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Speaker 2: Podcast with Carol Masser and Tim Stenovek on Bloomberg Radio.
Speaker 1: In the meantime, we got some news. Market started off
Speaker 1: this morning kind of mellow after yesterday's selling, and then bam,
Speaker 1: we got a headline out of the White House.
Speaker 3: Yeah, we certainly did check out. Shares of aluminum and
Speaker 3: steel producers Century Aluminum, US Steel, New Core all higher
Speaker 3: this after President Trump said he would increase steel and
Speaker 3: aluminum tariffs on Canada to fifty percent to retaliate against
Speaker 3: Ontario's move raising taxes on electricity sent to the US,
Speaker 3: ramping up his fight with the US's largest trading partner.
Speaker 3: We got Joe Doe with us. He's Bloomberg News Metals
Speaker 3: and mining reporter and heavy machinery reporter. He joined us
Speaker 3: here in Bloomberg internat Active at Brokers Studio. Joe, how
Speaker 3: much steal and aluminum do we get from Canada?
Speaker 4: About sixty percent of our imports in aluminum or from Canada,
Speaker 4: and something like twenty three percent of our steel imports
Speaker 4: are from Canada. I think the steel numbers over five million.
Speaker 3: Okay, yeah, so these tariffs are certainly material, no question.
Speaker 4: Yeah, absolutely they are. I mean they're they're deeply material
Speaker 4: on aluminum, and they are significant on the steel front.
Speaker 3: Do we have the capacity in the United States to
Speaker 3: provide and produce all the steel and aluminum that we
Speaker 3: need without importing any.
Speaker 4: There is capacity still available in the domestic supply chain
Speaker 4: by the US mills for steel. We're running at about
Speaker 4: seventy five percent right now. Earlier one of our bi
Speaker 4: analysts was saying we could go, you know, eighty five percent,
Speaker 4: which I think if you're hitting eighty five percent, that's
Speaker 4: what the mills tell you is when they're really making
Speaker 4: a lot of money and they can do. They can't
Speaker 4: go over ninety percent because it just doesn't make sense.
Speaker 4: You'd be running them too hard and you could break things. Aluminum,
Speaker 4: there's absolutely no way, bottom line.
Speaker 1: So okay, so what do we do. We just have
Speaker 1: to pay for it.
Speaker 4: Right now, it seems like you're going to have to
Speaker 4: pay a lot for aluminum coming from Canada and you'll
Speaker 4: be paying if you're buying from Canada, you'll be paying
Speaker 4: a lot for steel as well. But the Algoma CEO,
Speaker 4: who's one of the three major steelmakers in Canada, was
Speaker 4: on our sister network in Canada earlier today and said,
Speaker 4: we're calling up all of our customers in Canada and
Speaker 4: asking them to buy from US. And a large part
Speaker 4: of that is because there's worries of retaliatory terrafs and
Speaker 4: everything else. But I can tell you I had a
Speaker 4: at a meeting earlier today with someone who's very familiar
Speaker 4: with the Canadian steel market and said, you know, if
Speaker 4: things get really hairy, that's what you're going to see
Speaker 4: the Canadian steelmakers do. They're just going to sell to
Speaker 4: Canadians and then the US market's going to figure out
Speaker 4: how to fill that need.
Speaker 3: Well, we're already seeing the effects of these announced tariffs,
Speaker 3: says Carol.
Speaker 5: Mentioned.
Speaker 3: Just a few minutes ago, Ontario announced it was suspend
Speaker 3: a twenty five percent surcharge on electricity sent to the
Speaker 3: US after President Trump announced he'd double steal in aluminum
Speaker 3: tariffs on Canada fifty percent. This in an escalating trade
Speaker 3: war between the neighbors. So are we going to see
Speaker 3: these tariffs removed, because Canada's responded.
Speaker 4: This is a hard thing to figure out. We I
Speaker 4: had a few phone calls this morning that we were
Speaker 4: able to add in to our main bar story that
Speaker 4: was first announcing that the President had made this point.
Speaker 4: And what we found out through sources who are experts
Speaker 4: helping out on the steel and aluminum terrafs. Right these
Speaker 4: are people who have effectively been saying we should have
Speaker 4: these tarffs were admitting to us that they were unaware
Speaker 4: that the President was going to do this today. I
Speaker 4: think that's significant that even when the industries that are
Speaker 4: supposedly getting the benefit weren't looped into something. It just
Speaker 4: shows the mayhem. It just shows how so much of
Speaker 4: this is coming together in a snap out of nowhere.
Speaker 4: And I think the trouble is and you hear this.
Speaker 4: I mean, in the past two weeks, I've sat down
Speaker 4: with so many traders who are in the physical markets
Speaker 4: for stealing aluminum, and I've said, it's impossible to put
Speaker 4: a bet on right now. We can't do anything. We
Speaker 4: don't know if the example that I was given by
Speaker 4: one person was they had made a bet on copper
Speaker 4: right there was an expectation that on some level the
Speaker 4: President would do something on copper. And then at the end,
Speaker 4: at the beginning of February, he came in and said, yes,
Speaker 4: we are going to do something on copper, and it
Speaker 4: looked like that trade was great. But then a few
Speaker 4: days later he came back and said, well, copper's not
Speaker 4: going to be a part of this initial round of terrace,
Speaker 4: and so that trade is completely wound right there. I
Speaker 4: think that's just an anecdote of what we're talking about
Speaker 4: here as to why it's so difficult even for traders,
Speaker 4: right who make money on the way up or on
Speaker 4: the way down, are just saying we're staying away from
Speaker 4: this for the moment.
Speaker 1: That is pretty amazing, right to just say hands off
Speaker 1: right as you say that they like to play the volatility.
Speaker 1: I mean, help me out here. Maybe stupid question, I'm
Speaker 1: okay with that, but I mean in terms of the
Speaker 1: US steel and aluminum industry, or I guess it's really
Speaker 1: they do they want higher tariffs.
Speaker 4: Listen the domestic steel producers and the which.
Speaker 1: Have been decimated over the decade.
Speaker 4: Well yeah, I mean, listen, these the steelmakers have been
Speaker 4: mostly okay, Like if it's such a long breakdown, and
Speaker 4: we don't have to get into it. But New Core
Speaker 4: Corporation makes a lot of money their A plus bond ratings.
Speaker 4: Same with Steel Dynamics, Right, these guys do very well
Speaker 4: and they sell a lot of steel. But the issue
Speaker 4: is they want to make better profits. And that was
Speaker 4: the whole point in twenty eighteen when we implemented the
Speaker 4: Section two thirty two terrafs on steel. It was not
Speaker 4: about jobs. We talked about this, right, It wasn't about jobs.
Speaker 4: It was about making capacity utilization go up. So if
Speaker 4: you're running at eighty five percent, you are maximizing your
Speaker 4: profits as a steel mill.
Speaker 3: Right, Joe, this is going to be news to you
Speaker 3: because you're not looking at your terminal right now. But
Speaker 3: the President making comments he says on Canada will probably
Speaker 3: make a different tariff decision. He said he's looking at
Speaker 3: backing down on the fifty percent duties on Canada. Just
Speaker 3: your instant reaction to that, there.
Speaker 4: You go, like you know, I mean, here we are
Speaker 4: in this moment, right, I cannot imagining sitting on a
Speaker 4: trading desk right now just seeing that and actually probably
Speaker 4: laughing about it like that. That's probably what you're seeing
Speaker 4: from a lot of folks around these markets, and I'm
Speaker 4: not just saying it who are just kind of chuckling
Speaker 4: to themselves. And it's not because it's funny.
Speaker 1: No, right, that's right, that's right. I mean right, because
Speaker 1: if anything you need, it's one thing. If it's a
Speaker 1: policy you don't like, but it needs to be clear,
Speaker 1: correct and not necessarily change from hour to hour, day
Speaker 1: to day.
Speaker 4: Correct. And remember we heard this from the steelmakers in
Speaker 4: twenty eighteen, twenty nineteen. They were the beneficiaries of the
Speaker 4: steel tears. But even they were saying to us back
Speaker 4: then because Trump was saying, well, we're going to give
Speaker 4: exemption to these countries in those countries, but maybe not
Speaker 4: those countries, in these countries. Finally, they just started saying,
Speaker 4: tell us what it is you want to do. If
Speaker 4: it's nothing, then that's fine. If it's something that's great too.
Speaker 4: At least we can start telling our customers to book.
Speaker 3: If we find ourselves in a situation here in the
Speaker 3: United States where people who build things and make stuff
Speaker 3: are using US produced steel and they're using perhaps imported
Speaker 3: aluminum because we can't make enough aluminum and paying more
Speaker 3: for that imported aluminum. Do we see inflationary effects on goods?
Speaker 4: Yeah, it'll depend on the good I think aluminum. A
Speaker 4: place where we immediately saw inflationary effects was like window frames,
Speaker 4: because window frames are aluminum and actually bought by a
Speaker 4: lot of regular people in America. And you saw those
Speaker 4: prices shoot up. I mean it's not like they were
Speaker 4: on an index, but we saw anecdotally it was like,
Speaker 4: you know, people just seeing you know, twenty thirty forty
Speaker 4: percent higher prices on window frames. I mean, listen, the
Speaker 4: Ford CEO did say, if all of these tariffs, right,
Speaker 4: like the Canada Mexico terrafs that haven't gone on, the
Speaker 4: aluminum terras steel terrors go on and they stack, it's
Speaker 4: going to blow a hole through the industry. And you
Speaker 4: had Coca Cola say last month as well, like, well
Speaker 4: we might consider moving back, you know, substitution, right instead
Speaker 4: of cans will go to plastic. Well the problem with
Speaker 4: that is like, yeah, you think the consumer is going
Speaker 4: to be okay with you Coca Cola suddenly going to
Speaker 4: plastic bottles instead of aluminum. I mean this has been
Speaker 4: a trend that consumers have been asking for, right, Hey,
Speaker 4: we don't want to be ruining the environment, right, So wait,
Speaker 4: suddenly you're just throwing that out the window and going
Speaker 4: back to a cost saving Oh and good luck changing
Speaker 4: the supply chain on that.
Speaker 1: So in terms of building out additional capacity, is that
Speaker 1: even likely if there are tariffs? I mean at the expense,
Speaker 1: the commitment the long.
Speaker 4: Term like it could happen. It could happen in steel.
Speaker 4: I think we talked about that a few weeks ago,
Speaker 4: which is like, you know, if there is a long
Speaker 4: term feeling that these terriffs are going to stay on,
Speaker 4: the steel companies could start investing more into building out
Speaker 4: more capacity. Right now, they still have space to use
Speaker 4: current capacity that's not online, and if they see longer
Speaker 4: term they might invest in that. I think the question
Speaker 4: is will we actually see capacity invested in in the
Speaker 4: aluminum space, because the aluminum space is much more of
Speaker 4: an electricity play, right, Like the Hawesville smelter that was
Speaker 4: in Kentucky that is currently idled used as much energy
Speaker 4: in one day as the entire city of Louisville, which
Speaker 4: is the nearest city.
Speaker 3: So you got AI and you got making metals using electricity.
Speaker 4: And remember a lot of those power contracts in say
Speaker 4: like the Northwest that used to be used by Alcoa.
Speaker 4: When Alcoa shut down all of their mills, a lot
Speaker 4: of that energy went towards data centers. Well, it's just
Speaker 4: it's so expensive, and that's why Quebec remains the aluminum
Speaker 4: producing region of North America. It's a bunch of hydropower.
Speaker 4: It's cheap. They supply a lot of energy to to
Speaker 4: some of the northern states here in the US, as
Speaker 4: many people have found out in the past week. So
Speaker 4: it's just it's it's real. Mayhem.
Speaker 1: Uh okay, sorry, I'm looking at the Trump.
Speaker 3: Yeah, I'm a little speechless.
Speaker 1: President say, I don't see your recession at all. And again,
Speaker 1: as you said, the energy all right, So so are
Speaker 1: you just going to wait for the next headline or wait,
Speaker 1: how do you know things are going to finally calm down?
Speaker 1: Traders start to make trades.
Speaker 4: Listen at twelve and one am whatever whatever the tariff
Speaker 4: number that is in place, that will be real and
Speaker 4: that will be actionable because they'll the the customs will
Speaker 4: actually be adding on to the register. Okay, this is
Speaker 4: what you owe for these incoming products. That's at least
Speaker 4: something people can start to hang their hats on other
Speaker 4: than that. Uh, it's it's like one industry person told
Speaker 4: me a few weeks ago and when I asked, well, hey,
Speaker 4: are these Canadian and Mexican tariffs actually going into place?
Speaker 4: And they said, I'll let you know at twelve oh
Speaker 4: one Wednesday.
Speaker 1: Not wild, but that's the reality of it, right because
Speaker 1: it goes into fact. Listen, you're super busy. You're the
Speaker 1: person we always want to talk to when we have
Speaker 1: got a story like this because you know it like
Speaker 1: nobody else. It just blows us away every time. So
Speaker 1: thank you, thank you. We know you've got to run,
Speaker 1: but Jodo, you just totally rock. Bloomberg News Medals and
Speaker 1: Mining and Heavy Machinery reporter. Thank you so much, really
Speaker 1: appreciate it.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 3: Airline stocks are taking a hit today. Two of the
Speaker 3: biggest US airlines slash their financial forecast. The carriers, along
Speaker 3: with Arrival Southwest Airlines, are raining expectations in the face
Speaker 3: of a broad and rapid reversal of demand trends that
Speaker 3: had buoyed the industry heading into twenty twenty five. Carol,
Speaker 3: we're talking about Delta Airlines and American Airlines.
Speaker 1: Yeah, the group overall though down about two and a
Speaker 1: quarter percent, but we're down more than four percent earlier
Speaker 1: in the session. Let's get to what it all means,
Speaker 1: what you need to know about the outlook for the industry.
Speaker 1: Back with us is Bloomberg Intelligence Senior Aerospace, Defense and
Speaker 1: Airlines analyst George Ferguson. He is in our Bloomberg News
Speaker 1: bureau in Washington, DC. So, George, I have to say
Speaker 1: that when the Delta headlines cross yesterday and we saw
Speaker 1: the stock immediate reaction, it just tanked. We all got
Speaker 1: a little bit of a jolt started there. American followed
Speaker 1: Southwest too to some extent. Is it all the same
Speaker 1: story about consumer demand?
Speaker 5: Yeah, it feels to me to be very similar.
Speaker 6: Right.
Speaker 5: So we also had Jeff Blue come in today, and
Speaker 5: I think the core story here is that demand is softening,
Speaker 5: so they're all lowering their revenue expectations.
Speaker 1: I think what we're.
Speaker 5: Seeing as well is that for some of them, fuel
Speaker 5: is helping to prop up earnings to some degree for
Speaker 5: the lower cost carriers, but for Delta, lower fuel prices
Speaker 5: wasn't enough and so they I think showed one of
Speaker 5: the bigger decreases in expectations for one que.
Speaker 3: Did we get any specific commentary about details as to
Speaker 3: why the guidance cut here, George? Is it based at
Speaker 3: the front of the plane the back of the plane?
Speaker 3: Is it consumers? Is it business who's not spending money
Speaker 3: right now like these carriers thought they would.
Speaker 5: Yeah, So, working off the details that Delta gave us,
Speaker 5: they said that premium was still holding up well, and
Speaker 5: international was still holding up well, right, so Pacific and Transatlantic.
Speaker 5: So it made it sound like economy was having difficulties.
Speaker 5: Latin America was already in difficult shape. Sounds like it's
Speaker 5: still in difficult shape from probably an oversupply perspective. And
Speaker 5: they also said close in bookings were weaker. We typically
Speaker 5: associate that with business travel, So it feels like maybe
Speaker 5: there's some concern in the business community, maybe with all
Speaker 5: the you know, sort of all the changes in government
Speaker 5: we've seen in the first couple of days of the
Speaker 5: Trump administration, but seemed like there could be a bit
Speaker 5: of a business confidence problem.
Speaker 3: You said close in bookings, meaning flights that are booked
Speaker 3: within a certain time period.
Speaker 5: Yeah, tickets, you know, tickets booked within less than a month.
Speaker 5: Usually it's a couple of weeks before travel. Traditionally, that's
Speaker 5: you know, been the realm of business travelers.
Speaker 1: Okay, why is jet Blue up? It's up four point
Speaker 1: three percent? Help me hear. Yeah.
Speaker 5: So, I mean when we looked at Jet Blue's revision again,
Speaker 5: you know, the revenues off a bit, but they saved it.
Speaker 5: They are they they save their profit expectations on fuel prices,
Speaker 5: and it didn't look you know, it didn't look that bad.
Speaker 5: So I think Jet Blue has been one that's been
Speaker 5: cutting capacity. I think the more you're cutting capacity and
Speaker 5: not trying to grow your network right now, you know,
Speaker 5: the more able you are to hold out for some
Speaker 5: better fares. And so Jet Blue looked better than some
Speaker 5: of the other competitors we saw.
Speaker 3: George, can we extrapolate the way that these airlines are
Speaker 3: talking about demand into other parts of the economy or
Speaker 3: in an economic cycle? What is the signal? I guess
Speaker 3: is a better way to ask this question that airlines
Speaker 3: send to us about what's happening in the economy.
Speaker 5: Yeah, I think you absolutely can extrapolate, right, So I
Speaker 5: think you know, travel demand is, you know, for the
Speaker 5: leisure traveler, very discretionary. I think when you get concerned
Speaker 5: about your pocketbook, you probably pull back there first. I
Speaker 5: think in the US, especially domestic, which Delta called out
Speaker 5: as one of the weaker markets, we have the ability
Speaker 5: to drive a lot of places rather than fly. It's
Speaker 5: usually a bit cheaper, it takes longer, Right, We've all
Speaker 5: loaded the family into the car in New Jersey and
Speaker 5: driven them to Orlando. It can be cheaper, but it
Speaker 5: can be a little taxing on your nerves. So I think, yeah,
Speaker 5: I think it's a good indicator of the consumers.
Speaker 3: George just speaking from experience here or is this sources
Speaker 3: say yeah?
Speaker 5: Sources say all right.
Speaker 4: So can this change?
Speaker 1: I mean, of course anything can change, But I mean
Speaker 1: so is it potentially or could be a first quarter thing?
Speaker 1: And then depending what goes on in the economy. I
Speaker 1: mean there's a lot coming at consumers, business travelers the
Speaker 1: US economy right now. But could it change be it
Speaker 1: second quarter or second half?
Speaker 5: An airline world things can always change very quickly, so
Speaker 5: can it change? Yes, there is a bit of a
Speaker 5: dynamic and airline world going on this year too, and
Speaker 5: that is that Easter has been moved into the second
Speaker 5: quarter from the first quarter, so we expected a little
Speaker 5: bit of softness in the first quarter. But I still
Speaker 5: think this feels like the you know, the basic economy
Speaker 5: customer is a little more concerned about their finances and
Speaker 5: not traveling. Who cares what the cost is. And again,
Speaker 5: I think you need to see signals coming from the
Speaker 5: economy to make them feel more secure. I think to
Speaker 5: see demand pick up for second quarter.
Speaker 3: Hey, George, well we have you in Washington, d C.
Speaker 3: I don't know if you've got a chance to even
Speaker 3: see this because it just broke in the last fifteen
Speaker 3: minutes or so. But NTSB Chairman Jennifer Homandy was speaking
Speaker 3: at a newser the NTSB making two emergency recommendations after
Speaker 3: that DCA crash. The NTSB recommending permanent helicopter restrictions near DCA.
Speaker 3: The NTSB also recommending an alternative helicopter route near DCA.
Speaker 3: Just way in on the aftermath of this crash in
Speaker 3: the earlier part of this year, and the recommendations that
Speaker 3: the NTSB is making, what happens now.
Speaker 5: Yeah, that sounds totally appropriate. I'm surprised it took this long.
Speaker 5: It's DCA's too busy of an airport to be running
Speaker 5: training flights around with the pilots under flight vision sorry
Speaker 5: night vision goggles. Sounds like exactly the right decision.
Speaker 1: Hey, just real quickly thirty seconds left. Southwest Airlines ditching
Speaker 1: free check bags, the end of an era. I'm terrified
Speaker 1: to see what comes next from the industry. I mean,
Speaker 1: that's a big deal, right, but maybe good for them
Speaker 1: it is.
Speaker 5: I mean Southwest is just becoming more and more like
Speaker 5: a full service carrier. Like everyone, They're looking for different
Speaker 5: ways to generate revenue from their customers. I think it'll
Speaker 5: help the premium program out as well. Right, the loyalty program,
Speaker 5: I should say, you know, if you're a loyalty member,
Speaker 5: you are going to get I think one free check bag.
Speaker 5: I think you get an assigned seat. It's all about
Speaker 5: trying to drive people, not loyalty program generate revenue from it,
Speaker 5: something Delta does so well as one of your additional
Speaker 5: streams of income for the airline.
Speaker 1: As someone who never packs lately, I know what it's
Speaker 1: like to pay some baggage fees.
Speaker 3: And literally it's not even like it's like you exceed
Speaker 3: the fifty pounds limit when we travel, like you're going
Speaker 3: for a day, Carol.
Speaker 1: George Ferguson, Thank you so much. Bloomerintelligence, Senior, Aerospace, Defense
Speaker 1: and Airlines Alice, by the way, Southwest up eight and
Speaker 1: a half percent.
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Speaker 2: All right, everybody.
Speaker 1: Volatility persisting in US assets following yesterday's wrenching session definitely
Speaker 1: was a different one, that's for sure. We've seen an
Speaker 1: early rebound in stocks, erase gains that we've seen it
Speaker 1: rally again on those headlines of Ukraine ready to accept
Speaker 1: a US proposal for our thirty day truth. So we
Speaker 1: continue to see a lot of bouncing around the VIX.
Speaker 1: We've seen it hovering just below thirty. It's a level
Speaker 1: that we talked about yesterday that our Market Live blog
Speaker 1: notes that when it goes above thirty, we have then
Speaker 1: tend to see stocks bounce up. So there's a lot
Speaker 1: going on and trying to make sense of what comes next.
Speaker 1: And we've got a great guest to get into it all.
Speaker 3: Yeah, here in the studio, Jennifer Grancio is back with us.
Speaker 3: She's head of ETFs at TCW. She's a former CEO
Speaker 3: of Engine Number one. It was that little known hedge
Speaker 3: fund that successfully waged an activist battle against the integrated
Speaker 3: energy Giant, snagging three board seats and promising to push
Speaker 3: a low carbon future. Engine number one was bought by
Speaker 3: tc W.
Speaker 1: Could be part of your bio forever.
Speaker 4: You do know that.
Speaker 3: I think she took on big oil and I got
Speaker 3: a board seats. Jennifer, could that be back with us?
Speaker 4: First up?
Speaker 3: Today's market activity? Yesterday's yes, you know that's behind us.
Speaker 3: We're still in the session today. We're seeing it bounce
Speaker 3: off the lows. Certainly, how has the investment narrative changed
Speaker 3: and how is it being reflected in ETF flows for you?
Speaker 6: Yeah, I mean the markets love certainty and what we
Speaker 6: do not have right now is certainty, and so in
Speaker 6: many cases we may actually be lower than where valuations are.
Speaker 6: I mean, I'm not going to try to call that,
Speaker 6: but from an uncertainty perspective around not just tariffs, but
Speaker 6: the concept of tariffs, how pervasive, how long, how broad
Speaker 6: across the different markets. So I think we continue to
Speaker 6: see that our view, we're an active manager or at TCW,
Speaker 6: so our view is, you know, you really have to
Speaker 6: understand the fundamentals and that allows us to keep investing
Speaker 6: even through the cycle.
Speaker 1: So what does that mean actively in terms of fun
Speaker 1: flows or you know, I'd love to know if you
Speaker 1: guys saw anything interesting happening, not just this week or yesterday.
Speaker 1: But I feel like over the last couple of weeks
Speaker 1: the sentiment has definitely changing the market. So are you
Speaker 1: seeing money flow out of certain types of ETFs flowing
Speaker 1: into certain ETFs?
Speaker 6: Give us an idea of what the environment's But I
Speaker 6: think with this level of volatility, what we're seeing initially
Speaker 6: is mostly institutional money movement. So I think we're seeing
Speaker 6: hedge funds have shorts, they're covering shorts. It's resulted in
Speaker 6: net buying, so I think a lot of the buying
Speaker 6: through volatility has probably been hedge funds and institutional. At
Speaker 6: the same time, we're seeing a very strong fixed income market.
Speaker 6: Where people are watching the equity market fall, not everybody
Speaker 6: is appropriately positioned and prepared. In core fixed income, we've
Speaker 6: seen inflows there and I think it's been a little
Speaker 6: quieter in thematics. But our review would be this is
Speaker 6: an excellent buying opportunity, even.
Speaker 3: If we see what he's moved lower in the near future.
Speaker 3: I mean, it's it's sometimes hard to catch a falling knife.
Speaker 6: I think it's extremely hard to call the markets. And
Speaker 6: if you look at the last couple of years, we've
Speaker 6: had very strong performance in S and P the last
Speaker 6: couple of years, so it's correcting. We don't know where
Speaker 6: the bottom is. I think it's a mix of starting
Speaker 6: to come back in and reposition.
Speaker 3: I'm going to use these words, is this time different,
Speaker 3: which you're never supposed to use when talking about the market.
Speaker 3: But is it Because we heard from President Trump over
Speaker 3: the weekend that he's one not ruling out a recession
Speaker 3: too there could be some short term pain. It seems
Speaker 3: like his view on the markets, at least the way
Speaker 3: that he's communicated it and his White House has communicated it,
Speaker 3: is that it's okay if they go down, which I
Speaker 3: think is different than a lot of people thought he
Speaker 3: would look at the markets given what happened during his
Speaker 3: first term. So is this time different?
Speaker 6: Well, I think so far. Behaviorally, his behavior is very
Speaker 6: different this time. From a TCW perspective, we think that
Speaker 6: the market was heading for a recession for quite a
Speaker 6: while now, so we think the market needed a correction
Speaker 6: like this. The question is, really, you know, where's the bottom,
Speaker 6: how does it bounce off of that? And where do
Speaker 6: we go from here? In some cases, sectors or high
Speaker 6: quality companies, right they may be price lower right now
Speaker 6: than their fundamental value. So as an active manager, that's
Speaker 6: what we do all day, both in the bond and
Speaker 6: the equity portfolios.
Speaker 1: You know, what's it like being an active manager?
Speaker 4: Though?
Speaker 1: In an administration where there are things coming and sometimes
Speaker 1: it's a move forward to move back, whether it's on
Speaker 1: tariffs or so and so forth. I mean, I guess
Speaker 1: I'm almost thinking like, what is activism in a Trump
Speaker 1: White House where there are concerns about conflicts of interest
Speaker 1: business people in areas now overseeing those areas? What is that?
Speaker 1: From a government perspective? How do you see that? Yeah?
Speaker 6: I mean I think we see it as It's very
Speaker 6: hard to predict and so investing in based on trying
Speaker 6: to understand what's very hard to predict, hard to do,
Speaker 6: but positioning. So if you think about broad you know
Speaker 6: broadly the economy, this is a recession is probably coming.
Speaker 6: Job and growth wages have been slowing, and so how
Speaker 6: we deal with that as an active manager is it
Speaker 6: stick to the fundamentals. In the case of fixed income,
Speaker 6: we've been positioned for recession. So performance Why is a
Speaker 6: fund like an ETF like Flexer is at the top
Speaker 6: of the performance group right now because we're positioned for
Speaker 6: something exactly like this right and in the equity space
Speaker 6: in the ETF, so a lot of what we do
Speaker 6: are very long term, durable, secular, thematic trends, and so
Speaker 6: we will see volatility, but we still think we're holding
Speaker 6: the names that really grow out of it.
Speaker 1: Can you get a little bit more specific and share
Speaker 1: what kind of those the app for sure?
Speaker 6: So on the equity yeah, So on the on the
Speaker 6: equity side, we manage one fund that is more of
Speaker 6: a defensive growth fund and its compounders is the name
Speaker 6: the tickers grow Gear g RW. And what Grow does
Speaker 6: is it holds a very concentrated portfolio of twenty five stocks,
Speaker 6: but they're not only the highest flyers, they're very high
Speaker 6: quality growth companies and so Grows actually outperformed the market
Speaker 6: so far this year and has be positive. Then next
Speaker 6: to that, if you really want to invest in the
Speaker 6: trends that are shaping the economy for the years to come,
Speaker 6: and we fundamentally believe will add value in portfolios through time,
Speaker 6: and you need them to diversify from the kind of
Speaker 6: the mag seven. We run a strategy around power, which
Speaker 6: is p WRD Powered is the ticker, and a strategy
Speaker 6: on US supply chain and everything that's going on now
Speaker 6: it's just going to accelerate reshoring to the US. And
Speaker 6: we run an AI fund. And while some AI names
Speaker 6: have gone down quite a lot, remember how much they've
Speaker 6: gone up the last few years. And we're investing in
Speaker 6: the broad trend.
Speaker 3: Where specifically are you seeing value there? Because our own
Speaker 3: gena Martin Adams a Bloomberg Intelligence out with a note
Speaker 3: today that says some of the biggest s and P
Speaker 3: five hundred stocks by market caps still trade at an
Speaker 3: abnormally large premium despite vast underperformance so far this year.
Speaker 6: Yeah, I mean, we hold some of those names in
Speaker 6: the AI fund that we run, which is an eight
Speaker 6: year track record, tickers a fed AI FD. But in
Speaker 6: AVID we also hold a name like Deer, where Deer
Speaker 6: is a manufacturing company that is using smart technology to
Speaker 6: be more efficient in how we handle water and fertilizer.
Speaker 6: If I'm a farmer, I make more money. It's more efficient,
Speaker 6: And that's what I mean by for us, we're not
Speaker 6: just holding We are holding some of those big names,
Speaker 6: but we're also holding the companies are getting AI right first.
Speaker 6: And in the power and energy sector that continues to
Speaker 6: be an incredibly important sector because we're using more and
Speaker 6: more and more power. Transportation, we hold GE, for example
Speaker 6: Empowered and GE is a company that makes airline engines
Speaker 6: really hard to do and then they do all the
Speaker 6: replacement and travel continues to go through the roof right
Speaker 6: as middle classes grow. Travel has been up I think
Speaker 6: almost every year except during COVID.
Speaker 1: All right, we're gonna have to leave it on that note.
Speaker 1: So glad we got some time with you. Really appreciate it.
Speaker 1: Jennifer Grancio. She is head of ETFs over at TCW,
Speaker 1: usually on the West coast, but here in our studio.
Speaker 2: You're listening to the Bloomberg Business This Week podcast. Catch
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Speaker 1: Let's get to it, folks, because we are just about
Speaker 1: twenty minutes away from the closing bell and with us
Speaker 1: right now is Doug Ramsey, chief investment officer at the
Speaker 1: Luthold Group, joining us right here in our Bloomberg Interactive
Speaker 1: Broker studio on another volatile day. So great to have
Speaker 1: you here. How are you.
Speaker 7: I'm doing well. It's great to be in New York
Speaker 7: City on a beautiful spring day.
Speaker 1: It is beautiful, it feels good. The selling, the volatility.
Speaker 1: What is it telling you about trends in this market?
Speaker 7: Well, I think things were pretty toppy looking before the top.
Speaker 7: And I say that because we had a lot of
Speaker 7: internal breakdowns of the sort that you typically see before
Speaker 7: a major market top right, small caps, underperforming transportation stocks, utilities.
Speaker 7: I could go down a list. We actually have list
Speaker 7: of eight bell weathers, and seven out of the eight
Speaker 7: were sounding and warning. The only group that was confirming,
Speaker 7: to use market technicians terminology was the financial stocks were
Speaker 7: very strong into that market top which only three weeks ago,
Speaker 7: but so like sort of the standard cracks were there,
Speaker 7: and the issue of just looking at that in isolation
Speaker 7: is you will see the market look internally vulnerable like
Speaker 7: that from time to time during a healthy bull market,
Speaker 7: and those things will just be resolved. Is the market
Speaker 7: push is higher, has done so that's well, go ahead.
Speaker 7: Is that is troubling all of those cracks coming at
Speaker 7: a time when the economy is more vulnerable than it was,
Speaker 7: say six to eight months ago in terms of income
Speaker 7: growth and that sort of thing.
Speaker 3: Well, you know, you we got things to the notes
Speaker 3: that you sent our producer Paul Brennan. The firm cut
Speaker 3: net equity exposure of fifty percent in the Leuthold Core
Speaker 3: ETF and other funds, and it increased a short position
Speaker 3: in the Nasdaq one hundred. Yeah, when exactly did you
Speaker 3: do that?
Speaker 7: It's it's been a I guess over time. I mean
Speaker 7: we came into the year probably fifty eight percent equity exposure. Now,
Speaker 7: because in our tactical strategies we run our long equities
Speaker 7: and equity hedges. When the market sells off, it will
Speaker 7: adjust down quicker than if you were just running like
Speaker 7: a sixty forty portfolio or something like that, or obviously
Speaker 7: if you're all equities, you keep at one hundred percent equities.
Speaker 7: So I think we were fifty four percent last week,
Speaker 7: and then on Friday we had some things triggered, so
Speaker 7: we went to fifty percent. So now with the market down,
Speaker 7: you know, since Friday's closed, we're probably forty. So it's
Speaker 7: sort of like self adjusting downwards because of the way
Speaker 7: we approach.
Speaker 3: At what point would you start adding to that equity
Speaker 3: position though, Like when do things get cheap enough or
Speaker 3: when does the market come down enough to do that.
Speaker 4: On pure cheapness, It's gonna be tough. Yeah, there could
Speaker 4: be other.
Speaker 7: Things just in terms of market action that would get
Speaker 7: us there, But we are really concerned about the prospect
Speaker 7: that the market sell off becomes an economically self fulfilling prophecy.
Speaker 7: So we've written now for a couple of years about
Speaker 7: the impact of the wealth effect as possibly having sustained
Speaker 7: the economic expansion in twenty three and twenty four despite
Speaker 7: the leading indicators, well all the leading indicators except the
Speaker 7: stock market pointing down for a couple of years. Well,
Speaker 7: now you have what we would argue is the most
Speaker 7: important leading indicator pointing down and via the wealth effect,
Speaker 7: could deliver the final blow to the economic expansion.
Speaker 1: Well, so the recession talk and the economic data points.
Speaker 1: I mean, I guess there's sentiment, right, which can turn
Speaker 1: into reality, and then there's of course fundamental So are
Speaker 1: the fundamentals breaking down? I mean, some of the technicals did, right,
Speaker 1: but I mean is that significant in its own right?
Speaker 1: But or is it fundamentally longer term fundamentals breaking down
Speaker 1: in your view?
Speaker 7: Well, they could and respond to a break in market
Speaker 7: wealth and just I mean thinking And another reason we're
Speaker 7: so focused on the wealth effect is just the size
Speaker 7: of the stock market relative to the economy today. I mean,
Speaker 7: in the peak, just three weeks ago, total market cap
Speaker 7: of US equities was two hundred and five percent of GDP,
Speaker 7: more than two x. We're down to like one hundred
Speaker 7: and eighty five percent. So in percentage terms, it's an
Speaker 7: eight and a half percent correction. In terms of the
Speaker 7: loss of wealth to the economy, it's a twenty percent
Speaker 7: hit relative to GDP. So to the extent that the
Speaker 7: stock market has always like a stock market decline has
Speaker 7: been one of the final catalysts that sort of nudges
Speaker 7: the economy into recession when it was already vulnerable. I
Speaker 7: think that's even more true today. And there's a great quote.
Speaker 7: I mean, at times like this it always comes to mind,
Speaker 7: but it was from George Soros about fifteen years ago.
Speaker 7: Just in terms of summarizing this, this interaction between markets
Speaker 7: and the economy, he said, financial markets have a very
Speaker 7: safe way of predicting the future. Cause it so here
Speaker 7: we are with personal income growth only one point eight
Speaker 7: percent year over year. It was double that two years
Speaker 7: ago or a year ago. Real employment growth or I'm
Speaker 7: just I'm sorry, year over year non farm payrolls in
Speaker 7: last Friday's report were one point three. We've never dropped
Speaker 7: to a level that low and not subsequently fallen into recession.
Speaker 7: So we're sort of at stall speed on income and
Speaker 7: employment growth and then lo and behold. And we haven't
Speaker 7: talked about the tariff impact. We're more focused on this,
Speaker 7: you know, significant blow from a loss in stock market.
Speaker 1: Well, we're so sad we have to leave it there.
Speaker 1: Doug Ramsey, hopefully we can reconnect very very soon, a
Speaker 1: chief investment officer of course, of the Luthel Group.
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