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Speaker 3: Today, we'll look at what comes next for Wall Street
Speaker 3: Banks in twenty twenty.
Speaker 4: Five, plus we'll discuss the potential global impact of future
Speaker 4: you A tariffs.
Speaker 3: But first we begin in the automotive industry.
Speaker 4: This week we heard the Tesla's annual vehicle sales dropped
Speaker 4: for the first time in over a decade for more.
Speaker 3: Alex and I were joined by Steve Man Bloomberg Intelligence
Speaker 3: Global Autos and Industrials Research Channels. We first asked Steve
Speaker 3: about what testless numbers mean for the automaker.
Speaker 5: If you look at the fourth quarter, it's actually up
Speaker 5: slightly by two percent, but you know they've done a
Speaker 5: lot throughout the quarter to drive that number, mainly on incentives.
Speaker 5: So we're likely to see that to continue. But if
Speaker 5: you look out in twenty twenty five, we expect the
Speaker 5: company that actually give you rosier guidance. They do have
Speaker 5: new vehicles coming out, the refresh of the model Why,
Speaker 5: the popular model Why. And then there's a new affordable
Speaker 5: vehicle being launched in the first half that should drive
Speaker 5: sales in twenty twenty five.
Speaker 3: So how important are incentives these days, Steve? For the
Speaker 3: average EV buyer, it.
Speaker 5: Is very important. It's not just EV. We're seeing that
Speaker 5: throughout the auto industry, including gasoline cars. Affordability continue to
Speaker 5: be an issue. You know, if you look at delinquency
Speaker 5: rates on loans are there rising, So the the automakers
Speaker 5: have to come in and actually support demand. So we'll
Speaker 5: probably see that in twenty twenty five. But you know,
Speaker 5: there's there's reports out there that we, you know, including ourselves,
Speaker 5: we think that battery costs will continue to come down
Speaker 5: and then we'll see probably a better an upturn, likely
Speaker 5: in twenty twenty six, not so much in this year.
Speaker 4: When you mentioned that there'll be some product refreshes this
Speaker 4: year as well as an affordable Tesla, yeah, I've been
Speaker 4: hearing that for a while. What do we mean by
Speaker 4: affordable and do we trust this timeline?
Speaker 6: Yeah?
Speaker 5: So, you know, I think there's been a lot of
Speaker 5: questions out there in terms of how, you know, if
Speaker 5: Elon must will actually meet his his own projection. I
Speaker 5: think that he will launch the affordable EV and that's
Speaker 5: likely to be under thirty thousand, including the that the
Speaker 5: includes the seventy five hundred credit incentive by the federal government. Oh,
Speaker 5: it includes it.
Speaker 4: So if that goes away, it no longer becomes affordable.
Speaker 5: It still is. It's still one of the cheapest EV's
Speaker 5: out there. I think the new EV's that they're launching
Speaker 5: coming going forward will actually be much lower costs than
Speaker 5: the current model three Model Y, So there's still some
Speaker 5: room for them to cut prices and also, you know,
Speaker 5: help maintain the automative gross margin around the you know,
Speaker 5: eighteen to twenty percent.
Speaker 3: Steve, twenty twenty four feels like a year where the
Speaker 3: evolution towards electric vehicleles hit kind of a speed bump
Speaker 3: out there. A, Is that in fact the case? And
Speaker 3: b how do you think about the industry's continued evolution
Speaker 3: to EV over the twenty twenty.
Speaker 5: Five Yeah, I think twenty twenty five EV sales will
Speaker 5: probably be grown at a single digit and you know,
Speaker 5: incentives still going to be a bigger part of the story.
Speaker 5: But I think long term, you know, beyond twenty twenty five,
Speaker 5: that means twenty twenty six and beyond, I think EV
Speaker 5: sales will recover, Battery costs will continue to come down.
Speaker 5: More automakers, not just Tesla, GM and Stillentis are launching
Speaker 5: newer and cheaper evs. That's going to be that's going
Speaker 5: to resonate with the with the mass market. You know,
Speaker 5: a lot of the early adopters have bought evs, and
Speaker 5: I think the next leg up is really to get
Speaker 5: the general population to buy evs and make it more
Speaker 5: affordable for them.
Speaker 4: I guess I just wonder, like without the tax credit,
Speaker 4: if that goes away. I appreciate that Tesla's still the
Speaker 4: cheapest one out there, but that's not going to be Like,
Speaker 4: there's no way Paul's buying a thirty eight thousand dollars Tesla, right, Like,
Speaker 4: that's not happening. So what has to happen for that
Speaker 4: price to get even lower? And I know that it's
Speaker 4: a chicken and an egg thing, right because you need
Speaker 4: the demand in order to trigger the production, which then
Speaker 4: releases lower prices. But that's just not materializing, particularly without
Speaker 4: that tax credit.
Speaker 3: Right.
Speaker 5: You know, I think we talked about battery costs is
Speaker 5: being one of them. The other thing is really the
Speaker 5: charging infrastructure. You know, I don't think the charging infrastructures
Speaker 5: has been expanded to a point where it's convenient for
Speaker 5: a lot of the for owners or potential owners of evs,
Speaker 5: but there's a lot of money being poured into it.
Speaker 5: There's one company called EVgo. They just got a huge
Speaker 5: loan from the federal government to expand. We got a
Speaker 5: lot of automakers, major ones, GM, Ford and Hyundai and
Speaker 5: the likes are actually joining forces together, pulling capital together
Speaker 5: to expand the infrastructure. So that's why, you know, I
Speaker 5: think you know beyond twenty twenty six to beyond twenty
Speaker 5: twenty five, we're going to see improved uptick EV demand
Speaker 5: because of not only cheaper EV's, but an expanded charging infrastructure.
Speaker 4: Our Thanks to Steve Mann Bloomberg Intelligence Global Anos, an
Speaker 4: industrial research analyst, we.
Speaker 3: Moved next to luxury this week. Guest host Matt Miller,
Speaker 3: Shanala Basik and I were joined by Deborah aichin Bloomberg
Speaker 3: Intelligence Luxury Goods analysts.
Speaker 4: She discussed her outlook for luxury goods in twenty twenty
Speaker 4: five and my twenty twenty four was so disappointing for
Speaker 4: some luxury companies.
Speaker 3: I began by asking Deborah what happened to luxury in
Speaker 3: twenty twenty four.
Speaker 7: I think if we stepped back to the beginning of
Speaker 7: the year January February, we had some of those the
Speaker 7: biggest company CEOs focusing on a normalized year of growth.
Speaker 7: Now that followed three real years of recovery twenty one,
Speaker 7: twenty two and twenty three, so normalized growth was set
Speaker 7: we thought at around four to six percent. It started
Speaker 7: out okay in the first half, and we were looking
Speaker 7: for the second half to pick up somewhat. On the
Speaker 7: back of that, and that's where the disappointment has been
Speaker 7: so second of twenty twenty four, a real disappointment because
Speaker 7: of so much going on economically, politically, but with a
Speaker 7: big drag in China and travel retail not yet recovering,
Speaker 7: and also just the fact that we kind of got
Speaker 7: to peak price twenty five percent price increases over a
Speaker 7: three year period on average across the sector to pass
Speaker 7: on some of those inflationary costs. It all just became
Speaker 7: too much, especially at entry level.
Speaker 8: So what's been the problem Is it just the Chinese
Speaker 8: economy and the Chinese consumer is so important to this
Speaker 8: segment because as we look at you know, rich people
Speaker 8: to have at least the top five hundred in the world,
Speaker 8: continue to get richer and richer and richer. So I
Speaker 8: can't imagine there's any kind of upper limit on Burken bags.
Speaker 7: Yeah. You know, if we look at the companies that
Speaker 7: have outperformed MS and the types of product that they
Speaker 7: offer to the market, the waiting list there is still
Speaker 7: in place. Other high end names like and Elocutionelle. You know,
Speaker 7: these companies are focused eight to ten percent growth year
Speaker 7: in year out, and they're achieving that, but really it's
Speaker 7: been twofold. If we think about the China market, just
Speaker 7: to put it back into context, Chinese consumers when they
Speaker 7: traveled twenty nineteen as well as spent at home on
Speaker 7: the mainland, Macau, Hong Kong and others, were around a
Speaker 7: third of the luxury market, and we think they're nearer
Speaker 7: twenty three percent or so. We've basically lost ten percent
Speaker 7: in the market from there. What's happened, though, is that
Speaker 7: the US has been particularly robust and has picked up
Speaker 7: some of that.
Speaker 1: Europe has picked up.
Speaker 7: A little bit, and also rest of the world and
Speaker 7: other parts of Asia. So when we look, you know,
Speaker 7: look at an Alviumh's absolute revenue twenty nineteen versus twenty
Speaker 7: twenty four, even taking out the Tiffany acquisition in twenty one,
Speaker 7: its sales are still over fifty percent higher than they
Speaker 7: were twenty nineteen in absolute use road terms. But there's
Speaker 7: been a big shift and we think that will continue
Speaker 7: twenty twenty five.
Speaker 9: You know, another question I have is how much of
Speaker 9: this is the macro. Of course, China is a massive story.
Speaker 9: Perhaps we'll talk about a little more as well. But
Speaker 9: another thing I'm fascinated by is the rebranding of some
Speaker 9: of these large luxury items and brands Jaguars, when Matt
Speaker 9: and I had covered a little earlier this year. That's
Speaker 9: a pretty extreme example, but there are others as well.
Speaker 9: How much of this is just customer taste changing and
Speaker 9: the company is needing to react to those changing preferences.
Speaker 7: There are more and more reports coming out because we
Speaker 7: also need to think about the recycle industry too. If
Speaker 7: we step back into the China situation, one of the
Speaker 7: big categories would be watches, and watches are higher indexed
Speaker 7: in China, so that's been a drag for many companies
Speaker 7: because most of them will have watches. No jewelry has
Speaker 7: really stood up well, so that's one side of the equation.
Speaker 7: If we think about other sides, though, there have been
Speaker 7: particularly at the low end with the aspirational side failures
Speaker 7: and different creative directors moving around. So there's been some
Speaker 7: question on where the identity of some of these brands are.
Speaker 7: But it therefore tends to be the heritage brands, which
Speaker 7: don't necessarily depend on a single creative director and more
Speaker 7: really focus on a team and a real high level
Speaker 7: of workmanship that continue to do better, and I think
Speaker 7: we'll see more of that play out also in twenty
Speaker 7: twenty five. If that kind of answers your question.
Speaker 3: There, deb of all the luxury companies that you cover
Speaker 3: from a research perspective for Bloomberg Intelligence, what are the
Speaker 3: ones that are seem well positioned to you these days
Speaker 3: as we go into twenty five, And if we're.
Speaker 7: Looking across modl it's moved around a lot in the
Speaker 7: last eighteen months and generally a little bit of a delay,
Speaker 7: but companies are being really more forthright in explaining what
Speaker 7: is happening where their investment is to back that future growth.
Speaker 7: So you have the likes of at the top end,
Speaker 7: which we've mentioned Mares, Brune, Brunellocutionelli. If you look the
Speaker 7: numbers out there for top line growth and earning's growth,
Speaker 7: earning growth twenty twenty five must fully repair and come
Speaker 7: in ahead of sales, so you're looking at double digit
Speaker 7: sales there. We have arranged nine to twelve percent across
Speaker 7: Air Mayre's leading Brunellocutionelli in the lead proader.
Speaker 10: They're doing very very well, but a lot on the
Speaker 10: me and your brand Richmond doing very well on Cartier
Speaker 10: van Cleef and our pacids that high find jewelry and
Speaker 10: that high note worth individual continuing to buy.
Speaker 7: And there are some of the names out there as
Speaker 7: well as ELV made should further repair because we think
Speaker 7: that they will do better in the second half the year.
Speaker 7: They do have big exposure with DF into travel retail
Speaker 7: and also a lot of these companies. So mid single
Speaker 7: digit growth for LVMH for eachmon high single to double
Speaker 7: digit growth for some of those more niche individual brands
Speaker 7: with waiting with big lists waiting lists out there still
Speaker 7: for some of the very much high your end product.
Speaker 4: All right, thanks to Debic and a Bloomberg Intelligence luxury
Speaker 4: goods analyst, and coming up, we're going to break down
Speaker 4: why the number of primary dealers in the US treasury
Speaker 4: market has decreased.
Speaker 3: Listening to Bloomberg Intelligence on Bloomberg Radio, providing in research
Speaker 3: and data on two thousand companies and one hundred and
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Speaker 3: go on the terminal, Paul Sweet.
Speaker 4: And am Alex Steel and this is Bloomberg.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 4: We move next to You.
Speaker 3: This week O host Matt Millo, Shanali Bassega, and I
Speaker 3: rejoined by Shrinanna rodgen Uberg, senior finance reporter.
Speaker 4: He discussed his outlook for Wall Street regulation bonuses and
Speaker 4: how banks are preparing for Donald Trump presidency.
Speaker 3: I began by actually shre what he thinks about the
Speaker 3: prospects for next year on Wall Street.
Speaker 11: If you had to see the best indicator for what
Speaker 11: people are expecting next year for the banks, just look
Speaker 11: at what the stocks have done this year, and I
Speaker 11: will tell you all you need to know about expectations
Speaker 11: and the outlook going into next year. Coleman, Sacks, JP, Morgan,
Speaker 11: Morgan Stanley. They're all up forty forty five to fifty percent.
Speaker 11: Jeffries pure play investment bank up something like ninety five percent.
Speaker 11: That stock is almost double.
Speaker 9: You're going to say, none better than Goldman, but Jeffries, yeah.
Speaker 11: Sure, not in the same league perhaps, but as a
Speaker 11: pure play investment bank.
Speaker 9: And the percentage rise in their stack.
Speaker 11: The percentage rise in their stuff, the fact that the
Speaker 11: stocks nearly double this year on the back of expectation
Speaker 11: that there will be a gusher of activity opened up
Speaker 11: next year. That is where banking expectations are right now.
Speaker 11: But there are crosswinds and you know, you're never certain
Speaker 11: how it will pan out. In fact, if you were
Speaker 11: to look what happened the day after the November election,
Speaker 11: all the bank stocks rallied up and in the days
Speaker 11: after that went up even higher. But since then they
Speaker 11: have given up half their gains. So what the concern
Speaker 11: there is isn't entirely clear. Are they're not as certain
Speaker 11: of that outlook as they were on say November fifth
Speaker 11: or sixth. We're not sure about that. But net I
Speaker 11: think if you talk to the c suite at all
Speaker 11: of these banks, the hope and optimism that they exude
Speaker 11: is very clear and visible.
Speaker 8: So what kind of deregulation do investors want to see?
Speaker 6: Specifically, because we.
Speaker 8: Throw this term around a lot, and for example, we
Speaker 8: were talking about deregulation. As I think about it, you know,
Speaker 8: we did see deregulation, but we also have seen for example,
Speaker 8: Jet Blue was not allowed to buy Spirit right, so
Speaker 8: you still have intervention from the government that changes the
Speaker 8: way these businesses work in bank What do investors? What
Speaker 8: does Jamie Diamond want to see in terms of deregulation.
Speaker 11: I guess deregulation is the word we'd use if you
Speaker 11: hare to sort of align where the Overton window is
Speaker 11: right now. But realistically, what the banks really want is
Speaker 11: not more regulation, and that is what they were looking
Speaker 11: at had it been a democratic administration. If you look
Speaker 11: at the action of the Fed, especially the capital rules,
Speaker 11: the fact that they were facing big increases on their
Speaker 11: capital requirements was a big headache for banks for much
Speaker 11: of this year. Even before the election, the Fed did yield.
Speaker 11: The banks made an aggressive push. They rolled back some
Speaker 11: of the proposals. They've not taken effect yet. But with
Speaker 11: the change in administration and the change in tune banks
Speaker 11: sends an opportunity to go for the kill and make
Speaker 11: a bigger ask to make sure that there isn't any
Speaker 11: increase in capital or wherever they land up is much
Speaker 11: much better than what it looked like at the start
Speaker 11: of twenty two.
Speaker 9: Guys, it's not even just the capital rules, it's the
Speaker 9: areas that were being cracked down on that might not
Speaker 9: be in the future. For example, vak Ramaswami who is
Speaker 9: co leading that DOGE effort, is looking at the CFPB.
Speaker 9: The CFPB was really a relic of the two thousand
Speaker 9: and eight reforms. What does it mean for some of
Speaker 9: that to be rolled back on?
Speaker 11: And that actually is some of one of the most
Speaker 11: fascinating aspects right now. If you've been addicted to twitter
Speaker 11: x through the holiday season, shame on you. But if
Speaker 11: you have been, you would have noticed a lot of
Speaker 11: discussion on CFPB. Yes, the chief DOJE officers there, vive Ramaswami,
Speaker 11: Elon Musk, even Project twenty twenty five, these are names
Speaker 11: that have come out and said the CFPB needs to
Speaker 11: be eliminated altogether. Elon Musk and Project twenty twenty five
Speaker 11: recommendations were very clear. Vivex tweets over the last week
Speaker 11: or so make it clear that he's not happy with
Speaker 11: what's happening. And the incoming chair of the Senate Banking Committee,
Speaker 11: Tim'scott of South Carolina, has also been quite frustrated with
Speaker 11: what the CFPB has been doing in terms of their rulemaking.
Speaker 11: Where his point is, it's you're in a lame duck period.
Speaker 11: The FED, the OCC, the FDIC are not doing anything
Speaker 11: yet with this CFPP. We've seen the action on overdraft fees,
Speaker 11: We've seen the lawsuit against Walmart and one of their FinTechs,
Speaker 11: and some of the other motions that they're foot in place,
Speaker 11: including the crackdown going after the banks because of the
Speaker 11: zel fraud. Clearly they've been very active. The banking industry
Speaker 11: is not very happy about it. Some old school GOP
Speaker 11: members are not very happy about it. But I also
Speaker 11: find a very interesting strand here is there really are
Speaker 11: two different kinds of GOP right now. There is one
Speaker 11: where the faction of populism has been gaining ground and hole,
Speaker 11: and you can argue that it's coming straight down from
Speaker 11: the president. For that group, an agency like the CFPP
Speaker 11: going after overdraft fees, going after things like zelfraud that
Speaker 11: you would think would normally be encouraged. But your typical
Speaker 11: pro banking, anti regulation GOP faction would obviously see something
Speaker 11: like the CFPB as anathema. So it'll be interesting to
Speaker 11: see as we get into twenty twenty five and beyond
Speaker 11: which faction in that administration wins.
Speaker 3: I had dinner with the high school buddy mine, who
Speaker 3: is one of the top lawyers in the city, gets
Speaker 3: paid a King Ransom every year hates his job. He
Speaker 3: all did was complain about his job. I'm like, then leave, dude.
Speaker 3: I mean, he said, the biggest change is going to
Speaker 3: be Lena Khan at the Federal Trade Commission. Getting anybody
Speaker 3: in there in the FDC other than Lena Khan is
Speaker 3: going to be a boom to MNA bankers and m
Speaker 3: and A lawyers.
Speaker 11: Yeah, but this goes back to my previous point again. Yes,
Speaker 11: Lina Khan has been a bane for the banking industry,
Speaker 11: and you would think with the Democrats voted outline, that
Speaker 11: was even the conversation that even if Kamala Harris, who
Speaker 11: were to win, Lina Khan might not stay in that
Speaker 11: position because the pressure being put on that seat and
Speaker 11: the fear in the tech industry and beyond how much
Speaker 11: it was crimping deal making. But at the same time,
Speaker 11: listen to some of the comments made by Vice President
Speaker 11: leg JD. Vans during the campaigning cycle. He didn't not
Speaker 11: sound like someone who is the absolute anti Lina Khan type.
Speaker 11: So again, it remains to be seen which faction of
Speaker 11: the GOP has the louder voice. But if you didn't
Speaker 11: have a Lena Khan like figures.
Speaker 3: Having been guys, having been, you know, voting for Reagan
Speaker 3: in nineteen eighty, I can tell you there's only one voice.
Speaker 11: But even that one voice has not been the most
Speaker 11: predictable voice.
Speaker 9: So let's admit that I'm never bored of regulation, but
Speaker 9: I'm bored relative to the other topic that i want
Speaker 9: to talk about. Money, Right, Yeah, bonus season listen deals
Speaker 9: did not yet come back, so is there an expectation
Speaker 9: that bankers are going to get paid? Anyways?
Speaker 11: Deals did not come back to the extent you would
Speaker 11: have wanted to see, but they have been up relative
Speaker 11: to last year. They're still well below their long term averages,
Speaker 11: and the expectation is that you will get there. So
Speaker 11: some of the bonus payouts this year will not only
Speaker 11: be a recognition for the work done this year, but
Speaker 11: what you need to pay to keep top talent in
Speaker 11: their seat. And this is visible not just in bonus payouts.
Speaker 11: Look at the managing director promotion, Look at the Goldman
Speaker 11: Partner class. Some of these top promotions.
Speaker 2: They have been.
Speaker 11: Bigger sizes than in the past. They are battlefield promotions,
Speaker 11: recognizing the work that's already been done, but also telling
Speaker 11: them that there's a lot more opportunity to make a
Speaker 11: killing in the year ahead.
Speaker 4: Our thanks to Shrina Rajan Bloomberg Senior Finance reporter, we.
Speaker 3: Moved next to it Bloomberg Big Takes story we focused
Speaker 3: on this week, entitled Treasury's fifty trillion dollars day loads
Speaker 3: will test strained dealer pipes.
Speaker 4: The story looks at how the number of primary dealers
Speaker 4: in the US treasury market has now decreased, and it
Speaker 4: discusses how those remaining are facing mounting pressure is due
Speaker 4: to post financial crisis regulations and a growing US debtload.
Speaker 3: For more, guest host Matt Miller, Shanani Basseg and I
Speaker 3: were joined by Alex Harris, Bloomberg bond reporter. We first
Speaker 3: asked Alex why being a primary dealer isn't easy these days.
Speaker 1: You look at Citadel in this case, and they have
Speaker 1: been vuying to become a primary dealer for years, and
Speaker 1: finally in September said, you know what, thanks, but no thanks.
Speaker 1: This is just a losing proposition. And I think that's
Speaker 1: how people are feeling about it now and why you're
Speaker 1: not seeing the primary dealer community even growth to keep
Speaker 1: up with the amount of supply and the amount of
Speaker 1: debt that the government is issuing. And that's a problem
Speaker 1: because you need those primary dealers, you need them to
Speaker 1: facilitate these you know, in these markets from the auctions
Speaker 1: to secondary market. And remember their balance sheets for these
Speaker 1: dealers isn't just treasuries. It's a lot of other things.
Speaker 1: It's equities, it's mortgage backed securities, it's asset back secures.
Speaker 1: So you're playing with all these things. And as you
Speaker 1: can see what happened if you look back to March
Speaker 1: twenty twenty, I mean, that's a really good example of
Speaker 1: what happened when the treasury market ceased to function and
Speaker 1: dealer balance sheets just could not handle what it needed
Speaker 1: to do across all asset classes. And that's the very
Speaker 1: thing that it's as a regular recurrence.
Speaker 9: Maybe let's take a large set back for a moment here,
Speaker 9: because there are a lot of confusing dynamics that are
Speaker 9: happening in the treasury market. One is the size of
Speaker 9: the US DOT load alone. Then there comes the plumbing
Speaker 9: questions why overnight funding seems to hit pockets of stress
Speaker 9: every so often, the dealer balance sheets being constrained as
Speaker 9: they are, as you say, and then hedge funds trading
Speaker 9: with a lot of leverage in this system. What is
Speaker 9: actually the problem here and the risk in the way
Speaker 9: the plumbing is working.
Speaker 1: So right now, what's happening and where the primary dealers
Speaker 1: are having problems is when you're asked to facilitate and
Speaker 1: intermediate in this market, but you don't have the balance
Speaker 1: sheet to do it, you have to charge higher funding costs.
Speaker 1: So that means if you are looking to borrow treasuries,
Speaker 1: say in the rebol market, and you're a hedge fund
Speaker 1: or an asset manager and you need to borrow to
Speaker 1: finance securities, you're going to have to pay more. And
Speaker 1: there might be a point where they are not equipped
Speaker 1: to pay as much as the dealers are asking them,
Speaker 1: and so that's when you get backstops and you get
Speaker 1: stopping out of positions, and all of that has to
Speaker 1: make its way back onto the dealer balance sheets, and
Speaker 1: so that's where they get clogged. And right now there's
Speaker 1: four hundred billion in aggregate treasuries alone sitting on dealer
Speaker 1: balance sheets. And then every time you get a treasury
Speaker 1: settlement cycle, so the middle of the month and the
Speaker 1: end of the month, you're getting a backup in repo rates.
Speaker 1: It's becoming a regular occurrence and we're seeing it quite often.
Speaker 1: This year July dealer balance sheets were stuck. End of
Speaker 1: September was a very volatile quarter end that nobody expected.
Speaker 1: Your end has thankfully been really today it's very mild.
Speaker 1: Repo is under control. But it's because the minute the
Speaker 1: calendar turned to October, everybody said, wait a minute, we
Speaker 1: have to be better prepared for this. And so you
Speaker 1: saw repo rates actually back up to five and a
Speaker 1: half percent in the middle of November because people said,
Speaker 1: I want to get caught. I got to do this now.
Speaker 9: And so Alex another question about this too. We're talking
Speaker 9: about the treasury market here. It's not only the deepest,
Speaker 9: most liquid market in the world, it's one of the largest,
Speaker 9: and it also underpins the cost of every other type
Speaker 9: of borrowing. And if you're talking about the need to
Speaker 9: kind of back up rates as you're talking about in
Speaker 9: certain parts of the market, at what point does this
Speaker 9: become a larger issue, even a taxpayer issue.
Speaker 1: Oh, I mean, well, you can see in some cases
Speaker 1: it already is. I mean, you know, the auctions are
Speaker 1: just going to get more expensive because it's just going
Speaker 1: to get harder and harder for these dealers to continue
Speaker 1: taking down this supply. And what's interesting is remember not
Speaker 1: the dealer balance sheets are not created equals, so you know,
Speaker 1: dealers have the autonomy to decide, you know, where their
Speaker 1: priorities are. And you know, during the treasury refunding one year,
Speaker 1: i think it was last May, you know, they were
Speaker 1: doing something called Blue Sky and they were just kind
Speaker 1: of kicking around ideas, you know, what they could do
Speaker 1: to help improve treasury market functioning. And one of the
Speaker 1: things they proposed is almost doing a table to see
Speaker 1: who the biggest dealers were in the treasury auctions. Is
Speaker 1: a way to sort of light a fire under the
Speaker 1: rest of the dealer community to say, hey, like, if
Speaker 1: you're not doing your part and you're not pulling your weight,
Speaker 1: you have to because there's just too much supply to
Speaker 1: leave it to a handful of dealers to be taking down.
Speaker 1: There's only twenty four of them down from the peak
Speaker 1: that we saw in terms of the number of dealers
Speaker 1: that wasa on nineteen eighty eight. So this is so
Speaker 1: critical that everybody is playing their partner here, and if
Speaker 1: they're not, there are serious consequences in the terms of
Speaker 1: costs the economy, to the taxpayer, and to those just
Speaker 1: trying to finance their transactions in the financial system.
Speaker 4: Our thanks to Alex Harris, Bloomberg Bond Reporter. All right,
Speaker 4: coming up on the program, we discussed some of the
Speaker 4: successes and failures in the chip industry last year.
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 3: depth research and data on two thousand companies and one
Speaker 3: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 3: b I go on the terminal.
Speaker 4: I'm Paul Sweeney and am Malex Steel, and this is Bloomberg.
Speaker 2: You were listening to the Bloomberg Intelligence Podcast. Catch the
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Speaker 2: York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 4: We move next to the chip sector.
Speaker 3: Of the ten public companies in the world that investors
Speaker 3: value at more than one trillion dollars, a third are
Speaker 3: in the chip industry.
Speaker 4: In twenty twenty four, Broadcom joined TSMC and Nvidia, and
Speaker 4: that exclusive club, but the chip industry also saw some
Speaker 4: failures during the past year as companies like Intel struggled
Speaker 4: for more.
Speaker 3: On these companies, guest hosts Matt Miller, Shanali Basseg and
Speaker 3: I were joined by Kunjohn sub Honey, Bloomberg Intelligence Senior
Speaker 3: telecom analyst. I first asked Kunjohn to break down the
Speaker 3: differences between Broadcom and Intel.
Speaker 6: You really have to look at it as the two companies, right.
Speaker 6: One is your legacy chip company like Nvidia and Broadcom
Speaker 6: for designs their chips and sells them, and the other
Speaker 6: is sort of a semiconductor manufacturing company, similar to something
Speaker 6: like a TSMC or a global foundry. On the product side,
Speaker 6: this is where they have sort of missed out on
Speaker 6: that AI train. It was really you know, them not
Speaker 6: coming to the market with the AI products in time,
Speaker 6: and they are still sort of struggling. We don't have
Speaker 6: a good pipeline for their AI revenue ramp, especially in
Speaker 6: the GPU or the accelerator space. And on the server side,
Speaker 6: they're having challenges with their competitor AMD taking share almost
Speaker 6: every quarter over the last year or so. The contract
Speaker 6: manufacturing that you're talking about that comes from the manufacturing
Speaker 6: side you know, since the XCO now Pat took over
Speaker 6: the helm, they really the north star for the company
Speaker 6: for its turnaround was become the sort of leading edge
Speaker 6: node manufacturer of the vest if I may compare, it
Speaker 6: becomes sort of the TSMC of the West. And that's
Speaker 6: where they're really, you know, have been investing a lot,
Speaker 6: really focusing to get advantage and manufacturing leadership back here
Speaker 6: in the US, and that's where all the grants, your
Speaker 6: chip sack, subsidies, your tax credit, et cetera are designed
Speaker 6: around that business.
Speaker 8: By the way, speaking of tax credits, is Intel just done?
Speaker 8: Do they bring in somebody to break it up and
Speaker 8: sell off the pieces or because they are still looking
Speaker 8: at like twenty billion dollars from Uncle Sam, right, yeah.
Speaker 6: I mean, look, they haven't said anything specifically, but from
Speaker 6: our analysis of the company, including valuation and how the
Speaker 6: stock is trading right now, we think there's likely going
Speaker 6: to be definitely some kind of divestitures, some kind of
Speaker 6: investors brought in. We think the more likely portions of
Speaker 6: the business are going to be the PSG or the
Speaker 6: Altra business that they had acquired. There's also a lot
Speaker 6: of equity stake they have in mobile eye, which they
Speaker 6: have a wave to diversify and raise some cash. These
Speaker 6: two would be I would say the most highest probability
Speaker 6: exits the discussions around breaking up the foundry business other
Speaker 6: than the product business. That's something really odd to do,
Speaker 6: especially how important strategically Intel's manufacturing plans are.
Speaker 12: For the US.
Speaker 9: Well, speaking of how important the manufacturing plans are for
Speaker 9: the US, there's a new presidential administration. How do we
Speaker 9: expect President Trump to approach the industry and would they
Speaker 9: get any support above and beyond what we've seen under
Speaker 9: the Biden administration and the Ships Act.
Speaker 6: Yeah, I mean there's that's a great question, and there's
Speaker 6: there's multiple sort of angles to look at it. Just
Speaker 6: looking at from a manufacturing and subsidy perspective, we don't
Speaker 6: expect anything to change here. The government has been, you know,
Speaker 6: very supportive of bringing back manufacturing here, especially leading edge
Speaker 6: node and advanced manufacturing when it comes to semiconductors. So
Speaker 6: we don't think we don't think this will be this
Speaker 6: tailwind will continue to be a tailwind even in the
Speaker 6: new administration. However, there are different angles now. One is
Speaker 6: the MLA and landscape. Will it the new administration be
Speaker 6: more easier on MNA, which really has not happened in
Speaker 6: semiconductors because of again government regulation being primary getting factor.
Speaker 6: Again this area, when you look at the data versus
Speaker 6: the sentiment, the data doesn't show that the Trump administration
Speaker 6: would be significantly a booster for M and A. If
Speaker 6: you looked at the deals that were sort of blocked
Speaker 6: or went into a lot of sort of regulatory concerns
Speaker 6: during his prior term, that data shows that it was
Speaker 6: similar to you know, what we saw in by then administration.
Speaker 6: So from that angle, we don't expect, at least from
Speaker 6: the data, significant things to change. There are different angles here,
Speaker 6: especially pertaining to China. We do expect, you know, the
Speaker 6: scrutinity against China to increase, and that could result into
Speaker 6: multiple different aspects. One is sanctions on Chinese based companies,
Speaker 6: and most of the US semiconductor big your giants have
Speaker 6: significantly high exposure to China anywhere from forty to sixty
Speaker 6: percent of the revenue, so that could come at risk.
Speaker 6: The second could be retaliatory measures by China on US
Speaker 6: companies who have significantly higher revenues in China. One example
Speaker 6: recently was China initiating a probe on in media, so
Speaker 6: we expect something in those in terms of the tariffs
Speaker 6: or the sanctions to play a larger role on the
Speaker 6: US semi connector companies.
Speaker 3: Kun, John, I'm looking at the real winners in your space,
Speaker 3: the chip space. Obviously in Vidia, Broadcom, those are the
Speaker 3: clear winners. What do tech investors feel like twenty twenty
Speaker 3: five holds for some of those names that have really
Speaker 3: been propelled by AI? Is there more to go? Is
Speaker 3: this a market? Is this an earning's growth story that
Speaker 3: can support more performance out of these names.
Speaker 6: Yeah, fundamentally, we expect twenty twenty five to be another
Speaker 6: really strong year for AI chip names, with a one
Speaker 6: key caveat that we expect this year not just one
Speaker 6: name to take all the glory and take all the winnings.
Speaker 6: We expect a much more broad based growth going into
Speaker 6: ASIK names, AI networking names, the one like you said, Broadcom,
Speaker 6: but there's even others that we expect to continue and
Speaker 6: take small share of the bigger and growing and growing
Speaker 6: AI wallet because the hyperscale spending is expected to grow
Speaker 6: again twenty percent this year, so we think there will
Speaker 6: be more names than just a handful of them.
Speaker 9: This year. What's the risk to that twenty percent growth
Speaker 9: story for hyperscaler is spending because at the end of
Speaker 9: the day, we've seen tremendously ambition from big tech companies
Speaker 9: to be working with Nvideo of course and others. But
Speaker 9: do you think that that could face over wall of
Speaker 9: investors also get fatigued.
Speaker 6: Yeah, I mean you are seeing that concerns come in.
Speaker 6: So when you look at from a growth rate perspective,
Speaker 6: the growth rate is normalizing right when you look at
Speaker 6: last year, it was somewhere between the mid forties and
Speaker 6: now sort of half twenties. But you know, we so
Speaker 6: far have not seen any data showing that at least
Speaker 6: in twenty twenty five you could see a shock with
Speaker 6: this number. The second point is, so far since the
Speaker 6: advent of gen Ai, these estimates have proven to be conservative.
Speaker 6: So as we end the year, we have typically for
Speaker 6: the most companies seen the numbers of the CAPEX numbers
Speaker 6: come higher than what we had expected at the beginning
Speaker 6: of the year.
Speaker 4: Thanks to Kujan Sobanni Bloomberg Intelligence in your semi analyst.
Speaker 3: We move next to trade. Polishmakers around the world are
Speaker 3: watching the US for potential trade tars when President elect
Speaker 3: Donald Trump returns to the White House in January.
Speaker 4: A trade war triggered by US tarriffs could be extremely
Speaker 4: negative for the global economy. And this week we heard
Speaker 4: that China may sell products to Europe but discounted rates
Speaker 4: if the US and post is new tariffs. And that's
Speaker 4: according to ECB Governing Council member Class Not.
Speaker 3: For More guest host Matt Miller Shanalibasse again I were
Speaker 3: joined by Brendan Murray, Bloomberg Global Trade Editor. We first
Speaker 3: asked Brendan if he knew anything concrete in terms of
Speaker 3: Trump's TWERFF plans.
Speaker 12: Nothing concrete. In fact, the word that I keep hearing
Speaker 12: is uncertainty around tariffs. If if, if, If tariffs are
Speaker 12: Trump's favorite word, then business's least favorite word is uncertainty.
Speaker 12: And that's what they're getting. What we heard from the
Speaker 12: ECB official that was fear about disinflation from China. We
Speaker 12: often hear about tariffs causing inflation from the US. If
Speaker 12: if Trump were to were to put tariffs on on
Speaker 12: Chinese imports, Uh, the flip side of that is deflation,
Speaker 12: and China, you know, has has a couple of tools
Speaker 12: at its disposal. If it wants to use in a
Speaker 12: trade war, it could subsidize its exporters uh and reduce
Speaker 12: the costs of the of their production and and and
Speaker 12: make the make the cost of their exports go down.
Speaker 12: It could also let its currency weaken.
Speaker 4: Uh.
Speaker 12: Now the economists are are, you know, kind of mixed
Speaker 12: on whether the degree to which they think those things
Speaker 12: will happen. But this ECB official we heard is clearly
Speaker 12: putting his finger on something that that you that the
Speaker 12: Europeans are worried about. They have, you know, a much
Speaker 12: slower growth outlook than the US, and so you know,
Speaker 12: there's some there's some talk that he has right to
Speaker 12: be concerned.
Speaker 9: You know, it's interesting, Paul, You're you're looking at an
Speaker 9: interesting function on the terminal. I know that can show
Speaker 9: you pretty pretty granularly how the US trade partners are
Speaker 9: planning out.
Speaker 3: The CT are fun with it right now. That's why
Speaker 3: you guys can have a conversation. I'm just clicking on
Speaker 3: seeing who all the trade partners we have and everybody
Speaker 3: else has.
Speaker 9: But one thing interesting about this is if you kind
Speaker 9: of change the main bar to China, you can see
Speaker 9: also just how much China is ingrained into the global economy.
Speaker 9: And so it's not just China that would be concerned
Speaker 9: about that kind of slowdown or the ECB. Is it, Brendan.
Speaker 9: Aren't there many other countries that would share that same concern?
Speaker 1: Oh?
Speaker 12: Absolutely. You know, China is not just the largest trading
Speaker 12: partner to you know, countries like you know, Germany and
Speaker 12: others in Europe, but it's the number one trading partner
Speaker 12: to a lot of countries. And you know, a full
Speaker 12: blown trade war would not just take place between the US, China,
Speaker 12: Europe and China. It would hit lots of different countries.
Speaker 8: You know what during Trump one point, Oh we heard
Speaker 8: China so much about China, big tariffs on China. Trump
Speaker 8: didn't want TikTok because obviously the Chinese can spy on.
Speaker 6: Us with that.
Speaker 8: Now he's happy to have them spy on us through TikTok.
Speaker 8: In fact, he's going to push at the Supreme Court
Speaker 8: level to try and get the TikTok ban extended or lifted.
Speaker 8: And the first buddy, Elon Musk does so much business
Speaker 8: in China that speculation I hear is that he could
Speaker 8: be much softer on them as a trading partner in
Speaker 8: this Trump two point zero administration.
Speaker 4: What's your take on that.
Speaker 12: Yeah, it's something we've reported on quite a bit over
Speaker 12: the last couple of weeks and point to how how
Speaker 12: transactional Trump is as a as an executive and and
Speaker 12: as as as he was during his first presidency. And
Speaker 12: he will take things, uh, you know, case by case
Speaker 12: based on what the people who we talk to and
Speaker 12: something like TikTok or you know, sort of other things
Speaker 12: that come along. Uh, you know, he's going to take
Speaker 12: case by case and and you know he's going to
Speaker 12: hear these here, hear out the arguments on both sides,
Speaker 12: presumably and make his decision based on what he thinks
Speaker 12: is best for him politically and for the economy. So yeah,
Speaker 12: we'll we'll see it's not a it's not a you know,
Speaker 12: a black or white issue. It's you know, there's some
Speaker 12: gray area in there, and and things like TikTok, you know,
Speaker 12: are a good example of that.
Speaker 3: Brandon, do we have any idea how much of this
Speaker 3: tire stuff is just negotiating ploy versus real economic policy?
Speaker 3: As anybody kind of weighede in who may have the
Speaker 3: president ear on this stuff?
Speaker 12: Scott Besen, Yeah, I you know, I don't you know,
Speaker 12: is the poker player sitting across from you bluffering?
Speaker 3: Ear?
Speaker 12: Is he not bluffing? You know, it's it's any but
Speaker 12: he's guessed. Really, I think that the answer really is
Speaker 12: that he will, you know, take things based on what
Speaker 12: he thinks are threats to national security. Even if he
Speaker 12: is just putting a negotiating tool out there, it's still
Speaker 12: having an effect. Companies are still stockpiling, So whether whether
Speaker 12: it's a bluff or a negotiating tool or not, it's
Speaker 12: still having an economic effect. We were looking at the
Speaker 12: state of volumes through the ports of Los Angeles and
Speaker 12: Long Beach. They're going through the roof right now. It's
Speaker 12: normally a quiet time of year. So this may be
Speaker 12: a tactic, but it's actually affecting the inventory building of companies.
Speaker 8: But Brendan, I mean, what's the thinking on TikTok? Not
Speaker 8: to focus too much on that, but isn't it generally
Speaker 8: accepted that it is a threat to national security? And
Speaker 8: the Trump administration now is okay with that?
Speaker 12: Look, I think this is getting to the heart of
Speaker 12: the different kind of presidency we're going to see coming
Speaker 12: up starting on January twentieth, with advisors like Elon Musk.
Speaker 12: You know, Elon Musk has has, you know, every motivation
Speaker 12: to make sure that the US and China still do
Speaker 12: business together. You know, he's got a two billion dollar
Speaker 12: you know, megafactory there. You know he wants to he
Speaker 12: wants to sell cars to Chinese consumers. So I think
Speaker 12: this is what you're going to see as kind of
Speaker 12: a softening of some of these positions like the one
Speaker 12: TikTok that you.
Speaker 4: Raise a right Thanks to Brendan Murray, Bloomberg Global Trade Editor.
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