1
00:00:02,920 --> 00:00:07,280
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

2
00:00:09,960 --> 00:00:13,840
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

3
00:00:13,920 --> 00:00:17,000
Speaker 2: weekdays at ten am Eastern on Apple card playing Android

4
00:00:17,040 --> 00:00:20,120
Speaker 2: Auto with the Bloomberg Business app. Listen on demand wherever

5
00:00:20,200 --> 00:00:25,079
Speaker 2: you get your podcasts, or watch us live on YouTube again.

6
00:00:25,200 --> 00:00:26,800
Speaker 3: M and A talk just kind of coming across the

7
00:00:26,920 --> 00:00:31,000
Speaker 3: tape here Boeing and talks to buy supplier Spirit Aerosystem.

8
00:00:31,040 --> 00:00:33,120
Speaker 3: Spirit air System stock is higher Boeing a little bit

9
00:00:33,159 --> 00:00:35,680
Speaker 3: lower here. But you know, one could argue this is

10
00:00:35,680 --> 00:00:38,040
Speaker 3: a transaction that probably needs to happen for Boeing to

11
00:00:38,320 --> 00:00:41,440
Speaker 3: address some of their concerns. Let's bring on them. George Ferguson.

12
00:00:41,440 --> 00:00:44,400
Speaker 3: George Ferguson covers the aerospace and airlines of business for

13
00:00:44,440 --> 00:00:49,000
Speaker 3: Bloomberg Intelligence. George tell us why Boeing would want to

14
00:00:49,040 --> 00:00:51,160
Speaker 3: do this transaction.

15
00:00:52,720 --> 00:00:57,160
Speaker 4: Good morning, Paul. Quality control. It's absolutely quality control. They

16
00:00:57,240 --> 00:00:59,560
Speaker 4: must be looking inside Spirit. I know they've been looking

17
00:00:59,560 --> 00:01:05,640
Speaker 4: inside spe for months. My guess is they've looked inside

18
00:01:05,760 --> 00:01:09,240
Speaker 4: and they just feel like they can't control quality well enough.

19
00:01:09,880 --> 00:01:13,640
Speaker 4: As an outsider. They used to own Spirit, not as

20
00:01:13,680 --> 00:01:16,320
Speaker 4: it looks exactly now, but they used to own you know,

21
00:01:16,680 --> 00:01:21,039
Speaker 4: those facilities. It makes a majority of the seven thirty

22
00:01:21,040 --> 00:01:24,040
Speaker 4: seven fuselage, it makes the front portion of the seven

23
00:01:24,080 --> 00:01:27,760
Speaker 4: eight to seven, two extremely important products. I think they've

24
00:01:27,760 --> 00:01:31,240
Speaker 4: looked inside and they said, we can't control quality well

25
00:01:31,360 --> 00:01:32,440
Speaker 4: enough from the outside.

26
00:01:32,720 --> 00:01:33,920
Speaker 5: We've got to buy this thing.

27
00:01:34,160 --> 00:01:36,880
Speaker 6: Do we trust Boeing to have the kind of quality

28
00:01:36,880 --> 00:01:38,039
Speaker 6: control that Spirit needs?

29
00:01:39,480 --> 00:01:40,600
Speaker 5: Bowe doesn't have a choice.

30
00:01:40,600 --> 00:01:43,039
Speaker 4: Boone's got to get quality control or they.

31
00:01:43,040 --> 00:01:46,280
Speaker 5: Got a major problem on their hands. And so I.

32
00:01:46,160 --> 00:01:50,480
Speaker 4: Guess I think as an owner, I think it is

33
00:01:50,480 --> 00:01:54,080
Speaker 4: the path, probably a good path forward. I do think

34
00:01:54,080 --> 00:01:58,440
Speaker 4: they will get the quality issues in hand, but it's

35
00:01:58,480 --> 00:02:00,880
Speaker 4: going to take some time, but they have to.

36
00:02:00,640 --> 00:02:01,640
Speaker 5: They have no choice.

37
00:02:01,680 --> 00:02:03,880
Speaker 3: Yeah, I'm looking at the stock A bug is pretty

38
00:02:03,920 --> 00:02:06,600
Speaker 3: much unchanged on the news here. I think if I

39
00:02:06,600 --> 00:02:09,799
Speaker 3: were an investor in Boeing, I would think I may

40
00:02:09,840 --> 00:02:11,600
Speaker 3: or may it, may or may not make financial sense

41
00:02:11,600 --> 00:02:14,079
Speaker 3: to own this Spirit thing, but I would say it's

42
00:02:14,120 --> 00:02:17,600
Speaker 3: probably the best way to move forward here. And when

43
00:02:17,639 --> 00:02:21,600
Speaker 3: you talk to investors Georgia, did they think that way?

44
00:02:22,560 --> 00:02:22,760
Speaker 3: You know?

45
00:02:23,800 --> 00:02:27,000
Speaker 4: I think investors, you know, I don't know that you

46
00:02:27,000 --> 00:02:30,680
Speaker 4: could say they all monololiithically think that way. I think

47
00:02:30,720 --> 00:02:32,200
Speaker 4: if there if there could have been a way to

48
00:02:32,280 --> 00:02:37,000
Speaker 4: keep it outside not have to buy it, you know,

49
00:02:37,160 --> 00:02:39,519
Speaker 4: I think they that probably would have pleased people more.

50
00:02:39,560 --> 00:02:43,560
Speaker 4: I mean, there will be an unwinding required in this transaction. Right,

51
00:02:43,720 --> 00:02:47,480
Speaker 4: So Airbus is a three twenty. Some of the components

52
00:02:47,480 --> 00:02:50,799
Speaker 4: are made at Spirit. I'm imagining that Airbus is not

53
00:02:50,840 --> 00:02:54,160
Speaker 4: going to be interested in having you know, Boeing as

54
00:02:54,160 --> 00:02:57,720
Speaker 4: a subcontractor on their airplane, you know, and their their

55
00:02:57,760 --> 00:03:00,760
Speaker 4: other defense products, you know, for lockeed things like that.

56
00:03:01,160 --> 00:03:03,919
Speaker 4: It's going to require some work I think to unwind

57
00:03:03,960 --> 00:03:06,960
Speaker 4: this thing a little bit in order to you know,

58
00:03:07,000 --> 00:03:10,440
Speaker 4: in order to pull it inside of Boeing. Probably energy

59
00:03:10,440 --> 00:03:13,480
Speaker 4: you would prefer not Boeing to spend. But again I

60
00:03:13,520 --> 00:03:17,320
Speaker 4: think it's their most important products are flowing through Spirit,

61
00:03:17,680 --> 00:03:20,400
Speaker 4: and Spirit's been a source of the problems in some

62
00:03:20,480 --> 00:03:23,400
Speaker 4: of those products lately. And if Boeing is going to

63
00:03:23,400 --> 00:03:25,320
Speaker 4: a much higher production rate, which is where they're going

64
00:03:25,360 --> 00:03:28,560
Speaker 4: to generate the cash flow they need, the profitability they need,

65
00:03:28,919 --> 00:03:31,480
Speaker 4: they've got to stabilize production. And I think, you know,

66
00:03:31,560 --> 00:03:33,320
Speaker 4: they must have looked at it and said we got

67
00:03:33,360 --> 00:03:35,360
Speaker 4: to own it. And so if you're an investor, I

68
00:03:35,400 --> 00:03:39,440
Speaker 4: think you're okay, Yeah, it's the way forward. I'd rather

69
00:03:39,520 --> 00:03:41,200
Speaker 4: not have taken this path, but it's the way forward.

70
00:03:41,760 --> 00:03:44,040
Speaker 6: This is the leading question, and it could be very wrong.

71
00:03:44,200 --> 00:03:47,200
Speaker 6: But does this tell us anything about how bad things

72
00:03:47,320 --> 00:03:50,000
Speaker 6: are at Spirit that this is the option?

73
00:03:51,480 --> 00:03:52,120
Speaker 5: I think it does.

74
00:03:52,720 --> 00:03:54,200
Speaker 6: So how bad are things at Spirit?

75
00:03:55,720 --> 00:03:57,600
Speaker 4: To me, it sounds like it's so bad they got

76
00:03:57,600 --> 00:04:00,960
Speaker 4: to buy it, And I think that's bad. Right, If

77
00:04:01,000 --> 00:04:03,960
Speaker 4: you're Boeing, you do want to preserve cash, right, you

78
00:04:03,960 --> 00:04:05,880
Speaker 4: don't want to go make an acquisition. You got plenty

79
00:04:05,920 --> 00:04:09,280
Speaker 4: of other things to manage right now. But I think

80
00:04:09,360 --> 00:04:12,400
Speaker 4: it means that, yes, the turnover at Spirit's been bad.

81
00:04:13,240 --> 00:04:16,080
Speaker 4: The quality control, I think that's led it to the quality

82
00:04:16,080 --> 00:04:20,159
Speaker 4: control problems. You want to have your hand in how

83
00:04:20,240 --> 00:04:23,360
Speaker 4: those line workers are being managed, how the quality control

84
00:04:23,440 --> 00:04:27,000
Speaker 4: is being handled. Yeah, it means it was really bad

85
00:04:27,040 --> 00:04:27,920
Speaker 4: at Spirit, all right.

86
00:04:27,920 --> 00:04:30,640
Speaker 3: The shares of Spirit Error Systems SPR is a ticker

87
00:04:30,640 --> 00:04:33,760
Speaker 3: for your Bloomberg terminal, up fourteen percent a year today.

88
00:04:33,800 --> 00:04:38,359
Speaker 3: Trading has resumed here, so obviously the market signing pretty

89
00:04:38,400 --> 00:04:40,840
Speaker 3: high probability that something will get done here. So George,

90
00:04:40,960 --> 00:04:44,560
Speaker 3: just looking at Boeing holistically, you know, as you've told

91
00:04:44,640 --> 00:04:46,840
Speaker 3: us in the past. You know, this is a scale business.

92
00:04:46,839 --> 00:04:48,560
Speaker 3: You've got to make as many planes as you can

93
00:04:48,640 --> 00:04:51,479
Speaker 3: for that over that fixed cost base. You have talk

94
00:04:51,480 --> 00:04:53,479
Speaker 3: to us about the production goals, but taught to us

95
00:04:53,520 --> 00:04:56,160
Speaker 3: where they are in production today and where do they

96
00:04:56,160 --> 00:04:57,880
Speaker 3: want to get to and do you think that's a

97
00:04:57,880 --> 00:04:59,880
Speaker 3: reasonable glidepath.

98
00:05:01,480 --> 00:05:05,200
Speaker 4: So they are at thirty eight today, although they'll tell

99
00:05:05,240 --> 00:05:08,440
Speaker 4: you even though their suppliers are building at thirty eight

100
00:05:08,800 --> 00:05:11,159
Speaker 4: and delivering the Boeing at thirty eight, Boeing is not

101
00:05:11,200 --> 00:05:12,880
Speaker 4: putting thirty eight out.

102
00:05:13,120 --> 00:05:14,920
Speaker 5: So I don't know. There's somewhere between.

103
00:05:14,960 --> 00:05:16,200
Speaker 4: They's somewhere in the high thirties.

104
00:05:16,240 --> 00:05:17,560
Speaker 5: Let's say it depends what month it is.

105
00:05:18,160 --> 00:05:20,520
Speaker 3: That that's you know, their mother base is just in general.

106
00:05:21,480 --> 00:05:23,680
Speaker 4: Sorry, and that's on the seven thirty seven. Yep, that's

107
00:05:23,680 --> 00:05:27,719
Speaker 4: the most important product. On the seven eight seven. You know,

108
00:05:27,800 --> 00:05:30,560
Speaker 4: we're in the in the I think five is six

109
00:05:30,720 --> 00:05:35,760
Speaker 4: ish area right now on seven thirty seven. You know,

110
00:05:35,760 --> 00:05:39,960
Speaker 4: they've got goals to be into the fifties. They've and

111
00:05:40,160 --> 00:05:44,240
Speaker 4: at the end of the last expansion phase before the pandemic,

112
00:05:44,600 --> 00:05:48,280
Speaker 4: before the max crashes and groundings, you know they were

113
00:05:48,520 --> 00:05:50,320
Speaker 4: they were in the sixties. They're not going to go

114
00:05:50,360 --> 00:05:53,560
Speaker 4: in the sixties airbuses, you know, for the seven thirty seven.

115
00:05:53,640 --> 00:05:57,039
Speaker 4: Airbus is talking about going to seventy five for the

116
00:05:57,080 --> 00:05:59,360
Speaker 4: eight three twenty. So I think if you and I

117
00:05:59,400 --> 00:06:01,880
Speaker 4: were inside the Boeing management meetings and they told you

118
00:06:01,920 --> 00:06:04,680
Speaker 4: where they really wanted to go, they want to be

119
00:06:04,800 --> 00:06:05,880
Speaker 4: up there near.

120
00:06:07,600 --> 00:06:08,040
Speaker 5: Airbus.

121
00:06:08,560 --> 00:06:11,640
Speaker 4: They're taking a fifty to fifty complement of this market.

122
00:06:12,000 --> 00:06:14,840
Speaker 4: Is that the right place to go? Yes, they're talking

123
00:06:14,920 --> 00:06:19,840
Speaker 4: mid decade. Yes, probably pulling Spirit inside. Timing probably had

124
00:06:19,839 --> 00:06:21,560
Speaker 4: a lot to do with that too. They thought, look,

125
00:06:21,800 --> 00:06:25,240
Speaker 4: how can we stabilize this the fastest, because we don't

126
00:06:25,279 --> 00:06:28,040
Speaker 4: want to keep giving away share to air Bus.

127
00:06:28,720 --> 00:06:30,760
Speaker 6: Going to Spirit back to just for one second. We're

128
00:06:30,760 --> 00:06:34,080
Speaker 6: also reporting that Spirit is exploring strategic options. So that

129
00:06:34,279 --> 00:06:36,799
Speaker 6: leads me to believe that if the Boeing thing doesn't happen,

130
00:06:36,920 --> 00:06:39,000
Speaker 6: they're still in deep trouble and they got to get

131
00:06:39,040 --> 00:06:41,919
Speaker 6: a buyer or do something else. What would be Plan B.

132
00:06:44,240 --> 00:06:44,760
Speaker 5: For Spirit?

133
00:06:45,160 --> 00:06:45,360
Speaker 3: Yeah?

134
00:06:46,520 --> 00:06:49,720
Speaker 4: Yeah, I mean when we look at Spirit spirits, you know,

135
00:06:49,800 --> 00:06:51,600
Speaker 4: you know, Spirit has has a bunch of debt coming

136
00:06:51,720 --> 00:06:54,800
Speaker 4: do the capital markets haven't loved them as much. I

137
00:06:54,839 --> 00:06:57,279
Speaker 4: think they've they you know that some of the debt

138
00:06:57,279 --> 00:06:59,920
Speaker 4: they've placed has been up in the nine percent ish level.

139
00:07:00,520 --> 00:07:03,359
Speaker 4: I think the capital markets, the debt capital markets especially,

140
00:07:03,839 --> 00:07:06,200
Speaker 4: have looked at the Boeing relationship and that's given them

141
00:07:06,279 --> 00:07:09,000
Speaker 4: more comfort probably to give them rates that perhaps were

142
00:07:09,040 --> 00:07:13,240
Speaker 4: better than what Spirit should have got. I think it, frankly,

143
00:07:13,280 --> 00:07:17,400
Speaker 4: would be strategic options, you know, away from Boeing are

144
00:07:17,440 --> 00:07:21,640
Speaker 4: really difficult because again some you know, some fifty to

145
00:07:21,680 --> 00:07:23,440
Speaker 4: sixty I'm talking off the Kuffey I have to go

146
00:07:23,520 --> 00:07:27,160
Speaker 4: pull the exact number of their revenues flow through Boeing.

147
00:07:28,160 --> 00:07:32,840
Speaker 4: What I'm guessing, and that's that strategic comment, is that

148
00:07:33,080 --> 00:07:36,640
Speaker 4: Spirit is probably looking at how they would spin off

149
00:07:36,840 --> 00:07:42,000
Speaker 4: portions of the business that are not Boeing focused, so that,

150
00:07:42,320 --> 00:07:45,360
Speaker 4: you know, so that it could continue, you know, to

151
00:07:45,520 --> 00:07:49,560
Speaker 4: serve those customers. Like I said, Airbus, Lockheed, other defense

152
00:07:50,320 --> 00:07:53,560
Speaker 4: companies have products that are being built by Spirit. I

153
00:07:53,600 --> 00:07:56,320
Speaker 4: think They're probably looking at ways to continue to service

154
00:07:56,440 --> 00:07:58,680
Speaker 4: them in an entity that would be.

155
00:07:59,000 --> 00:08:01,280
Speaker 5: Outside of Boeing.

156
00:08:01,600 --> 00:08:05,320
Speaker 4: You know, the fuselage building business, which is largely what

157
00:08:05,640 --> 00:08:08,800
Speaker 4: Spirit does, isn't one of the great money makers in

158
00:08:08,920 --> 00:08:12,240
Speaker 4: the industry. And you know, we've seen it go to

159
00:08:12,400 --> 00:08:16,720
Speaker 4: some you know, to go offshore. You know, the Koreans

160
00:08:16,760 --> 00:08:19,040
Speaker 4: want to be in this business, the Japanese are in

161
00:08:19,120 --> 00:08:22,080
Speaker 4: this business, the Chinese are in this business. There's a

162
00:08:22,160 --> 00:08:25,200
Speaker 4: lot of competition in that space, and so I think

163
00:08:25,240 --> 00:08:27,720
Speaker 4: it makes it a really hard part of the business

164
00:08:28,240 --> 00:08:32,360
Speaker 4: to be in to make very good returns and looks

165
00:08:32,720 --> 00:08:34,720
Speaker 4: it's a space, the fuselage building space that I think

166
00:08:34,840 --> 00:08:37,959
Speaker 4: Airbus has kept more inside because again they want to

167
00:08:37,960 --> 00:08:42,360
Speaker 4: control their quality. So, you know, I guess that's a

168
00:08:42,400 --> 00:08:44,199
Speaker 4: lot a long way of saying, I don't know that

169
00:08:44,400 --> 00:08:47,880
Speaker 4: options as a complete entity away from Boeing. I don't

170
00:08:47,920 --> 00:08:50,079
Speaker 4: know the great ones exist and I don't see that.

171
00:08:50,400 --> 00:08:53,000
Speaker 4: My guess is they're trying to spend parts of it away,

172
00:08:53,600 --> 00:08:53,840
Speaker 4: all right.

173
00:08:53,880 --> 00:08:55,720
Speaker 3: George, thanks so much for joining us on short notice.

174
00:08:55,760 --> 00:08:59,040
Speaker 3: Really appreciate it. George Ferguson, he covers the airspace business

175
00:08:59,240 --> 00:09:01,560
Speaker 3: was the airlines is the whole complex over there, including

176
00:09:01,600 --> 00:09:05,440
Speaker 3: the defense manufacturers. Again, Wall Street Journal first reported, now

177
00:09:05,480 --> 00:09:10,440
Speaker 3: Bloomberg News matching that Boeing is in talks to acquire

178
00:09:10,480 --> 00:09:13,040
Speaker 3: Spirit Aerosystems Holdings SPRS.

179
00:09:13,160 --> 00:09:14,959
Speaker 7: The ticker Spirit is.

180
00:09:15,120 --> 00:09:17,400
Speaker 3: The stock is up fifteen and a half percent today

181
00:09:17,600 --> 00:09:20,319
Speaker 3: right now, So suggesting to the market believes that there

182
00:09:20,440 --> 00:09:22,920
Speaker 3: is something there in s George was suggesting, Alex, it's

183
00:09:22,960 --> 00:09:24,040
Speaker 3: probably something they gotta do.

184
00:09:24,520 --> 00:09:29,199
Speaker 6: George was awesome, Like that was great, that was great perspective, etc. Yeah,

185
00:09:29,240 --> 00:09:31,240
Speaker 6: And I thought that it was really interesting that it's

186
00:09:31,280 --> 00:09:34,360
Speaker 6: the fuselage business. So if you can spin off other stuff,

187
00:09:34,559 --> 00:09:37,000
Speaker 6: maybe that's the profitable money maker. You can still keep

188
00:09:37,040 --> 00:09:39,920
Speaker 6: the contracts with Airbus and Boeing, but it's the fuselage business. Like,

189
00:09:40,000 --> 00:09:42,640
Speaker 6: that's the part that Boeing just has to basically absorb

190
00:09:42,720 --> 00:09:46,640
Speaker 6: and suck up within its within its company. We'll see

191
00:09:46,679 --> 00:09:47,080
Speaker 6: if that works.

192
00:09:48,640 --> 00:09:52,480
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

193
00:09:52,600 --> 00:09:56,120
Speaker 2: weekdays at ten am Eastern on applecar Play and Android

194
00:09:56,160 --> 00:09:58,880
Speaker 2: Auto with the Bloomberg Business app. You can also listen

195
00:09:59,040 --> 00:10:01,800
Speaker 2: live on Amazon on Alexa from our flagship New York

196
00:10:01,880 --> 00:10:05,160
Speaker 2: station Just say Alexa playing Bloomberg eleven.

197
00:10:05,000 --> 00:10:09,120
Speaker 6: Thirty New York Community Bank down twenty percent. All right,

198
00:10:09,120 --> 00:10:12,920
Speaker 6: you know the story. It has discovered quote material weaknesses

199
00:10:13,120 --> 00:10:16,199
Speaker 6: in how it tracks loan risks. They wrote down the

200
00:10:16,280 --> 00:10:18,600
Speaker 6: value of the company that acquired years ago and replace

201
00:10:18,679 --> 00:10:21,800
Speaker 6: its leadership to help grapple with the turmoil, there was

202
00:10:21,840 --> 00:10:25,200
Speaker 6: a theory that maybe this kind of risk was idiosyncratic.

203
00:10:25,320 --> 00:10:27,760
Speaker 6: They are one of the big exposures to rent control

204
00:10:27,840 --> 00:10:30,600
Speaker 6: departments here in New York City that has been hurt

205
00:10:31,440 --> 00:10:34,880
Speaker 6: by a revamp of some of those rent control laws.

206
00:10:35,280 --> 00:10:37,520
Speaker 6: So when there's a banking potential crisis, we go to

207
00:10:37,640 --> 00:10:42,319
Speaker 6: one guy, Herman cham Lumberg, Intelligence Senior analyst for US

208
00:10:42,440 --> 00:10:46,280
Speaker 6: Regional banks. Herman, can we still call this idiosyncratic?

209
00:10:48,240 --> 00:10:51,480
Speaker 7: It is a good question. I think it's the appropriate question.

210
00:10:51,760 --> 00:10:56,360
Speaker 8: What's idiosyncratic is you mentioned the exposures to commercial real estate,

211
00:10:56,400 --> 00:11:02,120
Speaker 8: specifically apartment lending in office. But what's also idiosyncratic is

212
00:11:02,240 --> 00:11:06,240
Speaker 8: that it recently cleared the one hundred billion dollar asset mark,

213
00:11:06,400 --> 00:11:11,880
Speaker 8: which ushers in higher capital liquidity regulatory issues.

214
00:11:11,600 --> 00:11:12,160
Speaker 7: For the bank.

215
00:11:12,320 --> 00:11:16,680
Speaker 8: And what's happening in our view is that it's easy

216
00:11:16,920 --> 00:11:19,160
Speaker 8: to reach the big leagues of one hundred billion dollars,

217
00:11:19,400 --> 00:11:22,199
Speaker 8: it looks like it's harder to stay there, right And

218
00:11:22,640 --> 00:11:25,480
Speaker 8: what we're seeing is that they're facing growing pains and

219
00:11:25,679 --> 00:11:30,280
Speaker 8: becoming such a bigger company, and these lack of material

220
00:11:30,320 --> 00:11:32,840
Speaker 8: weakness and internal controls just reflects.

221
00:11:32,480 --> 00:11:37,040
Speaker 3: That change in management. Is that usually doesn't look good, right,

222
00:11:37,240 --> 00:11:39,079
Speaker 3: I guess that's contributing to the stock here today. But

223
00:11:39,320 --> 00:11:39,880
Speaker 3: tell us about that.

224
00:11:40,200 --> 00:11:40,360
Speaker 1: Yeah.

225
00:11:40,480 --> 00:11:40,720
Speaker 4: Sure.

226
00:11:40,840 --> 00:11:47,040
Speaker 8: So a few years back, the bank acquired another institution

227
00:11:47,120 --> 00:11:50,040
Speaker 8: called Flagstar Bank, and the CEO of Flagstar Bank is

228
00:11:50,160 --> 00:11:55,520
Speaker 8: now the CEO of NYCB. He was named the executive

229
00:11:55,600 --> 00:12:02,320
Speaker 8: chairman back earlier in February once these issues became apparent,

230
00:12:02,640 --> 00:12:05,760
Speaker 8: and it looks like the former CEO it just has

231
00:12:05,840 --> 00:12:07,080
Speaker 8: been sidelined because of.

232
00:12:08,840 --> 00:12:10,920
Speaker 7: The need for new management.

233
00:12:11,840 --> 00:12:15,079
Speaker 6: Okay, So what's interesting is that if we rewind to

234
00:12:15,320 --> 00:12:18,360
Speaker 6: when they were able to buy with a signature correct,

235
00:12:18,400 --> 00:12:20,840
Speaker 6: some signature assets, right, it was like, oh, look, yay,

236
00:12:20,960 --> 00:12:24,720
Speaker 6: they were the savior, et cetera. Is that gonna are

237
00:12:24,840 --> 00:12:28,199
Speaker 6: regulator is going to rethink what being a bank savior

238
00:12:28,480 --> 00:12:29,800
Speaker 6: is in that circumstance.

239
00:12:30,000 --> 00:12:33,199
Speaker 8: Yeah, that's a great question, and I think it really

240
00:12:35,280 --> 00:12:39,680
Speaker 8: poses a different question. Was New Your Community the right

241
00:12:39,920 --> 00:12:45,080
Speaker 8: bank to acquire the signature assets and deposits if we knew,

242
00:12:45,200 --> 00:12:49,600
Speaker 8: if the regulators should have known, that New Community wasn't

243
00:12:49,720 --> 00:12:53,120
Speaker 8: really up to snuff up the speed on a number

244
00:12:53,160 --> 00:13:00,440
Speaker 8: of these internal issues, capital issues, liquidity issues, and reserve issues. So, uh,

245
00:13:01,559 --> 00:13:06,400
Speaker 8: does do the bank layers need to be more cognizant

246
00:13:06,520 --> 00:13:11,360
Speaker 8: of what they're doing and anointing of potential savior and

247
00:13:12,280 --> 00:13:14,960
Speaker 8: a year later, now this bank is in the crossairs.

248
00:13:15,600 --> 00:13:17,520
Speaker 3: What one of the lessons I'd take away from this

249
00:13:17,600 --> 00:13:21,560
Speaker 3: story is I think a basic fundamental investing lesson, which

250
00:13:21,640 --> 00:13:26,559
Speaker 3: is kind of concentration risk. Look like, had so much

251
00:13:26,640 --> 00:13:30,880
Speaker 3: exposure to this type of loan class i e. Loans

252
00:13:30,920 --> 00:13:35,280
Speaker 3: to rent controlled apartments, that presents a whole level of risk.

253
00:13:35,400 --> 00:13:38,000
Speaker 3: I either not diversified in their portfolio as much as

254
00:13:38,040 --> 00:13:40,720
Speaker 3: maybe we would like. But I guess if you were

255
00:13:40,720 --> 00:13:43,760
Speaker 3: investor in YCV, you knew that going in, right, Yes,

256
00:13:43,960 --> 00:13:44,760
Speaker 3: you knew that.

257
00:13:44,880 --> 00:13:47,600
Speaker 8: Going in that this was the bank that has historically

258
00:13:47,640 --> 00:13:53,600
Speaker 8: focused on the rent regulated apartment lending sector. There they're

259
00:13:53,640 --> 00:13:55,960
Speaker 8: the big ahuna in this niche business and they've been

260
00:13:56,040 --> 00:13:57,080
Speaker 8: doing it for decades.

261
00:13:57,240 --> 00:13:58,600
Speaker 7: So that's not new.

262
00:13:59,240 --> 00:14:02,640
Speaker 8: And you should have known that a few years back

263
00:14:02,679 --> 00:14:07,240
Speaker 8: when when New York imposed tougher regulations, that this was

264
00:14:07,360 --> 00:14:10,280
Speaker 8: going to hurt their their main business.

265
00:14:10,600 --> 00:14:13,760
Speaker 7: So it's taken a few years for just to really

266
00:14:14,000 --> 00:14:14,760
Speaker 7: bore itself out.

267
00:14:14,880 --> 00:14:17,680
Speaker 6: Also, maybe an investor should know, but the company also

268
00:14:17,760 --> 00:14:20,240
Speaker 6: should have known, Like that part couldn't have come as

269
00:14:20,240 --> 00:14:21,360
Speaker 6: a surprise from that end.

270
00:14:21,520 --> 00:14:24,720
Speaker 3: No, but they're risking controls. That's a real problem exactly.

271
00:14:24,800 --> 00:14:26,760
Speaker 6: And now they're trying to do what is this risk,

272
00:14:27,160 --> 00:14:33,160
Speaker 6: synthetic risk something something. So basically the aesthetics sounds.

273
00:14:32,880 --> 00:14:37,240
Speaker 8: Not great, but synthetic the rid of a transaction to

274
00:14:37,720 --> 00:14:42,400
Speaker 8: help reduce their their loan exposures and improve their capital.

275
00:14:42,480 --> 00:14:46,120
Speaker 8: So that's one way to get rid of or improve

276
00:14:46,200 --> 00:14:48,200
Speaker 8: their capital without actually selling the loans.

277
00:14:48,360 --> 00:14:51,560
Speaker 3: All right, for our listeners and viewers that are not

278
00:14:51,680 --> 00:14:53,880
Speaker 3: exposed to New York RAN controlled real estate, talk to

279
00:14:53,960 --> 00:14:56,360
Speaker 3: us about the regional banks in general. What's kind of

280
00:14:56,360 --> 00:14:59,160
Speaker 3: the feeling. And you talk to investors today, are they

281
00:14:59,200 --> 00:15:01,440
Speaker 3: warming up to this? I know it's bounced off that

282
00:15:01,480 --> 00:15:04,040
Speaker 3: October low, right, but I'm not sure if that's a

283
00:15:04,080 --> 00:15:06,040
Speaker 3: market bouncer. People are saying, I think I've seen the

284
00:15:06,080 --> 00:15:07,000
Speaker 3: worst in regional banks.

285
00:15:07,800 --> 00:15:11,760
Speaker 8: It's it's an interesting question. You're right that they've bounced.

286
00:15:11,840 --> 00:15:16,120
Speaker 8: But now a number of folks in the market are

287
00:15:16,160 --> 00:15:20,320
Speaker 8: saying potentially no rate cuts this year, which would be

288
00:15:20,440 --> 00:15:23,720
Speaker 8: viewed as negative for the regional banks, just because the

289
00:15:23,760 --> 00:15:25,480
Speaker 8: positive costs have risen.

290
00:15:25,880 --> 00:15:30,840
Speaker 6: Yeah, cuts because the economy is good and accelerating, So wouldn't.

291
00:15:30,440 --> 00:15:30,960
Speaker 9: That be good?

292
00:15:31,280 --> 00:15:33,560
Speaker 7: There's two things that that weigh on that.

293
00:15:33,960 --> 00:15:36,400
Speaker 8: Number One, there's not a lot of loan growth and

294
00:15:36,840 --> 00:15:41,680
Speaker 8: rate cuts would improve loan demand. And number two, elevated

295
00:15:41,760 --> 00:15:44,720
Speaker 8: interest rates is bad for credit quality and being able

296
00:15:44,840 --> 00:15:46,840
Speaker 8: to refinance the existing loans.

297
00:15:46,960 --> 00:15:49,080
Speaker 7: And the decline and value.

298
00:15:49,320 --> 00:15:53,480
Speaker 8: In areas like office commercial real estate could hamper banks

299
00:15:53,560 --> 00:15:54,320
Speaker 8: credit quality.

300
00:15:54,840 --> 00:15:56,800
Speaker 3: So where are we all on that commercial real estate risk?

301
00:15:56,960 --> 00:15:59,080
Speaker 3: I kind of feel like it's a time bombs still

302
00:15:59,160 --> 00:16:01,840
Speaker 3: out there, and at any time over the next two

303
00:16:01,960 --> 00:16:04,960
Speaker 3: or three or four years, maybe multiple times over that timeframe,

304
00:16:05,240 --> 00:16:08,080
Speaker 3: we're gonna have bank a or group of banks are

305
00:16:08,160 --> 00:16:10,280
Speaker 3: going to call out CIRI is a reason why they

306
00:16:10,960 --> 00:16:13,880
Speaker 3: really missed or they have to really up their reserves or.

307
00:16:13,840 --> 00:16:15,000
Speaker 5: Something like that. Where are we on that?

308
00:16:15,280 --> 00:16:19,680
Speaker 8: Yeah, that continues to play out. We saw that with

309
00:16:19,840 --> 00:16:22,480
Speaker 8: your community in the fourth quarter. We'd expect more of

310
00:16:22,560 --> 00:16:27,840
Speaker 8: that going ahead in the coming quarters. That being said,

311
00:16:28,400 --> 00:16:31,440
Speaker 8: the risk in our view is really relegated to the

312
00:16:31,560 --> 00:16:33,160
Speaker 8: smaller banking institutions.

313
00:16:33,200 --> 00:16:35,400
Speaker 7: We just looked at some data which I think was

314
00:16:35,480 --> 00:16:37,280
Speaker 7: pretty interesting. Since the.

315
00:16:40,360 --> 00:16:44,880
Speaker 8: COVID era starting in twenty nineteen, the top twenty five

316
00:16:45,320 --> 00:16:48,000
Speaker 8: US banks have grown their commercial real estate loans by

317
00:16:48,040 --> 00:16:51,360
Speaker 8: only two percent, and then the large the smallest banks

318
00:16:51,400 --> 00:16:54,200
Speaker 8: have grown their commercial real estate by forty three percent.

319
00:16:54,400 --> 00:17:00,520
Speaker 8: So that shows me that really the risk is comprised

320
00:17:00,640 --> 00:17:02,440
Speaker 8: largely in the smaller bank cohort.

321
00:17:02,760 --> 00:17:05,239
Speaker 6: That's interesting. So let me ask a question. Went back

322
00:17:05,240 --> 00:17:07,680
Speaker 6: to the FED cut, So if we don't get a

323
00:17:07,800 --> 00:17:10,120
Speaker 6: cut for this year, let's just pretend game out.

324
00:17:10,200 --> 00:17:12,760
Speaker 3: Did that just Torton wor other people know it's just Torston?

325
00:17:12,800 --> 00:17:13,040
Speaker 3: I think.

326
00:17:13,359 --> 00:17:14,960
Speaker 6: I think a couple of weeks ago people were talking

327
00:17:14,960 --> 00:17:17,160
Speaker 6: about the worry that we may have to have another

328
00:17:17,280 --> 00:17:20,359
Speaker 6: hike because inflation was reaccelerating. But this is maybe the

329
00:17:20,400 --> 00:17:22,720
Speaker 6: first I've heard of no cuts at all. So if

330
00:17:22,760 --> 00:17:25,800
Speaker 6: that happens and there's no cuts, who's going to be

331
00:17:25,920 --> 00:17:28,800
Speaker 6: under pressure? I mean, you mentioned the fact that a

332
00:17:28,920 --> 00:17:32,600
Speaker 6: cut would help loan demand, So who's already seeing sketchy

333
00:17:32,680 --> 00:17:33,160
Speaker 6: loan demand?

334
00:17:33,359 --> 00:17:33,520
Speaker 4: Right?

335
00:17:33,640 --> 00:17:37,000
Speaker 8: So that's an industry phenomenon where where we're not seeing

336
00:17:37,040 --> 00:17:41,560
Speaker 8: loan growth across the group. The FED puts out weekly

337
00:17:41,680 --> 00:17:44,680
Speaker 8: data and it shows that loans are down quarter to

338
00:17:44,760 --> 00:17:48,280
Speaker 8: day in commercial loans, so that's a big driver of

339
00:17:48,840 --> 00:17:51,720
Speaker 8: the regional bank the large region on bank balance.

340
00:17:51,400 --> 00:17:57,280
Speaker 7: Sheets, so that's hampered. It's going to affect.

341
00:17:57,000 --> 00:18:00,800
Speaker 8: Banks like probably New York community the most because any

342
00:18:01,440 --> 00:18:05,719
Speaker 8: potential rate cuts review as a savior for them because

343
00:18:05,880 --> 00:18:08,760
Speaker 8: then their borrowers could refinance at rates.

344
00:18:08,760 --> 00:18:10,640
Speaker 3: All right, Herman, thanks so much for joining us. Hermy Chands,

345
00:18:10,640 --> 00:18:12,280
Speaker 3: senior analysts for the banks, joining us here in our

346
00:18:12,280 --> 00:18:13,639
Speaker 3: Bloomberg Interactive Broker Studio.

347
00:18:15,520 --> 00:18:19,359
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

348
00:18:19,480 --> 00:18:22,800
Speaker 2: weekdays at ten am Eastern on Affocarplay and Android Auto

349
00:18:22,920 --> 00:18:25,760
Speaker 2: with the Bloomberg Business App. Listen on demand wherever you

350
00:18:25,880 --> 00:18:28,880
Speaker 2: get your podcasts, or watch us live on YouTube.

351
00:18:30,160 --> 00:18:30,439
Speaker 10: This is the.

352
00:18:30,440 --> 00:18:34,159
Speaker 6: Bloomberg Intelligence Radio Show. We bring you great analysis with

353
00:18:34,440 --> 00:18:38,040
Speaker 6: all our Bloomberg Intelligence folks. Two thousand companies, one hundred

354
00:18:38,040 --> 00:18:40,399
Speaker 6: and thirty industries. You want to know about it, they

355
00:18:40,520 --> 00:18:42,320
Speaker 6: cover it. We also like to give you a perspective

356
00:18:42,359 --> 00:18:44,520
Speaker 6: of how to invest on a broader level, particularly on

357
00:18:44,560 --> 00:18:46,960
Speaker 6: a day where the data My point to, maybe we're

358
00:18:46,960 --> 00:18:48,879
Speaker 6: going to get some fed cuts, but then Tauris and

359
00:18:48,880 --> 00:18:51,040
Speaker 6: Slackowapaula said, you're not going to get any cuts this

360
00:18:51,160 --> 00:18:54,520
Speaker 6: year because the economy is just actually accelerating. Things are

361
00:18:54,560 --> 00:18:57,440
Speaker 6: too strong. So Anna Rappern joins us now she is

362
00:18:57,520 --> 00:19:00,960
Speaker 6: CIO at CBIZ Investment Advisory Service. Says Anna, do you

363
00:19:01,080 --> 00:19:03,879
Speaker 6: agree with Torsten Slock maybe or what's the case for

364
00:19:04,119 --> 00:19:05,280
Speaker 6: no cuts at all this year?

365
00:19:06,480 --> 00:19:08,840
Speaker 1: I don't know about no cuts, but I think it's

366
00:19:08,880 --> 00:19:11,560
Speaker 1: certainly difficult for the FED to raise rates at this

367
00:19:11,800 --> 00:19:15,240
Speaker 1: time or at least looking out into twenty twenty four.

368
00:19:15,400 --> 00:19:17,520
Speaker 1: And it's not just the inflation, it's their target of

369
00:19:17,600 --> 00:19:21,199
Speaker 1: two percent. It has been really sticky. Sticky doesn't mean

370
00:19:21,240 --> 00:19:23,960
Speaker 1: it's not falling sticky me that's falling very slowly and

371
00:19:24,040 --> 00:19:26,840
Speaker 1: that it's very very bumpy. So either the FED is

372
00:19:26,880 --> 00:19:30,440
Speaker 1: going to have to accept a higher than two percent

373
00:19:30,520 --> 00:19:33,440
Speaker 1: inflation rate and call it maybe the momentum is heading

374
00:19:33,520 --> 00:19:37,280
Speaker 1: down and start to normalize rates, or they may have

375
00:19:37,440 --> 00:19:40,000
Speaker 1: to be higher for longer. That may be one cut,

376
00:19:40,240 --> 00:19:42,639
Speaker 1: maybe two cuts, maybe no cuts. But I think no

377
00:19:42,800 --> 00:19:45,399
Speaker 1: cuts is that's a pretty hockey shew.

378
00:19:47,040 --> 00:19:50,880
Speaker 3: He's certainly got some airtime if nothing else today, Anna,

379
00:19:51,200 --> 00:19:54,080
Speaker 3: what do you think about this kind of soft landing

380
00:19:54,760 --> 00:19:56,840
Speaker 3: scenario that seems to be out there? People kind of

381
00:19:56,880 --> 00:19:58,560
Speaker 3: feel like I think the Fed's doing a pretty good

382
00:19:58,600 --> 00:20:02,040
Speaker 3: job here negotiating a soft landing. You buy into that, well,

383
00:20:03,359 --> 00:20:03,800
Speaker 3: I think.

384
00:20:03,720 --> 00:20:07,199
Speaker 1: You have to look at the underlying risks that are

385
00:20:07,240 --> 00:20:09,520
Speaker 1: in the markets. I mean, there's the labor market. You know,

386
00:20:09,880 --> 00:20:12,720
Speaker 1: weakness in the fringes that we've seen, and this is

387
00:20:12,800 --> 00:20:15,720
Speaker 1: sort of like, you know, what would a recession look

388
00:20:15,920 --> 00:20:19,000
Speaker 1: like if we didn't have external shocks? If you think

389
00:20:19,040 --> 00:20:22,760
Speaker 1: about the last three recessions that we had, they all

390
00:20:22,880 --> 00:20:25,720
Speaker 1: came from crazy external shocks. How often do you have

391
00:20:25,760 --> 00:20:28,240
Speaker 1: a pandemic? How do you often do you have a

392
00:20:28,320 --> 00:20:32,159
Speaker 1: global financial crisis? Maybe there's a tech bubble. I don't know,

393
00:20:32,240 --> 00:20:33,879
Speaker 1: depends on who you asked, but that was in the

394
00:20:34,000 --> 00:20:39,040
Speaker 1: late nineties. These are sort of triggered by outside factors.

395
00:20:39,600 --> 00:20:42,560
Speaker 1: If you have a normal economic cycle where you really

396
00:20:42,720 --> 00:20:45,320
Speaker 1: have like a natural boom and bust, you're going to

397
00:20:45,359 --> 00:20:47,679
Speaker 1: see weakness around the fringes. And I think we're starting

398
00:20:47,760 --> 00:20:50,959
Speaker 1: to see that and in the consumers labor market as

399
00:20:51,000 --> 00:20:54,040
Speaker 1: well as delinquency rates, et cetera. And you're starting to

400
00:20:54,119 --> 00:20:58,160
Speaker 1: see some cracks in the markets, especially with New York

401
00:20:58,640 --> 00:21:01,200
Speaker 1: Community Bank, right, I mean, was news that came out.

402
00:21:01,560 --> 00:21:03,840
Speaker 1: We started to see some cracks about a year ago,

403
00:21:03,920 --> 00:21:07,199
Speaker 1: it's almost a one year anniversary, and here we are

404
00:21:07,320 --> 00:21:09,800
Speaker 1: in twenty twenty four talking about banks again.

405
00:21:10,359 --> 00:21:12,800
Speaker 6: So does that would that be a call then to

406
00:21:13,000 --> 00:21:15,800
Speaker 6: sell the rally in small caps because what you're describing

407
00:21:16,320 --> 00:21:18,960
Speaker 6: is really great for large cap companies and really bad

408
00:21:19,000 --> 00:21:19,840
Speaker 6: for the small guys.

409
00:21:21,040 --> 00:21:23,000
Speaker 1: Well, I mean, I think the small caps have been

410
00:21:23,080 --> 00:21:25,960
Speaker 1: telling us that it's been pretty uncertain because.

411
00:21:25,760 --> 00:21:29,440
Speaker 6: They've outperformed Anna and the short term they have outperformed.

412
00:21:29,240 --> 00:21:32,320
Speaker 1: Yes, yes, so short term they've outperformed because the yields

413
00:21:32,400 --> 00:21:34,520
Speaker 1: came down, right. So if we're talking about a higher

414
00:21:34,600 --> 00:21:37,320
Speaker 1: for longer scenario, I mean, look at the ten year today,

415
00:21:37,400 --> 00:21:41,600
Speaker 1: it's falling pretty dramatically and yesterday as well. I mean,

416
00:21:41,680 --> 00:21:44,240
Speaker 1: small caps tend to like these things. But if we're

417
00:21:44,240 --> 00:21:46,520
Speaker 1: talking about a higher for longer, we're talking about a

418
00:21:46,600 --> 00:21:49,879
Speaker 1: pretty volatile rate environment where it can definitely go back up,

419
00:21:50,160 --> 00:21:52,680
Speaker 1: and when it goes back up, it sort of supports

420
00:21:52,800 --> 00:21:55,639
Speaker 1: that higher for longer narrative, and that's not as friendly

421
00:21:55,760 --> 00:21:56,560
Speaker 1: for small stocks.

422
00:21:57,280 --> 00:21:59,040
Speaker 3: How About on the fixed income side here, I'm looking

423
00:21:59,080 --> 00:22:01,159
Speaker 3: at you know, just the to your treasure for example,

424
00:22:01,240 --> 00:22:03,399
Speaker 3: what's pulling back today off a seven basis points but

425
00:22:03,800 --> 00:22:05,280
Speaker 3: you know, you're still getting north of four and a

426
00:22:05,320 --> 00:22:07,680
Speaker 3: half percent for a two years. How do you kind

427
00:22:07,720 --> 00:22:10,200
Speaker 3: of advise your clients I think about the fixed income.

428
00:22:10,000 --> 00:22:14,880
Speaker 1: Space, Well, so depending on why you're investing in fixed income,

429
00:22:14,920 --> 00:22:17,560
Speaker 1: I think that that reason is very important. Look, I mean,

430
00:22:17,640 --> 00:22:20,639
Speaker 1: yield is very, very attractive, and so even if you

431
00:22:20,760 --> 00:22:25,000
Speaker 1: have some sell off on and some headwind on the price,

432
00:22:25,160 --> 00:22:28,119
Speaker 1: there's enough yield there to cushion some of that below

433
00:22:28,240 --> 00:22:30,760
Speaker 1: so that we're not talking about the same environment as

434
00:22:30,840 --> 00:22:33,880
Speaker 1: before the FED started to raise rates, right, So we're

435
00:22:34,040 --> 00:22:38,720
Speaker 1: less sensitive to price changes, so we do invest for yield,

436
00:22:39,080 --> 00:22:41,920
Speaker 1: especially on the shorter end. We are keeping durraser a

437
00:22:41,960 --> 00:22:44,560
Speaker 1: little bit on the shorter side because of some of

438
00:22:44,600 --> 00:22:47,119
Speaker 1: the volatility that we were expecting on the longer end

439
00:22:47,160 --> 00:22:47,600
Speaker 1: of the curve.

440
00:22:47,760 --> 00:22:49,439
Speaker 6: So is that a steep Nerd trade then.

441
00:22:51,200 --> 00:22:52,920
Speaker 1: Yes, I mean we're not like that.

442
00:22:53,080 --> 00:22:56,720
Speaker 6: He doesn't like to talk about steepeners. But because a

443
00:22:56,720 --> 00:22:58,000
Speaker 6: steep nerd trade has been real.

444
00:22:58,000 --> 00:23:00,960
Speaker 10: Rough, Oh yes it has.

445
00:23:01,160 --> 00:23:04,280
Speaker 1: And I think that's because every time the FED comes

446
00:23:04,400 --> 00:23:08,240
Speaker 1: out and says, well, you know, we we're thinking about

447
00:23:08,280 --> 00:23:11,760
Speaker 1: cutting rates, we're thinking about doing this, that I think

448
00:23:11,840 --> 00:23:14,440
Speaker 1: the markets interpret that to be Okay, the FED is

449
00:23:14,520 --> 00:23:17,639
Speaker 1: going to be dubbish and the financial conditions loosen and

450
00:23:17,720 --> 00:23:20,480
Speaker 1: then it tightens again. I think it's that volatility that's

451
00:23:20,600 --> 00:23:22,960
Speaker 1: very hard to stummch for some of our investors. So

452
00:23:23,119 --> 00:23:25,760
Speaker 1: keeping duration a little bit on the shorter side to

453
00:23:26,000 --> 00:23:28,680
Speaker 1: minimize some of that price impact is sort of our goal.

454
00:23:29,960 --> 00:23:33,359
Speaker 3: How about on in the credit space here, should I

455
00:23:33,600 --> 00:23:35,760
Speaker 3: be willing to go out there and maybe take some

456
00:23:35,920 --> 00:23:38,760
Speaker 3: credit risk in in an effort to maybe goose up

457
00:23:38,800 --> 00:23:43,159
Speaker 3: my yield here, So we're.

458
00:23:43,040 --> 00:23:45,760
Speaker 1: Talking about credit spreads or every talking about treasure yields,

459
00:23:45,760 --> 00:23:48,399
Speaker 1: because the treasury yields are very very attractive, and of

460
00:23:48,520 --> 00:23:50,359
Speaker 1: course you put the credit spreads on top of that,

461
00:23:50,520 --> 00:23:52,959
Speaker 1: it's even more attractive. But we are a little bit

462
00:23:53,000 --> 00:23:57,080
Speaker 1: more careful on credit, especially on high yield. I believe

463
00:23:57,080 --> 00:23:59,680
Speaker 1: our high yield is at the lowest that we're in

464
00:23:59,760 --> 00:24:02,720
Speaker 1: tern a percentage that willing to go it is still

465
00:24:02,920 --> 00:24:06,639
Speaker 1: a very attractive yield. Again, there's some cushion for some

466
00:24:06,760 --> 00:24:11,240
Speaker 1: of the price volatility. But when high yield spread widens,

467
00:24:11,400 --> 00:24:14,240
Speaker 1: that widens pretty quickly. There's a big price action there

468
00:24:14,280 --> 00:24:16,600
Speaker 1: on the negative side that we don't necessarily want to

469
00:24:16,640 --> 00:24:20,879
Speaker 1: participate in. So we're staying on the investment grade credit.

470
00:24:21,240 --> 00:24:23,760
Speaker 1: As we all know, that market has been very very

471
00:24:23,840 --> 00:24:26,880
Speaker 1: healthy in terms of new issuance, in terms of demand,

472
00:24:27,080 --> 00:24:29,800
Speaker 1: and so we are there at the moment. I can't

473
00:24:29,880 --> 00:24:33,200
Speaker 1: tell you that we'll be there next month, but we're

474
00:24:33,440 --> 00:24:36,520
Speaker 1: certainly for now. We've been clipping very nice coupon on

475
00:24:36,600 --> 00:24:37,600
Speaker 1: that on that front.

476
00:24:37,720 --> 00:24:40,040
Speaker 6: Okay, So that's a good point because so you're you're

477
00:24:40,080 --> 00:24:42,240
Speaker 6: in the investment grade market, but that's for the coupon.

478
00:24:42,720 --> 00:24:45,040
Speaker 6: In the tragy market, are you there for price appreciation

479
00:24:45,320 --> 00:24:46,280
Speaker 6: or are you there for the coupon.

480
00:24:47,240 --> 00:24:50,040
Speaker 1: We're there for the coupon because again, rates are so

481
00:24:50,400 --> 00:24:53,320
Speaker 1: volatile that we sort of have to ignore it as

482
00:24:53,480 --> 00:24:56,720
Speaker 1: noise for the time being, and we're there to clip

483
00:24:56,760 --> 00:24:59,800
Speaker 1: the coupon. So we were there for a while now,

484
00:25:00,080 --> 00:25:04,680
Speaker 1: especially after let's say in twenty twenty three, about halfway

485
00:25:04,680 --> 00:25:08,240
Speaker 1: into twenty twenty three, we increase duration, we increase our

486
00:25:08,320 --> 00:25:13,000
Speaker 1: fixed income exposure to participate on that yield, and a

487
00:25:13,040 --> 00:25:15,640
Speaker 1: lot of our clients are actually looking for that yield,

488
00:25:15,680 --> 00:25:16,800
Speaker 1: so that made sense for us.

489
00:25:18,119 --> 00:25:20,840
Speaker 3: So Anna, the issue here is for a lot of

490
00:25:20,880 --> 00:25:23,240
Speaker 3: folks is what is our federal reserve going to do.

491
00:25:23,359 --> 00:25:25,560
Speaker 3: And you know, again there's lots of competing calls out there,

492
00:25:25,600 --> 00:25:29,920
Speaker 3: but overall, where do you think the risk profile for

493
00:25:30,000 --> 00:25:31,639
Speaker 3: this market is? Do you think people are willing to

494
00:25:31,680 --> 00:25:33,199
Speaker 3: take risk when when you talk to your clients, are

495
00:25:33,240 --> 00:25:34,560
Speaker 3: they a little bit more risk adverse?

496
00:25:37,680 --> 00:25:42,320
Speaker 1: It's mixed, So there's definitely fomo, but there are people who,

497
00:25:43,040 --> 00:25:46,280
Speaker 1: especially small business owners, they see some of the you know,

498
00:25:46,480 --> 00:25:49,600
Speaker 1: some of them see strength, some of them definitely see weaknesses,

499
00:25:49,960 --> 00:25:51,960
Speaker 1: and a lot of them tell us that this market

500
00:25:52,040 --> 00:25:54,920
Speaker 1: doesn't make sense to them. So what is priced into

501
00:25:55,000 --> 00:25:59,359
Speaker 1: the markets right now is a lot of optimism, including

502
00:25:59,800 --> 00:26:02,879
Speaker 1: the area where FED starts to cut, and if that

503
00:26:03,000 --> 00:26:05,920
Speaker 1: doesn't materialize, I think that the markets may be in

504
00:26:06,040 --> 00:26:08,760
Speaker 1: for a surprise, and a lot of our clients are

505
00:26:08,840 --> 00:26:11,560
Speaker 1: definitely thinking in that way. The valuations, you know, the

506
00:26:11,680 --> 00:26:15,040
Speaker 1: numbers don't sit very well with them. So certainly there's

507
00:26:15,119 --> 00:26:18,560
Speaker 1: some fear, but you know, there's always a pusson pool

508
00:26:18,600 --> 00:26:20,160
Speaker 1: between fomo and fear.

509
00:26:20,320 --> 00:26:23,800
Speaker 6: Right, Yeah, I definitely have some fomo, but I'm also

510
00:26:23,920 --> 00:26:25,560
Speaker 6: like soup cans under my bag kind of gal so

511
00:26:25,920 --> 00:26:27,800
Speaker 6: Anna thanks a lot, really appreciate it. In a Rathburn

512
00:26:27,880 --> 00:26:30,560
Speaker 6: cio at Sibiz Investment Advisory Services.

513
00:26:32,119 --> 00:26:36,000
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

514
00:26:36,119 --> 00:26:39,640
Speaker 2: weekdays at ten am Eastern on applecar Play and Android

515
00:26:39,680 --> 00:26:42,800
Speaker 2: Auto with the Bloomberg Business. You can also listen live

516
00:26:42,920 --> 00:26:46,040
Speaker 2: on Amazon Alexa from our flagship New York station Just

517
00:26:46,160 --> 00:26:48,760
Speaker 2: Say Alexa playing Bloomberg eleven thirty.

518
00:26:50,440 --> 00:26:53,080
Speaker 6: We did see paul A Spike once we got the

519
00:26:53,160 --> 00:26:55,280
Speaker 6: ism and the you mish in the S and P

520
00:26:55,480 --> 00:26:56,879
Speaker 6: like I get, we're only up one tenth of one

521
00:26:56,920 --> 00:26:59,479
Speaker 6: percent and definitely buying coming into the front end. It's

522
00:26:59,560 --> 00:27:01,960
Speaker 6: like buy everything. It's okay, the Fed's gonna cut not

523
00:27:02,160 --> 00:27:04,159
Speaker 6: at all what torrest and slock was saying, No, no.

524
00:27:04,240 --> 00:27:06,320
Speaker 3: Tors and side. We justaid Torson slock On saying economy

525
00:27:06,400 --> 00:27:09,520
Speaker 3: is better than expected. Well, these numbers don't show that.

526
00:27:09,720 --> 00:27:12,040
Speaker 6: They don't, so let's kind of understand what's going on.

527
00:27:12,400 --> 00:27:15,400
Speaker 6: Tim Fiori is chair of the Institute for Supply Management,

528
00:27:15,440 --> 00:27:17,399
Speaker 6: so he's the ISM GUYE. So he does all the stuff,

529
00:27:17,480 --> 00:27:19,480
Speaker 6: He does all the surveys, he knows the things, and

530
00:27:19,600 --> 00:27:22,040
Speaker 6: just to recap ism manufacturing coming in light of forty

531
00:27:22,119 --> 00:27:25,200
Speaker 6: seven point eight the new orders, though slipping below fifty,

532
00:27:25,240 --> 00:27:26,640
Speaker 6: All right, Tim, what happened.

533
00:27:26,400 --> 00:27:30,639
Speaker 5: Was going on? So Alex, it was actually a pretty

534
00:27:30,640 --> 00:27:31,040
Speaker 5: good month.

535
00:27:31,480 --> 00:27:35,879
Speaker 9: So what's actually happening on the number side is seasonal

536
00:27:35,920 --> 00:27:39,120
Speaker 9: adjustment factors. So we got a huge benefit in January

537
00:27:39,160 --> 00:27:42,240
Speaker 9: from seasonal factors, and we got a huge deducted in

538
00:27:42,320 --> 00:27:45,000
Speaker 9: February from seasonal factors. If you look at the raw numbers,

539
00:27:45,359 --> 00:27:47,920
Speaker 9: we're actually positive in February compared to January, which you

540
00:27:47,960 --> 00:27:51,720
Speaker 9: would normally expect to see anyway. So overall, you know, go,

541
00:27:51,960 --> 00:27:54,320
Speaker 9: I go through the ten sub inducs, I categorize them

542
00:27:54,320 --> 00:27:57,920
Speaker 9: as positive, negative, or mixed for the month, and I

543
00:27:58,040 --> 00:28:01,040
Speaker 9: determined all the sub inducks were positive for the month.

544
00:28:01,640 --> 00:28:03,359
Speaker 9: So let me let me support this whole thing on

545
00:28:03,480 --> 00:28:05,240
Speaker 9: the demand side, because the new order number is the

546
00:28:05,280 --> 00:28:06,159
Speaker 9: one that's going to really.

547
00:28:06,040 --> 00:28:06,920
Speaker 5: Flash out of people.

548
00:28:07,800 --> 00:28:11,399
Speaker 9: By far, the majority of our comments around softening demand

549
00:28:12,000 --> 00:28:15,919
Speaker 9: is decreased in half, so many fewer panelists are commenting

550
00:28:15,960 --> 00:28:19,760
Speaker 9: about softer orders, which is a positive thing. Our sentiment

551
00:28:19,800 --> 00:28:22,280
Speaker 9: around future demand is still running at about two to one.

552
00:28:23,160 --> 00:28:24,879
Speaker 9: You know, we peaked at ten or twelve to one,

553
00:28:25,080 --> 00:28:27,399
Speaker 9: you know, many many months ago, but two to one

554
00:28:27,440 --> 00:28:29,520
Speaker 9: still says we have a predominant amount of people saying

555
00:28:29,560 --> 00:28:31,640
Speaker 9: that things in the future are going to get better.

556
00:28:32,800 --> 00:28:35,520
Speaker 9: You know, I've been tracking the percent of respondents that

557
00:28:35,560 --> 00:28:38,800
Speaker 9: are below fifty industry sectors and the ones that are

558
00:28:38,840 --> 00:28:41,400
Speaker 9: below forty five, which is a real warning sign.

559
00:28:41,880 --> 00:28:43,840
Speaker 5: So I think last month under forty five we were

560
00:28:43,880 --> 00:28:44,440
Speaker 5: twenty seven.

561
00:28:44,520 --> 00:28:47,720
Speaker 9: Back in January, twenty seven percent of manufacturing was contracting

562
00:28:47,760 --> 00:28:48,760
Speaker 9: in forty five or less.

563
00:28:49,080 --> 00:28:50,360
Speaker 5: This month is one percent.

564
00:28:51,000 --> 00:28:51,280
Speaker 3: Wow.

565
00:28:51,440 --> 00:28:55,120
Speaker 9: And then on the overall contraction under fifty last month

566
00:28:55,360 --> 00:28:58,520
Speaker 9: was in the range of sixty five. This month we're

567
00:28:58,560 --> 00:29:01,080
Speaker 9: in the range of forty. So overall we're moving in

568
00:29:01,120 --> 00:29:03,240
Speaker 9: the right direction. This is going to be a slow recovery.

569
00:29:03,640 --> 00:29:06,840
Speaker 9: I think the month of February indicated that, yes, January

570
00:29:07,040 --> 00:29:09,400
Speaker 9: was a pivot month. We're starting to grow again. The

571
00:29:09,520 --> 00:29:12,560
Speaker 9: headline number is and showing that with the detail underneath

572
00:29:12,600 --> 00:29:15,959
Speaker 9: supports for sure. So I think the man is coming back,

573
00:29:16,040 --> 00:29:17,680
Speaker 9: for sure, especially with the raw number being up.

574
00:29:17,760 --> 00:29:20,360
Speaker 3: Okay, So how about so tim four us folks that

575
00:29:20,560 --> 00:29:23,560
Speaker 3: just kind of look at the headline number, What am

576
00:29:23,600 --> 00:29:26,480
Speaker 3: I going to see a I in manufacturing number north

577
00:29:26,520 --> 00:29:27,920
Speaker 3: of fifty? When do you think we're going to see

578
00:29:27,920 --> 00:29:29,960
Speaker 3: that and see a little bit of growth in manufacturing ecounomy.

579
00:29:30,160 --> 00:29:33,040
Speaker 9: I think it's very possible in March. I've been saying

580
00:29:33,080 --> 00:29:35,040
Speaker 9: that for the last three four months. It's very possible

581
00:29:35,080 --> 00:29:38,800
Speaker 9: that we could see it over fifty in March. You know,

582
00:29:39,440 --> 00:29:41,280
Speaker 9: you know, the seasonal factors are an interesting thing. I'm

583
00:29:41,280 --> 00:29:44,040
Speaker 9: a big believer in seasonal factors. We had three years

584
00:29:44,120 --> 00:29:47,400
Speaker 9: of no seasonality, and those three years are now factoring

585
00:29:47,480 --> 00:29:50,760
Speaker 9: into our seasonal adjustment factors. You know, we had, for instance,

586
00:29:50,840 --> 00:29:53,240
Speaker 9: on the new order side, we actually up the January

587
00:29:53,320 --> 00:29:56,720
Speaker 9: new order number up four point two points in January

588
00:29:56,800 --> 00:29:59,360
Speaker 9: and we're now deducting four point three. So there's some

589
00:29:59,440 --> 00:30:02,080
Speaker 9: real voluti going in here because of what happened in

590
00:30:02,160 --> 00:30:05,800
Speaker 9: the pandemic is your carryover effects. But so you look

591
00:30:05,800 --> 00:30:08,040
Speaker 9: at both elements, look at the seasonal factor, look at

592
00:30:08,040 --> 00:30:09,120
Speaker 9: the non seasonal factor.

593
00:30:09,480 --> 00:30:10,880
Speaker 5: We're definitely heading in the right direction.

594
00:30:11,000 --> 00:30:12,640
Speaker 9: And I think the other thing here is on the

595
00:30:12,640 --> 00:30:16,400
Speaker 9: production side, we again were generally stable to the prior month,

596
00:30:17,000 --> 00:30:20,600
Speaker 9: so revenue continues to be stable, which is good. We

597
00:30:20,760 --> 00:30:24,520
Speaker 9: continue to take headcount out to match the future projections.

598
00:30:24,560 --> 00:30:26,800
Speaker 9: At least within the next six months. We're running at

599
00:30:26,800 --> 00:30:29,080
Speaker 9: about a one to one hired to force managed ratio,

600
00:30:29,720 --> 00:30:32,200
Speaker 9: with half of the force managed activity being layoffs, so

601
00:30:32,760 --> 00:30:34,880
Speaker 9: people are a little bit more urgent and eliminating the

602
00:30:34,920 --> 00:30:38,160
Speaker 9: head count compared compared to where they were in September October.

603
00:30:38,520 --> 00:30:39,560
Speaker 5: I think that's all positive.

604
00:30:39,600 --> 00:30:41,400
Speaker 9: And then for the first time in many, many months,

605
00:30:41,440 --> 00:30:44,640
Speaker 9: I think sixteen, the supply base is now stiffening up.

606
00:30:45,160 --> 00:30:47,640
Speaker 9: For the first time in many months, we've now gone

607
00:30:47,680 --> 00:30:50,160
Speaker 9: to an environment where the suppliers are struggling to deliver.

608
00:30:50,560 --> 00:30:53,680
Speaker 9: So that's all positive. It means demand is aggregating at

609
00:30:53,680 --> 00:30:56,000
Speaker 9: the lowest level and we're now starting to feel the

610
00:30:56,040 --> 00:30:56,600
Speaker 9: impacts of it.

611
00:30:56,960 --> 00:30:59,080
Speaker 6: So this is why we love having Tim on because

612
00:30:59,080 --> 00:31:01,360
Speaker 6: you look at the headline number and we're all like, oh, oh,

613
00:31:02,000 --> 00:31:05,240
Speaker 6: this isn't good here, and we get the idea and

614
00:31:05,600 --> 00:31:08,040
Speaker 6: we get the real data behind those numbers. So maybe

615
00:31:08,120 --> 00:31:10,920
Speaker 6: when Torston's Slock says the economy is better than expected,

616
00:31:11,480 --> 00:31:14,280
Speaker 6: maybe that's true. Tim. I know you're not an economist

617
00:31:14,440 --> 00:31:17,080
Speaker 6: or a FED official or Torsten's Slock, but is the

618
00:31:17,200 --> 00:31:18,960
Speaker 6: economy better than we think?

619
00:31:20,800 --> 00:31:21,000
Speaker 5: Well?

620
00:31:21,240 --> 00:31:22,840
Speaker 9: I think Alix, you and I have talked about this

621
00:31:23,000 --> 00:31:26,000
Speaker 9: for many months now, back in the August timeframe. I

622
00:31:26,040 --> 00:31:29,160
Speaker 9: think in September, I came out with the declaration I

623
00:31:29,240 --> 00:31:30,680
Speaker 9: think we're in the trough, and I think we've been

624
00:31:30,720 --> 00:31:33,880
Speaker 9: in the trough since August. The thing I didn't have

625
00:31:34,080 --> 00:31:36,280
Speaker 9: any insight into is when did we get to climb

626
00:31:36,320 --> 00:31:38,760
Speaker 9: out of it. Then we did our forecast back in

627
00:31:38,840 --> 00:31:43,320
Speaker 9: December before Chairman Powell releases predictions on twenty twenty four,

628
00:31:43,760 --> 00:31:46,320
Speaker 9: the most important one being I'm pretty much going to

629
00:31:46,400 --> 00:31:49,360
Speaker 9: cap out increases and then by the time we get

630
00:31:49,360 --> 00:31:52,080
Speaker 9: to twenty twenty six, sometime I might get get to

631
00:31:52,160 --> 00:31:54,880
Speaker 9: the two percent. So at that point we already had

632
00:31:54,920 --> 00:31:57,440
Speaker 9: a very positive forecast of twenty twenty four and that

633
00:31:57,640 --> 00:32:01,360
Speaker 9: just provided really good tailwinds to help us through. And

634
00:32:01,440 --> 00:32:03,240
Speaker 9: then you know, last month I said, I think we've

635
00:32:03,320 --> 00:32:05,600
Speaker 9: now started to climb out of the trough. And I

636
00:32:05,640 --> 00:32:08,719
Speaker 9: think this month supports that it's unfortunate that the seasonal

637
00:32:08,800 --> 00:32:12,520
Speaker 9: factors are so fluid here, but that will all stabilize.

638
00:32:13,160 --> 00:32:16,680
Speaker 9: March and April are really strong manufacturing months. We probably

639
00:32:16,760 --> 00:32:20,680
Speaker 9: will have significant seasonal factors to overcome. I think, like

640
00:32:20,800 --> 00:32:22,760
Speaker 9: I said, we're not on a huge ramp up here

641
00:32:22,800 --> 00:32:24,440
Speaker 9: in terms of the expansion. It's going to be slow

642
00:32:24,520 --> 00:32:27,240
Speaker 9: and gradual, but we're going to be expanding nonetheless, so

643
00:32:27,600 --> 00:32:30,920
Speaker 9: I think we'll probably break the fifty mark in March

644
00:32:31,480 --> 00:32:32,240
Speaker 9: April for sure.

645
00:32:32,480 --> 00:32:34,920
Speaker 3: Hey, Tim, any particular industry out there leading the way

646
00:32:35,000 --> 00:32:37,320
Speaker 3: or is there any industry kind of holding back this

647
00:32:37,520 --> 00:32:38,400
Speaker 3: US manufacturing?

648
00:32:39,240 --> 00:32:40,040
Speaker 5: Yeah, thanks Paul.

649
00:32:40,120 --> 00:32:42,520
Speaker 9: So, I mean the one I've been watching for three

650
00:32:42,600 --> 00:32:45,360
Speaker 9: years now is chemical products coming back to an expansion

651
00:32:45,480 --> 00:32:48,600
Speaker 9: mode because they support the other seventeen industry sectors.

652
00:32:49,040 --> 00:32:50,440
Speaker 5: Chemical products is positive.

653
00:32:50,560 --> 00:32:52,960
Speaker 9: It's expanding at about a fifty one to fifty two

654
00:32:53,600 --> 00:32:55,520
Speaker 9: in the month of February for the first time in many,

655
00:32:55,600 --> 00:32:57,840
Speaker 9: many months. But we've had five or six months of

656
00:32:57,920 --> 00:33:01,120
Speaker 9: improving in chemical products, so that just continues to support

657
00:33:01,160 --> 00:33:03,600
Speaker 9: the story. And then also in the month of February,

658
00:33:03,680 --> 00:33:08,480
Speaker 9: fabricated metal products, which is another feeding industry sector. They

659
00:33:08,600 --> 00:33:11,800
Speaker 9: generally don't sell anything direct to the consumers themselves. They

660
00:33:11,920 --> 00:33:13,880
Speaker 9: sell it to other companies that then convert it and

661
00:33:14,000 --> 00:33:16,600
Speaker 9: sell it. That's our strong that's one of our strongest

662
00:33:16,720 --> 00:33:19,160
Speaker 9: industry sectors for the month of February. Two in the

663
00:33:19,240 --> 00:33:22,440
Speaker 9: positive territory, I think the number was fifty one fifty two,

664
00:33:22,640 --> 00:33:25,800
Speaker 9: So two of the big big feeder industry sectors that

665
00:33:25,920 --> 00:33:28,880
Speaker 9: support growth overall are in the positive territory.

666
00:33:28,880 --> 00:33:30,520
Speaker 5: I think that's a very good sign.

667
00:33:30,840 --> 00:33:34,320
Speaker 9: Transportation has gotten a little bit weaker than it has been.

668
00:33:34,520 --> 00:33:37,480
Speaker 9: We're still expanding at a fifty and some change. Okay,

669
00:33:37,960 --> 00:33:40,600
Speaker 9: food and beverage is contracting. It's probably of our big

670
00:33:40,680 --> 00:33:43,680
Speaker 9: six industries that we follow, it's the one that's probably

671
00:33:43,720 --> 00:33:46,320
Speaker 9: the weakest. But I've come to learn that there's a

672
00:33:46,360 --> 00:33:49,240
Speaker 9: real seasonal factor in the food and beverage industry, and

673
00:33:49,320 --> 00:33:51,200
Speaker 9: we're at the bottom end of that seasonal factor.

674
00:33:51,280 --> 00:33:51,440
Speaker 5: Now.

675
00:33:51,840 --> 00:33:54,160
Speaker 9: They did really well in Q four, they've done really

676
00:33:54,200 --> 00:33:57,840
Speaker 9: weekly in January February they expected to. That's our number

677
00:33:57,840 --> 00:34:01,040
Speaker 9: three industry sector. So back by the time we heard

678
00:34:01,040 --> 00:34:02,880
Speaker 9: April that's gonna come out of the it's going to

679
00:34:03,000 --> 00:34:05,440
Speaker 9: pass fifty and move on, and that supports the whole

680
00:34:05,480 --> 00:34:07,680
Speaker 9: PMI expansion over fifty in the March April.

681
00:34:07,520 --> 00:34:09,719
Speaker 3: TIMEA Hey, Tim, thanks so much. You know what, I'm

682
00:34:09,719 --> 00:34:11,880
Speaker 3: gonna give you an unsolicited room rader here, I mean

683
00:34:11,960 --> 00:34:14,560
Speaker 3: your room raider in the background. It's fine, but the

684
00:34:14,640 --> 00:34:16,960
Speaker 3: fact is you're in Miami, Tim, you should have we

685
00:34:16,960 --> 00:34:19,719
Speaker 3: should have the background be like the ocean or your

686
00:34:19,800 --> 00:34:22,279
Speaker 3: yacht on the inner Coastal Waterway. So if you can

687
00:34:22,360 --> 00:34:23,520
Speaker 3: work on that that that'd be great.

688
00:34:23,600 --> 00:34:24,920
Speaker 5: It's even better. I'm a Jupiter.

689
00:34:25,400 --> 00:34:28,879
Speaker 3: Ah, there you go. That's what I'm talking about. Golf course.

690
00:34:28,920 --> 00:34:31,160
Speaker 3: Then Tim Fury, thanks so much for joining us, Chairman

691
00:34:31,239 --> 00:34:35,319
Speaker 3: of the Manufacturing Business Survey for the Institute for Supply Management. Again,

692
00:34:35,800 --> 00:34:37,520
Speaker 3: headline numbers not looking so great, but if you go

693
00:34:37,600 --> 00:34:41,040
Speaker 3: under the surface, Tim suggesting there's some strength out there,

694
00:34:41,160 --> 00:34:42,439
Speaker 3: so I appreciate it his time.

695
00:34:44,960 --> 00:34:48,799
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

696
00:34:48,920 --> 00:34:51,840
Speaker 2: weekdays at ten am Eastern on Apple card Play and

697
00:34:51,960 --> 00:34:54,879
Speaker 2: Android Auto with the Bloomberg Business at You can also

698
00:34:54,960 --> 00:34:58,160
Speaker 2: listen live on Amazon Alexa from our flagship New York

699
00:34:58,200 --> 00:35:01,200
Speaker 2: station just say Alexa playing Bloomberg eleven.

700
00:35:02,760 --> 00:35:04,600
Speaker 6: Let's get back some of the ECO data. At the

701
00:35:04,640 --> 00:35:07,720
Speaker 6: top of the ten University of Michigan sentiment, the final

702
00:35:07,760 --> 00:35:10,640
Speaker 6: read for February coming in a bit lighter. Current conditions

703
00:35:10,640 --> 00:35:14,879
Speaker 6: revised lower as well, and expectations revised lower as well.

704
00:35:15,600 --> 00:35:17,279
Speaker 6: We want to get to the bottom of it. Joan Chu,

705
00:35:17,440 --> 00:35:20,319
Speaker 6: University of Michigan Surveys of Consumers Director joins us. Now

706
00:35:20,480 --> 00:35:22,640
Speaker 6: the revision lower. Joeanne, what happened there.

707
00:35:24,680 --> 00:35:26,960
Speaker 10: You know, essentially it edged down just a little bit.

708
00:35:27,000 --> 00:35:29,239
Speaker 10: It was not much of a change at all, and

709
00:35:29,440 --> 00:35:33,160
Speaker 10: essentially we should interpret this as moving sideways between January

710
00:35:33,160 --> 00:35:37,160
Speaker 10: and February. Essentially, consumers haven't really noticed any material changes

711
00:35:37,239 --> 00:35:39,480
Speaker 10: in the state of the economy since the start of

712
00:35:39,520 --> 00:35:43,080
Speaker 10: the year, and that comes through in our data. At

713
00:35:43,120 --> 00:35:46,160
Speaker 10: the same time, it's also solidifying the really enormous games

714
00:35:46,200 --> 00:35:51,680
Speaker 10: that we saw in December and January. We're still almost

715
00:35:51,760 --> 00:35:54,480
Speaker 10: thirty percent above where we were in November. That hasn't

716
00:35:54,520 --> 00:35:56,640
Speaker 10: really changed even with this little wiggle this month. So

717
00:35:56,800 --> 00:36:00,560
Speaker 10: consumers feeling better than last fall, feeling about the same

718
00:36:00,640 --> 00:36:01,399
Speaker 10: as last month.

719
00:36:02,080 --> 00:36:04,080
Speaker 3: I guess a lot of folks, uh, Joanne, right now,

720
00:36:04,239 --> 00:36:06,320
Speaker 3: given some of the inflation data we saw in January,

721
00:36:06,800 --> 00:36:10,600
Speaker 3: CPI and PPI and so on, maybe concerned and maybe

722
00:36:10,640 --> 00:36:14,160
Speaker 3: inflation's coming back into this economy. Are you seeing that

723
00:36:14,239 --> 00:36:14,560
Speaker 3: in any of.

724
00:36:14,600 --> 00:36:15,279
Speaker 7: Your survey work.

725
00:36:16,200 --> 00:36:21,520
Speaker 10: No, Consumers broadly have felt pretty assured that the slowdown

726
00:36:21,760 --> 00:36:25,160
Speaker 10: in inflation is going to continue. You know, the data

727
00:36:25,280 --> 00:36:29,960
Speaker 10: that the that these new inflation numbers came from comes

728
00:36:30,000 --> 00:36:33,200
Speaker 10: from consumer reflects consumers experiences last month. You know, it

729
00:36:33,239 --> 00:36:35,560
Speaker 10: comes in at a lag, so consumers already notice those

730
00:36:35,600 --> 00:36:39,120
Speaker 10: prices around them and any changes in prices. And you

731
00:36:39,200 --> 00:36:40,840
Speaker 10: know last year we were seeing quite a bit of

732
00:36:40,880 --> 00:36:44,800
Speaker 10: volatility see sawing and inflation expectations in January and February

733
00:36:45,160 --> 00:36:45,960
Speaker 10: exactly the same.

734
00:36:47,080 --> 00:36:49,480
Speaker 6: So, Joanne, what are we going to be looking for

735
00:36:49,760 --> 00:36:52,440
Speaker 6: for the preliminary read then for March, like, what are

736
00:36:52,520 --> 00:36:54,359
Speaker 6: going to be like the standouts that you're looking at.

737
00:36:55,360 --> 00:36:57,279
Speaker 10: The main thing we want to look for in the

738
00:36:57,400 --> 00:37:01,040
Speaker 10: months ahead is whether this thirty percent game that we

739
00:37:01,160 --> 00:37:04,279
Speaker 10: saw in December and January, whether that's actually going to

740
00:37:04,360 --> 00:37:08,480
Speaker 10: stick given how dramatic those increases were. You know, so

741
00:37:08,680 --> 00:37:11,759
Speaker 10: far the February week confirm that. Let's see if that

742
00:37:11,840 --> 00:37:17,000
Speaker 10: stays put in March and April. And you know, as mentioned,

743
00:37:17,040 --> 00:37:21,279
Speaker 10: inflation expectations absolutely top of mind for consumers. Right.

744
00:37:21,400 --> 00:37:23,120
Speaker 3: Very good at Joann, thanks so much for joining us.

745
00:37:23,160 --> 00:37:26,840
Speaker 3: Really appreciate it. You inshoot Surveys of consumers Director hit

746
00:37:26,920 --> 00:37:28,560
Speaker 3: there at the University of Michigan. We had some data

747
00:37:28,600 --> 00:37:29,480
Speaker 3: come out there today.

748
00:37:29,880 --> 00:37:34,400
Speaker 2: This is the Bloomberg Intelligence podcast, available on Apples, Spotify,

749
00:37:34,600 --> 00:37:37,480
Speaker 2: and anywhere else you can get your podcasts. Listen live

750
00:37:37,600 --> 00:37:41,000
Speaker 2: each weekday ten am to noon Eastern on Bloomberg dot com,

751
00:37:41,320 --> 00:37:44,680
Speaker 2: the Ihart radio app tune In, and the Bloomberg Business app.

752
00:37:44,840 --> 00:37:47,800
Speaker 2: You can also watch us live every weekday on YouTube

753
00:37:48,080 --> 00:37:49,920
Speaker 2: and always on the Bloomberg terminal