Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahmas. Each day we
Speaker 1: bring you the most noteworthy and useful interviews for you
Speaker 1: and your money, whether at the grocery store or the
Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
Speaker 1: or wherever you listen to podcasts, as well as at
Speaker 1: Bloomberg dot com. Try to find a theme right now
Speaker 1: in today's market. Good luck, it probably will change tomorrow.
Speaker 1: Joining us now is an economist who puts out tremendous
Speaker 1: research every day that shows just what people are focused on.
Speaker 1: His latest note shows that macro investing is just getting
Speaker 1: that much more challenging amid the changing political backdrop that
Speaker 1: we end up seeing every day. Let's bring in Torsten Slock,
Speaker 1: chief economist for Deutsche Bank. Thank you so much for
Speaker 1: being with us. Let's just talk about how challenging it
Speaker 1: is right now for macro investors and identifying a theme
Speaker 1: that you can sink your teeth into and depend on. Yeah, no, highly,
Speaker 1: it's what art bank that I work. But it's true
Speaker 1: that the environment at the moment has become much more
Speaker 1: difficult because central banks are basically not moving interest rates.
Speaker 1: So the thing we're pointing out here is that when
Speaker 1: interest rates basically don't go down or don't go up,
Speaker 1: then you have an environment where there's just no longer
Speaker 1: lasting trends in markets, and that just makes things difficult
Speaker 1: both for rates investors and also for excellent effects investors.
Speaker 1: So towards one of the issues I think that investors
Speaker 1: are trying to get a sense of now is you know,
Speaker 1: as we think about all the geopolitical issues, trade tensions
Speaker 1: with China and Mexico, do you believe the market is
Speaker 1: properly discounting some of these global trade tensions right now? Yeah,
Speaker 1: this is a really important question pulled because what we're
Speaker 1: all trying to do in the investing community is to
Speaker 1: try to quantify these risks. The first question is what
Speaker 1: has happened up to this point? How do we quantify that?
Speaker 1: Because we already know what has happened up to this point,
Speaker 1: but even figuring out what that means has been quite difficult.
Speaker 1: If you look at confidence in the CEO serve is
Speaker 1: I look at confidence in the CFO surveys, then you
Speaker 1: do see that there is some deterioration once the trade
Speaker 1: wall began to escalate in two thousand and eighteen, but
Speaker 1: at the same time the employment numbers have remained ready
Speaker 1: to be strong, at least up until the latest months here.
Speaker 1: So it still is a really difficult struggle. We just
Speaker 1: don't have anything in the toolbox that really will can
Speaker 1: quantify this trade risk, which then leads investors to say, well,
Speaker 1: it's a risk I can't quantify, so I should just
Speaker 1: ignore it. Or is it a risk I can't quantify
Speaker 1: so I really have to take it seriously. And this
Speaker 1: is where the debate is with the many investors that
Speaker 1: we have at the moment, name me, is this something
Speaker 1: that we should just brush aside and say, oh, the
Speaker 1: economy is still fine, or is this something that actually
Speaker 1: could end up being much more serious and have much
Speaker 1: more downside risk to the economy than what we are
Speaker 1: expecting at the moment. So, tourist, and from your perspective,
Speaker 1: do you think that as a result, people have become
Speaker 1: overly focused on the Federal Reserve a sort of the
Speaker 1: key body that can give some direction here? Yeah, because
Speaker 1: that if when when tetra banks mean the G seven
Speaker 1: central pranks essentially not moving interest rates much and they're
Speaker 1: moving much less than they did just ten twenty years ago.
Speaker 1: Of course, then people start looking around and saying, Okay,
Speaker 1: changing policy is no longer a changing interest rates, but
Speaker 1: it's now a change in communication about what are we
Speaker 1: doing And this is not only for the US, but
Speaker 1: what are we doing globally on unconventional monetary policy, everything
Speaker 1: from forward guidance to a queue, which of course is
Speaker 1: less of an issue now, but now where they're talking
Speaker 1: about you control other ways of stimulating the economy next
Speaker 1: time we have a slowdown, and the interpretation of these
Speaker 1: non conventional monetary policy tools and most importantly all these
Speaker 1: things that are not interest rates just makes things much
Speaker 1: more difficult. So to your good question, Lisa, it really
Speaker 1: is much more into the nitty gridy of what exactly
Speaker 1: is intended with this fait communication and should we interpret
Speaker 1: that as more easy is coming, or should we interpreted
Speaker 1: as hey, we're just looking at this and we will
Speaker 1: be doing something. We don't quite know exactly what it is,
Speaker 1: but we will be doing something if there is a
Speaker 1: sharper slowdown, And for the FED, of course it's lowering
Speaker 1: interest rates initially, but if we do have a global slowdown,
Speaker 1: then we will all be debating again, should we then
Speaker 1: do que forward guidance, should we raise the inflation target?
Speaker 1: Should it be you control? That's why it it becomes
Speaker 1: a much more messy debate about what reactions are coming
Speaker 1: from the central bank, which makes it so difficult from
Speaker 1: a macro perspective to identify with what trends is that
Speaker 1: going to create, both in rates and also in effects.
Speaker 1: So towardsten I think what we're hearing more and more,
Speaker 1: um you know, is the potential or perhaps even likelihood
Speaker 1: by mid recession in the US. Is that something you
Speaker 1: think is you ascribed to? So we still think that's unlikely.
Speaker 1: A We think that the Fed will begin to think
Speaker 1: about cutting rates here in July and September and December,
Speaker 1: and once those cuts come through, we do think also
Speaker 1: that that ultimately will be a preemptive strikes, if you will,
Speaker 1: that will be enough to basically soften the slowdown that
Speaker 1: we're seeing. But at the end of the day, the
Speaker 1: sharpness of the slowdown that we are experiencing in the
Speaker 1: data is absolutely critical. And this again is very very
Speaker 1: closely related to what is your outboo for when the
Speaker 1: trade wall will end? If you think the trade will
Speaker 1: will escalate from here, well, then the economy might slow
Speaker 1: a bit more. If you think the trade was really
Speaker 1: going to have a full blow out trade wall where
Speaker 1: you will see significant increases in sterios and significant disruptions
Speaker 1: and supply chains, it could potentially be a lot worse.
Speaker 1: But it's really difficult where we stand today to come
Speaker 1: with the forecast because these things could go away as
Speaker 1: quickly as they came. In other words, this is something
Speaker 1: that is essentially a political situation that came relatively suddenly,
Speaker 1: and now if we do have a resolution deal, for example,
Speaker 1: at the D twenty meeting, then this risk could go
Speaker 1: away recively quickly. Again, so from a forecasting perspective, when
Speaker 1: you think about the outdoor for consumption capics and GDP,
Speaker 1: it just continues to be really difficult what your assumptions
Speaker 1: are about what will be the end game to the
Speaker 1: trade wall, and is there an endgame or is discming
Speaker 1: to continue for a very long period. I guess the
Speaker 1: Tourson there's a question of how much the U S
Speaker 1: economy would be slowing down anyway even if it weren't
Speaker 1: for the trade tensions. What are the recession risks putting
Speaker 1: aside trade tensions if you can just based on in
Speaker 1: organic slowdown given how late we are in the cycle. Yeah,
Speaker 1: this is really important. I mean, as you know also well,
Speaker 1: the two key components of GDP are consumption and capics
Speaker 1: or investment. And if you are a consumption one problem
Speaker 1: is that interest rates on credit cards have started to
Speaker 1: move higher, interest rates on auto loans have started to
Speaker 1: move higher. You've also seen the linquency rates on consumer
Speaker 1: loans have started to move slowly higher, and most important
Speaker 1: in this context, in the linquagy rates on auto loans
Speaker 1: have also started to move higher. So the first answer
Speaker 1: to your question is that there there's some something brewing erosion,
Speaker 1: if you will, and the liquidity rate for consumers that's
Speaker 1: beginning to slowly move higher. And when interest rates also
Speaker 1: move higher on credit cards, auto loans and other consumer loans,
Speaker 1: you do begin to a bit about what are the
Speaker 1: consequences organically outside the trade war to the consumer outlook
Speaker 1: and for topics. Last year, of course, we got the
Speaker 1: huge tax cut from the administration. This was very helpful
Speaker 1: in boosting topics, and now those tax cuts are beginning
Speaker 1: to slowly run out of steam. So the positive effects
Speaker 1: of that organically are also becoming smaller and smaller, so
Speaker 1: that's also resulted in some slowdown in the CAPIC data.
Speaker 1: So the long answer to your question is that even
Speaker 1: outside the trade war, we are indeed, as you're pointing
Speaker 1: out least that we're indeed seeing already some signs of
Speaker 1: risks in particular topics slowing down, but also the additional
Speaker 1: risk here to consumption because of the modest increase in
Speaker 1: the liquacy rates and the modest increase that we're seeing
Speaker 1: in course of borrowing. So we are watching where we
Speaker 1: are in the cycle and what the implications are for
Speaker 1: the organic outlook above and beyond what's going on with
Speaker 1: the trade war. Torsten Slock, thank you so much for
Speaker 1: joining us in your comments. Torstens the chief economist for
Speaker 1: Deutsche Bank, joining us on the phone. He is based
Speaker 1: in New York. Well. Trade tensions between the US and
Speaker 1: Mexico appear to have abated, at least for the time being,
Speaker 1: but President Trump told reporters that he reached a secret
Speaker 1: immigration pack with Mexico that will take effect when he
Speaker 1: wants it to, despite the country's insistence that there are
Speaker 1: no secret components of an immigration deal struck last week.
Speaker 1: So see if you can get some clarification here, we
Speaker 1: welcome Duncan. Would Duncan is a director of the Mexico
Speaker 1: Institute at the Wilson Center that is based in Washington.
Speaker 1: D C. Duncan, thanks so much for joining us. So
Speaker 1: can you give us any enlightenment on what this secret
Speaker 1: immigration deal might be? The best guest that we have
Speaker 1: is that Mexico has agreed that if after either forty
Speaker 1: five or ninety days, depending on which deadline they choose,
Speaker 1: I want to say they it's probably going to be
Speaker 1: the United States. UM if if enough, if enough progress
Speaker 1: hasn't been made on reducing the flow of Central Americans
Speaker 1: through Mexico to the US southwest border, that Mexico would
Speaker 1: consider becoming a safe third country. In other words, that
Speaker 1: Mexico would be a place in which refugees or asylum
Speaker 1: seekers rather could could or should seek asylum after leaving
Speaker 1: their home country. So, in other words, Guatemalan's, Honduran Salvadorians
Speaker 1: who are coming up through Mexico would have to seek
Speaker 1: refugee status asylum in Mexico rather than in the United States.
Speaker 1: And that's something that Mexico has resisted for a long
Speaker 1: long time. UM it greatly reduces the burden on the
Speaker 1: United States because if anybody does make it up to
Speaker 1: the United States border, then they would be immediately returned
Speaker 1: to Mexico and they would have to apply for asylum there.
Speaker 1: So that's really what I think that we're we're probably
Speaker 1: looking at um. It's gonna cause a huge to go
Speaker 1: stink in Mexico if that's what the deal is, because
Speaker 1: a lot of people are going to say, once again,
Speaker 1: Mexico is essentially rolling over for the United States. Already,
Speaker 1: there are so many op eds being written in Mexico
Speaker 1: and commentaries on on television that Mexico has essentially become
Speaker 1: the wall for the United States. Rather than following through
Speaker 1: on Donald Trump's promised to make Mexico pay for the wall,
Speaker 1: Mexico is the wall for the United States, and that
Speaker 1: it will essentially stop migrants from coming up through the country.
Speaker 1: So I think that this is a it's politically explosive
Speaker 1: for the President Lopezo Brodord, but it may be the
Speaker 1: only way that they see to avoid the application or
Speaker 1: in position of tariffs at this point in time. So
Speaker 1: does that mean that the implement implementation of tariffs is
Speaker 1: more likely than people are realizing at this point. My
Speaker 1: reading of what the President has said. President Trump has
Speaker 1: said is that they have been suspended. Yes, he said indefinitely,
Speaker 1: and people tend to interpret indefinitely is being long term.
Speaker 1: I don't see it that way at all. I see
Speaker 1: it at You know, if Mexico does not succeed in
Speaker 1: stopping the flow of Central Americans, then the five percent
Speaker 1: tariff can be pulled out of the toolbox again and
Speaker 1: slapped on Mexico, And of course that creates huge uncertainty
Speaker 1: for Mexico UM at a time when the Mexican economy
Speaker 1: is not doing well, at a time when President Lopez
Speaker 1: overdoors economic plans are not going well, and investor confidences
Speaker 1: is disappearing in Mexico. So this is absolutely um. You know,
Speaker 1: it's terrible timing for Mexico UM and therefore makes President
Speaker 1: Trump's threat that much more effective. So, duncan, do you
Speaker 1: think that Mexico has the capabilities to meaningfully stem illegal immigration?
Speaker 1: I don't. I have to say that. You know, Mexico
Speaker 1: has been working exceptionally hard over the last five years,
Speaker 1: essentially since two thousand and fourteen, to to detain and
Speaker 1: deport hundreds of thousands of Central Americans. In fact, if
Speaker 1: you look at the last five years as a whole,
Speaker 1: Central Mexico has parted more Central Americans than the United
Speaker 1: States has um And you know, Mexico has been doing
Speaker 1: an incredible job. The problem is that the crisis is
Speaker 1: so huge now that Mexican authorities are overwhelmed. US authorities
Speaker 1: and agencies are overwhelmed, and it would require a massive
Speaker 1: injection of resources financial, human, technical, and technological to actually
Speaker 1: begin to stem the flow. The gambit here is that
Speaker 1: if you had Mexico adopting safe third country status, then
Speaker 1: the migrants would choose not to come. And I think
Speaker 1: that's a pretty big gamble if you ask me, I
Speaker 1: don't think that. I think that people are leaving because
Speaker 1: conditions are terrible. They're desperate to get to the United States.
Speaker 1: Let's say they do land in in Mexico and you
Speaker 1: know they're they're forced to seek asylum there. That doesn't
Speaker 1: mean they'll stop moving. Once they have asylum in Mexico,
Speaker 1: they can still move up to the United States. We're
Speaker 1: still going to see massive levels of illegal migration across
Speaker 1: the Southwest border, so duncan One key question here is
Speaker 1: President and Trump is sort of using his executive power
Speaker 1: to threaten these tariffs and possibly impose them on Mexico.
Speaker 1: UH in an unusual way. It's the first time, at
Speaker 1: least in modern history, that a president has used them
Speaker 1: this way. And I'm wondering whether they'll be challenges to that.
Speaker 1: In other words, is this something that could face opposition
Speaker 1: internally or is it totally a go. Sorry, when you
Speaker 1: mean internally, do you mean internally in the United States?
Speaker 1: In the United States. No. I think that we've already
Speaker 1: seen opposition in the United States. We've seen business associations, UM,
Speaker 1: We've seen members of Congress stating that this is a
Speaker 1: dangerous path to go down. But what's what I think
Speaker 1: is is telling is that we haven't seen any really
Speaker 1: well coordinated opposition, nobody standing up in Congress and saying
Speaker 1: that they will seek legal means of restraining the president
Speaker 1: from from applying these kind of tariffs UM. And I
Speaker 1: think part of it is that you know, the the
Speaker 1: E p a UM, the powers under which he would
Speaker 1: he would apply these tariffs. I think it's it's quite
Speaker 1: I mean, it's it hasn't really been properly explored. UM.
Speaker 1: And so we'd we'd all be hanging on tenter hooks
Speaker 1: waiting to see what a court would rule on this.
Speaker 1: UM and I think that you know, most people have
Speaker 1: accepted that if it was just a five percent tariff,
Speaker 1: then we could probably live with that. There would be
Speaker 1: a depreciation of the Mexican paco to compensate for some
Speaker 1: of that five percent UM, and you know, the trade
Speaker 1: would continue. But once you get up beyond a ten
Speaker 1: percent escalating tariff, and let's say you did get to
Speaker 1: which was the original threat that by October it would
Speaker 1: be a twenty percent tariff, then that's disastrous. That's disastrous
Speaker 1: for integrated UM manufacturing platform in North America, it's disastrous
Speaker 1: for supply chains, and it would cause a real crisis
Speaker 1: in the Mexican economy. Don't get just real quickly twenty seconds.
Speaker 1: What do the Mexican people feel right now? Are they
Speaker 1: really coming up in arms against the tariff threat? So UM,
Speaker 1: we've seen maximum public opinion of the United States fall
Speaker 1: to historic lows. UM. We have seen overall support for
Speaker 1: President Lopez Obrador UM and the fact that his his
Speaker 1: overall attitude in negotiating with the United States essentially trying
Speaker 1: to be as calm and moderate as possible. Um and
Speaker 1: Mexicans do not believe that their country should become a
Speaker 1: war for the United States. But at the same time,
Speaker 1: their astues towards migrants is changing. They're becoming less welcoming,
Speaker 1: less friendly towards Central American migrants than they ever have before.
Speaker 1: So as we've seen in many countries around the world
Speaker 1: that are overwhelmed with migration crises, unfortunately Mexico is is
Speaker 1: going down the same path and that I think it
Speaker 1: will become a less friendly country for migrants. Duncan would
Speaker 1: thank you so much for being with us. Duncan Wood,
Speaker 1: director of the Mexico Institute at the Wilson Center, joining
Speaker 1: us from Washington, d C. A relatively quiet morning of
Speaker 1: trading in the US equity indusseries. Not a big move
Speaker 1: in either of the indusseries. First, let's go see where
Speaker 1: there's some movement, maybe in a small cap world with
Speaker 1: bloomer stocks. Editor Dave Wilson date, Well, you're definitely seeing
Speaker 1: smaller companies down more than larger ones, that's for sure.
Speaker 1: The Russell two thousand index down a half a percent,
Speaker 1: in the SMP five hundreds only lowered by two tenths
Speaker 1: of a percent. The russell steepest drop belongs to Sarah's Therapeutics,
Speaker 1: whose ticker is mc RB. The drug developers fall in
Speaker 1: twenty four percent after raising sixty million dollars in a
Speaker 1: share sale. Ashford Hospitality Trust ticker a HT has lost
Speaker 1: fifteen percent. The luxury hotel owner reduced its quarterly dividend
Speaker 1: by half to six cents to share. Ashford's cut was
Speaker 1: the first two thousand and eight when the payout was
Speaker 1: eliminated entirely. And Meat Group ticker m e ET has
Speaker 1: slipped almost nine percent. The social meeting app company was
Speaker 1: the subject of a critical report by a short selling
Speaker 1: firm called The Friendly Bear. Now the Russell's biggest game
Speaker 1: belongs to our Quel ticker a r q L. The
Speaker 1: developer of cancer treatments, is up thirty five and a
Speaker 1: half percent. Early stage studied data on a proposed blood
Speaker 1: cancer drug was favorable, and Blue Green Vacations ticker b
Speaker 1: x G has risen almost twenty nine percent the time
Speaker 1: share owners settled the dispute with retailer Bass Pro Shops.
Speaker 1: The deal will let Blue Green resume marketing at Bass
Speaker 1: stores and expand into the country. The company's sister chain, Cabella's.
Speaker 1: And we should know bb X capital ticker bb X
Speaker 1: has a steak in blue Green and that stock is
Speaker 1: up six and you see the headline, just Matt Chili. Yeah,
Speaker 1: opening at thirty six dollars after initial public offering at
Speaker 1: twenty two dollars a share. So this is one lucrative, uh,
Speaker 1: pet food operation, you're not kidding. And pet Smart is
Speaker 1: the seller of most of those shares that to We're
Speaker 1: we're distributed, you might say, to investors in the initial
Speaker 1: public offerings. So they're they're definitely a winner on this deal. Yeah,
Speaker 1: losers are the people who are the debt investors because
Speaker 1: they could have evidently raised more money to pay back
Speaker 1: said dead investors. We'll get into that another time. Dave Wilson,
Speaker 1: Bluebrick Sock seditor, thank you so much for that. It
Speaker 1: is getting to be close to lunchtime on Wall Street
Speaker 1: about I don't know, fifty five minutes if you have
Speaker 1: at twelve o'clock exact kind of clock. And what I
Speaker 1: feel like is a big, juicy plant based protein product
Speaker 1: in a bun joining us now to talk about that.
Speaker 1: Dina Shanker, she's a consumer reporter for Bloomberg News. Um,
Speaker 1: I'm talking about the Impossible Burger because evidently it's incredibly
Speaker 1: popular as it gets rolled out to what it says
Speaker 1: is nine thousand stores, perhaps a little too popular. Can
Speaker 1: you give us a sense of what's going on here? Yes, definitely,
Speaker 1: So Impossible is having a lot of trouble supplying its
Speaker 1: customers specifically, uh even White Castle and Red Robin, these
Speaker 1: are major fast food chains, are not able to get
Speaker 1: their hands on the product at the same time impossible
Speaker 1: as rolling out into more and more burger Kings. So
Speaker 1: whether there's a cause and effect there, that's that's a
Speaker 1: good question. So I mean, as you mentioned, I mean
Speaker 1: these are not just organic stores, organic outlets. They're bringing
Speaker 1: these synthetic burgers to Burger King, right, that's right. The
Speaker 1: plant based burger mania is widespread. It's gone way beyond
Speaker 1: the vegans and the vegetarians and is fully mainstream. So
Speaker 1: these companies, these big restaurant companies, are really trying to
Speaker 1: get their hands on these products, and they do bring
Speaker 1: new customers into the stores. So Impossible Foods is leaving
Speaker 1: some of these restaurants in a tough spot. Well, so
Speaker 1: I guess I'm wondering are we are we seeing a
Speaker 1: sort of a Tesla moment here with respect to Beyond Meat.
Speaker 1: I'm talking about Beyond Me because their I p O
Speaker 1: has been just absolutely unbelievable, astronomical types of gains and
Speaker 1: impossible foods also attracting a lot of attention. But is
Speaker 1: it an issue where they can't kind of fulfill in
Speaker 1: the promise of the supplies. So that's the big question
Speaker 1: right now for what it's worth. Beyond Meat said that
Speaker 1: they learned a lot from their shortages in eighteen and
Speaker 1: that they don't see that really happening again. But at
Speaker 1: the same time, Free Birds as a burrito chain in Texas,
Speaker 1: and they reported that they don't have their Beyond Meat products.
Speaker 1: So I think we're going to have to wait and
Speaker 1: see how long these shortages last and how widespread they are.
Speaker 1: But it does seem like keeping up with demand is
Speaker 1: one of the biggest, if not the biggest challenges that
Speaker 1: these companies have. So that raises the question for me
Speaker 1: barriers to entry um, Why can't any existing food company
Speaker 1: come out with their own synthetic kind of thing and
Speaker 1: just kind of take over the market and push some
Speaker 1: of these smaller companies out like Tyson Tyson. So actually
Speaker 1: there are a lot of companies in this space, and
Speaker 1: they are big and small. Tyson just unveiled its own Uh.
Speaker 1: Some would call it a competitor to the Beyond and
Speaker 1: the Impossible Burger, but it's actually a half beef half
Speaker 1: p protein blend. So whether or not you get the
Speaker 1: same customer is a question that will remain to be answered. Um.
Speaker 1: And then you have other smaller companies that you've probably
Speaker 1: never heard of, that are pushing out their own versions
Speaker 1: um quietly, carefully to make sure that they can meet
Speaker 1: the demand when it's there. Yeah, I didn't know that
Speaker 1: flexitarian was a thing, but evidently that's a thing, and
Speaker 1: Tyson's gonna cater to those flexitarians. But I'm wondering, Dina,
Speaker 1: have you had an Impossible Burger and Beyond meat products
Speaker 1: if you tried all these? So I've had both of them,
Speaker 1: but I have not had an Impossible Burger recently. That
Speaker 1: was actually how we figured out this shortage was happening
Speaker 1: was because I went to a white castle near my apartment.
Speaker 1: It said impossible sliders right outside on the sign, and
Speaker 1: turned out they were all out. So do you think
Speaker 1: that they are as good as the meat version. I
Speaker 1: don't need meet I'm not the target customer. Actually, you're
Speaker 1: exactly teustomer. But we actually did have a Dave Wilson
Speaker 1: kind of review of several days ago, and Dave Wilson,
Speaker 1: Bloomberg Stocks editor, is a Hamburger eater by his own admission,
Speaker 1: and he said it was okay. He said it was okay.
Speaker 1: So that's that's a win, I think, Yeah, But I
Speaker 1: think it's kind of our journalistic duty. At some point
Speaker 1: over the next week, I think we have to go
Speaker 1: have a beyond meat Burger just to have some some
Speaker 1: primary research on it. Amen, let's go make a lunch date.
Speaker 1: Thank you so much. Gina Shanker, consumer reporter for Bloomberg News.
Speaker 1: Really really great reporting and interesting to sort of see
Speaker 1: how this supply issue is sort of emerging in some
Speaker 1: of these very hot startups and less more than startups. Right,
Speaker 1: But I'm thinking about Tesla, and I said Tesla moment,
Speaker 1: because you know, when demand so outstripping supply and some
Speaker 1: of these fat companies or more than fad uh see
Speaker 1: change companies, it can become a serious headwind to the business. Yeah, exactly,
Speaker 1: And it kind of goes to the issue of you know,
Speaker 1: when are some of these you know, big mainstream food companies,
Speaker 1: you know that can really get product out there in scale,
Speaker 1: and have they have the relationships with all the retailers.
Speaker 1: They can really take over the market, but we haven't
Speaker 1: seen that yet. We are so lucky to have with
Speaker 1: us someone who has been watching the markets for decades
Speaker 1: and looking for the accurate indicators to foretell the future.
Speaker 1: Nicolas Co, founder of Data Trek Research, joining us here
Speaker 1: in our Bloomberg Interactive Broker Studios. I want to start
Speaker 1: with oil because it has been a big conundrum frankly
Speaker 1: for people, especially given the fact that right now we're
Speaker 1: seeing escalating tensions in the Middle East, which should lead
Speaker 1: to price gains, which we saw briefly yesterday. Today we're
Speaker 1: struggling to hold onto those What do you make I mean,
Speaker 1: the larger takeaway, what do you make of the fact
Speaker 1: that oil prices have really actually declined this year despite uh,
Speaker 1: some of the ongoing growth that we're seeing. Yeah. No,
Speaker 1: it's a great point. If you look back at the
Speaker 1: chart from year to day to now, you're looking at
Speaker 1: a peak back in April. It's down since then. Oil
Speaker 1: is in a bear market as we speak, and you
Speaker 1: have some little geopolitical riffs that kind of helped it yesterday.
Speaker 1: But the bottom line is economic worries. Global economic worries
Speaker 1: are clearly in the driver's seat when it comes to
Speaker 1: oil prices, and that's negative because it's the bad sign
Speaker 1: for the global economy. But on the plus side, you've
Speaker 1: never had a recession at least since nineteen seventy in
Speaker 1: the US without oil prices first doubling. It's the only
Speaker 1: kind of clear recessionary indicator you can look at to
Speaker 1: say we're in trouble. And the good news is we're
Speaker 1: not on that point. So a lot of guests that
Speaker 1: Lisa and I have been interviewing over the last really
Speaker 1: several a couple of months have been suggesting that a
Speaker 1: recession is increasingly likely by mid Is that something you
Speaker 1: think that is reasonable? I get the fear. The fixed
Speaker 1: income market tells you that's a fear of the Fed
Speaker 1: funds futures market tells you that's a fear. So at
Speaker 1: this point I think that's probably that's sort of default
Speaker 1: value in people's minds. But you know, the oil price
Speaker 1: thing is some measure of help and a federal reserve
Speaker 1: that seems more inclined to cut rates might let us
Speaker 1: sort of scape by a recession. But it certainly is
Speaker 1: a low growth one one and a half percent growth
Speaker 1: kind of environment for at least the next four quarters.
Speaker 1: So I don't want to become that person who says
Speaker 1: this time is different and everybody laughs at them when
Speaker 1: it's not in about a year. But I guess I'm
Speaker 1: wondering whether the dynamics in oil have changed to such
Speaker 1: a degree given the shale output from the United States, Uh,
Speaker 1: that that sort of the necessity for oil prices to
Speaker 1: double ahead of a recession kind of loses it's it's
Speaker 1: it's gravitas. It may well, I'd say. The other side
Speaker 1: of it, though, is there's still a lot of oil
Speaker 1: that goes through, you know, through the streights of four moves,
Speaker 1: which is sort of the flash point right now. And typically,
Speaker 1: you know, if you think back the seventy three and
Speaker 1: seventy nine, access to oil has been as critical as
Speaker 1: the price of it itself. You know, we had actual
Speaker 1: short pages in both seven three and seventy nine here
Speaker 1: in the US. It may not come to pass that
Speaker 1: way because of national output, domestic output now, But I'd
Speaker 1: say you'd want to see some bounce in oil prices
Speaker 1: to think that we were at the cosp of seeing
Speaker 1: a consumer and business environment that was going to be
Speaker 1: worse than the next twelve months. In the prior. Lower
Speaker 1: oil prices absolutely helps and provides a bit of a
Speaker 1: tail wind. So, Nick, whether or not we have a
Speaker 1: recession in is it time to get defensive in a portfolio?
Speaker 1: That's the number one question I get from clients right
Speaker 1: now is if if so? When the answer is, look,
Speaker 1: I mean, the way I think about being defensive is
Speaker 1: if you think it's not to be defensive, then be defensive. Um. Yeah,
Speaker 1: there's no point in second guessing that ten years into
Speaker 1: a recovery with you know, a fairly dicey global picture
Speaker 1: both in terms of sovereign debt and corporate debt, both
Speaker 1: obviously all time highs. And so the short answer is yes,
Speaker 1: if you feel that way, absolutely, Our favorite defensive sectors
Speaker 1: in the US market at least are real estate, a
Speaker 1: lot of her hidden tech exposure that makes a little
Speaker 1: growth through the utilities and consumer stables because as even
Speaker 1: though there's been under a lot of attack, fundamentally they
Speaker 1: do pay very good dividends, and they are relatively safe,
Speaker 1: and they're big enough part of the SMP to actually
Speaker 1: allow you to play defensive without having to double overweight
Speaker 1: something like utilities. So rates you're saying, basically, yeah, reas
Speaker 1: reach are kind of a misnomer. Now, if you look
Speaker 1: at the top ten holdings in the xl r E,
Speaker 1: for example, you're looking at things like cell phone towers,
Speaker 1: and they've they've made reets into you mentioned cellphone tower
Speaker 1: billboard companies. It's just amazing how they've used that reach
Speaker 1: structure for lots of different insectors. Yeah, it's it's a
Speaker 1: really a misnomer. It's not realisted anymore. It's it's structured
Speaker 1: cash flows. That's what allows you to be a reat
Speaker 1: um just by definition. And so that's I think a
Speaker 1: hidden positive behind the real estate sector in the SMP.
Speaker 1: The downside is it's small at three or three and
Speaker 1: a half percent of the SMP. You can't double weight
Speaker 1: that as a portfolio manager and still hold to a benchmark.
Speaker 1: So you have to look at bigger structors like staples.
Speaker 1: So why not just be super aggressive if you think
Speaker 1: that we're not going to see recession? You know the
Speaker 1: way to be super aggressive historically has been to be
Speaker 1: really long tech. That's kind of a spicy play going
Speaker 1: to back half of the year because if you read
Speaker 1: you know the comments from the Deputy Assistant d g
Speaker 1: earlier in the week and the speech and tele Aviv
Speaker 1: talking about his thought process of regulating tech to anti trust,
Speaker 1: it's very aggressive. Same thing on the House side of
Speaker 1: these new Justice investigations. So I think it's a little
Speaker 1: bit hard to be super long tech as a way
Speaker 1: to be aggressive in the market. That's kind of what
Speaker 1: I think what holds back gains for the back half
Speaker 1: of the year. We're not going down if you really,
Speaker 1: I don't think, but these regulations and issues with tech
Speaker 1: are definitely gonna cap the tech upside that SMP. That's
Speaker 1: interesting because it's a it's a topic that we've been
Speaker 1: discussing for a while. Here has I guess asking the question,
Speaker 1: has the worm really turned in terms of US regulation
Speaker 1: of tech historically a very light touch. Has that fundamentally changed?
Speaker 1: And I guess in your mind perhaps it might be
Speaker 1: changing a little bit. My worry is that even if
Speaker 1: nothing happens in the next year, you're gonna hear so
Speaker 1: much about it because We're going into a very important
Speaker 1: political year, and there's a very popular topic. We hear
Speaker 1: it from clients and I hear it on social media
Speaker 1: all the time. There's a lot of concern the tech
Speaker 1: has gotten too big and there is some desire to
Speaker 1: see some incremental regulation, perhaps not a full break up,
Speaker 1: but regulation absolutely, and that is gonna cap sentiment. Yeah,
Speaker 1: that's it's interesting. I think you're exactly right. I think
Speaker 1: because I mean talk to UH institutional investors who are really,
Speaker 1: you know, historically been in the tech space. One of
Speaker 1: their big risks has been is that day ever going
Speaker 1: to come when uh U S regulators will really take
Speaker 1: a hard look at this industry. Historically it's just kind
Speaker 1: of been the Europeans, you know, taking a look, whether
Speaker 1: it's Microsoft years ago and UH. But the big, the
Speaker 1: big downside scenario for a tech long story is US
Speaker 1: regulatory risk. Nicholas thanks so much for joining us. Nika's
Speaker 1: co founder of Data Trek Research, and he joins us
Speaker 1: here in Bloomberg Interactor Broker Studio. Nick is also a
Speaker 1: Bloomberg opinion columnist, taking a look at how to get
Speaker 1: positioned in this market where ten plus years into this
Speaker 1: economic cycle, we have rising trade uncertainties with two of
Speaker 1: our biggest trading partners. Yet on the other side, we
Speaker 1: have a very benign Federal Reserve who appears willing and
Speaker 1: able to step in and support the market. So investors
Speaker 1: are weighing those across the board. Thanks for listening to
Speaker 1: the Bloomberg pen L podcast. You can subscribe and listen
Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
Speaker 1: abram Woy. It's I'm on Twitter at Lisa abram wits
Speaker 1: one Before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio