Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Katie, I'm not sure
Speaker 1: if you're aware of my market moving called here, but
Speaker 1: I just kind of feel like all the bad news
Speaker 1: is are kind of in the market. I know, rates
Speaker 1: are going up, that's in the market. Our names you're
Speaker 1: coming down, that's kind of in the market. So don't
Speaker 1: I just buy stocks and buy bonds and stuff like
Speaker 1: that now so that I could sit in cash? You
Speaker 1: could sit in cash. I guess now I'm getting you know,
Speaker 1: on the two year, I'm getting four point four nine
Speaker 1: percent on my two years. So who knows? Phil Ta's
Speaker 1: he's the CEO of T'sset Management. He has to do
Speaker 1: this for a living. That got a couple of bill
Speaker 1: under management. Phil, what are you doing in this marketplace?
Speaker 1: Because I know you and your team you had been
Speaker 1: real a long cash for a while. Um, what are
Speaker 1: you doing these days. Yeah, so we were almost nine
Speaker 1: cash for the majority of this year. You can do that.
Speaker 1: We can, In fact, we manage funds and ets that
Speaker 1: are able to go fully defensive in cash or be
Speaker 1: fully headed with options. But we were driven partially back
Speaker 1: into the market into high yield bonds last week, and
Speaker 1: that represents about fifty percent of our business. But you know,
Speaker 1: I don't I wouldn't say that we're optimistic, but I
Speaker 1: think that there's a possibility that we can continue to
Speaker 1: move higher. I mean, you said, go ahead and just
Speaker 1: put money in stocks and bonds. I feel like there's
Speaker 1: such a recency bias towards declines being very short term,
Speaker 1: like we saw in the pandemic, that we're all just
Speaker 1: expecting this to be over. But I kind of doubt
Speaker 1: that it is. And I think maybe looking at the
Speaker 1: Internet double burst where it happened two thousand, two thousand,
Speaker 1: two thousand, two to two and a half years, is
Speaker 1: the kind of market that we're going to be looking
Speaker 1: forward to. I want to talk about junk bonds. That's
Speaker 1: really interesting. I call them high yield. I'm sorry, let
Speaker 1: me use the government name. So those high yield bond
Speaker 1: funds I track e t f s. That's my day
Speaker 1: job here at Bloomberg News. Influence into high yield debt.
Speaker 1: E t f s have been on fire, So it's
Speaker 1: interesting to hear you say that. Tell us a little
Speaker 1: more about that flip. What triggered it to co out
Speaker 1: of cash into junk debt? I said it. Well, so
Speaker 1: it could be it could be managers like us. Certainly
Speaker 1: we came in with around seven million dollars last week.
Speaker 1: But what if you look at high yeld bonds seven
Speaker 1: dollars to work last week? Yes, that's real money. Yeah,
Speaker 1: write that down? Could you do that? Like? How did you?
Speaker 1: How did you just tell us? How? Like how a
Speaker 1: manager does that? So you know, the market is so
Speaker 1: liquid for places like high yield bonds and and certainly
Speaker 1: you know stocks if you look at the major blend indices,
Speaker 1: so it's not a problem to come into the market
Speaker 1: and not really move it and take that type of
Speaker 1: a position. But it could be traitors like us, because
Speaker 1: if you look at the history of high yield bonds,
Speaker 1: they tend to not move that much per day on average,
Speaker 1: they move about maybe twenty basis points, So you don't
Speaker 1: get whipsode if you have to come in and out.
Speaker 1: You know, we're driven by trend following algorithms. So it's
Speaker 1: possible that we came in last week and we could
Speaker 1: be out again this week. But look, there's a potential
Speaker 1: here with yielded around nine and a half percent. Uh,
Speaker 1: if markets move up this fourth quarter and we get
Speaker 1: that kind of yield plus a little bit of appreciation,
Speaker 1: that could be a decent trade. I think. All right,
Speaker 1: just just kind of for giggles here, Elon Musk is
Speaker 1: refinancing his Twitter debt today. Do you buy any of
Speaker 1: any of his new debt come into the market? Would
Speaker 1: you be interested in and Elon musk debt package for Twitter?
Speaker 1: Not what you know about Twitter. I would love to
Speaker 1: answer that question with authority and with knowledge, but I don't. Unfortunately,
Speaker 1: when we buy how yield bonds were buying just looking
Speaker 1: at in disease and I guess when you're buying high yield,
Speaker 1: you have to have a call on a recession, how deep,
Speaker 1: how long it will be? Are you concerned about that
Speaker 1: as you go into some higher yielding paper. Yeah, So
Speaker 1: when we come in because we've follow trends and they
Speaker 1: can move lower and have us out again, this week.
Speaker 1: We're not so worried about that. What we like though,
Speaker 1: is positions that come in after we've had a decline
Speaker 1: like we've had of around fifteen percent and high yield bonds,
Speaker 1: so that potentially produces opportunity. Look back to the financial
Speaker 1: crisis there we saw high yield bonds move around down
Speaker 1: around twenty you know, eight the following year they advanced
Speaker 1: fifty percent. So the opportunity is there, we just don't
Speaker 1: know if it's right now or maybe sometime in or later.
Speaker 1: So given that you are trend following, how often do
Speaker 1: you make these sort of big allocation shifts that you
Speaker 1: just made from cash into high yield for example. Yeah,
Speaker 1: So so we manage six funds and two e t
Speaker 1: s and they and they make up equities and high
Speaker 1: yield bonds on average across our whole platform. We're buying
Speaker 1: or and selling, maybe making two to three round turns
Speaker 1: for a year, so not a lot. It's some people
Speaker 1: refer to it as turtle trading, so we're not. We're
Speaker 1: not speculating and trying to make it take advantage of
Speaker 1: just any one day move. We're really trying to take
Speaker 1: advant page of moves that that lasts over several months.
Speaker 1: But that sounds like trying to market time, which I've
Speaker 1: thought as a tough business. Yeah, so it's really tough
Speaker 1: business until you see the market move down and you
Speaker 1: don't participate. That's what you really want to do. But
Speaker 1: market timing is an interesting phrase, and it refers technically
Speaker 1: to people that are out there trying to predict what's
Speaker 1: going to happen in the markets, which we don't do
Speaker 1: and we don't recommend uh historically. However, though, if you
Speaker 1: are able to just follow trends and be out in
Speaker 1: the early phase of declines before they move down significantly,
Speaker 1: and then just right out and be in cash as
Speaker 1: we have been a lot this year, and then attempt
Speaker 1: to come in the very early stage of advances, it
Speaker 1: can be very favorable. Look, even if you don't return
Speaker 1: what the markets return, if your investors are participating in
Speaker 1: that big move lower, that can be a huge benefit
Speaker 1: to them. All right, great stuff. Really appreciate getting your
Speaker 1: points of view. It's a different point of view, and
Speaker 1: we appreciate hearing that. Phil Taste, he's the CEO of
Speaker 1: Ta's asset management. He joins us Live and Bloomberg Interactive
Speaker 1: broker studio. And you always appreciate that we're at the
Speaker 1: time of the year where university endowments are reporting the
Speaker 1: returns on their endowments for the trailing twelve months and
Speaker 1: in June of this year, and you think back a
Speaker 1: year ago, they were talking fifty fifty positive returns, just
Speaker 1: extraordinary numbers. But as we all know, two has been
Speaker 1: the other side of that coin. We've got equity markets down,
Speaker 1: fixed income markets down load of mid teens, so you'd
Speaker 1: expect to see some returns like that, but we're not.
Speaker 1: We're seeing kind of flat minus two, minus four, minus five.
Speaker 1: What's going on here? Let's check in with Gabrov Patankar.
Speaker 1: He covers all that stuff for Bloomberg Intelligence, and he
Speaker 1: joins us here in a Bloomberg Interactive broker studio because
Speaker 1: he does not phone it, and he comes in, uh,
Speaker 1: in line. Here, here's my concern or here's my guess.
Speaker 1: They're not marketing their private equity investments to market. Is
Speaker 1: that the case? That's a that's a very very good,
Speaker 1: very very good and very well informed gas. But I
Speaker 1: think there's much more to it. So if you just
Speaker 1: peel the onion a little bit, all the university pension
Speaker 1: plans have done extremely well over the years. As we
Speaker 1: all know, they followed the Yale model and really took
Speaker 1: on a liquid risk, which conceptual is not such a
Speaker 1: bad thing. If your liabilities are are over the long term,
Speaker 1: you should be investing over the long term. Having said that,
Speaker 1: a lot of the private managers the mark to markets
Speaker 1: in this particular situation is very subjective. It's about when
Speaker 1: your auditor comes in and and literally goes through asset
Speaker 1: by asset. There's a one or two or three or
Speaker 1: even a four quarter delay from time to time. There's
Speaker 1: also inconsistencies but on how different managers mark the same
Speaker 1: investment for different investors based on different mandates, or how
Speaker 1: different managers mark the same investment in different investors portfolio.
Speaker 1: So it's extremely complex. I think we're just at the
Speaker 1: beginning of these marks beginning to manifest themselves. I think
Speaker 1: the expectation for a lot of managers would have been
Speaker 1: to just wait it out and over a period of
Speaker 1: time the markets might come back and they don't really
Speaker 1: ever have to mark. But as we all know, that
Speaker 1: is not going to happen. I'm emailing your note literally
Speaker 1: as we speak down to my good buddy Neil triple
Speaker 1: It at the Duke University Management Committee. So get his
Speaker 1: thoughts well to that point. I mean, is there a
Speaker 1: period in time where they do have to come out
Speaker 1: with their mark to market returns just and say what
Speaker 1: the raw number is there, Katie. That's a great question,
Speaker 1: and I think this time the canary is going to
Speaker 1: come out of the coal mine. When it comes to
Speaker 1: the smaller pension plans, smaller US public pension plans, as
Speaker 1: you know, the good old state pension plans, there's a
Speaker 1: lot of scrutiny. There's a lot of both the political
Speaker 1: scrutiny as as as well as an investment comedy scrutiny,
Speaker 1: and there's zero incentive to really extend and pretends. I
Speaker 1: think some of the same managers that have also been
Speaker 1: recipients of capital from state plans are going to have
Speaker 1: to be forced to mark their books down. I think
Speaker 1: he has to answer your question. Ear end would be
Speaker 1: a very interesting time when auditors, some of the largest
Speaker 1: auditors in the world, are going to really have to
Speaker 1: come to the table will and think about these private
Speaker 1: assets in a very very objective fashion. And I think
Speaker 1: there could be significant marks. I think some of the
Speaker 1: endowment CEOs, including Navika, have been on record saying that
Speaker 1: there's a bunch of turbulence that lies ahead, and so
Speaker 1: I do expect that the year end is perhaps a
Speaker 1: good time, or early next year is when we start
Speaker 1: seeing distance manifesting. I'm looking at your research note here,
Speaker 1: and you know that Yale, which is kind of the
Speaker 1: leader in university endowment investment in terms of you know,
Speaker 1: kind of really thinking outside the box, maybe becoming very
Speaker 1: aggressive as opposed to the traditional sixty for equity bond portfolio,
Speaker 1: they've got upwards in privates or alternatives. Wow, I didn't
Speaker 1: know it was that high, but I guess that's the
Speaker 1: way they're doing here. That's how that you look for
Speaker 1: yield and what had been a zero interest rate environment.
Speaker 1: But the Yale model has been what it has been
Speaker 1: has been very successful and the gold standard for a
Speaker 1: lot of other smaller endowments and many others. In fact,
Speaker 1: even in the pension world. To follow Having said that
Speaker 1: the forty three number for three percent there might actually
Speaker 1: even be a much lower number than what it could
Speaker 1: be because, as you know, the last three to six months,
Speaker 1: there's a lot of managers that come back to the
Speaker 1: allocators for reapping, come back to the allocators for incremental
Speaker 1: capital calls and things of that nature. Is actually that number,
Speaker 1: if one way to speculate, it could be much not
Speaker 1: of the party three percent as well. Now, that is
Speaker 1: a very very large equity risk that that Yale has
Speaker 1: in the book, and traditionally endowment is supposed to have
Speaker 1: a much higher equity risk. But again, if you add
Speaker 1: liquidity marks that are not being taken and the capital
Speaker 1: commitment calls coming in, this becomes a pretty significant risk.
Speaker 1: So a significant risk. I mean, how worried are you?
Speaker 1: How worried should we be about that? Because all I
Speaker 1: hear right now when it comes to the treasury market,
Speaker 1: the public equity market, liquidity is hard to come by
Speaker 1: when it matters. I mean that's a bit of an exaggeration,
Speaker 1: but we've been hearing about liquidity risks all year long.
Speaker 1: Now we're talking about the liquid markets, actually a liquid markets.
Speaker 1: How can a into you? No, I'm reasonably concerned. I
Speaker 1: mean having said that endowments are not I'm not saying
Speaker 1: there's going to be a run on endowments or endowments
Speaker 1: are going at a business that's not what I'm saying.
Speaker 1: But what I'm saying is there's going to be a
Speaker 1: significant cost for concern because the endowments are sometimes on
Speaker 1: the bigger hands that feeds operating budgets of universities. So
Speaker 1: when you think of cash flows, when you think of
Speaker 1: matching cash flows, I think that there are significant problems
Speaker 1: already based on some of the antidotal conversations we've had
Speaker 1: with managers that are lower in duration that the endowments
Speaker 1: want to fund, but they don't have the liquidity to
Speaker 1: fund those assets. Now, how are they going to get
Speaker 1: that liquidity is by secondarying out some of their private exposure.
Speaker 1: Why are they not secondarying out that exposure at any
Speaker 1: good speed is because they're not getting the marks that
Speaker 1: they want. And why are they not getting the masks?
Speaker 1: Because there is no buyer for this And there's no
Speaker 1: buyer because the next set of buyers where public pensions,
Speaker 1: and they're not going to buy it at at the
Speaker 1: price that the endowments want to sell. All right, are
Speaker 1: good friends up in Cambridge, Massachusetts, Harvard, they've stepped up
Speaker 1: their investments in hedge funds. What's up with that? Yeah,
Speaker 1: that's a great question, Harvard. For the longest period of time,
Speaker 1: while it's the largest endowment, has kind of been a
Speaker 1: laggered when it comes to performance. But over the last
Speaker 1: three to four years, Harvard has really taken a slightly
Speaker 1: different stance for other endowments based on whatever little public
Speaker 1: information we have, and what they have tried to do
Speaker 1: is pivot more around reducing the duration of the alternatives portfolio.
Speaker 1: And I think Um the CEO of Narvika, and Ric's
Speaker 1: Locan the CIO have been on record to talk about that,
Speaker 1: and I think it makes a lot of sense, and
Speaker 1: these kind of turbulent markets where you're collecting some rent
Speaker 1: and reducing the duration of the alternatives portfolio while managing through.
Speaker 1: Not that Harvard does not have a liquid private equity
Speaker 1: exposure where the capital calls may be coming, but they're
Speaker 1: able to manage through a little bit better than some
Speaker 1: of the other endowments like Washington or Yale or Princeton,
Speaker 1: which might have very very high degree of capital calls
Speaker 1: and more liquidly. Illequially, we only have about a minute left,
Speaker 1: but you also write the endowments have outperformed public pension
Speaker 1: funds by about a hundred seventy paces points over the
Speaker 1: past ten years. You say that could converge. What's behind
Speaker 1: that call. Look, that's a very bold call to make, Katie.
Speaker 1: But there are a couple of reasons why I feel
Speaker 1: strongly about this. Endowments have always been the cool kids
Speaker 1: in the block. Public pensions not not so much. Now,
Speaker 1: what is really going to fundamentally change? You know what?
Speaker 1: Because they were not as school, they never really got
Speaker 1: up the liquidity spectrum. What they have is out there
Speaker 1: in the open domain. It's tested every three months. There
Speaker 1: are politicians, investors, um citizens scrutinizing it. And they were
Speaker 1: a little bit behind the curve. And that's gonna come
Speaker 1: back to their rescue. And they are actually going to
Speaker 1: be in a unique situation where they could actually deploy
Speaker 1: to some of these secondaries or distressed funds at a time,
Speaker 1: which is very very interesting to be deploying capital in
Speaker 1: their liquid markets. Alright, some good stuff there as always
Speaker 1: patank car ahead of alternative investments and manager research at
Speaker 1: Bloomberg Intelligence. He's got a really good noe doubt that's
Speaker 1: getting the attention a lot of folks out there, and
Speaker 1: the pension fund business and the endowment business, uh, talking
Speaker 1: about some of those returns and again some just some
Speaker 1: extra in he returns over the last couple of years
Speaker 1: from some of these university endowments, and of course they
Speaker 1: were blowing their own horn, but you might be paying
Speaker 1: for that here in some of these results being reported recently. Katie,
Speaker 1: we got w T I crude oil any seven dollars
Speaker 1: about you know a barrel here? It seems like it's
Speaker 1: kind of settled into that kind of range. But I
Speaker 1: want to talk about the global supply and demand of oil,
Speaker 1: and for that we talked to Fernando Valley. He's a
Speaker 1: senior analyst to Bloomberg Intelligence. He's been covering this energy
Speaker 1: business for like decades, and Katie, he says he knows
Speaker 1: four languages. English, that's debatable, Portuguese. Willias from Brazil's will
Speaker 1: give him that Spanish. It's basically the same thing as Portuguese.
Speaker 1: So you give him that German. I'm not giving him
Speaker 1: credit for that. I need to see him like in
Speaker 1: a conversation with Matt Miller to give him credit for German. Sure,
Speaker 1: the ultimate has exactly Fernando, We'll give you credit for
Speaker 1: knowing the oil business. Um, what's the call here? I
Speaker 1: know you guys Bloomberg intelligence. You have your demand models,
Speaker 1: your supply models. This is a commodity after all, and
Speaker 1: it's supplying demand. What are your models telling you now
Speaker 1: about where CREWD may be going? Well? Hi, Paul and
Speaker 1: first Good and Morrigan and Shodan's montag bones Poita, Uh
Speaker 1: so well schooling exactly. Um. Well, the first thing is
Speaker 1: that the market is as uncertain as you are. And
Speaker 1: if you look at the positions derivatives positions, uh, they
Speaker 1: show a lot of divergence. Uh if we are near
Speaker 1: the highs on the long positions for Brent and for distillance,
Speaker 1: but when you put a UH call, but call options
Speaker 1: were actually towards the lower half of the percentiles. Because
Speaker 1: the market is unsure, what is going to be the
Speaker 1: strongest hold. Will it be the lack of supply that
Speaker 1: we've talked about over time or the economic pressures that
Speaker 1: we're starting to see emerge in Western Europe and now
Speaker 1: with China and the locked ins, And we think for
Speaker 1: the remainder of two those economic pressures are just too
Speaker 1: much for the supply to really make UH inroads. But
Speaker 1: as we go through and we look at the history
Speaker 1: of how recessions and even the pressions have impacted oil demand. Uh,
Speaker 1: they tend to be short lived impact on consumption because
Speaker 1: ultimately energy is what gets us out of the economic slowdown,
Speaker 1: So demand tends to recover relatively quickly, and that's when
Speaker 1: we think that the supply gap will really emerge. And
Speaker 1: so I mean putting that into some numbers, if I see, uh,
Speaker 1: you know, w T I at about eighty seven dollars
Speaker 1: right now, to Paul's point, feels like we've been hanging
Speaker 1: around there for a while, just bumping below ninety. I mean,
Speaker 1: where's the floor, where's the ceiling? Well, I think with
Speaker 1: w T I, there is avential that as we end
Speaker 1: November and a strategic petrol and reserve releases, we're gonna
Speaker 1: get a little bit of a catch up to brent UM.
Speaker 1: But then the two benchmarks may may drop a little
Speaker 1: bit further. And you know, they never fall linearly. So
Speaker 1: could we see seventies It's probably an acceptable range, but
Speaker 1: it could go to fifty depending on how bad the
Speaker 1: economic news are, and especially if we see something uh
Speaker 1: of a renewed lockdown in China or um more austerity
Speaker 1: in Western Europe. Um. But then the ceiling, I mean,
Speaker 1: I think for now we're probably going to be capped
Speaker 1: at a hundred for the remainder of the year, even
Speaker 1: if we have positive news on the economic front um.
Speaker 1: But then when we look at the long term, you know,
Speaker 1: the sky is the limit. When you look at diesel,
Speaker 1: today we near two hundred dollars a barrel for diesel,
Speaker 1: So if you put that into context, that would be
Speaker 1: with typical margins that would be a hundred and fifty
Speaker 1: to a hundred and seventy dollars. Brent A Fornando, we
Speaker 1: we woke up this morning to what looks like a
Speaker 1: change in leadership in Brazil. I pulled up the shares
Speaker 1: of Petro boss uh and they're down five percent today.
Speaker 1: Your view of how the global energy market is looking
Speaker 1: at Brazil with potentially a new leader, Yeah, well it's
Speaker 1: the old leader uh and we've we've known what he's
Speaker 1: done in the past, and there are two fears really.
Speaker 1: One is that he slows down exploration. That's something they did.
Speaker 1: Brazil made the largest discoveries in the world and over
Speaker 1: thirty years during his first term, but they were slow
Speaker 1: to develop it and and then Petro Bras became the
Speaker 1: most indebted oil company in the world during his terms.
Speaker 1: And his his successor dema recess, and the fear is
Speaker 1: he's talked about building refineries again. And we have a
Speaker 1: no doubt that we talked about that because under his terms,
Speaker 1: Petrobiz was supposed to build five refineries. They spent nearly
Speaker 1: forty billion dollars on those five refineries, but only half
Speaker 1: of them half of one was completed. So they were
Speaker 1: supposed to build nearly a million barrels of a day
Speaker 1: of refining capacity, and to this date we only have
Speaker 1: about a hundred fifteen thousand barrels a day. So that's
Speaker 1: the fears that the heat UH returns to those days
Speaker 1: of overspending and not returning capital to shareholders. So does
Speaker 1: that is that I mean, does that spell bad news
Speaker 1: potentially for UH Latin American oil companies broadly beyond just
Speaker 1: the biggest well, I think they they have been following
Speaker 1: their own paths down They have governments that aren't necessarily
Speaker 1: market friendly. You can see Echo Patrol with Gustavo Petro
Speaker 1: in Colombia. He's talked about subsidizing fuel prices directly from
Speaker 1: Echo Petrol, which has its own negative impacts. YEPF obviously
Speaker 1: hamstrung by the massive ramp been inflation in Argentina. Um.
Speaker 1: They continue to grow, but their profitability and cash flow
Speaker 1: has a lagged peers significantly, so they aren't very active
Speaker 1: in Brazil. Eco patrol a little bit more than hitepf UM.
Speaker 1: But you know, I think that silver lining is since
Speaker 1: Lula's last term, there have been changes in regulations in
Speaker 1: Brazil that make it harder for him to interfere. Petro
Speaker 1: Brass has also sold a lot of assets, so he
Speaker 1: doesn't It doesn't have the same impact on the Brazilian
Speaker 1: economy that it did back in the in the early
Speaker 1: two thousand's. Looking at the stock for Petro Boss spoiler,
Speaker 1: the last traveling in twelve months up up like a
Speaker 1: lot of other big oil companies, So we'll have to
Speaker 1: see how that place out and real quickly ten seconds.
Speaker 1: World Cup coming up in a few weeks. Are you
Speaker 1: just picking Brazil? I mean I have to, but I
Speaker 1: also say my Brazilian team, Flamngo won the South American Championships,
Speaker 1: So go Flamingo. Oh good stuff, there are we got
Speaker 1: the world I'm gonna I'm gonna be into the World
Speaker 1: Cup this year. I'm gonna force myself to watch a
Speaker 1: lot of is and my sleeper pick Netherlands. How about
Speaker 1: that mine too? Now, I just decided exactly so we'll
Speaker 1: see that. All right, good stuff there for now. No Vale,
Speaker 1: he covers all things global energy for Bloomberg Intelligence. I
Speaker 1: should be doing it for decades. We really appreciate getting
Speaker 1: his global perspective here on this global market. Katie, you
Speaker 1: know how much I love logistics, so I want to
Speaker 1: get righted to our next guest, Drew Wilkerson. He's the
Speaker 1: CEO of r x OH. He's currently x p O
Speaker 1: s president of North American Transportation. He will become chief
Speaker 1: executive officer of the company's plan spinoff of its tech
Speaker 1: enabled broker services platform. R x OH XPO, the big
Speaker 1: logistics company, reported some numbers today, some better and expected
Speaker 1: ep SH stuck up about five percent today. Drew, thanks
Speaker 1: so much for joining us. Give us the highlights, uh,
Speaker 1: from your earnings. I mean, I want to talk supply
Speaker 1: chain and logistics and things like that, but your numbers
Speaker 1: tell me that maybe things are getting a little bit
Speaker 1: better out there. Yeah, Paul, thank you so much for
Speaker 1: having me excited to be here with you. When you
Speaker 1: look at what we did this quarter as a company,
Speaker 1: at XPO. We grew revenue three billion of revenue, which
Speaker 1: was up three percent, our highest third quarter with adjusted
Speaker 1: IBADA in the company's history, a three D fifty two million.
Speaker 1: We had solid operating leverage when you look at the
Speaker 1: part of the business that I oversee that will be
Speaker 1: r x so as of tomorrow morning. Um. We saw
Speaker 1: strong volume growth. So volume was up for US nine
Speaker 1: percent on a year of a year basis. It was
Speaker 1: the most amount of volume that we've ever moved in
Speaker 1: a quarter. And we did this, and we did this
Speaker 1: with strong profits. We operated at a gross profit percentage
Speaker 1: of nineteen percent and we grew our overall gross profit
Speaker 1: dollars by thirty one percent on a year of a
Speaker 1: year basis. So it was a great quarter for XPO,
Speaker 1: and it's a great time for us to be spinning
Speaker 1: out as r XO with a ton momentum at our back.
Speaker 1: We'll tell us a little bit about the spinoff expected tomorrow,
Speaker 1: So what is the thinking behind that. Obviously, like you said,
Speaker 1: too great time to spin off. How long has this
Speaker 1: been in the works. It's been in the works. We
Speaker 1: announced it in March of this year that we were
Speaker 1: looking to spend it off. And this is the second
Speaker 1: spin off we've done. We did one last year with
Speaker 1: our contract logistics business, which is g x SO. So
Speaker 1: we're keeping a lot of X and o's in the family.
Speaker 1: But with with with with this business that is spinning
Speaker 1: off tomorrow. It is our tech enabled truck brokerage platform.
Speaker 1: We're the fourth largest truckload broker in the country. And
Speaker 1: if you look over the last eight years from through
Speaker 1: the brokers grew at a phenomenal rate. It grew over
Speaker 1: a non percent KAGAR. During that same time period, we
Speaker 1: grew it over a twenty seven percent KAGAR and that's
Speaker 1: nearly three times what the industry is growing. Is because
Speaker 1: of our investment in technology. We've got a first mover
Speaker 1: advantage in technology. We've been investing into it for over
Speaker 1: a decade and this allowed us to outperform the market
Speaker 1: and take share profitably. All Right, Drew Amy Mars one
Speaker 1: of our top top reporters at Bloomberg Radio. She was
Speaker 1: also a graduate of the University of South Carolina. So
Speaker 1: maybe you guys can exactly big game, who are you playing? Well,
Speaker 1: we just lost in Missouri, but we're playing Vanderbilt, so hopefully,
Speaker 1: oh yeah, that'll be that that should be w all right, Drew.
Speaker 1: I started my career covering the the trucking stocks took
Speaker 1: a bunch of the public back in the day, So
Speaker 1: I think I kind of know about the trucking business.
Speaker 1: I know how important it is to the US economy.
Speaker 1: I'd love to get your view of kind of where
Speaker 1: we are in this whole supply chain snarl, if you will,
Speaker 1: that we've been dealing with since the pandemic. From your perspective,
Speaker 1: kind of where are we now and and and and
Speaker 1: how close are we to maybe getting things back to
Speaker 1: quasi normal. The last several years, there's been a lot
Speaker 1: of chaos in the transportation market, and for us, you know,
Speaker 1: volatility is not a bad thing, and customers lean into
Speaker 1: us when there when there's volatile times. Volatile times means
Speaker 1: that the market could be the load of truck ratio
Speaker 1: could be tight, or it could be loose. We have
Speaker 1: seen the truckload market loosen over the last six to
Speaker 1: eight months. And you know, we're operating at strong margins
Speaker 1: with within that of the third quarter, operating at ninetent
Speaker 1: gross profit dollars. Okay, So, as you've mentioned, the market
Speaker 1: has loosened quite substantially. What do you see it as
Speaker 1: the biggest risk at this point when you look overall
Speaker 1: at volume, we're seeing different things from different customers. You know,
Speaker 1: some of our retail and e commerce customers as a whole,
Speaker 1: that vertical is down for us on a year of
Speaker 1: a year basis, But what we're hearing from our other
Speaker 1: customers is a is a really good story. Overall, pretty
Speaker 1: much all of our other verticals are up on a
Speaker 1: year of a year basis in terms of volume. And
Speaker 1: as we look out, customers are going to continue to
Speaker 1: come to r x SO for two reasons. One, they're
Speaker 1: gonna come to us because we provide best service and
Speaker 1: solutions with technology that gives them complete visibility of what's
Speaker 1: going on for the life of a shipment. And then two,
Speaker 1: they're going to continue to look in who the leaders
Speaker 1: are within the market, and r x SO has established
Speaker 1: itself as one of the transportation leaders, growing three times
Speaker 1: than the industry has grown over the last eight year.
Speaker 1: And true, ever since I followed the trucking business now
Speaker 1: more than thirty years, it's been a labor shortage that
Speaker 1: you know, the near turnover in the trucking industry, and
Speaker 1: I'm guessing it's it's no different today. Maybe the pandemics
Speaker 1: made it even worse. How do you guys deal with that? Well, first,
Speaker 1: we love the carriers that we that we work with.
Speaker 1: This quarter, we actually added ten thousand carriers star are
Speaker 1: r XO Connect platform. So to your point, there's definitely
Speaker 1: been a turnover in the driver industry, but carriers like
Speaker 1: just like customers are coming to do business with r
Speaker 1: x So we have so much volume that they don't
Speaker 1: have to leave the system to find their next load.
Speaker 1: We also do a rewards program that gives them disc
Speaker 1: council things that matter to drivers most things like fuel, tire,
Speaker 1: roadside maintenance. And we've got a system that is so
Speaker 1: easy for them to use that they can pick up
Speaker 1: their cell phone, they can book a load, they can negotiate,
Speaker 1: They do all of that with no interaction. So we've
Speaker 1: had great success with with the carrier basis. We've got
Speaker 1: over a hundred thousand carriers and our r XO Connect
Speaker 1: platform we've got access to a million and a half
Speaker 1: truck so we have massive amounts of capacity and a
Speaker 1: long runway to continue that growth. All right, so you
Speaker 1: guys spent out tomorrow, right, TRIU. We spent out tomorrow.
Speaker 1: We we we will be ringing the bell at nine
Speaker 1: thirty in the morning, all right. R XO is a
Speaker 1: symbols that right, all right. So it's a simple alright
Speaker 1: that trading on a one issued basis right now, So
Speaker 1: you put that into your Bloomberg terminal. R XO, uh,
Speaker 1: you'll get that business again being spun off from XPO
Speaker 1: tomorrow standalone business. Drew Walkers and CEO of our x
Speaker 1: OH talking to us about the logistics business, the supply chain,
Speaker 1: all things that moves goods across this country. You know,
Speaker 1: we now have a little bit of perspective here on
Speaker 1: the changes that took place in China over the last
Speaker 1: month or so with presidency getting another five year term
Speaker 1: and a little bit of perspective here. And I need
Speaker 1: to complete reset of how I should think about it
Speaker 1: and maybe the markets and investors to think about it.
Speaker 1: And for that we turned to Leland Miller. He's the
Speaker 1: CEO of the China Basebook International. And folks the China
Speaker 1: Basebook International. These folks, these folks, they get their own data.
Speaker 1: They have boots on the ground, they you know, so
Speaker 1: they don't rely on the government or anything like that.
Speaker 1: They have really really you know, amazing granular data and
Speaker 1: it gives them some pretty good insights. So Leland, thanks
Speaker 1: so much for joining us here. I mean, what is
Speaker 1: your perspective, What are you telling your clients about China
Speaker 1: over the next five years? What should we expect much
Speaker 1: lower growth? You know, there there's two there's two different
Speaker 1: dynamics that are going on right now, one structure and
Speaker 1: one cyclical, and people are getting them very mixed up. Cyclically,
Speaker 1: we have COVID zero that has been crushing demand, hurting supply,
Speaker 1: crushing demand and just causing havoc throughout twenty two but
Speaker 1: but really for several years now. But the bigger, the
Speaker 1: bigger issue at least it will be the bigger issue
Speaker 1: for China long term, is the structural slowdown economy. This
Speaker 1: is the diminishment of the property sector as a key
Speaker 1: growth driver. This is less credit going into reckless credit
Speaker 1: expansion to zombie companies. All this is happening a lot
Speaker 1: less and we're going to see a much more precipitous
Speaker 1: slowdown over the coming years. That that said, right now,
Speaker 1: you've got particularly smothered growth because the COVID zero. So
Speaker 1: you have the potential for a little bounce up so
Speaker 1: along the way, but structurally we're going much much slower.
Speaker 1: So Leland on the topic of COVID zero, you know,
Speaker 1: covering the movements in Chinese stock markets last week, just
Speaker 1: absolutely crushed after paying stacked as lead ship ranks with loyalists.
Speaker 1: The explanation there was that we're probably going to get
Speaker 1: a continuation of these COVID zero policies. Does that narrative
Speaker 1: hold water with you when you just think about the
Speaker 1: really brutal asset reaction, Yeah, it does, But I think
Speaker 1: it's it's even more than that. I think we're going
Speaker 1: to get a continuation of not just COVID euro but
Speaker 1: all of the she policies that investors have come to
Speaker 1: really really dislike. You know, what we kept hearing for
Speaker 1: the past year or so was that just wait, just wait,
Speaker 1: anomaly will wait for it's a Party Congress year. Oh
Speaker 1: WAWO is not doing too well way to the Party Congress.
Speaker 1: And I think what the Party Congress was was just
Speaker 1: the last straw where the bull argument on China having
Speaker 1: some policy pivot on growth on stibulus of COVID zero,
Speaker 1: it just blew apart. And that's why you saw market
Speaker 1: wide surrender across the board on Chinese assets, Leland. If
Speaker 1: I'm a CEO of a U S domaliciled global corporation,
Speaker 1: can I allocate capitals China? Can I invest in China?
Speaker 1: Can I bank on China for the next five years
Speaker 1: or ten years? Well, you have to be really careful.
Speaker 1: You know, so much money went into this for decades,
Speaker 1: which very little thought. The idea there's you know, over
Speaker 1: a billion consumers, they'll just start buying stuff. And even
Speaker 1: if they won't, my board is forcing me to go
Speaker 1: into China. So let's just do this. I think at
Speaker 1: this point there are opportunities in Shina. Sure, but you
Speaker 1: have to evaluate the conditions on the ground much differently.
Speaker 1: You're not going to have the wild upside that a
Speaker 1: lot of people thought. You're not gonna have a lot
Speaker 1: of sectors that are going to be kept uh bolstered
Speaker 1: because of credit. You're not going to have uh you know,
Speaker 1: you're not gonna have this this robust consumer economy that
Speaker 1: people thought. So you sure, there are opportunities to if
Speaker 1: you pick your sectors right, to make some money. But
Speaker 1: but really you have to think this through because this
Speaker 1: is not an automatic victory story. And conversely, Leland, if
Speaker 1: I'm president g and I one of my stated goals
Speaker 1: is to be a world leader, not participate in the world,
Speaker 1: but be a leader. Can he achieve that if he
Speaker 1: has kind of a China first, inward looking, not non
Speaker 1: engagement type of mentality, Well, you know, probably not, but
Speaker 1: he sure thinks he can. And I think the mindset
Speaker 1: from from the from she and the rest of the
Speaker 1: top leadership is we have to get China prepared for leadership.
Speaker 1: And that means not just juicing growth, not not you know,
Speaker 1: default to the playbook. We need to have much more
Speaker 1: self reliance. We need to sever our connections on the
Speaker 1: technology side as much as possible with the West so
Speaker 1: that we're not going to be caught through some you know,
Speaker 1: export control disaster. So a lot of what they think
Speaker 1: they need to do is just necessary pain. And everyone thought, oh,
Speaker 1: it's just a matter of months before you know, he
Speaker 1: flips his fingers and his pain point has been reached
Speaker 1: and he reverses. Course, that is not going to happen.
Speaker 1: And so Leland really quickly about thirty seconds here this
Speaker 1: potential structural slowdown in Chinese growth, What does that mean?
Speaker 1: For the rest of emerging markets and for the world
Speaker 1: at large. What it means is that is that China
Speaker 1: can get through this if they do all the things right,
Speaker 1: they can get this through this okay and have a
Speaker 1: have a stronger, albeit slower economy. But all the countries
Speaker 1: around the world that think that China is going to
Speaker 1: be producing these large levels of growth, big infrastructure, endless
Speaker 1: demand for commodities, they're in real trouble if they haven't
Speaker 1: been diversifying, and most of these countries have not been
Speaker 1: over the past several years. Ten seconds, Leland, are you
Speaker 1: a bull or bear on China next five years? Well,
Speaker 1: I'm a bull because I think she is doing some
Speaker 1: of the structural stuff necessary in order to turn around
Speaker 1: the economy. But it doesn't mean there's gonna be high
Speaker 1: levels of growth, and I think that's the first thing
Speaker 1: investors shooting in away from this. Yeah, good stuff, all right, Leland,
Speaker 1: Thanks so much for taking the time. We always appreciate
Speaker 1: getting your informed perspective on China. Some Yeah, I don't know.
Speaker 1: I guess it wasn't change. I guess it was a
Speaker 1: continuation of the existing policy. But uh, in to see
Speaker 1: how China evolves over the next five years as a
Speaker 1: global player. Leela Millar, China, bag Book International. Today's Big
Speaker 1: Take story is a big one. We want to get
Speaker 1: right to it. And of course you can listen to
Speaker 1: the Big Take podcast on the I Heart Radio app,
Speaker 1: Apple and anywhere else you get your podcast and listen
Speaker 1: to The Big Take every night at eleven pm Eastern
Speaker 1: on Bloomberg Radio. Today's is a big one. Kelsey Butler
Speaker 1: joins us and along with Patricia Hurtado, Kelsey reported on
Speaker 1: an amazing story here. The US Supreme Court is considering
Speaker 1: a radical overhaul of the college admissions process that would
Speaker 1: alter the country's most elite institutions and workplaces. We're talking
Speaker 1: about affirmative action. Kelsey, thanks so much for joining us here.
Speaker 1: Exactly what is the court? What's on the court stock
Speaker 1: at this term? Here? Sure? So right now there are
Speaker 1: two cases that are currently before the court, and UM,
Speaker 1: just given the makeup of the court, what are reporting
Speaker 1: and selling us in the U kind of conservative of
Speaker 1: the court, It's very likely, um, that affirmative action as
Speaker 1: we know it could go go away, which means that schools,
Speaker 1: both public and private universities that are that it is
Speaker 1: will no longer be able to consider race it as
Speaker 1: part of the admissions process when they're deciding who to
Speaker 1: allow into their schools, and Kelsey walk us through the
Speaker 1: potential ramifications. They're one of the first lines in your story.
Speaker 1: You write that when the practice ended in California, the
Speaker 1: state's most selective campuses saw minority enrollment dropping more than
Speaker 1: fifty percent. Is that a blueprint for what could be
Speaker 1: to come? Certainly we've seen affirmative action UM in college
Speaker 1: admissions go away in UM you know, across the country.
Speaker 1: Right now, it's not allowed in nine states, and in
Speaker 1: those days, there's been a ton of research that really
Speaker 1: has shown that immediate drop off. California is one example,
Speaker 1: Michigan is another. UM. Minorities, specifically black Native American UM
Speaker 1: students had a huge drop off in the most selective institutions,
Speaker 1: and it's they really haven't caught up. And we're talking
Speaker 1: about more than a decade in some of those places.
Speaker 1: How long How long has affirmative action been around? It
Speaker 1: just seems like it's always been around, But I just
Speaker 1: I don't know when it really came about. So it's
Speaker 1: been around since the Civil rights era. UM. The first
Speaker 1: time that the Supreme Court weighed in on affirmative action
Speaker 1: was in the seventies. Um, and it kind of uh
Speaker 1: set a blueprint for the way race is considered in
Speaker 1: the college admissions process, which means there's no such thing
Speaker 1: as a quota. Um, it's just part of the holistic
Speaker 1: picture that an admissions office kind of looks at when
Speaker 1: they are deciding who to admit. Again, in those days
Speaker 1: where it's allowed, as I mentioned nine, it is banned
Speaker 1: and Kelsey, I mean, given that long history, how long
Speaker 1: they've known affirmative action in the US, Why now, why
Speaker 1: is this being considered now? Um? So there is a
Speaker 1: special interest group that has kind of um champion this issue. Uh,
Speaker 1: and they are kind of bringing this issue up before
Speaker 1: the court. They are arguing that the practice discriminates against
Speaker 1: Asian American students and essentially keeps them out of these
Speaker 1: elite institutions. And uh, now really is the time that
Speaker 1: they've been able to kind of bring this back up again?
Speaker 1: I will say, though, affirmative action has been something that
Speaker 1: has come up before the Supreme Court many many times. UM,
Speaker 1: and so this is looking like the time it might
Speaker 1: go away. But it's been decided and affirmed by the
Speaker 1: court several times over like as it relates to higher education,
Speaker 1: is this just for public universities or would it also
Speaker 1: apply to private universities? So, because the two cases that
Speaker 1: are before the court, one is a private school Harvard,
Speaker 1: I have heard of it, UM, the oh there is
Speaker 1: a public institution UM. It could very well have an
Speaker 1: impact on both types of institution. What are we hearing
Speaker 1: from Corporate America? They kind of weighed in here and
Speaker 1: kind of what they like to see the ramifications. Certainly,
Speaker 1: I think one really interesting thing in my reporting with
Speaker 1: reading through a lot of the court briefs UM, the
Speaker 1: arguments for UM and against this UM, and there was
Speaker 1: one brief in UM one of the court cases, a
Speaker 1: whole host of companies including Google, General, Electric, Jet Blue,
Speaker 1: UM basically said this is important for them and said
Speaker 1: that they without affirmative action, they will lose access to
Speaker 1: a pipeline of highly qualified future workers and it's going
Speaker 1: to make them harder for them to hit diversity goals
Speaker 1: and targets that they have for their own organizations. And
Speaker 1: Kelsey walk us through the timeline here. What are the
Speaker 1: you know, potential milestones to watch as this story develops.
Speaker 1: Certainly so arguments are happening this week. Our reporters are
Speaker 1: going to be following it closely and highlighting UM, you know,
Speaker 1: all the big kind of moments in those arguments. The
Speaker 1: Supreme Court likely won't make it this vision until next year,
Speaker 1: so we'll certainly be following that, and then we'll see
Speaker 1: the impact in the schools in the year or two
Speaker 1: years to come, because obviously we know admissions decisions are
Speaker 1: a little bit on a lag, so we'll start seeing
Speaker 1: it in UM freshman classes thereafter. And does this affirmative
Speaker 1: action issue does it effect? Is it applied to companies
Speaker 1: or they just kind of keeping the scope to colleges
Speaker 1: and universities. Well, what could happen is, you know, as
Speaker 1: I mentioned, companies will be impacted because of the basically
Speaker 1: what the cohort of elite institutions is going to look
Speaker 1: like as far as their student bodies. And it could
Speaker 1: open the door to UM companies being hamstrung in the
Speaker 1: way that they make hiring decisions as well. And so,
Speaker 1: I mean, Paul asked a little bit about what Corporate
Speaker 1: America's response has been. Outside of Corporate America, I mean,
Speaker 1: are there any groups leading a pushback effort here, what
Speaker 1: does that effort look like. We've seen in UM places
Speaker 1: like California. UM, there have been kind of community organization,
Speaker 1: activist groups that have tried to push back on these
Speaker 1: types of things. Not too long ago, there was a
Speaker 1: ballot measure UM to try to bring affirmative actions back
Speaker 1: in the state, and it actually didn't pass, so it's
Speaker 1: still banned in the state of California. There's certainly been
Speaker 1: kind of this, uh, this movement to try to bring
Speaker 1: it back in some places, but UM, you know, it's certainly,
Speaker 1: as I mentioned, there are a lot of misconceptions about it,
Speaker 1: so sometimes it's not as popular with people as one
Speaker 1: might think. Yeah, interesting story. As always, the Big Take
Speaker 1: stories always kind of tackle the big issues. Kelsey Butler,
Speaker 1: equality reporter for Bloomberg News, with a Big Take story here.
Speaker 1: You can listen to The Big Take podcast on iHeart Radio, app,
Speaker 1: Apple and anyone else You get your podcast and listen
Speaker 1: to The Big Take every night at eleven pm Eastern
Speaker 1: on Bloomberg Radio. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller N seventy three. Put on
Speaker 1: Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast.
Speaker 1: You can always catch us worldwide at Bloomberg Radio