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: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's check in with
Speaker 1: Ira Jersey. He actually thinks about this stuff all day
Speaker 1: when he's not thinking about soccer. Uh. That's because he's
Speaker 1: a US interest rate strategist for Bloomberg Intelligence, so we
Speaker 1: pay him to think about this stuff. So, Ira, you
Speaker 1: looked at the data this morning, and I'm gonna ask
Speaker 1: you to put your little FED chairman hat on. What
Speaker 1: are you taken away from today's data? Uh? Really not
Speaker 1: very much. I mean I think this is more or
Speaker 1: less what the Fed was thinking. Um. You know, Matt
Speaker 1: just mentioned a second ago that you know, inflation is
Speaker 1: not coming down very quickly. That's you know, very true.
Speaker 1: And I think that that's always been the risk and
Speaker 1: the danger is that, um, you know, the market was
Speaker 1: pricing for inflation to come down much faster than it
Speaker 1: was ever likely to come down, and that's one of
Speaker 1: the reasons why what you're seeing today and and the
Speaker 1: reason why two year yields are are off so much,
Speaker 1: is that we're now pricing out some potential cuts later
Speaker 1: in the year. And I think that that's probably the
Speaker 1: right move. I do think that the FED is going
Speaker 1: to do what it says and hike two or three
Speaker 1: more times at twenty five basis points each then basically
Speaker 1: do nothing for the better part of the year. And
Speaker 1: and the market is starting to come around to that
Speaker 1: way of thinking, which you know, Paul, I've told the
Speaker 1: stock market due the last six weeks, not the stock market.
Speaker 1: I mean, we rallied yesterday into this inflation print. Today
Speaker 1: we got it and it was at expectations are higher
Speaker 1: than expected, and were continue to see prices rise. I
Speaker 1: just can't work it out. What what's the disconnect between
Speaker 1: stocks and bonds? Uh, well, I can't. I can't really
Speaker 1: speak about equity valuations, but I think maybe, um, you know,
Speaker 1: maybe part of it is the idea that there still
Speaker 1: is some some pricing power for certainly for some goods
Speaker 1: and services, um you know. But I can tell you
Speaker 1: that that from the rates perspective, you know, the reason
Speaker 1: why you're seeing this deeper inversion of the yield curve
Speaker 1: where now the deepest inverted that we've been in decades UM,
Speaker 1: and we're at the and and we're likely to see
Speaker 1: more um. You know, we have fair value on the
Speaker 1: two year yield assuming that the Fed does what we
Speaker 1: think it will do at around four so we still
Speaker 1: have another five basis points to go here in in
Speaker 1: the two year yield. And you know, we're looking for
Speaker 1: ten year yield maybe to get up towards three ninety,
Speaker 1: but not break four percent. So that's an interesting you know,
Speaker 1: I think a really interesting dynamic where you can see
Speaker 1: very inverted yield curves. You wind up with in an
Speaker 1: environment where um, where that that probably persists for most
Speaker 1: of the year UM and people are gonna be saying like, hey,
Speaker 1: that that's a signal that we're going to be in
Speaker 1: a recession blah blah blah, and and you know, maybe so,
Speaker 1: but it's going to take a long time for that
Speaker 1: to filter through to the to the rest of the market.
Speaker 1: And maybe that's what the equity markets uh really thinking here,
Speaker 1: is that we're not going to be in a recession,
Speaker 1: that there's not going to be a very hard landing.
Speaker 1: I mean, if you look at the ursion, it's crazy
Speaker 1: that this is the most inversion we've been as far
Speaker 1: as I can see since what the seventies, because you
Speaker 1: had so the early eighties, which means that you know,
Speaker 1: the bursting of the Internet bubble was nothing on this.
Speaker 1: You know, nationwide housing bust, well, global housing bust uh
Speaker 1: in the two thou eight global financial crisis didn't hold
Speaker 1: a candle to this, right, It's it's only this recession
Speaker 1: that gets us back to like the blow up of
Speaker 1: Breton Woods. Well, I think though, Matt, you know, what
Speaker 1: we have to appreciate is that this is also the
Speaker 1: first time since the early eighties that we've had inflation
Speaker 1: like this, right, and and it's coming down so uh
Speaker 1: so slowly that the market is trying to adjust to
Speaker 1: what is the near term outlook for both inflation and
Speaker 1: you know, policy rates, which is that they're going to
Speaker 1: it's going to remain a little bit higher for longer
Speaker 1: than the market was initially thinking versus where are we
Speaker 1: going to be in four years? Um So, in four
Speaker 1: years we might be in a deflationary environment and you know,
Speaker 1: we're not there yet, and hopefully we won't get there,
Speaker 1: but but you can you can see an environment where
Speaker 1: we go back more to like es level of interest
Speaker 1: rates and of of an economy where you know, a
Speaker 1: five or six percent mortgage is just normal. Look, I
Speaker 1: keep on bringing this up. My first mortgage that I
Speaker 1: got in the late nineties was seven and I thought
Speaker 1: that was a decent rate. You know, so so, but
Speaker 1: but what we've gotten accustomed to very low interest rates, right,
Speaker 1: so we have to get readjusted to a higher interest
Speaker 1: rate environment, which especially considering the prices paid. You know, uh,
Speaker 1: who was it iceman Um from the Big Short Steve
Speaker 1: Eisman was. I keep bringing this up, but on the
Speaker 1: Odd Lots podcast he said, I do the back of
Speaker 1: the napkin math from three percent rates to the seven
Speaker 1: percent rate mortgage that we're looking at now, housing prices
Speaker 1: have to drop thirty in order to make up for that.
Speaker 1: People don't maybe realize what a big jump that is. Well,
Speaker 1: but in fairness too, you have to also look the
Speaker 1: income side of the equation, right, because if you look
Speaker 1: at something like housing affordability. And Erica Heidelberg, who's our
Speaker 1: mortgage strategist, who reports to me she's been doing some
Speaker 1: great work on this. Um. You have to appreciate that
Speaker 1: affordability is certainly lower because of the higher interest rates,
Speaker 1: but you also have have wages that are growing at
Speaker 1: six percent a year, right, So if you think about
Speaker 1: it from an affordability perspective, it doesn't necessarily have to drop.
Speaker 1: Does it have to drop you know, some level you know,
Speaker 1: five and fiftent? Yeah? Maybe, but we also rallied yea,
Speaker 1: you know, but but houseprace has also went up massively
Speaker 1: over the last couple of years as well, so you
Speaker 1: would expect potentially some type of adjustment. And quite frankly,
Speaker 1: that's what the FET is trying to engineer right there,
Speaker 1: trying to get some of the froth out of the
Speaker 1: real economy. Um. That hasn't necessarily translated as directly to
Speaker 1: the financial economy, right, That's one reason why the equity
Speaker 1: market is maybe where it is at the moment um.
Speaker 1: But the but but we're still much lower, right, We're
Speaker 1: still very far off the highs, and in terms of
Speaker 1: of equity markets, we haven't we're not making new highs
Speaker 1: yet and um, and an environment where we're not going
Speaker 1: to fall into recession, than then try waters probably not
Speaker 1: can't be completely unexpected. All right, so, Ira, super bowls
Speaker 1: over pitchers and catchers not yet, so I can actually
Speaker 1: focus a little bit in European soccer or any soccer.
Speaker 1: What am I? What am I watching this coming weekend? Um?
Speaker 1: You know I haven't looked at the fixtures for this weekend,
Speaker 1: but I know after this past weekend that the battle
Speaker 1: at the top of the Premier League is heating up
Speaker 1: where you don't have Manchester City up there at the moment,
Speaker 1: you have Arsenal and Manchester United currently one and two
Speaker 1: in the in the table. So he's gotta keep mean.
Speaker 1: John Farrow is pretty happy, I think an Arsenal guy.
Speaker 1: He's a Chelsea guy, but um Arsenal because Manchester UH
Speaker 1: United about to be bought by Dubai, right, and don't know,
Speaker 1: the little Easterner has already owned Manchester City a lot.
Speaker 1: So all right, Ira, thanks so much for joining us,
Speaker 1: our Jersey chief US interest rate strategist for Bloomberg Intelligence,
Speaker 1: uh breaking down some of the inflation data and what
Speaker 1: how the FED might interpret that data going forward and
Speaker 1: next upcoming meetings, well more coming up. This is Bloomber.
Speaker 1: I am in a bit of a tough spot, right,
Speaker 1: now I'm looking for a couple of cars that you
Speaker 1: have a couple of cars I have to have. Well,
Speaker 1: there's there's certain first, especially the Dodge Challenger. I have
Speaker 1: to get um not really uh before they are done
Speaker 1: making them. So this is the last year for the
Speaker 1: six point four Leader hemmy, and I must have that's
Speaker 1: what I hear. A Challenger scat pack wide body. Tough
Speaker 1: to find allocations for that, and the prices are off
Speaker 1: the charts. I also want a Bronco, but I was
Speaker 1: at the Ford dealership the other day and they said,
Speaker 1: look forwards, putting a stop to the good combinations with
Speaker 1: the big sasquatchas package you know. Um, they're just giving
Speaker 1: out the little ones right now. So that's that's hard.
Speaker 1: And that's not even getting into electric car territory. Because
Speaker 1: if I wanted a Lightning right now, or if I
Speaker 1: wanted to order a Silver to e V, I mean,
Speaker 1: I would be paying probably a hundred grand. It's crazy.
Speaker 1: Prices are off the charts right now. I want to
Speaker 1: bring in David Welch, who wrote our Big Take story
Speaker 1: today about this pricing situation. Car prices hit record highs
Speaker 1: as automaker's limit output UM and we're seeing it really
Speaker 1: across the industry. But evs play a big, big piece
Speaker 1: into this right now. David joined us out of Detroit,
Speaker 1: the motor city obviously, So David, what are you finding
Speaker 1: Because we've been in this situation for a couple of
Speaker 1: years now, our prices are just ramping up and it
Speaker 1: doesn't seem like there's any end in sight. Yeah, they've
Speaker 1: they've been going nuts since really the pandemic started. A
Speaker 1: lot of it is production related, but going forward and
Speaker 1: even to a circumstance right now, car companies want to
Speaker 1: keep productions somewhat constrained because they've learned that making fewer
Speaker 1: vehicles and selling them a big prices is just a
Speaker 1: way better business than atting deal or loss with a
Speaker 1: bunch of production and hoping it will sell and when
Speaker 1: it doesn't, inevitably putting four or five dollars in rebates
Speaker 1: out there to make it move. Um, But that's how
Speaker 1: they've always done it. There's no way they're going to
Speaker 1: maintain this discipline, are they. Well, we'll see, but let's
Speaker 1: look at a few numbers first. So Too and General
Speaker 1: Motors say that the industry probably has enough semi conductor
Speaker 1: chips this year in the US, let's start with to
Speaker 1: make fifteen million vehicles, which is two to two and
Speaker 1: a half million fewer than they usually make, you know,
Speaker 1: years with pretty strong economies and low unemployment like this one, Um,
Speaker 1: And that's been the case for the past couple of years.
Speaker 1: In fact, they only sold about thirteen million last year.
Speaker 1: So there's a lot of pent up demand out there,
Speaker 1: people looking for cars, people like you, who either couldn't
Speaker 1: find what they wanted because it didn't exist, or they
Speaker 1: didn't find what they wanted but a dealer was charging
Speaker 1: two thousands over stick er and they walked, and for
Speaker 1: that they just keep driving their card wait until prices
Speaker 1: came back. What I would give two that would be
Speaker 1: a dream come true. I'm hearing, David, I'm hearing on
Speaker 1: the Challenger, Um, I'm hearing the best deal I've heard
Speaker 1: so far as five thousand over sticker. And good friends
Speaker 1: of mine whom I've grown up with since elementary school
Speaker 1: are saying ten to twenty k over. I mean, look,
Speaker 1: there's there are some crazy galaging. Those are the exceptions.
Speaker 1: And I was searching for a key for my daughter,
Speaker 1: helping her find a car, and you know, she ended
Speaker 1: up having to buy some stupid thing where you basically
Speaker 1: scotch guard the seats for four d over sticker and
Speaker 1: that was it. And you know some are one or
Speaker 1: two thousand over sticker. A lot of that has actually
Speaker 1: gone away. So prisons are sockening up a little. But
Speaker 1: there's just there's not enough production out there and still
Speaker 1: enough pent up demand where these high prices are probably
Speaker 1: gonna last this year and maybe into and that's when
Speaker 1: we'll kind of figure out do they really have disciplined Yeah,
Speaker 1: that's kind of production. I mean, I'm just looking at
Speaker 1: you know, you have the Big Take story today out
Speaker 1: on this topic. So you can find that at bloomber
Speaker 1: dot com, Slash Big Take or ni space Big Take
Speaker 1: go on the Bloomberg terminal, and it is a deeply
Speaker 1: reported story here. But it just comes down to, I
Speaker 1: think back to the Henry Ford. I mean, that's the
Speaker 1: business model. Crank out, seventeen millions are and you move them.
Speaker 1: But I mean I understand that this is a better
Speaker 1: economic model. David. I will tell you that Paul has
Speaker 1: been pushing for automakers to get back to peak start
Speaker 1: for a couple of years now, so it's one of
Speaker 1: this is along with working from home. This is one
Speaker 1: of his pet peeves. And and there's no shortages of
Speaker 1: chips and stuff, right, I mean so there still are,
Speaker 1: right David, there's still Yeah, there's still It's like the
Speaker 1: chip shortage. It is not binary. We don't go from
Speaker 1: having nuns having as many as you possibly wanted things
Speaker 1: all over by the roadside like that. We we're like
Speaker 1: I said, we're going to go from having a dearth
Speaker 1: of chips to being able to make about fifteen million
Speaker 1: US this year. That's not near peak ins fact, that's
Speaker 1: twelve fifty percent Bulle peak. So if you have if
Speaker 1: you're still twelve to fifty Bullie peak in terms of
Speaker 1: what you canm produce this year, and there's still a
Speaker 1: lot of consumers out there, like you guys who want
Speaker 1: a car, then it's still a sellers market. And I'll
Speaker 1: throw one more thing at you. This year and next
Speaker 1: we're gonna have about five or six hundred thousand fewer
Speaker 1: vehicles coming off lease because automakers and fevers were not
Speaker 1: leasing as much. So people can the cars they purchased,
Speaker 1: they can hold longer than at least least you gotta
Speaker 1: you gotta buy the car, get something new. It's just
Speaker 1: what's the contract siss. So the used market, even though
Speaker 1: that has been softening up a bit, is still not
Speaker 1: going to come roaring back as a source for cars
Speaker 1: because you don't have as many coming off least. I'm
Speaker 1: not saying prices won't weaken this year for new and
Speaker 1: used cars. I think they will. But in order for
Speaker 1: to get really affordable, which is the whole point of
Speaker 1: the big take, for middle class buyers to be able
Speaker 1: to afford this and get a payment from the current
Speaker 1: rate of seven seventy bucks a month down to more
Speaker 1: affordable four month, prices will need to soften the world
Speaker 1: this year. They need to collapse. They're not, they're not,
Speaker 1: but we do see some softening. You put up point
Speaker 1: out in the story, and I remember, um, Paul and
Speaker 1: I spoke with Keith Notton when he when he when
Speaker 1: he had talked just talked to Ford about cutting prices
Speaker 1: on the Mockee that and they told him in response
Speaker 1: this question, why, um, well, we got to do it
Speaker 1: because Tesla just cut prices. So you're starting to see
Speaker 1: little cracks, right, And the question is can uh you know,
Speaker 1: if if Jim Farley and Elon Musk are already um
Speaker 1: you know, are already falling falling out of rank um
Speaker 1: can Mary Barra and Mark Royce and the rest of
Speaker 1: the industry. You know, hold hold hold the line for
Speaker 1: the moment. I think the EV market and the internal
Speaker 1: combustion vehicle market are kind of two different markets. Uh.
Speaker 1: And also after after Chess of cut prices, they went
Speaker 1: back and it's not increase um. There are some other
Speaker 1: dynamics going on there. Some of the price decreases we
Speaker 1: saw from Forward and Tessa were so they can get
Speaker 1: their sticker prices under the thresholds where their customers can
Speaker 1: get federal tax credits. So you drop your the price
Speaker 1: of your car by three thousand, you get under a
Speaker 1: certain threshold, and the government gives that from swing under
Speaker 1: seventy bucks or bucks whatever, you know, whatever it comes
Speaker 1: out to for that vehicle, and it's an even bigger
Speaker 1: bonus and they'll sell more thanks to Uncle Sam. So
Speaker 1: there was some of that going on, and I do
Speaker 1: think Look, Test was in a funky position right now.
Speaker 1: They have a ton of production capacity coming online that's
Speaker 1: pretty new, and and the plant now some types hasn't
Speaker 1: even really begun to get close to full production. So
Speaker 1: Ellen saw his sales goals being missed. He wanted to
Speaker 1: grow sales. He only grew up by forty still great
Speaker 1: by anyone else's standards, but that was it um and
Speaker 1: he didn't like that. He has a ton of production
Speaker 1: coming online. All of his vehicles, particularly the models and
Speaker 1: the modeloques haven't been redesigned in almost a decade. The
Speaker 1: model as almost told enough to shave. So he's got
Speaker 1: and look at his cars. People love them. They're good products,
Speaker 1: but they all go like so the like tests with
Speaker 1: vehicles are different sizes and shapes of the same sauceage.
Speaker 1: So you know, I think he's got three things going on.
Speaker 1: He does have new competition coming in from Foard, GM,
Speaker 1: Volkswagen out uh BMW Mercendies had vehicles out the Koreans
Speaker 1: Hunt i KA have some very good products out there,
Speaker 1: so that he has competition, He has a ton of
Speaker 1: compassion becoming online, and he has I'm fresh in any
Speaker 1: of his vehicles. All of that, all of that is
Speaker 1: any other vehicle market, any of the vehicles segment says
Speaker 1: you gotta cut prices, and I think that David Real
Speaker 1: Real quickly thirty seconds. What are consumers doing today? Are they?
Speaker 1: Are they paying a hundred thousand dollars for a pickup trend?
Speaker 1: Some of them are. Yeah, So like there are a
Speaker 1: variety of things going on. People are buying expensive vehicles,
Speaker 1: but that's your wealthy or more fooling consumers. A lot
Speaker 1: of your middle class consumers are either writing or vehicle
Speaker 1: for another year or two and just putting money into repairs,
Speaker 1: or they're buying like eight nine year old vehicles in
Speaker 1: the youth markets because that's where you can really get affordably.
Speaker 1: Right now, all right, amazing stuff. I mean, I'll be
Speaker 1: it's fascinating to see if this industry can maintain its discipline. Uh,
Speaker 1: but we'll see. David Watch, Detroit Bureau Chief or Bloomberg News.
Speaker 1: All right, let's talk crypto and there's a million ways
Speaker 1: we can go here, but I want to go crypto regulation.
Speaker 1: I mean, is this a space that's going to be regulated?
Speaker 1: Needs to be regulated? For all that stuff? We turn
Speaker 1: to Nathan Dean, He's a senior policy analysts for Bloomberg Intelligence. Nathan,
Speaker 1: you're the smart guy in the room. BS and management
Speaker 1: from Purdue Heckla Hoops team. This year. Where did that
Speaker 1: come from? And then an NBA from Chicago, So you
Speaker 1: are over educated to that to the max. What do
Speaker 1: you make of all this crypto space in terms of regulation?
Speaker 1: You know, it sounds like there's a massive crackdown coming.
Speaker 1: And I mean just putting it in Purdue terms, it's
Speaker 1: like if produced you know, playing the uh you know,
Speaker 1: one of the smallest teams out there. It's just one
Speaker 1: of those things where you know, we've seen over the
Speaker 1: past year the SEC c come in and register, come
Speaker 1: and talk to us. In the industry largely has not,
Speaker 1: and just within the last few months we've started to
Speaker 1: see the SEC start to crack the whip. One of
Speaker 1: the things that they've done is they've sent out what
Speaker 1: are known as wells notices out to many different crypto players.
Speaker 1: In fact, packs so's announced that they had received one. Essentially,
Speaker 1: what this is is the SEC has decided we're going
Speaker 1: to take an enforcement action against you, but we're just
Speaker 1: giving you a heads up so that you can give
Speaker 1: us a written response of why we shouldn't do this.
Speaker 1: It's not going to stop the SEC, but we are
Speaker 1: going to see a lot more enforcement actions between now
Speaker 1: and the next few months. And that's really going to
Speaker 1: issue a further chill to the industry. I get how
Speaker 1: staking could be considered a security, certainly staking as a service,
Speaker 1: um in the cracking case. It's harder for me to
Speaker 1: grasp how stable coin is a security because you're not
Speaker 1: expecting any return from a stable coin. No. So, actually,
Speaker 1: sec each chairman Gary Ginsler gave a speech last year
Speaker 1: where you essentially insinuated a stable coins of money mark
Speaker 1: good funds and money market funds has its own, you know,
Speaker 1: regulatory regime, and in the sec S eyes, you know
Speaker 1: potentially they should be following that money market reform. Now,
Speaker 1: if you assume that they're not a security, well then
Speaker 1: they could be considered a deposit. And if they are
Speaker 1: a deposit, then there are other types of banking regulations
Speaker 1: that need to apply here. And so I think when
Speaker 1: you move forward with stable coins, the idea here is
Speaker 1: is that there's got to be some type of regulation.
Speaker 1: You can't have nothing. But the question is what does
Speaker 1: it look like now. I still believe that Congress will
Speaker 1: eventually move forward on a stable coin regulation. In fact,
Speaker 1: as we speak right now, the Senate Banking Committee is
Speaker 1: talking about this. But you know, outside of stable coins.
Speaker 1: For the rest of the crypto industry, it's really not
Speaker 1: looking good right now in terms of new regulations. Is
Speaker 1: this to what extent? Is this maybe increased regulatory attention
Speaker 1: a function of FTX going bust and Sam Bankman freedom
Speaker 1: all that mess. Oh? Absolutely, I mean this gave it
Speaker 1: was like given the politicians a piece of andy and
Speaker 1: making them all excited because it gave them a talking point.
Speaker 1: You know, they can understand the failure of a company.
Speaker 1: They understand that there are over nine million creditors out
Speaker 1: there who potentially may not get their funds back. And
Speaker 1: this is essentially giving politicians the ability to say, we
Speaker 1: need new regulation, we need customer protections, we need anti
Speaker 1: money launching. The problem is that there are multiple different
Speaker 1: ideas out there right now. Senator Brown is talking about
Speaker 1: doing this. Senator Tim Scott, the ranking member for the
Speaker 1: Senate Banking Committee, was talking about putting in new customer protections.
Speaker 1: Senator Elizabeth Warren is actually building a coalition including some
Speaker 1: conservative Republicans, to come up with her own crypto bill,
Speaker 1: and this is where it's going to play out over
Speaker 1: the next six months. The problem for the crypto industry, though,
Speaker 1: is that they've always said they want clarity. The problem
Speaker 1: is is that the clarity is coming, or it could
Speaker 1: be coming, and it may not be exactly what they want.
Speaker 1: It may be very very onerous, very restrictive, and it's
Speaker 1: gonna cost a lot of money to comply with it.
Speaker 1: All right, let's get onto it. Well. First of all,
Speaker 1: let me plug my show, uh Bloomberg Bloomberg Crypto one
Speaker 1: pm this afternoon. We are focused on this issue for
Speaker 1: a full thirty minutes. Nice, which is I guarantee the
Speaker 1: most you want to hear about it? Okay, is the
Speaker 1: upper limit? You don't want to hear anymore about token? Yeah, no,
Speaker 1: it's doing great. Um. I want to talk though, while
Speaker 1: we have you, Nathan, about some of the other things.
Speaker 1: First of all, whatever happened to this guy is falling
Speaker 1: dead ceiling? People? Are they still like warning about how
Speaker 1: horrible this is and what a problem we face. Yeah,
Speaker 1: but now that the State of the Union is over,
Speaker 1: you know, the Congress is actually turning back to other topics.
Speaker 1: I mean the dead ceiling. The problem with the dead ceiling.
Speaker 1: It was a good thing that the politicians began to
Speaker 1: look at it on an earlier earlier in the year.
Speaker 1: I honestly didn't think they were going to do that. Um,
Speaker 1: you know, but they've gotten their initial talking points through
Speaker 1: out there in the public, and now they've turned to
Speaker 1: other issues. The problem with it is is that with
Speaker 1: Treasury setting this June fifth date, in our own rate
Speaker 1: strategist Irish Jersey saying, potentially even September October is the
Speaker 1: X date, Congress has a lot of time to sit
Speaker 1: around and do nothing, and so it's more likely going
Speaker 1: to be one of those situations where they'll start talking
Speaker 1: about it again. But until the market and until New
Speaker 1: York comes down and says, folks, you need to start
Speaker 1: looking at this. We're getting worried, that's when they'll actually
Speaker 1: start negotiating. So I think you'll see some more negotiations,
Speaker 1: probably in April or May uh, and then certainly more
Speaker 1: information if that June d gets pushed back out to
Speaker 1: September October. All right, then the two things that I
Speaker 1: always need to keep abreast of, okay, uh, safe banking
Speaker 1: so that weed companies can can expand and grow, and
Speaker 1: then um, the salt tax deduction. What do we know, Nathan,
Speaker 1: You know I'm not giving you good hopes on either
Speaker 1: of them. I mean when it comes to safe banking. Uh,
Speaker 1: you know, there was a real opportunity to get it
Speaker 1: done last year in the lame duck. Uh. You know,
Speaker 1: we're gonna see a catalyst around April twenty if that's
Speaker 1: when the Senate Democrats especially like to yeah exactly that
Speaker 1: you'll see a lot of catalysts and a lot of
Speaker 1: movement around April twenty. But we just don't it. I mean,
Speaker 1: the one thing for the marijuana industry going right now
Speaker 1: is that President Biden has directed his agencies to look
Speaker 1: at reschedulizing, uh every declassifying marijuana. But that's a multi
Speaker 1: Schedule one drug? Is it still a Schedule one drug?
Speaker 1: Still a Schedule one drug? And yeah, and you know
Speaker 1: it does give the industry hope that a change is coming,
Speaker 1: but it's a multi year process, and you know, regulations
Speaker 1: never moved fast. And then on the salt deduction, you know,
Speaker 1: we saw the Salt Coalition, the lawmakers from New York
Speaker 1: and New Jersey give a speech last week outside the
Speaker 1: Capitol Hill and I'm just sorry again for the folks
Speaker 1: in New York and New Jersey. It's just not something
Speaker 1: that I think is gonna happen anytime soon, alright, as
Speaker 1: long as they don't extend it past Oh that's when
Speaker 1: a sunset, that's when the Trump uh tax thing wears off. Yeah,
Speaker 1: thirty seconds. Think what will they get done in the
Speaker 1: next couple of years? So, you know, I think you're
Speaker 1: gonna have to see anti China. You know, anti being
Speaker 1: anti China is really popular big tech. You know, there's
Speaker 1: a lot of ideas floating around there in terms of
Speaker 1: technology right now. That's gonna take some time. But you've
Speaker 1: got to look at these months past pieces of legislation,
Speaker 1: so like the dead stealing the government funding bills and
Speaker 1: so forth. That's when the lobbyists are going to try
Speaker 1: and attach things like the salt deduction uh and potentially
Speaker 1: try and you know, get government to pass it that way.
Speaker 1: So I'm not saying things can't get done. It's just
Speaker 1: it's not gonna be these gradioseconomic stimulus bills. All right.
Speaker 1: That's called gridlock, I think is kind of what we Yeah,
Speaker 1: that's why we give him thirty seconds to tell us
Speaker 1: what Congress is gonna get done exactly, all right, Nathan,
Speaker 1: good stuff. If they if they do get anything done,
Speaker 1: give us a ring, and we'll certainly chat about it.
Speaker 1: Nathan Dean, senior policy annals for US and Latin America
Speaker 1: for Bloomberg Intelligence. That's right. I mean, I'll tell you
Speaker 1: almost nobody on Wall Street has policy annals like we do,
Speaker 1: covered all different parts of the government and where policy
Speaker 1: can impact industries and companies. So nobody knows it like
Speaker 1: our Nathans. Nobody knows that like our Nathan's. We're gonna
Speaker 1: more coming up. This is Bloomberg. All right. Let's talk
Speaker 1: about a big, big picture topic here. We're talking E
Speaker 1: s G. We're talking diversity um maybe in the technology space,
Speaker 1: because there's been some some news coming out of Silicon
Speaker 1: Valley on that front. And there was a recent op
Speaker 1: ed in Newsweek entitled why Elon Musk and Peter Thiel
Speaker 1: are wrong on E S G Investing? And the person
Speaker 1: who wrote that op ed piece isn't Bloomberg in her
Speaker 1: active broker studio. Help me out with the pronunciation here, Anniellason.
Speaker 1: She's a founder of Edge and Power. She's based in Zurich,
Speaker 1: but she's here in our Bloomberg in actor broker studio today.
Speaker 1: How good is that? Aniella? Thanks so much for joining us.
Speaker 1: Here talk to us about why you wrote this OpEd
Speaker 1: and what are some of the key takeaways from your
Speaker 1: operator as you think about diversity inequality. Thank you for
Speaker 1: having me so. One of the main reasons why we
Speaker 1: wrote that opened is that, of course, with all the
Speaker 1: layoffs that are going on in the tech sector right now,
Speaker 1: the big question is why should companies continue their investments
Speaker 1: in diversity equita susan. Are these investments only making sense
Speaker 1: when things are going well and times are good, and
Speaker 1: it is this disposable investment in that times. And there
Speaker 1: are three reasons why we believe that companies should continue
Speaker 1: their dn I investments also in tougher times, in times
Speaker 1: of dayoffs. First and foremost, it's because study after study
Speaker 1: shows positive correlation between profitability and diversity. The most recent
Speaker 1: one published in January by the World Economic Forum shows
Speaker 1: that ethnically diverse and gender diverse companies outperformed their industry
Speaker 1: peers in terms of profitability by thirty six percent and
Speaker 1: twenty five per cent. That is fascinating because I would
Speaker 1: expect and our performance in terms of revenue growth. Right
Speaker 1: if you want to sell more stuff to more people,
Speaker 1: you need to get more people to sell that stuff
Speaker 1: right um in a sense, But profitability is an even
Speaker 1: more interesting metric. Why why do you think that is?
Speaker 1: I think that profitability is also related to the capacity
Speaker 1: of the organization to show agility, to adapt to changing
Speaker 1: market conditions, to show resilience, and to show an increased
Speaker 1: capacity to innovate. And all these are positively correlated with
Speaker 1: a more diverse workforce. So just looking at your that
Speaker 1: was only one three oh three, gore you just jump
Speaker 1: in all the time. What's reason number two? Why we
Speaker 1: should care about reason number two is that we should
Speaker 1: really care about people who stay in the workforce, So
Speaker 1: we should really give them some good news and positive
Speaker 1: vibes and showing them that we need them to stay
Speaker 1: engaged as opposed to quiet equitters, as opposed to quiet quitters.
Speaker 1: And very interestingly, a Gallop study show that in the
Speaker 1: US right now, the number one reason for diverse talent,
Speaker 1: women and other historically underrepresented groups to join or to
Speaker 1: stay a company is how well they feel respected, what
Speaker 1: is their work life balance, and what is their personal
Speaker 1: well being taken care of in the workplace. So these
Speaker 1: are key ingredients for engagement. Alongside it's a good motivator
Speaker 1: is basically what you're saying exactly. What's number three. Number
Speaker 1: three is that, of course we need to take a
Speaker 1: long term view of diversity, equity and inclusion. We cannot
Speaker 1: continue considering it as a layer on top of an
Speaker 1: organizational core purpose. It's fundamental to it because it's investment
Speaker 1: in people. So there has been. Number three is a
Speaker 1: little softer than I think. Number three is a little
Speaker 1: bit wishier, washier than number I mean, number one. I
Speaker 1: get it, you're driving the bottom line. Number two, okay,
Speaker 1: you're motivating your soldiers. Number three, we should because we should,
Speaker 1: well not exactly. In the last three months, one in
Speaker 1: four American employees where truth it whether they were looking
Speaker 1: actively for an opportunity or not, and thirty nine percent
Speaker 1: of those decline a job offer because the company could
Speaker 1: not demonstrate their commitments to diversity, equity inclusion. Now, in
Speaker 1: a market where there is a lot of competing demand
Speaker 1: for talent, being able to demonstrate long term commitment to
Speaker 1: that gives you an edge in terms of attracting, retaining,
Speaker 1: and motivating the best talent. Okay, sorry, now go ahead, Sorry,
Speaker 1: I just wanted to get through those I know. Let
Speaker 1: me take the other side. Of the coins. Some influential
Speaker 1: folks out there, Elon Musk, the pushing back on this stuff.
Speaker 1: Elon Musk recently called E s G the devil. Peter
Speaker 1: Teel's out there and some others, Bill Actman and so
Speaker 1: on and so forth. What is there? And we've had
Speaker 1: effect Ramaswani come in here and say he's telling companies
Speaker 1: just focused on profits, don't worry about social stuff. He
Speaker 1: would like reason number one, He might even like reason
Speaker 1: number two. He might. Yeah, So what's the pushback that
Speaker 1: that you in the s G community are seeing from
Speaker 1: some of these folks. Yes, So I think that that
Speaker 1: the main pushback is related exactly to what you said. E.
Speaker 1: S G is perceived as wishy washy. And why is
Speaker 1: E s G perceived as wishy washy Because we do
Speaker 1: not feel that we can measure some of the aspects
Speaker 1: behind the s G, especially behind the S and behind
Speaker 1: the G taxonomy just isn't there in objective ways. We
Speaker 1: cannot agree how material some of those topics are, and
Speaker 1: we cannot agree to some standards of excellence when it
Speaker 1: comes to the s G. So because we cannot make
Speaker 1: that link, which is undoubtedly there, we tend to think
Speaker 1: that E s G it is an afterthought and it's
Speaker 1: destroying shareholder value, while e s G is about creating
Speaker 1: sustainable shareholder value and keeping the company competitive long term. Well,
Speaker 1: see the argument the background a Swami would make if
Speaker 1: you were here. Actually I can't speak for him, no,
Speaker 1: but I would guess he would say, Look, my number
Speaker 1: one motivation is profit, and if I need to put
Speaker 1: uh some environmental or social concerns aside for that, I'm
Speaker 1: going to do it. Yes, I think that you will
Speaker 1: always have investors. You might think that's short sided. Well,
Speaker 1: I think that that's his opinion and he's entitled to
Speaker 1: have it. I think that the beauty of guessing that's
Speaker 1: his opinion. I can't. We haven't have both of you
Speaker 1: on together. That would be a very good conversation. I
Speaker 1: think that the idea of it is to go beyond
Speaker 1: this very polarized view. I think that there will always
Speaker 1: be companies and investors that will take that view. Our
Speaker 1: focus is profit, profit only short term, and there will
Speaker 1: be companies who will take a longer term view of
Speaker 1: how they create value for their stakeholders, and the two
Speaker 1: can coexist. We just have to make sure that we
Speaker 1: there are very clear signs because they will always be
Speaker 1: people who want to work for one company or to
Speaker 1: the or or the other, or who would want to
Speaker 1: invest in one rather than the other. Well, in this
Speaker 1: E s G also seems to me in a sense
Speaker 1: like um the crypto industry, in that it's nascent, right,
Speaker 1: it's still growing up and getting into its adolescence. We
Speaker 1: just started talking about this really a decade ago, and
Speaker 1: we haven't developed the classifications, we haven't developed the metrics,
Speaker 1: standard metrics that we all agree on yet, but we're
Speaker 1: doing that. For example, you help Bloomberg work on the
Speaker 1: gender Equality Index, don't you so? And as we get
Speaker 1: more metrics like that, and you can show investors, hey,
Speaker 1: look this chart goes up and to the right, then
Speaker 1: they're gonna get on board. Yes, And I think that,
Speaker 1: you know, coming from Europe, I think that Europe is
Speaker 1: a little bit further ahead when it comes to creating
Speaker 1: that taxonomy and creating that clarity around the debate. Because
Speaker 1: one of the things that I still believe needs to
Speaker 1: be clarified is that E s G and E s
Speaker 1: G investments do not necessarily imply a focus on having
Speaker 1: a positive E s G related impact E s G
Speaker 1: investment can be simply considering the E s G related
Speaker 1: risks as part of a certain number of risks in
Speaker 1: evaluating the risk of the portfolio. Or it can be
Speaker 1: considering E s G risks as being the main risks.
Speaker 1: Or it can be impact investment, which is making investments
Speaker 1: with the intent to have a positive E s G impact.
Speaker 1: It's a big broad bucket, it is, and I think
Speaker 1: that there is confusion between the outcome and the process
Speaker 1: in some of these conversations, right yea. Or just just
Speaker 1: to let you know how seriously Bloomberg the terminal takes
Speaker 1: E s G. If you go to one of the
Speaker 1: most widely used functions for financial analysis on the Bloomber terminal,
Speaker 1: f A, go for any ticker right up there with
Speaker 1: the income statement, the balance sheet, the cash low statement,
Speaker 1: there's a tab for E s G M the clip
Speaker 1: on that tab you'll see all the E s G
Speaker 1: metrics on a historical basis that Bloomberg captures for these companies.
Speaker 1: So uh, it's you know, just from the Bloomberg perspective.
Speaker 1: In terms of the efficacy of the data, we value
Speaker 1: it as we would income statement data, balance sheet data.
Speaker 1: Think things like we're trying to build that function exactly right,
Speaker 1: and I would imagine we're working with people I cannela
Speaker 1: to do it. Yeah. So, and I think that you know,
Speaker 1: another way to look at the s G E s
Speaker 1: G is being good ancestors, right, it's behaving respectfully knowing
Speaker 1: that we live in a world with limited resources and
Speaker 1: thinking what kind of a planet, what kind of economy,
Speaker 1: what kind of the social fabric we leave to the
Speaker 1: seventh generation down the line? Ye great stuff, An Godson,
Speaker 1: founder of Edge Empower based in Geneva. I believe right,
Speaker 1: zurch Geneva, zur Okay, good stuff. Join the University of Geneva,
Speaker 1: NBA from university and even why didn't I think of
Speaker 1: that Duke was fun, but Geneva would have been maybe
Speaker 1: a little bit better. Joining us here in a blubern
Speaker 1: Actor broker studio. We're breaking down talking all the E.
Speaker 1: S G stuff. It continues to be get big issue
Speaker 1: for investors. Market sharply lower here this morning. I got
Speaker 1: that print of inflation um kind of suggesting maybe some
Speaker 1: folks are saying, maybe this friend is gonna stay a
Speaker 1: little bit higher for longer. Uh, let's check in with
Speaker 1: two Sharma founder and investment manager of Alpha Structure l
Speaker 1: l C. Two. We had that big inflation print this morning.
Speaker 1: What do you've had, you know, a few hours here
Speaker 1: to die digested? What do you make of it? Hi,
Speaker 1: thank you for having me. Uh. Clearly we're seeing, um,
Speaker 1: some metrics of inflation come down, but we're seeing others increase. Overall,
Speaker 1: the inflation dynamics remains uh, unprereddictable. I think it's hard
Speaker 1: to say, um, how the numbers are going to pan
Speaker 1: out over the next few months, but I think we
Speaker 1: can clearly say that inflation is not coming down at
Speaker 1: the rate that Fred would like to see. Um, we are.
Speaker 1: It's possible last year we've seen goods inflation come down,
Speaker 1: but services remain higher. And it's possible that some of
Speaker 1: that consumer spending last year, which was more driven by
Speaker 1: travel and leisures, some of may come back to goods
Speaker 1: again this year. So I think um, UM, I think
Speaker 1: the Fed is um. It's I think the Freed is
Speaker 1: likely to say, uh in that inflation control mode and
Speaker 1: they want to keep the interest rates higher for longer.
Speaker 1: So I mean we rallied into this number yesterday. Um.
Speaker 1: You know, equities really have been on a tear since
Speaker 1: the October lows. We're trading at four thousand, one hundred basically,
Speaker 1: which is in line with strategists expectations for the year end.
Speaker 1: So in that case, I mean, aren't we too highly
Speaker 1: valued here at you know, eighteen times earnings? I think
Speaker 1: I actually agree with you. I think equity valuations are
Speaker 1: are very high, and it is It's a bit of
Speaker 1: a surprise to me also given the disconnect between the
Speaker 1: bond market and the equity markets, because we've seen yields
Speaker 1: rise across the short end and the long end in
Speaker 1: light of some of this recent data, we've seen the
Speaker 1: economic data being very strong and the risk of a
Speaker 1: recession getting uh pushed back. UM. The labor market is
Speaker 1: remains very strong, so there is no reason for the
Speaker 1: Fed to come around and cut right right now. They
Speaker 1: can focus on this inflation dynamic because the unemployment data
Speaker 1: remains UH very strong. And so to see the equity
Speaker 1: markets rally like they have given all this uh, you know,
Speaker 1: the the underlying interest rate environment remaining UM in a
Speaker 1: tightening space is surprising and and I think partly it
Speaker 1: is driven by the fact that, yes, we have seen
Speaker 1: the econ me stronger the corporate turnings for not as
Speaker 1: weak as sphere, So there's some positive around that. But
Speaker 1: partly I think it has a lot of It has
Speaker 1: been a lot of positioning. The biggest positioning that we
Speaker 1: had in the last year. Uh, that's playing right now.
Speaker 1: Now let's put this in. Let's put this key too
Speaker 1: into perspective. So listeners understand, before you founded Alpha's future, um,
Speaker 1: and after you graduated long in business school, you went
Speaker 1: on to really have a broad career. You worked at
Speaker 1: an insurance company, you were a credit ratings analyst, you
Speaker 1: were in equities at Credit Suite, and then picked Ted
Speaker 1: asset Management. So you've you've been across as sets and
Speaker 1: in regions around the world. What what are we heading
Speaker 1: for right now? What does it look like to you?
Speaker 1: This you know, recession that's so widely forecast globally. Thank
Speaker 1: you for the uh you know, sharing my background. Uh yeah,
Speaker 1: it has been UM. I mean, I think the the
Speaker 1: diversity of perspective I have really helped me look at
Speaker 1: markets from different angles. And uh, what we're seeing right
Speaker 1: now is that your base rates based interest rates, the
Speaker 1: risk free rates are going up. The real rates are high,
Speaker 1: but the equity the premium, which is the excess reward
Speaker 1: you you want for taking equity equity risk that is
Speaker 1: coming down and UM and that is a disconnect given that, uh,
Speaker 1: you know, ultimately we've we've seen peak economy and UM
Speaker 1: an inflation outlook is still very high. So UM, I
Speaker 1: think from our valuation standpoint, we really have to be
Speaker 1: careful about what we buy right now. We don't want
Speaker 1: to indiscriminately change this market rally. We should at least
Speaker 1: from our perspective, what we're recommending to our investors is
Speaker 1: to focus on companies that have quality, that can that
Speaker 1: have frightened power, that have valuation support uh, rather than
Speaker 1: those which are interest rate sensitive and therefore uh you know,
Speaker 1: may suffer from just reduction and valuation multiples. So what
Speaker 1: are some of the examples that fit into the bucket
Speaker 1: that you feel like are higher quality, perhaps a little
Speaker 1: bit bit safer in this uncertain time. So we are
Speaker 1: looking at value opportunities and industrials, healthcare, also technology. UH.
Speaker 1: The companies that have uh you know, have some structural
Speaker 1: mega trends and can grow with the with the economy. Also,
Speaker 1: you know, at a global level, companies that can grow
Speaker 1: with the China reopening story and Europe recovering from last
Speaker 1: year's kind of energy crisis. Um. And also quality defenses
Speaker 1: that can that have pur chasing power and can you
Speaker 1: know pass on cost inflation that have pricing powers. Um. Yeah,
Speaker 1: it's more it's less about selecting sectors, but more about
Speaker 1: looking at companies within sectors that can sustain um, the
Speaker 1: growth environment and the inflation environment and higher interest rates
Speaker 1: from evaluation standpoint, versus those that might be at risk.
Speaker 1: Thank you too. I'm not sure how much you guys
Speaker 1: traffic in the energy space, but the energy stocks are
Speaker 1: just such a great year last year, and I'm looking
Speaker 1: at bring fruit it barrel. Did I miss that trade
Speaker 1: or do you think they're still room to go in energy? Um? See? Energy,
Speaker 1: I think is a hard one to forecast. We don't
Speaker 1: do We don't do commodity forecasting, so uh, and we
Speaker 1: don't play in the energy space because we have a
Speaker 1: focus on sustainability. UM. But I think UM, I mean clearly,
Speaker 1: if if we do see commodity prices go up, both
Speaker 1: energy and other commodities, uh, I mean one, it would
Speaker 1: be a sign of global economies doing well. Um. But
Speaker 1: at the same time, I think more widely. It can
Speaker 1: have a negative impact on global equities from my inflation standpoint. Alright,
Speaker 1: great stuff. I really appreciate getting a few minutes of
Speaker 1: your time. That is to Sharma Founder, an investment manager
Speaker 1: for Alpha's Futures ll C. A little bit of an
Speaker 1: e s G bed there, Matt kind of sustainability, another
Speaker 1: investor incorporating that into their investment framework. We're hearing more
Speaker 1: and more of that. Yeah, yeah, we are. I mean,
Speaker 1: it's an interesting debate that's that's going on. But it
Speaker 1: looks like, um, you can see where the road is
Speaker 1: going at this point. It doesn't look like we're gonna
Speaker 1: turn back, so it makes a lot of sense. All right, good,
Speaker 1: So I forgot more coming up. We've got the equity
Speaker 1: market selling off today. We'll break it down for you
Speaker 1: going forward. This is Bloomberg. Good morning. Thanks for listening
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller. P
Speaker 1: On fall Sweeney I'm on Twitter at pt Sweeney. Before
Speaker 1: the podcast, you can always catch us worldwide at Bloomberg
Speaker 1: radio