have inflation sort of under control,
Speaker 9: but it's not. The victory is not one yet, and
Speaker 9: they still need to be cautious, which puts them on
Speaker 9: the side of twenty five basis points as opposed to fifty.
Speaker 8: Doesn't discourage a cut.
Speaker 9: But I think that's what the markets are pricing now,
Speaker 9: is that the FED has to has to feel like
Speaker 9: it needs to be careful.
Speaker 2: You know, there's been a argument that if they go fifty,
Speaker 2: then it's going to set up you know, what do
Speaker 2: they know that we don't know, et cetera when you're
Speaker 2: talking to people. Is that a real argument or is
Speaker 2: it like, hey, things are actually okay, let's keep it
Speaker 2: that way and not mess about and cut fifty.
Speaker 9: I mean think the latter is correct nowadays, at least
Speaker 9: for people on Wall Street who have Bloomberg's The FED
Speaker 9: doesn't know anything that you don't know.
Speaker 2: I mean, like some inside super cool release the data.
Speaker 9: Well, you know, they release the data they have. Everybody
Speaker 9: else has access to the same economic data, and most
Speaker 9: big banks have analysts who are also talking to CFOs
Speaker 9: and CIOs and talking to people about what's going on
Speaker 9: in the company, So they're getting the same sort of
Speaker 9: read on the economy on a real time basis that
Speaker 9: the FED presidents get by talking to CEOs.
Speaker 8: All the FED.
Speaker 9: Banks do surveys on a regular basis of companies in
Speaker 9: their in their districts, and you know, that's that's.
Speaker 8: What the job of an analyst on Wall Street.
Speaker 9: So I think everybody kind of has the same information,
Speaker 9: but they have different motivations. The markets are looking for
Speaker 9: ways to make more money.
Speaker 8: Well, the FED is looking at.
Speaker 9: Was looking at inflation alone and now they're looking at
Speaker 9: both sides of their mandate.
Speaker 5: Right, So I mean again, if you step back, here
Speaker 5: is there when you talk to people, Michael, your sources,
Speaker 5: where are we in just the recession talk that gee,
Speaker 5: maybe the Fed's too late, and in fact, you got
Speaker 5: to pull this recession talk back onto the table. It's
Speaker 5: been kind of off the table for a while.
Speaker 2: Now.
Speaker 5: Where are we in terms of timing of the FED
Speaker 5: and what it means for the US economy.
Speaker 9: Almost everybody's cut back their recession forecasts. There are some
Speaker 9: people out there who well, there's always the.
Speaker 8: Stopped clock, folks.
Speaker 9: You know, at some point we're going to have a recession.
Speaker 9: And then there are people who think that we are
Speaker 9: going to we might have a recession because of previous
Speaker 9: recession indicators that don't seem to be working. This time,
Speaker 9: and chief among those is the inverted yield curve story.
Speaker 9: So when you look at the rest of the numbers,
Speaker 9: and things have definitely slowed, but they haven't gone into recession. Now,
Speaker 9: the biggest thing about recess is it's a confidence matter.
Speaker 8: You don't have a recession.
Speaker 9: When you go to recession, people stop spending and companies
Speaker 9: stop spending because they have lost confidence in their ability
Speaker 9: to be able to pay for things going forward. And
Speaker 9: at this point that doesn't seem to be on anybody's mind.
Speaker 9: We'll fly out tomorrow what the latest Michigan confidence numbers are.
Speaker 9: But while those have been down some, they're not down
Speaker 9: in recessionary territory. And businesses aren't saying we're going into recession.
Speaker 9: So at this point it might take some external factor,
Speaker 9: some geopolitical thing could destroy confidence.
Speaker 8: After nine to eleven yesterday, I.
Speaker 9: Remember what happened then, but people don't really see it
Speaker 9: and the FED doesn't see it happening.
Speaker 5: Here's my recession data point that I sent to Tom
Speaker 5: Kinyesus yesterday afternoon around lunchtime, walking from the Bloomberg headquarters
Speaker 5: and le Avenue over to the park. Beautiful day walk
Speaker 5: around Central Park, sixtieth Street, a bunch of swanky restaurants
Speaker 5: with outdoor seating packed I mean overflowing pack for lunch.
Speaker 5: So I'm like a guy sent Tom a message. I'm like,
Speaker 5: I don't see a sload on here on thest. Sixtieth Street.
Speaker 6: That's just that, and that's.
Speaker 2: Also tourists and also businesses. That's definitely a combo. Hey, Mike,
Speaker 2: thanks lot, really appreciate it.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple car Playing and
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Speaker 5: Alex Deal Paul Sweeney live here in our Bloomberg Dinner
Speaker 5: at a broker studio. We're streaming live on YouTube as well,
Speaker 5: So check us out there search Bloomberg Podcast and that's
Speaker 5: where you will find us. One of the questions I
Speaker 5: think a lot of investors have, Okay, the economy is slowing.
Speaker 5: I get that, is that kind of a normalized slowing
Speaker 5: or is it something more than that? So let's check
Speaker 5: in with somebody who has some of these who thinks
Speaker 5: about some of the same things. I believe is rep
Speaker 5: fixed income portfolio manager for JP Morgan Asset Management, joining
Speaker 5: us via zoom from the Big Apple of New York City.
Speaker 5: So when you look at some of the economic data here,
Speaker 5: is it concerning to you the rate at which the
Speaker 5: economy is slowing or is it seemed something more normalized
Speaker 5: to you?
Speaker 10: Hi, Paul, Thanks for having me. So that's the key question.
Speaker 10: And as we're contemplating FED easies, I think it becomes
Speaker 10: important what level of interest rates would be contingent or
Speaker 10: would be consistent with the soft landing. You know, I
Speaker 10: think that the base of deceleration does concern me a
Speaker 10: little bit. Now, if the FED can aggressively take greates
Speaker 10: to neutral or accommodative territory, maybe that pace of deceleration
Speaker 10: can slow down. But I still think the data mixed.
Speaker 10: You look at the layoff numbers, they are still low,
Speaker 10: they're not consistent with the recession. But then I look
Speaker 10: at other things. I look at, you know, the quits rate,
Speaker 10: the fact that the hiring rate has slowed down on
Speaker 10: the small business. You know, intent to hire has been
Speaker 10: slowing now for a while. The housing market's a little frozen,
Speaker 10: and this bace of decline that you talked about. I
Speaker 10: think you could argue it was normalization six months ago.
Speaker 10: Now it's making me a little bit more nervous that
Speaker 10: this might be something more. But I don't want to
Speaker 10: say that this is a recession. I think we're iner
Speaker 10: soft landing right now. The question is how long can
Speaker 10: it stay and can the FED cut rates quickly enough
Speaker 10: to allow that soft landing to continue.
Speaker 2: So that's sort of what I was asking Mike about,
Speaker 2: right because there is a school thought that they cut
Speaker 2: fifty next week, it's going to mean things are really bad,
Speaker 2: or it could also mean that they don't want it
Speaker 2: to get really bad and that that was sort of
Speaker 2: pre emptied.
Speaker 10: What do you think. I think it's how they message
Speaker 10: a fifty. If they do fifty, I think they might
Speaker 10: go twenty five. But if they do go fifty, I
Speaker 10: think suggesting that this is risk management front loading. Governor
Speaker 10: Waller last week brought up front loading for the first
Speaker 10: time any FED official has brought it up. On the
Speaker 10: easing side, I think it makes a lot of sense.
Speaker 10: The risks are clearly skewed to the downside. Six months ago,
Speaker 10: we were saying, well, risks are balanced, inflation might be high,
Speaker 10: inflation's not a concern anymore road based decline in inflation,
Speaker 10: notwithstanding monthly volatility. It's the growth side, is the labor
Speaker 10: side that's concerning. So if the Fed spins a fifty
Speaker 10: basis point, thud as being front loading. We're trying to
Speaker 10: get to neutral faster. And look at the starting point,
Speaker 10: we're at five and a half on the fund's rate
Speaker 10: or real rates, given inflation is running about two percent,
Speaker 10: that's a very restrictive level of policy. So it's how
Speaker 10: they spin it. I don't think a fifty will be
Speaker 10: viewed negatively if the Fed says we're just trying to
Speaker 10: get ahead of the curve or not be behind the curve.
Speaker 10: But on the same bend, I think if they go
Speaker 10: twenty five and we get the dot lot, and the
Speaker 10: dot lot suggests that they'll get to neutral sometime next year,
Speaker 10: I think they can finish the message and say, look,
Speaker 10: we've seen the market, we've seen the economy. We're responding quickly.
Speaker 10: We just think we can start at twenty five, but
Speaker 10: if things slow down faster, we can go fifty. I
Speaker 10: think that message the market will need to hear. Otherwise,
Speaker 10: get ready for a lot of tightening in financial conditions.
Speaker 5: So how does one structure or portfolio given kind of
Speaker 5: that background.
Speaker 10: You know, I would say fixed incer makes a lot
Speaker 10: of sense. We've been talking now for a year. When
Speaker 10: does the FED start to cut rates. They've told you
Speaker 10: they're going to cut rates next week. We're debating twenty
Speaker 10: five or fifty, but it's starting. Lock in yields. I mean,
Speaker 10: I think the front end look very attractive, and the
Speaker 10: FED might have hiked you're getting five percent in cash. Well,
Speaker 10: now if you're getting six percent in a five year
Speaker 10: bond or seven percent if you move into high quality,
Speaker 10: high yield, I would say lock in yields, and I
Speaker 10: would argue for your end of cycle. We can debate
Speaker 10: how long that end can last, but active management makes sense.
Speaker 10: So one of the things we're doing, we're still buying
Speaker 10: high quality spread product. We think fundamentals are strong in
Speaker 10: many sectors, so not just concentrated in any one sector.
Speaker 10: But we're also buying duration. We're buying ten year treasuries,
Speaker 10: We're putting on steepness. What if the economy does slow
Speaker 10: down faster and the FED lags. You know, the FED
Speaker 10: can cut rates, but it takes a while for that
Speaker 10: to show up in the economy, interstrates will be a hedge.
Speaker 10: So I would say that hedged portfolio ownspread, product, lock
Speaker 10: and yield, buy some duration or or put on gas
Speaker 10: stepnas to try and hedge that downside scenario.
Speaker 2: Just some breaking news. We want to bring it to
Speaker 2: our listeners. US sanctions Venezuela Court chief and election officials.
Speaker 2: This is over that July twenty eighth presidential election that
Speaker 2: is questioning that many like the US, are questioning the
Speaker 2: legitimacy of that election that elevated Maduro again to the
Speaker 2: head seat there. Just earlier today, Spain voted to recognize
Speaker 2: the opposition leader a Mundo Gonzalez, challenging Nicholas's Maduro's election
Speaker 2: in July, and Venezuela was not happy about that either,
Speaker 2: so US sanctioning Venezuelan Court chief and election officials. Prio,
Speaker 2: what's the question? How do you look at neutral? So
Speaker 2: like we can obsess over next week for sure, what
Speaker 2: to do short term, but what do you do longer
Speaker 2: term if we don't know what is going to be?
Speaker 2: What if it's four, is it two or four? That's
Speaker 2: a huge difference it.
Speaker 10: Is now you're at five and a half right now,
Speaker 10: So I think we have time to figure out neutral.
Speaker 10: You know, and the fact that growth is slowing despite
Speaker 10: all the fiscal easing, despite the fact that financial conditions
Speaker 10: are easy, tells you that monetary policy is restrictive. So
Speaker 10: if I go back to basics and I look at
Speaker 10: our star estimates, they're all over the place, somewhere between
Speaker 10: zero and one percent, inflation close to two percent, so
Speaker 10: I come down to around three percent with a wide
Speaker 10: error band, maybe it's two and a half to three
Speaker 10: and a half. But I think this is why the
Speaker 10: FED might have the luxury near term. They can cut
Speaker 10: about one hundred basis points and see how the economy
Speaker 10: is responding. And it's not just neutral rate. It's also
Speaker 10: availability of credit, it's financial conditions, it's everything else that
Speaker 10: go into conditions that help the economy, and then they
Speaker 10: can decide are we're getting close to neutral. So I
Speaker 10: think they can finish that neutral. It's unobservable to your point,
Speaker 10: it's extremely important and we can't observe it, but we
Speaker 10: can look at data and see how it's responding to
Speaker 10: interest rates. But I would say somewhere in that three percent.
Speaker 10: But I think what's fascinating is the market's not pricing
Speaker 10: and accommodative despite the fact that the recession talk is
Speaker 10: in the air. The end point after all the rate cuts,
Speaker 10: So look at the totality of rate cuts is around
Speaker 10: three percent. So the market's essentially telling you the Fed's
Speaker 10: going to get too neutral and that's going to be
Speaker 10: enough to keep the soft landing going. I have a
Speaker 10: bit of a question there. If the lags are long,
Speaker 10: or the FED is slow, or the economy is actually
Speaker 10: decelerating faster in terms of underlying maybe the FED will
Speaker 10: have to go into accommodative territory, so below three percent.
Speaker 10: But I think we're going to figure that out as
Speaker 10: time goes on.
Speaker 5: All right, Prea, thank you so much for joining us.
Speaker 6: Really appreciate it.
Speaker 5: Pre Israe Fixed Income portfolio Manager, JP Morgan Asset Management
Speaker 5: in New York City.
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Speaker 5: Well, some of the news on the Bloomberg News wire
Speaker 5: that's getting a lot of readership today is about two
Speaker 5: of Wall Street's largest investment banks were rolling out measures
Speaker 5: that may ease junior bankers workloads amid complaints across the
Speaker 5: industry that weekly hours are increasingly creeping past one hundred
Speaker 5: hours per week. Shreadanata Rogen joins us. He covers all
Speaker 5: the big investment banks. He's a senior financial reporter for
Speaker 5: Bloomberg News. He joins us here in our studio, shre So,
Speaker 5: I guess bankers they've always been known, particularly the junior bankers,
Speaker 5: for working long hours. And I know that kind of
Speaker 5: during the financial I mean, you know, during the pandemic,
Speaker 5: that became a recurring issue of concern. Where are we
Speaker 5: today in terms of having to try to ease some
Speaker 5: of the workload from some of those junior bankers.
Speaker 11: I mean, what you're saying is dejvo all over again.
Speaker 10: Right.
Speaker 11: It just feels like we come back to the same
Speaker 11: topic every few years. Not a surprise that it's often
Speaker 11: tied to the time than we are starting to see
Speaker 11: an upswinging deals. The last time this did become a
Speaker 11: big issue was back during the pandemic. Remember the phase
Speaker 11: probably a few months after the pandemic, when companies suddenly
Speaker 11: needed this massive funding needs. All the investment banking firms
Speaker 11: were working overtime on that. That turned into deal making opportunities.
Speaker 11: And then you had the twenty twenty one s backpoom
Speaker 11: and whatnot, and that viral presentation out out of Golden
Speaker 11: Sacks and those junior bankers that really caused the stir
Speaker 11: in the industry. What happened back then you had pay
Speaker 11: rises across.
Speaker 8: All of Wall Street.
Speaker 11: All the firms were raising their base salary for their
Speaker 11: junior bankers. And these are kids right out of college
Speaker 11: who in their first, second, third year are standing to
Speaker 11: make two hundred, three hundred thousand dollars at these firms.
Speaker 11: It's become part of the conversation again a because there
Speaker 11: has been an uptakeing deal after a bit of a
Speaker 11: lull for a year eighteen months, and then there was
Speaker 11: an unfortunate incident at Bank of America where one of
Speaker 11: the junior investment bankers died, and people have tried to
Speaker 11: draw a connection between the reason for his death with
Speaker 11: the workload that he had. We don't know if there
Speaker 11: can be a direct connection established, but at least that
Speaker 11: has sparked conversation again, and you're seeing some of the results.
Speaker 11: The Wall Street Journal was just the latest news outlet
Speaker 11: to report on this fact that Bloomberg and everyone else
Speaker 11: has been talking about for a few months now. Everyone's
Speaker 11: talking about these rising workloads. There is tension and strain,
Speaker 11: and banks are being forced to respond. Here you have
Speaker 11: JP Morgan coming out with sort of fixed, trying to
Speaker 11: fix some hours for its junior bankers for the first
Speaker 11: time ever. Bank of America already had that, and it's
Speaker 11: trying to do a better job of enforcement. When you
Speaker 11: read the fine print zone when they talk about some exceptions,
Speaker 11: when they talk about well except when there are live deals,
Speaker 11: then you have to sit back and wonder. It's not
Speaker 11: that people were logging eighty hour weeks and ninety hour
Speaker 11: weeks and one hundred hour weeks just twiddling their thumbs.
Speaker 11: They were probably doing it when there were live deals.
Speaker 11: So will this really change anything or will we be
Speaker 11: having the same conversation two years from now.
Speaker 2: Well, also, I was reading I forget where I read it,
Speaker 2: but that higher banking officials will just tell their junior
Speaker 2: bankers like just don't log the hours like work. But
Speaker 2: don't log it like you get around the requirements.
Speaker 11: No, and that's been a problem. Either people are working
Speaker 11: longer than the hours that they're supposed to and just
Speaker 11: not to not get their bosses in trouble, which is
Speaker 11: a thing, they will try and log less than the
Speaker 11: number of hours they're working. In some cases, junior bankers
Speaker 11: will feel that they have to log more ours than
Speaker 11: they're working so that the very precious little spare time
Speaker 11: that they do have does not get allocated under some work.
Speaker 11: But we have to take a step back and wonder,
Speaker 11: and this is this has been a conversation in the
Speaker 11: in the in the industry for three four decades, five decades,
Speaker 11: maybe longer. Now there is a cultural shift that needs
Speaker 11: to take place, right, can't you can't have There has
Speaker 11: to be a better utilization of these hours. Oftentimes you
Speaker 11: have junior bankers responding to requests from their bosses and
Speaker 11: then not hearing back till until they come back from
Speaker 11: their dinner with their client. Notice something minor or major,
Speaker 11: but suddenly say, fine, you know I might be looking
Speaker 11: at this at nine thirty pm, but now that I'm
Speaker 11: responding to you, I want the fix in the next
Speaker 11: two us. The next three US, the next four US.
Speaker 11: That cultural change is more important in figuring out how
Speaker 11: to cap these hours out. I don't know how you
Speaker 11: solve for.
Speaker 5: That easily, but I'll tell you technology has changed the
Speaker 5: game because part of the reason you're in the office
Speaker 5: because you had no other resources. Yet if you wanted
Speaker 5: to fix that thing in three hours, you had to
Speaker 5: be in the office. Now I can do it from
Speaker 5: I can do it for my phone at the Yankee Game.
Speaker 5: Shriana rogens, senior financial reporter for Bloomberg News, a great
Speaker 5: article today on junior bankers on Wall Street. They're working
Speaker 5: pretty hard.
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Speaker 2: So here's a company that I find is really interesting
Speaker 2: and I feel like it's an important conversation and want
Speaker 2: to discuss. And the company is Calumet Specialty Products. Ticker
Speaker 2: is CLMT. It trades in the New York Stock Exchange.
Speaker 2: It trades about sixteen dollars and forty four cents a share.
Speaker 2: It's a one billion dollar company. It's been around for
Speaker 2: a very, very long time. It's been growing through M
Speaker 2: and A for the past thirty years. They have a
Speaker 2: ton of assets. They make things like vasoline WT forty
Speaker 2: tire shine. They take oil and they make the products
Speaker 2: that you use every day to function. Three years ago, though,
Speaker 2: one one asset was turned into something a little bit different.
Speaker 2: It's their Montana Refinery and they now use that to
Speaker 2: process things like vegetable oil, canola oil, corn oil to
Speaker 2: make sustainable aviation fuel. That's kind of interesting, so I
Speaker 2: want to talk about it. CEO Todd Browman joins us. Now, hey, Todd,
Speaker 2: you make all the stuff that we use every day.
Speaker 2: Walk us through your decision though, to spend all this
Speaker 2: time and money on the Montana refinery to make staff.
Speaker 7: Yeah, you bet first. First Alex Paul, thanks, thanks for
Speaker 7: having us today. I'm super excited.
Speaker 8: To be here with you.
Speaker 7: Look, we're we're an entrepreneurial and innovated company at our heart.
Speaker 7: That's that's what we've been, you know, for the last
Speaker 7: thirty years. And we saw an opportunity. We had a
Speaker 7: great facility that was making specialty asphalt in Great Falls,
Speaker 7: Montana a few years ago, early on in kind of
Speaker 7: the COVID days, actually in twenty twenty, we kind of
Speaker 7: looked at the environment and said, hey, this facility is
Speaker 7: in exactly the right place at exactly the right time.
Speaker 7: You know, arguably the fastest growing area in all of
Speaker 7: energy is you know, sustainable aviation fuel, renewable diesel, and
Speaker 7: we were a logistically advantaged facility.
Speaker 3: We sit right on top of a whole bunch of
Speaker 3: renewable feedstock.
Speaker 7: We have direct access to California, British Columbia, Washington, Oregon,
Speaker 7: a truck right away from from Canada.
Speaker 3: So we looked at that opportunity and just said, hey,
Speaker 3: you know.
Speaker 7: We can make this conversion and turn something that's a
Speaker 7: really nice niche specialty asphalt facility into a you know,
Speaker 7: leader leader in sustainable aviation field.
Speaker 3: In fact, we're the largest in the Western hemisphere.
Speaker 7: And we'll keep saying that for a little bit longer,
Speaker 7: but you know, just really excited about the business where
Speaker 7: we're at in the growth trajectory of both that niche
Speaker 7: of a business and Calium met as a whole.
Speaker 2: So I guess the question becomes so here we go.
Speaker 2: If we talked to like airline CEOs and they're like, yeah, yeah,
Speaker 2: we totally want SAFF, but you know, it's kind of
Speaker 2: expensive and or the supply is not really there. When
Speaker 2: you decided to make this transformation, did you set up
Speaker 2: long term contracts with an airline where they're going to
Speaker 2: pay you a certain amount of money for your off
Speaker 2: take and if so, how did that work?
Speaker 7: Interesting question. So what we have is a massive amount
Speaker 7: of flexibility. We can make renewable diesel or SAF And
Speaker 7: obviously we talk a lot about SAFF because that's new
Speaker 7: and you know, associated with a potential DOE loan, and
Speaker 7: we have a large potential max SAFF expansion that will
Speaker 7: take us from the largest producer of North America one
Speaker 7: of the largest, not the largest in the world. So
Speaker 7: so very excited about that. And Staff gets a lot
Speaker 7: of coverage. But but really early on, you know, we
Speaker 7: we initially launched with almost all renewable diesel, and we
Speaker 7: were selling to you know, large blue chip companies and
Speaker 7: and on the south side we're partnered with Shell, who's
Speaker 7: one of the largest staff into wing fuelers there is.
Speaker 7: So so what we do is we provide you know,
Speaker 7: the s p K, which which Shell will then take
Speaker 7: take all across the country even into even into.
Speaker 3: Canada, you know, blend it.
Speaker 7: They have the last mile logistics and then they actually
Speaker 7: you know, serve the serve the airline, do the QC,
Speaker 7: do the last mile terminaling, fueling at the facilities, all
Speaker 7: of that and and sounds interesting, you know, it's it's
Speaker 7: a it's such a high growth area that at this
Speaker 7: point it's one airline, you know, one airport at a
Speaker 7: time in converting because when you think about the complexities
Speaker 7: that are involved and really changing the supply chain in
Speaker 7: the fueling of something as sensitive as an important as
Speaker 7: an airport, you want to make sure you have it right.
Speaker 3: So it's really one airport at a time. We sell
Speaker 3: to Shell.
Speaker 7: Shell takes it to their facility, they blend it and
Speaker 7: ultimately inject it into the you know, fuel the airplane.
Speaker 5: Wow, it's just me and man, you weren't kidding, Todd.
Speaker 5: Great Falls, Montana, Dude, that is up there. I mean
Speaker 5: it's north of Yellowstone National Park. You're just a stone
Speaker 5: stew from Canada, So I can't imagine that is just
Speaker 5: extraordinary out there. Todd talk to us about like the
Speaker 5: quality of the fuel. We were just talking to an
Speaker 5: airline's analyst. It was just talking about, you know, the
Speaker 5: need to get greater efficient engines from a fuel efficient perspective,
Speaker 5: what's the quality and the performance of the sustainable aviation
Speaker 5: fuel that you guys produce.
Speaker 7: One of the things that's that's so beautiful about both
Speaker 7: sustainble aviation fuel and renewable diesel is it's really a
Speaker 7: drop in fuel. You know, there have been a lot
Speaker 7: of technologies talked about to help with the energy transition,
Speaker 7: and and a lot of them, particularly in an airline,
Speaker 7: you know, which which we think is the hardest to
Speaker 7: debate of all of the transportation.
Speaker 3: Sectors. You know, it's it requires a change in infrastructure.
Speaker 7: You know, if you're doing if you're doing battery fuel,
Speaker 7: you know, you have to obviously have a have a
Speaker 7: completely different plane. Hydrogen has been talked about, completely different engine,
Speaker 7: you know. South one of the beautiful things about it
Speaker 7: is it really just drops into an existing supply chain,
Speaker 7: so it's easy. It works just as well as as
Speaker 7: traditional fuel. Obviously, it's it's very highly monitored. The QC
Speaker 7: on it's incredibly important, but molecularly it's it's very similar
Speaker 7: to existing jet fuel that is out there today, so
Speaker 7: we can just drop it into the same you know,
Speaker 7: into the same system. There's some blending in QC work
Speaker 7: that happens kind of there at the facility from shell,
Speaker 7: but it's not something like an ethanol or biodiesel that
Speaker 7: you know requires is able to be blended at very
Speaker 7: small amounts. It's really molecular a very similar product to
Speaker 7: the jet field that's being used today and on renewable
Speaker 7: diesel front. In fact, end users don't even have to differentiate.
Speaker 7: You can use renewable diesel or diesel and not even
Speaker 7: differentiate between the two. You know, they're molecularly the same.
Speaker 2: So when you decided to make this transformation in the
Speaker 2: last three years with this refinery, was it expensive? Did
Speaker 2: it cost a lot?
Speaker 7: Yeah, it costs a lot and in fact, only started
Speaker 7: at our stock was about a dollar in a depth
Speaker 7: of COVID.
Speaker 3: So we really went all in on this.
Speaker 7: We've had a lot of conviction about sustainable aviation, feel
Speaker 7: about renewable diesel, and most importantly, I think Montana's competitively
Speaker 7: advantaged position in that area.
Speaker 3: So so it was a major bet.
Speaker 7: But we were able to make that decision quickly and
Speaker 7: actually go from you know, ideation to fully operating in
Speaker 7: just a few years. So, you know, we stood it
Speaker 7: up at the very end of twenty twenty two. Twenty
Speaker 7: twenty three was kind of we were piecing together the
Speaker 7: various phases of the startup and commissioning. We worked out
Speaker 7: the kinks, and in the second quarter of twenty four
Speaker 7: we really demonstrated what a full steady state you know,
Speaker 7: production can look like at Montaney Nobles.
Speaker 3: So incredibly exciting time.
Speaker 5: So who do you compete against? Is there a competition?
Speaker 5: Is there a market here? Is there a competitive landscape
Speaker 5: for sustainable aviation fuel?
Speaker 7: You know, it's interesting. So every country is a little
Speaker 7: bit different. In North America, there are really only two
Speaker 7: suppliers currently. There are a few more that are coming
Speaker 7: on because obviously this is just a major growth there are,
Speaker 7: but right now, you know, there are only two that
Speaker 7: are producing. So so and it's not, at least today
Speaker 7: a mandated market. So obviously airlines will will make commitments
Speaker 7: and try to get ahead of the game. They expect
Speaker 7: mandates to come down the road. Same thing with with
Speaker 7: with individual entities, you know, so there's private airlines are
Speaker 7: a big either.
Speaker 3: So there's there's certainly a big.
Speaker 7: Market as it exists today, but the incremental supply is
Speaker 7: actually imported. Now if you go globally, that's a little
Speaker 7: bit different. When you go globally, there are mandates, and
Speaker 7: the UK, for example, just came out and they're going
Speaker 7: to mandate, you know, nearly a third of a billion
Speaker 7: gallons by twenty thirty, Singapore, you know, same thing, one
Speaker 7: hundred and fifty million gallons by twenty thirty, Japan, India.
Speaker 3: So so there are globally a lot of mandates coming on.
Speaker 7: And just here in our own, you know, backyard in
Speaker 7: the United States, we have the SAFF Grand Challenge, which
Speaker 7: says we want to have three billion gallons a year
Speaker 7: of saff production by twenty thirty and thirty five billion
Speaker 7: gallons a year by twenty fifty.
Speaker 3: So you know, today we're the largest in North.
Speaker 7: America and we're making thirty million gallons to forty five
Speaker 7: million gallons a year.
Speaker 2: Yeah, toss, how really we are? We gotta leave it there,
Speaker 2: but that was really interesting. I really appreciate it, and
Speaker 2: definitely come back let us know how that's going on.
Speaker 2: I want to hear expansion plans or other plans along
Speaker 2: this area. Tab Roman, CEO of Calummet Specialty of Products,
Speaker 2: joining us on the future of staff and also like
Speaker 2: they make sed up like Basoline.
Speaker 1: Also, you're listening to the Bloomberg Intelligence Podcast. Catch us
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Speaker 5: Thirty, Alex Steel, Paul Swen, you live here in our
Speaker 5: Bloomberg Directive for Workers Studio. We're streaming live on YouTube
Speaker 5: as well. That's the Internet, I'm told. So you go
Speaker 5: to Bloomberg dot com, go to YouTube dot com and
Speaker 5: search Bloomberg Podcast, and that's where you'll find this. Let's
Speaker 5: talk about housing, and there's a pronounced shortage of housing
Speaker 5: in the United States, and that is certainly true here
Speaker 5: in New York City. So let's break that down a
Speaker 5: little bit. David Schwartz joins US Data's co founder and
Speaker 5: principal of Slate Property Group slatest, developing over four billion
Speaker 5: in real estate throughout New York City, representing over four
Speaker 5: thousand apartments, so a good source for us and aw
Speaker 5: Miguil do a little joints this markets reporter for Bloomberg News,
Speaker 5: both of them in our studio here, David at Slate,
Speaker 5: What are you guys doing? First of all, frame out
Speaker 5: the housing challenges in New York City and the kind
Speaker 5: of how you guys are trying to deal with that.
Speaker 6: Yeah, first of all, thanks for having me here today.
Speaker 6: I'm happy to be here to talk about housing. I mean,
Speaker 6: I think it's no surprise that we have a shortage
Speaker 6: of housing. We have a supply side issue. There just
Speaker 6: aren't enough units for people. So if you think about
Speaker 6: overall supply and demand metrics, we have more people that
Speaker 6: need housing than housing to be supplied. New York has
Speaker 6: been under supplying housing for a long time, and now
Speaker 6: we're starting to see that around the country. But we
Speaker 6: have many, many years of under supply of housing and
Speaker 6: more people that need housing than housing available. So housing
Speaker 6: prices are going up and we're seeing a crisis.
Speaker 12: Well before we dig into affordable housing here in New
Speaker 12: York City, and I know that you have a couple
Speaker 12: of exciting projects, one in Brooklyn and one out by
Speaker 12: JFK let's talk about the fact that, for the first
Speaker 12: time in your memory, housing, affordable housing is a core
Speaker 12: issue in the presidential election. Is it that exact, that
Speaker 12: supply issue, or what's going on nationwide that this is
Speaker 12: such a big deal.
Speaker 6: Thanks for bringing that up. I am so pleased to
Speaker 6: see that this is being talked about at the national level.
Speaker 6: Housing is a crisis that all Americans are facing. Whether
Speaker 6: we're in New York or North Carolina, Florida, the Midwest,
Speaker 6: the West Coast, it's everywhere, and it's becoming a huge issue.
Speaker 6: And it's a supply side problem. We don't have enough
Speaker 6: units and we need a lot more. And that's why
Speaker 6: it's nice to hear we heard a presidential candidate talking
Speaker 6: about producing a lot more housing. I think she talked
Speaker 6: about three million units. I think that's a good start.
Speaker 6: I actually think we need a lot more than that,
Speaker 6: but I'll start with three million. I think it's a
Speaker 6: good way. But I think we're talking about a problem
Speaker 6: that's in the ten million plus range.
Speaker 8: How did we get here?
Speaker 5: I mean, is our population surged over the last twenty
Speaker 5: or thirty years?
Speaker 6: How do we get here? Look, it's it's slowly and
Speaker 6: then quickly. I think we've stopped producing enough units. I
Speaker 6: think that after the GFC we stopped producing a lot
Speaker 6: of units. We built fewer units, we built bigger units
Speaker 6: housing the size of houses. If you guys remember like
Speaker 6: the Levit towns for people from the New York area,
Speaker 6: we were building houses that were thirteen hundred square feet. Now,
Speaker 6: how's it a three thousand square feet? There are fewer units,
Speaker 6: they're bigger, they're more expensive, but it's just total number
Speaker 6: of units. If you look at anywhere, New York hasn't
Speaker 6: supplied enough, but the whole country hasn't. And now we're
Speaker 6: in a place in which housing costs have increased with inflation,
Speaker 6: borrowing costs of increased, So we're adding more problems to
Speaker 6: an already problematic area.
Speaker 12: So in terms of actual affordable housing, I know that
Speaker 12: this is an umbrella term for say, workforce housing, among
Speaker 12: other types of housing. Can you dig down into that
Speaker 12: a little bit more before we get specific on sleeves
Speaker 12: propers And we should mention we actually had your other
Speaker 12: co founder and principal, Martin Nusbaum, joined us a couple
Speaker 12: of months ago to talk more broadly about your multifamily
Speaker 12: and outside of affordable housing. But this is such an
Speaker 12: interesting topic.
Speaker 6: Yeah, thanks for bringing that up. I think it's important
Speaker 6: to realize that this is one ecosystem. So all housing
Speaker 6: is related to all other housing. So if you know
Speaker 6: anybody who's bought a home, you might have wanted to
Speaker 6: buy a home for certain dollars, you can't afford it.
Speaker 6: You buy a home for a little bit less. So
Speaker 6: everything is related. So any housing that's produced impacts affordable housing.
Speaker 6: So we need to produce a lot more housing. So
Speaker 6: one of the things that SLATEE is doing is we
Speaker 6: filled the role where we are providing leverage, where we're
Speaker 6: filling the gap where a lot of banks are no
Speaker 6: longer able to provide financing because of all the things
Speaker 6: that having in the banking sector. So without financing, can't
Speaker 6: build more units. So that's one of the areas that
Speaker 6: we're looking at. And then on the other side, we're
Speaker 6: looking to build lots of units, whether it's workforce housing
Speaker 6: or all. The difference is the truth is affordable housing
Speaker 6: means different things to different people. But the fact is
Speaker 6: most people are spending the majority of their income on housing.
Speaker 6: Unless you're really really wealthy, your biggest expenditure is probably housing.
Speaker 6: So whether you're talking about the teacher or the fireman,
Speaker 6: or you're talking about somebody that works in a fast
Speaker 6: food restaurant, they're both probably having a real crisis with
Speaker 6: affording their housing. And it's not really pitting them against
Speaker 6: each other because they both really need good quality and
Speaker 6: affordable housing, but just at different levels.
Speaker 2: So tell me some of the projects that you had
Speaker 2: gone on, so you know.
Speaker 6: We're doing something that I think is super innovative. We're
Speaker 6: converting the first hotel in New York State to one
Speaker 6: hundred percent affordable housing, the Baisley Park.
Speaker 2: And a hotel to ho that's usually really tricky, right,
Speaker 2: It's not as simple as like put a door in
Speaker 2: and you're done.
Speaker 8: Well.
Speaker 6: It is tricky, but we made it a little bit
Speaker 6: less tricky. So I think what we liked about it
Speaker 6: is we take a hotel room, and if you have
Speaker 6: a one hotel room that's a studio, you knock down
Speaker 6: a wall for two hotel rooms and you turn it
Speaker 6: into a one bedroom. You knock down two walls and
Speaker 6: it's a two bedroom, if that makes sense. And really
Speaker 6: the key there is we can build these units in
Speaker 6: half the time because one of the problems we have
Speaker 6: is that people that need affordable housing. If you need
Speaker 6: affordable housing, you need it pretty quickly, right, So three
Speaker 6: years or five years is probably less important to you
Speaker 6: than if we could deliver it in a year or so.
Speaker 6: I think that's something we could do around the country.
Speaker 6: So we're doing the first one in New York. We're
Speaker 6: fortunate here to have some really really smart and talented
Speaker 6: and innovative people because it was complicated. But it's something
Speaker 6: that we are looking at doing elsewhere. We're actually working
Speaker 6: on a deal in North Carolina right now to do it,
Speaker 6: and I think there's some prospects in Tennessee, out in
Speaker 6: Utah and a few other places.
Speaker 5: It's like building housing in New York City.
Speaker 3: It doesn't I got lots of images.
Speaker 5: I think the movie has been made about a TV
Speaker 5: shows what's it like building stuff in New York City?
Speaker 6: You know? I think, look, let's not let's not pretend
Speaker 6: it's not really hard to do anything in New York.
Speaker 6: You know, I grew up here and I first started
Speaker 6: building here, So I think it's easier to start in
Speaker 6: the hardest place and go to the other places.
Speaker 12: Right.
Speaker 6: I think they say, if you make it here, you
Speaker 6: can make it anywhere. I'd say, that's what it's like.
Speaker 6: In housing. Look, it's really hard to build in New York.
Speaker 6: It's hard. New Yorkers are spirited, have a lot of opinions,
Speaker 6: you know. I say that if you have ten people,
Speaker 6: you'll get fifteen opinions on how to do something. But
Speaker 6: I think it's great. I do think we have the
Speaker 6: most talented people working in government sector, in financing and
Speaker 6: building in New York. I think we have the most
Speaker 6: talented people in the country, which is great. It's hard,
Speaker 6: it's challenging, but we're up for the challenge. I'm a
Speaker 6: lifelong New Yorker, I'm a brooklyn Ie, So we're ready
Speaker 6: for the challenge and you know, having a little bit
Speaker 6: of a fight as part of it. That's kind of
Speaker 6: what we do so well.
Speaker 12: Not only are you a lifelong New Yorker, but your
Speaker 12: family is so known New York family. Your father's Gridlock
Speaker 12: Sam and so of course we've recently had some of
Speaker 12: this controversy around congestion pricing. It was about to happen
Speaker 12: and then at the ninth hour Governor Hogel struck it down.
Speaker 12: Where recently I heard that maybe we're going to get
Speaker 12: a more diluted version of it.
Speaker 6: What are your thoughts there?
Speaker 12: And if it doesn't go through, do the businesses of
Speaker 12: New York have to pick up that extra revenue and
Speaker 12: doesn't get passed down?
Speaker 6: Of course it does, yes, so if my dad does
Speaker 6: it was the first Deputy Transportation Commissioner, Coin Gridlock. So
Speaker 6: for many years I've been known as Gridlock, Saym's Sun
Speaker 6: and even sometimes nicknamed Gridlock myself. So traffic has been
Speaker 6: a big part of our life. Yeah, look, there's no
Speaker 6: question that it is clogging up our streets. We can't move.
Speaker 6: Anyone who drove in Manhattan yesterday was probably stuck in
Speaker 6: traffic room.
Speaker 2: Oh my god. I mean, but that's unique. Yesterday, it
Speaker 2: was a unique day.
Speaker 6: But you know, in general, I think it's slowing down
Speaker 6: the economy. I think something needs to be done. I think,
Speaker 6: you know, congestion pricing. I'm a fan of it. I
Speaker 6: know there's a lot of people that are not so
Speaker 6: happy with it. But again, we need something to make
Speaker 6: traffic work better. We need people to be able to
Speaker 6: get to places and do business. So we've got to
Speaker 6: do something because New York sometimes grinds to a halt
Speaker 6: and what I mean.
Speaker 5: It kind of goes to the pull and push between
Speaker 5: mass transit, taking money from congestion pricing to fund what's
Speaker 5: underground oftentimes, which I'm a big fan of the subway system.
Speaker 5: It's the most efficient way to get around to the system.
Speaker 5: I'll die on that hill against anybody. So it's so much,
Speaker 5: it's so complex, I get. It's just simply a question
Speaker 5: dollars and cents. Who's going to pay for.
Speaker 6: Look, we need a lot of investment into our subway system.
Speaker 6: A big subway guy myself. It's the fastest way to
Speaker 6: get around if I can't walk. We need a big
Speaker 6: investment into it. If you look at our subways versus
Speaker 6: other first world countries, you know they're lacking. I think
Speaker 6: our subway system was incredible. We need a lot more
Speaker 6: money for it. And yeah, that's always the problem. Who's
Speaker 6: going to pay for any of our infrastructure. It's with
Speaker 6: our affordable housing, right, we need a lot more money.
Speaker 6: You know, affordable housing is infrastructure as well. I think
Speaker 6: that's a big point. It really is. It's it's like
Speaker 6: schools and roads and bridges and fire departments. I mean,
Speaker 6: I don't it's the life blood, you know, why do
Speaker 6: we Why does society pay for those other things? It's
Speaker 6: to make society work. And I think you know, affordable
Speaker 6: housing is infrastructure. It's all related. You can't look at
Speaker 6: it on its own.
Speaker 2: Yeah, where's Sean Tucker when you need them? We have
Speaker 2: someone that joins us for the radio show who lives
Speaker 2: in Jersey and is like horrifically horrified by the congestion
Speaker 2: pricing is because it's gonna cost him so much more
Speaker 2: money to get to work.
Speaker 6: Let's get them up. Let's get him on with my
Speaker 6: dad Gridlock say, oh my god.
Speaker 2: And he also comes in at like three am or
Speaker 2: like two am in the morning, right, so we've got
Speaker 2: gonna take a train at two am in the morning.
Speaker 2: So anyway, he bemoans it quite a bit, all right, David,
Speaker 2: thanks a lot, really appreciated, great stuff. David Schwartz joining
Speaker 2: us co principal and CEO of the Slate Property Group
Speaker 2: Abagail do a little. Also appreciate you coming in for
Speaker 2: that as well.
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