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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day, we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moving news.

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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: Let's talk to our Jersey here, chief US interest rates strategist.

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Speaker 1: I just saw Michael McKee leaving here. He's gonna hop

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Speaker 1: on the Assella train, get down and washing it in

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Speaker 1: DC for that FED meeting tomorrow where you can heckle

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Speaker 1: the chairman with some questions. What do you want to

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Speaker 1: hear from FED Chairman Jpal tomorrow after the release of

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Speaker 1: the results there?

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Speaker 3: Well, what I'd like to hear and what we're not

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Speaker 3: going to hear is wind up being what's the Fed's

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Speaker 3: reaction function and for when they might cut or raise

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Speaker 3: interest rates? Obviously, if inflation accelerates meaningfully, they'll raise interest

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Speaker 3: rates again. They've already mentioned that that they might have

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Speaker 3: to do more if inflation does except right, although we

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Speaker 3: got some data today that seems like maybe it is

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Speaker 3: going to moderate a little bit, but really, you know,

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Speaker 3: what will it take for them to cut? And I

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Speaker 3: think that the idea that they're going to remain at

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Speaker 3: the peak for some time, which they've hounded on, it

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Speaker 3: would be helpful for them, I think.

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Speaker 4: To basically be a little bit more explicit, like, look.

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Speaker 3: We're not cutting unless the unemployment rate is you know,

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Speaker 3: three four percentage points higher than where it.

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Speaker 4: Is and inflation is close to our target.

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Speaker 3: Right, So saying something like that, which isn't completely explicit,

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Speaker 3: is but it still has some meaning around it for markets.

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Speaker 3: I think that that would be helpful for the FED

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Speaker 3: to maintain monetary policy at this page.

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Speaker 2: Close to our target is weak talk week talk weak sauce, right,

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Speaker 2: I mean, do you want a hawkish Why don't they say, like,

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Speaker 2: we want to get to two percent two hour target?

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Speaker 5: You know, I mean at.

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Speaker 2: Least for six months or a year. I mean, weren't

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Speaker 2: they trying to average long term average two percent?

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Speaker 5: And how many decades would that take?

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Speaker 3: Yeah, well, that was our old framework. It wouldn't take

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Speaker 3: you know, it wouldn't take that long because we remember

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Speaker 3: we were at under two percent at least for quite

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Speaker 3: a while in the last decade. I think the the

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Speaker 3: thing for the FED though, is that if look, if

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Speaker 3: inflation is two point seven percent, two point six percent,

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Speaker 3: two point five percent trending lower, and you had a

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Speaker 3: real spike in unemployment, then everyone would be forecasting inflation to.

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Speaker 4: Be significantly lower, right.

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Speaker 3: And I think that's the reason why they can say

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Speaker 3: like near our target or approaching our target, right, something

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Speaker 3: like that. So the FED doesn't like to be as

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Speaker 3: explicit as saying, look, we will cut interest rates if

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Speaker 3: the unemployment rate is above five percent and unemployment and

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Speaker 3: inflation is at two percent if they won't be as

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Speaker 3: explicit as that, because they want to leave themselves flexibility

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Speaker 3: in case there's a crisis, if there's you know, massive

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Speaker 3: corporate defaults for example, and unemployment spikes, but you still

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Speaker 3: have you know, year of a year inflation hasn't fallen

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Speaker 3: off a cliff. Yet they always want to leave some

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Speaker 3: of that flexibility. But you know what's interesting about the

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Speaker 3: FED is it's that little minution detail. It's going to

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Speaker 3: matter because the Fed's probably not going to do anything tomorrow.

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Speaker 3: The Treasury Department, though, at eight thirty in the morning,

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Speaker 3: is going to give us some information that might actually

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Speaker 3: be market moving.

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Speaker 2: So yeah, I mean, yesterday we heard from I guess

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Speaker 2: Treasury that they need about what eight hundred billion dollars

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Speaker 2: in this quarter.

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Speaker 3: Seven hundred and seventy six billion in this quarter of

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Speaker 3: of net debt rays. Effectively, that's a little bit higher

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Speaker 3: than what our expectation was, a little bit lower than

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Speaker 3: most expectations, and the reason is is that they want

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Speaker 3: to keep this pretty big cash balance. They want to

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Speaker 3: keep a cash balance of around seven hundred and fifty

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Speaker 3: billion dollars.

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Speaker 4: So in order to do that, with Social Security.

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Speaker 3: Payments coming and additional additional payments for medicare as well

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Speaker 3: as just just general government deficits, not to mention interest

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Speaker 3: payments on the debt, they're going to have to raise,

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Speaker 3: you know, quite a lot of money.

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Speaker 4: Now.

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Speaker 3: Interestingly, remember that seven hundred and seventy six billion dollars

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Speaker 3: is what they're selling to the public. It's actually not

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Speaker 3: the total debt that's being raised because there's non marketable debts,

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Speaker 3: so debt from the Social Security Trust Fund and some

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Speaker 3: other trust funds that are being paid down. So what

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Speaker 3: you'll see is a deficit for the quarter of around

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Speaker 3: half half a trillion dollars.

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Speaker 4: Round five hundred billion dollars.

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Speaker 3: But you'll but the actual debt that they need to

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Speaker 3: raise is much more than that because of the things

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Speaker 3: that we've known.

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Speaker 4: For thirty years.

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Speaker 3: Right, the Sochi Security Trust Fund is is a is

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Speaker 3: a net negative and that has to be funded out

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Speaker 3: of out of general revenue. So it's it's you know,

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Speaker 3: it's all the problems that we've seen over the last

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Speaker 3: twenty five years, and we said we're going to be

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Speaker 3: problems for the government debt are actually coming home to

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Speaker 3: roost right now.

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Speaker 1: So I right, I mean, nobody likes to ignore treasury

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Speaker 1: auctions more than me. Will you tell me i'd have

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Speaker 1: to pay attention to this.

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Speaker 3: Well, they've been important, they've been market moving events. When

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Speaker 3: you look at auction demand the last couple of weeks,

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Speaker 3: they've they've started to slip a.

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Speaker 4: Little on on on average.

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Speaker 3: We last week, for example, we had pretty weak auctions

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Speaker 3: for two year debt and five year notes, but the

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Speaker 3: seven year on Thursday one. Okay, But I would say

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Speaker 3: that demand is much more mixed. Prior to this past

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Speaker 3: month or so, we actually had pretty decent demand at

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Speaker 3: auctions people, where I think we're taking advantage of the selloff.

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Speaker 4: We you know, hit five percent.

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Speaker 3: On ten year notes, and people had, you know, taking

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Speaker 3: a little stab at maybe owning a little bit more

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Speaker 3: on at auction. So, yeah, we need to see if

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Speaker 3: demand is maintained, particularly since tomorrow morning with all of

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Speaker 3: that seven hundred billion dollars of debt that needs to

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Speaker 3: be raised, there's going to have to the government's going

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Speaker 3: to have to increase the size of auctions almost across

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Speaker 3: the board.

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Speaker 1: So I'm looking at the two tens. That's another thing

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Speaker 1: you got me looking at. Unfortunately still inverted, but you know,

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Speaker 1: much less than it was before, not only about you know,

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Speaker 1: twenty basis points or so are we going to get

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Speaker 1: to a point where we actually have longer term yields

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Speaker 1: higher than shorter term yields.

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Speaker 3: Yeah, I think I think we will, and it will

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Speaker 3: probably happen early next year.

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Speaker 4: I think it really depends. Though.

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Speaker 3: The important nuance of that is, is it because two

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Speaker 3: year yields go down a lot, So do we have

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Speaker 3: a weakening economy? As Ana Wog and the Bloomberg Economics

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Speaker 3: team correct, And if we do have a meaningful slowdown

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Speaker 3: in the economy, we could probably see two year yields

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Speaker 3: go down, you know, twenty five fifty basis points and

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Speaker 3: ten year yields go down less than that, and that's

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Speaker 3: how you wind up getting that positively sloped yield curve.

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Speaker 3: On the other side, if the if the economy stays

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Speaker 3: reasonably robust, but only because we have all of this

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Speaker 3: debt issuance, you could see, you know, ten year yields

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Speaker 3: maybe up above five percent, up to five point two

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Speaker 3: five five point three percent, and that could you know,

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Speaker 3: uninvert the yield curve, And that would not.

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Speaker 4: Surprise me at all.

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Speaker 3: In fact, we actually think that we're we are in

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Speaker 3: the process of completely uninverting and we do expect to

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Speaker 3: see a positively slope yield curve sometime over the next

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Speaker 3: twelve months.

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Speaker 2: You raise an interesting point that Treasury Secretary Janet Yellen

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Speaker 2: last week she said, the reason we have high yields

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Speaker 2: is not to do with the debt and deficits, nothing

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Speaker 2: to do with that.

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Speaker 5: Look away from there, don't look there.

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Speaker 2: It's because of the strength of the economy, because of Bidenomics,

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Speaker 2: from the middle out, from the what is it middle out,

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Speaker 2: and I can't remember, he says, he has a catchphrase

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Speaker 2: that he uses bottom up and middle out. That's what

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Speaker 2: it is So is that the case? And will we

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Speaker 2: know from you know, the refunding how much of the

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Speaker 2: rise in yields is due to you know, the high

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Speaker 2: debt and deficits, and how much of it is due

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Speaker 2: to the speeding economy.

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Speaker 3: Yeah, these are only things that can be estimated. But

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Speaker 3: our estimate is that around ninety two percent of the

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Speaker 3: move from the July FED meeting to present in the

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Speaker 3: tenure yield has been due to the shift in FED expectations.

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Speaker 3: And so if you go and you look at what

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Speaker 3: the expectation is that the market's been pricing. We were

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Speaker 3: pricing for two and a half percent FED funds rate

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Speaker 3: in twenty twenty five, We're now pricing for four percent

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Speaker 3: in twenty twenty five. So that's a huge move, right,

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Speaker 3: I talk about a one hundred and fifty basis point

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Speaker 3: move up in where the FED is going to cut

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Speaker 3: to or you know, where the market thinks it's going

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Speaker 3: to cut to. So that had to manifest itself all

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Speaker 3: throughout the treasury curve, and in particular in the longer end,

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Speaker 3: because the longer end was anticipating rates to be much

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Speaker 3: lower and policy rates to be much lower a few

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Speaker 3: years from now, so I think, I think the debt

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Speaker 3: dynamics have do have some effect, and they certainly have

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Speaker 3: effect on liquidity, but I.

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Speaker 1: Forget to just leave it there. But we appreciate that.

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Speaker 1: Ira Jersey, Chief US Interest Rate Strategies for Bloomberg Intelligence.

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Speaker 6: You're listening to the teenth Ken's Are Live program Bloomberg

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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot com,

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Speaker 6: on demand wherever you get your podcasts.

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Speaker 1: Caterpillar they make the big tractors and all that kind

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Speaker 1: of good stuff back hose. They reported some numbers today

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Speaker 1: which were in line, I guess, pretty solid. But it's

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Speaker 1: all about the outlook for these long cycle industrial companies

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Speaker 1: and that's what's got some investors spook here. As John mentioned,

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Speaker 1: is stocks down about five percent here today. Let's break

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Speaker 1: it down with the man who knows what's happening with

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Speaker 1: this company, Chris Chield. You know he covers the big

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Speaker 1: industrial companies for Bloomberg Intelligence. He's located down in Princeton,

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Speaker 1: New Jersey, the HQ if you will of a Bloomberg Intelligence. Hey, Chris,

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Speaker 1: talk to us about Caterpillar you've been calling on I

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Speaker 1: know in the last a few quarters we've been speaking

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Speaker 1: to you about Boy, these companies are putting up great numbers,

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Speaker 1: but investors are really looking forward and they're a little

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Speaker 1: bit concerned that seemed to come to fruition here today.

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Speaker 7: What'd you see, Yeah, I mean to your point, I mean,

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Speaker 7: the quarter was fine, actually was quite good, with better

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Speaker 7: than expected margin performance and earnings. You know, pricing continues

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Speaker 7: to be really strong, but what we saw was a

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Speaker 7: pretty broad deterioration when it comes to their leading indicators,

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Speaker 7: you know, backlog fail for the first time in three years.

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Speaker 7: Implied orders also dropped sequentially in year over year, and

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Speaker 7: they're fourth quarter sales outlook was somewhat kind of disappointing

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Speaker 7: and below normal seasonality and consensus, and there was a

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Speaker 7: fair amount of trepidation about the macro backdrop heading into

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Speaker 7: the print. And I think these softer orders and backlog

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Speaker 7: trends that we saw aren't necessarily encouraging and what was

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Speaker 7: likely to be a softer economic environment next year and

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Speaker 7: really just kind of intensify some of those concerns around

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Speaker 7: the duration of the cycle.

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Speaker 2: Yeah, So we saw the year on year decline of

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Speaker 2: one point nine billion dollars in the backlog. What exactly

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Speaker 2: does that mean? Does that mean you know exactly what

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Speaker 2: I think it does that they had orders that were

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Speaker 2: that much lower? I mean, how much were there was

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Speaker 2: the backlog in total?

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Speaker 7: Yeah, So I would say the moderation in the backlog

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Speaker 7: wasn't necessarily surprised, and I think it was somewhat to

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Speaker 7: be expected, just giving normalizing supply chains and some of

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Speaker 7: the lead time shrinking with some of the product availability.

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Speaker 7: But I think the magnitude of the decline was kind

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Speaker 7: of what spook people, particularly on the order front. Orders

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Speaker 7: were down about fifteen percent versus prior year and twenty

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Speaker 7: percent sequentially. So I think that sheer magnitude and just

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Speaker 7: the optics of But.

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Speaker 2: What's the magnitude of the Is a one point nine

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Speaker 2: billion dollar drop a ten percent drop in the backlog?

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Speaker 2: Or is it a fifty percent drop in the backlog?

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Speaker 7: No, it's it's an eight and a half percent decline sequentially.

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Speaker 6: So while not but.

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Speaker 7: It's the first time we've seen backlogs essentially peaked.

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Speaker 5: This is the first time sequentially We're not talking about

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Speaker 5: the year over year drop.

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Speaker 1: Yeah right, Yeah, that's I could see how that was

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Speaker 1: spook people. What's Kat saying about, like, which, are there

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Speaker 1: any particular customer segments that are maybe weaker than expected?

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Speaker 1: What are they saying about kind of where this might

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Speaker 1: be coming from.

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Speaker 7: Yeah, I think I'll actually maybe start on the construction side.

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Speaker 7: I think that was one positive surprise, particularly in North America.

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Speaker 7: North America continues to be quite resilient, and end user

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Speaker 7: demand continues to be pretty strong really across their business.

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Speaker 7: The energy and transportation business came in a little bit

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Speaker 7: weaker than we had anticipated, and it's some there was

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Speaker 7: some softness on the mining side on the top line,

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Speaker 7: it seems to be some timing issues, but also there

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Speaker 7: was some weakness in the aftermarket business, which was a

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Speaker 7: little surprising just given the age of the fleet and

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Speaker 7: utilization still remains quite high. So those bear kind of

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Speaker 7: watching going forward here.

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Speaker 1: So it give us a sense of a cycle here

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Speaker 1: for like a Caterpillar. I mean, you said, this is

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Speaker 1: the first time in three years they've had down order. Sequentially,

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Speaker 1: that sounds like a pretty good cycle, But is it

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Speaker 1: our downcycles similarly like in length?

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Speaker 7: No, as much as we like to think every cycle

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Speaker 7: is the same, they tend to be different. And I

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Speaker 7: would say, you know, even though backlog had peaked here,

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Speaker 7: you know, we are still at historically very elevated levels

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Speaker 7: and there is really above average production visibility as we

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Speaker 7: look forward to next year. But the optics are I mean,

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Speaker 7: you have a really a cyclical company with declining orders

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Speaker 7: a declining backlog. It doesn't just the optic of that

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Speaker 7: are not a favorable setup for the company moving into

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Speaker 7: next year.

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Speaker 1: How about the Inflation Reduction Act. Isn't that like lots

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Speaker 1: of Caterpillar type stuff you need?

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Speaker 7: So it is, And I guess one of the caveats

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Speaker 7: with this cycle is it's different because we just have

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Speaker 7: an immense amount of fiscal stimulus coming through the pipe,

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Speaker 7: and I'd say a lot of that has really kind

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Speaker 7: of yet to materialize to the financial results of a

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Speaker 7: lot of these companies and as part of what's propping

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Speaker 7: up the backlog here. So I think that does help

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Speaker 7: provide an offset. I think some of the decline is

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Speaker 7: certainly attributable to the normalizing supply chain and shrinking lead time,

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Speaker 7: So maybe a little bit of an overreaction, but yeah,

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Speaker 7: this will certainly provide a multi year tail wind for

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Speaker 7: the company and really probably provides a little bit more

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Speaker 7: of a favorable outlook for a lot of the construction

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Speaker 7: machinery producers relative to some of the other machinery and markets.

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Speaker 2: What are the biggest competitors and do they face a

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Speaker 2: threat there? I mean, I look through all the on

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Speaker 2: the r V page on the Bloomberg and I don't

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Speaker 2: see anything that really stands out as you know, a

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Speaker 2: household name other than maybe Mitsubishi.

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Speaker 5: But you know, who are they facing off against?

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Speaker 7: Yeah, so, I mean, they're the undisputed leader in the

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Speaker 7: construction machinery space. When it comes to mining, it's essentially

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Speaker 7: a duopoly with them in Kamatsu, and Kamatsu is a

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Speaker 7: pretty significant player on the construction side as well. Everyone

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Speaker 7: else tends to be subscale. They do compete with Deer

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Speaker 7: also on construction. They're starting to grow their construction business,

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Speaker 7: so I would expect them to be a more formidable

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Speaker 7: competitor in the years to come. But really it's kat

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Speaker 7: and Kamatsu. Those are the dominant forces in the market.

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Speaker 1: How about geographies, Chris, particularly China. What's their exposure to

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Speaker 1: China and what are they saying about China.

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Speaker 7: China's weak and continues to weaken really no signs of

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Speaker 7: a turnaround yet. So you know, historically China has been

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Speaker 7: roughly ten to ten five to ten percent of consolidated

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Speaker 7: sales at Caterpillar. This year, we're going to be well

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Speaker 7: below the five percent in the lowest and quite some time.

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Speaker 7: Not really hearing any sort of optimism coming out of

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Speaker 7: that region.

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Speaker 1: And how about Europe, because I know I can see

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Speaker 1: here on the p GEO page that's EAM is about

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Speaker 1: twenty percent of revenue. What are they seeing out of Europe?

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Speaker 1: Because I know people are concerned about that, those economies

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Speaker 1: over there.

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Speaker 7: Yeah, and you know that actually held up a little

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Speaker 7: better than I had anticipated. We're just starting to hear

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Speaker 7: this earning season from a number of number of other

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Speaker 7: machinery producers that there had been some weakening and the

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Speaker 7: sentiment over in Europe and even some softer orders. Didn't

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Speaker 7: really get that coming out of cat and some of

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Speaker 7: their retail sales trends didn't seem to suggest a significant

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Speaker 7: deterioration there yet. So again another item worth kind of

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Speaker 7: monitoring moving forward.

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Speaker 2: We just saw the Eurostat growth figures, by the way, Paul,

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Speaker 2: so the European economy contracted zero point one percent in

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Speaker 2: the third quarter, and we were looking for just a segnation,

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Speaker 2: So it's getting smaller there. I guess consumer prices are

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Speaker 2: coming down, which is good. They got a two handle

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Speaker 2: on them, two point nine percent in October.

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Speaker 1: Okay, yeah, hey, Chris, just looking ahead a little bit.

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Speaker 1: My good friends at John Dear the nice Green Tractors

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Speaker 1: are reporting in a few weeks here, and you know,

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Speaker 1: I always load to look at the Deer results because

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Speaker 1: it gives you a great handle on kind of how

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Speaker 1: the state of the farmer out there, how are things

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Speaker 1: at Deer.

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Speaker 7: So I think Deer is going to have a more

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Speaker 7: challenging setup into twenty twenty four relative to Cat. We

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Speaker 7: think the egg market is already peaked, so we're kind

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Speaker 7: of anticipating mid digit volume declines next year. Now, remember Deer,

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Speaker 7: we'll report their fiscal four Q results later in November,

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Speaker 7: so they'll provide the kind of first look at twenty

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Speaker 7: twenty four. But we're certainly expecting a lower volume market.

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Speaker 7: On the ag side, we're coming off a number of

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Speaker 7: strong years, but you're starting to see commodity prices. Is

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Speaker 7: a rural crowd often quite a bit farmer income is

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Speaker 7: going to be down twenty five percent this year, so

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Speaker 7: really i'd say a less favorable outlook on the ag

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Speaker 7: side in twenty twenty four and the farmer.

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Speaker 1: I mean, when the farmer has cash, he or she

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Speaker 1: goes out and buys tractors and stuff like that. But

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Speaker 1: it's it's a cyclical business, so the flip side is true.

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Speaker 7: Right, Yeah, any the magnitudeers sound pretty draconian, but I

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Speaker 7: think we'll still be, you know, second or third highest

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Speaker 7: all time in terms of that farm income. So we'll

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Speaker 7: be down from a peak in twenty twenty two. It's

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Speaker 7: still going to be historically strong. But I would just

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Speaker 7: expect farmers to dial back some of the spending just

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Speaker 7: given what's going on with some of the farm fundamentals

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Speaker 7: and again the weaker crop prices that we've seen.

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Speaker 1: All right, great stuff, I'm just gonna deer right now

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Speaker 1: in the stocks off about fifteen percent year to date,

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Speaker 1: so there's the market discounting good twelve to eighteen months

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Speaker 1: in the future. On that name, Chris Chierlino, we always

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Speaker 1: appreciate getting a few minutes of his time. He's the

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Speaker 1: industrials analysts at Bloomberg Intelligence.

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Speaker 6: You're listening to the tape. Ken's our live program Bloomberg

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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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00:18:11,960 --> 00:18:14,760
Speaker 6: You can also listen live on Amazon Alexa from our

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Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

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Speaker 1: Looking at Ingo that is the Bloomberg Index browser kind

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Speaker 1: of gives you the performance your day, month to day

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Speaker 1: of all the big indexes out there, and for the

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Speaker 1: fixed income space in the US it is red with

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Speaker 1: one exception, US corporate high yield up four point three

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Speaker 1: eight percent. Why is that? Let's check out with our

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Speaker 1: next guest, Ken Monaghan, co director of high Yield at

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Speaker 1: a Mundi US. He's based in Durham, North Carolina, but

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Speaker 1: up here in New York. Ken twenty twenty two, as

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Speaker 1: we've talked about before, was the mother of all disasters

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Speaker 1: for fixed income investors. This year is not much better

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Speaker 1: through the first you know, nine ten months. What's going

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Speaker 1: on in the corporate high yield mark? Why is that

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Speaker 1: showing some positive returns?

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Speaker 8: You're right, Paul, I think it's been a reasonable year

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Speaker 8: considering how bad we've had in the past, it's a

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Speaker 8: decent year, and it's a year where risk is outperformed.

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Speaker 4: Now.

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Speaker 9: October thus far has been miserable for risk.

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Speaker 8: But if you're looking at the year to date, we

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Speaker 8: see the triple C credits are up, you know, really

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Speaker 8: threefold what double b's are.

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Speaker 9: So we've had a fair amount of spread compression.

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Speaker 1: So but I mean, everybody's been telling Matt and I

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Speaker 1: that we're going to have a recession any day now.

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Speaker 1: If that's the case, why are people taking incremental risk

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Speaker 1: that they need to that they do when.

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Speaker 5: They tie the threads.

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Speaker 2: I mean, if you're paying me, I get it. But

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Speaker 2: if you're not paying me, why am I buying it?

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Speaker 8: Well, if you look at spreads where they are right now,

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Speaker 8: arguably they're only at the five and ten year averages,

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Speaker 8: so they're not looking particularly cheap. On the other hand,

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Speaker 8: that the economy has done pretty well, and I think

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Speaker 8: that that's really what's been driving spreads is you know,

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Speaker 8: we'd all been waiting or expecting a a recession, whether

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Speaker 8: it was in the later half of the back early

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Speaker 8: part of the first half of the year, or then

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Speaker 8: the back half of this year, and then people are

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Speaker 8: forecasting it for early twenty twenty four, and thus far

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Speaker 8: the economy continue to power through, and I think that's

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Speaker 8: what's been driving spreads.

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Speaker 2: But aren't you worried that defaults are going to start

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Speaker 2: to pick up?

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Speaker 8: Well, interestingly enough, if you look at the Moody's estimates,

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Speaker 8: they're expecting defaults will peak sometime or the spring of

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Speaker 8: next year, but at a fairly reasonable rate. But let's

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Speaker 8: remember when Moody's puts out its number is it is

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Speaker 8: an unweighted number, So they count one hundred million dollars

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Speaker 8: default the same way they count a billion dollar default.

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Speaker 8: If you look at it on an adjusted basis, where

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Speaker 8: they're using waitings based on the amount of debt outstanding.

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Speaker 8: The default rate for this year is still running under

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Speaker 8: two percent. Now they're expecting the default rate to rise

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Speaker 8: into the.

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Speaker 9: Mid to high fours. But that's a pretty big differential.

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Speaker 8: So what it tells us is the companies that are

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Speaker 8: getting into more difficulty tend to be smaller companies rather.

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Speaker 9: Than larger ones. At this point, it's.

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Speaker 1: A new issue market. Like I used to love throwing

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Speaker 1: out some high yield from my clients back in the

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Speaker 1: day because I love the media, cable paper what's the

440
00:21:08,560 --> 00:21:10,200
Speaker 1: what's the new issue market like these days?

441
00:21:10,400 --> 00:21:13,000
Speaker 8: It's pretty soft right now. Not surprisingly, I think we

442
00:21:13,040 --> 00:21:16,000
Speaker 8: had a pretty robust calendar coming into September and that

443
00:21:16,040 --> 00:21:18,920
Speaker 8: there were a number of companies that had financings, whether

444
00:21:18,920 --> 00:21:21,119
Speaker 8: it was M and A related or LBO related that

445
00:21:21,200 --> 00:21:23,679
Speaker 8: needed to get done, and they got those done.

446
00:21:23,840 --> 00:21:26,160
Speaker 9: But since then, obviously, treasuries.

447
00:21:25,560 --> 00:21:28,520
Speaker 8: Have risen fairly dramatically, and then on the back of

448
00:21:28,560 --> 00:21:31,760
Speaker 8: the fifty beeps treasury move we've had in the last

449
00:21:31,800 --> 00:21:33,920
Speaker 8: four or five weeks, we've had about a seventy five

450
00:21:33,960 --> 00:21:36,560
Speaker 8: basis point widening of high yield. So I think companies

451
00:21:36,600 --> 00:21:38,840
Speaker 8: have taken a step back and said, let's wait a

452
00:21:38,840 --> 00:21:41,840
Speaker 8: minute here, let's hope that spreads get tighter, or hope

453
00:21:41,840 --> 00:21:44,600
Speaker 8: the treasury rates come down and moderate, and we'll find

454
00:21:44,600 --> 00:21:48,120
Speaker 8: a better financing opportunity. Now, the problem with that, from

455
00:21:48,119 --> 00:21:50,679
Speaker 8: our perspective is if you wait too long and we

456
00:21:50,760 --> 00:21:52,800
Speaker 8: are right and we do see more of an economic

457
00:21:52,880 --> 00:21:56,719
Speaker 8: slowdown in twenty twenty four, which is what our expectation is,

458
00:21:56,960 --> 00:21:59,800
Speaker 8: that would imply, as you're suggesting, that spreads ought to

459
00:21:59,800 --> 00:22:04,280
Speaker 8: be wider, not tighter, And if spreads are not wider,

460
00:22:04,320 --> 00:22:07,000
Speaker 8: then the FEDS likely to keep its foot on their

461
00:22:07,000 --> 00:22:09,920
Speaker 8: break pretty hard, because that says the economy is powering

462
00:22:10,240 --> 00:22:13,440
Speaker 8: along too strongly and they're going to have to react.

463
00:22:13,720 --> 00:22:16,639
Speaker 2: Or else you're playing along too much. You need to

464
00:22:16,640 --> 00:22:19,119
Speaker 2: get a little bit more vigilante, don't you know?

465
00:22:19,920 --> 00:22:20,480
Speaker 5: What can you do?

466
00:22:20,600 --> 00:22:24,399
Speaker 2: By the way, in terms of, you know, pivoting your strategy,

467
00:22:24,480 --> 00:22:27,160
Speaker 2: you can't. Can you go up in quality if.

468
00:22:27,040 --> 00:22:29,439
Speaker 8: You're a co director of high Year, Sure, yeah, and

469
00:22:29,480 --> 00:22:31,679
Speaker 8: we've been doing a fair amount of that, and I

470
00:22:31,680 --> 00:22:33,359
Speaker 8: think then the other thing you do is you go

471
00:22:33,440 --> 00:22:36,359
Speaker 8: into sectors where you have a greater degree of certainty.

472
00:22:36,640 --> 00:22:39,600
Speaker 8: So you know, we look at affluent consumers are still spending.

473
00:22:39,840 --> 00:22:42,679
Speaker 8: Cruise ship companies happen to be doing extremely well, and

474
00:22:42,760 --> 00:22:45,240
Speaker 8: actually if you look at their bookings through twenty twenty four,

475
00:22:45,600 --> 00:22:49,320
Speaker 8: they're solidly booked. You know, we've seen some softness in

476
00:22:49,320 --> 00:22:51,720
Speaker 8: the airline space, but the cruise ships happen to be different.

477
00:22:52,040 --> 00:22:54,080
Speaker 8: You know, even if you're looking at something like homebuilders,

478
00:22:54,119 --> 00:22:56,520
Speaker 8: you would say to yourself, well, how could homebuilders be

479
00:22:56,600 --> 00:22:59,320
Speaker 8: doing well in this kind of environment? Well, right now,

480
00:22:59,640 --> 00:23:03,600
Speaker 8: you know, secondary or home sales have dried up because

481
00:23:03,640 --> 00:23:06,320
Speaker 8: anyone that's got a three and a half percent mortgage

482
00:23:06,560 --> 00:23:08,760
Speaker 8: or four percent mortgage, isn't going to sell their house

483
00:23:08,800 --> 00:23:11,879
Speaker 8: and buy something new unless they absolutely have to because

484
00:23:11,880 --> 00:23:14,760
Speaker 8: they're moving, for example, to a whole other state. So

485
00:23:15,040 --> 00:23:17,679
Speaker 8: the only game in town right now is buying a

486
00:23:17,680 --> 00:23:20,440
Speaker 8: new house. And the margins on the home building industry

487
00:23:20,440 --> 00:23:24,000
Speaker 8: over the last several years have accelerated in a significant way,

488
00:23:24,240 --> 00:23:27,320
Speaker 8: so they've got room to play around and offer extra

489
00:23:27,400 --> 00:23:30,520
Speaker 8: financing support for the first two or three years. They

490
00:23:30,520 --> 00:23:33,760
Speaker 8: can bring down the quality or going to put carpeting

491
00:23:33,760 --> 00:23:35,160
Speaker 8: in instead of hardwood floors.

492
00:23:35,400 --> 00:23:37,679
Speaker 9: They've got room to maneuver. But the homebuilders are actually

493
00:23:37,680 --> 00:23:38,399
Speaker 9: doing quite well.

494
00:23:38,720 --> 00:23:42,000
Speaker 1: How about the cable slash telecom space, big big issues

495
00:23:42,040 --> 00:23:44,920
Speaker 1: in the high healed space historically. How about those you

496
00:23:44,920 --> 00:23:46,760
Speaker 1: guys have exposure there and what do you like or

497
00:23:46,760 --> 00:23:47,160
Speaker 1: don't we?

498
00:23:47,160 --> 00:23:47,480
Speaker 10: We do?

499
00:23:47,600 --> 00:23:48,200
Speaker 9: We do?

500
00:23:48,240 --> 00:23:48,439
Speaker 6: You know?

501
00:23:48,520 --> 00:23:50,600
Speaker 9: The cable sector. You know, if we look back.

502
00:23:50,440 --> 00:23:51,760
Speaker 8: And you look at some of the names in the

503
00:23:51,800 --> 00:23:54,840
Speaker 8: space on the equity side, over the last couple of years,

504
00:23:54,880 --> 00:23:56,800
Speaker 8: they've been under pressure ye big time. And I think

505
00:23:56,840 --> 00:23:59,320
Speaker 8: that that's reflecting a couple of things. And one is

506
00:23:59,359 --> 00:24:04,240
Speaker 8: the competitiveness of wireless alternatives yep.

507
00:24:04,880 --> 00:24:05,720
Speaker 9: And then there was.

508
00:24:05,760 --> 00:24:08,560
Speaker 8: Cord cutting is obviously going on, but I think we've

509
00:24:08,600 --> 00:24:10,840
Speaker 8: seen some changes in the last several months.

510
00:24:10,880 --> 00:24:12,720
Speaker 1: They always pay their interest in principle, though.

511
00:24:12,800 --> 00:24:15,040
Speaker 8: They are always paying their interest in principle, and I think,

512
00:24:15,080 --> 00:24:16,760
Speaker 8: you know, think about how many of us are still

513
00:24:16,960 --> 00:24:19,800
Speaker 8: working from home, at least part time, maybe not in

514
00:24:19,840 --> 00:24:22,359
Speaker 8: the office every day of the week, and those people

515
00:24:22,560 --> 00:24:23,879
Speaker 8: need that.

516
00:24:23,960 --> 00:24:28,119
Speaker 1: Average office professional in Durham, North Carolina, what are they

517
00:24:28,119 --> 00:24:29,679
Speaker 1: doing how many days a week back in the office.

518
00:24:29,680 --> 00:24:31,720
Speaker 8: I'm going to say we're in at least three days

519
00:24:31,760 --> 00:24:33,920
Speaker 8: a week, and I'm going to say that's what most

520
00:24:33,920 --> 00:24:34,600
Speaker 8: people are doing.

521
00:24:34,720 --> 00:24:35,760
Speaker 1: That's the new normal, man.

522
00:24:36,000 --> 00:24:38,240
Speaker 5: Yeah, no, I know it's the real world.

523
00:24:38,240 --> 00:24:39,880
Speaker 1: That's what the real people are doing.

524
00:24:40,840 --> 00:24:41,159
Speaker 4: Well.

525
00:24:41,280 --> 00:24:44,639
Speaker 2: I think bosses are trying to change that, but employees

526
00:24:44,680 --> 00:24:45,760
Speaker 2: are fighting back.

527
00:24:45,960 --> 00:24:48,359
Speaker 1: Yeah, we just need a good recession, all right, real quick,

528
00:24:48,359 --> 00:24:50,119
Speaker 1: What do you expect from your Federal Reserve tomorrow?

529
00:24:51,440 --> 00:24:52,959
Speaker 9: I think it's going to be a quiet day from

530
00:24:53,000 --> 00:24:53,359
Speaker 9: the Fed.

531
00:24:53,440 --> 00:24:56,000
Speaker 8: I think that there's you know, there's reasons why they

532
00:24:55,840 --> 00:24:58,399
Speaker 8: may go the other way and raise rates, but I

533
00:24:58,760 --> 00:25:00,360
Speaker 8: don't think that that's in the cards right now.

534
00:25:00,359 --> 00:25:02,600
Speaker 9: I think we're in a holding pattern all right.

535
00:25:03,119 --> 00:25:07,040
Speaker 1: Again, Looking at the then function of Bloomberg Index Browser,

536
00:25:07,480 --> 00:25:11,080
Speaker 1: US mortgage backed securities, US aggregate, US government credit, US Treasury,

537
00:25:11,240 --> 00:25:15,800
Speaker 1: US universal all down two three four percent year to date.

538
00:25:16,160 --> 00:25:19,480
Speaker 1: The one exception, US corporate high Yield a positive four

539
00:25:19,520 --> 00:25:22,320
Speaker 1: point three eight percent return. But as you mentioned, Ken,

540
00:25:22,359 --> 00:25:24,520
Speaker 1: on the month, down one point four percent of all

541
00:25:24,520 --> 00:25:24,879
Speaker 1: the bonds.

542
00:25:24,920 --> 00:25:27,320
Speaker 5: If you look at JNK or HyG, they're not doing

543
00:25:27,320 --> 00:25:27,720
Speaker 5: that great.

544
00:25:27,880 --> 00:25:30,640
Speaker 1: Yeah, yeah, so interesting stuff there, but positive for the year,

545
00:25:30,840 --> 00:25:33,560
Speaker 1: not positive for the year. And on Friday we'll talk

546
00:25:33,800 --> 00:25:36,320
Speaker 1: with Joe Meisek talked about the immunis bond market.

547
00:25:36,440 --> 00:25:38,199
Speaker 5: I'm very much looking forward up to that.

548
00:25:38,560 --> 00:25:40,679
Speaker 1: Ken Monahan, thank you so much for joining us. Ken Monahan,

549
00:25:40,720 --> 00:25:43,000
Speaker 1: co director of High Yield for a Mundi US based

550
00:25:43,040 --> 00:25:44,080
Speaker 1: in Durham, North Carolina.

551
00:25:45,600 --> 00:25:48,960
Speaker 6: You're listening to the team Ken's are Live program Bloomberg

552
00:25:49,080 --> 00:25:52,479
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,

553
00:25:52,520 --> 00:25:55,640
Speaker 6: the iHeartRadio app, and the Bloomberg Business App, or listen

554
00:25:55,720 --> 00:25:57,840
Speaker 6: on demand wherever you get your podcasts.

555
00:26:00,040 --> 00:26:03,840
Speaker 1: We're right smack in the middle of earnings, Marcus digesting

556
00:26:03,880 --> 00:26:06,480
Speaker 1: them on a daily basis. Got some some more earnings

557
00:26:06,480 --> 00:26:08,879
Speaker 1: after the close today AMD then of course Apple after

558
00:26:08,920 --> 00:26:11,119
Speaker 1: the close, we want to go across the pond and

559
00:26:11,119 --> 00:26:14,600
Speaker 1: see how things are over in Europe with earnings, with markets,

560
00:26:14,880 --> 00:26:17,240
Speaker 1: where's the performance, where's the risk? And we do that

561
00:26:17,640 --> 00:26:19,840
Speaker 1: with one Tim Craig at He is a director of

562
00:26:19,920 --> 00:26:23,879
Speaker 1: research and he's also a senior European strategist for Bloomberg Intelligence,

563
00:26:23,960 --> 00:26:27,760
Speaker 1: joining us from Queen Victoria Street, the global European global

564
00:26:27,760 --> 00:26:30,840
Speaker 1: headquarters of Bloomberg and it is the smoking hot building,

565
00:26:30,960 --> 00:26:33,600
Speaker 1: just crazy the building over there. Hey, Tim, thanks so

566
00:26:33,680 --> 00:26:36,119
Speaker 1: much for joining us here, give us the headlines. Just

567
00:26:36,240 --> 00:26:39,000
Speaker 1: step back thirty thousand feet for our listeners and viewers,

568
00:26:39,040 --> 00:26:41,160
Speaker 1: or maybe aren't really up to date on how the

569
00:26:41,359 --> 00:26:43,160
Speaker 1: European markets have been performing this year.

570
00:26:44,320 --> 00:26:48,480
Speaker 11: Yeah, well, we have been behind the US from the

571
00:26:48,480 --> 00:26:51,879
Speaker 11: standpoint of market performance. We don't have the big tech

572
00:26:51,960 --> 00:26:55,320
Speaker 11: that's driven the S and P five hundred back up

573
00:26:55,440 --> 00:26:59,800
Speaker 11: over the course of into autumn. That said, we also

574
00:27:00,200 --> 00:27:03,800
Speaker 11: don't have the big tech that's been under pressure since

575
00:27:03,920 --> 00:27:08,200
Speaker 11: the July August peaks. And so while the US has

576
00:27:08,240 --> 00:27:11,760
Speaker 11: certainly taken a pumbling and we've sold off, we've not

577
00:27:11,840 --> 00:27:13,359
Speaker 11: sold off as much.

578
00:27:14,080 --> 00:27:16,680
Speaker 10: So that's sort of the quick synopsis.

579
00:27:17,680 --> 00:27:20,000
Speaker 2: So we've taken a pumbling, you've sold off, but not

580
00:27:20,080 --> 00:27:20,560
Speaker 2: as much.

581
00:27:21,080 --> 00:27:21,399
Speaker 10: Today.

582
00:27:21,440 --> 00:27:26,360
Speaker 2: We learn though that your third quarter showed a contraction

583
00:27:26,440 --> 00:27:28,280
Speaker 2: in growth and we were growing five percent.

584
00:27:28,400 --> 00:27:30,880
Speaker 10: Buddy, Hey, there you go.

585
00:27:31,359 --> 00:27:34,800
Speaker 2: No, I mean, you know, obviously backward looking isn't what matters.

586
00:27:34,880 --> 00:27:37,680
Speaker 2: And as Caterpillar I think proves today people really care

587
00:27:37,880 --> 00:27:38,720
Speaker 2: about the outlook.

588
00:27:39,359 --> 00:27:40,639
Speaker 5: As if we didn't know that already.

589
00:27:40,960 --> 00:27:44,280
Speaker 2: How is the outlook for European earnings compared to US earnings?

590
00:27:45,119 --> 00:27:47,600
Speaker 11: So, Matt, I think it's really interesting thinking about the

591
00:27:47,720 --> 00:27:50,720
Speaker 11: ernience picture, you know, again, the compared and contrast. You know,

592
00:27:50,800 --> 00:27:53,760
Speaker 11: the US went through a few quarters of Ernien's contraction

593
00:27:54,200 --> 00:27:57,080
Speaker 11: while Europe was still gaining a lot of that. Ernians

594
00:27:57,119 --> 00:28:01,520
Speaker 11: contraction in the US was big tech oriented, and what

595
00:28:01,640 --> 00:28:04,080
Speaker 11: we're feeling now in Europe and we will see in

596
00:28:04,160 --> 00:28:08,880
Speaker 11: earnings decline again this quarter, is actually a lagging impact

597
00:28:09,040 --> 00:28:11,920
Speaker 11: of the decline that we've seen in things like energy

598
00:28:12,000 --> 00:28:15,800
Speaker 11: and metals prices, which are really big over here, much

599
00:28:15,840 --> 00:28:19,120
Speaker 11: more so than they are in US markets. The thing

600
00:28:19,200 --> 00:28:22,359
Speaker 11: I don't think either market has necessarily felt is the

601
00:28:22,400 --> 00:28:25,840
Speaker 11: full impact of the spike in interest rates that we've

602
00:28:25,840 --> 00:28:27,919
Speaker 11: had and how that's going to have an impact on

603
00:28:27,960 --> 00:28:30,880
Speaker 11: consumer and businesses as we go into twenty twenty four,

604
00:28:31,760 --> 00:28:35,120
Speaker 11: which does play into an awful lot of the earnings

605
00:28:35,160 --> 00:28:40,600
Speaker 11: commentary that we're hearing through the reporting period. Just to

606
00:28:40,640 --> 00:28:43,520
Speaker 11: give you a couple of numbers, we're about halfway through

607
00:28:43,680 --> 00:28:47,160
Speaker 11: here in Europe, a little behind where you are where

608
00:28:47,200 --> 00:28:47,920
Speaker 11: you are.

609
00:28:47,680 --> 00:28:48,400
Speaker 10: In the US.

610
00:28:49,360 --> 00:28:52,320
Speaker 11: It sounds okay that we've got about fifty percent of

611
00:28:52,360 --> 00:28:55,920
Speaker 11: the companies that have beat earnings expectations, about thirty five

612
00:28:56,040 --> 00:29:00,760
Speaker 11: that have missed, But in fact that's the worst performance

613
00:29:01,080 --> 00:29:03,520
Speaker 11: from the standpoint of beats versus misses that we've had

614
00:29:03,560 --> 00:29:06,320
Speaker 11: since the pandemic low. So I would categorize this it's

615
00:29:06,320 --> 00:29:08,080
Speaker 11: a pretty disappointing earning season.

616
00:29:08,960 --> 00:29:12,440
Speaker 1: Hey, Tim, talk to us about valuation. Where are you

617
00:29:12,480 --> 00:29:16,120
Speaker 1: guys over there in terms of valuation right now?

618
00:29:17,160 --> 00:29:20,800
Speaker 11: Yeah, So you look at the broad European market where

619
00:29:20,920 --> 00:29:25,960
Speaker 11: twelve and a half times forward earnings, it's down from

620
00:29:26,840 --> 00:29:33,040
Speaker 11: a recent highs of thirteen ish, clearly far below where

621
00:29:33,080 --> 00:29:36,640
Speaker 11: the US trades. You can find markets like the German

622
00:29:36,760 --> 00:29:41,200
Speaker 11: Docks index that's retraced all the way to ten times

623
00:29:41,240 --> 00:29:45,080
Speaker 11: forward earnings, and that's with a heavy dose of the

624
00:29:45,080 --> 00:29:49,800
Speaker 11: big German auto companies that are facing increasing pricing competition

625
00:29:50,120 --> 00:29:54,120
Speaker 11: and ev competition from China. So you know, it's clearly

626
00:29:54,520 --> 00:29:57,720
Speaker 11: there's a value tilt from the standpoint of an absolute

627
00:29:57,840 --> 00:30:01,280
Speaker 11: multiple across the European markets. But I would also say,

628
00:30:01,480 --> 00:30:03,960
Speaker 11: and you know it's true from a US perspective as well,

629
00:30:04,440 --> 00:30:06,880
Speaker 11: with interest rates being as high as they are, and

630
00:30:06,920 --> 00:30:11,800
Speaker 11: they've certainly ratcheted up here market by market over the

631
00:30:11,800 --> 00:30:15,840
Speaker 11: course of the autumn. You know, that does take a

632
00:30:15,920 --> 00:30:18,600
Speaker 11: toll on what you're willing to pay in terms of

633
00:30:18,680 --> 00:30:23,440
Speaker 11: market valuation. So what would seem cheap from an absolute

634
00:30:23,520 --> 00:30:29,160
Speaker 11: level ten times twelve times a year ago now isn't

635
00:30:29,280 --> 00:30:32,120
Speaker 11: quite so cheap on our fair value work because interest

636
00:30:32,160 --> 00:30:33,120
Speaker 11: rates are simply higher.

637
00:30:34,000 --> 00:30:39,280
Speaker 2: Yeah, I wonder how important China is to European earnings.

638
00:30:39,280 --> 00:30:43,480
Speaker 2: And I know they haven't fully penetrated the entire continent,

639
00:30:43,520 --> 00:30:45,440
Speaker 2: but when I was over there, you know, they had

640
00:30:45,440 --> 00:30:49,520
Speaker 2: made their way up through Africa and straight to the

641
00:30:49,640 --> 00:30:54,440
Speaker 2: tip of Italy. You know, is it a bigger driver

642
00:30:54,760 --> 00:30:59,000
Speaker 2: of well, let's say, revenue growth China than it is

643
00:30:59,040 --> 00:31:01,840
Speaker 2: for US companies significantly?

644
00:31:01,880 --> 00:31:05,760
Speaker 11: So the recent analysis we did looking at the stock

645
00:31:05,800 --> 00:31:11,760
Speaker 11: six hundred eighty of the six hundred have got overtly

646
00:31:13,160 --> 00:31:18,200
Speaker 11: easy to define significant contribution. If you add it up,

647
00:31:18,240 --> 00:31:22,640
Speaker 11: it's about four hundred and fifty billion in revenue. These

648
00:31:22,680 --> 00:31:26,360
Speaker 11: companies aggregate to be about thirty percent of the European

649
00:31:26,440 --> 00:31:28,960
Speaker 11: market in terms of index weight, So any way you

650
00:31:29,000 --> 00:31:30,680
Speaker 11: want to cut it, there's a lot of companies.

651
00:31:30,720 --> 00:31:32,960
Speaker 10: They're big companies, and it's a lot of revenue.

652
00:31:33,640 --> 00:31:36,360
Speaker 11: And what we're seeing in the third quarter maybe no

653
00:31:36,520 --> 00:31:41,959
Speaker 11: surprise given the faltering, stuttering economic growth in China is

654
00:31:42,920 --> 00:31:47,200
Speaker 11: that business is also faltering a bit. They already mentioned

655
00:31:47,200 --> 00:31:50,920
Speaker 11: the German autos as a case in point. Contrast that

656
00:31:50,920 --> 00:31:54,040
Speaker 11: with Stillantis today, which doesn't have so much China exposure

657
00:31:54,040 --> 00:31:56,200
Speaker 11: but more US exposure, and it was a little bit better.

658
00:31:57,520 --> 00:32:04,360
Speaker 11: The luxury good companies have talked about weakening China economic activity,

659
00:32:04,840 --> 00:32:09,800
Speaker 11: and there are several others that are showing that they're

660
00:32:09,880 --> 00:32:13,720
Speaker 11: signs of weakness. Now two things other to mention on China,

661
00:32:14,320 --> 00:32:17,800
Speaker 11: this was still an easy comparison for three Q. Remember

662
00:32:17,840 --> 00:32:22,280
Speaker 11: they didn't open back up until October and November last year,

663
00:32:22,560 --> 00:32:26,320
Speaker 11: so it's really the fourth quarter that is going to

664
00:32:26,320 --> 00:32:28,000
Speaker 11: be a more difficult comparison.

665
00:32:28,040 --> 00:32:29,720
Speaker 10: And on into the first quarter.

666
00:32:29,760 --> 00:32:33,040
Speaker 11: Of next year, So if things are still stuttering, that

667
00:32:33,080 --> 00:32:36,200
Speaker 11: business is going to be more of a challenge. And

668
00:32:36,240 --> 00:32:39,880
Speaker 11: the other thing, obviously, thinking about twenty twenty four, the

669
00:32:39,880 --> 00:32:42,240
Speaker 11: more pressure there is on the economy, the more likely

670
00:32:43,160 --> 00:32:46,280
Speaker 11: there's going to be fiscal and monetary measures to stimulate

671
00:32:46,320 --> 00:32:48,440
Speaker 11: the economy, which might all of a sudden turn this

672
00:32:48,560 --> 00:32:50,680
Speaker 11: around as we look into the back half of next year,

673
00:32:50,800 --> 00:32:53,840
Speaker 11: and clearly the markets will discount that. Right now, everybody's

674
00:32:53,840 --> 00:32:56,680
Speaker 11: focused on current weakness that may be short lived.

675
00:32:56,960 --> 00:32:59,800
Speaker 1: Hey, Tim, you travel all around the continent, all around

676
00:32:59,800 --> 00:33:02,800
Speaker 1: your speaking to institutional investors. What did they want to know?

677
00:33:02,920 --> 00:33:05,720
Speaker 1: I mean, what's kind of the common question, top question

678
00:33:05,760 --> 00:33:06,320
Speaker 1: you get asked?

679
00:33:07,360 --> 00:33:10,600
Speaker 11: Yeah, you know, Paul, I guess a couple things come

680
00:33:10,680 --> 00:33:12,920
Speaker 11: to mind. It was just in an event last week

681
00:33:13,000 --> 00:33:17,520
Speaker 11: in Frankfurt, And at this point it really is all

682
00:33:17,560 --> 00:33:22,800
Speaker 11: about the macro outlook and what's going on with monetary policy,

683
00:33:22,880 --> 00:33:25,640
Speaker 11: When is the pivot going to happen, and how much

684
00:33:25,680 --> 00:33:30,240
Speaker 11: of that pivot does then translate into a reduction in

685
00:33:30,320 --> 00:33:34,000
Speaker 11: things like ten year yields because it's not an immediate

686
00:33:34,040 --> 00:33:37,680
Speaker 11: feed through, but that's that's crucial because the higher we are,

687
00:33:37,840 --> 00:33:40,040
Speaker 11: the longer we are on interest rates, the more of

688
00:33:40,080 --> 00:33:43,280
Speaker 11: an impact there is on business and consumer and you

689
00:33:43,320 --> 00:33:46,640
Speaker 11: know that's a huge pressure point for the twenty twenty

690
00:33:46,640 --> 00:33:47,240
Speaker 11: four outlook.

691
00:33:47,960 --> 00:33:52,600
Speaker 1: All right in suburban London near your pad? What's a

692
00:33:52,640 --> 00:33:54,160
Speaker 1: good pint going to cost me?

693
00:33:55,080 --> 00:33:58,280
Speaker 10: A good pint when I go for Halloween today? Paul,

694
00:33:58,680 --> 00:33:59,480
Speaker 10: there we go?

695
00:34:00,040 --> 00:34:00,320
Speaker 12: Thank you?

696
00:34:01,880 --> 00:34:04,720
Speaker 10: Is gonna be about seven pounds for a pint?

697
00:34:05,160 --> 00:34:05,640
Speaker 9: Wow?

698
00:34:05,960 --> 00:34:06,719
Speaker 5: Seven pounds?

699
00:34:06,720 --> 00:34:10,120
Speaker 2: And do you do you do like Guinness extra cold

700
00:34:10,200 --> 00:34:12,840
Speaker 2: or do you have them pull you an actual ale

701
00:34:13,040 --> 00:34:14,680
Speaker 2: from one of those old school taps?

702
00:34:14,840 --> 00:34:15,200
Speaker 6: Oh?

703
00:34:15,400 --> 00:34:21,239
Speaker 10: I like I like the cast ales definitely. See which delicious?

704
00:34:21,360 --> 00:34:23,960
Speaker 11: Best best thing is a Trappist dale though from from

705
00:34:23,960 --> 00:34:26,120
Speaker 11: Belgium that that's the best beer, that's.

706
00:34:26,000 --> 00:34:26,520
Speaker 1: The best beer.

707
00:34:26,600 --> 00:34:27,000
Speaker 10: Hey are you?

708
00:34:27,040 --> 00:34:29,600
Speaker 1: Are you still avoiding the congestion tax in London by

709
00:34:29,840 --> 00:34:31,320
Speaker 1: riding your bike to the office?

710
00:34:32,040 --> 00:34:32,799
Speaker 4: I do.

711
00:34:32,840 --> 00:34:35,240
Speaker 10: I rode this morning. See he's one of those people

712
00:34:35,239 --> 00:34:37,080
Speaker 10: that I'll write, I'll ride home this afternoon.

713
00:34:37,160 --> 00:34:38,160
Speaker 5: See that's smart.

714
00:34:38,200 --> 00:34:40,279
Speaker 2: I'm gonna avoid the congestion charge in New York by

715
00:34:40,280 --> 00:34:41,440
Speaker 2: getting a garage.

716
00:34:41,040 --> 00:34:42,000
Speaker 5: On sixtieth Street.

717
00:34:42,080 --> 00:34:43,440
Speaker 1: Yeah, we're gonna get John Tuckerolle bike.

718
00:34:43,480 --> 00:34:46,600
Speaker 9: Yeah, I'm going to ride my bike in the morning.

719
00:34:47,840 --> 00:34:50,280
Speaker 1: The Lincoln Tunnel in the morning.

720
00:34:50,320 --> 00:34:52,319
Speaker 4: I don't think they allow bikes in Lincoln.

721
00:34:52,000 --> 00:34:53,640
Speaker 1: All right, Tim, thanks so much for joining us, as

722
00:34:53,640 --> 00:34:55,920
Speaker 1: I always appreciated. Tim Craig Eddy is the director of

723
00:34:56,000 --> 00:34:58,640
Speaker 1: research over there in London, uh and he's a senior

724
00:34:58,680 --> 00:35:02,960
Speaker 1: European strategist for Bloomberg Intelligence. Ton tons of experience in

725
00:35:03,000 --> 00:35:05,960
Speaker 1: the equity markets. Morgan Stanley did a little hedge fund work,

726
00:35:05,960 --> 00:35:08,000
Speaker 1: and then we nab them at Bloomberg Intelligence back in

727
00:35:08,040 --> 00:35:08,359
Speaker 1: the day.

728
00:35:08,680 --> 00:35:11,200
Speaker 6: You're listening to the tape. Cat's a our live program,

729
00:35:11,239 --> 00:35:15,200
Speaker 6: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,

730
00:35:15,360 --> 00:35:18,040
Speaker 6: the tune in app, Bloomberg dot Com, and the Bloomberg

731
00:35:18,120 --> 00:35:21,240
Speaker 6: Business App. You can also listen live on Amazon Alexa

732
00:35:21,280 --> 00:35:24,560
Speaker 6: from our flagship New York station. Just say Alexa play

733
00:35:24,680 --> 00:35:26,680
Speaker 6: Bloomberg eleven thirty.

734
00:35:27,840 --> 00:35:29,680
Speaker 1: Let's take a look at these markets. Where do we

735
00:35:29,719 --> 00:35:32,360
Speaker 1: go from here? With Rightsmack in the middle of earnings,

736
00:35:33,120 --> 00:35:36,520
Speaker 1: people starting to think about next year, where to be positioned.

737
00:35:36,760 --> 00:35:39,040
Speaker 1: Our next guest thinks about that stuff as well. Lucas

738
00:35:39,040 --> 00:35:44,239
Speaker 1: to Mickey. He's a founder managing partner of LRT Capital Management. Lucas,

739
00:35:44,239 --> 00:35:46,560
Speaker 1: thanks so much. For joining us here, give us just

740
00:35:46,640 --> 00:35:48,560
Speaker 1: let's start off by just getting a sense of how

741
00:35:48,640 --> 00:35:52,200
Speaker 1: you guys deploy capital LRT capital management kind of what's

742
00:35:52,200 --> 00:35:54,200
Speaker 1: your strategy that you guys deploy.

743
00:35:55,560 --> 00:35:56,920
Speaker 13: Hey, Matt, thanks for having me.

744
00:35:57,480 --> 00:35:59,480
Speaker 1: Yeah, to give you a quick overview.

745
00:36:00,080 --> 00:36:03,600
Speaker 13: Are really trying to focus on business quality and business resilience.

746
00:36:04,040 --> 00:36:06,520
Speaker 13: So to us, quality means free things.

747
00:36:06,560 --> 00:36:07,359
Speaker 4: It means some.

748
00:36:07,320 --> 00:36:11,120
Speaker 13: Kind of durable competitive advantage. It means the ability to

749
00:36:11,160 --> 00:36:14,920
Speaker 13: grow and reinvest capital at high incremental rates of return,

750
00:36:15,560 --> 00:36:18,400
Speaker 13: and it means management teams that have demonstrated a good,

751
00:36:18,680 --> 00:36:22,280
Speaker 13: good track record of allocating shareholder capital.

752
00:36:23,320 --> 00:36:25,480
Speaker 2: All right, So looking at all those variables, what do

753
00:36:25,480 --> 00:36:25,799
Speaker 2: you like?

754
00:36:27,280 --> 00:36:30,080
Speaker 13: Well, I think you know, from a macro perspective, we're

755
00:36:30,200 --> 00:36:33,399
Speaker 13: likely heading towards an economic slow down, if not an

756
00:36:33,440 --> 00:36:37,520
Speaker 13: outright recession. And so today, you know, the theme for

757
00:36:37,560 --> 00:36:40,680
Speaker 13: me is really investing in resilient companies. So the free

758
00:36:40,680 --> 00:36:45,400
Speaker 13: companies that we like most today are Chemed, which is

759
00:36:45,440 --> 00:36:48,879
Speaker 13: kind of an odd business. They own two businesses within it.

760
00:36:49,320 --> 00:36:51,880
Speaker 13: We also love Elevans and trying it.

761
00:36:53,040 --> 00:36:55,680
Speaker 1: All right, let's start with Kem here, tell me the

762
00:36:55,920 --> 00:36:58,759
Speaker 1: kind of what business they're in. I'm looking at the

763
00:36:58,800 --> 00:37:01,399
Speaker 1: stock here. It's it is an eight and a half

764
00:37:01,400 --> 00:37:04,439
Speaker 1: billion dollar market cap company. Stock stocks up about ten

765
00:37:04,480 --> 00:37:06,879
Speaker 1: percent year today. So tell us about the call there.

766
00:37:06,880 --> 00:37:08,719
Speaker 1: What do they do and what's the investment call?

767
00:37:09,520 --> 00:37:12,200
Speaker 13: Yeah, so Chaman is a very odd company in that

768
00:37:12,280 --> 00:37:16,000
Speaker 13: they own two businesses that are completely unrelated to each other.

769
00:37:16,320 --> 00:37:20,000
Speaker 13: They own Vitas, which is a hospice care provider, and

770
00:37:20,320 --> 00:37:25,000
Speaker 13: Roto Router, which is a commercial and plumbing service. Yeah,

771
00:37:25,040 --> 00:37:29,040
Speaker 13: I don't see the connection, but go on, No, there's

772
00:37:29,080 --> 00:37:31,839
Speaker 13: no connection on the surface, but the real connection is

773
00:37:31,880 --> 00:37:36,400
Speaker 13: that these are very resilient businesses from macroeconomic perspective. So

774
00:37:36,520 --> 00:37:41,279
Speaker 13: Vitas or Vitas provides end of life care effectively, and

775
00:37:41,560 --> 00:37:45,040
Speaker 13: Medicare of course is the largest customer. And so for

776
00:37:45,120 --> 00:37:48,760
Speaker 13: most people, you know, the statistics say you're spending somewhere

777
00:37:48,760 --> 00:37:53,200
Speaker 13: between twenty five to thirty percent of your entire life's

778
00:37:53,560 --> 00:37:57,600
Speaker 13: healthcare cost just in the last few months. You know,

779
00:37:57,600 --> 00:38:01,080
Speaker 13: when you're effectively dying in the hospital, get very expensive care,

780
00:38:01,200 --> 00:38:05,880
Speaker 13: very expensive treatment, and that's a very big cost for Medicare.

781
00:38:06,320 --> 00:38:11,160
Speaker 13: And frankly, you know, not everyone sees the benefits of that.

782
00:38:11,280 --> 00:38:15,160
Speaker 13: So many people opt for hospice care, which is effectively

783
00:38:15,200 --> 00:38:19,960
Speaker 13: palliative care where you end treatment and you're just receiving

784
00:38:20,120 --> 00:38:23,440
Speaker 13: medication to manage pain and you know, improve your comfort

785
00:38:23,520 --> 00:38:26,840
Speaker 13: of life. And obviously that saves costs, and frankly, you

786
00:38:26,880 --> 00:38:28,399
Speaker 13: know a lot of people see that as a more

787
00:38:28,760 --> 00:38:30,440
Speaker 13: dignified way to go.

788
00:38:31,040 --> 00:38:33,840
Speaker 1: And you know, just just looking at this, Lucas, you

789
00:38:33,920 --> 00:38:36,719
Speaker 1: just don't see many corporate structures like this anymore, just

790
00:38:36,760 --> 00:38:39,640
Speaker 1: pure holding companies, particularly the ones that that own just

791
00:38:39,800 --> 00:38:42,560
Speaker 1: two businesses. What kind of attracted you to the company?

792
00:38:43,360 --> 00:38:45,360
Speaker 13: Well, I followed it for a long time, and I

793
00:38:45,360 --> 00:38:48,920
Speaker 13: don't think I'm the only one. But what frankly attracted

794
00:38:48,920 --> 00:38:52,000
Speaker 13: me to their company is up until a few years ago,

795
00:38:52,400 --> 00:38:55,840
Speaker 13: their website looked like it was straight from the nineteen nineties.

796
00:38:55,960 --> 00:38:59,719
Speaker 13: And that might sound counterintuitive, but that that was to

797
00:38:59,719 --> 00:39:02,440
Speaker 13: me very odd signal that this is a company that's

798
00:39:02,440 --> 00:39:06,839
Speaker 13: really focused on business operations and not promoting things. And

799
00:39:06,880 --> 00:39:10,600
Speaker 13: so generally speaking, we like non promotional, you know, down

800
00:39:10,640 --> 00:39:12,560
Speaker 13: to earth kind of management teams.

801
00:39:12,840 --> 00:39:16,520
Speaker 2: And it's up, yeah, eighty seven percent over the past

802
00:39:17,160 --> 00:39:19,399
Speaker 2: five years, of ten percent this year, eighty seven percent

803
00:39:19,480 --> 00:39:21,040
Speaker 2: of the past five years total return.

804
00:39:21,360 --> 00:39:21,960
Speaker 5: It's done well.

805
00:39:22,400 --> 00:39:25,560
Speaker 2: The roto Router business also you know, these are two

806
00:39:25,560 --> 00:39:29,799
Speaker 2: businesses that people are never going to not need. If

807
00:39:29,800 --> 00:39:32,040
Speaker 2: I can split my infinitive just to make the point,

808
00:39:32,600 --> 00:39:36,120
Speaker 2: and I get that, do they spin off at some point.

809
00:39:35,840 --> 00:39:36,799
Speaker 5: One or the other?

810
00:39:36,960 --> 00:39:38,200
Speaker 2: Do they break into two?

811
00:39:38,280 --> 00:39:38,759
Speaker 10: Do you think?

812
00:39:39,960 --> 00:39:42,960
Speaker 13: I think that's long been a theme and the thinking,

813
00:39:43,960 --> 00:39:46,520
Speaker 13: I frankly don't have a problem with the business the

814
00:39:46,560 --> 00:39:51,040
Speaker 13: way it is. They have opportunities to deploy capital, primarily

815
00:39:51,200 --> 00:39:56,160
Speaker 13: in the roto router business by buying out franchisees from

816
00:39:56,200 --> 00:39:59,080
Speaker 13: some of their territories, and then they have opportunities to

817
00:39:59,120 --> 00:40:02,080
Speaker 13: buy back stock and the shares you know, are trading down,

818
00:40:02,680 --> 00:40:05,000
Speaker 13: and as you mentioned, the stock is up a little

819
00:40:05,000 --> 00:40:08,960
Speaker 13: bit this year, but that's largely happened last week on

820
00:40:08,960 --> 00:40:12,120
Speaker 13: the back of good earnings. So you know, you're gonna

821
00:40:12,160 --> 00:40:15,520
Speaker 13: have ups and downs, but it's a very resilient business.

822
00:40:15,600 --> 00:40:18,480
Speaker 13: They've grown about four percent per year in terms of revenue,

823
00:40:18,800 --> 00:40:21,560
Speaker 13: but they managed to translate that into a fourteen percent

824
00:40:21,640 --> 00:40:24,719
Speaker 13: EPs growth over the same you know, last ten years

825
00:40:24,760 --> 00:40:24,920
Speaker 13: or so.

826
00:40:25,360 --> 00:40:30,040
Speaker 1: All right, how about E l V. Elevans Health another

827
00:40:30,080 --> 00:40:30,680
Speaker 1: healthcare name.

828
00:40:31,360 --> 00:40:34,280
Speaker 13: Yeah, so this is Elevants. This is the former Anthem

829
00:40:34,320 --> 00:40:38,239
Speaker 13: insurance business. You know, so you may have sort of them.

830
00:40:38,280 --> 00:40:43,160
Speaker 13: They rebranded themselves. We love the industry, broadly speaking, the

831
00:40:43,160 --> 00:40:47,440
Speaker 13: health insurance industry. It's a very consolidated business. There's five

832
00:40:47,520 --> 00:40:50,440
Speaker 13: players that command the majority of the market, a couple

833
00:40:50,480 --> 00:40:54,600
Speaker 13: of smaller ones. And you know this is this company

834
00:40:54,640 --> 00:40:57,279
Speaker 13: is called a health insurance company, but that's really a misnomer.

835
00:40:57,920 --> 00:41:01,560
Speaker 13: Only about ten percent of what they do is tied

836
00:41:01,800 --> 00:41:07,440
Speaker 13: to carrying risk. The majority of their business is managed

837
00:41:07,520 --> 00:41:13,480
Speaker 13: care for the government, manage Medicare, Medicaid, and corporate accounts

838
00:41:13,680 --> 00:41:18,560
Speaker 13: in which companies self insure, and so there's very little

839
00:41:18,560 --> 00:41:22,920
Speaker 13: insurance risk in this space. It's really a health administrator,

840
00:41:22,960 --> 00:41:26,880
Speaker 13: if you will. And it's so regulated that they're frankly

841
00:41:26,920 --> 00:41:29,440
Speaker 13: not allowed to even you know, the amount of profit

842
00:41:29,480 --> 00:41:33,000
Speaker 13: they're allowed to make is regulated as well. And you

843
00:41:33,080 --> 00:41:37,200
Speaker 13: see that between all the companies there's very limited competition.

844
00:41:37,520 --> 00:41:41,560
Speaker 13: And call it GDP plus growth largely tied to the

845
00:41:41,600 --> 00:41:42,600
Speaker 13: growth and healthcare costs.

846
00:41:42,840 --> 00:41:45,480
Speaker 2: Yeah, we get that one. Let's get to t neet

847
00:41:46,120 --> 00:41:50,800
Speaker 2: try net. It's also kind of an employee benefits company, right.

848
00:41:51,520 --> 00:41:53,040
Speaker 9: Yeah, so this is slightly different.

849
00:41:53,160 --> 00:41:57,000
Speaker 13: It's a very small company, about a five billion market cap.

850
00:41:57,520 --> 00:42:01,520
Speaker 13: So this is a company that serves and medium sized

851
00:42:01,520 --> 00:42:05,480
Speaker 13: businesses that are looking to get employee benefits. And employee

852
00:42:05,480 --> 00:42:11,080
Speaker 13: benefits may mean many things, primarily HR health insurance.

853
00:42:10,520 --> 00:42:11,879
Speaker 9: Disability insurance, etc.

854
00:42:12,840 --> 00:42:16,280
Speaker 13: But in practice ninety percent of what drives their business

855
00:42:16,520 --> 00:42:19,680
Speaker 13: is health insurance. So what they do is they effectively

856
00:42:19,719 --> 00:42:24,200
Speaker 13: get a bunch of small employee or employers with small

857
00:42:24,239 --> 00:42:27,960
Speaker 13: employee numbers. They get them together and using their bulk

858
00:42:28,040 --> 00:42:32,520
Speaker 13: purchasing power, acquire health insurance at better rates, pass the

859
00:42:32,560 --> 00:42:36,600
Speaker 13: savings onto their customers, and keep, of course a small

860
00:42:36,640 --> 00:42:38,520
Speaker 13: part of those savings for themselves.

861
00:42:39,000 --> 00:42:42,440
Speaker 1: Hey, Lucas, thanks so much for joining us. Appreciate listening

862
00:42:42,520 --> 00:42:44,279
Speaker 1: to some of your thoughts there on the stocks that

863
00:42:44,320 --> 00:42:47,640
Speaker 1: you guys own. Some pretty interesting names, some good performers.

864
00:42:47,719 --> 00:42:51,480
Speaker 1: Lucas Tomickey. He's a founder and managing partner of LRT

865
00:42:52,000 --> 00:42:55,640
Speaker 1: Capital Management. One of those folks is putting money to work. Who,

866
00:42:55,719 --> 00:42:58,480
Speaker 1: as Tom Keen would say, has the courage to be

867
00:42:58,680 --> 00:43:02,480
Speaker 1: in the market. SMP five hundred pretty much unchanged on

868
00:43:02,760 --> 00:43:05,600
Speaker 1: the day nasdak off about three tenths of one percent,

869
00:43:05,640 --> 00:43:08,640
Speaker 1: but at the index level, not a lot happening there,

870
00:43:08,719 --> 00:43:12,279
Speaker 1: of course, a lot of movement under the surface there's

871
00:43:12,280 --> 00:43:15,239
Speaker 1: company's report earnings for the next week or so. In

872
00:43:15,320 --> 00:43:16,360
Speaker 1: size you're.

873
00:43:16,200 --> 00:43:19,560
Speaker 6: Listening to the tape Cat's are live program Bloomberg Markets

874
00:43:19,640 --> 00:43:23,000
Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune

875
00:43:23,080 --> 00:43:26,040
Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App.

876
00:43:26,080 --> 00:43:28,879
Speaker 6: You can also listen live on Amazon Alexa from our

877
00:43:28,880 --> 00:43:33,960
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

878
00:43:35,200 --> 00:43:38,880
Speaker 2: Claudi Assam is the founder of Some Consulting. She is

879
00:43:38,880 --> 00:43:41,879
Speaker 2: obviously a former Federal Reserve economist. We'd love to talk

880
00:43:41,920 --> 00:43:44,840
Speaker 2: to her both here and on Bloomberg Surveillance. She is

881
00:43:44,920 --> 00:43:47,480
Speaker 2: also the creator of the Sam Rule, which is a

882
00:43:47,480 --> 00:43:52,480
Speaker 2: recession indicator, and a Dennison University graduate.

883
00:43:52,600 --> 00:43:54,000
Speaker 1: So the Dutches, you guys, are the fight.

884
00:43:54,080 --> 00:43:57,160
Speaker 2: I'm from Grandville, Ohio, so you know, for me, that's

885
00:43:57,360 --> 00:43:59,280
Speaker 2: a big deal, and it's a Dennison fighting.

886
00:43:59,440 --> 00:44:01,200
Speaker 5: They're the big read I think they read all.

887
00:44:02,200 --> 00:44:05,160
Speaker 2: It's not really a sports thing, but more.

888
00:44:05,040 --> 00:44:06,080
Speaker 9: Of a fun school.

889
00:44:06,200 --> 00:44:08,359
Speaker 2: It was a fun school then it became a very

890
00:44:08,400 --> 00:44:12,120
Speaker 2: serious school in the nineties when I was living there,

891
00:44:12,200 --> 00:44:12,920
Speaker 2: although I did.

892
00:44:12,760 --> 00:44:14,520
Speaker 5: See fish there which was pretty awesome.

893
00:44:14,800 --> 00:44:18,080
Speaker 2: Claudia joins us to talk about the economy obviously, and

894
00:44:18,120 --> 00:44:21,720
Speaker 2: not her college experience. And you also wear a column

895
00:44:21,800 --> 00:44:27,360
Speaker 2: Claudia about Americans basically, you know, trying to answer the

896
00:44:27,440 --> 00:44:29,600
Speaker 2: question that we're asking every day, which is why are

897
00:44:29,600 --> 00:44:32,560
Speaker 2: the numbers so good? And Americans feel like the economy

898
00:44:32,600 --> 00:44:36,200
Speaker 2: is so bad? You know, five percent GDP and yet

899
00:44:36,280 --> 00:44:38,799
Speaker 2: everyone says a recessions around the corner, how's that going

900
00:44:38,880 --> 00:44:39,240
Speaker 2: to happen?

901
00:44:40,960 --> 00:44:41,120
Speaker 7: Right?

902
00:44:41,200 --> 00:44:43,600
Speaker 12: And to be clear, there's a lot of reasons to

903
00:44:43,760 --> 00:44:47,360
Speaker 12: be gloomy. Inflation is high, there's a lot of uncertainty.

904
00:44:48,239 --> 00:44:52,560
Speaker 12: The question is why are the extra gloominess right? And

905
00:44:52,960 --> 00:44:55,200
Speaker 12: things are as you said, there are a lot of

906
00:44:55,239 --> 00:44:58,400
Speaker 12: good things. Unemployment is low, it's been low for almost

907
00:44:58,400 --> 00:45:01,920
Speaker 12: two years, under four percent, Like that's really good. And

908
00:45:01,960 --> 00:45:05,160
Speaker 12: if you ask people how's it going? What kind of

909
00:45:05,200 --> 00:45:08,040
Speaker 12: news have you heard about? The economy is as bleak

910
00:45:08,080 --> 00:45:10,279
Speaker 12: as when you go back to the nineteen seventies and

911
00:45:10,320 --> 00:45:13,960
Speaker 12: early eighties. Right, it's very hard to say, oh, that

912
00:45:14,080 --> 00:45:17,120
Speaker 12: totally makes sense. There's these bad things happening in the economy.

913
00:45:17,239 --> 00:45:20,080
Speaker 12: Is that extra kick? And frankly, that's the piece we

914
00:45:20,120 --> 00:45:22,880
Speaker 12: want to understand because it could really be telling us

915
00:45:22,880 --> 00:45:26,480
Speaker 12: something bad is around the corner. People have been doing

916
00:45:26,520 --> 00:45:28,480
Speaker 12: that for two years and then it's like, Okay, what

917
00:45:28,560 --> 00:45:29,759
Speaker 12: else is going on here?

918
00:45:30,280 --> 00:45:33,759
Speaker 2: Well, we can't underplay the importance of inflation to a

919
00:45:33,840 --> 00:45:39,080
Speaker 2: normal American who is living paycheck to paycheck anyway. You know,

920
00:45:39,120 --> 00:45:42,759
Speaker 2: economists love to look at core inflation measures, which take

921
00:45:42,800 --> 00:45:45,880
Speaker 2: out all the stuff that we spend our paycheck on.

922
00:45:46,040 --> 00:45:50,840
Speaker 2: Right food is expensive right now, cars are incredibly expensive.

923
00:45:50,840 --> 00:45:52,640
Speaker 5: Plus financing has climbed.

924
00:45:52,719 --> 00:45:54,920
Speaker 2: Houses are even not even you don't want to talk

925
00:45:54,920 --> 00:45:57,600
Speaker 2: about because that's not even affordable if you can find one.

926
00:45:57,719 --> 00:46:01,120
Speaker 2: So is that the main price problem that Americans have.

927
00:46:03,440 --> 00:46:06,840
Speaker 12: Inflation has always been something that people would get riled up,

928
00:46:06,880 --> 00:46:09,920
Speaker 12: but rightly so right and the price tags are legitimately

929
00:46:10,000 --> 00:46:12,799
Speaker 12: higher and they're not coming down. What we've seen this

930
00:46:12,880 --> 00:46:16,239
Speaker 12: year is it's slowing down. Inflation is coming down. That

931
00:46:16,520 --> 00:46:19,759
Speaker 12: is a form of relief and that it could have

932
00:46:19,960 --> 00:46:24,000
Speaker 12: been a lot worse. And there's lots of different pieces

933
00:46:24,040 --> 00:46:26,719
Speaker 12: of good news that don't come up. We found out

934
00:46:26,800 --> 00:46:29,720
Speaker 12: last week that household net worths for the typical family

935
00:46:30,360 --> 00:46:34,200
Speaker 12: jump thirty seven percent pre pandemic to last year, and

936
00:46:34,239 --> 00:46:37,680
Speaker 12: that was across income groups, demographic groups. You just saw

937
00:46:37,719 --> 00:46:42,760
Speaker 12: these big increases, and that matters. Living paycheck to paycheck

938
00:46:42,800 --> 00:46:45,320
Speaker 12: has been a problem in the US economy for decades.

939
00:46:46,040 --> 00:46:48,560
Speaker 12: Many people have bigger paychecks, and there's a lot of

940
00:46:48,600 --> 00:46:50,960
Speaker 12: people who have a little bit of a buffer that

941
00:46:51,080 --> 00:46:55,879
Speaker 12: have never had it. So it's tough to see all

942
00:46:55,920 --> 00:46:59,920
Speaker 12: those pieces come together and then have this absolutely bleak

943
00:47:00,080 --> 00:47:01,880
Speaker 12: outlook for the economy.

944
00:47:01,920 --> 00:47:06,680
Speaker 1: Well, Claudia, how much of it is the income inequality?

945
00:47:06,840 --> 00:47:09,959
Speaker 1: Wealth inequality in this country where you know, the top

946
00:47:10,080 --> 00:47:13,600
Speaker 1: ten percent are doing fine, actually better than fine, but

947
00:47:13,640 --> 00:47:16,960
Speaker 1: the rest are really struggling with inflation, you know that

948
00:47:17,080 --> 00:47:20,759
Speaker 1: that type of thing. How much is that to kind

949
00:47:20,760 --> 00:47:21,759
Speaker 1: of account for it?

950
00:47:23,680 --> 00:47:28,440
Speaker 12: This is the rarest of post recession periods in that

951
00:47:28,520 --> 00:47:33,239
Speaker 12: we've seen often the bottom do better than they have

952
00:47:33,400 --> 00:47:36,120
Speaker 12: coming out of any recession. I mean, the top's always

953
00:47:36,120 --> 00:47:38,839
Speaker 12: going to be fine, right, Wealth inequality. Income inequality has

954
00:47:38,880 --> 00:47:41,600
Speaker 12: been a problem in the United States for decades and decades.

955
00:47:41,760 --> 00:47:45,399
Speaker 12: We actually saw some compression of that inequality, so it's

956
00:47:45,400 --> 00:47:48,480
Speaker 12: shrinking some. I mean you can't hardly see it on

957
00:47:48,520 --> 00:47:50,960
Speaker 12: the graph, right, it's it's you know, it's still big,

958
00:47:51,840 --> 00:47:55,080
Speaker 12: So that inequality is out there. People tend to focus

959
00:47:55,120 --> 00:47:58,239
Speaker 12: on what's in front of them, like what they need

960
00:47:58,280 --> 00:48:00,960
Speaker 12: to do to put food on the table, roof over

961
00:48:01,000 --> 00:48:04,279
Speaker 12: their head, and there are some service If you ask

962
00:48:04,280 --> 00:48:08,319
Speaker 12: people about their own finances, they're more upbeat than when

963
00:48:08,360 --> 00:48:11,399
Speaker 12: they look out at the economy. And so that's why

964
00:48:11,440 --> 00:48:14,640
Speaker 12: in my I've written two pieces now at Bloomberg about

965
00:48:14,640 --> 00:48:18,560
Speaker 12: this extra pessimism, trying to explore what it could be,

966
00:48:18,640 --> 00:48:21,680
Speaker 12: and often it points to things that go beyond the economy,

967
00:48:22,760 --> 00:48:26,560
Speaker 12: because we're asking people big picture about their outlook and

968
00:48:26,880 --> 00:48:30,400
Speaker 12: there are other factors at play. We went through COVID

969
00:48:30,640 --> 00:48:32,960
Speaker 12: and the war in Ukraine is ongoing. We've had so

970
00:48:33,120 --> 00:48:36,520
Speaker 12: much bad news since the pandemic began, and then we

971
00:48:36,600 --> 00:48:40,160
Speaker 12: do have features of how we transmit that bad news

972
00:48:40,560 --> 00:48:44,560
Speaker 12: out into the public, and that's something that's different than

973
00:48:44,600 --> 00:48:45,600
Speaker 12: the nineteen seventies.

974
00:48:45,680 --> 00:48:48,319
Speaker 2: Yes, social media is what you're I assume what you're

975
00:48:48,320 --> 00:48:52,760
Speaker 2: talking about here, and I think we all know now

976
00:48:53,120 --> 00:48:57,759
Speaker 2: that the way for Elon Musk and Mark Zuckerberg to

977
00:48:57,760 --> 00:49:02,080
Speaker 2: make money is for people to get angry and hateful

978
00:49:02,200 --> 00:49:06,360
Speaker 2: on social media. That drives engagement and at the end

979
00:49:06,360 --> 00:49:08,200
Speaker 2: of the day, the bottom line. So it kind of

980
00:49:08,280 --> 00:49:11,040
Speaker 2: amplifies everything that's bad doesn't.

981
00:49:10,800 --> 00:49:14,040
Speaker 12: It right, And we've always had the case that bad

982
00:49:14,040 --> 00:49:16,880
Speaker 12: defense happen. The news comes out, it has a bias

983
00:49:16,920 --> 00:49:20,640
Speaker 12: towards the bad. There's research news organizations, right, it's more

984
00:49:20,680 --> 00:49:24,240
Speaker 12: negative that leads, it leads, right, So this is not new.

985
00:49:24,680 --> 00:49:28,080
Speaker 12: But what happens is once it gets on platforms, social

986
00:49:28,120 --> 00:49:32,440
Speaker 12: media platforms, it can spread far and wide and really fast.

987
00:49:32,920 --> 00:49:36,279
Speaker 12: So it makes this bad news very personal because it

988
00:49:36,320 --> 00:49:39,640
Speaker 12: can be conveyed by real people and not necessarily you know,

989
00:49:39,719 --> 00:49:44,040
Speaker 12: print media or you know, on the TV. And it

990
00:49:44,120 --> 00:49:47,920
Speaker 12: absolutely is the case that not only does negative spread faster,

991
00:49:48,880 --> 00:49:51,360
Speaker 12: it gets absorbed fast. Like we're just there's a human

992
00:49:51,440 --> 00:49:54,120
Speaker 12: tendency towards the negative. So it's like you put these

993
00:49:54,120 --> 00:49:58,000
Speaker 12: three factors together, really bad events. News has a bias

994
00:49:58,000 --> 00:50:01,040
Speaker 12: towards the negative. People love the negative, and then we

995
00:50:01,120 --> 00:50:04,960
Speaker 12: can spread it really fast. So that's one way to

996
00:50:05,080 --> 00:50:08,800
Speaker 12: think about it that you could get this extra kick.

997
00:50:09,400 --> 00:50:11,760
Speaker 12: But absolutely we talked about a lot of economic factors

998
00:50:11,760 --> 00:50:14,080
Speaker 12: that may not be captured and maybe different in the

999
00:50:14,120 --> 00:50:16,879
Speaker 12: past that could be in there too. So it's really

1000
00:50:16,960 --> 00:50:19,680
Speaker 12: important to kind of pull this apart and figure out

1001
00:50:19,960 --> 00:50:22,919
Speaker 12: what's going on, because if people are really down beat,

1002
00:50:22,960 --> 00:50:26,279
Speaker 12: it can create a self fulfilling prophecy in that they

1003
00:50:26,320 --> 00:50:28,720
Speaker 12: pull back and they get more downbeat, and then before

1004
00:50:28,760 --> 00:50:30,840
Speaker 12: we know it, we're in a recession. So, like, this

1005
00:50:30,960 --> 00:50:35,000
Speaker 12: is an important question. People could be right. I mean,

1006
00:50:35,040 --> 00:50:38,000
Speaker 12: we could really be in a bad place in the

1007
00:50:38,040 --> 00:50:38,839
Speaker 12: next year or two.

1008
00:50:39,440 --> 00:50:41,560
Speaker 2: Well, and a lot of times when we get into

1009
00:50:41,600 --> 00:50:46,120
Speaker 2: a bad place, our leaders will hopefully come together and

1010
00:50:46,440 --> 00:50:48,759
Speaker 2: pull us out of it. And currently doesn't look like

1011
00:50:48,800 --> 00:50:53,359
Speaker 2: that's a possibility in this climate in Washington, with you know,

1012
00:50:53,480 --> 00:50:59,480
Speaker 2: the the lack of any kind of bipartisan In fact,

1013
00:50:59,760 --> 00:51:01,480
Speaker 2: you'll be thrown out a speaker of the House if

1014
00:51:01,480 --> 00:51:03,200
Speaker 2: you reach across the aisle.

1015
00:51:02,920 --> 00:51:03,640
Speaker 5: To make a deal.

1016
00:51:03,840 --> 00:51:09,520
Speaker 2: And deficits continue to climb. Now the latest, uh, the

1017
00:51:09,600 --> 00:51:13,680
Speaker 2: latest look is about two trillion dollars. Does that affect

1018
00:51:13,800 --> 00:51:16,080
Speaker 2: people's outlook? I mean they say that, you say they're

1019
00:51:16,080 --> 00:51:18,720
Speaker 2: doing well at home, but they're gloomy about the economy.

1020
00:51:18,760 --> 00:51:21,720
Speaker 2: Could it be because they see, you know, the USA

1021
00:51:21,880 --> 00:51:23,760
Speaker 2: government train kind of running off the tracks.

1022
00:51:25,520 --> 00:51:27,799
Speaker 12: They're in some of these sentiment surveys they ask people

1023
00:51:27,840 --> 00:51:31,719
Speaker 12: about government economic policy. It probably doesn't surprise anyone that

1024
00:51:31,840 --> 00:51:34,840
Speaker 12: the government scores pretty low and has for some time

1025
00:51:35,239 --> 00:51:38,319
Speaker 12: it's not clear to me that that's changed dramatically. You

1026
00:51:38,360 --> 00:51:40,360
Speaker 12: see it do move in like debt ceiling moments and

1027
00:51:40,400 --> 00:51:44,399
Speaker 12: the path like where people get more negative. It's more

1028
00:51:44,440 --> 00:51:48,120
Speaker 12: of that reality, like what happens if we were to

1029
00:51:48,160 --> 00:51:51,960
Speaker 12: go into a recession. Typically there's this saying we're all

1030
00:51:52,040 --> 00:51:55,359
Speaker 12: Knesians in a fox hole. So the money would go out,

1031
00:51:55,440 --> 00:51:58,759
Speaker 12: like the stimulus checks have gone out. But what's what

1032
00:51:58,800 --> 00:52:01,840
Speaker 12: would be problem is if it were a severe recession

1033
00:52:01,880 --> 00:52:04,640
Speaker 12: I mean we will hopefully never see anything like COVID again,

1034
00:52:05,120 --> 00:52:07,759
Speaker 12: is that it wouldn't last real long, and that ends

1035
00:52:07,840 --> 00:52:11,560
Speaker 12: up hurting people at the bottom the most right because

1036
00:52:11,600 --> 00:52:16,440
Speaker 12: they probably aren't recovered right away. So a government that

1037
00:52:16,560 --> 00:52:23,080
Speaker 12: doesn't have it all together will cause problems for people.

1038
00:52:23,800 --> 00:52:25,879
Speaker 12: Real people are going to suffer in the case of

1039
00:52:26,000 --> 00:52:27,120
Speaker 12: an economy going down.

1040
00:52:28,040 --> 00:52:30,600
Speaker 1: So where are you right now, Claude with with your

1041
00:52:30,680 --> 00:52:33,560
Speaker 1: economic outlook?

1042
00:52:34,520 --> 00:52:38,040
Speaker 12: It's tough. I wrote some on my substack last week,

1043
00:52:38,080 --> 00:52:40,239
Speaker 12: you know, really like we got to celebrate the winds here.

1044
00:52:40,280 --> 00:52:43,759
Speaker 12: We've saen inflation come down pretty notably, whether you're looking

1045
00:52:43,800 --> 00:52:44,440
Speaker 12: at core or.

1046
00:52:46,000 --> 00:52:46,239
Speaker 6: Yeah.

1047
00:52:46,280 --> 00:52:48,399
Speaker 12: I mean I tried to like, hey, there's some good

1048
00:52:48,440 --> 00:52:51,800
Speaker 12: stuff out here. Knowing that this wasn't going to amplify

1049
00:52:51,840 --> 00:52:55,200
Speaker 12: through social media. It's kind of hopeless. But there are

1050
00:52:55,440 --> 00:52:59,960
Speaker 12: plenty of dark clouds on the horizon. Interest rates are

1051
00:53:00,239 --> 00:53:02,200
Speaker 12: they've gone up a lot, and you are starting to

1052
00:53:02,239 --> 00:53:06,239
Speaker 12: see it. And when you ask businesses with their investment

1053
00:53:06,360 --> 00:53:11,360
Speaker 12: plans in some of the consumer credit quality measures, like

1054
00:53:11,400 --> 00:53:15,600
Speaker 12: the delinquencies they fell during after the pandemic, because again,

1055
00:53:15,640 --> 00:53:19,640
Speaker 12: we gave people so much relief, they're moving up and

1056
00:53:20,120 --> 00:53:22,719
Speaker 12: we could be moving back to quote unquote normal or

1057
00:53:22,840 --> 00:53:25,160
Speaker 12: there's just a certain level or this could be a

1058
00:53:25,200 --> 00:53:27,839
Speaker 12: sign that it's getting like people are in a more

1059
00:53:27,960 --> 00:53:31,280
Speaker 12: precarious place. And yet, like we've been kind of saying

1060
00:53:31,320 --> 00:53:34,239
Speaker 12: that at different times over the last two years. Right,

1061
00:53:34,239 --> 00:53:38,000
Speaker 12: the recession is always coming and it will someday, Like

1062
00:53:38,040 --> 00:53:41,719
Speaker 12: we don't escape these over the long term, but it's

1063
00:53:42,160 --> 00:53:45,839
Speaker 12: things have been better than we thought or people were

1064
00:53:45,840 --> 00:53:48,920
Speaker 12: saying or businesses were saying, so we we could still

1065
00:53:50,400 --> 00:53:55,400
Speaker 12: balance it out, moderate some things and keep going. But

1066
00:53:55,560 --> 00:53:59,600
Speaker 12: it's not it's not what should happen, right, What should

1067
00:53:59,600 --> 00:54:02,160
Speaker 12: happen is that we go into a recession. That's not

1068
00:54:02,320 --> 00:54:05,319
Speaker 12: my base case, but I know that's the reality of

1069
00:54:05,400 --> 00:54:06,520
Speaker 12: everything that's lined.

1070
00:54:06,360 --> 00:54:09,160
Speaker 1: Up all right, Claudia, Thanks so much, Je for joining us.

1071
00:54:09,200 --> 00:54:12,200
Speaker 1: I just appreciate getting a few minutes of your time, Claudia,

1072
00:54:12,280 --> 00:54:16,279
Speaker 1: Sam founder and independent economists at some consulting.

1073
00:54:18,480 --> 00:54:21,560
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can

1074
00:54:21,600 --> 00:54:25,400
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

1075
00:54:25,480 --> 00:54:29,200
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

1076
00:54:29,400 --> 00:54:31,319
Speaker 2: at Matt Miller nineteen seventy three.

1077
00:54:31,760 --> 00:54:32,680
Speaker 9: And I'm fall Sweeney.

1078
00:54:32,680 --> 00:54:35,279
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you

1079
00:54:35,320 --> 00:54:38,719
Speaker 1: can always catch us worldwide at Bloomberg Radio.