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Speaker 2: Worn Buffett and Berkshire have I recording some earnings over
Speaker 2: the weekend. The question I always have is how much
Speaker 2: cash do they have on their balantie?
Speaker 3: Everybody always wants to watch that as a contrarian potential indicator.
Speaker 2: Yeah, I just I just don't know what's going on
Speaker 2: over there. But our next guest does. Matt Pelosola. He's
Speaker 2: seen around us covering the insurance business for Bloomberg Intelligence
Speaker 2: during us here in a Bloomberg Interactive Brokers studio, Matt,
Speaker 2: wou'd you take away from the Berkshire's results on Saturday?
Speaker 4: So pult to answer your first question. Three hundred and
Speaker 4: twenty five billion dollars in cash. That's the most they've
Speaker 4: ever had. So when you look at their earnings, there's
Speaker 4: a couple of layers you have to unpeel. First, their
Speaker 4: gap earnings were swayed by investment changes. Buffett himself has said,
Speaker 4: you kind of just throw that out. We don't really
Speaker 4: look at that. It was like twenty six I think
Speaker 4: billion versus an eleven billion loss in the year ago.
Speaker 4: Those numbers are a little bit irrelevant. The next part
Speaker 4: is their earnings from operating companies. Those, if you look
Speaker 4: at just the number they give you, those were down
Speaker 4: about six percent. What happened there, though, was they have
Speaker 4: a lot of yen debt and there was a big
Speaker 4: four x loss in there, so peel that back. The
Speaker 4: operating companies earnings were up a little bit, which was
Speaker 4: less than I expected. The insurance operation had a couple
Speaker 4: of unforeseen negatives in it, and that really turned it down.
Speaker 4: Some of them I don't think are ongoing things, but
Speaker 4: that was really the negative variance was in the insurance
Speaker 4: business something.
Speaker 3: Because we were actually chatting about this earlier. When it
Speaker 3: came to the percent of their cash pilot Berkshire Hathaway
Speaker 3: last time it was around this high. The stock market
Speaker 3: to continued to move on to records over the following
Speaker 3: fifty two weeks, but then the last time on this
Speaker 3: opposite into that the lowest percent of cash he had
Speaker 3: at any time over the past decade was right when
Speaker 3: the S and P five hundred briefly peeged in twenty
Speaker 3: twenty one. So what's your thoughts when ever, you're kind
Speaker 3: of thinking about what this could mean more broadly for
Speaker 3: where like major indexes and equities could potentially be headed.
Speaker 4: Yeah, So, I mean Buffett is a more of a
Speaker 4: time in than timing of the market right clearly, So,
Speaker 4: I don't think he's making big moves on large expectations
Speaker 4: on the market. If you look what happened, they sold
Speaker 4: about twenty two billion dollars worth of Apple stock in
Speaker 4: the quarter. That's along with about nine and a half
Speaker 4: billion worth of Bank of America stock in the quarter.
Speaker 4: I don't think you look at that and say, Okay,
Speaker 4: he's completely parish on everything in the market. I think
Speaker 4: those were, you know, unique things. They were highly concentrated
Speaker 4: in Apple. Their Apple position is down seventy percent from
Speaker 4: its high in terms of the shares they own, so
Speaker 4: I think those things were unique to the stocks they own.
Speaker 4: Buffett has repeatedly talked about taxes going up. I don't
Speaker 4: think it's even an election cycle now, but he's just
Speaker 4: saying even longer term, there's probably only one direction taxes
Speaker 4: are going for us and that's up, so you'd not
Speaker 4: be surprised to see them taking large gains off the board.
Speaker 2: So three and twenty five billion dollars, is there any
Speaker 2: realistic scenario for deploying that capital over a multi year period.
Speaker 4: You know, it's tough. They are limited in how much
Speaker 4: shares they can buy back just on the float.
Speaker 2: We had wrote.
Speaker 4: You know, it's tough to see them doing a tens
Speaker 4: of billion dollar acquisition. There is the ownership in Chubb
Speaker 4: out there, which is, you know, perhaps the megadeal that
Speaker 4: may or may not ever happen if they do something.
Speaker 4: They bought Allegheny, which was an insurance company kind of
Speaker 4: conglomerate a couple of years ago. That was about twelve
Speaker 4: billion dollar. It seems like that's going to be the
Speaker 4: max on what they're going to do. But if I
Speaker 4: could predict a Buffett would do, I'd be on an
Speaker 4: island somewhere.
Speaker 2: So but no dividend.
Speaker 4: There will not be a dividend as long as Warren
Speaker 4: Buffett is sitting in all is that. I mean, I
Speaker 4: think he likes getting them, he doesn't like paying them.
Speaker 4: He says, you know, look, I and I would agree
Speaker 4: with him. I'm better off holding this money than giving it.
Speaker 4: Your return on a divid end is going to be
Speaker 4: less than my return investing it. That probably hasn't been
Speaker 4: true actually recently, but I think that's his mindset.
Speaker 3: You were mentioning about how claims they were years ago
Speaker 3: are costing them more than expected. Walk us through that dynamic.
Speaker 4: Sure, So this is called reserve development. So what happens
Speaker 4: is insurance companies like so for example, Geico, they write auto,
Speaker 4: some home, well not really home, but they'll write auto.
Speaker 4: You're either going to have a car accident in a
Speaker 4: year or you're not. But they'll write some liability business
Speaker 4: where you may have a claim, and that you might
Speaker 4: find out that I claim years into the future. And
Speaker 4: what is happening is you set up a reserve for that,
Speaker 4: and that reserve could be wrong or they're almost always
Speaker 4: wrong right, but it could be wrong too low or
Speaker 4: wrong too high. And what had happened in the quarter
Speaker 4: was those were their reserve for their primary insurance business.
Speaker 4: A specific unit of it was quite wrong, and there's
Speaker 4: there's new management took over that unit, and usually when
Speaker 4: that happens, they add to their reserves. If this was
Speaker 4: If this was just a you know, X Y Z
Speaker 4: insurance company, this would be really bad. But it's Berkshire.
Speaker 4: Their financial strength is so superior to anything you might
Speaker 4: see that it's kind of just a blip.
Speaker 2: I got a invest with Scooter Progressive. Progressive wrote the policy.
Speaker 4: I always wear a helmet.
Speaker 2: That's all I do. Have the helmet. Progressive. Give me
Speaker 2: thirty seconds on Progressive, because so far I'm happy with
Speaker 2: the Yeah.
Speaker 5: I mean, so.
Speaker 4: Berkshire themselves has kind of been saying Progressives eight our
Speaker 4: lunch for the past, you know. Progressive extremely innovative in pricing,
Speaker 4: which allowed them to kind of take a lot of
Speaker 4: market share. State Farms is kind of the big name
Speaker 4: there in auto insurance, and they all State has just
Speaker 4: been picking away, I mean not all State. Progressive has
Speaker 4: been picking away at them the recent spike in auto
Speaker 4: insurance prices. They navigated that a lot better than the
Speaker 4: rest of the industry, which is allowing them to pull
Speaker 4: more share. Geico is shrinking, Progressives growing really best operator
Speaker 4: in the auto insurance space.
Speaker 2: Progressive and actually Choice, my existing insurer, I've got like
Speaker 2: five thousand lines with their pricing was twice where Progressive
Speaker 2: was so I just.
Speaker 3: Like see you.
Speaker 4: They don't know how good of a risk you are.
Speaker 2: Exactly right me the vest mouscooter's cruising the Jersey short
Speaker 2: John Tucker, What that's a view? This is Blonimer.
Speaker 3: You see him, Come and get out of the way.
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Speaker 2: All right, Jess Metton sitting in for Alex Steel on
Speaker 2: Paul Sweeney. You're live here on a Bloomberg Interactive Brokers
Speaker 2: studio streaming live as well on YouTube dot com. So
Speaker 2: search there for Bloomberg podcast. The election tomorrow obviously one
Speaker 2: of the key issues driving this market for some time.
Speaker 2: It's got the latest analysis here. Mayo Wiley joins us.
Speaker 2: She's president and CEO of the Leadership Conference on Civil
Speaker 2: and Human Rights. Joining us if head that zoom thing here,
Speaker 2: so it comes in handy, Mayo, thank you so much
Speaker 2: for joining us here. I guess what we hear from
Speaker 2: you know a lot of the experts is this is
Speaker 2: too close to call. What are you hearing from some
Speaker 2: of the folks that you talk to.
Speaker 6: Well, certainly, what we know is that voters are going
Speaker 6: to decide the outcome of this election and absolutely cannot
Speaker 6: predict based on the polls.
Speaker 7: What we can say is what we're seeing in.
Speaker 6: The absolute enthusiasm to show up to these holes, even
Speaker 6: in early voting. As we know, election day is tomorrow,
Speaker 6: but I was in Pennsylvania on Saturday where thousands of
Speaker 6: doors were being knocked all over the state.
Speaker 7: Lots of high levels.
Speaker 6: Of turnout across not just Pennsylvania, but other states. We're
Speaker 6: hearing already for Detroit, Michigan, for example, fifty one percent
Speaker 6: turnout for early voting. Michigan is also one of those
Speaker 6: states that has same day registration, meaning people can show
Speaker 6: up at the polls and register to vote and then
Speaker 6: vote tomorrow. So what our own Civil Rights monitor polling
Speaker 6: showed in September that the Leadership Conference did with Brilliant
Speaker 6: Corners was enthusiasm is high on all sides in this
Speaker 6: election and seeing that at the polls.
Speaker 3: Talk to us Maya about what the mood is like
Speaker 3: in some of these key states in these battleground areas well.
Speaker 6: You know, I've been to Milwaukee, I've been to Detroit,
Speaker 6: I was in Pennsylvania. I think the mood is everything
Speaker 6: from completely motivated for folks to show up and have
Speaker 6: their voices heard at the polls, and anxiety. I mean,
Speaker 6: the anxiety is understandable. There is a lot at stake
Speaker 6: in this election. People are feeling it. You know.
Speaker 7: There's also been the.
Speaker 6: Reality of disinformation and the flood both from foreign governments
Speaker 6: like Russia, like China, like Iran trying to sow division
Speaker 6: and confusion, and sadly, some political leaders, some organizational leaders,
Speaker 6: some politicians picking up on that disinformation. So a lot
Speaker 6: of work on the ground across the country to make
Speaker 6: sure that voters know where to vote, how to vote,
Speaker 6: and that their votes count and will be counted. Because
Speaker 6: we do have an exceptionally impressive election system in this
Speaker 6: country we should be proud of and that's a big
Speaker 6: part of the work that people are doing on the ground.
Speaker 2: And Miley, a lot of experts are telling them to
Speaker 2: really be mindful of the turnout, that turnouts can be
Speaker 2: really critical for both sides. Actually, what's your understanding of
Speaker 2: maybe is one side better equipped to get the you know,
Speaker 2: the word out in the turnout going.
Speaker 6: Well, look, certainly it's a turnout election. I would argue
Speaker 6: all elections are actually turnout elections.
Speaker 7: When voters show up, they decide who lead us.
Speaker 6: And so the more voters who show up, the more
Speaker 6: we have a true reading of the country. The voter
Speaker 6: motivation is very high. Turnout is exceptionally high. We're already
Speaker 6: seeing numbers of turnout that are historic. They're approaching twenty
Speaker 6: twenty numbers. Remember President Joe Biden won the most number
Speaker 6: of votes of any president for over one hundred years
Speaker 6: of voting history. This is on part of a historic
Speaker 6: turnout election. I think the point about who does that benefit?
Speaker 7: I mean both sides, all sides are showing up.
Speaker 6: The real question is what do voters want and what's
Speaker 6: a stake? And how many of these voters are new
Speaker 6: votvoters or voters who did not show up in twenty
Speaker 6: twenty or in twenty twenty two. A lot of the
Speaker 6: get out the vote work has been focused in the
Speaker 6: civil rights community and certainly by US at the Leadership Conference,
Speaker 6: of making sure those people who can vote know where
Speaker 6: and how to vote and feel that their vote matters
Speaker 6: and will count, and that's why I think we're seeing
Speaker 6: high turnout as people are feeling that.
Speaker 3: Whenever you're speaking anecdotal lead to Americans across the country,
Speaker 3: what is more specific when it comes to policy proposals
Speaker 3: do they constantly keep bringing up to you?
Speaker 6: Look, people are very concerned obviously about everything from the
Speaker 6: state of our democracy and our freedoms, particularly abortion, but
Speaker 6: in communities of color, criminal justice reform is a huge issue.
Speaker 5: As is education.
Speaker 6: But I think we also know that across the board,
Speaker 6: costs are an issue. And you know, one of the
Speaker 6: things that's been so clear in this campaign is, you know,
Speaker 6: when Kamala Harris speaks about the fact that she is
Speaker 6: not going to drive up the cost of groceries, but
Speaker 6: Donald Trump obviously talking less about costs and more casting aspersions.
Speaker 6: I mean, people are really trying to listen for how
Speaker 6: is my life going to be better? And they're responding
Speaker 6: to where and how They're hearing very clear messages about
Speaker 6: what things they would see and feel in their own
Speaker 6: households and communities. I think that's also why we're seeing
Speaker 6: so many women vote because abortion and access to abortion
Speaker 6: as an issue of healthcare. Reproductive freedom is not just
Speaker 6: reproductive freedom, it's also the ability to get the care
Speaker 6: you need, including if your life is in danger. And
Speaker 6: we're seeing that as a huge motivator and topic of discussion,
Speaker 6: and I think that's part of why we're seeing what
Speaker 6: we saw in that Iowa poll, which showed frankly, that
Speaker 6: women were turning out in droves, and we've seen that
Speaker 6: gender gap so many women engaged in the selection, and.
Speaker 2: That is a big reason, right, Maya, thank you so
Speaker 2: much for joining us. We really appreciate getting some of
Speaker 2: your time. Maya Wiley, she's a president and CEO of
Speaker 2: the Leadership Conference on Civil and Human Rights, giving us
Speaker 2: her peview of again the selection for tomorrow.
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Speaker 2: Katie Kaminski joins us. She's a chief research strategist and
Speaker 2: portfolio managed Alpha Simplex Group, joining us via that Zoom thing. Katie,
Speaker 2: when you look at the markets broadly defined here, what
Speaker 2: are they kind of telling me about the next twenty
Speaker 2: four forty eight hours, or do you just try to
Speaker 2: power through all that stuff and think about longer term?
Speaker 7: Oh, this is tricky.
Speaker 8: I mean, I'd say that as a trend fuller, we
Speaker 8: tend to think about holding the course.
Speaker 7: But it's really hard.
Speaker 8: I mean, you're seeing today some reversal of trends that
Speaker 8: have been following from the last month. Really, yields have
Speaker 8: moved so much, yields have moved so much higher.
Speaker 7: You're seeing the reversal of that today.
Speaker 8: You've seen the dollar had been sort of on a
Speaker 8: tear and then now as reverting again.
Speaker 7: So there's just a lot of uncertainty in the short term.
Speaker 8: So actually powering through is probably a better way to
Speaker 8: sort of handle all of this volatility.
Speaker 3: Katie, I wanted to pick your brain about poly market
Speaker 3: because we've seen it a bit all over the place
Speaker 3: in recent weeks, sometimes favoring at Trump, whereas over the
Speaker 3: weekend you started to see that narrow out and begin
Speaker 3: to favor Harris instead. So as a trading kind of strategy,
Speaker 3: why would an investor use them for a trading strategy
Speaker 3: over polls? And why are they using a betting website
Speaker 3: over polling for judging sentiment because obviously, as we know,
Speaker 3: it's not really correlated to who would actually end up winning.
Speaker 8: Well, this is a good point, and I mean, I
Speaker 8: think it has to do more with market price discovery,
Speaker 8: and I think people a lot of faith in.
Speaker 7: Sort of market pricing of odds.
Speaker 8: But then you know, obviously polling could be sort of
Speaker 8: a different demographic group. So what's really making a lot
Speaker 8: of people, I think even myself, is you see the
Speaker 8: news and it's just flipping back and forth, and there
Speaker 8: are very different outlets pointing to different observations, and that
Speaker 8: just suggests how incredibly uncertain and tight.
Speaker 7: This race really is.
Speaker 8: And people are probably also looking at those areas which
Speaker 8: kind of they're used to, So I think the picture
Speaker 8: is very mixed.
Speaker 2: So Katie, from your perspective and just maybe your equity
Speaker 2: allocation here have you made have you hedged it at all?
Speaker 2: Or are you just position that we're going to be
Speaker 2: fine no matter who's kind of controlling things down there
Speaker 2: in Washington.
Speaker 8: Well, this is a good question because as a trend follower,
Speaker 8: our goal isn't really sort of to add a discretionary
Speaker 8: view on what we do we're just measuring where market
Speaker 8: directions are moving. And you have seen some momentum and
Speaker 8: equities over the last six weeks. But I think the
Speaker 8: biggest thing that people have been focused on is not
Speaker 8: necessarily just equities. It's just how much long bond signals
Speaker 8: have dissipated, even going short in US fixed income in
Speaker 8: some ways. And also how much the dollar has moved,
Speaker 8: but it's a short term moved and things are still
Speaker 8: very mixed. But US equities seem to be the most
Speaker 8: robust signal, which tells you maybe we're going to be
Speaker 8: fine either way, let's hope.
Speaker 3: So when it comes to Congress, in the makeup of
Speaker 3: Congress and particularly gridlock, because when I've been speaking with
Speaker 3: a lot of portfolio managers, especially when they're managing money
Speaker 3: for longer term horizons, they haven't been making big bets
Speaker 3: either way because a lot of times, even if they
Speaker 3: have certain policy proposals, as you know, it would take
Speaker 3: some time here to figure out whether or not those
Speaker 3: would get passed. So how much to you when you're
Speaker 3: thinking about gridlock in Congress, will that make certain trading
Speaker 3: decisions in the coming months or even having to wait
Speaker 3: on that, you know more of what that could look
Speaker 3: like in Congress when you think about the House as
Speaker 3: well as the Senate.
Speaker 7: I think you make a good point.
Speaker 8: It's just if you think about NPV or sort of
Speaker 8: the value of the markets, it's really about weighing the
Speaker 8: different possible outcomes. And even though we're going to have
Speaker 8: at least hopefully some resolution in terms of the election,
Speaker 8: it still is quite a long road for many different policies,
Speaker 8: particularly if you have a gridlock in Congress, and that
Speaker 8: means that status quo is probably closer than sort of
Speaker 8: these extreme scenarios which people are trying to discount and valuate.
Speaker 8: And so I think that that's why if you look
Speaker 8: for the overall trend, equities still remain somewhat positive, because
Speaker 8: the path to all of more extreme policy is actually
Speaker 8: a long one and it could take time to know,
Speaker 8: and we should have more information as that changes.
Speaker 2: Katie. In the world of fixed income, how much credit
Speaker 2: risk are you taking if any of these days?
Speaker 8: So we don't focus on credit risk, but I know
Speaker 8: that's in an area recently that has been very interesting,
Speaker 8: especially with yields higher. I think the fact that you
Speaker 8: didn't see a lot of credit deterioration in August was
Speaker 8: something that surprised me. We're much more focused on the
Speaker 8: directional level of yields, and we've really seen a major
Speaker 8: pivot towards higher, longer, steadier fed reaction, and I think
Speaker 8: that sort of is obviously going to impact credit as well.
Speaker 2: Katie, thank you so much for joining us. We always
Speaker 2: appreciate getting a few minutes of your time. Kati Kaminski.
Speaker 2: She's a chief research strategist and she's a portfolio manager
Speaker 2: over to Alpha Simplex Group.
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Speaker 2: At Bloomberg Interactive Brooks Studio, or streaming live on YouTube
Speaker 2: as well as to check us out there Trump trades,
Speaker 2: which is basically long the dollar, short bonds. Are you
Speaker 2: long the Trump trade? Are you not? It seemed like
Speaker 2: the narrative maybe change a little bit over the weekends
Speaker 2: of new polling. I don't know how if you're a trader,
Speaker 2: you're playing this thing I don't know, but our next
Speaker 2: guest has a great big take story. Honest, you know,
Speaker 2: we love the big take stories coming out of Bloomberg News.
Speaker 2: Great topics, deeply resourced, deeply sourced.
Speaker 3: Always great visuals and charts like the pictures.
Speaker 2: The pictures helped me. Katherine Burton joins us. She's a
Speaker 2: senior reporter for Bloomberg News. She joins us here in
Speaker 2: our Bloomberg Interactive Broker studio. So, Kathy, what are traders
Speaker 2: on Global Wallstreet? What are they trying to do here
Speaker 2: ahead of this election? Are they trying to play it?
Speaker 2: Are they trying to hedge themselves? What are they doing?
Speaker 9: They're trying to do both. Actually, I would say that
Speaker 9: most of the traders have a slight tendency towards the
Speaker 9: Trump trade that has maybe reversed a little bit overnight
Speaker 9: with the new poll that showed Harris ahead and I
Speaker 9: but there's also a lot of hedging going on. People
Speaker 9: are betting on inflation, they're betting on a steeper yield curve,
Speaker 9: and both those things should make money no matter who wins.
Speaker 3: It's interesting because when I've been speaking to a lot
Speaker 3: of portfolio managers who are managing money for longer term.
Speaker 3: They're still kind of on the sidelines and are more
Speaker 3: focused on the Federal Reserve and kind of the direction
Speaker 3: of the economy. But when you're talking to say hedge funds,
Speaker 3: which obviously have a much shorter type of timeframe, what
Speaker 3: is the mood like there, and how exactly are there
Speaker 3: priming their computer models for a moment like this and
Speaker 3: how they're treating because obviously they have a different time
Speaker 3: horizon than they say somebody who's managing money like five
Speaker 3: ten years out right.
Speaker 9: So we spoke to one of those managers who has
Speaker 9: a pretty substantial quant aspect to their portfolio, and they
Speaker 9: did over the past few months, and because it's only
Speaker 9: been a few months since Harris came into the election,
Speaker 9: they've been looking at polls and betting markets and trying
Speaker 9: to put that into their models and isolate how set
Speaker 9: classes move with a rise or a fall in the polls.
Speaker 9: So people have been rejigging their models to try and
Speaker 9: get a better idea of what to do.
Speaker 2: Global Wall Street, I mean, they're getting ready for this thing.
Speaker 2: JPMorgan Chase you report plans to increase staffing in Europe
Speaker 2: and Asia to handle overnight volume and volatility. Glob and
Speaker 2: Sachs expects to have hundreds from its sales and trading
Speaker 2: teams on site in New York well into the night.
Speaker 2: So Global Wall Street they're gear enough for this. It's
Speaker 2: not just gonna wake up and see what happened.
Speaker 9: Yeah. Absolutely, And we have even smaller brokers who have
Speaker 9: never had people overnight before for an election saying that
Speaker 9: this election they might well have to have someone there
Speaker 9: throughout the night.
Speaker 3: Something else I was keeping a close eye on is
Speaker 3: when you're looking at the CFTC data, we get updates
Speaker 3: every Friday at three thirty, so always convenient right before
Speaker 3: the closing bell at the end of the week. But
Speaker 3: hedgephnes were of course betting on bigger price wings coming up,
Speaker 3: probably not surprisingly so when you're looking at large speculators
Speaker 3: turning that long on vic's futures for the first time
Speaker 3: since January of twenty nineteen. And so whenever you're speaking
Speaker 3: with your sources, specifically when you're thinking about the options
Speaker 3: equity side of things, what are they telling you with
Speaker 3: as more specifically of how they're trying to hedge or
Speaker 3: what they're trying to either buy or kind of shy
Speaker 3: away from at this point.
Speaker 9: Yeah, there's definitely been more vics buying because they do
Speaker 9: expect that there's going to be more volatility m hm.
Speaker 9: And also more futures as well.
Speaker 3: Something I was wondering too, because you have such a
Speaker 3: jam packed week and then other events coming up in
Speaker 3: the coming weeks. Two obviously the election, the Federal Reserve,
Speaker 3: we have a thirteen F filing deadline coming up to
Speaker 3: we still have about nine percent of the S and
Speaker 3: P five hundred by market cap reporting. And then of
Speaker 3: course we have Nvidia actually coming up on November twentieth.
Speaker 3: So when you're speaking with them, do they say there's
Speaker 3: a specific event. Obviously we know the elections tomorrow, but
Speaker 3: is there is it harder to decipher one event versus another?
Speaker 6: Yes?
Speaker 7: Absolutely.
Speaker 9: I mean the Fed is really an huge thing, and
Speaker 9: I think more people are looking at what's going to
Speaker 9: happen there than really than anything else, even the election.
Speaker 2: Right, So the popular Trump trade again long the dollars
Speaker 2: short bonds, is that unwinding today a little bit because
Speaker 2: of this new polling data that came out. It does
Speaker 2: it move that short term?
Speaker 7: Yes, it has.
Speaker 9: The last time I left, the dollar was down almost
Speaker 9: a percent. For example, I think crypto is down to yep.
Speaker 2: Yeah, we got a crypto a bitcoined down one percent,
Speaker 2: the Bloomberg Dollar index down about six tens to one percent,
Speaker 2: and the people mind a tenure treasures up to twenty
Speaker 2: four to thirty seconds. So it just day to day
Speaker 2: it seems.
Speaker 9: Like, yeah, absolutely, and what would be really as we
Speaker 9: start getting results, it's going to be even more frequent, right.
Speaker 3: Talk to us about the implied price swings that the
Speaker 3: options markets pricing in the days.
Speaker 10: After the election, meaning what exactly kind of like the elevator,
Speaker 10: so City, for instance, du Kaiser at City he sees
Speaker 10: on actually a Wednesday, So the day after the election,
Speaker 10: the S and P five hundred could swing about one point.
Speaker 3: Eight percent in either direction. But obviously we know we'll
Speaker 3: have the FED decision on Thursday too. But do you
Speaker 3: expect to see heightened kind of volatility, particularly in the
Speaker 3: vis and then in options in futures markets, especially you know,
Speaker 3: in the coming days and then the coming weeks two.
Speaker 2: Oh, yes, particularly in the dollar.
Speaker 9: People have told us that that's something they're really really
Speaker 9: going to be watching because they feel like that's going
Speaker 9: to be something that everyone will be looking on even
Speaker 9: people outside the US because of the trade issues, right such.
Speaker 2: I mean that makes sense, Yeah, but there's also a
Speaker 2: chance that we're not going to know for some time.
Speaker 2: If you know, this thing could drag on for days,
Speaker 2: there could be legal challenges. So are fund managers are
Speaker 2: they kind of positioning themselves for that or is that
Speaker 2: just amount of hedging?
Speaker 9: I guess yes, I think that would that's mostly hedging,
Speaker 9: although some people I think Golden Sachs had a note
Speaker 9: doubt that said that even if we don't have a
Speaker 9: precise decision, that there will be certain things that will
Speaker 9: let lead the market towards a conclusion of Trump or Harris.
Speaker 2: How about just in terms of going forward, I mean
Speaker 2: a lot of folks say, don't worry about who wins
Speaker 2: the White House because it's going to have a gridlocked Congress.
Speaker 3: Right the makeup of Congress. Ye, traders will usually focus
Speaker 3: on that.
Speaker 2: That's interesting too. Are traders are looking at that as well?
Speaker 9: Absolutely? We definitely had people say it does not really
Speaker 9: matter as much who as president, at least in the
Speaker 9: short term, as whether we have a sweep in Congress
Speaker 9: or not.
Speaker 3: And specifically, when you think about policy proposals, whether they
Speaker 3: affect obviously trade if you think about big tech regulation,
Speaker 3: healthcare regulation, or there are particular types of policy proposals
Speaker 3: that those traders are looking at that they want to
Speaker 3: remain gridlock in Congress, so that obviously the status quote
Speaker 3: would stay in place and there would be big changes
Speaker 3: to different policies for those types of industries.
Speaker 9: Yeah, definitely. I mean, I think crypto is one. I
Speaker 9: think clean energy is another one that a lot of
Speaker 9: people are looking at.
Speaker 11: All.
Speaker 2: Right, Catherine, thank you so much for joining us. Katherin
Speaker 2: Burton Burton J'SUS senior report for Bloomberg News, joining us
Speaker 2: here in our Bloomberg Interactive Broker's studio. The Big Takes
Speaker 2: story at on the Bloomberg Trumbo. You can read it
Speaker 2: on the terminal.
Speaker 3: Great stuff.
Speaker 2: Yeah, it's always great stuff. We love having talk about
Speaker 2: these stories, so you can read it on the Bloomberg Tremol.
Speaker 2: You can also go to Bloomberg dot com slash Big Take.
Speaker 2: And it's interesting to see, you know, how the markets
Speaker 2: are reacting to just seemingly daily swings and kind of
Speaker 2: how the polls are moving here when you take a
Speaker 2: look at some broadly traded asset classes like currencies like bonds.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: All right, I'm going back to that big takes story,
Speaker 2: the trumpet trade, which is long the dollars short, the
Speaker 2: bonds seems to be unwinding a little bit here. I
Speaker 2: wonder if you're if you manage a jillion dollars like
Speaker 2: the good folks at TCW, do do you even care
Speaker 2: about that stuff? For you're looking through to the bigger picture.
Speaker 2: I don't know how they do that stuff there. Rubin
Speaker 2: have anician. He is a general generalist portfolio manager at
Speaker 2: TCW's fixed income group. Rubin, what are you? And you
Speaker 2: know the smart UCLA grads which seems to be you
Speaker 2: guys own TCW. The UCLA School out there. What do
Speaker 2: you guys when you sit around on your Monday morning meeting,
Speaker 2: what do you say about the political backdrop period? Is
Speaker 2: it factor into what you guys do or do you
Speaker 2: just kind of plow through and focus on the building blocks.
Speaker 5: Good morning, Thanks for having me back on the show.
Speaker 12: We are we are not playing the political noise. We're
Speaker 12: looking through the noise, and we're positioning based on our convictions,
Speaker 12: based on our based on the value that we see
Speaker 12: in rates, in duration and.
Speaker 5: Certain parts of the rates.
Speaker 12: And from that perspective, the trade that we all and
Speaker 12: in the last materialized in the last month or so
Speaker 12: since late September, where we've seen rates higher by fifty
Speaker 12: sixty basisponts across the board. We saw it as an
Speaker 12: opportunity to add to our duration explored in the front
Speaker 12: end of the curve and do some other stuff, add
Speaker 12: to some sectors that are that got sold off and
Speaker 12: got you know, hurt by the duration by rates selling off.
Speaker 12: We think that the sell off in rates, I mean,
Speaker 12: as you can see this morning, we see a partial
Speaker 12: reversal ofdea of the cell off that we saw since
Speaker 12: late September, and I think it's a healthy reminder that
Speaker 12: the you know, the we haven't heard if you think
Speaker 12: about it, we haven't heard a lot of new information.
Speaker 12: We knew it was a very close election. As of
Speaker 12: this morning, we know exactly the same that is a
Speaker 12: very close election.
Speaker 5: So we're kind of splitting hair here.
Speaker 12: And we think the markets got ahead of themselves in
Speaker 12: pricing in a very extreme scenario and very high probability
Speaker 12: of the Republican sweep.
Speaker 5: So we saw it as an opportunity.
Speaker 12: To express of our trades and our trades that are
Speaker 12: based on the value.
Speaker 3: That we've seen rates heading into some of these big
Speaker 3: key events this week. What do you think speculative positioning
Speaker 3: in the bond market is telling us.
Speaker 5: Well?
Speaker 12: Within the speculative positioning in the bar bond market, and
Speaker 12: of course it's hard to decipher how much of this
Speaker 12: sell off in We think the sell off that we've
Speaker 12: seen in the last four or five weeks is driven
Speaker 12: by a some better than expected data that we saw,
Speaker 12: especially in the first half of October, which we would
Speaker 12: recommend to take with a grain of salt, and then
Speaker 12: some of it was the Republican momentum.
Speaker 5: And it's telling you.
Speaker 12: That investors are pricing in a very high Again, we
Speaker 12: saw a partial reversal of that this morning, But generally speaking,
Speaker 12: we think the data tells you that investors are pricing
Speaker 12: in very high probability of a Republican sweep, and add
Speaker 12: that a very high probability of some extreme, some extreme agenda.
Speaker 5: Being enacted and implemented conditional on.
Speaker 12: That Republicans, which we think is certainly a scenario, but
Speaker 12: we think that the weight assigned to that scenario is
Speaker 12: much higher than it's just the fuck end.
Speaker 5: What we're seeing this morning is probly healthy reminder of that.
Speaker 2: I'm looking at the end go function on the Bloomberg Turberton.
Speaker 2: I see the best performing fixed income category. It's for
Speaker 2: being US corporate high yielded almost seven and a half percent. There,
Speaker 2: what's your call on a high yeld market? I thought
Speaker 2: we were concerned about recessions, so.
Speaker 12: We think that we are in a heart lending camp.
Speaker 12: We remain in heart lending camp. But you know, we
Speaker 12: have seen spreads compressed in credit in general. We have
Speaker 12: seen spreads compressed across the board, both the investment grade
Speaker 12: and below and high yield. In fact, if you look
Speaker 12: at the spreads against their historical against their history. They
Speaker 12: are currently comfortably in the top fifth percentile. Generally speaking,
Speaker 12: if you look at investment grade credit spreads, they are
Speaker 12: in the top one first percentile, meaning spreads have been
Speaker 12: wider than where they are now ninety nine percent of
Speaker 12: the times. The stats are a little better for high
Speaker 12: yield but similar. So we think the market is, you know,
Speaker 12: the market is very optimistic about the economic scenarios and
Speaker 12: outcomes and is not pricing, it's not compensating investors sufficiently
Speaker 12: for the potential volatility associated with the worst economic outcomes
Speaker 12: than the market is.
Speaker 3: Currently pressing in When you're going into a pivotal week
Speaker 3: with a barrage of different events here, what is some
Speaker 3: of the questions that your clients are asking you.
Speaker 5: Well, the I mean, it's what you would expect.
Speaker 12: It's the questions that the market that you know your
Speaker 12: guests are asking you, or you're asking your guests.
Speaker 5: It's what will be the politics, what will.
Speaker 12: Be the outcome of the election, and what that really
Speaker 12: means for the economy and.
Speaker 5: What that really means for the markets.
Speaker 12: And we think that there is apparently a lot of extrapolation,
Speaker 12: there's some there's a lot of uncertainly that's probably an understatement,
Speaker 12: and there's some fear and there is also some extrapolation
Speaker 12: from twenty sixteen experience in terms of rates and what
Speaker 12: the election will mean for rates. And we do think
Speaker 12: that that those parallels that are being drawn by some
Speaker 12: investors at least are probably, you know, not justified, because
Speaker 12: we're sitting at a very different in a very different environment.
Speaker 12: We're sitting in a different regime in twenty sixteen. In
Speaker 12: late twenty sixteen, as you remember, the FET had just
Speaker 12: embarked upon interest rate hiking path.
Speaker 5: We had just come out of the.
Speaker 12: Twenty fifteen sixteen mini prices and energy and commodities. This
Speaker 12: time around, we think we're late cycle. The FAT has started.
Speaker 12: It's cutting an interest rate cutting cycle. So it's a
Speaker 12: very different environment and there should be a lot of
Speaker 12: caution in extrapolating from twenty sixteen experience.
Speaker 2: All right, Rubin, thanks so much for your time. I
Speaker 2: always appreciate getting a few minutes of your time to
Speaker 2: talk about these bond markets. Rubin, have an Asian general
Speaker 2: portfolio manager at tc TCW's fixed income group. They're based
Speaker 2: out there in Los Angeles, California.
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Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: Jess Meant sitting in for Alex Steele and Paul Sweney.
Speaker 2: You're live here in on our Bloomerg Interactive Broker's studio,
Speaker 2: streaming live on YouTube as well. I'd say one of
Speaker 2: the best resources that we have at Bloomberg for our
Speaker 2: clients is Bloomberg and EF originally known as New Energy Finance.
Speaker 2: They're the team within Bloomberg that tracks and analyzes the
Speaker 2: energy transition. They cover everything, and they do it on
Speaker 2: a global basis and all that contents on the Bloomberg terminal.
Speaker 2: Great stuff. Yajoe s Kenny joins us. She's head of
Speaker 2: Energy Storage for Bloomberg n EF. Where are we ya, YOEI?
Speaker 2: In terms of energy storage? Who's doing it? Well? Where
Speaker 2: are we in the game? How much more do we
Speaker 2: have to go in terms of the technology for energy storage?
Speaker 11: All right, Well, thank you for having me today. So
Speaker 11: I'm here to tell you a little bit about energy storage,
Speaker 11: and a lot about clean power. So just for some context,
Speaker 11: and we're going to talk about some of the analysis
Speaker 11: that we actually published around the clean energy market outlook
Speaker 11: specifically look at the US for some context. There's just
Speaker 11: been a lot of investment that's been pouring into clean
Speaker 11: power segments. We've seen a lot of that accelerated over
Speaker 11: the last I guess two years, and since the Inflation
Speaker 11: Reduction Act passed, facilitating a lot of new investments into
Speaker 11: win solar and storage sectors, which are the sectors that
Speaker 11: we cover in that particular report. There's about there's about
Speaker 11: three hundred billion dollars invested across these sectors, so win solar,
Speaker 11: storage and other clean transportation and other sectors in twenty
Speaker 11: twenty three. That's about twenty two percent higher than we
Speaker 11: saw in previous years. And then what we're doing this
Speaker 11: report is to have a twenty thirty five view, so
Speaker 11: in the next decade, what do we investments and capacity
Speaker 11: editions look like around these clean sectors. There is actually
Speaker 11: a lot that's that's bound to happen in terms of
Speaker 11: just what's committed to date happening over the next few years,
Speaker 11: and that's likely to unlock a lot more investment over
Speaker 11: the twenty thirty five period. I can tell you a
Speaker 11: little bit more about that if you want to hear
Speaker 11: about it.
Speaker 2: Well, I guess one of the risks is just political
Speaker 2: risks to those numbers, to that type of investment. If
Speaker 2: we get a change in Congress, if we get to
Speaker 2: change in the White House more towards re Republican is
Speaker 2: there are there risks to some of those moneies that
Speaker 2: have already been committed or earmarked.
Speaker 11: Yeah, So what we did, I guess the way we
Speaker 11: think about it is to look at what is our
Speaker 11: expectation in the market out to twenty thirty five. So
Speaker 11: for some context, our expectation in terms of our forecast
Speaker 11: for winds, solar and storage installations is about one point
Speaker 11: one tarrawat of new yeah, new capacity editions out to
Speaker 11: twenty thirty five. Context, in the US power grid, as
Speaker 11: of the end of twenty twenty three, there was about
Speaker 11: one point two trawat of cumulative installed power generation capacity.
Speaker 11: So essentially we're about doubling in terms of capacity and
Speaker 11: the grid out to twenty thirty five. But that addition
Speaker 11: is just from when solar and storage, which is really
Speaker 11: impressive in terms of the risk factors to your question.
Speaker 11: So the way we were investigating that in the report,
Speaker 11: or analyze that in the report is to try to
Speaker 11: think about us in the worst case scenario. So there's
Speaker 11: a lot of investment that's already been committed at the
Speaker 11: back of the investment tax credits and some of the
Speaker 11: other incentives in the Inflation Reduction Act, but we wanted
Speaker 11: to look at, Okay, so what happens if these incentives,
Speaker 11: So the investment tax credit actually gets repealed right away,
Speaker 11: which is of course a worst case scenario. It's not
Speaker 11: our expectation of what will happen, but it gives us
Speaker 11: some benchmark of what could happen. And under that scenario,
Speaker 11: it's about a seventeen percent decline, so it's a fifth
Speaker 11: of of capacity that gets dropped or not built in
Speaker 11: the twenty thirty five time frame. One additional component is
Speaker 11: like if that actually were to happen, is that projects
Speaker 11: would try to rush to try to be built before
Speaker 11: that step down happens, which could happen in the end
Speaker 11: of twenty twenty six or the end of twenty twenty five.
Speaker 11: So essentially there's a rush to build a decline in
Speaker 11: the market, and then the market picks up up again,
Speaker 11: but not at the same rate or not to the
Speaker 11: same degree as it would in a non repeal scenario.
Speaker 11: So that's how we looked at.
Speaker 3: That walk us through the key fundamentals that you think
Speaker 3: have helped build the industry.
Speaker 11: Absolutely, so I think we're obviously in an acceleration mode
Speaker 11: at the moment. It's almost like certain key elements are
Speaker 11: keeping the market from growing as quickly as it could.
Speaker 11: But in terms of the fundamentals in the past, major
Speaker 11: one is the fact that the cost of wind, solar,
Speaker 11: and storage and batteries has come down significantly over the
Speaker 11: last decades. That's really made the cost of these technologies
Speaker 11: competitive against conventional generation, conventional fossil fuel generators in the
Speaker 11: US that would be trying to displace gas, and we
Speaker 11: do see in most of the markets of the US
Speaker 11: wind and solar are competitive against gas. Of course, they
Speaker 11: don't deliver energy at all, like twenty four to seven,
Speaker 11: and that's where batteries comes in. So the cost of batteries,
Speaker 11: like specifically Liteman batteries has fallen by more than ninety
Speaker 11: percent over the last decade, which is significant.
Speaker 2: How's the US doing quote some really big numbers here
Speaker 2: in terms of investment in tara watts and all those.
Speaker 2: How are we versus the rest of the world in
Speaker 2: terms of, you know, just in terms of really embracing
Speaker 2: cleaner energy.
Speaker 11: Yeah, so on a country level basis, the US is
Speaker 11: probably second in terms of stacked investments in these sectors.
Speaker 11: That's because China is really the giant in terms of
Speaker 11: attracting new investment into win, solar, and even batteries segments.
Speaker 11: And there is a bit of a pickup game in
Speaker 11: terms of some of the key segments in terms of
Speaker 11: the manufacturing side, so the supply chain and trying to
Speaker 11: invest that and bring that into the US. With mixed
Speaker 11: levels of comparative success across different sectors.
Speaker 3: What should we expect for wind and solar capacity build
Speaker 3: in twenty twenty five for those forecasts.
Speaker 11: Yeah, so we're expecting most of them to grow. That's
Speaker 11: certainly true for solar and storage. When when more or
Speaker 11: less keeping keeping a pace, generally, our expectation is that
Speaker 11: there will be more investment going in. And that's because
Speaker 11: there's just a lot of projects in the pipeline that
Speaker 11: are essentially contracted to meet utility demands. So a lot
Speaker 11: of the US utilities have been you know, contracting work
Speaker 11: in power because they, as I said, they're cheaper, but
Speaker 11: also because they might have some specific goals in order
Speaker 11: to decarbonize. I guess. The other factors is just the
Speaker 11: corporate side, so a lot of the you know, the
Speaker 11: Amazons and Googles, these companies have increasingly also been looking
Speaker 11: for cleaner portfolios of energy generation to be meeting their demand.
Speaker 2: Yeah, Sacchini head energy Storage at Bloomberg at an EF,
Speaker 2: thanks so much for joining us here. Again. The good
Speaker 2: folks at the Bloomberg a ne EF, they look at
Speaker 2: the I guess within Bloomberg they really track and analyze
Speaker 2: the energy transition on a global scale. So they're really
Speaker 2: doing some cutting edge work there, which is a keen
Speaker 2: importance to a lot of folks, including the Bloomberg criminal
Speaker 2: customers out there, So we appreciate getting a few minutes
Speaker 2: of their time every week.
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