Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: They were different out at UCLA. And there was a
Speaker 2: guy who died at eighty eight last year, Excellanovud, who
Speaker 2: was a hero in my house. And as someone once
Speaker 2: said to me, he was the marine coming out of
Speaker 2: the trenches. Andrew Hollenhorst has been the marine in this
Speaker 2: odd on FED cycle. You have taken shrapnel for your
Speaker 2: high yield call.
Speaker 1: People are like.
Speaker 2: Not and yet you reaffirm the FED higher this morning,
Speaker 2: don't you.
Speaker 3: I think if you just look at this economic day,
Speaker 3: the MIC's over here.
Speaker 1: Come on, all right, I'm starting the first time on
Speaker 1: the show.
Speaker 3: Yeah, thanks to If you look at the economic data,
Speaker 3: I mean, it just keeps coming in showing a tight
Speaker 3: labor market. We keep getting these numbers strong spending. I
Speaker 3: agree with Mike, I don't think we're going to get
Speaker 3: five to six percent GDP this quarter, but we're probably
Speaker 3: going to get at least two percent GDP and maybe
Speaker 3: three percent GDP growth. And I think you did hear
Speaker 3: some of that coming out of Jackson Hole. You look
Speaker 3: at the core inflation numbers, they've slowed for a couple months.
Speaker 3: That's good news. Headline inflation has slowed, so there is
Speaker 3: some good news in terms of price pressure. That's a
Speaker 3: little bit more subdued now. But when you look at
Speaker 3: this economy, tight labor market, it's going to drive wages.
Speaker 1: Wages are going to drive harder.
Speaker 2: Your academics and frankly it goes to Catherine Mann now
Speaker 2: at the Bank of England as well, is a real
Speaker 2: humility about what we don't know. Olivier Blanchard calls it
Speaker 2: other factors. What are the other factors that the low
Speaker 2: yield people, the rate cut people get wrong.
Speaker 3: Yeah, So I think the other factors that we have
Speaker 3: at play here in the US economy includes some of
Speaker 3: the domestic strength that I was talking about, which is
Speaker 3: not just the tight labor market, but also the tight
Speaker 3: housing market. And this is an odd one, and I
Speaker 3: think you described the cycle as being odd, and it
Speaker 3: certainly is. Usually you would think mortgage rates move higher,
Speaker 3: we get to slow down in housing, and we get
Speaker 3: to slow down in house prices, and that happened. But
Speaker 3: the issue we have now is supply has actually become
Speaker 3: more constrained in the housing sector than demand. So those
Speaker 3: households that have an existing home that are paying a
Speaker 3: three percent mortgage rate, not a lot of incentive to
Speaker 3: put that home on the market. So that's applies being
Speaker 3: really constrained. Case Shiller Price index came out this week.
Speaker 3: We're up again close to double digit percentage increases on
Speaker 3: an annualized basis, and that's just not going to be
Speaker 3: consistent with two percent inflation.
Speaker 4: Yeah, there's just no inventory in the existing home market
Speaker 4: at all, is in the new market, which is why
Speaker 4: you're seeing that bycation and housing. Just on the subject
Speaker 4: of demand outside of housing, and coming back to the
Speaker 4: data of this morning, with personal spending up eight tenths
Speaker 4: of one percent at the same time that personal income
Speaker 4: actually grew less than expected, how much longer realistically could
Speaker 4: the US consumer live above their means If we're talking
Speaker 4: about a savings pile that has dwindled, which is what
Speaker 4: was helping fuel this in the first place. And your
Speaker 4: income not growing as fast wea is barely keeping up
Speaker 4: with inflation. Isn't the spending going to have to come
Speaker 4: to a halt at some point?
Speaker 3: Yeah, and don't forget student loan repayments restarted yeah October. Yeah,
Speaker 3: so there are some headwinds that the consumer is facing here.
Speaker 3: I think what has happened, though, is we had such
Speaker 3: an extended period of low interest rates, such an extended
Speaker 3: period of ample liquidity. You saw credit card debt go
Speaker 3: down significantly during the pandemic, and now those levels have
Speaker 3: built back up. Now you're seeing delinquency rates that are
Speaker 3: getting back to more normal delinquency rates that we would
Speaker 3: expect and kind of a normally functioning economy. To your point,
Speaker 3: as the Fed leaves rates higher, we're going to see
Speaker 3: more tightening of credit. That's going to be a head
Speaker 3: wind for consumers eventually that will slow the economy. We
Speaker 3: still think we could see a significant economic slowdown in
Speaker 3: twenty twenty four, perhaps a recession in twenty twenty four.
Speaker 3: But you have to take seriously the data that are
Speaker 3: coming in, and we still see this really strong spending.
Speaker 3: Like you point, out eight tenths of a percentage point
Speaker 3: up on personal spending. I mean, it's just a really
Speaker 3: strong consumer right now.
Speaker 4: So if we do get that recession in twenty twenty four,
Speaker 4: but you still don't get two percent inflation, is the
Speaker 4: Federal Reserve going to tolerate the pain ultimately? Do you think?
Speaker 2: So?
Speaker 3: That's a really tough scenario for the Fed. I think
Speaker 3: if you get a significant enough slow down, you will
Speaker 3: see some deflationary pressure. But we could have a period
Speaker 3: of time, and maybe it's going to be an extended
Speaker 3: period of time where you see the economy slowing, and
Speaker 3: to some extent, you see this with the credit that
Speaker 3: is tightening already. Right we have some signs that things
Speaker 3: are going to slow down eventually. If inflation was stably
Speaker 3: at two percent, then the Fed might be a lot
Speaker 3: more comfortable thinking about cutting rates. I think what we
Speaker 3: heard from Chair Powell last week at Jackson Hole was
Speaker 3: that although they'll be attentive to both growth and inflation
Speaker 3: right now, they really do have to concentrate on those
Speaker 3: upside risks to inflation. That's where you're coming from. We
Speaker 3: still have various measures of col or underlying inflation that
Speaker 3: are running too high, and that means that there could
Speaker 3: be a period of time when you see somewhat weaker
Speaker 3: growth data, but the FED is still holding rates higher.
Speaker 2: Richard Clarita is identified with this thing DSGE. All you
Speaker 2: need to know on a Labor Day Thursday is we're
Speaker 2: not going to do the math either.
Speaker 1: I can't do the math. It's that fancy.
Speaker 2: But the bottom line is I mentioned actually on of
Speaker 2: it earlier, that article from years ago beyond DSG models,
Speaker 2: where he and a team really go after the math,
Speaker 2: the math certitude, the mathiness of the Andrew Hollenhorst world.
Speaker 2: Do we have operative models right now? Do we in
Speaker 2: God's name know what we're doing?
Speaker 3: So I think that is one of the big challenges here.
Speaker 3: What is the theoretical framework that we're using to assess
Speaker 3: the economy and to assess monetary policy. And you heard
Speaker 3: Powell point to that uncertainty in his comments there's a
Speaker 3: non economist as a non economist, Yeah, and so he
Speaker 3: talked about this, you're navigating according to the stars under
Speaker 3: a cloudy sky. And what does he mean by the
Speaker 3: star the underlying neutral rate of interest that would neither
Speaker 3: be restrictive nor stimulative. The underlying natural rate of unemployment.
Speaker 3: These are important theoretical concepts, but we really don't have
Speaker 3: a good way of evaluating them in real time. We
Speaker 3: don't know where they are, so it is going to
Speaker 3: be this kind of responding to the data just comes
Speaker 3: back to data dependency. If you don't have a strong
Speaker 3: theoretical framework, then you follow the data.
Speaker 4: Yeah, setting monetary policy can be a tricky business in
Speaker 4: an environment like this one. Can I just quickly ask
Speaker 4: you about fiscal policy as well, because we hear a
Speaker 4: lot about we have not yet seen things like the
Speaker 4: Chips Act, Inflation Reduction Act that actually being realized in
Speaker 4: the economy and making a difference. At what point does
Speaker 4: what theoretically could be a driver actually become a drive
Speaker 4: because the FED might have to respond to those new injections.
Speaker 4: How are you thinking about that?
Speaker 3: Yeah, it's a great point. We're starting to see some
Speaker 3: things in the data that are at least suggestive. Then
Speaker 3: maybe you're seeing some of this showing up. We did
Speaker 3: see stronger investment in manufacturing. Maybe that's related to the
Speaker 3: Chips Act. But you're right, these things are going to
Speaker 3: take a long time to actually play out. Is going
Speaker 3: to take time for that money to come into the economy.
Speaker 3: At the end of the day, the FED is not
Speaker 3: going to kind of look at fiscal policy and then
Speaker 3: try to directly offset fiscal policy with monetary policy. Not
Speaker 3: their business, exactly. The FED doesn't want to be in
Speaker 3: that business. So what the FED is going to do
Speaker 3: is just look at the data. Look at the data
Speaker 3: like we got today. If inflation stays cooler, then that's
Speaker 3: great news, and that's more reason to think that the
Speaker 3: FED can be a little bit more dubbish here. I
Speaker 3: think they're pretty comfortable with the level of policy rates.
Speaker 3: We still think they're probably going to hike one more
Speaker 3: time in November, but that's probably going to be the
Speaker 3: end of the cycle. And then it really comes back
Speaker 3: to this question of when do they make that first cut.
Speaker 1: Andrew honor.
Speaker 5: John stelfhis chief Investment Strategies to Oppenheimer Asset Management Joints
Speaker 5: us Now, John, wonderful to have a bull on the program.
Speaker 5: Let's talk about why you're still so bullish and reflect
Speaker 5: on the economic take of the week, sir, if we can.
Speaker 5: There is a feeling that bad news is somewhat good news.
Speaker 5: Is there a tipping point when bad news just becomes
Speaker 5: bad news.
Speaker 6: Well, thanks for having me on the show. John, It's
Speaker 6: always great to be on surveillance. Have to say, you know,
Speaker 6: when we look at.
Speaker 7: It, things are to continue to get better, offsetting negativity.
Speaker 6: That's why bad Nudes has been good news.
Speaker 7: In essence, we're seeing the economy is genuinely slowing some,
Speaker 7: but it's not falling off the cliff, whether it's the consumer,
Speaker 7: whether it's jobs, whether it's it's our Q two earnings,
Speaker 7: even though you had to drop in earnings for the
Speaker 7: S and P five hundred least. I looked at my
Speaker 7: Bloomberg a few minutes ago, but negative six percent on
Speaker 7: the quarter. It's three sectors have the negative earnings growth.
Speaker 7: Y're double digit and its energy, materials, and healthcare. It's
Speaker 7: not tech or consumer discretionary or industrial.
Speaker 2: John, you've been one of the great bulls. You've been
Speaker 2: one of the great great bulls. Where are you right now?
Speaker 2: For four thousand and one, forty nine hundred for the
Speaker 2: end of the year remains our target.
Speaker 7: We did lower our projection to what earnings will look
Speaker 7: like for this year from two thirty down to two twenty,
Speaker 7: but overall we're looking more support to the S and p.
Speaker 6: Five hundred to remain remarkably strong.
Speaker 2: What do you need to do to get to five thousand?
Speaker 2: I mean, I got to make some news here today.
Speaker 2: What do you need to do to up that the
Speaker 2: five thousand time?
Speaker 8: You're egging me on, you know, I think we need
Speaker 8: to do to have some remarkable news related to the
Speaker 8: feds achievements against inflation and a real clear signal that
Speaker 8: it's the end of the cycle with a pause, not
Speaker 8: because the economy is falling apart, but rather than it's
Speaker 8: achieved its goal.
Speaker 6: I don't think that happens this year. I think that
Speaker 6: happens twenty twenty four.
Speaker 4: Well, And in twenty twenty four is when this market
Speaker 4: increasingly and earlier is expecting the FED to start cutting rates.
Speaker 4: So if we do get to forty nine hundred or
Speaker 4: potentially even five thousand, John, can we stay up there?
Speaker 4: If the reason they're cutting is because things have turned
Speaker 4: south and the tightening has taken perhaps more effect than
Speaker 4: they would have wanted to if they overshoot.
Speaker 7: Well, I think the key word there, the awkward word,
Speaker 7: is if things have turned south. It's if things have
Speaker 7: basically gone so that we really are are entering a
Speaker 7: period of sustainable economic growth at a at a slow
Speaker 7: or moderate case, I don't think that we'll be seen
Speaker 7: the FED cut drastically, and this might be one of those,
Speaker 7: just because when we look at it, the inflation is
Speaker 7: caused by overstimulation and fiscal policies. What we look at
Speaker 7: we think of two administrations, and they did that.
Speaker 6: They were concerned.
Speaker 7: About the effects of COVID on the economy, and likely
Speaker 7: all that stimulation is what is enabling us to get
Speaker 7: through this period of a FED fund's hip cycle as
Speaker 7: well as we are. So we think at this point,
Speaker 7: we think this is it continues to be a workout market,
Speaker 7: and a workout market is always has considerable uncertainty to
Speaker 7: it in terms of its outcome. But we wouldn't bet
Speaker 7: against the American consumer, and we wouldn't bet against American business,
Speaker 7: the American economy.
Speaker 6: We think we're.
Speaker 7: The sunlight is at the end of the tunnel, not
Speaker 7: an oncoming locomotive.
Speaker 5: Well, John's hope that's the case. The colodiale will for
Speaker 5: the same way he said the consumer. Don't bet against
Speaker 5: the American consumer. Plenty of retailers have flaked up plenty
Speaker 5: of issues over the last couple of weeks. What you
Speaker 5: read into that.
Speaker 7: Most certainly, and yet consumer discretionary as the sector is
Speaker 7: doing very well. I think it reflects the services end
Speaker 7: of the economy versus the goods. A lot of that
Speaker 7: is related to at this period in the cycle and
Speaker 7: still the experiential adventure for the consumer.
Speaker 6: In many ways the consumer has slowed.
Speaker 7: And then if you look at the individual retailers, it
Speaker 7: really has to do it. Who is balancing e commerce
Speaker 7: and bricks and mortar or ecarmas and some kind of
Speaker 7: touch with their consumer and meeting the consumers.
Speaker 6: And so you know that's John.
Speaker 2: What do you do with big Tech? I mean, let's
Speaker 2: say I own shares have got a big gain. I mean,
Speaker 2: do you have a a rationalization of owning those big
Speaker 2: seven stocks where you just take a terminal value three years,
Speaker 2: five years, hold your nose and say let's go.
Speaker 6: I think you know it's not quite hold hold your nose.
Speaker 7: It's take a look at look at the companies and
Speaker 7: consider what businesses they have that are deeply embedded in
Speaker 7: the lives and both the consumer as well as in business.
Speaker 6: And amongst those Big seven.
Speaker 7: It's a fairly recurring trend that you see or a
Speaker 7: trend that keeps rolling forward in an upward direction. They
Speaker 7: remain companies that are very deeply embedded in our lives,
Speaker 7: both as consumers and as business people, and so revenue
Speaker 7: growth is likely to continue. It'll ebb and flow at
Speaker 7: different points that you know, it's trees don't grow to
Speaker 7: the sky at all, but a general.
Speaker 6: Trend looks like this is parallel.
Speaker 7: To where the automobile was in the early twentieth century
Speaker 7: after Ford had, you know, essentially improved.
Speaker 6: The manufacturing process to.
Speaker 7: Increase the ability of the automobile in terms of quality
Speaker 7: and lower the price.
Speaker 6: Technology easily accessible.
Speaker 7: That makes it deeply embedded in our lives, and it's profitable.
Speaker 4: So, John, what role does that small group of stocks
Speaker 4: play in the four hundred point gap between where we
Speaker 4: are now and where you think we're going to get
Speaker 4: in forty nine hundred. Considering that they have been the
Speaker 4: biggest point contributors to the games we've seen this year,
Speaker 4: can they continue to provide that leadership?
Speaker 7: Well, you know, I think in essence, when we look
Speaker 7: at it, you've got to realize that technology is not
Speaker 7: unto itself. Rather, it contributes to all eleven sectors. So
Speaker 7: within the eleven sectors. I mean, we own some industrial stocks.
Speaker 7: I can't mention the name. The firm doesn't allow me
Speaker 7: to pitch one. Got that, but but but we own
Speaker 7: stocks in the industrial sector, in consumer discretionary, uh and uh,
Speaker 7: within within the space of other sectors that have done
Speaker 7: remarkably well.
Speaker 8: Uh.
Speaker 6: And it just has to do with UH.
Speaker 7: It's it's a combination of alpha generation as well as
Speaker 7: as playing the broader sectors.
Speaker 5: John, I get you can't do single names, but can
Speaker 5: you just describe in great detail what's within consumer discretionary,
Speaker 5: given that it's such a broad space within.
Speaker 7: Consumer discretionary, you know, it has to do again with
Speaker 7: leisure stocks. It has to do with stocks related to
Speaker 7: gaming to travel, has to do with the the electrification
Speaker 7: of the automobile and the process of that transition that's
Speaker 7: reflected within all kinds of products that are sold in stores.
Speaker 6: Uh.
Speaker 7: And it also has to do there's there's a certain
Speaker 7: element here coming up where there is a back to
Speaker 7: the office trend that is not back to the office
Speaker 7: like we used to be, but certainly where people are
Speaker 7: coming out of the caves, going back to going back
Speaker 7: to a more normalized environment where they show up at
Speaker 7: the office three days a week.
Speaker 5: Hey, John, get to hear from you as it wise.
Speaker 5: John stelf Is of Oppenheimen.
Speaker 2: Cameron Dawson joining a cio at Red Bull Formula one Racing,
Speaker 2: joins us this morning. Thank you so much for your
Speaker 2: patience with Max for stepping greatly appreciate it. You've got
Speaker 2: one single sentence and you go right to the heart
Speaker 2: of it. September is the worst month, and yet you're
Speaker 2: hardwired optimistic.
Speaker 1: You got to be in the market.
Speaker 2: Do you go to cash in September?
Speaker 9: No, because September being the worst month is just because
Speaker 9: it's below average returns. It's not necessarily that it's all
Speaker 9: going to employ. And even the correction that we had
Speaker 9: in August was below average, meaning it was so small
Speaker 9: in its magnitudes, so it doesn't really warrant making big
Speaker 9: portfolio changes. I think at the end of the day,
Speaker 9: this correction has not been about growth, and in fact,
Speaker 9: we've actually seen EPs growth estimates going up in recent weeks,
Speaker 9: and I think that's one of the reasons for these shorter,
Speaker 9: shallow corrections. It's when the revision cycle turns down that
Speaker 9: you should be more concerned of a deeper correction.
Speaker 5: Ian lingn Be months ago, we just played the clip
Speaker 5: he said, screaming by ten years. It's actually my words
Speaker 5: that I put in his math, but we agreed with it.
Speaker 5: Do you agree it's a screaming by.
Speaker 9: Well, if the ten years are screaming by, then credit
Speaker 9: is a screaming cell, and equities, at least the riskiest
Speaker 9: parts of equities would be a screaming cell. Because we
Speaker 9: think that for the tenure to go back to three percent,
Speaker 9: you would actually have to see much weaker economic environment.
Speaker 9: You'd need to see the whites of the eyes of
Speaker 9: a recession, and that likely means then that those economic
Speaker 9: or those earning productions for twenty twenty four, which have
Speaker 9: about double digit growth are way too high. So if
Speaker 9: the tenure goes back to three percent, we think it
Speaker 9: would be bad for risk assets.
Speaker 4: Do you see that recession not wives of the eyes?
Speaker 9: No, not yet, though you know there's all this discussion
Speaker 9: about GDP versus GDI and if GDP will catch down
Speaker 9: and really what is the underlying growth rate. But for
Speaker 9: right now, we don't see enough evidence that a recession
Speaker 9: is emminent, and there's still our calls that will enter
Speaker 9: one in the fourth quarter. We think if we do
Speaker 9: have one, it's much more of a twenty twenty four scenario,
Speaker 9: which just means that it's not being priced in yet.
Speaker 4: If we don't have one, though, couldn't that also be
Speaker 4: bad news if the landing is too soft, couldn't that
Speaker 4: mean the FED has to do more and then eventually
Speaker 4: has to force it.
Speaker 9: Anyway, Yeah, it is very peculiar because that is actually
Speaker 9: what's happened in twenty twenty three. The Fed has had
Speaker 9: to do more than what was projected. The bond market
Speaker 9: has had to price in more hikes less cuts. You've
Speaker 9: seen yields go up. Yields since or the pricing of
Speaker 9: the December twenty twenty three FED rate has gone up
Speaker 9: one hundred seventy basis points since the March low. Since
Speaker 9: that time, the Nasdaq PE multiple is up thirty six percent.
Speaker 9: So I don't know going forward if the path of
Speaker 9: the FED matters as much for equity valuations as it did,
Speaker 9: let's say in twenty one or twenty two.
Speaker 2: We talked a few days ago about the cost of
Speaker 2: real estate renting, the struggle for a huge body of
Speaker 2: America to find a down payment for real estate We
Speaker 2: had a huge response on that discussion. Do you advocate
Speaker 2: margin here within this bull market? This question doesn't come
Speaker 2: up enough. I think everybody's out there selling the idea
Speaker 2: of leverage up margin, options, margin, future's margin, margin margin.
Speaker 2: Do you advocate using margin within the growth sphere?
Speaker 9: Well, margin is a heck of a lot more expensive
Speaker 9: than it was just a few years ago, given rates
Speaker 9: are higher, So you have to factor that into the equation.
Speaker 9: We have seen. You can see measures in finrid data
Speaker 9: about the usage of margin debt and that's come off
Speaker 9: of the twenty twenty win peaks, which is not surprising.
Speaker 9: But the real question is how much of that is
Speaker 9: being replaced by options, which are a form of margins roughly,
Speaker 9: and so you've seen so much option activities, surging call options,
Speaker 9: through zero data expiration options. So margin is always something
Speaker 9: that you have to play with very very carefully because it,
Speaker 9: of course can work against you very quickly.
Speaker 5: Memories sometimes that can go back.
Speaker 1: Cameras just nailed them.
Speaker 5: Can we talk about a different kind of margin? Profit margins?
Speaker 5: At Dollar General, they've come out and basically said earnings
Speaker 5: are going to tumble as much as thirty four percent
Speaker 5: on a share basis during the current fiscal year. It's
Speaker 5: pretty brutal stuff. They're not alone. Are you taking what
Speaker 5: the retailers are saying seriously? Is this more important than
Speaker 5: what the hard data is tanagus right now, which is
Speaker 5: retail consumption is better than good.
Speaker 9: Well, there's some retailers that have pricing power and some
Speaker 9: that don't. And I think that Dollar General probably falls
Speaker 9: into that category where the elasticity of the demand of
Speaker 9: their customers is much different than the higher end retail
Speaker 9: where they can continue to push price, they can continue
Speaker 9: to pass on those higher costs to their customers. So
Speaker 9: the areas where you don't have pricing powers where you're
Speaker 9: seeing the margin pressure.
Speaker 4: Yeah, And of course, when we're talking about the different
Speaker 4: areas within discretionary in pricing power, travel airlines, they've been
Speaker 4: able to exercise pricing power in such a material ways
Speaker 4: we've seen demand recover out of the pandemic. And John
Speaker 4: you earlier this week pointed to when we got the
Speaker 4: consumer confidence data, which was weaker, people were still willing to.
Speaker 5: Travel, planning vacations, put it on their credit card. Now,
Speaker 5: I don't know whether to believe that dates or not.
Speaker 5: I'm wondering whether They just saw Instagram posts and were like,
Speaker 5: I'm planning one too, right. I wonder how that data
Speaker 5: is put together. We're going to see that vacation boom continue.
Speaker 9: Yeah, the fomo is real. And there's all this talk
Speaker 9: about all of the summer that we've had with the concerts,
Speaker 9: the hot girls summer. If that's coming to an end.
Speaker 9: I think at the end of the day, the question
Speaker 9: going forward is can the consumer continue to live beyond means.
Speaker 9: We've seen credit usage go up, but it's that savings
Speaker 9: rate that's coming down, and in the savings balance that
Speaker 9: has been whittled down.
Speaker 1: Did you see how chill just.
Speaker 2: Came into our offices here at seven point thirty one.
Speaker 2: I saw hollendhorse walk by Andrea.
Speaker 1: It's like the black Colt Loud of high interest rates.
Speaker 5: Because the lights on in the corner.
Speaker 2: The room when Hollendhorst shows up. If we get an
Speaker 2: Andrew Hollenhorst world of higher interest rates, what does that
Speaker 2: do to your stock portfolio?
Speaker 9: Well, I think it does increasingly create a challenge. But
Speaker 9: as we just just talked about, is that we have
Speaker 9: seen this divergence of yields and growth valuations. For example,
Speaker 9: in the past, we would say that if yields continue
Speaker 9: to climb higher, we should be concerned that growth valuations
Speaker 9: trading up near twenty twenty one highs would not be sustainable. Now,
Speaker 9: if yields are higher because growth is better, inflation's higher,
Speaker 9: that is good for the earning side of the scenario,
Speaker 9: but then you get that offset from valuation.
Speaker 5: The aerostour has been the most mainingful electric experience of
Speaker 5: my life so far. I'm I of a joy to
Speaker 5: Tandy that will be coming to the big screen soon
Speaker 5: starting October thirteenth, to experience the concert, film and theaters
Speaker 5: tom in North America?
Speaker 10: Do you like that?
Speaker 4: This is Taylor Swift?
Speaker 5: John? I need definitely is a direct?
Speaker 2: Do I need a friendship bracelet?
Speaker 5: What's a friendship something?
Speaker 1: Have you seen this, Cameron? Have you seen miss Swifts to.
Speaker 5: Buy them on beaches?
Speaker 2: No?
Speaker 9: No, I'm we're looking.
Speaker 2: At Paris tickets. Paris tickets in May of next year.
Speaker 2: A decent seats nine hundred bucks and somewhere back near
Speaker 2: Lyon is seven hundred dollars.
Speaker 5: Cameron, Thank you, Cameron Dawson. New watch.
Speaker 2: Someone is esoteric and wonderful as maxt for staff and
Speaker 2: Sean Patrick Byner is in frankfort here any no Swiss banking.
Speaker 2: He's worked within the banking racket and provides journalistic services
Speaker 2: to Bloomberg News. Were you surprised by these announcements? John,
Speaker 2: I mean, come on, you buy the bank. It's a
Speaker 2: shotgun marriage, you know how that's funny accounting and all that.
Speaker 2: Am I supposed to be surprised at twenty nine billion
Speaker 2: dollar statistic?
Speaker 7: No?
Speaker 10: Absolutely not.
Speaker 11: That's accounting, Shenanig, And we all know that they bought
Speaker 11: credits with on the cheap when it comes to the
Speaker 11: pure purchase price, and there are a lot of risks
Speaker 11: that associated with the years of the twenty nine billion
Speaker 11: number is not not very surprising, but what you can
Speaker 11: be surprised about a little bit, or at least I was,
Speaker 11: and I feel like some market participants as well. It's
Speaker 11: like how firm the management of UBS already is in
Speaker 11: their idea and their vision on how they want the
Speaker 11: merger to play out.
Speaker 10: That's very unusual. As you said, it was a shotgun marriage.
Speaker 11: It was just barely six months ago, and I feel
Speaker 11: like they're giving us really good content and good ideas
Speaker 11: on how they want to shape up this merger where
Speaker 11: they want the bank to position, And that's a very
Speaker 11: surprising thing to me that they're able to do this.
Speaker 2: When you're popping a twenty euro bowl of soup and
Speaker 2: brasserie lip, you people are gossiping about who from Credit
Speaker 2: Suite survived? Did many people from Credit SUITEE survive?
Speaker 10: Well, for the time being, that is still the case.
Speaker 11: I mean, we heard that they are cutting three thousand
Speaker 11: jobs in in Switzerland, and as you mentioned before, that's
Speaker 11: probably not the end of the of the of the
Speaker 11: number here and we will get something much much higher,
Speaker 11: and they will like feed this to the market and
Speaker 11: to the politicians, to the general public, especially step by step,
Speaker 11: not to lose their the cover for the merger or
Speaker 11: to create any any storm that they don't want. On
Speaker 11: the other hand, I also feel like while they're giving
Speaker 11: us a good idea on where they want the bank
Speaker 11: to be any position and how they want to move forward,
Speaker 11: is that they haven't figured out all the details. And
Speaker 11: we've heard the CEO today that's saying he is surprised
Speaker 11: by how many good additional business credits is bringing in
Speaker 11: that is fitting into the overall picture. So I think
Speaker 11: like they have not fully figured out like where do
Speaker 11: we want to keep the talent and where do we
Speaker 11: have like the real oval app that we need to
Speaker 11: get rid of.
Speaker 4: So there's clearly still work left to be done. What
Speaker 4: timeline realistically are we looking at? How much longer is
Speaker 4: this going to take?
Speaker 11: Well, it's still going to take years, that's that's for sure.
Speaker 11: But again as is doing the right thing here in
Speaker 11: terms of that they are giving us like step by
Speaker 11: step and on every meeting they are speaking, they're giving
Speaker 11: us something to deal with and to see like in
Speaker 11: which direction the bank is heading the whole merger until
Speaker 11: we get like the final picture is probably still going
Speaker 11: to be next year or even like twenty twenty five,
Speaker 11: until they have figured everything out. But they promise they
Speaker 11: give us more details on the fourth quarter earnings, which
Speaker 11: will be somewhere in January or February of next year.
Speaker 11: So that's the next milestone to watch. And at the
Speaker 11: end of the analyst coll search a multi, the CEO
Speaker 11: also said like there's plenty of time to speak to
Speaker 11: each other in case there are any questions until the
Speaker 11: third quarter earnings. So again they understand that the market
Speaker 11: is desperate for information and wants to see like every
Speaker 11: new development what they're doing, and they have understood this,
Speaker 11: and I'm pretty sure they will if they have good news,
Speaker 11: they will feed this to us step by step in
Speaker 11: as early as possible.
Speaker 4: If they have good news, Where are the potential opportunities
Speaker 4: for bad news? What are the biggest risks here?
Speaker 1: Yeah?
Speaker 10: Yeah, absolutely, and there are plenty.
Speaker 11: And it was funny again the CEO saying on the
Speaker 11: call that they are are not naive and they are
Speaker 11: not like painting a blue sky scenario here.
Speaker 10: There are obstacles along the way.
Speaker 11: One is like with the risk weighted assets that they
Speaker 11: have now outsourced into the so called noncre and legacy unit,
Speaker 11: that's fifty five billion dollars, So that's a lot of
Speaker 11: stuff that can potentially blow up.
Speaker 10: They said it won't, but you never know.
Speaker 11: The other thing is like they still don't know how
Speaker 11: the clients will behave It's looking pretty solid right now
Speaker 11: in terms of clients coming back to the combined lender,
Speaker 11: but we need at least like two or three more
Speaker 11: quarters to see if, like if this trend is sustained.
Speaker 11: And also like they were very short on details on
Speaker 11: telling us like how do you want to win back
Speaker 11: the clients, how do you want to align your business
Speaker 11: in details in certain areas. Of course it's a bit
Speaker 11: much to ask, again just six months since the merger
Speaker 11: was announced, but a little bit more details here would
Speaker 11: be helpful. And there are still like some areas where
Speaker 11: they could surprise.
Speaker 1: Now that they're one. Who's their arch competitor?
Speaker 2: I mean, obviously I'm going to say Deutsche Bank, but
Speaker 2: inform me who are they competing against other Swiss banks
Speaker 2: I don't know, or Deutsche Bank or JP Morgan.
Speaker 1: Who's you bees competing against?
Speaker 11: That's a very good question. I mean, like they have
Speaker 11: nobody like on the same level here in Europe. But
Speaker 11: of course you have a lot of niche players or
Speaker 11: small wealth management players will try to get a share
Speaker 11: and who will try to benefit of that client behavior
Speaker 11: where clients lost certainly not going to have like a
Speaker 11: concentration risk from their assets at credits with and ubs.
Speaker 11: So I guess like everybody will try to get a
Speaker 11: big cake here. But I was just like thinking about
Speaker 11: this for a broader story, like every European bank, maybe
Speaker 11: you want to watch this merger very closely because you
Speaker 11: suddenly see even though it was forced, it somehow seems
Speaker 11: to work. And you have now a major, major bank
Speaker 11: here with like five trillion dollars of assets under management,
Speaker 11: and you need to compete against them. So the question is, like,
Speaker 11: for all the other big players out there, do you
Speaker 11: want to consider a merger maybe as well to get
Speaker 11: to the same scale, because otherwise competing against ubs in
Speaker 11: terms of wealth management at least seems to be a
Speaker 11: very hard and upward battle.
Speaker 5: I would say, yeah, isn't this unique though? Didn't they
Speaker 5: get a dance partner essentially for free?
Speaker 11: Well, I mean, yeah, you could come to that conclusion,
Speaker 11: I would say, of course. I mean the price was
Speaker 11: very cheap. But again, like there are still risks associated
Speaker 11: with this merger. It's not a done deal yet. It's
Speaker 11: looking pretty well for the time being. But again you
Speaker 11: could see, like the final quarter results that we had
Speaker 11: from credits Is today had a ten billion dollar loss
Speaker 11: in it, sorry, ten billion Swiss Franks loss in it.
Speaker 11: So there's still like a huge burden that they now
Speaker 11: have on the balance sheet. Again, there are fifty five
Speaker 11: billion dollars in this non core unit that they need
Speaker 11: to run down, and again they still don't know how
Speaker 11: clients will behave.
Speaker 10: So it's looking good right now. They're doing the right things.
Speaker 11: But this is not in dry papers now and there
Speaker 11: could still go something wrong. So I would say like
Speaker 11: telling them this was for free and of course this
Speaker 11: is going well.
Speaker 10: Is too short?
Speaker 5: Well said then? Patrick? Thank you, said them, Patrick Bounder.
Speaker 5: I've blown back on evs Max with Stappan of Red
Speaker 5: Bull Racing Joint us right now. Max, good morning buddy.
Speaker 5: It's great to catch up with you, sir. Nine wins
Speaker 5: in a row just phenomenal. You're trying to make it
Speaker 5: ten at Monster. How special would that be?
Speaker 12: Yeah, I mean, of course it's something that I never
Speaker 12: even you know, told about that that is even possible. Right,
Speaker 12: But now that we have one nine in a row,
Speaker 12: tying the record, of course you want more, and I
Speaker 12: think we have a we have a good opportunity. But
Speaker 12: if on reasons are never straightforward, a lot of things
Speaker 12: that can can happen. But yeah, I'm excited, of course
Speaker 12: for the weekend.
Speaker 10: Max.
Speaker 5: Let's go back a couple of decades. Tell me back
Speaker 5: to the days when you're in a go car and
Speaker 5: you've got to be around people like Michael Schumacher and
Speaker 5: your father for that matter as well. Is that where
Speaker 5: this hunger desire comes from to dominate even after you
Speaker 5: get win after win.
Speaker 6: Yeah, I think it's.
Speaker 12: I mean, of course you need you you you really
Speaker 12: want it from a young age. But I think also
Speaker 12: the way I grew up, you know, having the experience
Speaker 12: with my dad by my side. Yeah, for sure, from
Speaker 12: a at a young age, I think you you know,
Speaker 12: get prepared in a in a different way, I guess.
Speaker 12: And yeah, for me, it's never good enough, you know,
Speaker 12: even you try to, you know, look for the little
Speaker 12: details that can go better. I mean, for sure, this
Speaker 12: year so far I think has been amazing, but yeah,
Speaker 12: I will never be satisfied at the end of the day.
Speaker 5: Max, Tom and I were talking about Marco van Bastard
Speaker 5: retiring from football at twenty eight, and I always hear
Speaker 5: people talk about you. They say things like he's going
Speaker 5: to get bored, he's going to get bored by this
Speaker 5: or potentially step away. Do the records that Shu Mack
Speaker 5: has set and they worth sticking around for you, Max,
Speaker 5: is that's something that drives you.
Speaker 12: Like I never really targeted like records. I of course
Speaker 12: really enjoy what I'm doing now and for me at
Speaker 12: the moment is the opposite. This for me is not boring.
Speaker 12: This is really exciting. Like I'm always very motivated to
Speaker 12: get to the track. I think it's more when you're
Speaker 12: not winning anymore, and there is also no real plan
Speaker 12: in place or a few where you see yourself winning again,
Speaker 12: then probably you get bored. But I think retiring at
Speaker 12: twenty eight for me is probably a bit too soon.
Speaker 2: Max John Faraoh is steeped in all that you do.
Speaker 2: He grew up in England and lives Formula one. I'm
Speaker 2: your ugly American. I'm new to this. I'm the one
Speaker 2: you need at Las Vegas, you needed Austin, Miami, wherever.
Speaker 2: And in reading about this, and I go to the
Speaker 2: great journalist Peter Windsor on this, he says, you do
Speaker 2: corners and k turns like nobody. He talks of silverstone
Speaker 2: in the three turns of Maggots and Becketts.
Speaker 1: How do you approach the tight.
Speaker 2: Turns of Formula one? Peter Windsor says, that's the difference.
Speaker 12: I think, you know, everyone has their own driving style,
Speaker 12: but also I think what is key in our sport
Speaker 12: is that you're able to adapt to whatever is needed.
Speaker 12: So you know, every year we have a new car,
Speaker 12: different looking car, and every single car drives a bit differently,
Speaker 12: and I think, yeah, you always have to adapt and
Speaker 12: learn and try to grow, try to be different, try
Speaker 12: to really get the most out of the car. And
Speaker 12: if the car is driven the fastest way in a
Speaker 12: different way than what you're used to, you have to
Speaker 12: try and adjust to that.
Speaker 2: Do you wish for a smaller, lighter.
Speaker 12: Car, Of course that would be ideal, but you also
Speaker 12: have to be realistic. I think with the safety standards
Speaker 12: that are always improving every single year, that is not
Speaker 12: always possible to go lighter. But I'm sure you know
Speaker 12: we are looking into the future regulations as well to
Speaker 12: try and make it better.
Speaker 5: Maxial Glasses. Thinking about the commercial stuff, we caught up
Speaker 5: with Christian Horner. It's great to talk to Christian a
Speaker 5: month or so ago, and we were talking about the
Speaker 5: race Canada and how many races are now in new
Speaker 5: places like in the United States, like in Vegas. For
Speaker 5: a man like yourself, can you compare say a Monza
Speaker 5: to a Miami a Las Vegas and mactually get excited
Speaker 5: about it, when for some people the purists might complain
Speaker 5: about this. Just be at a commercial event, moving away
Speaker 5: from the tradition, you know, race car racing and places
Speaker 5: like Monta and Silverstone.
Speaker 12: Well, the beautiful thing is is that we have a
Speaker 12: lot of different Grand Prix still, and I think it
Speaker 12: would be very boring if they're all the same, right,
Speaker 12: And yes, I am very aware that you know, we
Speaker 12: shouldn't go to all the let's say, the commercial places,
Speaker 12: but I think also Las Vegas gives you a unique
Speaker 12: opportunity and then time will tell you know if it's
Speaker 12: the right way to go or not. But for sure,
Speaker 12: from my side, you know, I like the pure racetres.
Speaker 12: I think an F one car as well, it really
Speaker 12: comes alive on the proper racetres, like Monza, like Spa,
Speaker 12: like Silverstone. So for sure, you know we need to
Speaker 12: keep these kind of tracks on the calendar.
Speaker 5: Max. They're always trying to rework the format. When a
Speaker 5: car a team goes through a period of dominance. I
Speaker 5: remember when it just used to be qualifying thirty minutes,
Speaker 5: fastest driver, fastest car. They get polled and they try
Speaker 5: to make qualifying more interesting. Do you think tweaking the
Speaker 5: format with sprint racing in one weekend not the other?
Speaker 5: Is that something that frustrates she was a driver.
Speaker 12: Yeah, I'm not really excited by these things because I
Speaker 12: think when something works really well, why do you need
Speaker 12: to try and tweak it? And yeah, this is I
Speaker 12: think a constant discussion and for sure that some things
Speaker 12: got well, some don't. But yeah, for me, trying to
Speaker 12: keep it like it is, you know, probably is the
Speaker 12: best thing forward because I always thought the qualifying format
Speaker 12: and you know, before you get into the single race,
Speaker 12: I think is very exciting.
Speaker 1: Max. I agree with you.
Speaker 2: I'm a complete hack at this, but I totally agree
Speaker 2: with you. The sprint thing is ridiculous. I just don't
Speaker 2: understand it. I love the qualification thing the day before.
Speaker 2: I love to tune into that.
Speaker 1: Max.
Speaker 2: For step, and are you in a place is completely
Speaker 2: dominant in the sports, involving all the money and the egos.
Speaker 2: Where can you control the future of who your teammate is?
Speaker 2: I understand there's autosport gossip in all that, but are
Speaker 2: you in a position now, Max where you can dictate,
Speaker 2: discuss or say who a future your teammate will be?
Speaker 6: Well, this is always up to the bosses and the team.
Speaker 12: I mean, of course, I'm a team member now for
Speaker 12: a long time, and of course things. You know, you
Speaker 12: talk about stuff, but I'm not the one who is
Speaker 12: telling them what to do or deciding things. At the
Speaker 12: end of the day, I need to focus on my
Speaker 12: job and try and drive as quick as I can
Speaker 12: every single weekend.
Speaker 5: We do a good job at that, Max, A good
Speaker 5: job of that, but particularly this season, Max, how close
Speaker 5: are you with Checko?
Speaker 12: Yeah, we are very close. Honestly, I think we are
Speaker 12: very similar in a way. Also how we're approaching our
Speaker 12: life outside of Formula one. And you know, he's a
Speaker 12: real family person. Of course he has his kids as well,
Speaker 12: and yeah, I'm pretty similar.
Speaker 10: I think it's good to.
Speaker 12: Try and you know, sometimes switch off and just you know,
Speaker 12: not think about Formula one. And I think that's where
Speaker 12: we can really relate.
Speaker 5: You know, what people are like. They like to stir
Speaker 5: up gossip and tell stories. And Max, you've been reluctant
Speaker 5: to get involved in the Netflix series, which has been
Speaker 5: massive here Stateside. Max, what's behind that reluctance? Why don't
Speaker 5: you like doing those things so much?
Speaker 12: I mean, I think at one point, you know, certain
Speaker 12: things are also a bit more private. Privacy for me
Speaker 12: is very important, and you know, I like things to
Speaker 12: be portrayed like they actually are and not with a
Speaker 12: lot of let's say spice to it. But you know
Speaker 12: every year now, I mean we had a good chat
Speaker 12: every year.
Speaker 6: I do.
Speaker 12: I do have an interview and I explain my side
Speaker 12: of the story, and I think that's important. I know
Speaker 12: how Netflix is in a way, of course to try
Speaker 12: and attract new fans, but of course you had it's
Speaker 12: important also to to really see the reality of the sport.
Speaker 1: John, I'll let you ask.
Speaker 2: I mean, we're in London, we come back, and that
Speaker 2: gives us just enough time to go to Las Vegas.
Speaker 2: I want to November, but you know, if Max can
Speaker 2: pull some strings for us, I think possibly we could
Speaker 2: be all Las Vegas with Red Bull.
Speaker 5: You want to ask him yourself, I'd let you please.
Speaker 5: Max would prefers to ask Christian Horner and we'll ask
Speaker 5: christin a little bit later.
Speaker 2: Max.
Speaker 5: I wanted to squeeze this in. I wanted your side
Speaker 5: of the story. I don't want to talk about the
Speaker 5: last race. I want to go back to Austria. Final
Speaker 5: lap of the Grand Prix. You have the opportunity to
Speaker 5: set the fastest lap. You make the call to make
Speaker 5: a pit to put on fresh tires and go around
Speaker 5: and set the fastest lab for a single point. Max.
Speaker 5: From your perspective, walk me through the thinking. There is
Speaker 5: that something you've planned ahead of the race. Is that
Speaker 5: something you think about in the moment And where does
Speaker 5: that confidence, that conviction come from to go against the
Speaker 5: team who would like you to stay out and just
Speaker 5: make the call yourself. I can do it. I know
Speaker 5: I can do it. I've got the control, the ability
Speaker 5: to perform. Where does that come from?
Speaker 2: Max?
Speaker 6: Yeah?
Speaker 12: I mean I always tried to maximize everything I can,
Speaker 12: and you know, I saw the opportunity for the extra points,
Speaker 12: so I was like, well why not. Of course, there's
Speaker 12: always a bit of a risk with these kind of things,
Speaker 12: but at the other hand, no risk, no fun, right,
Speaker 12: So that's what was also going through by am my
Speaker 12: head at the time.
Speaker 5: Max. Good luck for race weekend during the team fantastically
Speaker 5: catch up with you, sir, Max for stepping a red
Speaker 5: bull racing.
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