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Speaker 2: In all this reporting about the new administration in the
Speaker 2: Treasury pic, I've heard the number bending about that the
Speaker 2: US treasury market is twenty eight trillion dollars in size.
Speaker 3: It's large, So say that.
Speaker 2: Means I have to be a little bit nicer to
Speaker 2: our next guest than I typically.
Speaker 4: Am Ira Jersey joins us.
Speaker 2: I didn't know he was so influential. Twenty eight trillion dollars. Ira,
Speaker 2: do you care or to what extent does your market
Speaker 2: care about who President lect Trump selects as Secretary of
Speaker 2: the Treasury.
Speaker 5: Well, so people have been talking about who it's going
Speaker 5: to be, and you know there's a mantra at the
Speaker 5: Treasury Department that typical is they want to be regular
Speaker 5: and predictable in terms of how they issue debt. So
Speaker 5: if you wind up with any of the three main
Speaker 5: picks that we've been hearing about, I don't suspect that
Speaker 5: you'll see a major seed change from that. But they
Speaker 5: do influence how many of which securities are issued. In fact,
Speaker 5: when the Treasury Borrowing Advisory Committee, that's a committee of
Speaker 5: investors and dealers and the like, when they get together,
Speaker 5: they actually send a recommendation to the Treasury Secretary of how.
Speaker 6: Things should be issued.
Speaker 5: Now, in reality, you know, the Treasury Secretary kind of
Speaker 5: signs off on it, but mostly the decisions are made
Speaker 5: by the people under the Treasury Secretary. But I think that,
Speaker 5: you know, all three of these picks are reasonably middle
Speaker 5: of the road in terms of, you know, how they're
Speaker 5: going to operate the Treasury Department in my opinion. And look,
Speaker 5: I haven't had any discussions with any of these folks,
Speaker 5: but I don't think that they're really outside of the
Speaker 5: realm of what we might expect as normal, especially since
Speaker 5: two of them are very much market people.
Speaker 6: And they don't want to rock the boat.
Speaker 5: They'll get feedback from markets and market participants and investors
Speaker 5: before they make any sweeping changes to how treasuries are issued,
Speaker 5: which treasuries.
Speaker 6: Are issued, and the like.
Speaker 4: T back.
Speaker 3: So the cool kids call it IRA, it's good to
Speaker 3: chat with you. So I was out of commission for
Speaker 3: about a month and a half. And when that happened,
Speaker 3: you know, we're looking at treasury yields, hey, around like
Speaker 3: three point six percent. It was like, all right, guys,
Speaker 3: we're going to move money out of treasuries and we're
Speaker 3: going to put it into stocks. That's where the return
Speaker 3: is going to be. And then I come into the
Speaker 3: office and we're touching and we're close to four point five.
Speaker 3: That's a big shift. How high do we stay for
Speaker 3: how long? And is that thesis? Then look, guys, you
Speaker 3: still got to put money in the long end.
Speaker 5: Well, there's a so I do think that there's a
Speaker 5: cap on how high treasury yields are going to be
Speaker 5: able to go. There's going to be a kind of
Speaker 5: this supply demand balance that probably is somewhere between four
Speaker 5: and a half and five percent, particularly in long term treasuries,
Speaker 5: just because the higher yields go from here, the more
Speaker 5: we get into the place where lie ability managers tend
Speaker 5: to really like like bond yields, and especially unless you
Speaker 5: get you know, really big shift up in inflation, there's
Speaker 5: no reason to think that we won't stabilize somewhere in
Speaker 5: this area. So our view is will wind up staying
Speaker 5: in a pretty wide range over the next year.
Speaker 6: Smaller range and we had the past year.
Speaker 5: Remember over the past year, we've been between five percent
Speaker 5: and three and a half percent, right, so one hundred
Speaker 5: and fifty basis point range. I think it's probably a
Speaker 5: bit narrower than that over the next year, but we
Speaker 5: still wind up being volatile in that range. More important
Speaker 5: is going to be the or as important as going
Speaker 5: to be the curve, I think, and where do two
Speaker 5: year yields go, which is far less certain because we
Speaker 5: don't know how far the Fed's going to cut. Right,
Speaker 5: the Fed's probably going to cut at least a little
Speaker 5: bit more. But are they only going to cut another
Speaker 5: seventy five basis points as the market expects, or are
Speaker 5: they going to cut another one hundred and fifty to
Speaker 5: two hundred basis points like we thought.
Speaker 6: Just when you know, before you went out on.
Speaker 5: Break, Because that's really been the big move and the
Speaker 5: reason why we've seen this massive selloff in treasuries is
Speaker 5: just a shifting expectation for what the Fed's going to do.
Speaker 2: So what will we get at the December eighteenth meeting
Speaker 2: is I guess I've heard the word skip used. It's
Speaker 2: the first time I've heard that. But is skipping the
Speaker 2: December meeting in terms of rate cuts? Is that reasonable
Speaker 2: or is what? Do you think they're going to move forward?
Speaker 5: Yeah, Paul, I do think that they There is the
Speaker 5: big distinct possibility that they skip in December.
Speaker 6: You heard some language.
Speaker 5: Out of out of Chair Powell over the last week
Speaker 5: that basically hinted that they might do that. So you know,
Speaker 5: you wind up getting an okay payroll report and okay
Speaker 5: CPI report, and you wind up with maybe a skip.
Speaker 5: The market right now, keep in mind, is basically pricing
Speaker 5: a skip in either December or January. So basically one
Speaker 5: cut between the two meetings. Kind of unsure which one
Speaker 5: is of those two meetings is going to be the skip.
Speaker 3: What's interesting, though, is that it feels like we priced
Speaker 3: out a lot of the drama and the rate cuts
Speaker 3: that we had already priced in and say over the summer.
Speaker 3: So are we sort of at neutral in essence in
Speaker 3: terms of what the market actually expects versus what the
Speaker 3: Fed's actually going to deliver.
Speaker 5: Well, I think, well, the market seems to think that
Speaker 5: maybe if the Fed's going to get back to neutral,
Speaker 5: that maybe the neutral rate is three and three quarters
Speaker 5: to four percent, because that's what the market's priced for
Speaker 5: where the Fed's going to get to. So again, a
Speaker 5: little bit more in terms of cuts, but not the
Speaker 5: not down to you know, two point seventy five percent,
Speaker 5: where we were priced very briefly for a.
Speaker 6: Cup of coffee back in September.
Speaker 5: So I do think that the market believes that neutral
Speaker 5: is higher.
Speaker 6: I think the FED is skeptical of that.
Speaker 5: Right, which is the reason why the FED, I think
Speaker 5: thinks that they might need to remain restrictive a little
Speaker 5: bit longer. And they do think that they're restrictive, right,
Speaker 5: Almost every single member of the FED has said that
Speaker 5: they that they're restrictive. But the question is how restrictive
Speaker 5: and will the Fed, you know, get when they get
Speaker 5: to restrictive, how long then will they stay there? And
Speaker 5: that's when the reason why you have two year yields
Speaker 5: that kind of can't make up their mind whether or
Speaker 5: not they want to be at four percent or four
Speaker 5: and a quarter percent. And I suspect that we'll want
Speaker 5: a two year yields to wind up back back at
Speaker 5: four even under four percent by the end of next year.
Speaker 5: But there's still you know, that's that's incremental tightening or
Speaker 5: easing by the Federal Reserve over the course of that
Speaker 5: period of time. And you know, unless we get a recession,
Speaker 5: it's hard to see how the yield curve significantly steepens
Speaker 5: from here unless you wind up with some kind of
Speaker 5: you know, deficit shock where where the Treasury Department has
Speaker 5: to go out initial a whole lot of long term debt.
Speaker 5: It's possible, but that I think is kind of an
Speaker 5: educase scenario.
Speaker 4: All right, Ara, thank you so much as I always appreciate it.
Speaker 2: Our Jersey chief viewers, interest rates strategists for Bloomberg Intelligence
Speaker 2: joining us from the b I headquarters down there in Princeton,
Speaker 2: New Jersey.
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Speaker 3: We alex you here alongside Paul Sweeney. This is Bloomberg
Speaker 3: Intelligence Radio. We bring you all the top news and business,
Speaker 3: economics and finance through our lens of our Bloomberg intelligence folks.
Speaker 3: They cover two thousand companies and one hundred and thirty
Speaker 3: industries all around the world. We also like to tap
Speaker 3: them outside of Bloomberg as well to get a good
Speaker 3: read on what's actually happening in the market. If you're
Speaker 3: putting money to work, what's the smartest way to do that?
Speaker 3: Fill Orlando, a chief equity market strategistic head of client
Speaker 3: portfolio Management at Federated Hermes, joins me. Now, Phil, what's
Speaker 3: the case for not being in equities?
Speaker 7: Well, the stock market has had a phenomenal run here.
Speaker 7: Animal spirits have returned and from the bottom of the
Speaker 7: market in early to mid August, a lot of the
Speaker 7: indices are up fifteen to twenty percent, So that the
Speaker 7: case for not being in equities or being underweight equities
Speaker 7: at the moment is perhaps you think stocks are overvalued
Speaker 7: near term and you'd like to have you'd like to
Speaker 7: be patient and get a better re entry point in
Speaker 7: order to get back to an overweight. But if we're taking,
Speaker 7: you know, a longer cycle position and looking at the
Speaker 7: prospect of less regulation, lower tax rates both individual and corporate,
Speaker 7: stronger economic growth, all of those things are good for
Speaker 7: corporate earnings. Ultimately, share prices reflect stronger earnings, and we
Speaker 7: could see the S and P five hundred, you know,
Speaker 7: from six thousand. Now let's call it up into the
Speaker 7: seventy five hundred neighborhood as we look out over the
Speaker 7: next couple of years.
Speaker 2: So, Phil, to what extent did your I guess market
Speaker 2: call change the day after the election when it became
Speaker 2: a parent that not only president like Donald Trump coming
Speaker 2: back to the White House, but it looks like he's
Speaker 2: going to have a pretty solid Republican support in Congress.
Speaker 4: How has that impacted your call?
Speaker 7: The good news, Paul, is it did absolutely nothing to
Speaker 7: our call because we were we were expecting a a
Speaker 7: red wave, if you will, and had positioned for that
Speaker 7: accordingly in terms of overweights in domestic large cap value
Speaker 7: and the small cap categories. We had been essentially fading
Speaker 7: the dramatic outperformance of the mag seven names over the
Speaker 7: eighteen month period into the middle of this year. And
Speaker 7: you know, as you look back on the third quarter
Speaker 7: and results over the last you know, six weeks or so,
Speaker 7: the values and the small caps have had a pretty
Speaker 7: good run of it. So we didn't need to make
Speaker 7: any changes after the election results became known.
Speaker 3: What other thing I was just talking about that struck
Speaker 3: me was the rise in ten year yield almost a
Speaker 3: four and a half percent and the continued money into
Speaker 3: money market funds. Is that ever going to leave?
Speaker 7: Well, there's a concern that's growing based upon developments over
Speaker 7: just the course of the last week. L And I
Speaker 7: think you know, we've seen this with the backup in
Speaker 7: treasury yields. We were at three point fifty three sixty
Speaker 7: or so a couple of months ago. You know, we're
Speaker 7: now up in that four forty four to fifty neighborhood.
Speaker 7: And the question is whether or not we're going to
Speaker 7: go back and retest you know, the four seventy five
Speaker 7: or five percent level we saw you know, October of
Speaker 7: last year. The reasons for that backup, in our view
Speaker 7: is that inflation is is is not going down anymore.
Speaker 7: It's sort of stalled. And you know, based upon the
Speaker 7: wholesale inflation metrics we saw last week are actually starting
Speaker 7: to re accelerate. Is we look ahead to the core
Speaker 7: personal consumption expenditure index that we're going to get I
Speaker 7: think the day after Thanksgiving, the expectation is that that
Speaker 7: number is going to continue to go up as well
Speaker 7: to two point eight percent. Remember the Fed's target there
Speaker 7: is two percent. You had some pretty strong economic growth
Speaker 7: from the second and third quarters compared to the first quarter.
Speaker 7: Last week's retail sales numbers upward, revisions in September, some
Speaker 7: strong nominal or headline numbers out of October. So the
Speaker 7: thinking is that the economy strong, inflation is sticky and persistent.
Speaker 7: You've got a red waves here that in all likelihood
Speaker 7: is going to result in stronger economic growth. Maybe the
Speaker 7: Feds not on a glide path to you know, take
Speaker 7: the funds right down at three percent, which was sort
Speaker 7: of the gist of what most investors got out of
Speaker 7: their SEP back on September eighteenth.
Speaker 2: So given that backdrop, Phil kind of where's your best
Speaker 2: opportunity after that? As you look at the equity markets here,
Speaker 2: where are you guys focusing these days?
Speaker 7: Well, again, we're taking a longer term view and that
Speaker 7: if we're right that the issues that we just talked
Speaker 7: about do result in you know, let's our forecast is
Speaker 7: three hundred and fifty dollars in corporate earnings for the
Speaker 7: S ANDP looking out to calendar twenty seven embedded in
Speaker 7: that assumption is comparable or perhaps lower corporate tax rates
Speaker 7: and extension of the individual tax rates at the end
Speaker 7: of next year, the end of calendar twenty five when
Speaker 7: they come up for renewal. So, as a result, as
Speaker 7: we look out to twenty six and twenty seven, the
Speaker 7: economy ought to do pretty well. So if we discount
Speaker 7: back three hundred and fifty dollars in earnings into the
Speaker 7: end of twenty six, that would suggest the seventy five
Speaker 7: hundred SMP we're trading at six thousand now. So if
Speaker 7: the market does pull back here, you know, let's say
Speaker 7: we pulled back to the two hundred day moving average,
Speaker 7: you know, roughly about fifty four hundred. That gives you
Speaker 7: a couple of thousand points in the S and P
Speaker 7: potentially the upside over the next couple of years. That
Speaker 7: looks pretty attractive to us.
Speaker 2: And sounds pretty attractive to me certainly. Phill Er, Orlando,
Speaker 2: Chief Epity market strategist and head of Client Portfolio Management
Speaker 2: and federator and Armies.
Speaker 4: Thank you for your time.
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Speaker 3: Happy Monday, everybody. Alex Deal here alongside paulse We need.
Speaker 3: This is Bloomberg Intelligence. We are broadcasting to live on
Speaker 3: this lovely Monday morning for our interactive broker studio right
Speaker 3: here in Midtown Manhattan. Maybe lovely morning for us, but
Speaker 3: maybe not so much for Spirit Airlines. The company declares
Speaker 3: Chapter eleven bankruptcy. It's seeking Chapter eleven protection in New
Speaker 3: York to restructure about one point six billion dollars of debt.
Speaker 3: It did tell customers on Monday that they should continue
Speaker 3: feeling comfortable booking fights now and in the future. I
Speaker 3: don't really I guess that stock is obviously halted for
Speaker 3: bankruptcy protection filing. We wanted to get the latest now
Speaker 3: with Francois do Flow. He is US airline analyst with
Speaker 3: Bloomberg News. He joins us, excuse me, Bloomberg Intelligence. I think, yes, okay,
Speaker 3: Bloomberg Elligence. That's important. We want to sparse that out.
Speaker 3: What happens to Spirit, like, what does this process wind
Speaker 3: up looking like?
Speaker 1: Yeah?
Speaker 8: So good morning. Spirit have been struggling struggling since twenty
Speaker 8: twenty with losses and cashburns things. So God only was
Speaker 8: since twenty twenty three after the merger with Jeed Blue
Speaker 8: was blocked and Praught and Whitney and on the need
Speaker 8: for some engines to be inspected and that granted some
Speaker 8: twenty four aircraft for this year. So with everything, unicodes
Speaker 8: have increased faster than revenue, both because of inflationary effects
Speaker 8: and also from competition. And there was this need of
Speaker 8: refinance one point one billion of debt raised during the
Speaker 8: pandemic that was packed by loyalty program and that was
Speaker 8: due on September twenty twenty five, and there is another
Speaker 8: five hundred million compatible debt due in twenty twenty six.
Speaker 8: And because of this cash burn and losses, this debt
Speaker 8: was needed to be written, recognociated, or restructure one way
Speaker 8: or another. And that's what's managed to do with this
Speaker 8: announcement today. So eighty million or so of the date
Speaker 8: will be equitized, an exit of about eighty million eight
Speaker 8: hundred million will be issued and you on twenty thirty
Speaker 8: and in the meantime, Spirit will get three hundred million
Speaker 8: of debt in the orin position facility to go through
Speaker 8: the winter and continue to operate and make sure that
Speaker 8: the flyer passenger can still fly during this important radio season.
Speaker 2: Is there an expectation about when Spirit will come out of.
Speaker 8: Bankruptcy, so they expect they expect to end to exit
Speaker 8: the bankruptcy early March twenty twenty five, so there is
Speaker 8: an extension period of forty days that is possible. That
Speaker 8: will still be early twenty five to twenty five, which
Speaker 8: is a very fast process. But it's also because they
Speaker 8: managed to arrange to play arrange most of the big
Speaker 8: although before filing.
Speaker 3: So what could a new administration under President Trump free
Speaker 3: up some more merger possibilities that were kind of squashed
Speaker 3: and does that sort of become Spirit's future in like
Speaker 3: April of twenty twenty.
Speaker 6: Five, good course, that could be.
Speaker 8: Definitely Spirit will emerge from this bankruptcy a liner and
Speaker 8: hopefully more profitable in the long term airlines, not necessarily
Speaker 8: in twenty twenty five. They only help to get back
Speaker 8: to profits in twenty twenty six, which can be event
Speaker 8: though very very hard to achieve, but definitely liner and
Speaker 8: better position and a more attractive airline for somebody else
Speaker 8: to grab, and definitely a change of an administration would
Speaker 8: luckily make that easier for a new buyer.
Speaker 4: So what what kind of looking at Spirit are they do?
Speaker 2: Are they a bad operator or do they just have
Speaker 2: a bad capital structure.
Speaker 8: No, they faced a lot of end winds from everywhere,
Speaker 8: ending from exiting from the pandemic. They faced higher courts
Speaker 8: because of pilots, because of everything getting more expensive, and
Speaker 8: at the same time they faced strong competition from American Delta,
Speaker 8: United Airlines who were looking for passengers to fill seats
Speaker 8: at business travelers were we're not feeling and this was
Speaker 8: pressuring yields at low cost airlines, including Spirit. So and
Speaker 8: then on top of that you add their engine problems.
Speaker 8: That makes only everything worse with one out of ten
Speaker 8: airplane grounded, even though they got some conversation from Product win.
Speaker 8: So it's a nation of plenty of things. Plus the
Speaker 8: fact that it seems that travelers are moving away from
Speaker 8: low cost ticket to more premium fly and that's why
Speaker 8: they are also changing their business model a little bit,
Speaker 8: offering more premium seats and services to their customers, and
Speaker 8: they are trying to change their experience.
Speaker 9: And this is not something that.
Speaker 8: Is specific to Spirit. But we also say that at
Speaker 8: a legend and frontier because of this change in customer behavior.
Speaker 3: Yeah, and also you know then you add things they
Speaker 3: make their money by. Hey, I'm going to check a
Speaker 3: bag out, you pay for something. I want a pretty ticket,
Speaker 3: you got to pay for I'm a coffee, you got
Speaker 3: to pay for it at some point. It's like guys
Speaker 3: enoup with that. All right, I think so much. FIRSTOI,
Speaker 3: we appreciate Francois de Flow he joins us s Boomberg Intelligence,
Speaker 3: US Airlines analysts joining us from Princeton, New Jersey. Again,
Speaker 3: that tickers s a ve. Also the big guys get
Speaker 3: Alta United, for example, they can really compete on lower
Speaker 3: affairs if they want to want at the end of
Speaker 3: the day too, So how do you compete with that?
Speaker 6: Right?
Speaker 2: And I didn't understand it, but now since Francois explained it.
Speaker 2: During the pandemic, when they lost some of their business
Speaker 2: passengers or a lot of their business passengers, they had
Speaker 2: to fill those seats, and so let's discount some prices
Speaker 2: and get those people in boom So I think your
Speaker 2: question was the best, which is, now that we have
Speaker 2: a new administration, can we get a deal done with
Speaker 2: JetBlue or our Frontier one of those two, because it
Speaker 2: doesn't seem like they can operate on their own and
Speaker 2: it's a smaller market stick they get hurt.
Speaker 3: Exactly because then you got to close maybe less flights,
Speaker 3: and it actually went to hurting the people who need
Speaker 3: the flight.
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Speaker 2: Else you'll Paul Sweeney, You're live here in our Bloomberg
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Speaker 2: and that's where you'll find it. So it's just listening
Speaker 2: to Charlie's report here the NASDAK up almost nine tens
Speaker 2: a one percent. Said what's pushing the NASDAC car and
Speaker 2: I look, go over to the mov function Tesla. It
Speaker 2: counts for forty five points of the move there in
Speaker 2: the Nasdaq. So Tesla stock up set seven point two
Speaker 2: percent today, leading the Nasdaq higher the question is the
Speaker 2: Trump trade?
Speaker 4: Is it a thing? How do you play it? Has
Speaker 4: it played out?
Speaker 2: Let's talk to somebody who does this stuff for a living.
Speaker 2: Carol Schlife, chief investment officer for BEMO Family Office. Carol,
Speaker 2: the world's a different place since the election on November sixth.
Speaker 4: Here, how did your investment out look change? If at all?
Speaker 10: It didn't really change. We're always very intent about building
Speaker 10: durable and sturdy portfolios. And actually we had thought going
Speaker 10: into the election that you know, of a variety of
Speaker 10: potential outcome comes of red suite, Actually it was one
Speaker 10: of the most likely outcomes, and we didn't have high
Speaker 10: probabilities on any of them, if you will. It's not
Speaker 10: like it was run away, but you know, it is
Speaker 10: interesting because you are trying to make sure that you're
Speaker 10: watching what the ten years doing and what treasuries are doing. So,
Speaker 10: if anything, we've probably backed off a little bit on duration,
Speaker 10: and we had been underweight on the duration side anyway,
Speaker 10: and we'd leaned into growth and into the United States
Speaker 10: and North American securities anyway. So we feel pretty good
Speaker 10: about the positioning and trying to be very adaptive and
Speaker 10: watching as things go forward.
Speaker 2: You know, it appeared that the gridlock scenario was a
Speaker 2: scenario that would work well for markets. But I'm not
Speaker 2: sure we're going to have a gridlock Congress and an
Speaker 2: executive branch. Looks like it's going to be a clear
Speaker 2: swaite for the Republicans and maybe they can get a
Speaker 2: lot of stuff done here.
Speaker 4: How do you position for that?
Speaker 10: Well, the interesting thing is is I think if you
Speaker 10: go back and you listen to the way when Chairman
Speaker 10: Powell was asked at the last FMC conference call how
Speaker 10: they were going to adapt to the changes, and they said, look,
Speaker 10: until policy is there, we can't really start trying to
Speaker 10: model for it. And I think that's one of the
Speaker 10: approaches to take because the market's trying to in advanced
Speaker 10: discount which way things are going to swing that come
Speaker 10: late January, depending on if we get across the board
Speaker 10: tariffs in the first week or two of a Trump administration,
Speaker 10: that's one potential policy response with portfolios as opposed to
Speaker 10: a more gradual response or using tariffs as a negotiating
Speaker 10: tactic and an opening bit. So to preposition portfolios is
Speaker 10: probably a little premature, if you will, but keeping adept
Speaker 10: at watching the way those things play out will be
Speaker 10: import important, but it is ironic because historically markets have
Speaker 10: preferred gridlock. I think under the assumptions that if the
Speaker 10: legislators are all off bickering with each other, markets can
Speaker 10: get on with being markets. But clearly this time I
Speaker 10: think it was both not having to wait for the
Speaker 10: election outcome and having a decisive sort of tilt to it.
Speaker 10: The presumption is then okay, fine, we'll get policy quickly
Speaker 10: and then we'll be able to adapt and adjust, and
Speaker 10: so that unknown period shrunk from being what could have
Speaker 10: been months and months to being basically just a matter
Speaker 10: of weeks.
Speaker 3: Something that's really stood out to me in the last
Speaker 3: few weeks is the out performance of financials. Do you
Speaker 3: think that that continues?
Speaker 4: We do.
Speaker 10: And one of the things that's interesting is when you
Speaker 10: start digging into the stats and looking at how low
Speaker 10: the level of initial public offerings and m and A is.
Speaker 10: I saw once to to Stick recently that said something
Speaker 10: like twenty seven thousand companies are sitting in venture capital portfolios.
Speaker 10: Over half of them have been there for over four years.
Speaker 10: So you've got a lot of really high quality potential
Speaker 10: companies that just haven't come public. You have a lot
Speaker 10: of M and A that hasn't happened, and that's teed up.
Speaker 10: I think that's one of the primary reasons why you're
Speaker 10: seeing Wall Street get pretty excited both and we hear
Speaker 10: anecdotally there's a lot of bankers out there teeing up
Speaker 10: deals and so that could be positive for the industry.
Speaker 3: All right, Carol, we appreciate it. Thank you very much.
Speaker 3: Carol's life joining us there over at FEMO Family office.
Speaker 4: She cio over at that shop.
Speaker 3: Thank you so very much.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Auto with the Bloomberg Business app. You can also listen
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Speaker 1: Just say to play Bloomberg eleven.
Speaker 2: The Nasdak up almost nine tens a one percent of
Speaker 2: So what's pushing the nasdak? Karr and we'll go over
Speaker 2: to the mov function.
Speaker 4: Tesla.
Speaker 2: It counts for forty five points of the move there
Speaker 2: in the Nasdaq. So Tesla stock up set seven point
Speaker 2: two percent today, leading the Nasdaq higher.
Speaker 4: The question is the Trump trade? Is it a thing?
Speaker 2: How do you play it? Has it played out. Let's
Speaker 2: talk to somebody who does this stuff for a living.
Speaker 2: Carol Schleife, chief investment officer for BEMO Family Office. Carol,
Speaker 2: the world's a different place since the election on November sixth.
Speaker 4: Here, how did your investment out look change?
Speaker 10: If at all, it didn't really change. We're always very
Speaker 10: intent about building durable and sturdy portfolios, and actually we
Speaker 10: had thought going into the election that you know, of
Speaker 10: a variety of potential outcomes, a red suite actually was
Speaker 10: was one of the most likely outcomes, and we didn't
Speaker 10: have high probabilities on any of them, if you will.
Speaker 10: It's not like it was run away, but you know,
Speaker 10: it is interesting because you are trying to make sure
Speaker 10: that you're watching what the ten years doing and what
Speaker 10: treasuries are doing. So, if anything, we've probably backed off
Speaker 10: a little bit on duration, and we had been underweight
Speaker 10: on the duration side anyway, and we'd leaned into growth
Speaker 10: and into the United States and North American securities anyway.
Speaker 10: So we feel pretty good about positioning and trying to
Speaker 10: be very adaptive and watching as things go forward.
Speaker 2: You know, it appeared that the gridlock scenario was a
Speaker 2: scenario that would work well for markets but I'm not
Speaker 2: sure we're going to have a gridlock Congress and an
Speaker 2: executive branch looks like it's going to be a clear
Speaker 2: suite for the Republicans and maybe they can get a
Speaker 2: lot of stuff done here. How do you position for that?
Speaker 10: Well, the interesting thing is is, I think if you
Speaker 10: go back and you listen to the way when Chairman
Speaker 10: Powell was asked at the last FMC conference call how
Speaker 10: they were going to adapt to the changes, and they said, look,
Speaker 10: until policy is there, we can't really start trying to
Speaker 10: model for it. And I think that's one of the
Speaker 10: approaches to take because the market's trying to in advanced
Speaker 10: discount which way things are going to swing that come
Speaker 10: late January, depending on if we get across the board
Speaker 10: tariffs in the first week or two of a Trump administration,
Speaker 10: that's one potential policy response with portfolios as opposed to
Speaker 10: a more gradual response or using tariffs as a negotiating
Speaker 10: tactic and an opening bit. So to preposition portfolios is
Speaker 10: probably a little premature, if you will, but keeping adept
Speaker 10: at watching the way those things play out will be important.
Speaker 10: But it is ironic because historic markets have preferred gridlock.
Speaker 10: I think under the assumptions that if the legislators are
Speaker 10: all off bickering with each other, markets can get on
Speaker 10: with being markets. But clearly this time I think it
Speaker 10: was both not having to wait for the election outcome
Speaker 10: and having a decisive sort of tilt to it. The
Speaker 10: presumption is then okay, fine, we'll get policy quickly and
Speaker 10: then we'll be able to adapt and adjust, and so
Speaker 10: that unknown period shrunk from being what could have been
Speaker 10: months and months to being basically just a matter of weeks.
Speaker 3: Something that's really stood out to me in the last
Speaker 3: few weeks is the outperformance of financials. Do you think
Speaker 3: that that continues.
Speaker 1: We do.
Speaker 10: And one of the things that's interesting is when you
Speaker 10: start digging into the stats and looking at how low
Speaker 10: the level of initial public offerings and m and A is.
Speaker 10: I saw one statistic recently that said something like twenty
Speaker 10: seven companies are sitting in venture capital portfolios. Over half
Speaker 10: of them have been there for over four years. So
Speaker 10: you've got a lot of really high quality potential companies
Speaker 10: that just haven't come public. You have a lot of
Speaker 10: m and A that hasn't happened, and that's teed up.
Speaker 10: I think that's one of the primary reasons why you're
Speaker 10: seeing Wall Street get pretty excited both and we hear
Speaker 10: anecdotally there's a lot of bankers out there teeing up deals,
Speaker 10: so that could be positive for the industry.
Speaker 3: All right, Carol, we appreciate it. Thank you very much.
Speaker 3: Carol's life joining us there over at FIMO family office.
Speaker 4: She cio over at that shop.
Speaker 3: Thank you so very much. All right, let's go to
Speaker 3: Steve Mann, now Bloomberg Intelligence, Global Autos and Industrial Research Manager.
Speaker 3: We were talking about Tesla earlier and how potentially the
Speaker 3: Trump new Trump administration might loosen some regulation on self
Speaker 3: driving cars. And this comes though as maybe ev subsidies
Speaker 3: will be rolled back, which is a bit of a
Speaker 3: head scratcher for me. Steve Mann joins us. Now, hey, Steve,
Speaker 3: what do you make of the fact that maybe those
Speaker 3: fully self driving vehicles is a is a now hallmark
Speaker 3: or priority for the incoming Transportation Department?
Speaker 4: Yeah.
Speaker 11: I think it's important for self driving vehicles. It's it's
Speaker 11: the next kind of technology evolution for cars. And one
Speaker 11: of the biggest hurdles really in the US is regulations.
Speaker 11: There's only two states that allow uh, you know, self
Speaker 11: driving cars meeting without steering wheel and pedals on the
Speaker 11: road today is uh, California and Texas, But nationally, the
Speaker 11: other states or the National Highways Safety Board actually do
Speaker 11: not allow these steering wheel lists and pedal list vehicles
Speaker 11: on the road. So it's it's a huge it's a
Speaker 11: huge evolution if they allow that.
Speaker 2: So Elon Musk certainly having an influence there on this,
Speaker 2: presumably on this policy direction. Here in Tesla, stock is
Speaker 2: up seven point two percent today, Steve, how likely is
Speaker 2: the federal government to kind of maybe follow California and
Speaker 2: Texas and allow these on the road.
Speaker 11: Well, the you know, first of all, Tesla is not
Speaker 11: going to be the only one benefiting from it. GM
Speaker 11: could benefit from it, way more cob benefit from it.
Speaker 6: You know.
Speaker 11: Actually, GM's Cruise division has actually lobbied the National Highway
Speaker 11: Safety Board to really push rules and regulations, relax those
Speaker 11: regulations to allowed you know, unsupervised vehicles, more unsupervised vehicles
Speaker 11: on the road. But that's been held up for the
Speaker 11: last two three years. And I mean, personally, I think
Speaker 11: I think it's really important for the for the government
Speaker 11: to actually relax that regulation. It's not just the US
Speaker 11: trying to develop this technology, there's a lot of companies
Speaker 11: in China, there's a lot of companies in Europe that
Speaker 11: are trying to develop this uh kind of a driverless technology.
Speaker 11: And I think, you know, US needs to do this
Speaker 11: to to compete.
Speaker 3: When you say that they need to do it to compete,
Speaker 3: wouldn't it be the same with EV's And I'm wondering
Speaker 3: from maybe Elon Musk's point of view, if Tesla is
Speaker 3: able to make a lot of inroads with the robotaxis
Speaker 3: and self driving cars that like that in essence will
Speaker 3: also help prop up evs because oh, by the way,
Speaker 3: those cars will be electric.
Speaker 11: Oh that's that's very true. You know, those self driving
Speaker 11: software is propulsion or powertrain agnostic, agnostic. But you know,
Speaker 11: having an ev really helps help push that through, push
Speaker 11: that into the evolution into the future, because they do
Speaker 11: work better on evs than gasoline cars.
Speaker 2: So, Steve, just give us a sense of these self
Speaker 2: driving vehicles. Where is the technology to day and when
Speaker 2: do you think it'll get to the point where Paul's.
Speaker 3: Going to use one, which, by the way, let me
Speaker 3: tell you it's going to be a while.
Speaker 11: Where are we I mean, I you know, we still
Speaker 11: think it's going to take a while.
Speaker 6: Like when we.
Speaker 11: Look at uh, you know folk, you know, autonomous vehicles
Speaker 11: as a main driver to Tesla's revenue, we don't really
Speaker 11: model that out until like twenty thirty five, So it's
Speaker 11: going to be a while because it's really relying on
Speaker 11: the AI technology, and specifically for Tesla, it's really using
Speaker 11: a lot of the data that is collecting from its
Speaker 11: cameras and all the vehicles are out there and teaching
Speaker 11: the machine how to react and respond response appropriately in
Speaker 11: various situations. As you know, as both of your drive
Speaker 11: on the road, there's you know, there's an mptiene number
Speaker 11: of scenarios that could happen, So it will take a
Speaker 11: while for the machine to really learn and be proficient
Speaker 11: at driving as as well as a human being.
Speaker 3: Uh what else do you make of that?
Speaker 8: Now?
Speaker 3: If we just switch focus to just the EV part
Speaker 3: of Tesla or other companies, if that subsidy winds up
Speaker 3: going away for EV's, what do you think happens the
Speaker 3: likes of like Rivian and Tesla and even the EV
Speaker 3: parts of major automakers.
Speaker 11: Well, I think, you know, the initial thought for us
Speaker 11: is really it could be beneficial to companies like Tesla
Speaker 11: and Rivian. You know, if if the credit goes away,
Speaker 11: I think EV's will still be around. There's still gonna
Speaker 11: be some buyers who are really interested in in in
Speaker 11: driving evs. Will it you know, will it get past
Speaker 11: the eight percent penetration rate or will it drop down
Speaker 11: a little bit below eight It could, It could, But
Speaker 11: what that means is gonna weed out a lot of competition.
Speaker 11: The unprofitable EV makers will have to probably leave exit
Speaker 11: the market. That will leave companies like Tesla, who's profitable.
Speaker 11: And the reason I bring a Arrivian is because they
Speaker 11: have a huge backing from Volkswagen right now to really
Speaker 11: you know, to really uh fund their next affordable vehicle.
Speaker 2: So when I look at the forwards, the gms of
Speaker 2: the world, what's their level of commitment to the electric
Speaker 2: vehicle business, Steve, has it changed in the last several
Speaker 2: years or is it still there?
Speaker 6: Uh?
Speaker 11: It hasn't for GM. And that's that's a good point, Paul,
Speaker 11: because I think the Trump administration will have to actually
Speaker 11: take that into consideration. You know, with the Inflation Reduction
Speaker 11: Act one hundreds you know, over one hundred billion has
Speaker 11: been spent on kind of on shoring the EV supply chain,
Speaker 11: and for these companies to actually give that up and
Speaker 11: it's a you know, can convert that to a someunk costs,
Speaker 11: it's not gonna go very well with the with the carmakers.
Speaker 11: So you know, for GM, they've invested a lot. You know,
Speaker 11: they're rolling out cheaper and cheaper evs. Next year you're
Speaker 11: gonna launch the Bolt which is EV E Chevrolet Bulb
Speaker 11: which is under thirty thousand. But Ford, on the other hand,
Speaker 11: is quite different. They actually have retrenched, they delay the battery,
Speaker 11: the new battery plant, and then they're also you know,
Speaker 11: cutting back on a three three year row su E
Speaker 11: V SUV. But so you know, depending on the different allmakers,
Speaker 11: the different approaches.
Speaker 2: Yeah, all right, Steve As I always thank you very much.
Speaker 2: Steve Man, Global Autos and Industrials Analysts for Bloomberg Intelligencies
Speaker 2: down there in our Princeton office. Again, it seems like
Speaker 2: the presence of Elon Musk is certainly influencing some of
Speaker 2: the transportation policy that may be coming down the pike.
Speaker 3: Would you be more apt to buy an EV or
Speaker 3: a self driving car EV?
Speaker 2: Okay, yes, but you know I think about it every
Speaker 2: morning I get in a car with some dude I've
Speaker 2: never met before.
Speaker 6: What's kind of the.
Speaker 3: Difference between self driving in that? No, it's a good point.
Speaker 3: I mean, at least when it comes to say transportation
Speaker 3: like caps and taxis. Yes, would you get into a
Speaker 3: self driving taxi?
Speaker 6: I don't know.
Speaker 3: He's not there yet.
Speaker 4: Yeah, I don't know if I would. I don't know.
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Speaker 3: Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio.
Speaker 3: We bring you all the top news and business. Were
Speaker 3: my business, economics and finance. Thank you very much. You know,
Speaker 3: it's like riding a bike until you kind a speedbump
Speaker 3: all across the world. We also love to tap into
Speaker 3: our Bloomberg n EF folks. So Bloomberg n EF Research
Speaker 3: basically powers data sets and models for everything from commodities
Speaker 3: to power, transport, industry, buildings, AG sectors. It's all about
Speaker 3: businesses helping to finance the energy transition dot dot dot.
Speaker 3: What does a Trump two point zero mean for something
Speaker 3: called the energy transition? Joining US now? Is Derek FLAKEL Bloomberg,
Speaker 3: EF lead US policy analyst. What do we think a
Speaker 3: Trump two point zero and energy means?
Speaker 9: So, first of all, there's a lot of worries about
Speaker 9: the future of the Insfalation Reduction Acts, the US Signature
Speaker 9: Climate subsidy program. We expect that will mostly remain intact.
Speaker 9: A lot of Republican district states are benefiting fourteen health
Speaker 9: Republicans have signed a letter saying they don't want to
Speaker 9: see those tax credits repealed hastily, and the Speaker of
Speaker 9: the House has said that he wants to use a scalpel,
Speaker 9: not a sledgehammer. So we think a lot of that
Speaker 9: will survive. Where you're likely to see more change is
Speaker 9: regulations and some voluntary initiatives like the procurement for clean
Speaker 9: products from the federal government.
Speaker 2: So I'm just looking. You have a great, great chart
Speaker 2: graphic here. Fossil fuels are likely to farewell on our
Speaker 2: Trump administration.
Speaker 4: Electric vehicles are not.
Speaker 2: Wouldn't mister Musk have something to say about the fate
Speaker 2: of electric vehicles.
Speaker 9: He certainly would, But the question is what if Tesla's
Speaker 9: strategy going to be visa the via of electric vehicle producers.
Speaker 9: Most of the valuation comes from the dream of a robotaxi.
Speaker 9: And we've certainly seen some Bloomberg reporting recently saying that
Speaker 9: Musk is likely to put for a favorable framework on
Speaker 9: av's when it comes to evs or electric vehicles. You know,
Speaker 9: he has said and the business and now may or
Speaker 9: may not bear this out, that Tesla would do better
Speaker 9: sort of survive the loss of the EV tax credits
Speaker 9: in a way that some of his EV competitors might not.
Speaker 9: It ultimately depends on what you and what he thinks.
Speaker 9: Tesl's interest is whether it's dominating a smaller EV market
Speaker 9: or having a smaller share of a larger EV market.
Speaker 3: Let's move to some of the stuff that feels a
Speaker 3: little bit disier, and those are the tax credits that
Speaker 3: are part of the IRA. So one is a tax
Speaker 3: credit for carbon that's captured, how you stored, how you
Speaker 3: capture it is debatable in terms of how much tax
Speaker 3: credit you receive, and the other has to do with hydrogen.
Speaker 3: How do we feel about those two policies either staying
Speaker 3: in place or getting reduced.
Speaker 9: So these tax credits are favored by you know, industrial interests,
Speaker 9: oil and gas interests. From what I've heard, there's not
Speaker 9: a lot of republic appetite to appeal either of those.
Speaker 9: But you're likely to see is looser regulations on both,
Speaker 9: which actually strengthens the business case for both. We might
Speaker 9: see a better outlook for both carbon castor and for
Speaker 9: hydrants than under Trump administrations. Now, as for emmistance benefits,
Speaker 9: the market acceptance of that, that might be a little
Speaker 9: bit diceier, But nevertheless we see the economic case beouse
Speaker 9: being a little bit easier as compliance costs go down.
Speaker 2: So I'm just looking in again winners and losers here.
Speaker 2: How much of this is a day one type of
Speaker 2: policy thing versus boy, this is just take a while.
Speaker 2: To the extent that Trump administration may want to shift
Speaker 2: gears on this energy transition, it seems like a lot
Speaker 2: of stuff has already been spent. There's a lot of
Speaker 2: investment already pink around. What's the timing do you think?
Speaker 1: Right?
Speaker 9: Well, it depends on what you're talking about. If you're
Speaker 9: talking about taxes, there's going to be a big tax
Speaker 9: negotiation taking up probably most of twenty twenty five to
Speaker 9: do with extending the Trump tax cuts. Seeing what happens
Speaker 9: with the IRA et cetera. You're likely to see closure
Speaker 9: on that by the end of the year. But after
Speaker 9: that regulatory changes and so forth. In general, regulatory changes,
Speaker 9: including those for existing tax credits, take usually about two
Speaker 9: or three years, give or take, and so a lot
Speaker 9: of the stuff can't really happen on day one. You
Speaker 9: can't really shift the stiff on a dime. However, in
Speaker 9: terms of carrick, those are things that can be done
Speaker 9: more or less immediately, though politically that might not fly
Speaker 9: too well. And programs that are sort of voluntary, like
Speaker 9: again federal procurement of clean products, those could be killed
Speaker 9: more or less day one by an executive order.
Speaker 3: What about wind and solar, so to some extent, a
Speaker 3: lot has already been thrown into that, and it's hard
Speaker 3: to see onshore wind and solar, it's harder to reconcile
Speaker 3: that being really stripped away. But the offshore wind space
Speaker 3: that has question.
Speaker 9: Marks for me, Yeah, it does have quite a few.
Speaker 9: If you look at BNF's modeling for what might happen
Speaker 9: if the IRA were repealed at the earliest opportunity, which
Speaker 9: again we don't think will happen, but even if it did,
Speaker 9: you would see about a seventeen percent drop overall in
Speaker 9: the combination of wind, solar, and storage installations. Wind itself, though,
Speaker 9: would see a much bigger drop because it's very expensive
Speaker 9: and tax pres dependent. You might see about like thirty
Speaker 9: percent drop in on store wind and an over forty
Speaker 9: percent drop in offshore wind, and that's only based on
Speaker 9: the financial subsidies.
Speaker 6: Right.
Speaker 9: Trump has a lot more control over offshore leasing as
Speaker 9: well as federal permits. There's a pipeline of projects that
Speaker 9: already have both offer leases and permits, but a lot
Speaker 9: of proposed ones don't have that yet. And there's also
Speaker 9: questions about how the even would approach litigate and against
Speaker 9: existing off for wind permits. You might see some of
Speaker 9: that fall by the wayside depending on how lawsuits go.
Speaker 2: Derek just broadly defined how committed is Congress as a
Speaker 2: legislative body to this whole energy transition. Do they feel
Speaker 2: like it's real or how did they feel about it?
Speaker 3: Are facilities being built in their states?
Speaker 1: Yeah?
Speaker 3: That could they.
Speaker 9: Answer to that exactly from what we attracted in clean
Speaker 9: tech factory deployments. I think about ninety sent is going
Speaker 9: to red or purple, that is swing states. So there's
Speaker 9: a lot of electoral consequences, especially if you zoom down
Speaker 9: at the district level, where overwhelming with Republican districts with
Speaker 9: the planned better labor costs Richthoor, these are the place
Speaker 9: that they're seeing the most investment, and so I think
Speaker 9: the commitment primarily is to economic development, local opportunity, as
Speaker 9: well as to some degree on storing and supply chained
Speaker 9: diversificate and de risking, and that I think is fairly
Speaker 9: durable in a bipartisan manner.
Speaker 2: All right, most important question of the day, Derek, for
Speaker 2: you are the unc Tar Hills. Are they even going
Speaker 2: to be able to field a basketball team this year?
Speaker 6: Go but go up against my dookies.
Speaker 9: Well, my wife's duke. So I'm I'm gonna not take
Speaker 9: a position on that.
Speaker 4: Man A very good all right, Derek, thanks so much
Speaker 4: for you. Appreciate it.
Speaker 2: Derek Flackle, lead US policy analysts for b n e F.
Speaker 4: Again, one of my thoughts here, as.
Speaker 2: We think about it from the energy perspective, it just
Speaker 2: seems like there's so much or there is a certain
Speaker 2: degree of just movement towards cleaner energy that I'm not
Speaker 2: sure how you stop that much lessen slow it down,
Speaker 2: but I guess there are certain things that you can do.
Speaker 4: Executive Order day one.
Speaker 3: Yeah, I just think it's also going to be sort
Speaker 3: of a pick and choose, right, Like I mentioned sort
Speaker 3: of the carbon credit tax credit. You could see that staying,
Speaker 3: but hydrogen feels like a real question mark, maybe more
Speaker 3: of a push into nuclear, So like there's some nuances there,
Speaker 3: And also what happens with coal if you were going
Speaker 3: to shut out a coal plant or you have a
Speaker 3: clean coal plant, Like, does that change your calculus?
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