Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's turn to Omar Aguilar,
Speaker 1: CEO and ce IO Schwab Asset Management. Omar, thanks so
Speaker 1: much for joining us. I'm sure your phone is ringing
Speaker 1: off the hook with your Schwab clients saying what do
Speaker 1: I do in this market here? What are you telling
Speaker 1: Schwab clients? Good morning, Thanks for having me And um,
Speaker 1: you know we're we're telling clients to just take a
Speaker 1: deep breath and in a stay of the screen set
Speaker 1: a little bit. Um. It is is we have we
Speaker 1: have a market that went away from fundamentals to focus
Speaker 1: on mackero and right at this moment, it's really all
Speaker 1: about sentiment. Um. You know, we clearly see significant amount
Speaker 1: of client anxiety, UM, which is very understandable. Um about
Speaker 1: you know, what's going on in the market, what's going
Speaker 1: on in the economy, Um, you know, as you just
Speaker 1: laid out what they see on their house and there
Speaker 1: are gas prices anytime they go to the pump, anytime
Speaker 1: that they go out to a restaurant. You know, they
Speaker 1: clearly see that inflation numbers hitting them on their real
Speaker 1: pockets and then at the time at the same time
Speaker 1: they see everything that is going on overall. So you know,
Speaker 1: this is this is an area where we encourage clients
Speaker 1: to top three advisors to look at their strategy. And
Speaker 1: you know, there's a lot of strategies you can use
Speaker 1: to try to minimize any any inside is that you
Speaker 1: may have to do things that may not help you. So, UM.
Speaker 1: I heard Paul Tutor Jones the other day. I'm not
Speaker 1: sure if Critty will know who Paul Tutor Jones is,
Speaker 1: but to those of us who have been on the
Speaker 1: street for a few decades, he is an absolute legend. Right.
Speaker 1: He was saying capital preservation is his number one concern
Speaker 1: right now, which kind of freaked me out a little bit.
Speaker 1: I wonder, are your investors reallocating right now or rebalancing
Speaker 1: um in eiver of capital preservation rather than looking for
Speaker 1: any more games? Well where where where that you know,
Speaker 1: if you take a step back and you know, for
Speaker 1: any of the business and economic cycles that we have
Speaker 1: seen historically, we have clearly accelerated going through the last
Speaker 1: part of the cycle. A lot of that as a
Speaker 1: result of you know, the war in in Ukraine and
Speaker 1: also just the fact that the Federal Reserve has you know,
Speaker 1: probably been slow and reacting to what the inflation numbers
Speaker 1: were going even in the last year. So when you
Speaker 1: put that into perspective, um, you know, this is the
Speaker 1: part where you need to become defensive. This is the
Speaker 1: part where you need to start figure out how you
Speaker 1: increase your duration in your bond portfolio. This is the
Speaker 1: part where you need to be very selective in the
Speaker 1: kind of issues that you have with cash flows, high
Speaker 1: quality areas that will allow you to protect your balance sheet. Now,
Speaker 1: the fact that capital preservation it is really a risk profile,
Speaker 1: and the risk profile doesn't necessarily meet the investment objectives
Speaker 1: of every investor. So when we encourage people to see
Speaker 1: is that well, if your objective it still is to grow,
Speaker 1: depending on what your situation is, you just need to
Speaker 1: figure out what is the right rebalancing strategy to maintain
Speaker 1: that risk profile that makes you feel comfortable for some people,
Speaker 1: you know, people that are close to retirement, people that
Speaker 1: are in retirement where capital preservation is their main objective.
Speaker 1: Clearly this is an opportunity to de risk, but it's
Speaker 1: not necessarily for every investor. So omar one of the
Speaker 1: pieces of chatter I've picked up on the last maybe
Speaker 1: day or two, it's just kind of where's the bottom
Speaker 1: in this thing? In the selling phase here? Do you
Speaker 1: even try to catch the bottom? Do you think about
Speaker 1: identifying the bottom? And if you do, what are some
Speaker 1: of the metrics you look at? Yes, Well, we encourage
Speaker 1: clients to you know, try to speculate. You know, the
Speaker 1: chances that you're going to find the bottom and actually
Speaker 1: be there are very very low. We always, um, you know,
Speaker 1: have these particular you encourage clients not to try to speculate.
Speaker 1: That's correct, not to try to speculate. We you know,
Speaker 1: market timing it's very very difficult, um And we have
Speaker 1: this phrase that we tell clients, you know, time in
Speaker 1: the market is better that timing the market. And what
Speaker 1: that means is that is staying invested and stay consistent
Speaker 1: with invested risk profile and the long term objectives is
Speaker 1: more important than trying to find, you know, the dips
Speaker 1: and the bottoms of the market and trying to figure
Speaker 1: out where it is now. That being said, markets like
Speaker 1: these provide opportunities for you know, tactless harvesting. This is
Speaker 1: an opportunity to reallocate within the rest tolerance of every client.
Speaker 1: And this is an opportunity just to find other opportunities
Speaker 1: that they may have not had in the past. All right,
Speaker 1: you know you know why sounds so smart man? You
Speaker 1: want to do PhD from Duke there and you can
Speaker 1: do it. Why, by the way, how much swab asset management?
Speaker 1: Just we got ten seconds here? What are you? What
Speaker 1: are you managing? What are the assets? We're close to
Speaker 1: seven six hundred and ninety billion dollars? Alright, couple sucks
Speaker 1: in the market change that is, oh Mar Aguilar CEO
Speaker 1: and c i O schwab Asset Management PhD from Duke.
Speaker 1: I will add giving us his thoughts on these markets.
Speaker 1: Here again a little bit of bounced back. We're definitely
Speaker 1: off our highest put some green on the screen today.
Speaker 1: I want to get to our next guest right away.
Speaker 1: Uh Matt Faster our chief strategy obviously for XPO Logistics,
Speaker 1: it's a publicly traded company on the New York socka Change.
Speaker 1: XPO is the ticker there. It's got about a six
Speaker 1: billion dollar market cap. Matt. One of the key issues
Speaker 1: that Matt Miller and I have been focused on keenly
Speaker 1: since the beginning of this pandemic from an economic perspective,
Speaker 1: has been the supply chain, the global supply chain challenges.
Speaker 1: And there's no company that I can think of that
Speaker 1: has a more broader view of the global supply chain
Speaker 1: than XPO Logistics. So, Matt, thanks so much for joining
Speaker 1: us here. I'd love to get your expert opinion on
Speaker 1: how we got here, i e. Supply chain problems that
Speaker 1: are impacting everybody, and how we get out of this thing.
Speaker 1: Thanks for having me really happy to be here, and
Speaker 1: especially happy to be here on a day after we
Speaker 1: reported strong results and a strong outlook. On your question
Speaker 1: as to how we got here from the supply chain perspective,
Speaker 1: think of it this way. First of all, in very
Speaker 1: early two thousand and twenty, we saw some initial disruption
Speaker 1: as the first round of COVID hit China and you
Speaker 1: had to slow down in UH import and export activity
Speaker 1: from China. We thought at the time that that was
Speaker 1: going to be the crux of the impact. Little did
Speaker 1: we know, obviously, in so many ways subsequent to that, uh,
Speaker 1: there was, as you know, virtually a halt in the
Speaker 1: global economy at a moment in time, after which you
Speaker 1: had a resumption of demand. Uh, and you had a
Speaker 1: lot of goods making their way into the United States
Speaker 1: and around the United States with finite capacity. And even
Speaker 1: in a normal demand environment, it's sort of the pick
Speaker 1: of the Python situation. You try to get an enormous
Speaker 1: amount of goods through a fixed amount of infrastructure. Now
Speaker 1: that infrastructure was even more constumed than it otherwise would
Speaker 1: have been, because during the pandemic, lots of providers of
Speaker 1: supply chain services pulled back on their orders of new equipment.
Speaker 1: Beyond that, obviously, you had fiscal stimulus, and there was
Speaker 1: a lot of money in people's hands. Moreover, they were
Speaker 1: spending a lot of that money on goods rather than services.
Speaker 1: So you had more goods than usual making their way
Speaker 1: through less infrastructure than usual, all at once. And then finally,
Speaker 1: as you know, whether you call it a great resignation
Speaker 1: or simply a labor shortage, there are fewer people to
Speaker 1: help perform those tasks, so there was less infrastructure, Uh,
Speaker 1: there was less labor to get the job done, there
Speaker 1: was more demand. There was obviously in that sense, a
Speaker 1: perfect storm. Now our role has been and remains helped
Speaker 1: people are customers and ultimately their customers navigate through that.
Speaker 1: And that's something that we've been able, thankfully to do.
Speaker 1: And obviously your services have been a huge demand. You
Speaker 1: just as you said, published results that beat estimates and
Speaker 1: you raised your outlook as well for the full year.
Speaker 1: Given that UM, you have a really good view of UM,
Speaker 1: the US economy, the global economy. How do you see UM,
Speaker 1: how do you see it developing right now? I mean,
Speaker 1: obviously for XPO the picture looks great because the industry
Speaker 1: that you're in, the area that you're in is in
Speaker 1: is in huge demand. What about for the broader economy,
Speaker 1: do you see a slowdown this year? There are cross winds,
Speaker 1: for sure. There are a number of macro factors to
Speaker 1: consider and for them to keep their eye on. The
Speaker 1: said has obviously been has started the process of raising rates.
Speaker 1: That's been an in partner sponse to an inflationary environment.
Speaker 1: That's something we need to watch. There obviously is a
Speaker 1: war in Ukraine, and that's something that we need to watch.
Speaker 1: The Our European business has actually performed quite well. We're
Speaker 1: primarily in the western part of Europe, UK, France, and Spain.
Speaker 1: Organic revenue growth in that part of the world accelerated
Speaker 1: for US in the first quarter versus the fourth quarter.
Speaker 1: And then in China, obviously there have been COVID related
Speaker 1: lockdowns that has led to UH some suspension or slow
Speaker 1: down in the amount of freight making its way to
Speaker 1: our shores from China. Obviously, something we're watching very carefully.
Speaker 1: To our view is that once those lockdowns ease, you'll
Speaker 1: see a flood of freight and certainly nothing like what
Speaker 1: you saw in two thousand twenty that we spoke about
Speaker 1: a moment ago, but potentially some retightening of the truckload
Speaker 1: markets and other transportation markets. So definitely some cross winds
Speaker 1: and things to watch. But if if our business is
Speaker 1: a gauge of what we're seeing in truck brokerage, where
Speaker 1: we were helped arrange truckload transportation UH for for many
Speaker 1: many of the largest shippers in the country and the
Speaker 1: world in the first In the first quarter, our load
Speaker 1: growth was our volume growth has the sixth consecutive quarter
Speaker 1: growth or more. And in April our volume growth was
Speaker 1: quite strong. Our growth and revenue per day, and our
Speaker 1: less than truckload business in April a bit stronger than
Speaker 1: And you really focused the business, right, I mean you
Speaker 1: were for years, for a couple of decades at least
Speaker 1: at Goldman sachs Um and you came in to run XPO.
Speaker 1: Just give us the shorthand version of what you've done
Speaker 1: to to focus m this logistics business. Well, well, well, uh, my, my, my,
Speaker 1: my boss. Brad Jacobs is our chairman, CEO and founders,
Speaker 1: so he runs XPO. I'm the chief strategy officer, So
Speaker 1: I want to put myself in my place, if you will,
Speaker 1: about what we've what we've done, what we've done collectively.
Speaker 1: I appreciate the motion, um, what we've done collectively of
Speaker 1: late to your point, we have refocused the business we
Speaker 1: used to operate within XPO, a supply chain or contract
Speaker 1: logistics business offering warehousing and distribution services also for many
Speaker 1: of the largest companies in the world. We spun that
Speaker 1: company off as g XO last August. They've had a
Speaker 1: very good run. They reported their numbers last week. That
Speaker 1: was a very successful spin, and we are further focusing
Speaker 1: our business. We recently divested our intermodal operation. We sold
Speaker 1: that in March. We've indicated that we planned to divest
Speaker 1: our European transportation operation, the business I spoke about a
Speaker 1: moment ago, and and then also in the fourth quarter,
Speaker 1: we plan on divesting our tech enabled brokera services platform
Speaker 1: into a separate public company, which will leave the remain
Speaker 1: COO if you will, XPO as an lt L enterprise
Speaker 1: and then the brokerage business as a separate public company.
Speaker 1: And what what we what we found through g x
Speaker 1: O and what we expect to find when we complete
Speaker 1: the spin, is that these companies each will be better
Speaker 1: fit for their purposes of serving their customers and able
Speaker 1: to engage in many decisions that are precisely specified to
Speaker 1: their business missions, and we think will be quite successful.
Speaker 1: About thirty seconds left, I love to get your best
Speaker 1: guests as to when these supply chain issues will become
Speaker 1: more normalized. Uh. We think that it's gonna stay tight
Speaker 1: for a while. We think that disruption will persist for
Speaker 1: a while. We think that things actually might tighten up
Speaker 1: a bit more. Again, as I said in the second half,
Speaker 1: if it has great flow resumes from China. Uh. We
Speaker 1: we are there to help our customers. Were there last
Speaker 1: Christmas to help people get their gifts under their trees.
Speaker 1: Were there to help our industrial customers I get their
Speaker 1: equipment out there, and and and I think next year
Speaker 1: you could see some normalization. But I think the value
Speaker 1: of outsourced transportation advice answer this says, has been proven
Speaker 1: to show and that should endure. All Right, good stuff,
Speaker 1: Matt Fassler, chief strategy officer for XPO Logistics Logistics, giving
Speaker 1: us the latest on the supply chain issues still out there.
Speaker 1: If I were to choose a diesel, a big diesel engine,
Speaker 1: I would definitely go with the power stroke. Ford has
Speaker 1: a six point seven Leader power stroke. It's only available
Speaker 1: in the super duty trucks. I wish they sold it
Speaker 1: in the half tons, but it puts out more than
Speaker 1: a thousand pound feet of torque pound feet unbelievable torque figures. Now.
Speaker 1: I know Greg Jarrett because he was stuck in some
Speaker 1: oil field fires during the First Persian UH, during the
Speaker 1: First Golf War. UM is allergic diesel. He's gonna be
Speaker 1: very happy when they start putting out electric pickup trucks
Speaker 1: for a long time we thought Teslas was going to
Speaker 1: make a cyber truck. I'm not sure if that's really
Speaker 1: still happening. I've started to see some Rivyan's um on
Speaker 1: the street. Uh there, you know, a hundred thousand dollar vehicles,
Speaker 1: and they're not really what you think of that work truck,
Speaker 1: you know, although TfL did um use one on on
Speaker 1: on a farm for a little bit. Um. I think
Speaker 1: most people are waiting for Ford to put out the
Speaker 1: F one fifty Lightning. Obviously, the F one fifty or
Speaker 1: the series pickup truck is like the best selling nameplate
Speaker 1: of all not just trucks but cars in the US
Speaker 1: and has been for at least forty years. I'm gonna
Speaker 1: say that's not a joke. Um. Americans by by their
Speaker 1: F Series trucks and absolutely love him. Jason Turnbull joins
Speaker 1: us right now. He is the marketing manager for the
Speaker 1: Lightning and he's been working at Forward for uh the
Speaker 1: better half of the better end of a decade, I
Speaker 1: should say a little more. I think what thirteen years? Jason,
Speaker 1: great to have you on the program. Tell us when
Speaker 1: we're gonna actually see this truck. I'm so worried that
Speaker 1: it's gonna be like, um, you know, not until because
Speaker 1: the chip shortage and the supply chain issues are are
Speaker 1: making us wait for all these automotive products. Well, thank you,
Speaker 1: thank you for having me. Yeah. So that as the Lightning,
Speaker 1: It's are all electric, all electric basic pickup truck. And
Speaker 1: the greatest thing is we announced it two years ago,
Speaker 1: we revealed it a year ago, and starting this month,
Speaker 1: we're actually starting customer deliveries. So it's a real product
Speaker 1: under UNDERT dollars and we're really excited about it this alright.
Speaker 1: So I knew, like Mike Lavine is a buddy of
Speaker 1: mine over at Forward and he gets to test the
Speaker 1: coolest all the new products, you know, and I see
Speaker 1: pictures of him taking the Lightning out to like Moab
Speaker 1: or on the Baja or whatever. But I didn't know
Speaker 1: that real people we're gonna start, So people are going
Speaker 1: to start taking deliveries. What's the weight list? Though? If
Speaker 1: I put my order in today for a Lightning, when
Speaker 1: am I gonna be likely to go pick it up
Speaker 1: from my from my four dealer. Yeah. So when we
Speaker 1: revealed last May, we took reservations and last December we
Speaker 1: hit two hundred thousand reservations. We just had to shut
Speaker 1: off our reservation system because now our goal is to
Speaker 1: fulfill and convert those all the orders. So if you
Speaker 1: don't have to have a have a resonance right now,
Speaker 1: you're really gonna wait probably about eighteen months before that
Speaker 1: you can place in order for a lightning because we're
Speaker 1: later focused on getting them out the door to the
Speaker 1: current customers that have ordered. Jason, I think you just
Speaker 1: answered my question because you know, it's one thing to
Speaker 1: drive around a Tesla around Coupertino, California. It's another thing
Speaker 1: to go on my big ranch out in the middle
Speaker 1: of Arizona where I have to do some real work
Speaker 1: with a pickup truck and convert that to electric. Are
Speaker 1: Ford f one fifty buyers are are they ready to
Speaker 1: go electric? So this is a key benefit of definitely
Speaker 1: like me as we are attracting a broad range of customers.
Speaker 1: So from that traditional truck customer, it is gonna tow
Speaker 1: and haul just like your current gas du towes up
Speaker 1: to ten thousand pounds, halls over two thousand pounds. It
Speaker 1: will have three range, so it will do the bill
Speaker 1: as well as it passed all their ability capability is
Speaker 1: built for tough and at the same time as we
Speaker 1: were attracting new to e V and new to Ford
Speaker 1: customers that really want that technology to do. So we
Speaker 1: have that hands free blue cruise highway driving. We have
Speaker 1: onboard scales that actually measures what's in your pickup bed.
Speaker 1: So this product can do all the work stuff and
Speaker 1: then also is loaded with advanced technology. For me, the
Speaker 1: coolest thing is you can power your house. So here
Speaker 1: in the Northeast we have a lot of storms that
Speaker 1: knock out power. If you have this thing parked in
Speaker 1: your garage and it's charged, you can use it as
Speaker 1: as use it as a generator. UM. I still have
Speaker 1: range anxiety though, Jason, and I'm wondering, was there ever
Speaker 1: any thought, even you know, as a as a dealer
Speaker 1: add on to offer like a diesel generator to put
Speaker 1: in the bed so that I don't have to worry
Speaker 1: about getting to a charging station. Yeah. So when we're
Speaker 1: developing the product, it was all about efficiency. So the
Speaker 1: way that we package the battery and kind of how
Speaker 1: it's within the frame rails and how it's a parallel system,
Speaker 1: it is the most efficient. UM And what we found
Speaker 1: is for customers, over of them charge at home. So
Speaker 1: for the most part, you know they can they drive
Speaker 1: less than that three miles rains a day when you
Speaker 1: go on a road trip. That's where EV infrastructure is critical.
Speaker 1: And we really believe that as we grow the footprint,
Speaker 1: it will meet our customers needs. So how quickly can
Speaker 1: you grow the footprint? I mean, um, you know, I
Speaker 1: live in the great state of Ohio. I'm from there,
Speaker 1: thank God, and uh, but I live way out here
Speaker 1: in New York, and so I try and get back
Speaker 1: as much as possible. That's like a six mile trip.
Speaker 1: I would have to I probably realistically charge up twice
Speaker 1: on the way back. And I'm driving through like legit
Speaker 1: flyover country like I go when you when I go
Speaker 1: through Pennsylvania. Yeah, exactly. Happy Valley is like the only
Speaker 1: sign of life for six hours. How am I going
Speaker 1: to charge this thing on the way home to Granville? Yeah.
Speaker 1: The key thing at Forward is we realize, you know,
Speaker 1: we're not the experts in basically e V basically charging.
Speaker 1: So what we're doing is we're partnering with all the
Speaker 1: major UM charging station so Electry America EV go green lots,
Speaker 1: so to our customer is in our ford past app
Speaker 1: it just kind of looked like Ford foard charges for
Speaker 1: charging stations and you can be folly lead the driveway.
Speaker 1: You can plug in your address, your destination and it
Speaker 1: will automatically tell you what's the most efficient route and
Speaker 1: here to charge. So our goal is to be, which
Speaker 1: we are right now, the largest EV network because we
Speaker 1: partner with all the charting stations, you know, instead of
Speaker 1: going alone. So Jason, as you you know, ramp up
Speaker 1: your manufacturing gis a sense of supply chain challenges that
Speaker 1: you guys are feeling. Here can you get all the
Speaker 1: chips you need for these evs and and plus the
Speaker 1: old ice. Yeah, So what I can say is, you know,
Speaker 1: a macro kind of impact in the industry is is
Speaker 1: the tip short at Ford? You know, we're managing that
Speaker 1: as best we can. And lightning is a key product launched,
Speaker 1: so we're prioritizing. So we're laser focused on having a
Speaker 1: on time on track and a quality lawn for lightning Pacifically, dude,
Speaker 1: that's two laser focused, two times you've focus. This is
Speaker 1: an old phrase that Alan mollally brought to the Ford
Speaker 1: Motor Company back in the day. I like it. I
Speaker 1: like it. I'm sure you get points for it. Farley
Speaker 1: Will Farley will allow it. By the way, Jim is
Speaker 1: a good friend of mine, and I'm sure he won't
Speaker 1: mind you sharing just with us, just with me and Paul,
Speaker 1: some of your secret plans. I've been driving the Broncho
Speaker 1: around for the last week and it is a ton
Speaker 1: of fun. I gotta say, I'm super impressed by the
Speaker 1: two point seven leader V six in there, and I
Speaker 1: hate V six is traditionally. I think it's the most
Speaker 1: boring if you're gonna choose an engine, obviously a V eight, right,
Speaker 1: but at least an in line six. They went with
Speaker 1: a V on this and I thought, oh no. But
Speaker 1: it's so fast and it's so responsive, so I'm blown away.
Speaker 1: My question, though, is, Jason, when do you go electric?
Speaker 1: I don't know why you didn't introduce the Bronco as
Speaker 1: an electric vehicle in the first place. How long do
Speaker 1: we have to wait for, at the very least, a
Speaker 1: hybrid Bronco. Yeah, so I I can't count on that,
Speaker 1: But what I can tell you is Ford strategies. We're
Speaker 1: not just saying we're going electric everything, because we know
Speaker 1: a sucy in in the oment. There's different usage cases,
Speaker 1: so someone's gonna tow heavyweight long distances frequently a dis
Speaker 1: or guest engine will work. Obviously, Bronco is a blasted
Speaker 1: drive currently, and we're always looking at kind of feature
Speaker 1: plans electrified, so stay tuned in the future. All right, Jason,
Speaker 1: thanks so much for joining us. Jason Turnbull their marketing manager,
Speaker 1: clearly doing an excellent job talking about the F one
Speaker 1: fifty Lightning. We're pumped to see that come out. I'm
Speaker 1: also pumped to see an electric Broncho. It's got to happen.
Speaker 1: I heard the Broncos is awesome. Dude, It's so much fun.
Speaker 1: I've been driving it back and forth to Westchester. I
Speaker 1: dropped the top yesterday the sun was out. I'm like
Speaker 1: blasting bad religion flying up the west Side Highway. Super
Speaker 1: super fun. Alright, good stuff. Jason Turbull F one fifty Lightning,
Speaker 1: marketing manager for the Ford Motor Company. I want to
Speaker 1: bring in John Author. She covers all this great economy
Speaker 1: market stuff for Bloomberg News and Bloomberg Opinion. John, you
Speaker 1: know we're looking at the markets here. We had to.
Speaker 1: Did you see the top of his colle I did not.
Speaker 1: I love it all right, let us I love it.
Speaker 1: Party over Oops, out of time. Oh, I got it.
Speaker 1: Look at him being so hip there, um passing quoting
Speaker 1: a song from forty years ago. But yes, okay, twenty
Speaker 1: three years ago. No, wait, the song was. But it
Speaker 1: must have come out in the eighties, because I remember
Speaker 1: I had it was it was it was before Purple Rain.
Speaker 1: I think it was about eighty two or eighty three. Yeah,
Speaker 1: it was on the Little Red Corvette album. Uh, what
Speaker 1: a great record. I loved Prince. Not that we're all
Speaker 1: more interested in Prince than what's going on in the
Speaker 1: financial market, so on what is going on in the
Speaker 1: financial markets from your perspective time. Yeah, the point is
Speaker 1: you're comparing this to two thousands, so it's rough and
Speaker 1: in some in something well, in some critical respect, it ease.
Speaker 1: I mean, bear in mind, what what's different? Um Or
Speaker 1: Until recently, I would have said this didn't have that
Speaker 1: much in common with two thousand, because that was very
Speaker 1: much an internally financially driven incidents, whereas this time around,
Speaker 1: we're you know, we have a war, we have in
Speaker 1: writing inflation, we have the shock from the pandemic. There
Speaker 1: were all kinds of very obvious external reasons why why
Speaker 1: they're the markets are being shocked and having to react.
Speaker 1: But what is interesting the last few days, in particular,
Speaker 1: is how this has been about driven about, and the
Speaker 1: stock market has been driven all about valuation. It's the
Speaker 1: most overpriced stocks that have sold off the most period
Speaker 1: right the way through the markets that that that relatively
Speaker 1: cheap stocks are barely down. Some of them are actually
Speaker 1: gaining a bit. If wal Mart or you Will Brands
Speaker 1: or whatever doing moderately well, and the names that have
Speaker 1: excited people are tanking very very somlicitus and maybe not
Speaker 1: maybe not enough yet, right John. I heard um Luke
Speaker 1: Kawa was on the Odd Lots podcast on Friday, and
Speaker 1: he said, you know, valuations have come in, um, but uh,
Speaker 1: you know, terminal rate expectations are up a hundred basis points,
Speaker 1: so maybe it's not worth it yet. I would I
Speaker 1: would certainly say that there is no clarity over While
Speaker 1: there isn't clarity over the terminal rate, while there isn't
Speaker 1: clarity over how inflation comes under control, then there can't
Speaker 1: be clarity over an appropriate valuation either. If you look,
Speaker 1: it's you know, I don't want to get too technical,
Speaker 1: but if you look at the cyclically adjusted pe, which
Speaker 1: is Robert Schiller's great invention at university, which has been
Speaker 1: very good at predicting medium term returns, like returns over
Speaker 1: the next ten years. Then it has come down sharply
Speaker 1: in the last a few months, but it's still almost
Speaker 1: exactly at the level it was at before the Great Crash.
Speaker 1: So we've already been talking about Prince forty years ago,
Speaker 1: and we're about as expensive us we were almost a
Speaker 1: hundred years ago before that's crash. But by the way,
Speaker 1: in particular reason of evaluation for things to stop selling
Speaker 1: off now, and who knows what was on the charts,
Speaker 1: then yes I don't. By the way, I wonder what
Speaker 1: you how do you explain to a layman um like
Speaker 1: me why rising rates are bad for these you know,
Speaker 1: growthy text docs, for these disruptive innovators? Why is why
Speaker 1: are rising rates necessarily bad for you know, a Netflix
Speaker 1: or maybe even an Amazon? What's the relationship there? Okay,
Speaker 1: if your gross is in the future, if you if
Speaker 1: all your earnings are in the future, you're not turning
Speaker 1: out earnings regularly now, But all the hopes reasonably enough,
Speaker 1: but all the hopes are for growth in the future,
Speaker 1: then you need in any discounted cash flow analysis through
Speaker 1: to account for the time value of money and discount
Speaker 1: those future flows by a reasonable interest rate. In Layman's terms,
Speaker 1: money in the future isn't worth as much as money
Speaker 1: is today. That's worth in the future declines as interest
Speaker 1: rates rise, So if all your value is in the future,
Speaker 1: higher rates will clover your valuation. Meanwhile, if you're mules
Speaker 1: brands making rubber made and sharpies and stuff, your valuation
Speaker 1: is centered in the here and now and rates don't
Speaker 1: matter anything like so much. John, if I'm a glass
Speaker 1: half empty person, is it fair to say these markets
Speaker 1: aren't going to rebound until industrate stuff one up? Still
Speaker 1: we're confident in terms of are they going to make
Speaker 1: a firm rebounds and get above get above the levels
Speaker 1: they were at at the turn of the year. I
Speaker 1: don't see how that can happen until we have clarity
Speaker 1: about where interest rates are headed. No, I that doesn't
Speaker 1: mean that I doubt it. But it's possible that the
Speaker 1: bottom is already in. But in terms of a really
Speaker 1: strong recovery to the levels that we've seen in the
Speaker 1: seen as recently as the turn of the year, we
Speaker 1: need to know how bad inflation and the interest rates
Speaker 1: are going to get. Yeah, you need to know what
Speaker 1: the Fed is going to do before you can price
Speaker 1: it in, right, and and and the fad itself doesn't
Speaker 1: know because the Fed itself doesn't know exactly how bad
Speaker 1: the inflation problem and how quickly it will come under control.
Speaker 1: So I don't see a way. I'm sure there are
Speaker 1: plenty of ways I'm not thinking of where people can
Speaker 1: make money over the next few months. Um. In terms
Speaker 1: of a sustained clear buying opportunity taking us up to
Speaker 1: new levels, I don't see how that's possible in the
Speaker 1: next few months. Somebody clever up there is going to
Speaker 1: make money in the next few months. They always do. Um.
Speaker 1: But in terms of a secular uplift to the stock
Speaker 1: market of the kind we've been become accustomed to, that
Speaker 1: that can't happen until we know what's happening with the
Speaker 1: with inflation in rates. Well, you've got to be able
Speaker 1: to see who lives through this if we have the
Speaker 1: kind of drops like we had in at the end
Speaker 1: of the Internet bubble. I remember a buddy of mine
Speaker 1: was working at bat Alex Brown and he said, I
Speaker 1: don't care. Um, if you think all these you know,
Speaker 1: revenue churning tech companies are worthless. I think Amazon is
Speaker 1: still going to be a big behemoth someday. And I
Speaker 1: always think about that because I should have bought Amazon
Speaker 1: when he was telling me. But we still I mean,
Speaker 1: the cruel math part of this is bt Alex Brown
Speaker 1: that he is known to its friends of Deutsche Bank. Yeah. Yeah.
Speaker 1: The poor math thing is we have to in order
Speaker 1: to get back to the turn of the year, we've
Speaker 1: got to climb so much further than we've fallen because
Speaker 1: the denominator is smaller now, right, Um, the Nasdaq has
Speaker 1: lost like, but it's got to go up to get
Speaker 1: back to where it was on January third, Math, Yes,
Speaker 1: uh and uh. At some point that probably will happen,
Speaker 1: but it's unlikely to happen this year unless inflation comes
Speaker 1: really rapidly under control without hurting growth. So to that end,
Speaker 1: see how that can happen. So when we get the
Speaker 1: CPI did it, tomar John, what what? What do you
Speaker 1: think we should really be focusing on? You should be
Speaker 1: focusing on rents, which is the big element that most
Speaker 1: worries people that that um, that's a third of the index,
Speaker 1: and for one reason another it tends to show up
Speaker 1: in in the CPI with a leg uh. And it's
Speaker 1: been relatively under control and is now rising. So that
Speaker 1: is a critical issue. Um. And beyond that, take a
Speaker 1: look at the trimmed mean of inflation, where you remove
Speaker 1: outliers in both directions. But by the way, it's lately Sorry, well,
Speaker 1: I was gonna say, we're we're about to have to
Speaker 1: listen to President Biden come out and talking to talk
Speaker 1: about inflation. I can see the background, um behind his podium.
Speaker 1: It says lowering costs and tackling inflation, which I'm sure
Speaker 1: he wants voters to think that he's doing. Um. This
Speaker 1: brings very little he can do, certainly decide of the midsterms.
Speaker 1: There's more or less nothing he can do. But it's
Speaker 1: a It's a rule of politics, isn't it you If
Speaker 1: you're the one in charge when the economy goes sour,
Speaker 1: it's yours. It doesn't matter how much money the federal
Speaker 1: government was spending even before he came into office, exactly. John,
Speaker 1: I want to just finally ask you what your take
Speaker 1: is on the housing market and interest rates, because we
Speaker 1: saw a mortgage rates climb to. I think at the
Speaker 1: end of last week it was already five point three percent,
Speaker 1: and at least anecdotally, I have heard first time buyers
Speaker 1: scared out of the market or people selling their homes
Speaker 1: say well, we better lower the price now. Um is it?
Speaker 1: Is it problematic because you know, we've seen this huge
Speaker 1: land grab and prices are unbelievable, there's no inventory, and
Speaker 1: now you've got mortgage rates rising. Yes, it's it's very problematic.
Speaker 1: And this is the big difference, bad difference from two thousands.
Speaker 1: In the two thousand was an equity market bubble, a
Speaker 1: massive one, but it wasn't a housing market bubble as well.
Speaker 1: This time we have something that looks as though it
Speaker 1: might even be a bubble in American housing. Now. There's
Speaker 1: one huge advantage that the US has compared to almost
Speaker 1: the rest of the world, which is that America for
Speaker 1: years have preferred fixed rate mortgages. I happen to be
Speaker 1: looking into piece of research, so something like from Deutsche
Speaker 1: Bank that shows that only about two percent of US
Speaker 1: mortgages are on variable rates. In the UK, it's more
Speaker 1: like forty In Australia, Italy, Germany, We're talking about more
Speaker 1: than are variable, so the impact of rising mortgages takes
Speaker 1: longer to affect house prices here than it does in
Speaker 1: the other developed economies. But plainly, at this point it's uh,
Speaker 1: you know, this is overextended and people have been making
Speaker 1: their calculations on the assumption that money would stay phenomenally
Speaker 1: historically cheap and it isn't anymore. So, yes, it's very concerning.
Speaker 1: All right, John Authors, thank you so much. We appreciate that.
Speaker 1: John Author's covers global markets and investments and the Red
Speaker 1: so Thanks Bloomberg News and Bloinion. Rents really a year
Speaker 1: for the right. He sounds like a soccer fan, I know,
Speaker 1: but he's a big Red Sox guy. I didn't know that. Yeah. Absolutely,
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
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