Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: search Bloomberg Global News. Well, yes, the sector I stole
Speaker 1: for Tim for the top of our three pm simulcast,
Speaker 1: it is the semiconductor index. The socks rear seeing chip
Speaker 1: stocks jump today, Sam, some electronics coming out with better
Speaker 1: than anticipated jump in revenue, and that really just sent
Speaker 1: the whole sector booming in uh, the U S trade.
Speaker 1: I mean it also sent it booming over in the
Speaker 1: Agia trade. Overnight. You have a really interesting commentary coming
Speaker 1: from our own Ryan the Stellica and subrot Pat Nike,
Speaker 1: all about the chips supply chain. We've talked so much
Speaker 1: about it Carol and over the US two years, how
Speaker 1: it has been really challenged, not just for automakers but
Speaker 1: for anyone who wanted a chip. It's actually getting harder
Speaker 1: to trade because not all chips are created equal. Ryan
Speaker 1: the Stelica is equities reporter for Bloomberg News, and he
Speaker 1: joins us on the phone from Chicago. Ryan, great to
Speaker 1: have you with us. I want to go back to
Speaker 1: this idea that that not all chips are the same
Speaker 1: here because we are starting to see a glut in
Speaker 1: some types of chips, but others are still hard to
Speaker 1: come by. Please explain. Yeah, absolutely, Well, Obviously, different chips
Speaker 1: are used in different types of product categories, and we
Speaker 1: are seeing differences in demand and supply depending on what
Speaker 1: level you're looking at and what's part of the market
Speaker 1: and what their use case is. So last week we
Speaker 1: had a little bit of a warning sign out of Micron,
Speaker 1: which talked about flowing demand for issues like computers and smartphones,
Speaker 1: suggesting maybe a little bit of a weaker demand outlook
Speaker 1: for memory related chips in particular. Now you mentioned before,
Speaker 1: we just had sam some come out better than expect
Speaker 1: to jump in revenue. So that's a positive sign for
Speaker 1: this group. So again, some mix mills there, but this
Speaker 1: is an area where people are still trying to suck
Speaker 1: out what does demand look like and so on and
Speaker 1: so forth. Of course, there are other areas that we
Speaker 1: can get into this. Well. I feel like a story
Speaker 1: like yours, Ryan is one that really kind of educates
Speaker 1: us because it reminds us that not all chips are
Speaker 1: the same. And then it also reminds us that this
Speaker 1: is when it really turns out that if you're a
Speaker 1: big buyer of chips, thank you, Apple, you tend to
Speaker 1: be in a better position. So talk to us a
Speaker 1: little bit about kind of the specifics the nuances of
Speaker 1: the semi trade. Yeah, well sure, I mean you mentioned
Speaker 1: that Apple is a huge buyer of chips, especially from
Speaker 1: Micron and from Qualcom and from other names like that.
Speaker 1: Because of, you know, the weight it throws around, it
Speaker 1: has been able to navigate some of these supply chain
Speaker 1: issues a little bit better than a smaller players, although
Speaker 1: and it's most recent quarterly reported did kind of come
Speaker 1: out and suggested it was seeing a certain amount of
Speaker 1: headwind from this. Of course, now there's questions about demand
Speaker 1: and in its ability to continue getting supply, so again
Speaker 1: very complicated picture in the chip sector. UM, different areas
Speaker 1: are seeing perhaps some stronger tail winds than others right now.
Speaker 1: It depends on what the use cases. Okay, Ryan, let's
Speaker 1: talk autos here. Help us get an understanding for what's
Speaker 1: going on in the car industry, specifically here in the
Speaker 1: United States, because it's still pretty tough to get a
Speaker 1: new car. Yeah. Absolutely. We just saw a GM come
Speaker 1: out last week talking about chip shortages and being sort
Speaker 1: of an issue that if spacing. So that is an
Speaker 1: area where they're continue to be extremely strong demand for chips,
Speaker 1: and there's more and more chips are being put into cars,
Speaker 1: especially electric vehicles, to unitor all the different kinds of
Speaker 1: computers and UM you know, you know, everything that goes
Speaker 1: on to those cousins to make sure that they're operating
Speaker 1: and finding all the necessary data they need. So that
Speaker 1: is an area that continues to see very strong demands.
Speaker 1: UM and TATA companies, UM, you know, like Texas Instruments
Speaker 1: STM UM finding on NXB UM food companies like that
Speaker 1: are heavily involved in this particular area. All right, So
Speaker 1: you've got you know, you talk about the different ships
Speaker 1: in your story. You know, smartphones tablets, computers. We just
Speaker 1: talked about auto Tim brought that up. There's data centers,
Speaker 1: there's um AI artificial intelligence, and then you've also got
Speaker 1: the chip eqipment makers. I almost think about when I'm
Speaker 1: reading this story. I think about the energy sector. Right,
Speaker 1: You've got integrated oil companies, You've got the e m P,
Speaker 1: the exploration production companies, You've get utilities. Like there's different
Speaker 1: ways of playing with it. Talk to us about like
Speaker 1: the data center and AI guys or the chip equipment makers.
Speaker 1: Is that opportunity for investors potentially well? Data center is
Speaker 1: an area that so far seems to be holding up
Speaker 1: pretty well. Data centers of course us in cloud computing
Speaker 1: and so forth. So what has really major enterprise spending
Speaker 1: behind it, especially named like Amazon and Microsoft and Alphabet
Speaker 1: or of course the biggest players within the cloud space.
Speaker 1: So companies like the media tend to see a lot
Speaker 1: of demands for these types of products. A and B
Speaker 1: is another one. Even Micron does have a data center division,
Speaker 1: which it said was holding up pretty well in contrast
Speaker 1: to the consumer side of things. So this is an area, um,
Speaker 1: you know so far as holding well. People I've spoken
Speaker 1: to said, um, they're really waiting to see whether this
Speaker 1: continues to hold up. If it doesn't, then that does
Speaker 1: have some pretty negative implications for what broader economic looks like. Yeah,
Speaker 1: I feel like Tim, these are things like the hedge
Speaker 1: fund guys right there watching like all these different kind
Speaker 1: of indicators to give an idea of what comes next exactly.
Speaker 1: And it's interesting to see. Two, we didn't even get
Speaker 1: a chance to talk about crypto and the declining interest
Speaker 1: around crypto, the decline price around crypto. That has an
Speaker 1: effect on the chip industry as well, because that decreases
Speaker 1: demand too. Do you know the sucks is up within
Speaker 1: six percent since last Friday. I didn't know that I
Speaker 1: was gonna I'll find that out at three o'clock at
Speaker 1: that maybe maybe maybe a good one might pay a
Speaker 1: good sector for the top of that three pm. Simcast Um, Ryan,
Speaker 1: thank you so much, Ryan Pastelica. He's equities reporter at
Speaker 1: Bloomberg News. Joining us on the phone from Chicago. You're
Speaker 1: listening to Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio Demand Destruction anyone,
Speaker 1: Because this story is definitely a sign of the times,
Speaker 1: as searching power bills are forcing the U. S. Industrial
Speaker 1: complex to slow down. Tim This is a story you
Speaker 1: will find on the Bloomberg Terminal online at Bloomberg dot
Speaker 1: com slash business Week. It really just speaks to so
Speaker 1: much of what's going on, and I feel like what
Speaker 1: we just talked about for some of our audience, high
Speaker 1: energy prices the bane of industrial production. Joe Do writes
Speaker 1: all about it, along with Narraine Mallet Carroll. As you mentioned,
Speaker 1: you can find this story at Bloomberg dot com slash
Speaker 1: business Week. Joe Do is Medals and Agriculture Agriculture America's
Speaker 1: deputy team leader for Bloomberg News. He joins us this afternoon,
Speaker 1: also with us as Joel Webber, the editor of Bloomberg
Speaker 1: Business Week. He's with us in the Bloomberg Interactive Brokers studio.
Speaker 1: This is remarkable, remarkable, Joel. At one plant here in
Speaker 1: the US, the electricity bills have tripled in recent months
Speaker 1: and as a result, they've had to idle the plant
Speaker 1: and more than one plant. Um. This is gonna have
Speaker 1: um and this is gonna be a story that I
Speaker 1: think we're going to continue to talk about. I mean,
Speaker 1: look like the world is obsessed with the energy story
Speaker 1: right now, we've seen it um just kind of devastate Europe.
Speaker 1: And what really got us interested in this story by
Speaker 1: by Joe and Noreen was that some of these early
Speaker 1: signs are starting to show up here, that the surging
Speaker 1: costs of electricity are gonna kind of break America's industrial
Speaker 1: complex and that that factory might that makes America hum um. So, so, Joe,
Speaker 1: what are we wrestling with here and what are those
Speaker 1: factories and manufacturers looking at. Yeah, I think it's the
Speaker 1: first time the United States is seeing a power crunch itself, right. Uh.
Speaker 1: Europe obviously hit very early on with Russia's invasion of
Speaker 1: Ukraine and then this spread into Asia. And for months now,
Speaker 1: our European colleagues have been calling us on the commodities
Speaker 1: desk here in the United States saying, aren't you guys
Speaker 1: seeing similar problems for your steel mills and for your
Speaker 1: aluminum mills and all the other manufacturing facilities, And kept saying, no,
Speaker 1: it's just not happening. Well, when Century Aluminum, which is
Speaker 1: the second largest US aluminum producer in the United States,
Speaker 1: just a few weeks ago, announced that they were closing
Speaker 1: down their largest facility due to power costs nor In
Speaker 1: and I got on a call and said, what what
Speaker 1: are we missing here? And and so this this is
Speaker 1: ultimately what became this story. And she had been learning
Speaker 1: already previously that a lot of manufacturers across the Midwest
Speaker 1: were complaining about their power costs. They weren't shutting down necessarily,
Speaker 1: but they were worried they were going to have to
Speaker 1: throttle things back in the summer. And of course what
Speaker 1: our story goes into is that not only are their
Speaker 1: feeling these but they are actually you are starting to
Speaker 1: see some some shuttering of of manufacturing production across the US,
Speaker 1: including one source telling me that two finishing facilities UH
Speaker 1: for steelmakers have already had to cut back on production
Speaker 1: because they need to cut in some places so they
Speaker 1: can continue to do, you know, their their main work. Joe.
Speaker 1: What I love about your story is I learn about
Speaker 1: within the industrial complex here in the United States kind
Speaker 1: of how it all, how it all works, and especially
Speaker 1: when you're you know, tapping into utilities and power, I
Speaker 1: mean facilities, how have to pay for something as you
Speaker 1: lay out something known as capacity. So in other words,
Speaker 1: they kind of need to keep things functioning even if
Speaker 1: they don't need to use it. Yeah, it's it's the
Speaker 1: way we describe it is an insurance policy. So if
Speaker 1: you're a big factory, or let's say you're you know,
Speaker 1: you're a utility, right, and you need to make sure
Speaker 1: that in the middle of August, the entire city of
Speaker 1: New York has enough power to turn on all of
Speaker 1: their air conditionings on a hundred degree humid day. Uh. Well,
Speaker 1: you have to pay ahead of time to make sure
Speaker 1: that capacity will be there if you need it. And
Speaker 1: what we're finding because the grid ist aging, because we've
Speaker 1: been phasing out old fossil fuel plants, you know, because
Speaker 1: of the war between Russia and Ukraine, all of things,
Speaker 1: things are converging in pushing up the cost even of
Speaker 1: the capacity. So you combine the capacity, which is an
Speaker 1: insurance that you sometimes need but sometimes you don't need,
Speaker 1: and you add that with what you're actually paying uh
Speaker 1: per kilowatta or and it's really just stressing these companies.
Speaker 1: Um and And I'm curious here, Joe, like, well, when
Speaker 1: where we gonna know how bad this gets? Like right,
Speaker 1: we're early right now, right, Like how bad could this get?
Speaker 1: So the forecast that we had pointed out which was
Speaker 1: a government forecast, said the worst is yet to come,
Speaker 1: and it's probably gonna come here in the third quarter,
Speaker 1: towards the end of the summer, as obviously power use
Speaker 1: goes up UM to its highs and it's going to
Speaker 1: hit a high of all time. Um. You know. This
Speaker 1: is something I was just discussing earlier with Limberg Television,
Speaker 1: which is, well, what does that mean? Right? And I
Speaker 1: think we're going to be paying very close attention to
Speaker 1: earnings in the next coming weeks for the big manufacturing companies,
Speaker 1: in which they'll tell us. You know, all they've said
Speaker 1: all year is that demand is good in order books
Speaker 1: remain healthy. Um. But we're actually starting to see economic
Speaker 1: data show a bit of a slowdown in the economy.
Speaker 1: Obviously GDP was negative um. And it's going to start
Speaker 1: the question will come up from analysts, well what about
Speaker 1: your power contracts? Are those starting to be a problem
Speaker 1: for you? Does that mean you're gonna have to shut down?
Speaker 1: And are you getting it on the other end, which
Speaker 1: is demand? Uh. You know, listen, I'm not saying that
Speaker 1: we're we're it's for sure, right, things could could turn
Speaker 1: and maybe suddenly things improve, um, But right now, it's
Speaker 1: like Noreene wrote in our story, Um, there's just not
Speaker 1: enough renewables out there to offset what's going on right now,
Speaker 1: and people are going to start feeling the pain. Well,
Speaker 1: let's talk about some of those renewables here, because I
Speaker 1: do like how the two of you wrote about a
Speaker 1: potential silver lining here, the idea of investment perhaps in renewables,
Speaker 1: barges full of batteries, startups getting investment as a result
Speaker 1: of this. Help us find the silver lining here, Joe, Yeah,
Speaker 1: I mean the silver lining is is that comes online. Um.
Speaker 1: The bad part of the silver lining is it comes
Speaker 1: in line over a number of years, and it's not
Speaker 1: something that can just happen now. And I know we've
Speaker 1: all and having this conversation this year, especially in Europe, right,
Speaker 1: which is the short term pain. Suddenly everybody's looking back, Uh,
Speaker 1: Suddenly everybody is looking back at uh fossil fuels. Right.
Speaker 1: We need power now and um, and and that's the struggle.
Speaker 1: So eventually we are going to get important solar coming online,
Speaker 1: and we're gonna have important wind coming online, and these things,
Speaker 1: included with the ability to store all of that power,
Speaker 1: are really going to change the dynamics of the grid.
Speaker 1: But at this moment, it's just not there. And and
Speaker 1: that's why you're feeling this squeeze, right, and we're like
Speaker 1: far from that. So look, if if this is going
Speaker 1: to hit industry, Joe, like, what do we expect. Is
Speaker 1: this is something that consumers are going to feel the
Speaker 1: energy prices or are they gonna have the knock on
Speaker 1: effects of suddenly like this becoming yet another thing that
Speaker 1: plays into inflation and inflationary concerns? Yeah, I mean I'll
Speaker 1: put it this way. They could feel it. Uh, you know,
Speaker 1: you could see a pass through of cost, but that
Speaker 1: won't happen if demand, uh suddenly dissipates even before then, right,
Speaker 1: if you have real concerns of an already problematic issue
Speaker 1: of inflation, you have the already problematic slowdown in the economy. Um, suddenly,
Speaker 1: if that demand disappears, uh, you know, than than you know,
Speaker 1: passing through those costs, maybe maybe isn't entirely possible and
Speaker 1: and and maybe suddenly you're looking at cutting back on
Speaker 1: a lot of manufacturing capacity. I mean, listen, this is
Speaker 1: pure speculation, but I am kind of playing out the
Speaker 1: potential possibilities here well, and it certainly seems to start,
Speaker 1: you know, fitting in with some of the other economic
Speaker 1: data points that we're starting to get about the global economy,
Speaker 1: certainly in the US economy. Um, Joe do, Thank you
Speaker 1: so much. Medals and Agriculture America's deputy team leader at
Speaker 1: Bloomberg News, along with Joel Webber, the editor of Bloomberg
Speaker 1: Business Week. This story you can find on the Bloomberg
Speaker 1: and at Bloomberg dot com slash business Week. This is
Speaker 1: Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes.
Speaker 1: Tim Stinovic on Bloomberg Radio. Alright, full disclosure, I didn't
Speaker 1: do a lot of reading while I was sick out
Speaker 1: with COVID. To be quite honest, I did periodically say, Hey, Google,
Speaker 1: give me a news update. And when I did yesterday,
Speaker 1: that's when I heard about Amazon and Grubhub teaming up.
Speaker 1: I kind of say that, Tim, We're still trying to
Speaker 1: figure out, you know, what this relationship does and means,
Speaker 1: and can New Yorkers actually get it. Grubhub and seamless
Speaker 1: are the same company, but it can't get it on seamless.
Speaker 1: You know, We're we're trying to figure out what's going on. Fortunately,
Speaker 1: We've got a great person to help us do that.
Speaker 1: Jackie Devlos, this technology reporter for Bloomberg News. She's with
Speaker 1: us right now in the Bloomberg Interactive Broker studio. So
Speaker 1: this is a great Day two story, Jackie, because I
Speaker 1: think a lot of people who are paying attention yesterday
Speaker 1: understand the news, uh that grub Hub and Amazon half
Speaker 1: teamed up for Amazon Prime customers to get what free
Speaker 1: Grubhub delivery. Absolutely, at the end of the day for customers,
Speaker 1: this is a much better deal. Prime has a really impressive,
Speaker 1: very loyal membership base of Prime subscribers. I mean you
Speaker 1: can get your shampo toilet paper, and now you can
Speaker 1: get your dinner delivered. So um. At a time where
Speaker 1: people are really pinching pennies, you don't want to have
Speaker 1: to be paying you know, fee after fee tips, and
Speaker 1: so this is just a good way to clean it
Speaker 1: up and provide a deal to their customers. Okay, So
Speaker 1: what's in it for Grubhub and for Amazon, Well, this
Speaker 1: is an especially good deal for grub Hub. They have
Speaker 1: been needing a lifeline of sorts. Um. If you remember,
Speaker 1: at the beginning of the pandemic, they lost a ton
Speaker 1: of market share to door Dash and Uber eats, and
Speaker 1: especially in their top markets like New York and Chicago.
Speaker 1: So they've really been looking for ways to kind of
Speaker 1: get some of those customers back and keep them on.
Speaker 1: And they've still been struggling. Their pairing company has been
Speaker 1: looking to sell them, and no one, no one's really
Speaker 1: up for the buy right now. And so this is
Speaker 1: not only a good way to kind of really boost
Speaker 1: that user base again, but also make them a more
Speaker 1: attractive acquisition target for other companies. Scrubhub is like I
Speaker 1: finally got a day, Thank God for the big dance. Um,
Speaker 1: So there's a little bit of that going on. But
Speaker 1: I also feel like for Amazon, man, they are thinking
Speaker 1: so much about how to hold onto all of us
Speaker 1: who are part of the Amazon Prime deal. Absolutely, and
Speaker 1: you know a lot of us forget that they actually
Speaker 1: did wait into the food delivery industry a while as
Speaker 1: it didn't unfortunately it was back in and you know
Speaker 1: it's called Amazon Restaurants, and you know, Jeff Bezos himself
Speaker 1: was really reticent to get into the space because if
Speaker 1: you think about it, the moment hot meal gets to
Speaker 1: your door, it's a toss up. It could be perfect
Speaker 1: or you know, if you order sushi on the wrong day,
Speaker 1: it could really just ruin that Prime experience for Prime subscribers.
Speaker 1: And so he didn't invest a lot into it, and um,
Speaker 1: it kind of folded. And so this is kind of
Speaker 1: a way of inching back into the space for sure.
Speaker 1: So for Amazon it's kind of like, yeah, I'm gonna
Speaker 1: date you a little bit, but I've got to back
Speaker 1: up or I can back at it anymore. I mean,
Speaker 1: it just feels like, because having been homesick, I did
Speaker 1: a lot of ordering of food, and man, so many
Speaker 1: times things are messed up. Oh yeah, And you know,
Speaker 1: it's pretty interesting how they structured this partnership. They didn't
Speaker 1: exactly take a stake out right. It's an initial option
Speaker 1: to do so through warrants um and then they can
Speaker 1: increase that up for up to fifteen percent if things
Speaker 1: go well. So it's you know, a lot of protection
Speaker 1: and it's a cautious move in. But absolutely for us
Speaker 1: that you know, are so used to going on door dash,
Speaker 1: Uber Eats and rapid delivery, now it's just going to
Speaker 1: bring that you know, fee notch down a notch a bit. Okay,
Speaker 1: So what does this mean for Amazon Prime customers who
Speaker 1: are getting a price hyke up to a hundred dollars
Speaker 1: a year at a time when, in your own words,
Speaker 1: Jackie customers are pinching pennies because everything is more expensive
Speaker 1: right now? Does this make that Amazon Prime subscription that
Speaker 1: much more valuable and somebody less likely to cut their
Speaker 1: Prime sub I think overwhelming yes, because when you think
Speaker 1: about how much that grubhub last membership is worth, you
Speaker 1: don't just get free delivery, you get um a slew
Speaker 1: of other perks and deals, and um that's worth a
Speaker 1: month that pays for itself if you order, you know,
Speaker 1: at least three to four times a week, which many
Speaker 1: people do. And so for Prime subscribers that have already
Speaker 1: dealt with this Prime increase, this is just an added
Speaker 1: bonus and you know, just a free perk for a
Speaker 1: service that many of us use. So doesn't mean for
Speaker 1: the other food services. Have you been thinking about, you know,
Speaker 1: what does this mean for other players, either in big
Speaker 1: tech or or other world. I don't know that Amazon
Speaker 1: competes with or just the other food delivery services or
Speaker 1: they kind of need to be thinking about maybe hooking
Speaker 1: up with someone. I have to it up to the
Speaker 1: anti a bit, because I think many had thought that
Speaker 1: grub hub was just kind of a dead asset at
Speaker 1: this point, and given they've lost so much market share,
Speaker 1: this kind of puts them back in the game in
Speaker 1: a way. And you know, you saw it indoor Dash
Speaker 1: and Uber stock price yesterday. They were under pressure a
Speaker 1: bit because you know, if you're going to have a partner,
Speaker 1: you wanted to be a logistics giant like Amazon. Interesting,
Speaker 1: and I wonder about the logistics part of this, because
Speaker 1: Amazon does have that part figured out, But delivering food
Speaker 1: is tough. Margins are really tight, and there is a
Speaker 1: lot of competition. Jackie, just in the last thirty seconds,
Speaker 1: does this tell us anything about what Amazon's ambitions are
Speaker 1: not for food delivery, but for last mile area that
Speaker 1: it really has covered. I think it means that they're
Speaker 1: looking to um get into a space that has had
Speaker 1: a tough time figuring out how to make the economics work.
Speaker 1: And they already have a really big network of drivers,
Speaker 1: and so expanding into something like this um can only help,
Speaker 1: especially as they're looking to tap other areas of growth.
Speaker 1: So I'm going to order like my paper towels and
Speaker 1: I'm going to get like a salad al with it.
Speaker 1: Oh my god, it's just Amazon taking over the world. Anyway,
Speaker 1: It's really kind of cool to see how this is
Speaker 1: all evolving. Jackie Devola's technology reporter at Bloomberg News back
Speaker 1: in our interactive Brokers studio. I don't know, Tim, what
Speaker 1: do you think? Look it makes sense. A question that
Speaker 1: I have just over and over again is what this
Speaker 1: means for Seamless, which is a grubhub company. Yeah, because
Speaker 1: that's what we use here in New York. So is
Speaker 1: it couldn't work here? I'll have to try it out
Speaker 1: because I'm a Surprime sub driver exactly. All right, you're
Speaker 1: listening to Bloomberg I'm bro journal. Yeah, but you let
Speaker 1: me drive? Oh no, no, no no, no, please, I'll do
Speaker 1: I want to drive. It's a good question. This is
Speaker 1: the drive to the clothes on Bloomberg Radio. All right,
Speaker 1: We've got just about ten and a half minutes left
Speaker 1: in the Thursday trade Carl Master along with Tim Stanevik
Speaker 1: right here on Bloomberg Business Week and Tim, we've got
Speaker 1: stocks up, bonds down, yields moving up. I'm trying to
Speaker 1: figure out which trade do I try? I mean that
Speaker 1: sounds about right right. If stocks go up bonds typically
Speaker 1: go down, but I'm trying to figure out which one
Speaker 1: really hasn't right. Maybe Brad McMillan has the answer for you.
Speaker 1: He's joining us now, his chief investment officer at Commonwealth
Speaker 1: Financial Network. Brad joining us on the phone from Waltham, Massachusetts.
Speaker 1: Commonwealth has got approximately two two point five billion dollars
Speaker 1: in assets under management. Brad, how are you? I'm doing great.
Speaker 1: I hope you guys are having a good summer too.
Speaker 1: We are, we are well, We're not, No, we're not,
Speaker 1: because we both are dealing with COVID issues, but we are.
Speaker 1: We are healthy, Our families are healthy, and that's that's
Speaker 1: certainly what's important here, Brad. But you know, you you
Speaker 1: ask and you get the answer you might not want
Speaker 1: with us. Okay, that's that's the thing here. Let's talk markets,
Speaker 1: um help. He'll bring us up to speed about what
Speaker 1: you're seeing, not just in the trade today, but the
Speaker 1: recent trend that we're seeing. And I'll ask you the
Speaker 1: question that I ask everyone, is the worst behind us?
Speaker 1: I think the worst is behind us for a couple
Speaker 1: of reasons. First of all, when you look at everything
Speaker 1: that's been driving this, you know it's it's really been
Speaker 1: about interest rates so far, and you know, inflation is
Speaker 1: starting to top out. We're seeing commodities start to pull back,
Speaker 1: We're seeing supply chains normalize. The FED has pretty much
Speaker 1: been as hawks that can be, so fears are going
Speaker 1: to go down, and when interest rates start to stabilize,
Speaker 1: that gives us the ability to start moving ahead. And
Speaker 1: I think that's where we are now. Most of the
Speaker 1: damage has been done, okay, but the the impact of
Speaker 1: that damage can stick around for a while, and that
Speaker 1: has certainly been the case of higher inflation. So even
Speaker 1: if we come down a bit, we're still at pretty higher,
Speaker 1: you know, high levels, maybe not historically, but certainly high
Speaker 1: compared to recent history. So that damage on the economy
Speaker 1: as well as on the markets can stick around for
Speaker 1: a while. Fair. I think that's fair, and I think
Speaker 1: you're absolutely right, Carrol. That's what's dry. That's what drove
Speaker 1: the market last month. It's more about are we going
Speaker 1: to get a recession and what's that to do to earnings?
Speaker 1: Then what our interest rates doing and what are we
Speaker 1: you know, what does that mean for evaluations? That damage
Speaker 1: is done, but I would argue the economy still has
Speaker 1: a ton of momentum and a lot of that fear
Speaker 1: is overdone. Where where are you seeing that momentum right now?
Speaker 1: Because you know, we we just had this great story
Speaker 1: from our own Joe Dough in Bloomberg Business. We're talking
Speaker 1: about higher energy prices are actually leading to the closure
Speaker 1: of some industrial firms because those those prices are have
Speaker 1: tripled that they're paying. We see food costs coming up. Um,
Speaker 1: tell me where you're seeing the bright spots right now?
Speaker 1: And look, we know that consumers did a good job
Speaker 1: saving during the pandemic, but they can only pay for
Speaker 1: five dollar a gallon gas for so long. Absolutely true.
Speaker 1: But the one, the one bright spot that we're looking
Speaker 1: at here is employment. And yes, I know the job's
Speaker 1: report is coming up. I get that. But if you
Speaker 1: look at where we've been, we'd continue to add jobs
Speaker 1: at about four thousand a month. That's about twice the
Speaker 1: pace of what we were doing before the pandemic, and
Speaker 1: we still have millions of jobs available. So you know,
Speaker 1: we don't typically get a recession as long as people
Speaker 1: are working and can work. And I think until we
Speaker 1: see the employment market turnaround, I'm betting against a recession.
Speaker 1: So what does that mean in terms of betting your
Speaker 1: financial bets. What does that mean you're advising clients to
Speaker 1: do or how are you putting, you know, their money
Speaker 1: to worth well? Well, when you look at the markets,
Speaker 1: I mean there's been a lot of fear about what
Speaker 1: bonds have done. Okay, fair enough, we've seen an unprecedented
Speaker 1: trade down in bonds. But why was that? That was
Speaker 1: because interest rates moved up, and now seems to be
Speaker 1: the interest rates are normalizing, So bonds, all of a sudden,
Speaker 1: you're getting paid more than you've been paid the while
Speaker 1: I don't I don't mind bonds at this point. When
Speaker 1: you look at stocks, okay, stocks are now cheaper than
Speaker 1: they've been in the past couple of years, and all
Speaker 1: of a sudden, the you're earning yields of free cash
Speaker 1: vote flow yields are competitive with what we're seeing in bonds.
Speaker 1: In other words, I look at a market and I
Speaker 1: see a normal market with some potential moving ahead. I
Speaker 1: don't see a taking time bomb, which is what you
Speaker 1: know a lot of the coverage is suggesting. Okay, so
Speaker 1: let's talk about what you're going to start to see here.
Speaker 1: Carol had the great question about you know where what
Speaker 1: the what where to put money Right now, I want
Speaker 1: to go back to your macro outlook, because you have
Speaker 1: a really really it sounds like you're really optimistic. You're
Speaker 1: much more optimistic than a lot of the people that
Speaker 1: we've spoken to. But you're also speaking in a way
Speaker 1: that a lot of our people who cover the FED
Speaker 1: and cover economics, I think, which is with you know,
Speaker 1: half a million people added to the payrolls every month
Speaker 1: so far this year, it's hard to look like the
Speaker 1: US is in a recession right now. When when do
Speaker 1: you start to worry? Is it if we get a
Speaker 1: softerwre than expected jobs report tomorrow or do do those
Speaker 1: numbers have to start going negative each month? I think
Speaker 1: if I'm going to be I'm going to continue to
Speaker 1: be reasonably cheerful. As long as job growth stays about
Speaker 1: two thousand a month, Okay, okay, As long is the
Speaker 1: number of jobs out there available stay in the millions.
Speaker 1: That says to me businesses are hiring and people are working.
Speaker 1: So if we go below two hundreds, that means we're
Speaker 1: going below pre pandemic levels, and that's when I start
Speaker 1: to pay attention. Okay, So I mean I do feel
Speaker 1: like we don't have the playbook on all of this, right,
Speaker 1: you know, pandemic coming out of a pandemic, you know,
Speaker 1: taking away unprecedented amounts of stimulus that was different stimulus
Speaker 1: from the financial crisis. Is it fair to say, though
Speaker 1: you know some of what we're doing right now, we're
Speaker 1: really making some big guesses. Oh? Absolutely, you know, but
Speaker 1: the thing has Carol, that is always the case now. Yeah.
Speaker 1: So for all the sense that you know, we know
Speaker 1: what's going to happen, we can make some educated guesses
Speaker 1: and overall we do pretty well. But when we get
Speaker 1: into situations right now, I think you have to go
Speaker 1: back to the fundamentals. And that's why I am where
Speaker 1: I am. You know, I can tell you a lot
Speaker 1: of scary stories, but businesses are still hiring, people are
Speaker 1: still working, people are getting raises. You know, things are
Speaker 1: getting better, not worse. And I think that's ultimately where
Speaker 1: I've got to stand. I like the optimism here, Okay,
Speaker 1: apart from job declines are two K a month, um,
Speaker 1: where else should we be keeping an eye on? Just
Speaker 1: in the last thirty seconds that we have with you, Brad,
Speaker 1: I think oil prices at the big book. You know,
Speaker 1: the question really is is Russia're going to change the
Speaker 1: oil market structurally going forward, and we don't know yet.
Speaker 1: That's the big negative wild card in my mind. Yeah,
Speaker 1: I think that's a big one. I agree with you. Um,
Speaker 1: we gotta run. Hey, Brad, good to check in with you,
Speaker 1: get your thoughts in your perspective, and I do like
Speaker 1: the level headed, uh feel of it. Brad McMillan, Chief
Speaker 1: Investment Officer, Commonwealth Financial Network, joining us on the phone
Speaker 1: from Waltham, Massachusetts. And roughly two hundwritten thirty two point
Speaker 1: five billion in assets under managements have fall for Brad.
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