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. Abigail Doolittle, thank you
Speaker 1: so much for joining us. Markets correspondent for Bloomberg televisis
Speaker 1: joining us here and our Bloomberg Interactor Broker studio. All right,
Speaker 1: let's stop currencies here. I'm looking at my Bloomberg Dollar Index.
Speaker 1: It's up slightly today. Um, you know, the yen has
Speaker 1: been the story. It's off a little bit today, but
Speaker 1: the yen has been the story over the last couple
Speaker 1: of days, with the Bank of Japan saying all right,
Speaker 1: maybe we'll let interest rates go higher. We'll fight this
Speaker 1: inflation thing. We'll be like everybody else around the world.
Speaker 1: Audrey Child Freeman, she's a chief FX strategist. She focuses
Speaker 1: on the G ten country. She does that with Bloomberg Intelligence.
Speaker 1: She's based in London. She's actually in our London studios.
Speaker 1: So you get a virtual gold star for me, Audrey
Speaker 1: for being in the office. We appreciate that. UD give
Speaker 1: us your sense of what you know. Your takeaway is
Speaker 1: from what we saw from the Bank of Japan over
Speaker 1: the past couple of days. Hi, good morning everyone. So
Speaker 1: I think it is the game changer, even though we
Speaker 1: kind of we all saw it coming, but there was
Speaker 1: this element of surprising in terms of the timing, and
Speaker 1: and that element of surprise probably exacerbated the price action.
Speaker 1: But the b o J action is basically a first
Speaker 1: step towards right normalization, and that means that we are
Speaker 1: moving away from the you know, the era of negative
Speaker 1: rates for for for Japan, and it is the game
Speaker 1: changer for the currency. I mean, um, the YenS cubtainly
Speaker 1: reacted uh with a massive move yesterday, and I think
Speaker 1: it's just the beginning. I think we will see more
Speaker 1: strength and of the end in the weeks to come,
Speaker 1: and that will most likely be a theme that dominates
Speaker 1: early early in twenty twenty three at least. Well, speaking
Speaker 1: of some of the currency fluctuations, I'm curious about currency intervention.
Speaker 1: One of the issues that the b J, it feels like,
Speaker 1: has had as they've been exercising the reserves for far
Speaker 1: too long. And if they don't use this um kind
Speaker 1: of yield curve control and whide in the bands even
Speaker 1: further in the face of inflation, to what extent are
Speaker 1: they going to be forced to entertain the idea of intervention. Well,
Speaker 1: I think when it comes to intervention, the message on
Speaker 1: the currency front is very clear. Uh, and it's not
Speaker 1: just the b O G it's the G seven view
Speaker 1: that excessive moves in the front exchange market are not welcome.
Speaker 1: So you could argue that, you know, yesterday's move where excessive,
Speaker 1: but uh, let's let's see what happens, you know, in
Speaker 1: the days and weeks to come. But certainly in the
Speaker 1: current macro context, you know, we are now in a
Speaker 1: position where a stronger year it's actually kind of welcome
Speaker 1: for for the Japanese economy. We have moved away from
Speaker 1: the deflationary world that that we were, that would be
Speaker 1: used to for so many years, and we have now
Speaker 1: a pick up in inflation. And and that's why the
Speaker 1: bo J had very little option but moving away from
Speaker 1: the monetary policy environment that had been in place for
Speaker 1: so long, and that may have been justified, and that's
Speaker 1: debatable by the way over the past few years, but
Speaker 1: certainly not justified in twenty twenty two and going into
Speaker 1: twenty twenty three. UM So I think effects intervention unless
Speaker 1: you know, the magnitude of the move continued in the
Speaker 1: kind of place that we've seen in the past few days,
Speaker 1: and I don't think they will. I think it's not
Speaker 1: likely for for now, it's not the subject for for
Speaker 1: next year. We speaking about Audrey Child Freeman effect strategist
Speaker 1: for Bloomberg Intelligence, and Bloomberg Intelligence, in my opinion, is
Speaker 1: among the best and certainly most comprehensive investment research on
Speaker 1: Wall Street bar none. And if you want to argue
Speaker 1: with that, you know where to find me. Audrey. You've
Speaker 1: got a research report out saying dollar agen may fall
Speaker 1: one five boy, and that's a that's a big move.
Speaker 1: We've got the the end here one thirty two spot one.
Speaker 1: What will drive it down? So, I mean you said
Speaker 1: it's it's a bit cool, but you know some people
Speaker 1: may go even more aggressive. I'm saying one twenty five
Speaker 1: by the first half of next year. So just think
Speaker 1: about the numbers. I think when you you know, when
Speaker 1: you make some calls. It's always relevant to just look
Speaker 1: back at what happens and where we are and how
Speaker 1: much of the movie we've seen. So Dolligan is now
Speaker 1: down about twelve percent from the high that we had
Speaker 1: by late October. Remember we're trading near one fifty, so
Speaker 1: twelve percent in just six or seven weeks. But Dolan
Speaker 1: is still about above the ten year moving average, which
Speaker 1: is around one ten dollar. Yan is also about seventy
Speaker 1: above the pre abnomics level of eighty. And we have
Speaker 1: our own model an intelligence are be our model valuation model,
Speaker 1: which you know I like to refer to on occasions.
Speaker 1: Uh And and that's that's telling us that fair value
Speaker 1: on Dolloyan is at around one eleven UM. So what
Speaker 1: I'm trying to say here is that yeah, miss miss
Speaker 1: and punchy, but it isn't in the wake of the
Speaker 1: move that we've seen on Dollyan this year, and where
Speaker 1: where we are on on on valuation and on historical levels,
Speaker 1: and and beyond the bo j story, there's also a
Speaker 1: wide range of other reasons why you could argue for
Speaker 1: a week a dollar yen. And actually, even before the
Speaker 1: bog action yesterday, that was my strongest conviction for for
Speaker 1: the year for early next year. It's just coming early.
Speaker 1: So let's see what I can. All right, if it
Speaker 1: gets there, I'm giving you all the credit. Audrey Child, Freeman,
Speaker 1: Chief G ten strategist currencies for Bloomberg Intelligence and again,
Speaker 1: Bloomberg Terminal users can find all of the world class
Speaker 1: investment research of Bloomberg Intelligence at b I go on
Speaker 1: the terminal. Historic day in Washington, DC today is Ukrainian
Speaker 1: President Vladimir Zelenski arrives in Washington, d C. To meet
Speaker 1: with President Biden UH Joint Session of Congress UH and
Speaker 1: you know, really making the case for the war in
Speaker 1: Ukraine if a continued support. So our next guest is
Speaker 1: absolutely critical to that discussion. Tamila to Shiva. She is
Speaker 1: the permanent representative of the President of Ukraine for the
Speaker 1: Autonomous Republic of Crimea. Tamila, thank you so much for
Speaker 1: joining us. We really appreciate you taking the time, which
Speaker 1: I know which is just a critical period of time
Speaker 1: in Kiev and in Ukraine. I'd love to get your
Speaker 1: sense of kind of way you think the objectives the
Speaker 1: aims are of your President Zelensky as it comes to Washington,
Speaker 1: d C. Hello, everyone many thanks for inviting me. Actually
Speaker 1: it's not my mandate to committigate a visit of our president,
Speaker 1: but it's really very important for Ukraine because it's a
Speaker 1: first visit of our president and of course the United States,
Speaker 1: it's our strategic partner, and all our Ukrainian citizens really
Speaker 1: UH enjoy and really happy for this UH visit of
Speaker 1: our president, and of course we're waiting for all statements
Speaker 1: of our president and this meeting with President Biden and
Speaker 1: with State Congress. Of course, for Ukraine is really very
Speaker 1: support to have more support on military sphere especially and
Speaker 1: financial support from US government. UH to me like, could
Speaker 1: you you're in Kiev, could you give us a sense
Speaker 1: of how things are today on the ground, uh in
Speaker 1: in Kieva. Uh. Today we have the two alarums in Kiev.
Speaker 1: But during the last a few months sexually Russian Federation
Speaker 1: unfortunately destroyed our energetic infrastructure, electricity and to we have
Speaker 1: huge problems with water supply CELSO in Kiev and it's
Speaker 1: our daily based unfortunately problems in all cities, not only
Speaker 1: in the Kiev, but in Reef also region internalbly Jian
Speaker 1: in her In Harkief and Herson Region which is elaborated.
Speaker 1: Now you're the representative. In further, President of Ukraine in
Speaker 1: the Autonomous Republic of Crimea talked U a little bit
Speaker 1: about the conditions there. Yes, unfortunately, we always say that
Speaker 1: war is not starting this Fabruary, yes, two, but eight
Speaker 1: years ago and in half years ago and now situation
Speaker 1: in Crimea also dramatically change. But because Russia used Crimia
Speaker 1: as a military base, huge military base, they used this UH,
Speaker 1: this territory Crimea to launch sale attacks. During this ten
Speaker 1: months of a huge war, big war, Russia attacked from
Speaker 1: Black Sea region and from Crimea territory and NIA eight
Speaker 1: hundred missiles against Ukraine on the territory of Ukraine. UH.
Speaker 1: They stole our grain from territory of mainland of Ukraine
Speaker 1: in Herson region and the Parisia, and they used Crimea
Speaker 1: for stalling this grain. They use our people in a
Speaker 1: temporary occupied Crimea for UH for this battlefield. Because they
Speaker 1: mobilized our Ukrainian citizens to this war against their own
Speaker 1: country and their own people, and of course we understand
Speaker 1: it's a war. Crimes. They prosecute our people. According to
Speaker 1: testimonies of Crimeans Nia UH two hundred and fifty cases
Speaker 1: of criminal or administ rates of persecutions of Cramians and
Speaker 1: to our activists, it's a lot of cases. We have
Speaker 1: one hundred and fifty five criminal persecutions, it's a political
Speaker 1: prisoners and one hundred and nine from them. UH, it's
Speaker 1: a crimean data. They persecute crimean dators. It's a huge
Speaker 1: and massive persecutions and human rights abuses in Cramia Tamila.
Speaker 1: From the US perspective, we are reading headlines and news
Speaker 1: stories about the amount of assistance that is going to
Speaker 1: Ukraine right now as President Joe Biden due to unveil
Speaker 1: nearly two billion dollars in assistance and UH further moves
Speaker 1: to deliver things like missiles and weapons in addition to
Speaker 1: more funding. But at the same time, we do have
Speaker 1: sanctions that are underway globally against Russia. Do you feel
Speaker 1: like on the ground those things are making an impact. Yes,
Speaker 1: of course, even for human rights defenders. UH, these sunctions
Speaker 1: is really work on the level of economical and economic
Speaker 1: but also for ordinary people. For example, when we proposed
Speaker 1: the sanctions for our partners from US government or for
Speaker 1: European our partners, and they do these sanctions against for example,
Speaker 1: those persecutors of Crimeans. They stopped some persecutions in prison
Speaker 1: in Cramian prisons against Crimans who now in prison or
Speaker 1: in predicential centers, and they really understand it. And for Cremia,
Speaker 1: of course itself so very important because according to sanction
Speaker 1: regime UH, Crimea lens UH now easilated. And for Russia
Speaker 1: it's very hard to get some investments, for example to Crabia.
Speaker 1: And they really understand that Crania it's not really part
Speaker 1: of Russia according to yes, no, it's just and and
Speaker 1: t mel I just want to before we have to
Speaker 1: let you go, which want to get a sense of
Speaker 1: how is the morale of the Ukrainian people, the people
Speaker 1: in Crimea that have been dealing with us for so long. Um,
Speaker 1: the fighting has been so brave by the Ukrainians against
Speaker 1: seemingly insurmountable odds. What's the morale on the ground of
Speaker 1: the average Ukrainian, all Ukrainians. We really understand that now
Speaker 1: we fight in UH for our values, for our freedom,
Speaker 1: and we fighting not only for territories but for people.
Speaker 1: Elsa and our people in Crania is really understand it,
Speaker 1: and they say that we waiting. Our Ukrainians are forces
Speaker 1: also in Crimia. And according to Russian view, they say
Speaker 1: that Cremia is always Russia, but it's not true. And
Speaker 1: yes it's a Ukrainian lens, it's a Crimean lands. And
Speaker 1: now our president also always say ye, all right, Tamila,
Speaker 1: thank you so much for joining us to really appreciated
Speaker 1: Tamila to Shave a permanent representative of the President of
Speaker 1: Ukraine for the Autonomous Republic of Crimea. Please stay safe
Speaker 1: in Kiev. We've got some good earnings today. We had
Speaker 1: FedEx put up some good numbers. Um, we had who
Speaker 1: was it, Ni Nike put up some some really good numbers.
Speaker 1: And that's not really responding. So we're gonna break that down.
Speaker 1: Let's start with FedEx and Lee Glasgow. He's the analyst
Speaker 1: at Bloomberg Intelligence. He fills FedEx railroads, trucks, shipping companies, logistics,
Speaker 1: air freight, all that stuff, all those companies that moved
Speaker 1: stuff around. One of the best beats. Yeah, and I
Speaker 1: that was my beat back in the day, you know,
Speaker 1: starting in seven covered a little bit of everything I have,
Speaker 1: and I have I've made money every step along the way.
Speaker 1: I'll mention um, you know, humble brig there Hayley, you're
Speaker 1: the expert here FedEx. I mean, I don't know. I
Speaker 1: was sitting in front of the Starbucks and Summit yesterday.
Speaker 1: To the right of me is ups. To the left
Speaker 1: of me was the FedEx door. Both places headlines out
Speaker 1: the door, people you know jump, you know, juggling boxes.
Speaker 1: What did FedEx have to say today, Well, hey, Paul,
Speaker 1: thanks for having me, and I hope you helped those
Speaker 1: people with all those boxes. FedEx had really a mixed
Speaker 1: message last night. You know, there was some good news.
Speaker 1: They did beat expectations, which is fantastic. You know, they
Speaker 1: beat it by about thirty eight cents, which is which
Speaker 1: is great. They also announced another billion dollars in savings.
Speaker 1: But what they also did is reset earnings expectations for
Speaker 1: the second half lower about fourteen to fift at the
Speaker 1: high end of the range um. And the reason is
Speaker 1: is that volume for them is slowing more considerably. There's
Speaker 1: two things going on. Uh there's the obviously we're we're
Speaker 1: going you know, we kind of like the pendulum swung
Speaker 1: really far during the pandemic where everyone was ordering stuff,
Speaker 1: and now the pendulum is coming back uh to you know,
Speaker 1: uh to to be for when we're talking about e commerce,
Speaker 1: e commerence demands going to be above pre pandemic level,
Speaker 1: but not at the peaks that we saw during the pandemic.
Speaker 1: So the volume from there is going away. And then
Speaker 1: you have, you know, global economic issues, whether if we're
Speaker 1: talking about in the United States, obviously we're having our
Speaker 1: economic growth is moderating, humor, competence is waning, Inflation is
Speaker 1: impacting how much stuff people are buying. Europe you have
Speaker 1: a much weaker economic backdrop. And then China, China, you know,
Speaker 1: there's some headlines out there that they're opening up their economy,
Speaker 1: but the reality is it's it's really a slow opening
Speaker 1: and uh, there's a lot of issues there. And so
Speaker 1: what FedEx is doing is their parking planes. They're you know,
Speaker 1: kind of putting off some some projects maybe into later
Speaker 1: into next year to see where the economy is heading.
Speaker 1: And and part of also the good news, you know,
Speaker 1: in addition to the beats that they've been doing on
Speaker 1: the earning side, was that they were able to raise
Speaker 1: rates that you know, they still have pricing power, which
Speaker 1: is which is which is a good sign, especially you
Speaker 1: know when when volumes are are coming in and so
Speaker 1: you know, they announced a billion dollars more in in
Speaker 1: cost savings. I think those cost savings are more reactive
Speaker 1: to the volumes, uh, and so they're probably more flexible,
Speaker 1: meaning that when volumes come back on, they're going to
Speaker 1: probably bring on some of those costs. But they're also
Speaker 1: looking at about four billion dollars in structural costs that
Speaker 1: they're looking to uh totally get out of their system.
Speaker 1: Good stuff from FedEx. We also and presumably some of
Speaker 1: those FedEx boxes were carrying Nike shoes and apparel. Put
Speaker 1: them Coil. She covers all the retail stuff for Bloomberg Intelligence.
Speaker 1: A teammate of Lee classgow there and Bloomberg Intelligence put
Speaker 1: them talk to us about Nike. Some pretty good numbers there.
Speaker 1: The markets seem to like what we heard from Nike. Yeah,
Speaker 1: they continue to execute and their innovation remains a key driver.
Speaker 1: Told better sale that fool price, even after passing on
Speaker 1: price increases earlier this year. UM, it was really encouraging
Speaker 1: to see the constant currency sales games of about twenty
Speaker 1: seven fix consis quarter, and they raised guidance for the
Speaker 1: full year from low double digits to low team. So
Speaker 1: I think overall, they just continue to show that they
Speaker 1: can execute. It's a team that can use innovation and
Speaker 1: execution at their advantage to really deliver in me customer demand.
Speaker 1: Well put them let me ask you about that and
Speaker 1: then like ly to to hop into this as well.
Speaker 1: But when we talk about things like price increases for example,
Speaker 1: or and um for for for Nike, but also I
Speaker 1: mean you cover up I mean other retailers as well.
Speaker 1: We talk about price increases and the future of whether
Speaker 1: or not those price increases are gonna stay sticky. It's
Speaker 1: not like when inflation comes down all of a sudden,
Speaker 1: a lot of these retailers or even shipping companies like
Speaker 1: FedEx are going to decrease their prices. So if that's
Speaker 1: the view, then shouldn't the stop just go up and
Speaker 1: up and up from here? I mean, yes, they can
Speaker 1: hold the price increases, especially for NIKEE for the innovation
Speaker 1: that they have, the new products, especially their strong footwear franchises.
Speaker 1: But um, there is margin concern right They have actiss inventory.
Speaker 1: Their inventory was up north to forty percent at the
Speaker 1: end of the quarter. It was down three percent from
Speaker 1: last quarter and night signal digits on a unit basis,
Speaker 1: which is a sign that they're making products, but a
Speaker 1: lot more work still needs to be done. We will
Speaker 1: see more discounting, not against those products that are just
Speaker 1: being introduced, but you know some of the age inventory
Speaker 1: people like to call it that. Um, there will be
Speaker 1: more promotions. They're gonna be selling more into all price
Speaker 1: to clear that inventory. And that's kind to what I'm
Speaker 1: watching for, because that's all we the catch two when
Speaker 1: you have to be careful how you sell an all
Speaker 1: strife under Armour went through this and too much inventory
Speaker 1: there isn't good for brand Heat in the long term.
Speaker 1: You know, it's great to have put them goil and
Speaker 1: in class go on at the same time because we
Speaker 1: can really you know, circulate and talk about the consumer here.
Speaker 1: We had the conference board released some data this morning.
Speaker 1: Consumer competence data came in much better than expected for
Speaker 1: the month of December and the expectations Stata point was
Speaker 1: also a big improvement from last month. So UM consumers
Speaker 1: still seem to be in decent shape. So leaves. As
Speaker 1: you listen to the Fedexes of the world, how do
Speaker 1: they view the consumer as they look out to next year?
Speaker 1: I mean I think they they they they from their outlook,
Speaker 1: I mean they're looking for, you know, global economic moderating growth,
Speaker 1: and so you know that is obviously being driven for
Speaker 1: their businesses by the consumer. UM. And I think that
Speaker 1: you know, they're kind of outlooked for decreasing costs. Even
Speaker 1: more is based on that outlook that volumes are probably
Speaker 1: going to be pretty weak in the first half of
Speaker 1: the year, with you know, fingers cross a better outlook
Speaker 1: for the second half of the year. Um, because you know,
Speaker 1: with all the moves that the Fed is making, it
Speaker 1: is pretty clear that you know, is gonna tamp down
Speaker 1: the brakes on the economy eventually and put them again
Speaker 1: just from the consumer, just give us a sense of
Speaker 1: how do you think this this holiday season will be about. Seconds. Sure,
Speaker 1: so far the holiday season looks good. There will be promotion,
Speaker 1: but the consumer they're spending. Um. Not everyone will win
Speaker 1: the season. There will be mixed results, but we think
Speaker 1: the strong brand will continue to show out performance over
Speaker 1: the weekend. One all right, good stuff. I have no
Speaker 1: intention of shopping, but that's just me put them Goyle.
Speaker 1: She's on a T day and folks here in Bloomberg speak,
Speaker 1: that means she's on vacation today. But she still talked
Speaker 1: the time to come check in with us and give
Speaker 1: us a sense of what's going on there with the
Speaker 1: retailers and Nike in particular, put them Goyle. She covers
Speaker 1: retail for Bloomberg Intelligence, and Class Cow covers all the
Speaker 1: transportation and logistics stuff for Bloomberg Intelligence again for world
Speaker 1: class investment research. B I go r J. Gellow. He
Speaker 1: is with Federated Hermes. He's been doing this for a while.
Speaker 1: He's the senior portfolio manager there. R J. I. I'm
Speaker 1: gonna take just a second here and we'll look back
Speaker 1: and then we're gonna move forward. But looking back on
Speaker 1: I bet even in your esteemed career, you haven't seen
Speaker 1: a year in fixed income like we did in two
Speaker 1: How do you kind of put that in context? Well,
Speaker 1: pretty much nobody has the the the Bloomberg you know index,
Speaker 1: the Bloomberg Ags so to speak. Uh, currently is down
Speaker 1: on a year today basis because we've had a bit
Speaker 1: of a recovery lately, but it's still down a whopping twelve.
Speaker 1: That's the worst performance in the history of the index.
Speaker 1: The index only goes back to. As a result, there
Speaker 1: has been some academic takes on you know, how bad
Speaker 1: of bond return has been and I've seen a couple
Speaker 1: of different stories from different sources basically saying that since
Speaker 1: basically the Washington administration, like George Washington administration, we haven't
Speaker 1: seen treasuries perform as badly as they just did. Treasuries
Speaker 1: are down eleven point six five until the return this year.
Speaker 1: So this has been an astounding experience. And it's all
Speaker 1: directly linked to the surgeon inflation to over forty year highs,
Speaker 1: and the Central Bank, the FED and others efforts to
Speaker 1: counter what has it essentially been a global inflation shock
Speaker 1: as the pandemic eased and the world surged, often spurred
Speaker 1: by monetary and fiscal policy. All right, not only do
Speaker 1: we have r. J. Gallo from Federate Hermes here, but
Speaker 1: we also have Katarina Semonetti, Senior VP at Morgan Stanley
Speaker 1: Private Wealth Management joining us here and Katarina, you know,
Speaker 1: as we just heard from r J. Brutal, brutal as
Speaker 1: it relates to fixed income, Marco, what are you telling
Speaker 1: your clients here looking forward to Well, it certainly has
Speaker 1: been challenging year. You know, it's is getting seemingly close
Speaker 1: to the end of the tightening cycle. We probably are
Speaker 1: going to get another rate high Confebruary first, you know,
Speaker 1: but that might be it. And when you think about
Speaker 1: you know, the twenty two twenty two was defined by
Speaker 1: the FED and inflation and interest rates, and we think
Speaker 1: that it's going to be a different story in twenty three.
Speaker 1: We think that there are two major stories to watch
Speaker 1: in twenty three, and one, of course, this recession, whether
Speaker 1: we're going to get a recession and what kind of
Speaker 1: recession is going to be and hopefully short and shallow,
Speaker 1: but you know, of course that means to be seen.
Speaker 1: And the second one, you know, I would even say
Speaker 1: a bigger story would be earnings revisions and this could
Speaker 1: result in significant downside before we can comfortably call the
Speaker 1: end of this bear market and might catch some investors
Speaker 1: by surprise. So we're telling our clients to be ready
Speaker 1: for it, to be ready for a continued volatility before
Speaker 1: things get better. But what does continued volatility even look like?
Speaker 1: It kind of makes me think that if things have
Speaker 1: been so volatile in two, is the tolerance for volatility
Speaker 1: in twenty twenty three that much higher? So for example,
Speaker 1: a VIX of twenty for example two years ago, um
Speaker 1: or even three years ago, pre COVID would have been
Speaker 1: um an extreme number to look at. Now it's completely normal.
Speaker 1: Do you think the tolerance for volatility has increased and
Speaker 1: will increase in Well, there is there is a chance
Speaker 1: that that might be the case, because you know, we
Speaker 1: get used to things that we get used to, you know,
Speaker 1: the volatility, you know, but the question is what will
Speaker 1: it take to actually get us out of the spare market.
Speaker 1: And once the earnings are significantly revised, you know, they
Speaker 1: will actually reflect this the true state of our economy
Speaker 1: and we will set the earnings expectations to a more
Speaker 1: realistic level and this might you know, be the path
Speaker 1: that will allow the companies to actually beat earnings and
Speaker 1: exceed earnings and will be that pivot that we're looking
Speaker 1: for into the next bol market. So volatility, you know,
Speaker 1: can look in various different ways, and things might get worse,
Speaker 1: significantly worse before they get better. But we do think
Speaker 1: that the end is inside and there are things that
Speaker 1: we can do, you know, to r G point. You know,
Speaker 1: interest rates are higher, you know, there's value you know
Speaker 1: in sixed income. You know, this is you know, it
Speaker 1: was unbelievably challenging environment in twenty two you know. To
Speaker 1: my in my view, I think it's a better environment,
Speaker 1: you know, going forward, but we should still stay defensive.
Speaker 1: Investors should, you know, pivot and look for the dividend
Speaker 1: things stock sectors like health care, financial industrials, and look
Speaker 1: for the dips in the market to improve both the
Speaker 1: quality of their investment portfolios, but also as opportunists advise.
Speaker 1: Hey r J. Just following up on Katarina's point there.
Speaker 1: I'm an equity analyst by trade, so you know, when
Speaker 1: I see or when I hear experts like you say, hey,
Speaker 1: we haven't seen this kind of underperformance and fixed income
Speaker 1: like ever, my simple responses, all right, I'm jumping in
Speaker 1: the deep end of the pool. Um, if I want
Speaker 1: to go along some fixed income in three where should
Speaker 1: I start? Well, it's a good question, and I think
Speaker 1: Katerina hit the nail on the head. I mean, typically
Speaker 1: in this business, you do better off and you buy
Speaker 1: low right. Uh. And the largest losses since the Washington
Speaker 1: administration and Treasury suggests it's pretty low. Uh. The the
Speaker 1: yield on the egg, just to go back to it again,
Speaker 1: UH is now around four and a half percent. UH.
Speaker 1: It was well below one percent in July. There's been
Speaker 1: a big, big move, and I think opportunities are being created.
Speaker 1: Gave a presentation recently here in Pittsburgh that the bond
Speaker 1: storm clouds are starting to clear, which suggests that we've
Speaker 1: gone back to UH to slightly short and sometimes neutral
Speaker 1: over the last three or four months. We were much
Speaker 1: more aggressively short and our actively managed fixing and come
Speaker 1: portfolios for most of the last eighteen months. So we're
Speaker 1: of the view now that we're getting to a position
Speaker 1: where the FED is nearly done, the FED terminal rates
Speaker 1: probably going to be give or take around five. The
Speaker 1: bond markets probably still touch rich for that. That's partly
Speaker 1: because I think the expectations of her session are so widespread.
Speaker 1: UM bottom line, we think you should be legging into
Speaker 1: fixed income UM getting out of UH you know, short
Speaker 1: term or even cash. Cash has been great. Cash gave
Speaker 1: you a positive nominal return in two and beat everything else.
Speaker 1: Cash was king. We think it's gonna lose its crown
Speaker 1: moving forward, and fixed incomes getting more attractive. We have
Speaker 1: at our firm intermediate and total return bond funds at
Speaker 1: various sectors that are taking more duration risk, and people
Speaker 1: thought they were comfortable with in two for sure, but
Speaker 1: we think that they're getting much more appealing as we
Speaker 1: look forward as into twenty three. Well. R J talked
Speaker 1: to us a little bit more about the bond market here.
Speaker 1: If you start to see FED cuts priced later than
Speaker 1: the back half of which is where they stand right now,
Speaker 1: how high could yields go? Now? It's a great question.
Speaker 1: You know a lot of people are very focused on
Speaker 1: the terminal rate, and oftentimes that even the ten year
Speaker 1: treasury didn't seem to flash value until it hit the
Speaker 1: terminal rate. And if the turn rate is going to
Speaker 1: be five, the ten years due low it's a three
Speaker 1: sixties seven. But the reason for that is, UH, the
Speaker 1: shocking pace of monetary tightening UH is apt to take
Speaker 1: some prisoners in terms of creating recession in the U.
Speaker 1: S economy and elsewhere we're seeing the same type of risk.
Speaker 1: That's why the Vaughan market is pricing right now with
Speaker 1: the trajectory of FED yields out say ten years that
Speaker 1: doesn't have a five handle, doesn't even have a four handle,
Speaker 1: because the expectation is that the shocking monetary tightening that
Speaker 1: we've gone through and is nearly complete, is not going
Speaker 1: to characterize the next ten years. Um. The two years
Speaker 1: and the three year are particularly interesting. They're around four
Speaker 1: round four. They're probably a little too low to be
Speaker 1: frank Um, I would think the two years should be
Speaker 1: closer to four forty or four fifty, which would suggest
Speaker 1: the Fed gets to five, it holds it there and
Speaker 1: by their own dots, by their own dots, which people
Speaker 1: think the dots go back. The dots wily got back
Speaker 1: ten years. So you know, we got to use them.
Speaker 1: There are a new tool. They allow you to shape
Speaker 1: some expectations. And in the marketplace, of course, they move
Speaker 1: as facts change. But by the Fed's own plan in
Speaker 1: the dots, they're easing to around four percent in so
Speaker 1: so the two years shouldn't be at five, It should
Speaker 1: be four fifty or four forty. We're almost there. Most
Speaker 1: of the bond losses are behind you. You should. Bonds
Speaker 1: are going to start behaving in the manner that we
Speaker 1: as investment professionals county to believe they should behave, which
Speaker 1: is an anchor to your portfolio, a bit of a
Speaker 1: hedge to your equities that didn't work this year, We
Speaker 1: think it will start working going forward. All right, Catarina,
Speaker 1: just real quick thirty seconds. When you when you hear
Speaker 1: from your clients today these days here at the end
Speaker 1: of the year, what are they asking you about, Well,
Speaker 1: they're asking for the outlook for twenty three and here's
Speaker 1: what we tell them. We tell them that they need
Speaker 1: to be more strategic with their views of economy, policy,
Speaker 1: earnings and valuations and use tactical rollies, free balancing and
Speaker 1: negative you know, downturns for tact loss harvesting. You know,
Speaker 1: So we just will have to be more selective. But
Speaker 1: this is definitely a stock picker's market that offers a
Speaker 1: lot of opportunity. Like Katerina, thanks so much for joining
Speaker 1: us as always, Katerina Semenetti, Senior vice president and Morgan
Speaker 1: Stanley Private Wealth Management and R. J. Gallo, Senior portfolio Manager,
Speaker 1: it UH Federated Hermes joining us here. A little roundtable,
Speaker 1: little fixed income, a little broader markets here. Um, you know,
Speaker 1: I think kind of the message we're hearing from some
Speaker 1: of the smart people that we talked to is there's
Speaker 1: some light at the end of the tunnel. But um,
Speaker 1: you know, don't get too aggressive too quickly here. But
Speaker 1: I don't know when I see fixed income returns like
Speaker 1: that I'm thinking, Wow, I might want to jump in
Speaker 1: there stock Evies, you know, because I'm not a car
Speaker 1: geek like Matt Miller. But I did drive the Ford
Speaker 1: f one fifty thanks to Matt Miller hooking me up
Speaker 1: with his Ford buddies, like three or four days. It
Speaker 1: was awesome strength for you. And he told me he
Speaker 1: would take me to like test drive cars and that
Speaker 1: never happened. He needs to make good on some of
Speaker 1: the Lamborghini stuff that he talks about, but let's talk Evies.
Speaker 1: It is really an interesting business, totally upending the auto
Speaker 1: industry around the world. Xeno Mercer joins us here in
Speaker 1: our Bloomberg Interactive Broker studios, so he gets a gold star.
Speaker 1: He's a research channels for Robot Global Zino. Thanks so
Speaker 1: much for joining us here. I mean, give us a
Speaker 1: sense of where we are, like in a nine inning
Speaker 1: ball game. Where are we in the transformation from you know,
Speaker 1: internal combustion engines to e VS Do you think? Good question?
Speaker 1: And thanks for having me on today. Um, I mean
Speaker 1: right now the US, you know, if we're looking at
Speaker 1: markets and penetration rates of e VS two ice internal
Speaker 1: combustion engines globally we're at five percent, California is at
Speaker 1: FI EU is way ahead. You've got you know, Norway
Speaker 1: I think has a majority of sales as e V s,
Speaker 1: and then China's you know, even higher still, so we're
Speaker 1: kind of lagging behind. So if you kind of look
Speaker 1: at from a global perspective, I mean, we're in the
Speaker 1: second ending and you know, you have people who've never
Speaker 1: even been in e V today, So that's a lot
Speaker 1: of them until just just recently, well in the EV space,
Speaker 1: and I think electrification, I immediately think China the leader
Speaker 1: of it. And it's interesting when we talk about China,
Speaker 1: talk about Deero, COVID, we talk about your political tensions,
Speaker 1: we don't necessarily talk about competition for the e V space.
Speaker 1: What's your take, Yeah, so I mean competition in the
Speaker 1: e V space. I mean, think about the timeline here.
Speaker 1: Ten years ago the Model S was released by Tesla,
Speaker 1: so we're just ten years into this. Yeah, so happy
Speaker 1: anniversary to the Models. But I mean, right now, you've
Speaker 1: got Ford, You've got GM, You've got incumbents that are
Speaker 1: retooling and rebuilding, manufacturing plants, pouring billions in the new plants.
Speaker 1: Fords putting their biggest Campex investment into building plants such
Speaker 1: as their Blue Oval city outside of Memphis, Tennessee. Right now, Um,
Speaker 1: and that that's happening. So I think you're seeing, Um,
Speaker 1: you're gonna be seeing lots of competition. Tesla's market SHARE's
Speaker 1: job from around sev down to six and um, you
Speaker 1: know it's I think. And then you look at global
Speaker 1: numbers and other manufacturers worldwide, Um, you're gonna see a
Speaker 1: more I guess even ball field and playing field when
Speaker 1: all these other UH car manufacturers get up the speed
Speaker 1: from that production lines. But that's gonna take some time
Speaker 1: and investment into these robotics, manufacturing automation lines. UH to
Speaker 1: build that out. Took us about some of the raw
Speaker 1: materials and the rare materials that are required for e
Speaker 1: v s. Where are the choke points. Somebody was telling
Speaker 1: me recently that you've gotta go to Africa to get
Speaker 1: some of these rare metals. And in China is really
Speaker 1: investing in Africa, the US is not. That might be
Speaker 1: a risk for the whole electrification of the global auto fleet.
Speaker 1: What's the risk here for some of those UH raw
Speaker 1: materials needed? Sure? Yes, So I mean right now a
Speaker 1: majority of batteries used in cars are you know, based
Speaker 1: on lithium, cobalt other materials like that. And yes, there
Speaker 1: are specific kind of choke points there, which is why
Speaker 1: there's lots of interest and intriguing and kind of just
Speaker 1: from a sourcing and sustainability, cost and environmental perspective, they're
Speaker 1: looking for ways to use other battering materials and reduced
Speaker 1: it dependence on those materials. So I think when you're
Speaker 1: looking at looking forward how the industry is going to evolve,
Speaker 1: They're going to use different materials. You've got companies coming up,
Speaker 1: you know, IBM, You've got top AI companies around the
Speaker 1: world that are trying to figure out how to kind
Speaker 1: of eliminate that that sourcing risk. But most of the
Speaker 1: companies that are building pipelines of evs have already sourced
Speaker 1: and secured direct pipeline from providers of those So I mean,
Speaker 1: at least for the medium term length that they're they're
Speaker 1: all pretty much squared away. Paul, I have a fun
Speaker 1: fact for you. When Tesla was first uh rising in
Speaker 1: whatever you saw the stock just kind of go up
Speaker 1: and up and up, um cobalt prices and Tesla prices.
Speaker 1: If you overlaid. The charts were identical. For this exact reason,
Speaker 1: the idea that EV batteries required cobalt and I think
Speaker 1: for the time lithium as well. It was like a
Speaker 1: way to play Tesla through the commodities angle. Just a
Speaker 1: little fun fact for you, but then talk to us
Speaker 1: again about the sourcing there because one of the things
Speaker 1: another fun fact that Ed Ludlow or Bloombrick technology anchor
Speaker 1: and correspondence spoke to me about was that Tesla one
Speaker 1: of the things that they do really well is build
Speaker 1: their factory right where the commodities are kind of located.
Speaker 1: So the supply chain issues you saw on the rest
Speaker 1: of the car industry, Tesla didn't necessarily have to deal
Speaker 1: with them on the same scale. Is that a type
Speaker 1: of model that you think might be adopted more broadly. Yeah,
Speaker 1: I think it's not just you know, source materials for batteries,
Speaker 1: it's kind of the whole component. I mean right now, Uh,
Speaker 1: these car manufacturers are building their their their plants with
Speaker 1: you know, additive manufacturing, three D printing, I mean for
Speaker 1: different parts. So yes, the whole world saw semiconductor shortages
Speaker 1: and then nie products that that that really impacted their
Speaker 1: ability to UM the liver products at a at a
Speaker 1: and make margin. And I think I think it was
Speaker 1: Toyota decided to slow down and their ramp up because
Speaker 1: they just the component costs got too high. So ultimately, uh,
Speaker 1: you will see more streamline production and manufacturing and you know,
Speaker 1: custom builds for their for all the parts and components
Speaker 1: to go into these plants. Robotics people tell me that's
Speaker 1: a big part of this new wave of auto manufacturing. Right,
Speaker 1: So I think, you know, there are a couple of
Speaker 1: reasons why we're seeing re shoring in the US. And
Speaker 1: and you know, I think yesterday Tesla announced a new
Speaker 1: Giga factory in Mexico, but UM increased automation. So this
Speaker 1: is just designing the system to be more automated, safer.
Speaker 1: You've got robot arms that are able to manipulate and
Speaker 1: move large pieces of the vehicles. Now, automation and robots
Speaker 1: in the warehouse and manufacturing plants isn't new. That's been
Speaker 1: around for fifty years. But they're getting better. They're getting faster.
Speaker 1: They're able to do things that UM at a lower
Speaker 1: cost and faster cycle rate to enable uh, you know,
Speaker 1: better economies of scale. So while you know, for example,
Speaker 1: China has been leading manufacturing globally for many many years.
Speaker 1: The ability and a lot of that was just human
Speaker 1: labor cost they were they had better, you know, lower
Speaker 1: input costs on that end, and they had some materials.
Speaker 1: But in the US, we're looking at cobots which can
Speaker 1: do kind of some more some more of the fine tuning,
Speaker 1: the more manipulation and placements things like that, not just
Speaker 1: assembling together. So UM, these robot companies like Pinook, Terra
Speaker 1: dyne Um, they're they're getting major placements and orders by
Speaker 1: these car manufacturers that not just cars. You've got UM
Speaker 1: battery plants, You've got solar energy plants. So the Inflation
Speaker 1: Reduction Act that just came out earlier this year, UM
Speaker 1: put a lot of money. There's benefits. There's UH loans
Speaker 1: available for building these manufacturing plants, so we have less
Speaker 1: risk from depending on other countries. Thirty seconds, just your
Speaker 1: overview of charging stations. Where are we It seems like
Speaker 1: we need a lot more of those over the next
Speaker 1: coming years. Yeah. So, I mean you've got the government
Speaker 1: and individual car manufacturers and batteries that are all looking
Speaker 1: to build this out. Since they're kind of all going
Speaker 1: all in looking to get you know, fifty percent of
Speaker 1: their their sales. You've got the EU looking to get
Speaker 1: electric vehicles by um. Yes, there's gonna be lots of
Speaker 1: level three level four charging, which you know, level four
Speaker 1: charging really isn't out yet. That's one mega watt. But
Speaker 1: once you can charge you know, entire semi trucks in
Speaker 1: fifteen minutes, thirty minutes, etcetera, then we're gonna have, um,
Speaker 1: you know, major major adoption, major adoption. That's kind of
Speaker 1: what a lot of folks are looking for. Zeno Mercer,
Speaker 1: thanks so much for joining us. Zenni Mercery's the research channels,
Speaker 1: robo Global joining us here in our Bloomberg Interactive Broker Studio.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller three. Put on ball Sweeney I'm on
Speaker 1: Twitter at pt Sweeney. Before the podcast. You can always
Speaker 1: catch us worldwide at Bloomberg Radio