1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,560 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,560 Speaker 1: at Bloomberg dot com slash podcast. All right, so I'm 7 00:00:21,560 --> 00:00:23,200 Speaker 1: looking at my screen here, I look at my two 8 00:00:23,200 --> 00:00:29,440 Speaker 1: tens on the treasuries. Uh five at seventy basis points 9 00:00:29,480 --> 00:00:32,879 Speaker 1: of inversion on the twos and tens. And you know, 10 00:00:32,920 --> 00:00:35,440 Speaker 1: I paid attention most days in business school when I 11 00:00:35,479 --> 00:00:38,000 Speaker 1: was at Duke, and I remember learning that when the 12 00:00:38,080 --> 00:00:40,960 Speaker 1: yield curve is inverted, that means a recession. And in fact, 13 00:00:41,200 --> 00:00:43,879 Speaker 1: our next guest did some some pretty good work on 14 00:00:43,920 --> 00:00:46,680 Speaker 1: that when he was a PhD guy at Universe Chicago. 15 00:00:46,840 --> 00:00:49,559 Speaker 1: Professor Cam Harvey joins the He's a finance professor at 16 00:00:49,640 --> 00:00:53,320 Speaker 1: Duke University, the Fucal school there. Uh he was my 17 00:00:53,360 --> 00:00:56,440 Speaker 1: professor when I was there at Duke camp. Thanks so 18 00:00:56,520 --> 00:00:58,760 Speaker 1: much for joining us here. I mean, you, more than 19 00:00:58,840 --> 00:01:03,160 Speaker 1: anybody have written about and showed the merits of this 20 00:01:03,240 --> 00:01:07,400 Speaker 1: inverted yield curve really signaling recessions? How about these days, 21 00:01:07,400 --> 00:01:10,160 Speaker 1: because it's been inverted for a while. Here my economy 22 00:01:10,160 --> 00:01:12,679 Speaker 1: seems pretty strong here on the East side of New York. 23 00:01:13,120 --> 00:01:16,319 Speaker 1: What say you on that yield curve thing? Yeah, so 24 00:01:16,600 --> 00:01:19,760 Speaker 1: it's interesting. So I guess, as you said, I'm the 25 00:01:19,760 --> 00:01:22,880 Speaker 1: one that came up with the idea in my dissertation 26 00:01:24,600 --> 00:01:28,640 Speaker 1: and at the time, UM, looking at data from night 27 00:01:29,120 --> 00:01:33,600 Speaker 1: it was four out of four and predicting recessions and uh, 28 00:01:33,640 --> 00:01:37,120 Speaker 1: it even got the double dip, which nobody got. And 29 00:01:37,160 --> 00:01:41,959 Speaker 1: then out a sample it's had four inversions and followed 30 00:01:41,959 --> 00:01:46,720 Speaker 1: by four recessions, including the global financial crisis. And now, um, 31 00:01:46,800 --> 00:01:49,800 Speaker 1: the tenure MONTHUS three months, that's the one that I 32 00:01:49,880 --> 00:01:56,080 Speaker 1: look at. Um, it's inverted, and I'm basically making the 33 00:01:56,080 --> 00:01:59,760 Speaker 1: case that this is a situation where it's likely a 34 00:01:59,760 --> 00:02:03,360 Speaker 1: fall signal, and there's a number of reasons behind that. Okay, 35 00:02:03,400 --> 00:02:06,560 Speaker 1: So just to sound up, you're the one who found 36 00:02:06,600 --> 00:02:11,360 Speaker 1: this indicator and you've proved it to be UM reliable 37 00:02:11,639 --> 00:02:14,760 Speaker 1: in terms of predicting a recession. But now you're the 38 00:02:14,760 --> 00:02:17,600 Speaker 1: one saying this indicator is not telling us that a 39 00:02:17,639 --> 00:02:22,200 Speaker 1: recession is coming. So why well, the indicator is suggesting 40 00:02:22,200 --> 00:02:26,600 Speaker 1: a recession. But the reason is fairly simple, uh, and 41 00:02:26,720 --> 00:02:31,320 Speaker 1: that is that the economy is very complex, and to 42 00:02:31,480 --> 00:02:36,080 Speaker 1: think that you've got this model that is going to 43 00:02:36,120 --> 00:02:40,240 Speaker 1: be perfect forever is really naive. The model looks at 44 00:02:40,240 --> 00:02:44,120 Speaker 1: a single variable, uh, the difference between long term meals 45 00:02:44,160 --> 00:02:47,519 Speaker 1: and short term meals, and and to think that that 46 00:02:47,800 --> 00:02:52,400 Speaker 1: single indicator is going to be perfect forever, Uh, that's 47 00:02:52,520 --> 00:02:56,919 Speaker 1: just not very scientific. So we know the world is complex, 48 00:02:57,320 --> 00:03:03,240 Speaker 1: and this particular situation we're in, I think is is 49 00:03:03,480 --> 00:03:08,480 Speaker 1: far different than previous recessions. So we know that, um, 50 00:03:08,520 --> 00:03:11,760 Speaker 1: this time is different every time, but the degree of 51 00:03:11,800 --> 00:03:15,600 Speaker 1: difference is pretty stark. So what's what's what's different now, 52 00:03:15,720 --> 00:03:19,720 Speaker 1: Kim in the economy that may make this less predicted 53 00:03:19,800 --> 00:03:25,280 Speaker 1: this time. Yeah, So there are basically six things that 54 00:03:25,280 --> 00:03:29,080 Speaker 1: that I look at. So number one, and there's been 55 00:03:29,200 --> 00:03:32,680 Speaker 1: much discussion about this, is the excess demand for labor. 56 00:03:33,560 --> 00:03:37,480 Speaker 1: So that means that there's more job openings than people unemployed, 57 00:03:37,640 --> 00:03:40,800 Speaker 1: and the gap is large. And what that means is 58 00:03:40,920 --> 00:03:44,760 Speaker 1: that even if the economy slows down even more, UM, 59 00:03:44,840 --> 00:03:47,960 Speaker 1: we'll be able to absorb those that get laid off. 60 00:03:48,760 --> 00:03:51,840 Speaker 1: And even though unemployment will likely go up, it's not 61 00:03:51,880 --> 00:03:54,000 Speaker 1: going to go up by that much. And that's a 62 00:03:54,120 --> 00:04:00,880 Speaker 1: key indicator for dating the business cycle. So we know that, uh, 63 00:04:00,920 --> 00:04:05,200 Speaker 1: that unemployment is a lagging indicator for the business cycle. 64 00:04:05,280 --> 00:04:08,160 Speaker 1: So you just can't say, well, unemployment is low, therefore 65 00:04:08,400 --> 00:04:12,680 Speaker 1: it isn't a recession. It's always low before recession. And 66 00:04:12,720 --> 00:04:16,040 Speaker 1: that's not my point. My point is the excess capacity, 67 00:04:16,200 --> 00:04:20,600 Speaker 1: the ability to absorb people that are laid off, um 68 00:04:20,839 --> 00:04:25,760 Speaker 1: is way different than past recessions. The second thing is 69 00:04:25,839 --> 00:04:28,680 Speaker 1: the sort of layoffs that we're already seeing are like 70 00:04:28,800 --> 00:04:32,640 Speaker 1: layoffs from for example, the tech sector, and if you 71 00:04:32,680 --> 00:04:37,839 Speaker 1: get laid off with the technology job at Twitter or Facebook, uh, 72 00:04:38,160 --> 00:04:42,640 Speaker 1: you can easily get replaced in the workforce, so you 73 00:04:42,680 --> 00:04:46,840 Speaker 1: can get another placement, and the duration of your unemployment 74 00:04:47,040 --> 00:04:50,159 Speaker 1: is very short. Uh. So I think that that is 75 00:04:50,200 --> 00:04:54,080 Speaker 1: also an issue. Number three, Consumers are in a far 76 00:04:54,200 --> 00:04:58,120 Speaker 1: better position today than let's say, before the global of 77 00:04:58,160 --> 00:05:01,359 Speaker 1: financial crisis. So if you look, for example, in the 78 00:05:01,400 --> 00:05:06,560 Speaker 1: housing sector, the amount of equity versus debt or mortgage 79 00:05:07,560 --> 00:05:11,520 Speaker 1: is really high. So so again we can absorb a 80 00:05:11,680 --> 00:05:15,760 Speaker 1: decrease in housing without causing the same sort of issues 81 00:05:16,160 --> 00:05:20,440 Speaker 1: like in the global financial crisis. Number four is the 82 00:05:20,480 --> 00:05:24,520 Speaker 1: financial sector is much stronger than it was, for example, 83 00:05:24,640 --> 00:05:28,400 Speaker 1: before the Global Financial crisis, so the financial sector is 84 00:05:28,560 --> 00:05:34,240 Speaker 1: unlikely to make things worse. UM. And number five has 85 00:05:34,279 --> 00:05:37,200 Speaker 1: kind of an interesting one. My model, UH at the 86 00:05:37,240 --> 00:05:42,080 Speaker 1: Anniversity of Chicago is about real yields, so not nominal yields. 87 00:05:42,640 --> 00:05:46,880 Speaker 1: And we've got a situation today where the term structure 88 00:05:47,320 --> 00:05:52,279 Speaker 1: of inflation expectations is very inverted, meaning the short term 89 00:05:52,320 --> 00:05:55,760 Speaker 1: expectations are far higher than the long term and that's 90 00:05:55,800 --> 00:06:00,360 Speaker 1: kind of contributing to UM the inversion of the Yeld curve. 91 00:06:01,040 --> 00:06:05,040 Speaker 1: And number six is very subtle, but it's very important 92 00:06:06,000 --> 00:06:10,200 Speaker 1: given that my model is talked about now and featured 93 00:06:10,279 --> 00:06:15,839 Speaker 1: on Bloomberg Radio. Um, it affects people's behavior. So you 94 00:06:15,880 --> 00:06:18,160 Speaker 1: would not have had me on the show in two 95 00:06:18,200 --> 00:06:21,960 Speaker 1: thousand and six because it was a real niche sort 96 00:06:21,960 --> 00:06:25,880 Speaker 1: of indicator, not that well known, and were talking about 97 00:06:25,880 --> 00:06:28,800 Speaker 1: on Bloomberg television as well. Yeah, for a long time, 98 00:06:28,839 --> 00:06:32,200 Speaker 1: it was every day for like three months, that's right, 99 00:06:32,279 --> 00:06:34,880 Speaker 1: But that did not happen when the Yeel curve was 100 00:06:34,960 --> 00:06:39,279 Speaker 1: inverted for like a year before the global financial crisis. 101 00:06:39,960 --> 00:06:45,280 Speaker 1: And yeah, so think about how it changes behavior. So 102 00:06:45,640 --> 00:06:50,440 Speaker 1: suppose you're like a CEO going before shareholders in the 103 00:06:50,520 --> 00:06:53,920 Speaker 1: middle of the global financial crisis, and you basically say, well, 104 00:06:53,960 --> 00:06:58,000 Speaker 1: I was blindsided. We had no idea this recession was coming, 105 00:06:58,320 --> 00:07:03,560 Speaker 1: and and nor did my peers, competitors, everybody was blindsided. Uh. 106 00:07:03,680 --> 00:07:08,800 Speaker 1: Now today that is pretty well impossible to do. So 107 00:07:09,200 --> 00:07:11,800 Speaker 1: people know that the old curve indicators a out of eight. 108 00:07:12,920 --> 00:07:16,720 Speaker 1: So uh, if we do go into a recession, it's 109 00:07:16,800 --> 00:07:19,200 Speaker 1: really hard for CEO to make the case, well, I 110 00:07:19,280 --> 00:07:22,960 Speaker 1: was totally surprised. We made this major investment thinking everything 111 00:07:23,040 --> 00:07:26,360 Speaker 1: was going to be okay. No, you can't do that 112 00:07:26,840 --> 00:07:30,280 Speaker 1: in front of a record like eight out of eight. 113 00:07:30,920 --> 00:07:36,480 Speaker 1: So what happens. Uh, Businesses and consumers are more likely 114 00:07:36,560 --> 00:07:41,320 Speaker 1: to engage and risk management when the Yelk curve is inverted, 115 00:07:41,440 --> 00:07:45,600 Speaker 1: so they take actions before a recession actually happens. And 116 00:07:45,880 --> 00:07:50,080 Speaker 1: we're seeing this like small layoffs, Um, you know here 117 00:07:50,120 --> 00:07:55,800 Speaker 1: and there where companies are getting ready for a slow 118 00:07:55,880 --> 00:08:00,760 Speaker 1: down or basically stuff. We don't see that this happening. 119 00:08:01,520 --> 00:08:07,679 Speaker 1: Companies deciding not to make major investments, delaying until there's 120 00:08:07,720 --> 00:08:11,040 Speaker 1: more clarity in terms of, uh, you know what's going 121 00:08:11,040 --> 00:08:14,400 Speaker 1: to happen in terms of the business cycle. So all 122 00:08:14,400 --> 00:08:17,680 Speaker 1: of this, just just giving that background, what do you 123 00:08:17,680 --> 00:08:20,720 Speaker 1: think our Federal Reserve could do should do over the 124 00:08:20,800 --> 00:08:25,880 Speaker 1: next couple of meetings here? Yeah, So, so given that 125 00:08:26,000 --> 00:08:28,760 Speaker 1: this is happening, that the deal curve is actually impacting 126 00:08:28,800 --> 00:08:33,800 Speaker 1: behavior people are engaging in risk management, it actually reduces 127 00:08:33,840 --> 00:08:38,080 Speaker 1: the chance that the signal, the inverted real curve is 128 00:08:38,200 --> 00:08:44,920 Speaker 1: actually accurate in forecasting a recession. So the major wild 129 00:08:44,920 --> 00:08:49,360 Speaker 1: card here is the FED. And the FED was late 130 00:08:50,000 --> 00:08:55,679 Speaker 1: to the game with all of this talk about transitory inflation, 131 00:08:56,320 --> 00:08:59,440 Speaker 1: and it didn't make any sense to so many people, 132 00:08:59,480 --> 00:09:03,319 Speaker 1: including me. So they're very late to the game. And 133 00:09:03,440 --> 00:09:06,599 Speaker 1: the major wild card here is whether the FIT is 134 00:09:06,600 --> 00:09:09,480 Speaker 1: going to be late again. And what I mean by 135 00:09:09,520 --> 00:09:13,840 Speaker 1: that is that they don't see that inflations under control. 136 00:09:14,000 --> 00:09:18,480 Speaker 1: They've slowed the economy and this continue, Uh, the rate hikes. 137 00:09:19,080 --> 00:09:22,720 Speaker 1: You have no reason to continue the rate hikes right now. 138 00:09:23,000 --> 00:09:28,560 Speaker 1: So think the last six months inflation has been essentially zero. 139 00:09:28,960 --> 00:09:33,720 Speaker 1: It's been like point three over six months, So there's 140 00:09:33,760 --> 00:09:38,400 Speaker 1: no we're talking about basis points. No. Um. Indeed, I 141 00:09:38,400 --> 00:09:42,640 Speaker 1: thought the last hike was unnecessary. They need to back 142 00:09:42,679 --> 00:09:46,160 Speaker 1: off the backup is now, Yeah, we understand that. Cam, 143 00:09:46,200 --> 00:09:49,280 Speaker 1: thanks so much for joining. Cam Harvey, Professor Finance at 144 00:09:49,280 --> 00:09:52,880 Speaker 1: the Fucal School of Business at Duke University. He taught me. 145 00:09:53,320 --> 00:09:55,240 Speaker 1: I learned a thing or two. I tried to you know, 146 00:09:55,360 --> 00:09:57,760 Speaker 1: it's some tough stuff. He had man lots of math 147 00:09:58,240 --> 00:09:59,839 Speaker 1: and I was taught they woudn't givena be math in 148 00:09:59,880 --> 00:10:07,280 Speaker 1: this course. Last week out in Vegas, they had what's 149 00:10:07,280 --> 00:10:10,360 Speaker 1: probably the biggest convention they have every year out there. 150 00:10:10,480 --> 00:10:13,080 Speaker 1: It's got to be close to it Consumer Electronics Show. 151 00:10:13,160 --> 00:10:16,840 Speaker 1: Cees like a couple hundred thousand tech geeks from literally 152 00:10:16,880 --> 00:10:19,000 Speaker 1: all over the world to send upon Vegas to see 153 00:10:19,000 --> 00:10:21,200 Speaker 1: all the new technology. But what it's really evolved into 154 00:10:21,240 --> 00:10:23,920 Speaker 1: over the last ten fifteen years has been an auto 155 00:10:24,000 --> 00:10:28,440 Speaker 1: show with some gadgets around it. UM and the auto 156 00:10:28,840 --> 00:10:31,520 Speaker 1: manufacturers are really taken over because really the auto companies 157 00:10:31,640 --> 00:10:35,720 Speaker 1: have become technology companies. UM. Kevin Tynan our auto analyst. 158 00:10:35,960 --> 00:10:37,880 Speaker 1: He was out there with Michael Dean New Covers Autos 159 00:10:37,920 --> 00:10:41,160 Speaker 1: as well. From London. There are Kevin Tynan's our senior 160 00:10:41,160 --> 00:10:44,079 Speaker 1: automotive analyst and Bloomberg Intelligence. He's calling in from our 161 00:10:44,200 --> 00:10:47,640 Speaker 1: beautiful Princeton campus. It's a campus down there, Matt, It's 162 00:10:47,679 --> 00:10:51,000 Speaker 1: not just a building. Uh. Kevin talked to us about Vegas, 163 00:10:51,480 --> 00:10:54,960 Speaker 1: the auto companies, c E S. What's your big takeaway 164 00:10:54,960 --> 00:10:58,280 Speaker 1: from what Detroit is doing? Uh in the desert of 165 00:10:58,400 --> 00:11:03,640 Speaker 1: Las Vegas. Yeah, it was wasn't a huge domestic manufacturer 166 00:11:03,760 --> 00:11:07,280 Speaker 1: presence there, unless I would say the two biggest were Mercedes, 167 00:11:07,320 --> 00:11:11,640 Speaker 1: Benz and UM the Stilantis brands, which you could argue 168 00:11:11,679 --> 00:11:15,600 Speaker 1: are still still Dodge, Chrysler, UM, you know, but they 169 00:11:15,640 --> 00:11:19,320 Speaker 1: they they did show a lot of international stuff, the 170 00:11:19,360 --> 00:11:25,120 Speaker 1: new RAM pick up. So uh it was connected, autonomous 171 00:11:25,160 --> 00:11:30,040 Speaker 1: and electric focused. But those are really the two biggest 172 00:11:30,880 --> 00:11:36,120 Speaker 1: presentations or displayed that you saw there. UM similar to 173 00:11:36,200 --> 00:11:39,000 Speaker 1: Detroit back in September. You know, there was about five 174 00:11:39,040 --> 00:11:43,000 Speaker 1: automakers total there, and I think the markets really changed 175 00:11:43,080 --> 00:11:46,240 Speaker 1: a little bit. And uh, you know that presence is 176 00:11:46,280 --> 00:11:49,840 Speaker 1: down significantly. Have you driven the t RX speaking of Ram, 177 00:11:51,040 --> 00:11:55,640 Speaker 1: I have, yeah, but back a while ago. Production that 178 00:11:55,800 --> 00:11:59,240 Speaker 1: is thoroughly American truck. You're a truck guy, I'm a 179 00:11:59,240 --> 00:12:01,840 Speaker 1: car guy. I look even if you're not a truck guy, 180 00:12:02,000 --> 00:12:09,440 Speaker 1: it has horse power. Yeah. Um, Now electric vehicles will 181 00:12:09,480 --> 00:12:12,400 Speaker 1: have that much and more. Really, frankly, yes, I think 182 00:12:12,440 --> 00:12:16,440 Speaker 1: the I don't know about the So you still the Ford, 183 00:12:16,600 --> 00:12:19,760 Speaker 1: you still measure it as horsepower, but I know that 184 00:12:19,800 --> 00:12:24,000 Speaker 1: the Chevy Silverado EV has almost seven horse power and 185 00:12:24,080 --> 00:12:26,240 Speaker 1: almost as much Torcas anyway, doesn't it doesn't matter. It's 186 00:12:26,240 --> 00:12:29,240 Speaker 1: neither here nor there. The thing is to me today, 187 00:12:29,280 --> 00:12:34,480 Speaker 1: the story Kevin Tesla cutting prices is like the first 188 00:12:34,720 --> 00:12:39,240 Speaker 1: sign that the damn is breaking. Can all of these automakers, 189 00:12:39,240 --> 00:12:42,000 Speaker 1: because they're all falling in sympathy with Tesla, can they 190 00:12:42,080 --> 00:12:45,800 Speaker 1: hold or will they all have to start cutting prices. 191 00:12:46,720 --> 00:12:51,480 Speaker 1: I don't think any of the legacy automakers are really 192 00:12:51,520 --> 00:12:54,760 Speaker 1: concerned about what Tesla is doing with their pricing. I 193 00:12:54,800 --> 00:12:59,360 Speaker 1: think break even UM in the key regions, certainly in 194 00:12:59,400 --> 00:13:02,760 Speaker 1: North America is considerably lower. And when I say break even, 195 00:13:02,800 --> 00:13:06,600 Speaker 1: I mean in terms of a total market value you know, uh, 196 00:13:06,880 --> 00:13:10,040 Speaker 1: market share number. You know that that could be as 197 00:13:10,080 --> 00:13:15,040 Speaker 1: low as twelve million units. Now, um, so look at 198 00:13:15,160 --> 00:13:18,120 Speaker 1: the when this market was at its peak, When the 199 00:13:18,160 --> 00:13:21,079 Speaker 1: US was at its peak in twenty sixteen, it was 200 00:13:21,160 --> 00:13:25,000 Speaker 1: seventeen and a half million units. Uh, we're talking about 201 00:13:25,000 --> 00:13:30,920 Speaker 1: maybe fourteen million for twenty three marks the difference. Right, 202 00:13:30,920 --> 00:13:35,320 Speaker 1: in twenty seven, sixteen, average transaction price was thirty five 203 00:13:35,360 --> 00:13:40,280 Speaker 1: thousand dollars. In December, average transaction price was forty eight five. Right, 204 00:13:40,320 --> 00:13:44,280 Speaker 1: We're heading to a fifty thousand dollar uh transaction price 205 00:13:44,400 --> 00:13:47,320 Speaker 1: market here. So when you look at that revenue pool, 206 00:13:47,400 --> 00:13:51,800 Speaker 1: it's actually eighty two a hundred billion dollars larger now 207 00:13:51,920 --> 00:13:54,640 Speaker 1: than what it was at its volume peak. So I 208 00:13:54,640 --> 00:13:58,080 Speaker 1: think everybody focuses on, oh my gosh, the market smaller 209 00:13:58,120 --> 00:14:01,200 Speaker 1: by three and a half million units. Here comes prices 210 00:14:01,240 --> 00:14:03,559 Speaker 1: falling through the floor. And I don't think that's the case, 211 00:14:04,000 --> 00:14:08,200 Speaker 1: because the revenue pool is actually bigger the better mix. 212 00:14:08,320 --> 00:14:13,120 Speaker 1: But other prices following. Is Tesla cutting prices because they 213 00:14:13,120 --> 00:14:17,280 Speaker 1: were simply wildly overpriced or are they cutting prices because 214 00:14:17,480 --> 00:14:21,520 Speaker 1: they have a specific demand problem that's not industree wide. Well, 215 00:14:21,560 --> 00:14:25,840 Speaker 1: look what they've done with capacity additions, right, they're opening factories. 216 00:14:25,920 --> 00:14:29,840 Speaker 1: You know, essentially, if you rewind, you take your free 217 00:14:29,880 --> 00:14:34,000 Speaker 1: capital that you got for being a trillion dollar automaker 218 00:14:34,040 --> 00:14:37,440 Speaker 1: and you start opening factories or building factories all over 219 00:14:37,480 --> 00:14:39,960 Speaker 1: the world, and I would argue, you don't really have 220 00:14:40,040 --> 00:14:44,000 Speaker 1: the demand for that kind of capacity at this point so, um, 221 00:14:44,160 --> 00:14:46,920 Speaker 1: where they would argue they were supply constraint for all 222 00:14:46,960 --> 00:14:50,320 Speaker 1: this time. It looks like that is not the case anymore. 223 00:14:50,600 --> 00:14:52,960 Speaker 1: Where other automakers have gone the other way, right, they've 224 00:14:53,000 --> 00:14:58,360 Speaker 1: they've either converted production capacity from internal combustion to electrification 225 00:14:58,760 --> 00:15:02,920 Speaker 1: or they've taken those costs out completely. Kevin, just you know, 226 00:15:03,120 --> 00:15:05,480 Speaker 1: I don't know much about this business, But do I. 227 00:15:05,480 --> 00:15:08,600 Speaker 1: If I'm GM and I've got a internal combustion engine 228 00:15:09,040 --> 00:15:13,360 Speaker 1: factories plants somewhere, can I convert that to electric? And 229 00:15:13,400 --> 00:15:15,400 Speaker 1: if so, how long does it take and what's the cost? 230 00:15:15,440 --> 00:15:17,960 Speaker 1: And are they in fact doing that? Yeah? Well, Ham 231 00:15:18,080 --> 00:15:22,360 Speaker 1: Trammic in Michigan is you know, was uh you know, 232 00:15:22,400 --> 00:15:27,440 Speaker 1: a traditional internal combustion plant that'll supposedly be all electric. Um, yeah, 233 00:15:27,520 --> 00:15:31,520 Speaker 1: so certainly possible. Look to Tesla's Freemont plant was a 234 00:15:31,560 --> 00:15:36,240 Speaker 1: Toyota and General Motors joint venture, right, uh, New United Manufacturing, 235 00:15:36,800 --> 00:15:39,760 Speaker 1: which Tesla probably got for less than you paid for 236 00:15:39,800 --> 00:15:43,520 Speaker 1: your house and uh, you know, and becomes tense and 237 00:15:44,160 --> 00:15:47,040 Speaker 1: evs rolling around all over the place. Definitely less than 238 00:15:47,080 --> 00:15:49,240 Speaker 1: Paul paid for his probably a little more than I 239 00:15:49,280 --> 00:15:52,440 Speaker 1: paid for my house. Hey, is there any chance that 240 00:15:53,200 --> 00:15:56,320 Speaker 1: Porsche is gonna cut prices on the leven because I 241 00:15:56,320 --> 00:16:00,880 Speaker 1: would like that. I think absolutely not. I think everybody 242 00:16:01,000 --> 00:16:03,440 Speaker 1: you know, I was just looking at the December numbers, 243 00:16:03,480 --> 00:16:06,800 Speaker 1: and you know, in the US, at least average transaction 244 00:16:06,840 --> 00:16:11,440 Speaker 1: price for Mercedes Benzes up in the seventies accurate is 245 00:16:11,720 --> 00:16:15,600 Speaker 1: fifty five thousand dollars, which was where Mercedes and BMW 246 00:16:15,800 --> 00:16:21,720 Speaker 1: were not that long ago, you know, maybe one, yeah, 247 00:16:21,720 --> 00:16:26,960 Speaker 1: exactly right. So any of that stuff that was affordable, 248 00:16:27,040 --> 00:16:30,400 Speaker 1: low margin or unprofitable is just dead. You know. So 249 00:16:30,560 --> 00:16:32,760 Speaker 1: if there's a finite amount of chips, where are you 250 00:16:32,800 --> 00:16:35,240 Speaker 1: going to put them in your highest trim levels or 251 00:16:35,280 --> 00:16:38,600 Speaker 1: your most profitable vehicles. Is there still a finite number 252 00:16:38,640 --> 00:16:41,560 Speaker 1: of chips out there? Haven't We saw the chip thing? Yeah? 253 00:16:41,600 --> 00:16:43,840 Speaker 1: I never thought it was a thing, but I think 254 00:16:43,920 --> 00:16:46,440 Speaker 1: I always thought it was an excuse to say, like, hey, 255 00:16:46,440 --> 00:16:49,840 Speaker 1: we're enriching our mix to our most profitable stuff if 256 00:16:49,840 --> 00:16:53,560 Speaker 1: we could only get more of those darn chips. We know, Okay, 257 00:16:53,600 --> 00:16:57,760 Speaker 1: but there's still there is still a finite amount of chips. 258 00:16:57,760 --> 00:17:01,680 Speaker 1: It's the car chips are deal in short supply. PC 259 00:17:01,880 --> 00:17:06,360 Speaker 1: chips were like puking them up. Um so, but Are 260 00:17:06,400 --> 00:17:09,160 Speaker 1: there any carmakers that you think are at risk, who 261 00:17:09,640 --> 00:17:14,760 Speaker 1: you know have raised prices too far, too fast other 262 00:17:14,840 --> 00:17:18,119 Speaker 1: than the e V guys. No, No, I don't. It's Rivan, 263 00:17:18,200 --> 00:17:21,280 Speaker 1: you know. I I've used the configurator and occasionally put 264 00:17:21,280 --> 00:17:24,400 Speaker 1: together a nice R one. S love the look, would 265 00:17:24,400 --> 00:17:28,200 Speaker 1: love to drive one. They're pretty pricey? Are they overpriced? 266 00:17:28,400 --> 00:17:32,520 Speaker 1: For the lightning that Paul was in? Awesome? Awesome truck, 267 00:17:32,560 --> 00:17:36,040 Speaker 1: but very expensive. You know. Um GM's hummer is like 268 00:17:36,080 --> 00:17:37,440 Speaker 1: a hundred I don't know how much it is. It's 269 00:17:37,440 --> 00:17:40,639 Speaker 1: like Kevin Kevin, just to reiterate, I did drive a 270 00:17:40,680 --> 00:17:44,160 Speaker 1: pickup truck. There you go. Are any of those prices 271 00:17:44,320 --> 00:17:47,320 Speaker 1: gonna come down? Well? Look, here's the question is which 272 00:17:47,920 --> 00:17:50,320 Speaker 1: you know, what's your supply demand balance? Right? So it's 273 00:17:50,400 --> 00:17:53,280 Speaker 1: in in in a vacuum. Prices are what prices are, 274 00:17:53,359 --> 00:17:56,040 Speaker 1: but the the you're supply demand balance is what's going 275 00:17:56,080 --> 00:17:58,800 Speaker 1: to determine that. And my argument is if you're a 276 00:17:59,000 --> 00:18:02,199 Speaker 1: pure play e V builder right now, you might have 277 00:18:02,240 --> 00:18:05,760 Speaker 1: a problem with that balance. If you're anybody else internal combustion, 278 00:18:05,800 --> 00:18:07,800 Speaker 1: you don't have a problem with that balance. All right, 279 00:18:07,880 --> 00:18:09,560 Speaker 1: All right, good stuff. I mean we can talk to 280 00:18:09,600 --> 00:18:12,240 Speaker 1: Kevin all Day on this good point car stuff. Kevin Tynan, 281 00:18:12,320 --> 00:18:17,240 Speaker 1: senior Automotive analyst for Bloomberg Intelligence. Uh he and uh 282 00:18:17,280 --> 00:18:19,639 Speaker 1: Michael Dean in London. They are just all over the 283 00:18:19,680 --> 00:18:23,280 Speaker 1: global auto space. They were out in Vegas, uh last 284 00:18:23,280 --> 00:18:25,760 Speaker 1: week for the CS conference again, a lot of the 285 00:18:25,800 --> 00:18:28,600 Speaker 1: auto companies out there showing off the technology platforms that 286 00:18:28,600 --> 00:18:34,120 Speaker 1: they have that also sit on four wheels, so they're autos. 287 00:18:34,760 --> 00:18:37,880 Speaker 1: It is banks day, so that means it is Alison 288 00:18:37,960 --> 00:18:41,600 Speaker 1: Williams day. She covers all the banks for Bloomberg Intelligence. 289 00:18:42,080 --> 00:18:44,800 Speaker 1: So Allison. The stocks had traded off on the news 290 00:18:44,880 --> 00:18:47,639 Speaker 1: here kind of turning a little bit positive here. I 291 00:18:47,680 --> 00:18:49,840 Speaker 1: don't know. I kind of was looking through some of 292 00:18:49,880 --> 00:18:52,080 Speaker 1: the some of the notes and some of the some 293 00:18:52,160 --> 00:18:54,959 Speaker 1: of your research and some of the reporting. I mean, 294 00:18:55,600 --> 00:18:59,080 Speaker 1: the businesses cranking. Yes, they're being a little cautious going forward, 295 00:18:59,119 --> 00:19:01,680 Speaker 1: but as Matt was just noting, they're pulling in huge 296 00:19:01,720 --> 00:19:04,919 Speaker 1: amounts of net interest income. The income wasn't great. I 297 00:19:04,920 --> 00:19:07,440 Speaker 1: know it's all relative to expectations, but the absolute number 298 00:19:07,440 --> 00:19:11,560 Speaker 1: seems staggering. The numbers are good, and I think um 299 00:19:11,600 --> 00:19:17,000 Speaker 1: to your point, it is the net interest income expectations um. 300 00:19:17,000 --> 00:19:20,239 Speaker 1: That has investors a little bit disappointed, and you know, 301 00:19:20,320 --> 00:19:23,920 Speaker 1: to some extent, management could be being conservative. Jamie Diamond said, 302 00:19:23,960 --> 00:19:27,359 Speaker 1: they're not being conservative, but there's a lot of questions 303 00:19:27,440 --> 00:19:30,320 Speaker 1: out there, um, and that's why, you know, the cause 304 00:19:30,320 --> 00:19:34,320 Speaker 1: are being dominated by questions around what are your assumptions 305 00:19:34,320 --> 00:19:37,920 Speaker 1: for deposit pricings, what are your assumptions for the economy, etcetera. 306 00:19:38,400 --> 00:19:41,280 Speaker 1: Because you know, the good news that we had this 307 00:19:41,359 --> 00:19:46,120 Speaker 1: year it was several fed hikes. Um. You know, now 308 00:19:46,160 --> 00:19:49,919 Speaker 1: we're starting to see banks getting pressure to raise what 309 00:19:50,000 --> 00:19:53,000 Speaker 1: they're paying depositors and and that's the squeeze what we're 310 00:19:53,000 --> 00:19:57,480 Speaker 1: going to be getting in and it's tough to estimate. 311 00:19:57,560 --> 00:19:59,960 Speaker 1: So I think the banks are trying to be conservative, 312 00:20:00,000 --> 00:20:01,960 Speaker 1: are trying to get one quarter of guidance and getting 313 00:20:02,000 --> 00:20:04,800 Speaker 1: boxed into a full year out. You ever play you 314 00:20:05,440 --> 00:20:08,359 Speaker 1: or spades, because it seems to me like Jamie Diamond 315 00:20:08,400 --> 00:20:11,159 Speaker 1: is sandbagging all the time. That guy is sandbagging. You know, 316 00:20:11,280 --> 00:20:14,120 Speaker 1: there's a hurricane common, we've got to batten down the hatches. 317 00:20:14,400 --> 00:20:17,240 Speaker 1: This is gonna be a horrible recession. Under promise and 318 00:20:17,280 --> 00:20:20,280 Speaker 1: over delivered, right, that's more than under promise. That's like 319 00:20:21,080 --> 00:20:24,199 Speaker 1: he's always setting us up for a lower bar. Is 320 00:20:24,240 --> 00:20:27,119 Speaker 1: that is he doing that now? Because hasn't he walked 321 00:20:27,160 --> 00:20:29,919 Speaker 1: back the hurricane comments. Well, I think I think it 322 00:20:30,160 --> 00:20:33,560 Speaker 1: is um. You know, I think it's prudent for banks, right, 323 00:20:33,600 --> 00:20:35,640 Speaker 1: you want them to be prudent and conservative. You don't 324 00:20:35,640 --> 00:20:39,720 Speaker 1: want them to giving a pine sky estimates. I mean 325 00:20:39,760 --> 00:20:42,520 Speaker 1: that was a little interesting last year, how quickly he 326 00:20:42,880 --> 00:20:46,880 Speaker 1: changed his you know, quote weather forecast. I think that, 327 00:20:47,440 --> 00:20:49,919 Speaker 1: you know, I think the point he was trying to 328 00:20:50,080 --> 00:20:52,840 Speaker 1: make um even though we all were all focused on 329 00:20:52,880 --> 00:20:54,840 Speaker 1: the weather forecast, but you know, he was making the 330 00:20:54,840 --> 00:20:57,600 Speaker 1: point that look, we had we're fine, Like whatever happens, 331 00:20:57,800 --> 00:21:00,639 Speaker 1: we're fine. And I think that's you know, if you 332 00:21:00,680 --> 00:21:04,080 Speaker 1: look at the pretexts, pre provision profits, so what they're 333 00:21:04,119 --> 00:21:08,400 Speaker 1: earning outside of those credit costs, Uh, they're well covered. 334 00:21:08,520 --> 00:21:12,840 Speaker 1: And in fact, this quarter returned on tangible equity. That's 335 00:21:12,880 --> 00:21:16,480 Speaker 1: that's pretty remarkable in a tough environment. They beat their 336 00:21:16,640 --> 00:21:21,400 Speaker 1: return on equity target um this year. They could probably 337 00:21:21,440 --> 00:21:24,560 Speaker 1: beat that next year. And and to me, that is 338 00:21:24,600 --> 00:21:29,639 Speaker 1: really the area of focus versus um you know, versus 339 00:21:29,640 --> 00:21:33,840 Speaker 1: cyclical pressures. But much has been said Alison about all 340 00:21:33,880 --> 00:21:36,800 Speaker 1: of the bad leverage loan debt that these banks have. 341 00:21:37,000 --> 00:21:40,320 Speaker 1: Paul and I talked about it all year, So if 342 00:21:40,359 --> 00:21:44,280 Speaker 1: anybody was blindsided, they weren't watching Bloomberg TV or listening 343 00:21:44,320 --> 00:21:48,720 Speaker 1: to Bloomberg Radio. Um, do we see that borne out 344 00:21:48,760 --> 00:21:52,159 Speaker 1: in these earnings? Has anyone come out and said, man, 345 00:21:52,200 --> 00:21:56,240 Speaker 1: we got crushed by all this horrible Tesla debt? Um 346 00:21:56,400 --> 00:21:59,639 Speaker 1: or have they edged? Have they dealt with it? They have? 347 00:22:00,080 --> 00:22:02,879 Speaker 1: I think they have dealt with it. Um. You know, 348 00:22:03,480 --> 00:22:07,320 Speaker 1: there's there's likely some hit somewhere that we're not we're 349 00:22:07,359 --> 00:22:12,080 Speaker 1: not seeing. Um. Just you know, banks have to report 350 00:22:12,119 --> 00:22:15,800 Speaker 1: things depending on the degree of importance for their earnings, right, 351 00:22:15,840 --> 00:22:18,680 Speaker 1: and so we did see them call out some things 352 00:22:18,680 --> 00:22:23,840 Speaker 1: in the second quarter, in the third quarter, so you know, 353 00:22:24,119 --> 00:22:27,600 Speaker 1: mostly radio silent um. This quarter, we're not hearing much 354 00:22:27,600 --> 00:22:30,679 Speaker 1: of anything. Keep in mind that the credit markets in 355 00:22:30,720 --> 00:22:34,160 Speaker 1: general were very good last quarters, so there were opportunities 356 00:22:34,160 --> 00:22:37,000 Speaker 1: to hedge, there were opportunities to to do some things, 357 00:22:37,000 --> 00:22:40,040 Speaker 1: and maybe that's how they managed down some of the risks. 358 00:22:40,080 --> 00:22:44,480 Speaker 1: We did see jeffreyes um in the beginning of this week, 359 00:22:44,520 --> 00:22:47,480 Speaker 1: which seems a long time ago now. Um, they did 360 00:22:47,520 --> 00:22:50,600 Speaker 1: report a sort of a thirty eight million dollar you 361 00:22:50,640 --> 00:22:53,440 Speaker 1: know hit in their quarter ending November, so a small hit, 362 00:22:54,119 --> 00:22:58,040 Speaker 1: but in general, the business is so much smaller for 363 00:22:58,119 --> 00:23:00,960 Speaker 1: the banks than it was at the time of the 364 00:23:01,000 --> 00:23:05,520 Speaker 1: financial crisis. It's probably about of that size, and bags 365 00:23:05,520 --> 00:23:08,720 Speaker 1: have been aggressively managing it down all year. Sorry, Twitter 366 00:23:08,760 --> 00:23:12,160 Speaker 1: dead is what I meant. I mean, yeah, of course 367 00:23:13,080 --> 00:23:16,000 Speaker 1: billion dollars of bad Twitter loans can write those down, 368 00:23:16,040 --> 00:23:19,000 Speaker 1: and it seems like that could be a story, but 369 00:23:19,080 --> 00:23:20,800 Speaker 1: we haven't seen it yet. It hasn't been all right, 370 00:23:20,840 --> 00:23:23,760 Speaker 1: JP Morgan Chase chief executive officer Jamie Diamond called the 371 00:23:23,760 --> 00:23:28,600 Speaker 1: firm's botched acquisition of college financial planning website Frank a 372 00:23:28,840 --> 00:23:31,119 Speaker 1: quote huge mistake, a vow to share takeaways at a 373 00:23:31,160 --> 00:23:32,760 Speaker 1: later date. I didn't know what that meant. I went 374 00:23:32,800 --> 00:23:36,439 Speaker 1: back to read Matt Levine's Money Stuff column, which is 375 00:23:36,480 --> 00:23:38,840 Speaker 1: a must read every day set and alert for that 376 00:23:39,160 --> 00:23:42,040 Speaker 1: as I do, and he was basically just just fraud here. 377 00:23:42,040 --> 00:23:45,440 Speaker 1: But the question I have is, you know, basically buying 378 00:23:45,480 --> 00:23:48,040 Speaker 1: this company Frank was to get access to, you know, 379 00:23:48,240 --> 00:23:53,200 Speaker 1: basically lists of you know, teenagers, college age kids. Is 380 00:23:53,240 --> 00:23:57,320 Speaker 1: that a big issue for banks to attract some new customers? Here. 381 00:23:57,400 --> 00:24:00,000 Speaker 1: I mean, I can't think how they do it. I mean, 382 00:24:00,200 --> 00:24:03,679 Speaker 1: you try to get these teenagers and young adults. I 383 00:24:03,720 --> 00:24:07,040 Speaker 1: think the banks are always trying to you know, get 384 00:24:07,200 --> 00:24:09,560 Speaker 1: consumers as soon as they can in their in their 385 00:24:09,600 --> 00:24:12,479 Speaker 1: life cycle. Uh. Some of the way that they do 386 00:24:12,520 --> 00:24:17,040 Speaker 1: that sometimes is in the credit card business. UM. Definitely 387 00:24:17,119 --> 00:24:21,159 Speaker 1: with the rise of fintech and digital offerings. UM, these 388 00:24:21,200 --> 00:24:23,040 Speaker 1: banks that have run around a long time want to 389 00:24:23,080 --> 00:24:26,199 Speaker 1: make sure that they are on top of you know, 390 00:24:26,240 --> 00:24:29,000 Speaker 1: anything that knew that it's coming out there. They're the 391 00:24:29,000 --> 00:24:33,240 Speaker 1: incumbents and they want to stay that way. UM. Disruption 392 00:24:33,320 --> 00:24:36,360 Speaker 1: tends not to come from the incumbents. So I think 393 00:24:36,359 --> 00:24:40,120 Speaker 1: that they're just you know, they're they're careful and they're watching. 394 00:24:40,800 --> 00:24:44,840 Speaker 1: Jamie Diamond and has said that they want to do acquisitions, 395 00:24:44,880 --> 00:24:46,960 Speaker 1: but they've done very few. They've done a lot of 396 00:24:47,000 --> 00:24:50,680 Speaker 1: these small little acquisitions. UM. This one working out is 397 00:24:50,680 --> 00:24:55,719 Speaker 1: is not giving them very good press. But but you know, 398 00:24:56,080 --> 00:24:58,680 Speaker 1: we think that they still they still have an appetite 399 00:24:58,720 --> 00:25:02,720 Speaker 1: for next year. Just all right. So for retail banking, 400 00:25:03,000 --> 00:25:05,400 Speaker 1: here in our Bloomberg h Q headquarters of fifty nine, 401 00:25:05,440 --> 00:25:08,040 Speaker 1: elect the Capital one to open up a new quote 402 00:25:08,119 --> 00:25:11,159 Speaker 1: unquote branch and it is a beautiful space. There's a 403 00:25:11,160 --> 00:25:13,760 Speaker 1: lot of space, but I would say of the space 404 00:25:14,240 --> 00:25:18,399 Speaker 1: is a coffee shop with couches and maybe I can 405 00:25:18,400 --> 00:25:20,359 Speaker 1: actually go up to a teller and I don't know, 406 00:25:20,400 --> 00:25:22,480 Speaker 1: cash your check or something. I ang did that as well. 407 00:25:22,680 --> 00:25:24,399 Speaker 1: I know, and there were no tellers. It was just 408 00:25:24,480 --> 00:25:26,840 Speaker 1: a coffee shop. I didn't get it. It is it 409 00:25:26,960 --> 00:25:31,200 Speaker 1: is the changing nature of branches. So you know two 410 00:25:31,240 --> 00:25:33,520 Speaker 1: things on that, one of which is we know that 411 00:25:33,560 --> 00:25:36,840 Speaker 1: branches have been shrinking the number of branches, and then 412 00:25:36,880 --> 00:25:40,359 Speaker 1: the branches that the banks do keep are more more 413 00:25:40,520 --> 00:25:43,919 Speaker 1: sales focused, right, so they don't want you necessarily, they 414 00:25:43,960 --> 00:25:47,119 Speaker 1: don't want you coming in and uh cashing a check. 415 00:25:47,200 --> 00:25:48,760 Speaker 1: They want you to do that on your phone. They 416 00:25:48,800 --> 00:25:51,880 Speaker 1: do want you to come in and you know, think 417 00:25:51,920 --> 00:25:55,119 Speaker 1: about a private banking account or wealth services and things 418 00:25:55,119 --> 00:25:59,399 Speaker 1: like that. So um and and the other part of 419 00:25:59,440 --> 00:26:03,760 Speaker 1: it is banks. And this was actually something that uh, 420 00:26:04,040 --> 00:26:07,520 Speaker 1: Charles Schwab I think learned this lesson and taught us 421 00:26:07,520 --> 00:26:09,520 Speaker 1: this lesson along time ago, which is people do want 422 00:26:09,520 --> 00:26:13,080 Speaker 1: to see the name, They do want to see the branch. 423 00:26:13,160 --> 00:26:15,040 Speaker 1: They want to see the name, They want to maybe 424 00:26:15,040 --> 00:26:18,639 Speaker 1: have coffee there, but they want to they want something 425 00:26:18,720 --> 00:26:21,400 Speaker 1: solid to know where their money is, and so it's 426 00:26:21,520 --> 00:26:24,200 Speaker 1: very difficult, I think, to be all digital, and that's 427 00:26:24,200 --> 00:26:26,520 Speaker 1: how they're keeping their brand down. What's interesting on another 428 00:26:26,560 --> 00:26:29,040 Speaker 1: thing that I know that your banks that you cover 429 00:26:29,080 --> 00:26:31,560 Speaker 1: are are dealing with at this time of year plus 430 00:26:31,560 --> 00:26:34,879 Speaker 1: with the slowing economy, is layoffs and the Watsher journals 431 00:26:34,880 --> 00:26:36,240 Speaker 1: out with a story right now. The Bank of New 432 00:26:36,320 --> 00:26:39,080 Speaker 1: York Melon plans to cut about three of its workforce 433 00:26:39,119 --> 00:26:42,399 Speaker 1: this year, or some fift jobs. We've seen it before 434 00:26:42,520 --> 00:26:47,199 Speaker 1: from Goldman, SAX and what's the feeling is the banking 435 00:26:47,240 --> 00:26:50,280 Speaker 1: system just just too big, too bloated in terms of 436 00:26:50,280 --> 00:26:53,360 Speaker 1: head count. I think it's just it's you know, as 437 00:26:53,359 --> 00:26:56,359 Speaker 1: you know at that time of year. And it is interesting, 438 00:26:56,680 --> 00:26:58,560 Speaker 1: you know, Bank of New York Melon and black Rock, 439 00:26:59,040 --> 00:27:01,600 Speaker 1: those are sort of a couple of announcements that we've 440 00:27:01,600 --> 00:27:04,280 Speaker 1: had over the past week. We also had the Goldman news, 441 00:27:04,320 --> 00:27:06,840 Speaker 1: but obviously that's that's a little broad and going into 442 00:27:06,840 --> 00:27:11,439 Speaker 1: businesses outside the core. So asset managers making some cuts, 443 00:27:11,480 --> 00:27:13,840 Speaker 1: investment banks, you know, a couple of percent here and 444 00:27:13,880 --> 00:27:17,879 Speaker 1: there is something that we would expect. It's it's interesting 445 00:27:18,520 --> 00:27:21,679 Speaker 1: that the head count has actually gone up at a 446 00:27:21,720 --> 00:27:24,880 Speaker 1: couple of the banks. Again, we're gonna want to dig 447 00:27:24,920 --> 00:27:28,200 Speaker 1: through and see, you know where they're adding heads because 448 00:27:28,240 --> 00:27:30,560 Speaker 1: that that that sometimes it's a symbol for growth and 449 00:27:30,600 --> 00:27:34,920 Speaker 1: sometimes it's it is related to acquisitions. Goldman Sachs had 450 00:27:35,480 --> 00:27:38,399 Speaker 1: over five thousand jobs added this year. A lot of 451 00:27:38,400 --> 00:27:41,600 Speaker 1: those were due to acquisitions. Um and now they're coming back. 452 00:27:41,680 --> 00:27:45,440 Speaker 1: All right, good stuff. Alison Williams busy, busy day, covering 453 00:27:45,480 --> 00:27:48,399 Speaker 1: all the research on all the conference calls, making herself 454 00:27:48,400 --> 00:27:55,960 Speaker 1: available Bloomberg Television, Bloomberg Radio, Bloomberg News, sharing her analysis. Boy, 455 00:27:56,000 --> 00:28:00,440 Speaker 1: after a bruising people are looking for what strategies, what actors, 456 00:28:00,480 --> 00:28:03,800 Speaker 1: maybe the way to go in three and some folks 457 00:28:04,000 --> 00:28:06,560 Speaker 1: talk about value investing, so we want to break that 458 00:28:06,600 --> 00:28:09,600 Speaker 1: down within the roundtable this thing. Francis Oh, CEO of 459 00:28:09,680 --> 00:28:13,080 Speaker 1: Craft Technologies, and Seawan O'Hara, president of pacer et F 460 00:28:13,160 --> 00:28:16,920 Speaker 1: s Uh. They joined us via the phone here. Francis, Uh, 461 00:28:17,320 --> 00:28:19,120 Speaker 1: thanks for joining us. Want to start with you here. 462 00:28:19,359 --> 00:28:22,399 Speaker 1: Talk to us about how you guys are Craft Technologies, 463 00:28:22,440 --> 00:28:26,880 Speaker 1: how you're viewing after what was for most investors, whether 464 00:28:26,880 --> 00:28:31,600 Speaker 1: you're equity or fixed income, was just a brutal two. Yeah, 465 00:28:31,640 --> 00:28:36,120 Speaker 1: it's totally like the twining was was a little bad 466 00:28:36,160 --> 00:28:40,080 Speaker 1: market for both equity and fixed income. And I still 467 00:28:40,120 --> 00:28:43,520 Speaker 1: believe the I mean the worst may be over um 468 00:28:44,000 --> 00:28:47,280 Speaker 1: compared to the the literally worst point of compared all 469 00:28:47,360 --> 00:28:51,440 Speaker 1: the twenty second but they still the chuge amount of 470 00:28:51,520 --> 00:28:54,640 Speaker 1: uncertainty is is around the market, and especially if you 471 00:28:54,720 --> 00:28:58,120 Speaker 1: talk about the equity um the strategies of what factors, 472 00:28:58,120 --> 00:29:01,720 Speaker 1: maybe I'm delivering better performance this year, I still the 473 00:29:01,800 --> 00:29:05,520 Speaker 1: way on the value could be better delivering against the 474 00:29:06,080 --> 00:29:10,320 Speaker 1: growth strategies. For the last one year the period the 475 00:29:10,440 --> 00:29:14,440 Speaker 1: value actually out performing large gaw value perspectives are performing 476 00:29:14,480 --> 00:29:20,480 Speaker 1: the per same point over the large gap growth strategy. Uh, 477 00:29:20,560 --> 00:29:24,800 Speaker 1: it is because of the fundamental changes while you're seeing 478 00:29:24,800 --> 00:29:28,160 Speaker 1: the macro or the market of the obvious ending of 479 00:29:28,240 --> 00:29:32,280 Speaker 1: the general interests of police environments for the first time 480 00:29:32,360 --> 00:29:36,000 Speaker 1: over the last fifteen years. And we are still like 481 00:29:36,040 --> 00:29:38,480 Speaker 1: if we like it or now we have to embrace 482 00:29:38,560 --> 00:29:44,000 Speaker 1: the macro environments in the quite the time, at least 483 00:29:44,080 --> 00:29:51,800 Speaker 1: in thee then it probably be either better um deposing 484 00:29:52,000 --> 00:29:56,520 Speaker 1: um the interest or the eyesight into the value strategy 485 00:29:56,520 --> 00:30:01,840 Speaker 1: and decision as well. Okay, Sean, what's what's your take 486 00:30:02,000 --> 00:30:06,720 Speaker 1: on What's what's your outlook here? Well, thanks for having me. 487 00:30:06,760 --> 00:30:08,760 Speaker 1: First off, it's great to be with you guys. We 488 00:30:08,800 --> 00:30:13,920 Speaker 1: had a really a solid and our value suite. The 489 00:30:14,040 --> 00:30:16,720 Speaker 1: cash cows in the US version was essentially flat for 490 00:30:16,760 --> 00:30:19,040 Speaker 1: the year, which if you think about the backdrop, you know, 491 00:30:19,080 --> 00:30:22,480 Speaker 1: being the broad market down nineteen and traditional value being 492 00:30:22,480 --> 00:30:25,280 Speaker 1: down double digits as well or maybe high single digits, 493 00:30:25,960 --> 00:30:28,640 Speaker 1: our view isn't really changing. We follow free cash flow 494 00:30:28,640 --> 00:30:30,840 Speaker 1: and free cash flow yield, and free cash flow yield 495 00:30:30,920 --> 00:30:33,160 Speaker 1: is just a measure of how much you pay for 496 00:30:33,200 --> 00:30:35,520 Speaker 1: a company in total versus how much cash return you 497 00:30:35,560 --> 00:30:38,320 Speaker 1: get on an annual basis. We think the higher that yield, 498 00:30:38,400 --> 00:30:40,720 Speaker 1: or the more money for the amount you pay, is 499 00:30:40,760 --> 00:30:43,560 Speaker 1: the way to identify cheap stocks in this world today. 500 00:30:43,760 --> 00:30:46,120 Speaker 1: You know, the composition of the U S stock market 501 00:30:46,160 --> 00:30:49,320 Speaker 1: has been changing for four decades. It's mostly based now 502 00:30:49,360 --> 00:30:53,400 Speaker 1: on intangible assets, not tangible assets, and so traditional value 503 00:30:53,480 --> 00:30:56,360 Speaker 1: uses price to book, but there's no real solid book 504 00:30:56,440 --> 00:30:58,680 Speaker 1: value left anymore, and so free cash flow, we think, 505 00:30:58,760 --> 00:31:01,240 Speaker 1: is a better way to do that, and it's shifted 506 00:31:01,280 --> 00:31:04,640 Speaker 1: our portfolios last year away from tech and consumer discretionary 507 00:31:04,640 --> 00:31:08,760 Speaker 1: and into energy and into healthcare, um and materials are 508 00:31:08,840 --> 00:31:12,280 Speaker 1: picked up the inflation trade. There on all sides, we're 509 00:31:12,400 --> 00:31:16,760 Speaker 1: entering the same exact way. We're overweight energy, we're overwright materials, 510 00:31:16,760 --> 00:31:20,040 Speaker 1: and we're overweight healthcare. We have started to move a 511 00:31:20,160 --> 00:31:22,720 Speaker 1: little bit higher on tech, but but on names that 512 00:31:22,840 --> 00:31:24,880 Speaker 1: you know, like intell and things like that, not on 513 00:31:24,920 --> 00:31:28,240 Speaker 1: the big sort of mammoth tech names. I'm hoping that 514 00:31:28,280 --> 00:31:30,480 Speaker 1: they get, you know, cheap enough, you know, as this 515 00:31:30,520 --> 00:31:32,600 Speaker 1: market sort of settles down, that we get a chance 516 00:31:32,640 --> 00:31:35,280 Speaker 1: to include some of them in the portfolios. But in 517 00:31:35,320 --> 00:31:37,680 Speaker 1: this environment, not much is changing, so you have still 518 00:31:37,720 --> 00:31:39,720 Speaker 1: have to be careful. The fet is still committed to 519 00:31:39,800 --> 00:31:42,040 Speaker 1: raising rates. Inflation is still a problem, a little less 520 00:31:42,040 --> 00:31:44,520 Speaker 1: of a problem today, and so whenever you have those 521 00:31:44,560 --> 00:31:47,360 Speaker 1: two things going on, the overall market pee has to shrink. 522 00:31:47,400 --> 00:31:49,800 Speaker 1: It's been shrinking for a year now, there's still potentially 523 00:31:49,880 --> 00:31:52,520 Speaker 1: some room to shrink. And so using this free cash 524 00:31:52,600 --> 00:31:54,720 Speaker 1: one free cash flow yield screen allows you to buy 525 00:31:54,720 --> 00:31:58,320 Speaker 1: companies at single digit pees that actually earn more than 526 00:31:58,360 --> 00:32:01,880 Speaker 1: the broad market in terms of earnings, grow pay competitive dividends, 527 00:32:01,880 --> 00:32:04,680 Speaker 1: and so that's a place where we think investors would 528 00:32:04,680 --> 00:32:08,600 Speaker 1: be better served than buying the broad market going into 529 00:32:09,360 --> 00:32:12,240 Speaker 1: and maybe even beyond. Hey, for instance, I know in 530 00:32:12,320 --> 00:32:15,560 Speaker 1: your e t F it's the craft AI enhanced us 531 00:32:15,800 --> 00:32:18,880 Speaker 1: next value of the cibols n v Q in January 532 00:32:19,000 --> 00:32:23,040 Speaker 1: and the rebalance you added financials at a consumer discretionary 533 00:32:23,240 --> 00:32:26,320 Speaker 1: and remove the allocation to energy. It gives a sense 534 00:32:26,360 --> 00:32:30,440 Speaker 1: of kind of what you're thinking they're in January. Yeah, 535 00:32:30,640 --> 00:32:34,240 Speaker 1: um so um the I literally loved to um. The 536 00:32:35,080 --> 00:32:38,480 Speaker 1: was echoing the uh lot to show said about the 537 00:32:38,720 --> 00:32:41,800 Speaker 1: intens of lessens um in terms of the how to 538 00:32:41,920 --> 00:32:46,640 Speaker 1: evaluate the company's intrinsic value. UM the conventional the value 539 00:32:46,640 --> 00:32:50,800 Speaker 1: approaching only like the productift ratios, It only not only 540 00:32:50,880 --> 00:32:54,960 Speaker 1: is mustly capturing the the tangiblest set which is able 541 00:32:55,000 --> 00:32:58,440 Speaker 1: to easily able to be taken out the information from 542 00:32:58,480 --> 00:33:03,600 Speaker 1: the book um the But as the our the daily 543 00:33:03,600 --> 00:33:06,720 Speaker 1: life is changing and the corporativity changing, how the people 544 00:33:06,720 --> 00:33:11,040 Speaker 1: are seeing the company's valuation, the metrics are changing right now. 545 00:33:11,120 --> 00:33:15,360 Speaker 1: The much bigger part of the company's valuation is coming 546 00:33:15,360 --> 00:33:18,520 Speaker 1: from intangible asset and we are using the artificial intelligence 547 00:33:19,000 --> 00:33:23,440 Speaker 1: to try to tackle down to evaluate the better estimation 548 00:33:23,600 --> 00:33:28,880 Speaker 1: of the corporates UH the intrinsing value, utilizing the maxive 549 00:33:28,880 --> 00:33:32,080 Speaker 1: amount of the big data at the same time trying 550 00:33:32,120 --> 00:33:38,200 Speaker 1: to focus on the company's I P and the brand loyalty, etcetera. UM, 551 00:33:38,720 --> 00:33:41,560 Speaker 1: which can be applied to the most of tech companion utics. 552 00:33:41,800 --> 00:33:45,840 Speaker 1: But anyway, the our model is we do the balancing 553 00:33:45,880 --> 00:33:49,680 Speaker 1: on monthly basis. We do take people's tangible and intangible 554 00:33:49,680 --> 00:33:53,400 Speaker 1: asset into the core metrics of our The AM models 555 00:33:53,440 --> 00:33:56,200 Speaker 1: of this is making process. But in this month, by 556 00:33:56,280 --> 00:34:00,760 Speaker 1: processing the macro data and the fundamentally the price data, 557 00:34:01,200 --> 00:34:03,920 Speaker 1: the R A M will make some bold move UM. 558 00:34:04,000 --> 00:34:09,120 Speaker 1: The one of the UM, the the core contributor contributing 559 00:34:09,160 --> 00:34:11,600 Speaker 1: sector of our m v q et of Lasia was 560 00:34:11,640 --> 00:34:15,839 Speaker 1: the energy. But this month, after the re balancing, our 561 00:34:15,960 --> 00:34:18,520 Speaker 1: modal is of pretty much of the UH doing the 562 00:34:18,640 --> 00:34:21,240 Speaker 1: profit taking previous. But at the same time we started 563 00:34:21,280 --> 00:34:25,680 Speaker 1: to increase substantially into the financial sector, especially into regional 564 00:34:25,719 --> 00:34:30,960 Speaker 1: banking UM under the environment of the higher interest rate regime. 565 00:34:32,080 --> 00:34:34,400 Speaker 1: So and so sean on it on, you guys do 566 00:34:34,480 --> 00:34:37,480 Speaker 1: something a little bit different energy at the December rebounds, 567 00:34:37,520 --> 00:34:43,120 Speaker 1: you increase your energy allocation. Why because the free cash 568 00:34:43,160 --> 00:34:45,840 Speaker 1: flow and the energy sector is continuing to grow. Like 569 00:34:46,040 --> 00:34:48,400 Speaker 1: you know, if you look at Chevron as an example, 570 00:34:48,600 --> 00:34:51,200 Speaker 1: Chevron's free cash flow and earnings are still grow going 571 00:34:51,280 --> 00:34:54,440 Speaker 1: up faster than their stock price. Um so we had 572 00:34:54,440 --> 00:34:57,239 Speaker 1: a very nice performance in our energy sector last year. 573 00:34:57,280 --> 00:34:59,279 Speaker 1: We made a lot of money. But we continue to 574 00:34:59,280 --> 00:35:01,360 Speaker 1: make a lot of money in this energy sector because 575 00:35:01,400 --> 00:35:04,239 Speaker 1: in spite of the price of oil, the amount of 576 00:35:04,239 --> 00:35:07,719 Speaker 1: free cashualties energy companies are generating because of the reduction 577 00:35:07,719 --> 00:35:10,600 Speaker 1: in capital expenditure, it's not poking holes in the ground anymore, 578 00:35:10,680 --> 00:35:13,839 Speaker 1: kind of randomly, that money all flows to the bottom line. 579 00:35:13,840 --> 00:35:16,440 Speaker 1: And so until that formula changes for us, until their 580 00:35:16,480 --> 00:35:19,719 Speaker 1: earnings in their free cash flow go up slower than 581 00:35:19,760 --> 00:35:22,480 Speaker 1: their stock price, or until their stock price catches up 582 00:35:22,480 --> 00:35:25,240 Speaker 1: to that free cash flow and earnings growth, will probably 583 00:35:25,280 --> 00:35:29,800 Speaker 1: remain overweight energy. We're also overweight healthcare, and we're overweight 584 00:35:29,880 --> 00:35:32,640 Speaker 1: healthcare again because they're generating a lot of free cash flow. 585 00:35:32,680 --> 00:35:35,839 Speaker 1: But healthcare as a sector is a pretty nice defensive 586 00:35:35,840 --> 00:35:37,960 Speaker 1: play because it's one of the only sectors the last 587 00:35:38,000 --> 00:35:40,759 Speaker 1: ten years where their earnings and free cash flow went 588 00:35:40,840 --> 00:35:43,920 Speaker 1: up faster than their overall stock prices and earnings the 589 00:35:43,960 --> 00:35:46,200 Speaker 1: last decade or so went up about a hundred and 590 00:35:46,239 --> 00:35:49,160 Speaker 1: sixty seven on healthcare, and the stock prices only went 591 00:35:49,200 --> 00:35:51,680 Speaker 1: up about a dent, whereas if you look at tech, 592 00:35:51,760 --> 00:35:53,759 Speaker 1: the earnings went up a d eighty five percent, but 593 00:35:53,840 --> 00:35:56,640 Speaker 1: the stock prices went up to fifty. So in an 594 00:35:56,719 --> 00:35:59,359 Speaker 1: environment where we're not sure about the economy and we're 595 00:35:59,480 --> 00:36:01,440 Speaker 1: still going to have an aggressive FED and inflation is 596 00:36:01,440 --> 00:36:04,239 Speaker 1: still going to be a problem, it's it may be 597 00:36:04,400 --> 00:36:07,239 Speaker 1: a better place to be from a defensive perspective to 598 00:36:07,280 --> 00:36:11,120 Speaker 1: own stocks and sectors who have not outpaced their free 599 00:36:11,120 --> 00:36:13,880 Speaker 1: cash flow growth and have not outpaced their earnings growth. 600 00:36:14,160 --> 00:36:16,719 Speaker 1: And that's essentially what the col Z t F C 601 00:36:16,840 --> 00:36:20,359 Speaker 1: O w Z does on a quarterly basis. And Sean, 602 00:36:20,480 --> 00:36:22,839 Speaker 1: you know, I noticed in your holdings Meta is one 603 00:36:22,880 --> 00:36:24,799 Speaker 1: of your top ten holdings and I'll love to get 604 00:36:24,840 --> 00:36:27,480 Speaker 1: your call there. But why there's so much noise around 605 00:36:27,480 --> 00:36:29,560 Speaker 1: that name? Do you guys try to tune out that 606 00:36:29,640 --> 00:36:32,279 Speaker 1: noise and kind of just focus on the free cash 607 00:36:32,320 --> 00:36:35,479 Speaker 1: flow that that's it? I mean, you know, like, um, 608 00:36:35,520 --> 00:36:37,560 Speaker 1: you know, am I I'm hoping the whole you know, 609 00:36:37,600 --> 00:36:40,399 Speaker 1: mega tech sector actually comes to us like Meta did, 610 00:36:40,440 --> 00:36:42,279 Speaker 1: because like you know, they're high quality names. I mean 611 00:36:42,360 --> 00:36:46,040 Speaker 1: Mega generates huge me Meta not Megameta generates a huge 612 00:36:46,040 --> 00:36:48,880 Speaker 1: amount of free cash flow. So that's why it's screened in. 613 00:36:49,000 --> 00:36:51,359 Speaker 1: We don't even look at you know what the company does. 614 00:36:51,400 --> 00:36:53,239 Speaker 1: If it's in the RUSSO one thousand and it's not 615 00:36:53,280 --> 00:36:55,960 Speaker 1: a financial and it's profitable, it has a chance of 616 00:36:56,000 --> 00:36:58,480 Speaker 1: screening into our hundred stock portfolio based on that free 617 00:36:58,520 --> 00:37:00,960 Speaker 1: cash flow yield. And that's how the metal wound up 618 00:37:01,000 --> 00:37:03,560 Speaker 1: in the portfolio. And you know what's interesting is that, 619 00:37:03,640 --> 00:37:05,919 Speaker 1: you know, this is a strategy that tends to trade 620 00:37:05,960 --> 00:37:08,319 Speaker 1: at a lower p to the market, But whenever we 621 00:37:08,360 --> 00:37:11,760 Speaker 1: get to this bottom of the market, typically we wind 622 00:37:11,800 --> 00:37:14,839 Speaker 1: up picking up even more high quality names that grow 623 00:37:14,960 --> 00:37:17,760 Speaker 1: faster than their peers, and so we tend to bounce 624 00:37:17,840 --> 00:37:20,960 Speaker 1: better off these bottoms because of the selection process by 625 00:37:21,040 --> 00:37:23,480 Speaker 1: using free cash flow and free cash flow yield. All right, 626 00:37:23,520 --> 00:37:26,640 Speaker 1: good stuff, guys talking value investing on the E t 627 00:37:26,920 --> 00:37:30,400 Speaker 1: F front Shawn O'Hara, president of Pacer E t F 628 00:37:30,600 --> 00:37:36,680 Speaker 1: and Francis oh CEO of Craft Technologies. But we've all 629 00:37:36,719 --> 00:37:40,560 Speaker 1: been talking about inflation, inflation, inflation, and you step back 630 00:37:40,560 --> 00:37:42,360 Speaker 1: and say, oh, there should be an e t F 631 00:37:42,560 --> 00:37:45,719 Speaker 1: for that and guess what there is and our next 632 00:37:45,760 --> 00:37:48,840 Speaker 1: guest has it. David Schasler, portfolio manager and head of 633 00:37:48,880 --> 00:37:52,200 Speaker 1: Quantitative Investment Solutions at Van Eck. He joins us here 634 00:37:52,239 --> 00:37:55,440 Speaker 1: in a Bloomberg Interactive Brokers studio. David talked to us 635 00:37:55,480 --> 00:37:58,719 Speaker 1: about your e t F that kind of tracks this 636 00:37:58,880 --> 00:38:03,720 Speaker 1: inflation thing lane with are A a X. We created 637 00:38:03,719 --> 00:38:07,120 Speaker 1: that e t F based on the view that we 638 00:38:07,120 --> 00:38:09,000 Speaker 1: were going to eventually have a period of high inflation. 639 00:38:09,400 --> 00:38:12,759 Speaker 1: So we went back, we went we were talking about 640 00:38:12,760 --> 00:38:15,160 Speaker 1: inflation before inflation was cool, when inflation was one point 641 00:38:15,200 --> 00:38:18,720 Speaker 1: four percent, with the extreme montary debasement. We were saying that, listen, 642 00:38:19,160 --> 00:38:21,399 Speaker 1: we think inflation is gonna gonna come, and we think 643 00:38:21,400 --> 00:38:24,719 Speaker 1: it's gonna be out of control. Um that happened. We 644 00:38:24,760 --> 00:38:27,080 Speaker 1: think now inflation is likely to fall from here, but 645 00:38:27,080 --> 00:38:28,759 Speaker 1: we think it's going to stay elevated for a long 646 00:38:28,760 --> 00:38:31,880 Speaker 1: period of time. Are we break with consensus and the 647 00:38:31,960 --> 00:38:36,640 Speaker 1: sense that once inflation materializes at the levels that has now, 648 00:38:36,960 --> 00:38:39,320 Speaker 1: it typically sticks around for a very very long period 649 00:38:39,320 --> 00:38:40,959 Speaker 1: of time. The idea that it goes to two percent 650 00:38:41,040 --> 00:38:44,839 Speaker 1: tomorrow not very likely based off historical standards. So think 651 00:38:44,880 --> 00:38:48,839 Speaker 1: about buying assets that can benefit from that regime. Commodities 652 00:38:49,040 --> 00:38:52,399 Speaker 1: benefit from supply demand and balances. We believe that we're 653 00:38:52,440 --> 00:38:55,319 Speaker 1: likely in the early stages of an extended commodity supercycle. 654 00:38:55,680 --> 00:38:58,359 Speaker 1: Commodities run an extended periods of time, so I think 655 00:38:58,440 --> 00:39:00,960 Speaker 1: twenty years cycles. We think we're in the early stages 656 00:39:01,000 --> 00:39:03,840 Speaker 1: of that. So we have significant exposure up to around 657 00:39:03,840 --> 00:39:08,240 Speaker 1: fifty what we call resource assets. So about in commodity futures. 658 00:39:09,080 --> 00:39:11,840 Speaker 1: The rest of it in resource equities. These are companies 659 00:39:11,840 --> 00:39:15,680 Speaker 1: that benefit from higher commodity prices. Think of exploration, production companies, 660 00:39:15,680 --> 00:39:20,359 Speaker 1: companies that benefit from extracting, sourcing, distributing commodities. Right, that's 661 00:39:20,400 --> 00:39:22,600 Speaker 1: about half of the fund. Let's talk about the other 662 00:39:22,640 --> 00:39:27,719 Speaker 1: half financial assets gold, bullion, gold equities. Gold equities are 663 00:39:27,719 --> 00:39:30,520 Speaker 1: obviously a more speculative play on gold, but if you 664 00:39:30,560 --> 00:39:34,040 Speaker 1: find yourself in a situation where governments are debased in 665 00:39:34,120 --> 00:39:37,880 Speaker 1: their currencies like mad historically, that's store value assets being gold. 666 00:39:38,600 --> 00:39:41,440 Speaker 1: People got really bummed out about gold because gold hasn't 667 00:39:41,440 --> 00:39:43,120 Speaker 1: performed as well as a lot of people would have hoped. 668 00:39:43,640 --> 00:39:46,040 Speaker 1: But if you look back at historical cycles, gold actually 669 00:39:46,080 --> 00:39:48,680 Speaker 1: performs a lot better at the later end of the cycle. 670 00:39:48,760 --> 00:39:51,320 Speaker 1: Meaning that it takes a while for people to realize 671 00:39:51,320 --> 00:39:53,279 Speaker 1: that they have a problem at first. When when you're 672 00:39:53,360 --> 00:39:55,239 Speaker 1: faced with it with a new regime, a new a 673 00:39:55,280 --> 00:39:57,839 Speaker 1: new event, your tendency is to think, well, it's gonna 674 00:39:57,840 --> 00:40:00,200 Speaker 1: go away, back down how it used to be, Well 675 00:40:00,239 --> 00:40:02,640 Speaker 1: what if? Right? It actually just takes a few years 676 00:40:02,640 --> 00:40:04,600 Speaker 1: to change our psyche to understand we actually have a 677 00:40:04,600 --> 00:40:07,480 Speaker 1: pretty significant inflation problem and history tells us it's not 678 00:40:07,520 --> 00:40:09,640 Speaker 1: likely to go away. Right. We've seen gold rally from 679 00:40:10,040 --> 00:40:12,920 Speaker 1: uh I think it was like sixteen hundred in November 680 00:40:13,360 --> 00:40:19,480 Speaker 1: two over today. Um, what what I'm looking at racks 681 00:40:19,520 --> 00:40:22,719 Speaker 1: and I see seventy four basis points expense ratio. It's 682 00:40:22,760 --> 00:40:28,280 Speaker 1: pretty punchy. Um, what's your competition? Where are where's our comfortable? 683 00:40:28,400 --> 00:40:30,920 Speaker 1: Who is competition? Yeah? What's your competition? You know? And 684 00:40:31,239 --> 00:40:36,680 Speaker 1: what are you doing to best them? Our competition our 685 00:40:36,760 --> 00:40:41,560 Speaker 1: commodity funds, straight natural resource equity funds, and people that 686 00:40:41,680 --> 00:40:45,279 Speaker 1: invest in individual securities that maybe aren't commodity related, but 687 00:40:45,320 --> 00:40:48,480 Speaker 1: people that believe can maintain strong profit margins. Right, Our 688 00:40:48,560 --> 00:40:53,359 Speaker 1: differentiation point is really simple, own the broad based key 689 00:40:53,400 --> 00:40:57,920 Speaker 1: categories and diversify and be able to maintain a constant 690 00:40:58,000 --> 00:41:01,040 Speaker 1: inflation hedge throughout the cycle. So that's why we're about 691 00:41:01,040 --> 00:41:06,520 Speaker 1: half resource assets financial assets, goal bling gold equities and 692 00:41:06,520 --> 00:41:10,040 Speaker 1: the rest and income generating real assets. So and why 693 00:41:10,120 --> 00:41:13,080 Speaker 1: owned this over PIT? Because you have a commodities fund, 694 00:41:13,160 --> 00:41:16,600 Speaker 1: right The p I T is your van Eck Commodity 695 00:41:16,600 --> 00:41:19,680 Speaker 1: Strategy fund. I also managed PIT, which is our actively 696 00:41:19,719 --> 00:41:22,080 Speaker 1: managed commodity TF that just recently launched. So I don't 697 00:41:22,080 --> 00:41:24,440 Speaker 1: think it's just launched last month. Yes, I don't think 698 00:41:24,480 --> 00:41:26,640 Speaker 1: it's either or I think it's both. Commodities are great 699 00:41:26,719 --> 00:41:29,680 Speaker 1: during a period of supply demand and balances. Listen, the 700 00:41:29,719 --> 00:41:32,759 Speaker 1: war between Russian Ukraine took the inflation problem. We were 701 00:41:32,800 --> 00:41:36,120 Speaker 1: on one trajectory. Now weren't completely different. Once you have 702 00:41:36,200 --> 00:41:38,920 Speaker 1: massive commodity producers and their powerful allies at odds with 703 00:41:38,960 --> 00:41:42,600 Speaker 1: each other. The structural imbalances because the underinvestment commodities are 704 00:41:42,640 --> 00:41:44,520 Speaker 1: likely to live on for an extended period of time. 705 00:41:44,600 --> 00:41:46,680 Speaker 1: So we're not saying don't buy one or the other. 706 00:41:46,719 --> 00:41:49,319 Speaker 1: We're saying by both, RAX is a great way to 707 00:41:49,320 --> 00:41:51,680 Speaker 1: buy both because when you buy it, you're getting right 708 00:41:51,680 --> 00:41:54,440 Speaker 1: now around a tent allocation to PIT, which is the 709 00:41:54,480 --> 00:41:57,640 Speaker 1: commodities fund. So but I mean, the narrative now is 710 00:41:57,680 --> 00:42:02,120 Speaker 1: that inflation has slowed, still high, and like you said, 711 00:42:02,120 --> 00:42:04,400 Speaker 1: we're gonna go to two percent tomorrow, but you know, 712 00:42:04,440 --> 00:42:07,200 Speaker 1: we're freaking out about it before. We're raising seventy five 713 00:42:07,239 --> 00:42:11,680 Speaker 1: bases points at a meeting. Now we're looking at and 714 00:42:12,560 --> 00:42:15,879 Speaker 1: expecting the plateau at some point. So hasn't that kind 715 00:42:15,880 --> 00:42:19,040 Speaker 1: of calmed down? It has, and we think inflation is 716 00:42:19,040 --> 00:42:20,680 Speaker 1: going to continue to fall. And we think that this 717 00:42:20,760 --> 00:42:22,799 Speaker 1: is pretty much par for the historical book in the 718 00:42:22,840 --> 00:42:27,880 Speaker 1: sense of inflation runs hot and cold, peaks and troughs. 719 00:42:27,880 --> 00:42:29,920 Speaker 1: If you look at the historical inflation cycles, look at 720 00:42:29,960 --> 00:42:32,560 Speaker 1: the forties, look at the nine seventies, you get peaks 721 00:42:32,600 --> 00:42:35,040 Speaker 1: of inflation, and then you get troughs. You could even 722 00:42:35,040 --> 00:42:38,759 Speaker 1: go into disinflationary deflationary events, and then it pops back up. 723 00:42:39,200 --> 00:42:41,319 Speaker 1: What we're saying is that we believe based off of 724 00:42:41,400 --> 00:42:44,080 Speaker 1: history and what we're seeing today, because right now we're 725 00:42:44,080 --> 00:42:47,439 Speaker 1: fighting inflation through demand destruction. That's not a long term 726 00:42:47,480 --> 00:42:49,440 Speaker 1: game plan given how much debt that we have, so 727 00:42:49,480 --> 00:42:51,160 Speaker 1: we don't think we can keep interest rates at these 728 00:42:51,239 --> 00:42:54,840 Speaker 1: levels for an extended period of time. So we think eventually, unfortunately, 729 00:42:55,080 --> 00:42:58,920 Speaker 1: not soon, but eventually we roll into recession triggered by 730 00:42:59,000 --> 00:43:02,319 Speaker 1: higher interest rates. Were forced to pivot down the inflationary 731 00:43:02,320 --> 00:43:06,160 Speaker 1: forces that are still there, boil back up high performing 732 00:43:06,480 --> 00:43:09,719 Speaker 1: or excuse me, highly sensitive inflation fighting assets. Those that 733 00:43:09,760 --> 00:43:12,719 Speaker 1: actually benefit continue to outperform. That's our basic alright. So 734 00:43:12,719 --> 00:43:14,680 Speaker 1: we got racks, we got pit what else do we 735 00:43:14,719 --> 00:43:17,799 Speaker 1: have a been in? We are firm believers right now 736 00:43:18,120 --> 00:43:20,359 Speaker 1: and this is an exact opposite view of what we had. 737 00:43:20,440 --> 00:43:24,840 Speaker 1: So so, I, for one, was particularly barished on yielding 738 00:43:24,840 --> 00:43:27,440 Speaker 1: assets because super low yields and a lot of interest 739 00:43:27,480 --> 00:43:30,880 Speaker 1: rates adjustments on the way that's changed. So when I 740 00:43:30,920 --> 00:43:34,120 Speaker 1: sit here and I think about inflation likely peaked and 741 00:43:34,160 --> 00:43:36,560 Speaker 1: continuing to fall, and I look at the yields offer 742 00:43:36,560 --> 00:43:39,000 Speaker 1: in the market, I get excited. And that's why we 743 00:43:39,040 --> 00:43:42,160 Speaker 1: have INC, which is the dynamic high income et F 744 00:43:42,239 --> 00:43:45,839 Speaker 1: that I also manage, which invests across the board trying 745 00:43:45,840 --> 00:43:50,920 Speaker 1: to find diversified high yield solutions. So think of equities 746 00:43:50,920 --> 00:43:53,239 Speaker 1: that are high yielding, think of high yield bonds, think 747 00:43:53,280 --> 00:43:56,440 Speaker 1: of internationally international high yield bonds. So what we're trying 748 00:43:56,480 --> 00:44:00,400 Speaker 1: to do is give you a diversified allocation of yielding 749 00:44:00,440 --> 00:44:04,080 Speaker 1: assets and remain remain flexible right adjust those allocations over 750 00:44:04,120 --> 00:44:06,440 Speaker 1: time based off the risk and rewards in the market. 751 00:44:06,520 --> 00:44:09,640 Speaker 1: And every when I say risk and rewards, we are 752 00:44:09,680 --> 00:44:12,880 Speaker 1: we run everything from a quantitative tilt, meaning that observed 753 00:44:12,960 --> 00:44:16,319 Speaker 1: risks in the market. So assets acting up being very 754 00:44:16,400 --> 00:44:19,040 Speaker 1: very volatile, those make us nervous. Assets that are more stable, 755 00:44:19,080 --> 00:44:21,800 Speaker 1: more consistent, those make us more excited. And that's basically 756 00:44:21,800 --> 00:44:24,600 Speaker 1: how we BUI as our portfolios too, and from different assets. 757 00:44:24,760 --> 00:44:26,920 Speaker 1: But it's still a very juicy yield. I see I 758 00:44:27,080 --> 00:44:29,359 Speaker 1: m C as the ticker net indicated yield of more 759 00:44:29,360 --> 00:44:34,560 Speaker 1: than eight percent. And you're saying limited risk with this 760 00:44:34,680 --> 00:44:37,200 Speaker 1: e t F as much as we can we we 761 00:44:37,200 --> 00:44:39,960 Speaker 1: we limit risk on all of this strategy that we 762 00:44:40,000 --> 00:44:43,360 Speaker 1: offer with within our group through diversification. At the end 763 00:44:43,400 --> 00:44:46,520 Speaker 1: of the day, we express views and we expressed them firmly, 764 00:44:46,560 --> 00:44:48,440 Speaker 1: but at the end of the day we're always well diversified. 765 00:44:48,520 --> 00:44:50,880 Speaker 1: And this has a pretty low expense ratio for the 766 00:44:50,920 --> 00:44:53,879 Speaker 1: class of e t F forty three basis points. Yes, 767 00:44:53,960 --> 00:44:56,799 Speaker 1: we're excited about it. We think it's super competitive. What's 768 00:44:56,800 --> 00:44:59,160 Speaker 1: the next thing you guys are thinking about in terms 769 00:44:59,200 --> 00:45:02,439 Speaker 1: of maybe some advantages here, break the news here. Yes, 770 00:45:03,080 --> 00:45:06,520 Speaker 1: we're our Our founder Jan Vanek and started with his 771 00:45:06,560 --> 00:45:08,720 Speaker 1: father always talks about our shop as a macro shop. 772 00:45:08,800 --> 00:45:12,319 Speaker 1: So it's not a coincidence that high yielding assets, right, INC, 773 00:45:13,160 --> 00:45:16,160 Speaker 1: commodities PIT. We just launched the inflation all case ETF, 774 00:45:16,239 --> 00:45:18,279 Speaker 1: which has been out there for some time. Those are 775 00:45:18,320 --> 00:45:20,640 Speaker 1: out there because we think that that's the regime. So 776 00:45:20,719 --> 00:45:23,400 Speaker 1: the funds that we're working on have been focused towards that, 777 00:45:23,440 --> 00:45:25,880 Speaker 1: how do we generate this high yield to generate a 778 00:45:25,920 --> 00:45:27,799 Speaker 1: positive real yield and how do we benefit from real 779 00:45:27,840 --> 00:45:30,840 Speaker 1: assets and expansion of commodities. So that's the stuff that 780 00:45:30,840 --> 00:45:33,759 Speaker 1: we're working on. Good stuff. David Schah, portfolio managing head 781 00:45:33,760 --> 00:45:37,040 Speaker 1: of Quantitative Investment Solutions at van Neck. We got racks, 782 00:45:37,120 --> 00:45:40,040 Speaker 1: we got PIT, and we got INC right now, maybe 783 00:45:40,040 --> 00:45:42,680 Speaker 1: some more to come looking at these markets. And he 784 00:45:42,800 --> 00:45:45,520 Speaker 1: joined some real legendary I mean music and his father 785 00:45:46,000 --> 00:45:49,440 Speaker 1: started really legendary shop. Good stuff, so we appreciate that. 786 00:45:49,520 --> 00:45:53,760 Speaker 1: David Commen and Bloomberg Inactive Workers Studio. Thanks for listening 787 00:45:53,760 --> 00:45:57,279 Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen 788 00:45:57,320 --> 00:46:01,560 Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer. 789 00:46:01,960 --> 00:46:05,960 Speaker 1: I'm Matt Miller, I'm on Twitter at Matt Miller V three. 790 00:46:06,400 --> 00:46:08,840 Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney. 791 00:46:08,920 --> 00:46:11,560 Speaker 1: Before the podcast, you can always catch us worldwide at 792 00:46:11,560 --> 00:46:12,359 Speaker 1: Bloomberg Radio