Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Matt, I have no
Speaker 1: idea where we're gonna do with this next segment, so
Speaker 1: I'm thrown it. Well. I have been waiting for at
Speaker 1: least a week um to get Neil Grossman back in
Speaker 1: here since the fed UM decision. He has worn many
Speaker 1: hats on Wall Street as a prop trader at JP Morgan.
Speaker 1: He took risk for the No August Bank, the Central
Speaker 1: Bank of Norway. Um he ran a hedge fund. Yeah,
Speaker 1: for sure, Well he was. I told you he was
Speaker 1: a road road for Cambridge. I saw a gretty picture
Speaker 1: from must have been the seventies over the weekend. But um,
Speaker 1: now he is a vintner and an historical fiction author.
Speaker 1: Neil Grossman joins us in the Interactive Broker Studio. Neil,
Speaker 1: I want to get your take first on UM, the
Speaker 1: FEDS inflationary goals because they already were aiming for two percent.
Speaker 1: A lot of people have a problem with that to
Speaker 1: begin with. But now we've well overshot that, and if
Speaker 1: we ever want to get the average back to two percent,
Speaker 1: it's gonna take years. Well, let's start with why you
Speaker 1: should get the average back. Mr Powell and before him
Speaker 1: Mr Bernankey spent a lot of years explained to us
Speaker 1: that having inflation a little under two percent was not
Speaker 1: really good. Um, despite the fact, of course that their
Speaker 1: statutory mandate is actually zero price stability. That's just what
Speaker 1: Congress says. But they can do whatever they want, right.
Speaker 1: That's well, we can argue that too. That's not yes,
Speaker 1: they do whatever they want. That's not really the idea.
Speaker 1: But they spent a lot of time and then arguing
Speaker 1: that they wanted to let the economy run a little
Speaker 1: hot to push up inflation over to so you could
Speaker 1: average it. So let's using that as a baseline. Now
Speaker 1: that the fact is is that they let it run
Speaker 1: a mock to get it back to a two percent average,
Speaker 1: let's use a reasonable time frame like ten years. You're
Speaker 1: gonna end up this year probably about twelve to four
Speaker 1: over what the two percent trajectory was which means you're
Speaker 1: going to really have to have inflation average like one
Speaker 1: percent for eight years or something like that to get
Speaker 1: you even close to the two percent. And that's, let's
Speaker 1: face it, kind of a pipe dream. Well they're not
Speaker 1: talking about that. Mr Powell has said I want to
Speaker 1: get inflation just back to two percent, and let's talk
Speaker 1: about the probability of what that takes. I mean, Paul
Speaker 1: Valker got rates into the twenties and it took twenty
Speaker 1: five years pretty much to get a stable two percent
Speaker 1: ambient environment. I mean, you had your moments down, but
Speaker 1: for the nineties we were still averaging three to three
Speaker 1: and a half percent. If let's not anybody's business other
Speaker 1: than than Congress is they're the ones who have to
Speaker 1: just say that's not right. I I actually think that
Speaker 1: there's a legitimate reason for having low inflation. It creates
Speaker 1: an extraordinarily healthy environment. Done right, it minimizes volatively Matt.
Speaker 1: Matt and I were doing some calculus this morning about
Speaker 1: how to maximize the area inside of a fixed geometrical
Speaker 1: This is interesting if you take if you I can
Speaker 1: see doing that any any four sided shape, right, I
Speaker 1: would have thought the area. Um. You know, if if
Speaker 1: the total uhs around the perimeters, say thirty six inches,
Speaker 1: I would have thought, it doesn't matter. You can stretch
Speaker 1: a rectangle out, make it a square. It's all gonna
Speaker 1: be the same area. It's not a square. Is the
Speaker 1: maximal area and and and and any end gone, you know,
Speaker 1: cube or whatever else you want. The maximual area is
Speaker 1: equal size, which applies to returns on your investments, and
Speaker 1: it also applies to things like compounding of inflation. So,
Speaker 1: for example, if if I say to you, over a
Speaker 1: ten year period, you can choose either ten percent returns
Speaker 1: each year, or you can have eleven percent this year,
Speaker 1: nine percent next year, eleven percent the year after that,
Speaker 1: nine percent the year after that, eleven year after that nine.
Speaker 1: You're much better off choosing ten percent each year. In fact,
Speaker 1: is an RB. I would take the ten in short,
Speaker 1: the eleven nine for for eternity, and I walk away
Speaker 1: richer than Bill Gates. Um. But but the point is
Speaker 1: that this applies to things like what the FED should
Speaker 1: be doing to manage the economy. The FED should find
Speaker 1: reasonable trajectories of g d P inflation and everything else,
Speaker 1: and that and even the stock market and you want
Speaker 1: to find a sustainable trajectory where you're minimizing the variability,
Speaker 1: minimizing the volatility. That's actually how you get the maximum
Speaker 1: long term. But in the I don't I don't think that. Well,
Speaker 1: that that their mind. Well, two percent an interesting issue.
Speaker 1: Two percent is a two factor optimization, right. They have
Speaker 1: to mandates employment, full employment, and price stability, and they're
Speaker 1: not totally consistent. So two percent has become their sort
Speaker 1: of maximum of both. At the same time they beat that.
Speaker 1: That was the sad thing they were. They were ahead
Speaker 1: of that about eight six, seven years ago. They didn't
Speaker 1: like that right. As my first sales manager, Pain Webber
Speaker 1: would say, after I went through my big pitch about
Speaker 1: what I wanted to do with Meatia stocks, he would
Speaker 1: just interrupt me and say, Paul, are we buying him
Speaker 1: or we selling him? What are we doing here? I'm well,
Speaker 1: last time, two times ago I was on, I was short,
Speaker 1: I went a little long, and yesterday I started going
Speaker 1: short again. I think the market's got a lot more downstays.
Speaker 1: And by the way, I think this is also quite healthy.
Speaker 1: You need sort of a washout to equilibrate, and that
Speaker 1: without that, I think we're gonna have a lot more
Speaker 1: volatility going forward. I think you need to just get
Speaker 1: some of the energy out of this system, and then
Speaker 1: I think, at least for a while, you can be
Speaker 1: you can be quite positive. Remember yesterday I was telling
Speaker 1: you Neil Neil's target for the SMP at the end
Speaker 1: of the year seventeen No, no no, no, that's my that's
Speaker 1: my target probably next year, next year or whatever. Seventeen
Speaker 1: seventy six. We're trading at four thousand. Think about it,
Speaker 1: and I am a patriot, I get it, But you
Speaker 1: do honestly think that we're going down. I think we're
Speaker 1: going down, and I think we're gonna go down a
Speaker 1: larger than people, partially because once you start to go down,
Speaker 1: because the arkets are still functionally long and over invested.
Speaker 1: The fact is that people have to be forced out
Speaker 1: and to reduce their exposure. And when that process happens,
Speaker 1: markets extend and over extend, so you can pick what
Speaker 1: you want. I think the earnings are too high estimates.
Speaker 1: I think that that the bottom line is that, um,
Speaker 1: the pees are too high. And again, going back to
Speaker 1: one last thing, interest rates at the long end have
Speaker 1: to go higher, all right, That's good stuff. Here's what
Speaker 1: you have to do if you get Neil and Adam
Speaker 1: in together, John, because they are also friends, but they
Speaker 1: fundamentally disagree because Adams yes, Okay, there we go. Neil Grossman,
Speaker 1: co founder, former CIO t k n G Capital, Thanks
Speaker 1: so much for joining us. You know, Matt, here's the
Speaker 1: theme of the day. People you know, like Neil Grossman
Speaker 1: and our next guest, Ted Smith. They get all these
Speaker 1: fancy degrees in engineering, but I don't see anybody building
Speaker 1: anything or like, you know, building that's true. Both of
Speaker 1: them are vintners. Well, I don't know. I think it's
Speaker 1: a scanner. I've watched Neil put together his vineyard over
Speaker 1: the last ten years, and it takes a ton of
Speaker 1: work and planning and forethought, and I think these are
Speaker 1: just misspent educations. So he gets Ted Smith, co founder
Speaker 1: and president of Union Square Advisors. He gets his engineering
Speaker 1: stuff from Notre Dame, and then he goes to Wall Street.
Speaker 1: I mean, go figure that, Ted, Thanks so much for joining.
Speaker 1: You're in our bloom Bloomberg Interactive Broker Studio. We appreciate
Speaker 1: that you're based on the West Coast, but you're here
Speaker 1: in New York. Talk to us about M and A here,
Speaker 1: because before we get to that, let's let's talk about
Speaker 1: this engineer, like what did you do when you first
Speaker 1: got to the street, Because if you're putting together analytical
Speaker 1: models or if you're trading derivatives, I feel like that's
Speaker 1: really helpful to have an engineering degree. It was very
Speaker 1: helpful for me. Carter McClellan, who had started the tech
Speaker 1: group at Morgan Stanley, had the bright idea of hiring
Speaker 1: more engineers into the new tech investment banking group to
Speaker 1: understand what our clients actually did. I thought I was
Speaker 1: going to be a two year stop and then go
Speaker 1: back and finish my PhD. In thirty three years later,
Speaker 1: I haven't gone back. Still. You still have time building
Speaker 1: and just you know, kind of making some wine. M
Speaker 1: and A boy, we look at the equity markets, of
Speaker 1: fixing the markets here, just brutal, brutal, brutal. How about
Speaker 1: the M and A market? What do you see out there?
Speaker 1: We're certainly down from last year. We're off a little
Speaker 1: over a third from where we were this time last year.
Speaker 1: Last year a little bit, yeah, But but I think
Speaker 1: the key is deals are still getting done, right. I
Speaker 1: think you have to look through the headlines as you
Speaker 1: guys do. That's the whole point of the show. Uh,
Speaker 1: And understand that even though the markets on both the
Speaker 1: equity and the dead side are volatile, deals are getting done.
Speaker 1: The big strategics want to do deals. The large private
Speaker 1: equity firms are awash and capital, they're continuing to look
Speaker 1: for transactions and we're still very busy advising on transaction.
Speaker 1: So so things are happening, they're just taking a little
Speaker 1: bit longer. And you know, certainly things that were at
Speaker 1: the margin that could have gotten done six to twelve
Speaker 1: months ago won't get done. Now, what's the rising rate environment?
Speaker 1: What kind of effect does that have or does it
Speaker 1: not have an effect? I mean, if you're company looking
Speaker 1: to a fairly sizeable acquisition, you know, maybe you got
Speaker 1: all your ducks in a row financially already and you're
Speaker 1: not worried about rates today rather rates six months ago. Right, So,
Speaker 1: if you're one of the large acquirers, you probably in
Speaker 1: tech at least you're a wash in cash. You know,
Speaker 1: whether whether you're earning you know, fifty basis points or
Speaker 1: you know, on that cash that you let go out
Speaker 1: the door to do an acquisition, probably not going to
Speaker 1: change your P and L too much. Where it does
Speaker 1: have an impact or will over the long haul have
Speaker 1: an impact is on private equity when they're doing buyouts
Speaker 1: and they're using some of the you know, some debt
Speaker 1: to ultimately finance those. But again, we haven't seen a
Speaker 1: slowdown yet. They're taking this interest rate in stride or
Speaker 1: this interest rate environment, I should say in stride, and
Speaker 1: they're continuing to do deals. That could change if we see,
Speaker 1: you know, continue to see seventy five BIPs changes as
Speaker 1: the norm here through the end of the year, maybe
Speaker 1: we'll see some slowdown, but so far hasn't happened, I guess.
Speaker 1: Also it depends on your view of the path of
Speaker 1: interest rate increases into the future, right. I mean so
Speaker 1: many people come on and say, I remember in the
Speaker 1: eighties I was paying a seventeen percent mortgage or I
Speaker 1: bought tried is yielding. Um, if you think that we're
Speaker 1: headed there, yeah, then what we're saying for mortgages before
Speaker 1: take that out right, lock it in right? And and
Speaker 1: what what do you see is where do you see
Speaker 1: rates going? Um, we certainly see it's gonna it's gonna
Speaker 1: get more challenging, even this year, you know, a couple
Speaker 1: more times at least, we think the Fed is going
Speaker 1: to be pragmatic about not overreaching. But there's still obviously
Speaker 1: a lot of debate amongst the governors about where this
Speaker 1: should go and what they want to see with it.
Speaker 1: But again to your point, man, I think we see
Speaker 1: relatively still quite cheap. Capital is available from a broad
Speaker 1: range of sour if it's particularly in the direct lender market,
Speaker 1: which is now a multi trillion dollar asset class. Um.
Speaker 1: So deals, deals are getting done, and those big buyout firms, look,
Speaker 1: if they have to do a little more equity and
Speaker 1: a little less debt to make their deals work, they
Speaker 1: have the capital to do it. That's what I was
Speaker 1: gonna say. There's so much money in the pe space.
Speaker 1: I mean, Matt and I we just read stories day
Speaker 1: after day after day about another big fund being raised.
Speaker 1: There's always stories about they have like one point seven
Speaker 1: trillion dollars in dry powder. I mean, it's just to
Speaker 1: the point where it doesn't make any sense anymore. So,
Speaker 1: but if they have dollars, think about how many yen
Speaker 1: they have. Now they have dollars, think about how many
Speaker 1: euros or pounds. We saw the pound go to the
Speaker 1: loan of nineteen eighty five. Um, you probably hadn't even
Speaker 1: got your degree at that point. So what is that?
Speaker 1: Is that? A is that a tailwind for m and
Speaker 1: at first for American companies? Certainly it must be. If
Speaker 1: you want to buy something in Japan, it's at a discount,
Speaker 1: right well, and just the general valuation environment. Things are
Speaker 1: a discount relative to where we were six or twelve
Speaker 1: months ago, right, So slightly more expensive debt capital, but
Speaker 1: offset by cheaper valuations generally and the very strong dollar.
Speaker 1: I think this is the age where American pe firms
Speaker 1: are looking to go shopping around the world. I know,
Speaker 1: I just I mean, we talked about what's a pint
Speaker 1: of beer cost in London? These guys will talk about
Speaker 1: what's a company costs? Uh in London? Ted Smith, thanks
Speaker 1: so much for joining us, too short a time. We'll
Speaker 1: get you back. Ted Smith, he's a co founder and
Speaker 1: president of Union Square Advisors. Talking about some M and
Speaker 1: A and tech space. A misspent education, no doubt about it.
Speaker 1: Electrical engineering from Notre Dame and it goes to be
Speaker 1: an investment banker. Go figure that. But what would you
Speaker 1: I mean, what would you do? With an electrical engineering degree.
Speaker 1: You learn to look at systems, you learn to analyze things.
Speaker 1: You know, you know, go to like a defense contract there,
Speaker 1: you know, and make I don't know whatever they make
Speaker 1: submarines or something like that. That that that that would
Speaker 1: be cool. That would be pretty cool too. That's jewelry.
Speaker 1: I mean I I'm not a jewelry guy, per se
Speaker 1: are you you're not? Really? Well, you've got a class ring. Well,
Speaker 1: I have a Signet ring because my dad always had one,
Speaker 1: because his dad always had one because his dad had one.
Speaker 1: So just like a thing when you're a little kid,
Speaker 1: you see your dad having it and then you want it.
Speaker 1: But no, I don't wear other jewelry, all right, a
Speaker 1: lot of but apparently it's a great category within retail.
Speaker 1: Jennet Drosos joins us. She's a CEO of Signet Jewelers.
Speaker 1: Signet is a public company trades upon the Big Board
Speaker 1: of the New York Stock Exchange. S I G is
Speaker 1: a symbol to put it, do you you buy a lot
Speaker 1: of jewelry? Yeah? I'm with you on that, you know,
Speaker 1: because my my wife loves to wear. Her family is
Speaker 1: in the jewelry business in Spain. Really, but h I
Speaker 1: still like stuff for her over here? Sure? Why not? Jenna,
Speaker 1: Thanks so much for joining us here in our Bloomberg
Speaker 1: Interactive Broker studio. Matt, something is to change, man. People
Speaker 1: are coming into the studio like it's an exciting day.
Speaker 1: It's an exciting day, saying Jenna, thanks so much for
Speaker 1: joining us here. University of Georgia alum NBA from some
Speaker 1: school down in Philadelphia. UM talked about the jewelry business.
Speaker 1: How did it fare during the pandemic? Well, thanks for
Speaker 1: having me and it is great to be in person.
Speaker 1: Uh So, if I dial back to last year on
Speaker 1: our record growth in the jewelry category, we think the
Speaker 1: category was up about last calendar year, UM Signet was
Speaker 1: grew our revenues about fifty so we gained significant market share.
Speaker 1: We went from uh six and change to nine point
Speaker 1: three percent share of the category and continue to be
Speaker 1: overdeveloped in the bridle part of the category, where we
Speaker 1: have about a thirty percent share. And that's a big
Speaker 1: competitive And what does that mean engagement ring swdding rings exactly.
Speaker 1: And this is the year of the wedding. Two point
Speaker 1: five million weddings this year the highest and forty years
Speaker 1: and that's gotta be the biggest spend, right, because yes,
Speaker 1: I got married last year, yes, in October, and I
Speaker 1: bought my wife, uh, you know, another engagement ring and um,
Speaker 1: fortunately her parents made us the engagement rings. But are
Speaker 1: there are the wedding rings? But uh, that's got to
Speaker 1: be the biggest spend that a typical family, a typical
Speaker 1: household does in the jewelry category, right it is. By
Speaker 1: the way, I got married last year in October two. Congratulations,
Speaker 1: and my team made me a beautiful that is gorgeous. Wow,
Speaker 1: this is one of those times I wish were on TV.
Speaker 1: That's beautiful. Thanks, Yes, the craftsmanship was really excellent. And
Speaker 1: so why do you think the revenue growth was so
Speaker 1: strong last year? Is it because, um, you know, we
Speaker 1: had household savings built up, we got stimulus checks, etcetera.
Speaker 1: Or is it because the market rallied so hard and
Speaker 1: went to an all time high? What what drove that?
Speaker 1: All of those things impact category growth and jewelry. So
Speaker 1: number one was pent up demand for getting engaged. Uh,
Speaker 1: couples who had chosen to live together, a quarantine together
Speaker 1: during COVID, um, you know, became closer wanted to get engaged.
Speaker 1: But a lot of people postponed the engagement until they
Speaker 1: can have a view towards when they might have a wedding,
Speaker 1: and with COVID still going on, they couldn't invite families,
Speaker 1: So pent up demand for engagements was one. Second, with stimulus,
Speaker 1: that really impacted primarily the lower end of the market. Uh.
Speaker 1: Three big journeys that customers go on in jewelry. One
Speaker 1: is the bridal journey. You're exactly right. Uh, Buying an
Speaker 1: engagement ring is often the most expensive purchase a couple
Speaker 1: has made together. It's very considered purchase. It's a wonderful
Speaker 1: time to build a lifetime relationships with a couple, exactly. Fantastic. Second,
Speaker 1: romantic gifting. Uh, couples who were living together couldn't go
Speaker 1: out and celebrate, you know, with dinner, or you know,
Speaker 1: couldn't go to a concert. We're buying jewelry for each other,
Speaker 1: which was great. And then stimulus really contributed to the
Speaker 1: self purchased journey, especially at the lower end. So all
Speaker 1: those things came together to drive record market growth. So
Speaker 1: one of the things that Met and I talked about
Speaker 1: when we have CEOs here in the studio is it
Speaker 1: seems like every business every sector has supply chain issues.
Speaker 1: Is that true in the jewelry business? I mean, don't
Speaker 1: you guys get a lot of diamonds from Russia and
Speaker 1: other places like that, so it's not free for Signet UM.
Speaker 1: We were a scale player where the world's largest specialty
Speaker 1: retailer of diamond jewelry were vertically integrated. So we buy
Speaker 1: um a portion of our rough diamonds directly from the
Speaker 1: beers from the mind we cut and polish those ourselves.
Speaker 1: Responsible sourcing UM is something that Signet has pioneered for
Speaker 1: more than a decade. Uh and as soon as in fact,
Speaker 1: even before the war broke out in Ukraine, we stopped
Speaker 1: purchasing any diamonds that have Russian origin, and we've maintained
Speaker 1: that all the way through the conflicts. So customers can
Speaker 1: be very comfortable buying diamonds at Signet and knowing that
Speaker 1: those UM you know, have in no way been part
Speaker 1: of the conflict that's going on. What does your dealership
Speaker 1: network look like? And I only say that because I
Speaker 1: think in cars and motors, sure, but I mean it's
Speaker 1: the same thing, right, You've got retail outlets all over
Speaker 1: the place, You've got an online presence how does that
Speaker 1: break down? Yes, so we have UM. We we have
Speaker 1: banners retail banners that exist here in the US market.
Speaker 1: For example, we just purchased Blue Nile a couple of
Speaker 1: weeks ago, and we also have James Allen. Those sit
Speaker 1: at the top of our portfolio more of an accessible
Speaker 1: luxury online pure play and a big online play exactly
Speaker 1: our biggest banners. K We also have Zails and Jared,
Speaker 1: so those sitting in the mid market, and then UM
Speaker 1: at our our more value end of the spectrum. We
Speaker 1: have Banter by Piercing, Pagoda, and we also last year
Speaker 1: bought rocks Box, which is the leader in rental jewelry.
Speaker 1: So we have quite a wide range, and we've differentiated
Speaker 1: those banners. They're carrying different merchandise, targeting different customers. That's
Speaker 1: one of the success stories behind our share growth. So
Speaker 1: online somebody will pop down five or ten dollars for
Speaker 1: a diamond ring without actually seeing it. Interestingly, in the
Speaker 1: second quarter price points above ten thousand dollars worth of
Speaker 1: fastest growing for all of our banners. So okay, sales shared, Yes,
Speaker 1: I'd say James Allen the website, I have spent some
Speaker 1: time on it, and it's beautiful, and it's it's it's
Speaker 1: so user friendly, and it pulls you deeper into it.
Speaker 1: So once you go on there and start looking at things,
Speaker 1: you actually spend more time than you may have planned
Speaker 1: to do in the first place. You do spend a
Speaker 1: lot on marketing as well, because I see K's Zales
Speaker 1: ads all over the place where I hear them on radio.
Speaker 1: So how important is that? Which outlets do you choose? Well,
Speaker 1: you know, it's it's interesting. We've been on a five
Speaker 1: year transformation plan and so I think the cumulative impact
Speaker 1: of that is really putting us in a great position. Now.
Speaker 1: One of the areas we've transformed as marketing. So historically
Speaker 1: the company has been on TV advertising, mostly in November December,
Speaker 1: mostly on the NFL, targeting guys who were, you know,
Speaker 1: buying buying a holiday gifts. We did we make the
Speaker 1: Hall of Fame ranks, which is great. Yes, so so
Speaker 1: really exciting. But been anyway, we've really changed that marketing model,
Speaker 1: so we're always on We're talking to our customers all
Speaker 1: year long, more and more personalized and targeted, influencer marketing
Speaker 1: and social media, online video, educational videos and YouTube. So
Speaker 1: we've considerably broadened that mix, and as a result, our
Speaker 1: return on advertising spend has grown significantly over the last
Speaker 1: number of years. So it's a competitive advantage to us
Speaker 1: to have a large portfolio and be a leading marketer.
Speaker 1: But we've we've done that in a way that's highly personalized. Jennet,
Speaker 1: great stuff. Thanks for coming into the Bloomberg Interactive workers.
Speaker 1: Due to Jenna Dress, she is the CEATO of Signet Jewelers. Again,
Speaker 1: the symbol the trade on New York Stock Exchange. You
Speaker 1: popped this into your Bloomberg Professional terminal s I G
Speaker 1: is the symbol to get that there. So good stuff
Speaker 1: on the jewelry business. Pretty solid business. I mean, yeah,
Speaker 1: we've been digging into it, so I think it's really
Speaker 1: fascinating and um, we didn't get to it, but uh,
Speaker 1: it'd be great to get. Next time we have Jenna on,
Speaker 1: we can ask her about prices for um gold and
Speaker 1: the other uh commodities. Yea, absolutely have some good stuff.
Speaker 1: We heard from Christine Legard ECB president earlier this morning
Speaker 1: taking down GDP growth forecast for Europe and not forecasting recession,
Speaker 1: also adjusting some of the inflation concerns because that is
Speaker 1: the number one concern for not just the Federal Reserve,
Speaker 1: but for the e c B as well. But let's
Speaker 1: get some thoughts on what we heard from miss uh
Speaker 1: Leguard from Morgan del Down, head of investment Strategy for
Speaker 1: Europe at Global x E t F s UM, again,
Speaker 1: thanks so much for joining us here. We heard from
Speaker 1: Christine Legard this morning. Do you think the ECB is
Speaker 1: doing enough here to flight to fight inflation across the continent? Well,
Speaker 1: I think the ECB has delivered the amount of akishness
Speaker 1: the market was expecting, so UM. That's why I think
Speaker 1: we have had like some muted reaction plast meeting. UM.
Speaker 1: But what is unclear, and I think it's unclear for
Speaker 1: food markets as well, because we see no clear direction
Speaker 1: for for the year of versus dollar for example, is
Speaker 1: that in the same statement, UM, Christine mcgard said that
Speaker 1: the inflation and the risk of inflation becoming embedded in
Speaker 1: more domestic prices and invlation expectations made warrant a several
Speaker 1: other other other hikes. But at the same time they're
Speaker 1: saying that they stayed data data dependent and they will
Speaker 1: have a meeting by meeting EPPLE. So all of this
Speaker 1: is quite it's quite confusing in these two opposite statesments
Speaker 1: kind of con saw each other out. So I think
Speaker 1: overall the market took these press conference as a more
Speaker 1: natural tone that what it was expecting. So not providing
Speaker 1: more support to the euro from from from the strengthening
Speaker 1: we so pre meeting, you take a look, I mean normally,
Speaker 1: I imagine you take a look at the ECB president's
Speaker 1: dashboard and you see a ton of different data. Can
Speaker 1: you wipe all of that off right now and just
Speaker 1: put the Fed right there? I mean, don't they have
Speaker 1: to do this as long as the Fed is doing
Speaker 1: it well. Actually, the weakening of the euro we saw
Speaker 1: about the past few months is definitely an uncomfortable um
Speaker 1: situation for for for for the Eurozone and the e
Speaker 1: c B M. I think we can't really compare like
Speaker 1: for like these two regions because the fundamental are becoming
Speaker 1: more divergent um with But if they morgan, if they
Speaker 1: if they didn't raise by fifty or seventy five, I
Speaker 1: mean if they only did twenty five, that would put
Speaker 1: them in a in an even weaker position. Are the
Speaker 1: euro right? So I mean they have to do these
Speaker 1: jumbo rate hikes as long as the FED they had
Speaker 1: to keep up. It's like they're tagging along. That's actually
Speaker 1: what the market is expecting so um and it's interesting
Speaker 1: for the rest of the years, market expects us like
Speaker 1: about the same amount of hikes um in the FED
Speaker 1: and for the FED and the ECB. So it's definitely
Speaker 1: showing kind of a reverse currency wa there where the
Speaker 1: e CP is trying to support the region. But I
Speaker 1: think what is very important for the region is to
Speaker 1: get back to inflation because this is the sole moderate
Speaker 1: mandate for for the ECB compared to the FED. UM.
Speaker 1: So inflation is everything. And there is one takeaway from
Speaker 1: Prisidon by God is when she stressed that inflation forecast
Speaker 1: for the end of the projecting period, which is twenty
Speaker 1: four will not get back to two percent inflation, but
Speaker 1: exceeding it by by thirty business points. So this is
Speaker 1: actually a signal that the ECP will continue to to
Speaker 1: provide a several large rate highs. In my opinion, Morgan
Speaker 1: is it is it consensus in Europe that Europe will,
Speaker 1: if it isn't already in will be in a recession
Speaker 1: sooner rather than later. I think the across Europe now
Speaker 1: you see a lot of divergence between countries. If you
Speaker 1: take the countries that are really UM dependent on Russian
Speaker 1: gas like Germany. Obviously the outlook for German, for the
Speaker 1: German economy is not looking great. But all the major
Speaker 1: economies like France, Spain, they are doing quite well because
Speaker 1: they are not dependent on on gas supply from from Russia.
Speaker 1: So there is some silver lining in what we heard
Speaker 1: from Christinagam today and from what we see from the
Speaker 1: economic data is um. First, the projections they the gross
Speaker 1: projections for the real GDP across the region does not
Speaker 1: signal an imminent recession UH and not no recision across
Speaker 1: the protecting period, but instead more of a statflations denio UM.
Speaker 1: So I think what what we are going to see
Speaker 1: across the region is more economic fragmentation UM and that
Speaker 1: could be actually some of it could be reduced by
Speaker 1: cooperation between countries, and this is what we are starting
Speaker 1: to see more soliarity around UM energy supply across major
Speaker 1: economies like France and Germany, agreeing on France exporting some
Speaker 1: of their gas fly to Germany if needs be so.
Speaker 1: All of these solidarity might just reduce the economic risk
Speaker 1: that the region is facing in the in this crisis.
Speaker 1: But I think um, we have reached potentially that the
Speaker 1: big pessimist and put for the Eurozone because definitely we
Speaker 1: are saying, um, the energy prices um and the leverage
Speaker 1: from from rosha um probably exhausted now. So I'm pick
Speaker 1: pessimson probably behind her all right. Margane, thank you so
Speaker 1: much for joining us. Really appreciate getting your perspective on Europe.
Speaker 1: More Gaine Della Down, head of Investment Strategy for Europe
Speaker 1: for Global x et f S based in London. There
Speaker 1: So maybe maybe peak pessimism is past for the Eurozone.
Speaker 1: We have to see the tough, tough winter from an
Speaker 1: energy perspective is expected across the continent in the UK UM,
Speaker 1: so I have to see how that plays out over
Speaker 1: the next six to eight months. We did hear from
Speaker 1: FED chairman j Pal this morning and make some comments
Speaker 1: uh in a presentation at the Cato Institute. We brought
Speaker 1: you that live this morning. I want to break it
Speaker 1: down a little bit here with Janelle Marte Economics and
Speaker 1: Federal Reserve your order for Bloomberg News. Thanks so much
Speaker 1: for joining us here. I guess that you know the
Speaker 1: messaging if nothing else since Jackson Hole has been consistent,
Speaker 1: which is, we're really serious about fighting inflation and we
Speaker 1: know what that means, higher rates. What are thoughts? So
Speaker 1: that's right. I mean what we heard again from how
Speaker 1: today is that the FED is going to do what
Speaker 1: it has to do is acting fourth rightly, he said
Speaker 1: to bring inflation down. So even though he didn't specify
Speaker 1: what they're likely to do in September, I think he
Speaker 1: really delivered his message pretty strongly at Jackson Hole, right,
Speaker 1: which is and he did allude to that today, which
Speaker 1: is that he wanted to send the morning out there
Speaker 1: that the FED is not going to stop until inflation
Speaker 1: is coming down, and that they're more concerned, are very
Speaker 1: concerned about stopping their battle too early, declaring victory too soon.
Speaker 1: We heard that from President Cleveland FED President Loretta Mesters. Well.
Speaker 1: I think that's just a message that they're all delivering
Speaker 1: right now, which is that they're they're they're not going
Speaker 1: to stop too soon. They're really taking this very seriously.
Speaker 1: I did hear yesterday from Brainerd and I'm trying to
Speaker 1: find my note to myself because I wrote it down.
Speaker 1: Um a comment that I thought sounded a little bit
Speaker 1: more debbish. Um. She said, here's I've taken the verbatim,
Speaker 1: but I dropped out the middle part because it was
Speaker 1: too worthy. The rapidity of the tightening cycle creates risks
Speaker 1: associated with overtightening, and it's been a while since I've
Speaker 1: heard of FED speaker talk about those risks. Um. The
Speaker 1: market seemed to take notice. Do you think we're gonna
Speaker 1: start hearing more about that? So? I think you're right.
Speaker 1: She she did make some comments on the risks of
Speaker 1: going too far. UM. We'll see with time if we
Speaker 1: if we hear more remarks along those lines. But we
Speaker 1: didn't hear much pushback from Powell today. Uh uh. You know,
Speaker 1: the market right now is leaning towards expecting another seventy
Speaker 1: five basis point increase. These were Powell's last remarks UM,
Speaker 1: or last scheduled remarks before the Fed goes into black
Speaker 1: app period tomorrow, UM night, So you know he didn't
Speaker 1: he didn't close the door to another. Of course, we
Speaker 1: have another big report coming next week next Tuesday, and
Speaker 1: update on consumer the Consumer Price Index, and that is
Speaker 1: going to be very closely watched by Fed officials and
Speaker 1: economists as to UM, what's really going on? With inflation.
Speaker 1: You know, there's a lot of folks out there that's saying, hey,
Speaker 1: maybe the Fed doesn't need to be that aggressive, or
Speaker 1: or artist seeing inflation start to really roll over when
Speaker 1: they look at the energy prices Gasoline coming down, oil
Speaker 1: now trading just above eighty dollars barrel. W t I.
Speaker 1: I've got the housing market rolling over, really impacted by
Speaker 1: higher mortgage race. Um, maybe they don't need to do
Speaker 1: much more after the seventy five basis point hike. What
Speaker 1: are you hearing? So one thing that will be very
Speaker 1: important in the next CPI update is what happens with
Speaker 1: core inflation. So you make a good point that we
Speaker 1: are now expecting headline maybe to come down a little
Speaker 1: bit more because of what you're we're seeing with gas
Speaker 1: prices easing in that relief that households are feeling. But
Speaker 1: officials wants to see inflation come down across the board.
Speaker 1: So they're going to be looking at shelter and they're
Speaker 1: going to be looking at the report, um to see
Speaker 1: what happened for inflation, because, um, even if we're seeing
Speaker 1: some relief in some aspects, they needed to come down
Speaker 1: across the board. I wonder we were talking Neil Grossman
Speaker 1: about this earlier. Now, if we're gonna see the Fed
Speaker 1: try and bring the average over say this decade to two,
Speaker 1: or if they're just going to give up on you know,
Speaker 1: this year and next and restart the clock once they
Speaker 1: get there. They haven't specified, you know what time frame
Speaker 1: they're aiming for two percent inflation over time for that
Speaker 1: average target. But I mean, one thing that they're saying
Speaker 1: is they want to see inflation come down for several
Speaker 1: months in a row before they ease on their um
Speaker 1: significantly or pause on the rate increases and um. Even
Speaker 1: if it takes some time for them to bring inflation down,
Speaker 1: you know, we'll see, you know, how how they eventually
Speaker 1: respond or how long it actually takes. But they're they're
Speaker 1: pretty serious so far aiming for two percent and not
Speaker 1: lifting that target. Alright, Janelle, very good stuff. Appreciate getting
Speaker 1: your reporting there. Janelle marte Um Economics and Federal Reserve
Speaker 1: reporter for Bloomberg DUS breaking down kind of comments we
Speaker 1: heard from FED Chairman j Pal this morning, which we
Speaker 1: brought to you live on Bloomberg Radio from the Cato Institute. Again,
Speaker 1: the message, if nothing else from this fellow reserve over
Speaker 1: the past several weeks has been very clear. We are
Speaker 1: here to fight inflation and that means raising rates. Thanks
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
Speaker 1: Matt Miller vent three. On Fall Sweeney, I'm on Twitter
Speaker 1: at pt Sweeney. Before the podcast. You can always catch
Speaker 1: us worldwide at Bloomberg Radio.