WEBVTT - Fiduciary's Andersen Assesses the Trump Speculation Premium 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:29.360 SoundCloud and at Bloomberg dot com. We'd like to learn 0:00:29.400 --> 0:00:32.840 more about investing, so we turned to Peter Anderson, chief 0:00:32.880 --> 0:00:37.680 investment officer and vice president for Fiduciary Trust based in Boston. 0:00:38.360 --> 0:00:41.360 Thanks very much for being with us, Peter, all right, 0:00:41.840 --> 0:00:46.360 here's the scenario. SMP five hundred is up more than 0:00:47.600 --> 0:00:51.280 on a fifty two week basis. Forget this three month stuff. 0:00:51.360 --> 0:00:56.200 Let's just say rolling one year returns. Um, how do 0:00:56.240 --> 0:01:01.080 you extract some of your profits safely? Uh? Even as 0:01:01.120 --> 0:01:05.280 an institutional manager? How do you extract some profits safely? 0:01:05.400 --> 0:01:09.160 And where do you redeploy? If you say, all right, 0:01:10.560 --> 0:01:15.880 there's no reason to uh think that you've become a genius, well, 0:01:15.920 --> 0:01:18.759 you know the best way to navigate through uncertain times 0:01:18.800 --> 0:01:22.280 them is to commit to sound principles. So I think 0:01:22.319 --> 0:01:25.680 what the heart of your question really is going forward 0:01:26.000 --> 0:01:28.480 with all the uncertainties that we have right now. What 0:01:28.680 --> 0:01:31.400 is the best way to stick to your principles if 0:01:31.440 --> 0:01:35.680 you have set them early in your investment horizon, and 0:01:35.760 --> 0:01:39.480 do you make changes in midstream? And given that there 0:01:39.520 --> 0:01:43.320 are so many uncertainties and we're having so much difficulty, 0:01:43.920 --> 0:01:47.400 uh discerning facts from what I would call pure hopes, 0:01:47.960 --> 0:01:52.200 that this isn't really the time to make major changes 0:01:52.560 --> 0:01:54.800 given where we are what I would call in this 0:01:54.920 --> 0:01:58.280 you know, the phases of the Trump administration. You know, Peter, 0:01:58.360 --> 0:01:59.960 I think a lot of people would probably agree with you, 0:02:00.000 --> 0:02:01.320 which is the reason why we're not seeing a lot 0:02:01.360 --> 0:02:05.600 of direction in stock or bond markets recently. Given that backdrop, 0:02:05.800 --> 0:02:10.440 are you stockpiling cash, You're preparing for better liquidity when 0:02:10.520 --> 0:02:13.800 there is some kind of uh reality or facts that 0:02:13.960 --> 0:02:17.800 come out that uh, that's for for people to actually, well, 0:02:17.880 --> 0:02:19.519 let me answer it this way. You know, what we 0:02:19.600 --> 0:02:21.320 try to do is we go back to basics and 0:02:21.400 --> 0:02:23.840 we say, look, there's a baseline right now. You always 0:02:23.880 --> 0:02:25.880 have to focus on what do you think the baseline 0:02:25.960 --> 0:02:29.519 is for say, US equities, and then you take an observation, 0:02:29.639 --> 0:02:32.280 you say, where is the SMP right now? And you 0:02:32.360 --> 0:02:34.960 have to discern what is the difference between where your 0:02:34.960 --> 0:02:38.160 baseline is. So, for instance, most people would rationally say 0:02:38.160 --> 0:02:40.440 the SMP five D is going to return anywhere from 0:02:40.480 --> 0:02:43.760 say six to eight percent annual lives in a year. However, 0:02:44.040 --> 0:02:46.120 as Pam was saying, when you look at what the 0:02:46.160 --> 0:02:49.440 return is now the SMP five, you have to account 0:02:49.480 --> 0:02:52.360 for what is that giant gap between what you would 0:02:52.360 --> 0:02:55.600 say your baseline is and what you're actually observing. And 0:02:56.040 --> 0:02:58.960 the large extent of that, in our opinion, is what 0:02:59.080 --> 0:03:02.239 we would call, you know, the Trump premium, the details 0:03:02.440 --> 0:03:07.400 of the future tax reform, infrastructure, all that, and you 0:03:07.480 --> 0:03:10.600 have to get a sense of is that a reasonable premium? 0:03:10.639 --> 0:03:12.800 And if it is, I would say you stay with 0:03:12.919 --> 0:03:17.639 your program. If you determine that the premium is you know, overvalued, 0:03:18.000 --> 0:03:20.680 then maybe you take some chips off the table. But 0:03:21.080 --> 0:03:23.880 for our measurements right now, we think as long as 0:03:23.880 --> 0:03:26.560 you're diversified and you do have reasonable exposure in the 0:03:26.680 --> 0:03:29.639 SP I think you stay the course until you get 0:03:29.639 --> 0:03:35.320 more data. Before you get that data, tell us one 0:03:35.400 --> 0:03:40.520 level down industry groups and specific cases if you can, 0:03:41.040 --> 0:03:44.880 so that we learn what exactly you're talking about. Yeah, okay, well, 0:03:44.920 --> 0:03:48.120 first off, let's just talk about how about even fixed income, 0:03:48.200 --> 0:03:51.240 investor grade fixed income that's been getting a bad rap 0:03:51.320 --> 0:03:54.720 recently because him most people think it's the equivalent of 0:03:54.760 --> 0:03:57.320 asking to put your hand into an open flame, right 0:03:57.360 --> 0:04:00.000 when the FED is an a rising interest rate environment? 0:04:00.000 --> 0:04:03.840 And why would we stay in an exposure to investment 0:04:03.880 --> 0:04:07.160 grade fixed income? And I think the answer overwhelmingly is 0:04:07.600 --> 0:04:10.840 because it acts as ballot to the portfolio. So while 0:04:10.880 --> 0:04:14.160 you can have debates about our spreads, um you know, 0:04:14.280 --> 0:04:18.280 valued fairly, what will happen when rates rise? We still 0:04:18.320 --> 0:04:22.280 advocate staying in fixed income to a certain degree in 0:04:22.360 --> 0:04:25.560 case things don't go all the way everybody is expecting 0:04:25.640 --> 0:04:28.760 and you want to have something that will most likely 0:04:29.120 --> 0:04:33.400 are outperform in a disappointing environment. Well, in fairness, just 0:04:33.440 --> 0:04:35.760 to give a sense of what the market, the investment 0:04:35.800 --> 0:04:38.080 grade corporate bond market has done, it has been an 0:04:38.200 --> 0:04:42.479 unprecedented quarter first quarter of investment grade bond sales in 0:04:42.520 --> 0:04:46.080 the US, and the debt has preserved its value, actually 0:04:46.120 --> 0:04:49.599 increasing by one point four uh in that first quarter 0:04:49.720 --> 0:04:51.560 even with all of those sales. So it seems like 0:04:51.560 --> 0:04:54.440 a lot of people, Peter do agree with you. I 0:04:54.480 --> 0:04:56.880 want to just get your thoughts on a front page 0:04:56.880 --> 0:04:59.320 story on the Wall Street Journal this morning talking about 0:04:59.560 --> 0:05:02.600 a new posal at the FED to do two more 0:05:02.680 --> 0:05:06.359 rate hikes this year and then begin unwinding their balance 0:05:06.440 --> 0:05:10.039 sheet in a in a gradual process. My first impression 0:05:10.080 --> 0:05:12.480 was this would be incredibly disruptive, particularly it's the longer 0:05:12.600 --> 0:05:15.279 dated debt. What about what about you? What was your reaction? 0:05:15.560 --> 0:05:17.080 I think it is and you know, I think it's 0:05:17.120 --> 0:05:20.080 a little bit premature. I was somewhat surprised that that 0:05:20.240 --> 0:05:23.680 was reported on given where we are right now, Lisa, 0:05:23.920 --> 0:05:27.480 it seems to me that, uh, even with the rate hike, 0:05:27.640 --> 0:05:30.440 when you see how the tenure has done, I think 0:05:30.480 --> 0:05:33.400 it is surprising to most people where it began and 0:05:33.440 --> 0:05:36.599 where it ended in a rising rate environment. So to 0:05:36.800 --> 0:05:40.280 actually project that we're going to have two more hikes 0:05:40.400 --> 0:05:43.520 and then the unwinding, that's a lot of things have 0:05:43.640 --> 0:05:46.520 to go a certain way in order to hang your 0:05:46.520 --> 0:05:49.599 hat on that, and then to make investment decisions based 0:05:49.640 --> 0:05:52.080 on this, And you know, this chicken little mentality about 0:05:52.120 --> 0:05:56.120 bonds is not appropriate when you think about diversified portfolio. 0:05:56.320 --> 0:06:00.040 So let's assume there are even more multiple hikes. I 0:06:00.080 --> 0:06:04.479 would still argue that unless you're a pure speculator to 0:06:04.560 --> 0:06:07.520 have a balanced portfolio. You still, you know, we're not 0:06:07.600 --> 0:06:10.719 always right, as we know, and you do have to 0:06:10.760 --> 0:06:12.960 have fixed income in case you are wrong. Well, and 0:06:13.040 --> 0:06:15.760 just to be clear, the direction of rates longer term 0:06:15.839 --> 0:06:18.480 rates has been down as the Federal Reserve raises interest 0:06:18.600 --> 0:06:20.120 rates in the shorter terms. So this has been sort 0:06:20.120 --> 0:06:22.839 of the surprise going forward. Do you think that this 0:06:22.880 --> 0:06:24.880 will continue, That we're going to see a flattening yield curve, 0:06:24.880 --> 0:06:26.840 We're going to see this sort of lower growth expectation 0:06:26.880 --> 0:06:29.120 within the bond market despite all the hopes that we've 0:06:29.120 --> 0:06:31.720 seen reflected and stocks, well, let's just talk about and 0:06:31.760 --> 0:06:35.000 here's uh, let's separate the facts from the hope. So 0:06:35.120 --> 0:06:37.920 what we know for facts right now is that there 0:06:37.920 --> 0:06:41.880 have been two travel bands attempted and they've been forwarded. 0:06:42.240 --> 0:06:45.479 The health care reform has not been successful, and now 0:06:45.480 --> 0:06:49.359 we're seeing the NAFTA. You know, the preliminary disclosure of 0:06:49.400 --> 0:06:52.080 that seems to be I would say most people would 0:06:52.320 --> 0:06:56.039 would agree that it's it's less, it's been blunted, it's 0:06:56.080 --> 0:06:59.240 not as aggressive as it has been. So you have 0:06:59.320 --> 0:07:01.840 to factor that into the sense of did we get 0:07:01.839 --> 0:07:04.960 ahead of ourselves in November and December, thinking that all 0:07:05.040 --> 0:07:09.000 this was going to be easily accepted and reflected in 0:07:09.080 --> 0:07:12.680 the fixed income market is rising rates. I think now 0:07:12.720 --> 0:07:14.600 what people are saying is, now that we have some 0:07:14.720 --> 0:07:18.960 data points, let's project the success of tax reform infrastructure, 0:07:19.040 --> 0:07:22.240 and maybe we've gotten a little bit too optimistic, and 0:07:22.320 --> 0:07:26.480 in that case rates might actually slow down, given that 0:07:26.920 --> 0:07:29.920 the Trump administration hasn't been as successful as people that 0:07:29.920 --> 0:07:33.360 had originally fought back when he was elected. Peter Anderson, 0:07:33.400 --> 0:07:35.400 thank you so much for joining us. A pleasure to 0:07:35.400 --> 0:07:37.440 hear what you have to say, Chief investment officer and 0:07:37.560 --> 0:07:41.440 vice president at Fiduciary Trust, coming to us from Boston. 0:07:41.520 --> 0:07:44.600 Definitely the conundrum of the time, which is who is 0:07:44.680 --> 0:07:48.840 right this sort of incredibly enthusiastic stock pickers or the 0:07:49.800 --> 0:08:06.680 pretty parish, persistently barish fund investors. Well, Lisa Abrama's everybody 0:08:06.680 --> 0:08:09.440 wants to know how many times the Federal Reserve will 0:08:09.520 --> 0:08:13.080 raise interest rates, and since nobody knows, we try to 0:08:13.120 --> 0:08:15.800 find people let at least have some thoughts in that direction, 0:08:15.840 --> 0:08:18.200 and Holly List is one of them, Managing director of 0:08:18.240 --> 0:08:22.520 Futures and Commodities Group for b t I G, joining 0:08:22.560 --> 0:08:25.120 us from Chicago, Holly, thank you very much for being 0:08:25.160 --> 0:08:28.680 on with us as always. You've been recently quoted as 0:08:28.680 --> 0:08:32.920 saying the f O m C is like a US. Uh, well, 0:08:32.920 --> 0:08:37.120 you said air for you know, air carrier, Um, what 0:08:37.200 --> 0:08:39.640 do you mean by that? And and maybe tell us 0:08:39.679 --> 0:08:44.560 who you're following in that convoy. I'm following myself and 0:08:44.600 --> 0:08:47.400 that in that statement. I just think that they're slow 0:08:47.480 --> 0:08:50.280 to move. They tend to make a decision and they 0:08:50.360 --> 0:08:53.240 stick with it. Now we've seen over the past couple 0:08:53.280 --> 0:08:56.360 of years they've raised once per year. They raised first 0:08:56.400 --> 0:09:01.880 in December, they raised again in December, ones they just 0:09:02.000 --> 0:09:04.800 raised again mid March. Now that's not to say that 0:09:04.840 --> 0:09:07.200 they're only raising once per year, but I think they 0:09:07.240 --> 0:09:09.719 tend to move on a course of action, and they 0:09:09.840 --> 0:09:14.360 don't tend to change that decision rapidly or tend to 0:09:14.440 --> 0:09:17.840 stop that decision and reverse course. So I don't think 0:09:17.880 --> 0:09:20.920 that they're certainly moving to ease anytime soon. I don't 0:09:20.920 --> 0:09:23.880 think we've moved into that direction. But I don't think 0:09:23.920 --> 0:09:27.960 that they're necessarily accelerating at this point either, And I 0:09:27.960 --> 0:09:29.959 don't think that they're going I don't think that the 0:09:30.040 --> 0:09:33.760 economic data has shown us that they necessarily need to 0:09:33.880 --> 0:09:37.600 raise four times per per year, although we have seen 0:09:37.640 --> 0:09:41.000 a couple of non voting FED members have said that 0:09:41.080 --> 0:09:43.080 they think that they're going to that they should be 0:09:43.200 --> 0:09:46.720 raising four times per year at each meeting this year, 0:09:46.760 --> 0:09:50.160 which would imply most likely every other meeting, which is 0:09:50.200 --> 0:09:54.360 when we get a press conference out of FED share yelling. 0:09:54.840 --> 0:09:57.120 So I don't necessarily think that they go from one 0:09:57.240 --> 0:10:00.240 hike per year to four hikes per year, which would 0:10:00.240 --> 0:10:04.240 certainly be a change in direction out of that aircraft carrier. Yeah, 0:10:04.760 --> 0:10:06.840 at that aircraft carrier, I love it high. You know, 0:10:06.920 --> 0:10:09.160 last week we heard from a lot of FED members, 0:10:09.200 --> 0:10:13.160 and one of the dominant themes was that there is 0:10:13.760 --> 0:10:16.280 a pretty heated discussion going on right now at the 0:10:16.280 --> 0:10:21.320 FED about shifting policy from rate hikes to curtailing the 0:10:21.320 --> 0:10:24.040 balance sheet and sort of not reinvesting all of the 0:10:24.120 --> 0:10:27.199 proceeds that they're earning from their holdings. There was a 0:10:27.200 --> 0:10:29.400 story in the Wall Street Journal today talking about how 0:10:29.480 --> 0:10:32.200 the FED is thinking about possibly starting that unwind later 0:10:32.240 --> 0:10:35.920 this year. How disruptive do you think that would be? Well, 0:10:35.920 --> 0:10:37.839 I think if they don't give us any advanced notice, 0:10:37.880 --> 0:10:41.720 that would certainly be disruptive. But probably the least disruptive 0:10:41.800 --> 0:10:44.199 of it. Once they start giving us some advanced notice 0:10:44.240 --> 0:10:46.600 about how they're going to re be reducing their balance 0:10:46.679 --> 0:10:50.200 sheet would certainly be a reduction in I shouldn't say 0:10:50.200 --> 0:10:53.720 a reduction in, but certainly not reinvesting the proceeds. That 0:10:53.760 --> 0:10:56.920 would certainly just be a reduction in the balance sheet. 0:10:56.920 --> 0:11:00.560 By letting those proceeds not be reinvested, it would just 0:11:00.600 --> 0:11:03.440 be a natural reduction. You'd be using the money they 0:11:03.559 --> 0:11:07.440 returning it to the treasury, just not be reinvesting it. 0:11:07.440 --> 0:11:11.720 It would just be a natural decline in their balance sheet. 0:11:12.240 --> 0:11:14.600 Use the money for something else or just returning it 0:11:14.640 --> 0:11:17.640 to the treasury, and and that would just reduce it. 0:11:17.679 --> 0:11:19.800 They'd give us some advanced notice and that we would 0:11:19.800 --> 0:11:22.760 all just know that the balance sheet is going away. 0:11:22.800 --> 0:11:24.920 I mean it started at a trillion, now you're up 0:11:24.960 --> 0:11:27.640 to four and a half trillion. If they didn't give 0:11:27.720 --> 0:11:30.440 us advanced notice, that would certainly be a different story. 0:11:30.840 --> 0:11:33.040 And maybe if they also gave us some advanced warning 0:11:33.080 --> 0:11:36.200 about what portion of the balance sheet maybe they would 0:11:36.280 --> 0:11:39.200 let run off first. Maybe that would also give us 0:11:39.200 --> 0:11:42.120 a better inclination about where it would be. As you know, 0:11:42.200 --> 0:11:45.360 we all had that paper tantrum years ago under Bernaki, 0:11:45.800 --> 0:11:49.000 and that would certainly exactly and that was sort of, uh, 0:11:49.760 --> 0:11:52.520 not an advanced warning. And so we had that tantrum. 0:11:52.520 --> 0:11:55.080 But if they gave us some advanced notice, that would 0:11:55.120 --> 0:11:56.800 be a little bit better for all of us to 0:11:56.800 --> 0:11:59.480 get used to that. And that would certainly be a 0:11:59.559 --> 0:12:03.200 type of hike that we wouldn't necessarily need them to 0:12:03.280 --> 0:12:06.840 raise rates as aggressively. And and so that could also 0:12:06.960 --> 0:12:10.360 be the type of tightening contraction that we wouldn't need 0:12:10.400 --> 0:12:13.040 additional rate hikes. So you know, at the end of 0:12:13.120 --> 0:12:15.600 last year, after the U. S Election, a lot of 0:12:15.640 --> 0:12:18.520 analysts were saying, look, we know we've been wrong about 0:12:18.520 --> 0:12:20.880 the direction of interest rates. We know we've been wrong 0:12:20.920 --> 0:12:24.560 about treasury yields, but this time we really think something 0:12:24.679 --> 0:12:28.040 is different. Yields are going to rise materially given President 0:12:28.080 --> 0:12:33.360 Trump's plans for infrastructure spending and regulatory cuts. Now at 0:12:33.400 --> 0:12:36.880 this point do you hear from analysts and people you 0:12:36.960 --> 0:12:40.400 work with, Well, maybe it's it's the same scene. Maybe 0:12:40.400 --> 0:12:42.440 we're looking at the exact same picture as we were 0:12:42.480 --> 0:12:45.720 earlier last year. Uh, just some of the furniture has 0:12:45.760 --> 0:12:50.640 moved around. Well, and it's interesting because we haven't heard 0:12:50.640 --> 0:12:52.280 that that rates have to rise. They are on a 0:12:52.360 --> 0:12:55.680 tightening cycle, and certainly some people have put line in 0:12:55.679 --> 0:12:58.280 the sand two point six percent that to the long 0:12:58.400 --> 0:13:01.400 term bear market we've seen basic the long term bull 0:13:01.440 --> 0:13:04.400 market we've seen since n that will be over and 0:13:04.440 --> 0:13:06.640 we haven't seen that. And we've gotten as close to 0:13:06.640 --> 0:13:09.560 to sixty as you can just within the past month, 0:13:09.600 --> 0:13:13.559 and we've certainly turned around since then, so it doesn't 0:13:13.559 --> 0:13:15.360 necessarily have to be I mean, the markets are gonna 0:13:15.800 --> 0:13:20.800 test that resolve very frequently, and we've certainly been up 0:13:20.840 --> 0:13:23.280 at to sixty just within the last month, and now 0:13:23.360 --> 0:13:25.680 in ten years, we're back to the bottom end of 0:13:25.679 --> 0:13:28.400 that range that we've seen over the past four months, 0:13:28.440 --> 0:13:32.000 just within the past couple of weeks. So just when 0:13:32.040 --> 0:13:34.640 you think it's gonna get bad, it sort of turns around. 0:13:34.679 --> 0:13:36.520 And I think that's what we're seeing the past couple 0:13:36.520 --> 0:13:39.880 of weeks and the data, Lisa, we haven't seen it 0:13:39.960 --> 0:13:42.720 be as strong as it could be, and so I 0:13:42.760 --> 0:13:45.400 think they're testing the resolve of the federal Reserve, they're 0:13:45.440 --> 0:13:48.000 testing the resolve of the markets, and even if you 0:13:48.080 --> 0:13:51.840 look in future space, we had a lot of investors 0:13:51.880 --> 0:13:55.520 and traders be very short the treasury curve. They were 0:13:55.600 --> 0:13:59.080 short treasuries from two years on out to the ultra bonds, 0:13:59.160 --> 0:14:02.680 and now they've used those short positions fairly dramatically over 0:14:02.679 --> 0:14:05.080 the past few weeks, and I think that's telling you 0:14:05.120 --> 0:14:10.280 the marketplace does not see as significantly strong dad as 0:14:10.320 --> 0:14:13.160 they did just a few weeks ago. Polly, as a 0:14:13.559 --> 0:14:17.200 managing director of futures and Commodities, can you tell us 0:14:17.200 --> 0:14:22.280 about gold, Well, you've certainly seen it move around a 0:14:22.320 --> 0:14:24.520 little bit, but it hasn't gotten as strong there were. 0:14:24.560 --> 0:14:27.360 There was just recently where people were talking about it 0:14:27.440 --> 0:14:30.040 hitting two thousand dollars and now we've backed off of 0:14:30.120 --> 0:14:34.800 that level. So I think if we're going today, yeah, 0:14:34.960 --> 0:14:37.120 and if you were going to see inflation, I think 0:14:37.120 --> 0:14:39.840 you would certainly see it higher than we've seen it recently, 0:14:39.920 --> 0:14:43.000 and you haven't now the Fed. One of the Fed's 0:14:43.280 --> 0:14:47.040 favorite inflation numbers is that core year over year PC. 0:14:47.880 --> 0:14:50.120 It has been well below the two percent level that 0:14:50.160 --> 0:14:53.200 they'd like to see it. And I think if inflation 0:14:53.360 --> 0:14:56.440 was going to percolate almost where the FED would like 0:14:56.480 --> 0:14:58.840 to see it, closer to that two percent level, I 0:14:58.880 --> 0:15:02.200 think you would see old being moving higher, and we haven't. 0:15:02.880 --> 0:15:05.040 For me, I like to look at the techno goals 0:15:05.080 --> 0:15:07.760 and right now that twelve seventy one, now you're within 0:15:07.880 --> 0:15:11.200 fifteen sixteen dollars of it. But until it gets above 0:15:11.320 --> 0:15:14.600 that twelve seventy one level technically, and for me, it 0:15:14.600 --> 0:15:17.800 would need to sustain above that level for at least 0:15:17.800 --> 0:15:19.960 a couple of weeks, then I just don't see the 0:15:19.960 --> 0:15:23.800 inflationary pressures percolating in the gold market. Polly Less, thank 0:15:23.800 --> 0:15:25.920 you so much for joining us. Holly Less is Managing 0:15:25.960 --> 0:15:29.400 director of Futures and Commodities at B T I G 0:15:29.800 --> 0:15:45.000 in Chicago. Thanks again for joining us. We're gonna take 0:15:45.040 --> 0:15:46.960 a little bit into the numbers that we've been getting 0:15:46.960 --> 0:15:52.240 out of GM, Ford, Fiat Chrysler, disappointing sales across the board. 0:15:52.640 --> 0:15:56.120 UH car sales are plunging despite the fact that these 0:15:56.160 --> 0:16:00.320 automakers are discounting their vehicles more heavily. To a little 0:16:00.320 --> 0:16:03.640 bit more perspective on how significant these declines and these 0:16:03.640 --> 0:16:06.840 disappointments are. I want to bring in Kevin Tynan, senior 0:16:06.840 --> 0:16:11.520 Auto's analyst for Bloomberg Intelligence. Kevin, what stands out to 0:16:11.720 --> 0:16:15.880 you about this about all reports? Yeah, well, I think. 0:16:16.080 --> 0:16:20.720 I think the auto consumer is probably exhausted. Um. I 0:16:20.760 --> 0:16:23.160 also think that c March is a funny month, and 0:16:23.240 --> 0:16:26.720 that if the weather and parts of the country is 0:16:26.760 --> 0:16:29.880 particularly bad in January February, March can be a strong month. 0:16:30.560 --> 0:16:33.080 I think we saw some bad weather at least here 0:16:33.080 --> 0:16:36.840 in the Northeast late in March, which probably will delay 0:16:36.920 --> 0:16:41.440 things into if there was more significant demand. Wa wa, Kevin, 0:16:41.520 --> 0:16:44.120 Hold on a second, you're blaming the weather. I think 0:16:44.160 --> 0:16:45.920 that a lot of people have been expecting for a 0:16:45.920 --> 0:16:48.360 long time. We've seen cooling demand and the fact that 0:16:48.360 --> 0:16:50.520 people are tightening up their credit conditions, that they're this 0:16:50.920 --> 0:16:55.400 lending standards. No no, no no, not just let it happen, Kevin, 0:16:55.520 --> 0:16:59.800 let it happen. I'm just saying that some of what 0:17:00.120 --> 0:17:03.880 would have happened in March might just slip into April 0:17:04.280 --> 0:17:09.000 when we get uh tax rebates and tax returns are filed. 0:17:09.440 --> 0:17:13.400 Uh So, I I agree the consumers probably a little 0:17:13.400 --> 0:17:17.639 bit exhausted here. I think incentives an inventory are running high. 0:17:17.680 --> 0:17:19.760 We'll probably use the next couple of months to bring 0:17:19.800 --> 0:17:22.800 that down in line. But on the other hand, I 0:17:22.800 --> 0:17:26.920 think that the the downturn in demand will be good 0:17:27.240 --> 0:17:31.160 from if you look at the stocks of these companies 0:17:31.200 --> 0:17:33.080 and that it will be a little bit of a test, 0:17:33.800 --> 0:17:36.679 a little bit of a stress test to see the 0:17:36.720 --> 0:17:39.800 work that has been done, you know, the cost rationalization 0:17:39.840 --> 0:17:43.280 post two thousand nine, to see where these companies come 0:17:43.280 --> 0:17:46.639 in in terms of operating profit in a period of 0:17:46.760 --> 0:17:50.320 less than spectacular demand that we've had recently. Well, looking 0:17:50.359 --> 0:17:55.120 at the stocks right now, Fiat Chrysler down four Look 0:17:55.119 --> 0:17:58.239 at General Motors the shares are down three and a 0:17:58.280 --> 0:18:02.040 half percent and Ford Motor down two and a half percent. 0:18:02.840 --> 0:18:07.760 Is that enough? Um? Probably not? But I think, like 0:18:07.800 --> 0:18:09.960 I said, when you see earnings, you know you're gonna 0:18:10.000 --> 0:18:13.159 be talking about a run rate on operating income. You know, 0:18:13.200 --> 0:18:15.560 for General Motors will be in the two billion dollars 0:18:15.560 --> 0:18:18.560 of quarter range. You know. So, so is that warrant 0:18:18.600 --> 0:18:21.159 that kind of downturn or does it warrant something like 0:18:21.200 --> 0:18:26.240 you're seeing at Tesla five and a half on on 0:18:26.440 --> 0:18:28.679 twenty you know on on the news that they're going 0:18:28.760 --> 0:18:31.920 to hit a hundred thousand units globally in a year. 0:18:32.280 --> 0:18:34.800 You know, at this rate, so UM, I think there's 0:18:34.840 --> 0:18:39.400 some disconnecting the valuations there, obviously, But I think what 0:18:39.480 --> 0:18:43.159 it'll do for the General Motors and Ford and FI. 0:18:43.400 --> 0:18:45.199 Crisis of the world is to show that they can 0:18:45.200 --> 0:18:49.119 still be profitable when demand is not just constantly ramping 0:18:49.200 --> 0:18:52.080 up and ramping up. Okay, Kevin, I'm before we moved 0:18:52.119 --> 0:18:54.000 to Tesla. I want I want to just keep going 0:18:54.040 --> 0:18:57.800 a little bit on the GM and the Ford and Chrysler. Yes, 0:18:57.880 --> 0:18:59.520 this could be a little bit of a stress test, 0:18:59.560 --> 0:19:03.320 but by all accounts, this dynamic could only get worse 0:19:03.400 --> 0:19:06.760 given the fact that a whole slew of leases are 0:19:06.840 --> 0:19:09.879 are set to come up, and that will basically flood 0:19:09.920 --> 0:19:13.920 the market with supply. On the secondary market, decrease prices 0:19:13.960 --> 0:19:17.000 create bigger losses for some of the financing companies that 0:19:17.040 --> 0:19:20.639 are they have been fueling this auto purchasing boom that 0:19:20.640 --> 0:19:22.600 we've seen in recent years. I mean, how can this 0:19:22.840 --> 0:19:25.840 how can this be a stress test if potentially will 0:19:25.880 --> 0:19:28.880 only get worse from here. Well, yeah, you're gonna see 0:19:28.880 --> 0:19:30.800 a lot of off lease vehicles. When when you when 0:19:30.840 --> 0:19:32.600 you think about that though, if you think about the 0:19:32.600 --> 0:19:38.680 registered vehicles in the US alone, we're million vehicles. There's 0:19:38.720 --> 0:19:41.879 gonna be five million coming off lease. So is the 0:19:41.880 --> 0:19:45.119 market big enough to absorb that? Yeah, it certainly is, 0:19:45.200 --> 0:19:49.240 and we're talking about a run rate of seventeen seventeen 0:19:49.280 --> 0:19:53.080 point five million vehicles. So the new vehicle market will 0:19:53.119 --> 0:19:56.000 certainly have to react in terms of pricing and or 0:19:56.119 --> 0:20:01.480 volume to UH slightly more robust in terms of units 0:20:01.760 --> 0:20:04.880 pre owned market, and I think it will. I don't 0:20:04.920 --> 0:20:07.520 think it's the end of the world in terms of 0:20:07.560 --> 0:20:10.360 pricing for the industry. In fact, I would say that 0:20:10.400 --> 0:20:14.720 it's an opportunity for those dealer groups that are focused 0:20:14.800 --> 0:20:16.719 on the pre owned market. I think you're getting a 0:20:16.760 --> 0:20:20.720 lot of late mileage I'm sorry, late model, low mileage, 0:20:20.800 --> 0:20:23.679 high tech vehicles coming back off of lease, and it 0:20:23.720 --> 0:20:26.000 may just cause an adjustment in the new vehicle market, 0:20:26.040 --> 0:20:28.280 but I don't think in that, especially at retail, it's 0:20:28.359 --> 0:20:31.679 necessarily a bad thing that the gap between the two. Right, 0:20:31.720 --> 0:20:34.360 we look at the affordability gap and it's gotten way 0:20:34.400 --> 0:20:38.280 out of control. New vehicles are averaging transactions of thirty 0:20:38.280 --> 0:20:42.720 five thou dollars, and with more used vehicles coming back, 0:20:42.800 --> 0:20:45.520 those prices will have to come down to to maintain 0:20:45.560 --> 0:20:48.840 that gap. That's a little bit more reasonable. Hey, Kevin, 0:20:49.160 --> 0:20:54.000 you mentioned a hundred thousand units at Tesla UH. Tesla 0:20:54.080 --> 0:20:56.919 stock is of five and a half percent. Just do 0:20:56.960 --> 0:21:01.320 the comparison, let's say Tesla versus one of the big three. 0:21:02.119 --> 0:21:04.880 So we got the perspective because the stock certainly isn't 0:21:04.880 --> 0:21:07.680 telling you that today, right. So if you look at 0:21:08.080 --> 0:21:12.639 let's take a measures like market cap, where Kuzla is 0:21:12.720 --> 0:21:16.840 in the Ford range coming up on General Motors arguably, uh, 0:21:16.920 --> 0:21:19.520 you know, a couple of billion dollars away there. And 0:21:19.560 --> 0:21:22.399 if you were to look at Ford six million units 0:21:22.400 --> 0:21:26.240 globally and off the top of my head, somewhere in 0:21:26.240 --> 0:21:29.040 the range of eight billion in operating income last year, 0:21:29.080 --> 0:21:33.200 General Motors was ten on roughly nine plus million units. 0:21:33.640 --> 0:21:36.880 So you're talking about a hundred thousand units with uh 0:21:36.920 --> 0:21:41.000 no profitability and cash burned comparable in terms of market 0:21:41.000 --> 0:21:45.000 cap with companies that are doing six to ten million 0:21:45.160 --> 0:21:49.320 units and six to ten billion in operating in globally. 0:21:49.320 --> 0:21:52.000 And I'm just perfect, that's perfect. You did it in 0:21:52.119 --> 0:21:55.560 exactly the right amount of time. To Kevin Tynan, senior 0:21:55.600 --> 0:22:10.840 autos analyst for Bloomberg Intelligence, I want to turn to 0:22:11.000 --> 0:22:14.359 a Senate Judiciary vote that may happen within the next 0:22:14.400 --> 0:22:19.439 few hours. Senators are considering denomination of Neil Gorsage to 0:22:19.560 --> 0:22:22.879 be the new member of the U. S. Supreme Court. 0:22:23.160 --> 0:22:26.840 We're hearing things about nuclear option. We're thinking about is 0:22:26.840 --> 0:22:28.679 there going to be a filibuster. To give us a 0:22:28.720 --> 0:22:30.920 better sense of what we can expect to hear about. 0:22:30.960 --> 0:22:34.159 Kimberly Robinson joins us now. She's Supreme Court reporter for 0:22:34.200 --> 0:22:38.680 Bloomberg b n A and is currently in Arlington, Virginia. Kimberly, 0:22:39.320 --> 0:22:41.520 I want to start with the nuclear option. We've heard 0:22:41.560 --> 0:22:44.879 a lot about Democrats that do not want Neil Gorsie 0:22:44.920 --> 0:22:48.760 to get confirmed. What is the nuclear option? Well, the 0:22:48.880 --> 0:22:52.200 nuclear option is really just a way to reinterpret Senate 0:22:52.320 --> 0:22:56.480 rules so uh that they can stop a filibuster and 0:22:56.680 --> 0:23:00.359