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Speaker 7: All right, everybody, we've got just about eighteen nineteen minutes
Speaker 7: to go until we wrap up the trade on this Monday.
Speaker 7: As you know, we've got stocks bouncing around but really
Speaker 7: holding on to their best levels of the session, bouncing meeting.
Speaker 7: They're way off their lows today, up one point six
Speaker 7: percent on the S and P five hundred two and
Speaker 7: a quarter percent higher on the Nasdaq one hundred. So
Speaker 7: the risk on trade is certainly out there in a
Speaker 7: big way. Let's get to our Eric Wiener, he's Bloomberg
Speaker 7: new senior editor Equities America's joining us right here in
Speaker 7: our Bloomberg Interactive Broker studio. As Bill Maloney was leaving,
Speaker 7: and we're listening to Alexis and we're all talking, and
Speaker 7: Tim think you leaned over to.
Speaker 5: Eric, and you know, it's the end of an era.
Speaker 7: In terms of Warren Buffett right talking at his annual
Speaker 7: shareholder meetings.
Speaker 5: We all look to him.
Speaker 7: Every year, and really in moments of crisis, he was
Speaker 7: the voice that really investors wanted to hear from.
Speaker 4: Absolutely.
Speaker 3: He also was a sort of a voice of reason
Speaker 3: on Wall Street, so he would be one who would
Speaker 3: point out that things had gotten a little bit far,
Speaker 3: you know, out over their skis. He would be the
Speaker 3: one to say that it was time to step back in.
Speaker 4: You know.
Speaker 3: They called him the oracle, and there was a good
Speaker 3: reason for that, you know, just we're not going to
Speaker 3: see something like that again for a very long time.
Speaker 8: If ever, remember that two thousand and eight op ed
Speaker 8: in the New York Times by American I Am This
Speaker 8: was at the depths of the financial crisis. Everybody's freaking out,
Speaker 8: he writes, I've been buying American stocks. Why a simple rule,
Speaker 8: be fearful when others are greedy, and be greedy when
Speaker 8: others are fearful. I feel like I hear that repeated
Speaker 8: all the time.
Speaker 3: Now it's so easy to say, it is so hard
Speaker 3: to do, and it's not that simple in the sense that,
Speaker 3: like what he saw, the way that he hedged himself.
Speaker 3: He was a very heavy user of derivatives. Nobody really
Speaker 3: points that out. He would always hedge himself. He was
Speaker 3: just really really savvy with what he could see in
Speaker 3: terms of demand and what he could see in terms
Speaker 3: of the permanence of the American consumer. That he could
Speaker 3: tell that there was like he was in front of
Speaker 3: newspapers when that was the only way to do advertising.
Speaker 3: He was in front of Coca Cola whenever he was saying, yeah,
Speaker 3: that's not going to be the thing to buy, and
Speaker 3: he's like, yeah, but people just like a coke.
Speaker 9: You know.
Speaker 3: It's those kinds of really really simple Like Peter.
Speaker 5: Lynch, right, I need to understand the company.
Speaker 3: And then bring that in with very very sophisticated positioning
Speaker 3: within his portfolio. And you don't see that kind of
Speaker 3: thing anymore.
Speaker 5: Yeah, is there somebody out there that you think.
Speaker 7: I mean, I think about how much we listen to
Speaker 7: what Jamie Diamond has to say, and I do feel
Speaker 7: like he is the loan remaining big bank CEO that
Speaker 7: was there during the Great Financial Crisis. All the others
Speaker 7: are no longer in that top spot. So he has
Speaker 7: definitely seen a lot and has really created a bank
Speaker 7: that I think people turned to and respect very highly.
Speaker 3: Buffett believed in Jamie Dine. I remember I.
Speaker 5: Interviewed and they appeared together like off it.
Speaker 4: Yeah.
Speaker 3: I remember when I interviewed him from my first book,
Speaker 3: and he was he had left City Group and was debating.
Speaker 4: Going to Bank one.
Speaker 3: We actually talked about that, Yeah, And I just had
Speaker 3: a feeling that he was a guy who a bank
Speaker 3: could use. He was already eyeing how to put things together.
Speaker 3: He's just a really really savvy individual in terms of
Speaker 3: the way finances work. Buffett was different in that he
Speaker 3: managed portfolios, like you know, he really put his money
Speaker 3: where his mouth is. Diamond understands an industry. Buffett understood industries,
Speaker 3: and that's unique.
Speaker 8: So I guess the question I have is like, there's
Speaker 8: not Look, he's he's still with us, yet we're talking
Speaker 8: about this.
Speaker 7: Because we've been seeing the transition slowly happening and putting
Speaker 7: people in charge to continue Berkshire Hathaway for the next
Speaker 7: fifty one hundred years.
Speaker 5: Whatep.
Speaker 8: He's expected to end his role of CEO to successor
Speaker 8: Greg Abel at the end of the year. But it
Speaker 8: doesn't matter. There's no you know, when people listen to
Speaker 8: Warren Buffett and Charlie Munger who passed away just the
Speaker 8: last couple of years, at the annual shareholder meeting, there
Speaker 8: was those were like events where that people would flock
Speaker 8: too from around the world. I don't see anyone else
Speaker 8: having that same draw.
Speaker 3: No, no, And it's also because they spoke about macro issues,
Speaker 3: They spoke about the world around them, and they addressed
Speaker 3: issues that affected you whether or not you were investing.
Speaker 3: So it was like, you know, the woodstock of capitalism
Speaker 3: they called it. But it's unlike a normal shareholder meeting
Speaker 3: where they're talking about their business, they're talking about the company.
Speaker 3: He was talking about the world and Berkshire was a
Speaker 3: part of the world. The biggest, the most amazing thing
Speaker 3: about him was that he was a real portfolio manager.
Speaker 3: If you look at him from the sixties, the return
Speaker 3: is insane. And then he built a conglomerate and ran
Speaker 3: that successfully too. I mean, who can really do that.
Speaker 3: That's just not in the cards right now for what's
Speaker 3: available to you in this economy.
Speaker 7: I also think, you know, when you think about something
Speaker 7: like Rahm and Dodd, like he was their their method,
Speaker 7: you know, value investing.
Speaker 5: I mean that was the foundation for Warren Buffett.
Speaker 7: And you know we talk about value a lot, but
Speaker 7: he really did it and did it well.
Speaker 3: And it's again it's the courage of the convictions, like
Speaker 3: he could spot what was he felt was undervalued and
Speaker 3: then pile into it.
Speaker 9: And be right.
Speaker 4: You know.
Speaker 8: One thing that we love doing is talking to CEOs
Speaker 8: of companies that are owned by Berkshire Hathaway. Dan Sheridan
Speaker 8: was on with us just a few weeks ago ahead
Speaker 8: of the New York City Marathon. He's the CEO of
Speaker 8: Brooks Running. If you missed the conversation, check it out.
Speaker 8: It's great on our podcast feed. But he made the
Speaker 8: comment to us that he doesn't get micromanaged by Berkshire
Speaker 8: Hathaway executives.
Speaker 3: That that was the whose whole point, that he just
Speaker 3: does his managements. He bought managements that he believed in
Speaker 3: and then gave them the room to do what they
Speaker 3: were going to do. It's such a bizarre level of
Speaker 3: confidence where we, you know, take confidence as intervening, as
Speaker 3: stepping in.
Speaker 4: I know better.
Speaker 3: What he knew was he could spot a good company
Speaker 3: and good management and then give them the money that
Speaker 3: they needed to succeed and get out of the way.
Speaker 3: And that that is like the most admirable level of
Speaker 3: confidence that you can have.
Speaker 7: And someone who invested, yes in publicly held companies, but
Speaker 7: private companies, whether it sees Candies or whether it was Brooks.
Speaker 8: I mean there were so many durisl Charter Brokerage, Benjamin Moore, Yeah, guy.
Speaker 3: The lows and bought at the load like we would
Speaker 3: get would see these brands when they were discounted and
Speaker 3: go after them.
Speaker 8: My favorite is Seized Candy right now, it was just
Speaker 8: been in an airport.
Speaker 7: I'm like, I get those the nuts, you know, the
Speaker 7: nuts and the chewy ones.
Speaker 5: Yeah, I really love them.
Speaker 7: Hey, just get about a minute ago, just quickly the
Speaker 7: trade today it's obviously risk one I don't know, but
Speaker 7: doesn't feel like it has conviction.
Speaker 3: Well, I mean it makes sense in that if you
Speaker 3: were worried about airplanes getting off the ground, and you
Speaker 3: were worried about like things being you know, crushed to
Speaker 3: a halt by the by the shutdown that appears to
Speaker 3: be ending. However, the risks in front of us are
Speaker 3: the FED and what they're.
Speaker 4: Going to do.
Speaker 3: Earnings look great, but like what where the economy is
Speaker 3: going to go? Where jobs are? Those questions aren't answered.
Speaker 3: But today you should be buying. Like if you sold
Speaker 3: last week on the chaos, today you step back in.
Speaker 7: Yeah, exactly right, and you definitely are seeing investors doing that.
Speaker 5: Eric, thank you so much.
Speaker 7: Let me go anywhere back there. I know, I love it,
Speaker 7: like the perspective on Buffett. Very cool stuff, Eric Green
Speaker 7: or Bloomberg new Senior Editor, Equities America's.
Speaker 8: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 8: up after this.
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Speaker 7: Well, today, the White House expressing support for the bipartisan
Speaker 7: deal to end the US shut down, a key development
Speaker 7: that makes it likely the government reopens within days, we
Speaker 7: shall see. The Senate is resuming deliberations on its deal
Speaker 7: with centrist Democrats, but as yet scheduling a vote for
Speaker 7: final passage, although our hearing some talk that it could
Speaker 7: happen maybe later this evening.
Speaker 8: Okay, well be tuned to that. Sen and lawmakers also
Speaker 8: still must wind its way through potentially time consuming procedures,
Speaker 8: and then the House members must travel back to Washington
Speaker 8: to vote for the first time since September nineteenth. That's
Speaker 8: a little bit of schoolhouse rock.
Speaker 4: Yeah is that?
Speaker 2: Yeah?
Speaker 7: But you can leave I guess see when the government
Speaker 7: shuts down and still get paid. But yeah, okay, okay,
Speaker 7: Carol Masser, go ahead, aw you all right, Let's see
Speaker 7: what the co founder and director of Economic Policy and
Speaker 7: Vada Partners has to say. She is Henrietta Trey's certainly
Speaker 7: a friend to us all here at Bloomberg. She joins
Speaker 7: us from New Orleans. Henrietta, glad you could join us.
Speaker 7: We talked to you. The surveillance team does a lot
Speaker 7: in terms of what's going in and around the belt Way.
Speaker 5: So is this real progress? Is it a political win?
Speaker 5: And if so, for whom?
Speaker 9: Yeah, we definitely have progress. Overnight, very excited about it.
Speaker 9: I'm optimistic that they will be able to get the
Speaker 9: House vote done as early as tomorrow. I think there's
Speaker 9: no better Veterans Day gift to give to our veterans
Speaker 9: than making sure that the military are paid and all
Speaker 9: the seven hundred thousand furloughed workers can get their paychecks
Speaker 9: and some back pay as well.
Speaker 6: So hopeful that that starts moving forward. For investors.
Speaker 9: The most important thing is that we're open by Friday,
Speaker 9: so we might start to get some BLS data from September.
Speaker 9: I think that that's possible. Staff's still getting briefed, but
Speaker 9: that's my expectation and fingers crossed, we're there.
Speaker 8: Do you think this is a solution.
Speaker 6: Yes, I mean I think that we've got the final package.
Speaker 6: We're going to have opportunities to keep.
Speaker 9: Having these ACA subsidy fights into December, and then we
Speaker 9: know that there's a January thirty a cr so we'll
Speaker 9: have the same exact fight all over again. Some of
Speaker 9: my smartest clients are saying, you know, what are the
Speaker 9: odds of a continued, you know, round after round of
Speaker 9: government shutdowns. And I think that if you look at
Speaker 9: what the two sides are taking away here. The Democrats
Speaker 9: are mad that they caved, and the Republicans and in
Speaker 9: particular President Trump have suffered quite a lot just on
Speaker 9: their own personal approval ratings. So it's kind of like
Speaker 9: playing chicken with a crazy person. You know, they're happy
Speaker 9: to see what happens, and that's that's what we walked
Speaker 9: into this den.
Speaker 8: You know, does it does it seem like Democrats gave
Speaker 8: in on this they're not getting what they wanted.
Speaker 9: Yeah, to the far left, that's definitely how they view it.
Speaker 9: They wanted the actual ACA subsidies extended. You can see
Speaker 9: why for voters over the age of sixty, your ACA
Speaker 9: premiums are going up nine hundred and nineteen dollars. It's
Speaker 9: pretty substantial. The average one people in their thirties forties
Speaker 9: is almost two hundred dollars. So these are you know,
Speaker 9: very real benefits for I think it's forty two million Americans.
Speaker 9: So definitely something that Democrats wanted to see delivered. But
Speaker 9: the good news for them is that they got the
Speaker 9: fight back on the front burner. And when you were
Speaker 9: standing at a low thirties percent approval rating, you really
Speaker 9: don't have much further to drop, So the Democrats getting
Speaker 9: engaged in this fight and pushing back against what has
Speaker 9: otherwise been ten months of Trump running the board is
Speaker 9: not all bad on the Republican side for President Trump.
Speaker 9: His disapproval rating has doubled since October.
Speaker 6: So there's a lot of reason to.
Speaker 9: Think that even though the ACA subsidies didn't get extended,
Speaker 9: Democrats fought the right fight.
Speaker 6: I think that that's what Schumer and Jeffries believe.
Speaker 7: You know, as we watch the political fights that go
Speaker 7: on in Washington and have for a long time, no
Speaker 7: matter who's in the White House, at least over the
Speaker 7: last few administrations, I think it's safe to say, Henrietta,
Speaker 7: what really struck us all? And I want to go
Speaker 7: back to those snap benefits that one in eight Americans
Speaker 7: need food assistants.
Speaker 5: Why is that?
Speaker 7: What does that say about lawmakers, Republicans and Democrats through
Speaker 7: several White House and the job that they have not
Speaker 7: been doing for the bulk of Americans. I mean, aren't
Speaker 7: we the world's largest, in richest nation.
Speaker 6: Yeah, we sure are.
Speaker 9: And I think it's important to note that seventy percent
Speaker 9: of those recipients have full time jobs, so it's not
Speaker 9: like these.
Speaker 6: People aren't working.
Speaker 9: A disproportionate number of them are young people and also
Speaker 9: old people over the age of sixty or sixty five.
Speaker 9: But you know, if you really want to get into
Speaker 9: the nitty gritty, why are people seventy percent of these
Speaker 9: recipients on food stamps if they have full time jobs,
Speaker 9: what is their pay? I think there's some really interesting
Speaker 9: conversation that always comes up when we talk about snap
Speaker 9: benefits of what are these giant corporations Walmart, Target, Dollar, General,
Speaker 9: et cetera. What are they paying their employees that they
Speaker 9: still also need to have food stamps? So it's it's
Speaker 9: really everyone to blame here on this front.
Speaker 7: Why is this though, not something that gets pushed further
Speaker 7: in Congress with lawmakers.
Speaker 9: Well, especially in a year like this one where they're
Speaker 9: focused on cutting federal spending.
Speaker 6: I mean, and you look at the one big, beautiful bill.
Speaker 9: There were repeated instances of cutting food stamps, back limiting eligibility,
Speaker 9: all in the name of saving money, which is interesting
Speaker 9: given that it was a three and a half trillion
Speaker 9: dollar deficit increasing bill, and they eliminated the current policy baseline,
Speaker 9: which forces Congress to pay for things going forward. So
Speaker 9: the decisions around trimming federal spending are very proactive. They're
Speaker 9: on purpose, and that was across Medicaid and Snap in
Speaker 9: the One Big Beautiful Bill.
Speaker 1: So I don't know.
Speaker 9: That this is necessarily seen as a problem. To see
Speaker 9: the limitations. It's part of making the government smaller, which
Speaker 9: is what COP and the Republican Conference are trying to do.
Speaker 7: Let me throw on top of this and forgive men.
Speaker 7: I don't have the details right in front of us,
Speaker 7: but we were talking about this in the news, and
Speaker 7: that the President is now proposing giving Americans a two
Speaker 7: thousand dollars check, Like, how.
Speaker 5: Do we do that? I don't understand.
Speaker 7: We talk about deficit and if the economy is doing well,
Speaker 7: why do we have to do that.
Speaker 8: Secretary Busons said it could come in the form.
Speaker 5: Of tax cuts, okay, but.
Speaker 8: The President said today that any extra would go down
Speaker 8: to pay the debt.
Speaker 6: And that's exactly the problem. There is no extra.
Speaker 9: So the trade deficit, the tariffs is my bread and butter.
Speaker 6: And I would just say the following.
Speaker 9: When we did the Cares Act under the President Trump's
Speaker 9: first term, at the height of the pandemic, we sent
Speaker 9: out rebate checks. The President was very happy to send
Speaker 9: those checks out. They were very popular. They cost two
Speaker 9: hundred and ninety two billion dollars. The tariffs have thus
Speaker 9: far this year, for AIBA brought an eighty nine billion dollars.
Speaker 9: So if you're going to increase the rebate check from
Speaker 9: fourteen hundred bucks to two thousand dollars, and you know
Speaker 9: the presumer they'll be a qualifying child credit a five
Speaker 9: hundred bucks something along those lines, you now have to
Speaker 9: spend four hundred billion dollars of the eighty nine billion
Speaker 9: dollars in revenue that you brought in from tariffs. And
Speaker 9: why are you sending the rebate checks in the first place.
Speaker 9: Is it because costs of goods are increased? Is it
Speaker 9: because of the tariffs? It sure enough is so you
Speaker 9: have this really circular logic. That's a huge problem, and
Speaker 9: there is no leftover revenue to reduce the deficit, which
Speaker 9: is of course what bond markets are so focused on.
Speaker 8: Hey, Henrietta, just last quest on healthcare and whether or
Speaker 8: not Republicans come to the negotiating table in good faith
Speaker 8: when it comes to the Affordable Care Act later on.
Speaker 8: That's what Democrats want to see. Does that can get
Speaker 8: kicked down the road to January and do they meet.
Speaker 6: I've gotten that question a lot this afternoon from clients.
Speaker 6: I think yes.
Speaker 9: When I speak with Republican staff, they say that it's
Speaker 9: going to take two or three weeks to hammer out
Speaker 9: any kind of an agreement on income cap levels, on
Speaker 9: the high amendments related to abortion, on the phasing and
Speaker 9: the duration of any ACA subsidies. I think it's a
Speaker 9: bridge too far to ask this extremely acrimonious Congress to
Speaker 9: come together in the twelve legislative days they have before
Speaker 9: the end of the year to get a solution. I
Speaker 9: think it's much more realistic that they need a deadline,
Speaker 9: and so January thirtieth, that January time horizon is probably
Speaker 9: going to be more intense around the EC subsidies getting
Speaker 9: extended or not.
Speaker 7: All right, so love, thank you so much, Henriette co
Speaker 7: founder and director of Economic Policy at VTA Partners, Henrietta
Speaker 7: Trees joining us from New Orleans. All Right, that's the
Speaker 7: latest tim on the US government shut down and expectations
Speaker 7: that were nearing an end. Has definitely put the risk
Speaker 7: on trade on Wall Street.
Speaker 8: Yeah, traders rushing to the riskiest corners of the market.
Speaker 8: Stocks climbing alongside bitcoin, as the US Senate advanced have planned,
Speaker 8: and the longest ever government shutdown also removes significant economic
Speaker 8: headwind bond ed bonds edged lower. We've got a great
Speaker 8: guest back with us, Sally McCartney as managing director of
Speaker 8: wealth management and private wealth advisor with Alignment Partners at UBS.
Speaker 8: She's got more than a billion dollars in assets under management.
Speaker 8: She joins us here in the Bloomberg BusinessWeek studio. The
Speaker 8: risk on trade today sustainable. I mean, it seems like
Speaker 8: we're seeing the riskiest corners of the market get a bid.
Speaker 2: We've seen a lot of back and forth in this
Speaker 2: kind of trade. So last week was the worst week
Speaker 2: for the Nasdaq since April, since we began the Terarff tantrum.
Speaker 2: So what happened last week I think was a combination
Speaker 2: of a lull in earnings news. First of all, we
Speaker 2: had gotten all the good earnings news out and then
Speaker 2: everybody waits till Nvidia. We also had the end of October,
Speaker 2: which is a fiscal end for a lot of fund
Speaker 2: so there was a lot of purging and taking profits.
Speaker 2: And then, for whatever reason, the sentiment in data was
Speaker 2: really unpleasant last week, and people chose investors small and
Speaker 2: large retail investors chose not chose not to show up,
Speaker 2: which has been the bid that's been getting the market through,
Speaker 2: and they chose to focus on things that, given what
Speaker 2: you just talked about, are not particularly surprising, like the
Speaker 2: lowest consumer sentiment out of your Michigan ever. Right, So,
Speaker 2: I think you know when I look at everything that
Speaker 2: you talk about, and I love the way that you
Speaker 2: talk about it on the show because it's from an
Speaker 2: economic perspective, but also from a social and human perspective. Clearly,
Speaker 2: what's happening is the low end consumer is getting squeezed.
Speaker 2: Things are much more expensive. There are probably many of
Speaker 2: those people who are on snap benefits who haven't gotten
Speaker 2: paychecks in a long time, and they're having a real
Speaker 2: hard time, and they see in that Michigan's sentiment number
Speaker 2: more hard times. Whereas you look at the five or
Speaker 2: ten percent that now spends fifty to sixty percent, and
Speaker 2: what are we seeing? Markets are at all time highs
Speaker 2: AI is increasing the productivity of our jobs and our labor.
Speaker 2: We see interest rates going low, so we can probably
Speaker 2: have more of a tail in and more of an
Speaker 2: ability to borrow. But that same movement and interest rates
Speaker 2: doesn't give the general population access to a housing market.
Speaker 2: So we really are like a tale of two cities
Speaker 2: right now, right right?
Speaker 7: I mean that's the other thing about access to lending.
Speaker 7: Who really gets it ultimately right? And I thought it
Speaker 7: was striking what Henrietta said that seventy percent of the
Speaker 7: SNAP recipients have full time jobs.
Speaker 5: That shocked me.
Speaker 2: I was very surprised to hear that that's not the
Speaker 2: narrative that I think we push on Wall Street or
Speaker 2: from a government perspective.
Speaker 7: We've got one of our reporters on shortly Mark Niquette.
Speaker 7: They've got a story at on the Bloomberg it's Trump's
Speaker 7: economy now, and Americans don't seem to love it, and
Speaker 7: they get into how the US economy ali is so
Speaker 7: increasingly dependent on three narrow, interconnected a pillars affluent consumers,
Speaker 7: artificial intelligence, field investment, and acid price gains, making it
Speaker 7: less stable if any of these pillars weekends, those are
Speaker 7: kind of the three pillars of the market run up.
Speaker 2: They absolutely are. It is not hugely atypical of sort
Speaker 2: of the end of a bull market or a boom cycle.
Speaker 2: And the question that everybody's asking now is not if,
Speaker 2: but when right. These are called cycles for a reason.
Speaker 2: Portfolios are built the way they are to have things
Speaker 2: that go down when other things go up. You're not
Speaker 2: supposed to have gold rally sixty five percent while stocks
Speaker 2: are up twenty eight percent while bonds are sort of
Speaker 2: mildly up. So we are in a very strange period
Speaker 2: where something will have to give. The question is when
Speaker 2: and will it be on the federal side, will it
Speaker 2: be on the AI side, because.
Speaker 5: You know the thing, what I do think most likely.
Speaker 2: The federal side is interesting to me because the AI side,
Speaker 2: I see that there is a concern and an issue
Speaker 2: around circularity, circularity of investments, circularity of hyperscalar, circularity of financing.
Speaker 2: But I also see and believe that this is transformative
Speaker 2: and catalytical, like the steam engine, wise, like telecom, like
Speaker 2: electrification of the grid. And this not surprisingly is happening
Speaker 2: quicker than all of those other capital expenditure cycles happen.
Speaker 2: But it's actually not from a like percent of GDP
Speaker 2: perspective concerning it actually probably has a lot of room
Speaker 2: to run. So I think that you know, the affluent
Speaker 2: works until it doesn't work, and whether that's because it
Speaker 2: gets litigated away or redistributed in some sense. Again, not
Speaker 2: a conversation we have in terms of portfolio managers on
Speaker 2: a daily point. But what all this means to me
Speaker 2: is that every day I have to wake up and
Speaker 2: ask myself three questions. With everything I own, is it
Speaker 2: time to buy it? Is it time to sell it?
Speaker 2: Or do I not yet have enough information to make
Speaker 2: a different decision? And the truth has been that there
Speaker 2: have been times in the last year, for example, where
Speaker 2: the answer has been sell a little or the answer
Speaker 2: has been buy a little more, or the answer is
Speaker 2: I need to wait to see what happens with tariff negotiations.
Speaker 2: But nothing that happened last week in that sort of
Speaker 2: purge or today in Monday's excitement makes me change any
Speaker 2: of those three issues.
Speaker 8: So you're not buying, you're not selling, You're waiting for
Speaker 8: more info.
Speaker 2: We're waiting for more info. The one thing we are
Speaker 2: taking advantages is given all of the massive uncertainty long term,
Speaker 2: short term Wall Street DC, I'm still happy to buy gold, palladium, silver.
Speaker 2: Though there's more gold buying this year than we've seen
Speaker 2: since twenty eleven, it's by distrust in the US government
Speaker 2: concern about national treasuries, full stop alienation from the US
Speaker 2: declining dollar. All of those things are going to continue.
Speaker 2: And when you look at the other precious metals, they
Speaker 2: have a lot of the same catalysts, but also with
Speaker 2: a real demand against a supply constraint. So those are
Speaker 2: interesting to me. And then to the extent we can
Speaker 2: get into some of those megacaps are into say financial
Speaker 2: names at lower prices, those are interesting given all the
Speaker 2: tailwinds behind them.
Speaker 7: You title together as always, thank you so much, really appreciate.
Speaker 7: Ally McCartney, Managing director of Wealth Management and private wealth
Speaker 7: advisor with Alignment Partners over at ubs.
Speaker 8: Stay with us more from Bloomberg Business Week Daily coming
Speaker 8: up after this.
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Speaker 5: Hey listen.
Speaker 7: When Magna International reported earnings on Halloween, shares of the
Speaker 7: autoparts manufacturer rallied as much as seven percent inter day
Speaker 7: in response to third quarter sales and adjusted EPs beats.
Speaker 7: Magna Management also raised its fiscal year sales forecast thanks
Speaker 7: to strengthen North America and China. There was a lot
Speaker 7: going on. Company based in Canada, biggest automotive supplier of
Speaker 7: North America. Everything from automated driving control modules, powertrains, lighting mirrors,
Speaker 7: complete engineering systems, so much. It is a great, great,
Speaker 7: great read on the auto economy.
Speaker 8: Back with us is Swami Coda Geary, president and CEO
Speaker 8: of nearly fourteen billion dollar market cap autoparts maker Magna International.
Speaker 8: The stock up close to eighteen percent so far this year.
Speaker 8: I want to start with kind of where we left
Speaker 8: off when we spoke to you back in April. This
Speaker 8: was just after the president's so called Liberation Day tariffs
Speaker 8: you liken them and the additional cost to drawing upon
Speaker 8: the playbooks from past rotating UAW strikes, COVID, the Great
Speaker 8: Financial Crisis, the Chip crisis all rolled together. We were
Speaker 8: pretty shocked about those comments because you said it was big.
Speaker 8: Is it still that big of an impact? Has it
Speaker 8: been that big of an impact?
Speaker 4: Hi, Echonon, Thanks for having me.
Speaker 10: Yes, there has been a lot of dynamic challenges in
Speaker 10: the industry, as you know, and when you spoke to
Speaker 10: me last week was fresh, you know, at that time,
Speaker 10: as we sit here and look at it, I think
Speaker 10: our annualized tariff impact is roughly in the range of
Speaker 10: two hundred million. But we continue to work with our team,
Speaker 10: with our customers, with our supply base in mitigating as
Speaker 10: much as possible, you know, adhering to the USMCA compliance.
Speaker 10: All in all, I think we have been able to
Speaker 10: with a lot of self help, a lot of work
Speaker 10: with our customers, we've been able to bring down that
Speaker 10: impact to roughly ten bass points, which means about thirty
Speaker 10: million for Magna this year.
Speaker 7: So I will say our BI team reacted to our
Speaker 7: Bloomberg intelligence team, Swamy reacted and they said they believe
Speaker 7: that your company's continuous cost cutting and operational excellence could
Speaker 7: further release margin gains in twenty twenty six. And they
Speaker 7: talk about in the US major customers are benefiting from
Speaker 7: a more profitable sales mix, with higher sales and pickups
Speaker 7: and SUVs offsetting lower EV production, which should enhance Magnus
Speaker 7: program economics for upcoming twenty twenty six launches.
Speaker 4: Do they have it right, Yes, they do.
Speaker 10: There's a lot of hard work and thanks to the team,
Speaker 10: there's been a lot of traction in our operational activities,
Speaker 10: including some of the activities that you men mentioned cost restructuring,
Speaker 10: optimizing our operations. We have really worked through about forty
Speaker 10: divisions in terms of restructuring, consolidation, bringing things together. And
Speaker 10: when the mix in the volume becomes stable and it
Speaker 10: comes through, you see profitability going to the bottom line,
Speaker 10: and that has been our focusduction, margin expansion and free
Speaker 10: cash flow generation. We've talked about one hundred and fifty
Speaker 10: basis points over the last three years, and I'm glad
Speaker 10: to say we have an additional visibility of thirty five
Speaker 10: to forty basis points going into twenty twenty six.
Speaker 4: So this is a journey.
Speaker 10: It's never going to stop you in an industry that
Speaker 10: we need to constantly work on improvements. We call them
Speaker 10: continuous improvements, and we are starting to see the result
Speaker 10: of that.
Speaker 7: But you did talk about demand destruction the short term
Speaker 7: when we talked with you in April, right after Liberation Day.
Speaker 7: Has it played out as bad as you expected? And
Speaker 7: where are we today? Your top customers are who's who
Speaker 7: of the global auto industry, So where are we today
Speaker 7: in that demand destruction?
Speaker 5: Are we done?
Speaker 4: I wish I could have that crystal ball.
Speaker 10: But you know, the way I look at it is
Speaker 10: we peaked out as our industry in North America about
Speaker 10: seventeen and a half million units. Interestingly, I was looking
Speaker 10: at the data go back twenty years. In two thousand
Speaker 10: and four two thousand and six time frame, North American
Speaker 10: production volumes were somewhere between fifteen to sixteen.
Speaker 4: We are still at fifteen to sixteen million units today.
Speaker 4: I think the.
Speaker 10: Volumes held up this year, but I always like to
Speaker 10: stand back a little and see where it was. Magna
Speaker 10: Magna twenty years ago was a twenty billion dollar company.
Speaker 10: Today we are a forty billion dollar company. And it's
Speaker 10: the result in the efforts of the team to continue
Speaker 10: to gain CPV and to diversifire customer base, and that's
Speaker 10: where our focus is right And to your point, though,
Speaker 10: I hope this is the trough. If you look at
Speaker 10: the average age of the fleet, it's pretty high. The
Speaker 10: inventories are pretty normal. So I like to say, you know,
Speaker 10: there is an elasticity of demand that's going to come
Speaker 10: back looking forward if there is no more externalities like
Speaker 10: we have had in the last four years.
Speaker 8: Your company is based in Ontario. We are curious about
Speaker 8: the US and Canada trade negotiations or lack thereof. Given
Speaker 8: the impasse between the US and Canada, how is that
Speaker 8: affecting your industry and you specifically.
Speaker 10: Yeah, as you know, auto industry is very interdependent ecosystem
Speaker 10: and it's pretty complex in North America, so it has
Speaker 10: been challenging. But I would like to look at Magna
Speaker 10: really as a global company. We have tens of thousands
Speaker 10: of people in Mexico, in Canada and in US, and
Speaker 10: obviously we are following the footprint of our customers, looking
Speaker 10: at the economics, looking at transportation, looking at logistics, and
Speaker 10: that is the competitiveness that ultimately lets you be the
Speaker 10: player that you are. Right, So the focus has been
Speaker 10: on it. Whatever the policy is, if there is certainty
Speaker 10: and visibility to the policy going forward, I think it's
Speaker 10: just going to be a tailwind to everybody, the OEMs
Speaker 10: and the supply base.
Speaker 5: In all but Tswami, Is it broken the US? Canada?
Speaker 5: I mean it's been so intertwined.
Speaker 7: Really the North American and you know, global auto supply chain.
Speaker 5: But is it especially the US and Canada? Is it
Speaker 5: changed forever?
Speaker 10: Again, I'm not an international trade policy expert.
Speaker 7: Speaking from it, but you have a great advantage and
Speaker 7: a great window on how it has worked and how
Speaker 7: it feels today.
Speaker 10: It's definitely been strained, right, there's no question about that.
Speaker 10: But I've lived in this industry for twenty six years,
Speaker 10: and what we're talking today is going to impact maybe
Speaker 10: twenty seven or twenty eight. So we're always looking at
Speaker 10: what we are doing today impacts three or four years
Speaker 10: down the road. What we're doing today has been planned
Speaker 10: and decided three or four years ago, So I tend
Speaker 10: to think a little bit in longer cycles.
Speaker 4: You know.
Speaker 10: I'm still hopeful that the policy is going to get
Speaker 10: to a point where it's mutually beneficial to everyone the president.
Speaker 8: In the past, the President of the US has talked
Speaker 8: about his back and forth in his conversations with executives
Speaker 8: at North American auto companies. Have you had conversations with
Speaker 8: the President or his team.
Speaker 10: We have had obviously a seat at the table in
Speaker 10: being able to communicate facts that possible impacts, the challenges
Speaker 10: of the industry and what could benefit I always say
Speaker 10: we are able to give an opinion. One of the opinions,
Speaker 10: I hope it's a dot on the chart, and definitely
Speaker 10: We have talked to all three regions right expressing what
Speaker 10: is the jobs that we have, what is the investments
Speaker 10: that we've made, and how it could impact right Definitely,
Speaker 10: that is the conversation that's always ongoing.
Speaker 7: Hey, Swami, one thing we wanted to ask you the
Speaker 7: EV retrenchment that we continue to talk about here at Bloomberg,
Speaker 7: how is it affecting your business and the auto industry
Speaker 7: in general. You've got Ford considering killing the F one
Speaker 7: fifty lightning, Stilanti is killing the ram EV, and GM
Speaker 7: taking a one point six billion dollar impairment charge on
Speaker 7: its EV assets.
Speaker 5: That feels pretty chilling. How is that if impacting you guys?
Speaker 10: In the past, we've always looked at EV and if
Speaker 10: you look at some of the comments that we've made,
Speaker 10: I think we were a little bit conservative. But definitely
Speaker 10: the North American EV penetration has had an impact on us.
Speaker 10: We came back and talked about the impact of our
Speaker 10: revenue going forward in the August I think of twenty
Speaker 10: twenty four. But the key thing has been how we've
Speaker 10: been able to pivot. We had our peak cap X
Speaker 10: spend in twenty three twenty two. We got back to
Speaker 10: the sales to capex ratio shows our agility and being
Speaker 10: able to get back and look at optimizing how we
Speaker 10: can re use some of the capital with the help
Speaker 10: of the customers and so on and so forth. But overall, EV,
Speaker 10: I think in other regions continues and as a global company,
Speaker 10: we see that continuing in China and Europe. But when
Speaker 10: it does come back, and we still believe EV is
Speaker 10: a secular trend, that take rate is very different than
Speaker 10: what we all expected a couple of years ago. But
Speaker 10: with the investments already there, with the development that's behind us,
Speaker 10: and our ability to hit whether it's an internal combustion
Speaker 10: engine or a or a hybrid, that flexibility in our
Speaker 10: product line has helped us whether the storm pretty well.
Speaker 10: And I think that's what we need to continue to
Speaker 10: do going forward.
Speaker 8: I know that the decisions you make now are decisions
Speaker 8: for four years from now. So are you changing product
Speaker 8: plans to develop more gas powered vehicles or helps make
Speaker 8: supplies for more gas powered vehicles?
Speaker 10: Yes, Tim, I think we have had a lot of
Speaker 10: content in obviously the internal combustion engine platforms right and
Speaker 10: as some of these programs are delayed or pushed out,
Speaker 10: we continue to get leverage on the existing programs and
Speaker 10: we continue to win. The other thing to note is
Speaker 10: a lot of our products, almost eighty percent of our
Speaker 10: product is propulsion agnostic. That means whether a make a
Speaker 10: mirror or a door, or a structure or a seat,
Speaker 10: we'll make it for whatever propulsion it is.
Speaker 4: Right.
Speaker 10: So, as far as we are flexible and continue to
Speaker 10: do that in our processes, we've been able to take
Speaker 10: advantage of that of that flexibility and gain market and
Speaker 10: continue to grow our revenues.
Speaker 7: So I want me just thirty seconds here, any signs
Speaker 7: of a US recession, a global recession? What's the word
Speaker 7: that you would use to describe the marketplace right now?
Speaker 5: Just quickly?
Speaker 10: Yeah, I think there is signs of stress, I would say.
Speaker 10: And obviously that you know, puts us all us on
Speaker 10: a cautionary foot. But like I said, from a auto industry,
Speaker 10: the inventory seem normal. The average age of the fleet
Speaker 10: is pretty high, so we are looking for order demand
Speaker 10: not to be impacted that much. But we still remain
Speaker 10: very cautious.
Speaker 7: Say I need a new car pretty soon, so Miller,
Speaker 7: I know, Yeah, he's got a bunch, hey, so Amy.
Speaker 7: We always appreciate when you carve out some time for
Speaker 7: Tim and me. The Bloomberg BusinessWeek Daily team Swami Kudigary.
Speaker 7: He is Chief executive Officer Magna International, joining us from Troy,
Speaker 7: Michigan on this Monday.
Speaker 5: Thanks again.
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