Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: YouTube search Bloomberg Global News. So among the things on
Speaker 1: our radar, it's also on investors radar. It is among
Speaker 1: our most right on the Bloomberg Today about the looming
Speaker 1: US rail strike that threatens to push inflation even higher
Speaker 1: across the country. And Tim, this is coming, of course,
Speaker 1: excuse me after we saw this morning's pp I report
Speaker 1: where prices jump more than expected last month. Yeah. Look,
Speaker 1: railroads account for a significant portion of goods that are
Speaker 1: transported within the US, more than a quarter of the
Speaker 1: goods transported here, so that would cause a real snarl,
Speaker 1: to say the least. Let's get into it with Katya Dmitrieva.
Speaker 1: She's U S economy reporter for Bloomberg News. She joins
Speaker 1: us this afternoon from in the field just outside of
Speaker 1: Washington this afternoon, Katia, how are you. I'm doing well.
Speaker 1: How are you good? It's good to have you with us. Hey. Um,
Speaker 1: before we get to what the strike is about, I
Speaker 1: want to dig into the economic implications of this because
Speaker 1: it's something that that you wrote about earlier today. UM,
Speaker 1: give us some numbers here. What would happen if rail
Speaker 1: workers went on strike? Well, the stakes are definitely high.
Speaker 1: As you mentioned, Uh, just over quarter of all goods
Speaker 1: are transported by rail in the US, and that includes
Speaker 1: everything from consumer goods uh, to basic inputs that businesses used,
Speaker 1: really all businesses used, like oil, even like oil, like coole,
Speaker 1: like timber lumber. I mean, you name it, and it's
Speaker 1: probably on one of these trains that could be you know,
Speaker 1: stopping as as early as fatty if there isn't a
Speaker 1: deal reached. Um, the estimates in terms of the economic impact,
Speaker 1: we got it. Goldman Sacks note just recently actually a
Speaker 1: new note showing that it's one point eight billion dollars
Speaker 1: potentially at stake in one week for the Class one rails.
Speaker 1: That's just in the first week of if there's a
Speaker 1: stoppage alone. Broadly, we have an industry group saying that
Speaker 1: it's two billion dollars of cost per day UM and
Speaker 1: that's for the entire U S economy, and they factor
Speaker 1: in things like worker productivity and wages, UM. You know,
Speaker 1: all of the related organizations and companies that are involved.
Speaker 1: Because if you can't get goods on a train, you're
Speaker 1: not going to need people to take them off the
Speaker 1: train to get them onto trucks to get them then elsewhere.
Speaker 1: So the costs are really going to be adding up
Speaker 1: every hour of every day. No pressure, President Biden and
Speaker 1: your team. UM, let's talk about that. Because US Labor
Speaker 1: Secretary Marty Walsh has been holding conversations. You've been posted
Speaker 1: outside the US Labor Department today. What do we know
Speaker 1: about those conversations? That's for Yeah, I'm here right now.
Speaker 1: The conversation started just after nine am this morning. So
Speaker 1: it's the two sides, the railway companies and the representatives
Speaker 1: and the unions. UH. And then Marty Walsh and his
Speaker 1: team kind of acting as the the broker middleman and
Speaker 1: and as you just said, I mean, the stakes are
Speaker 1: high and there's a lot of pressure to get a
Speaker 1: deal across. So what we know is that they've been
Speaker 1: talking NonStop since this morning. Uh. You know, at one
Speaker 1: point we were supposed to get uh some commentary from
Speaker 1: the secretary. We still expect that at some point today. Um,
Speaker 1: but he hasn't been outside the building yet. Uh. And
Speaker 1: they actually kept negotiating all through lunch. So according to
Speaker 1: someone familiar, uh, they just ordered lunch in and and
Speaker 1: continued talk all throughout that. And you can tell from
Speaker 1: from that kind of a pace of talks that this
Speaker 1: is this is pretty serious. We're getting down to the wire.
Speaker 1: TikTok though when we look at the clock. Um, Under
Speaker 1: the Railway Labor Act, right, Congress can step into the
Speaker 1: imposer resolution based on a Presidential Emergency Board plan that
Speaker 1: was submitted in August or order the trains to operate
Speaker 1: as usual while the two sides continue to negotiate. So
Speaker 1: is that likely to happen even if they don't come
Speaker 1: to some agreement. Yeah, that's right. That is that continues
Speaker 1: to be an option, right. So that's what they did
Speaker 1: in in the ninety nineties to avert a real strike
Speaker 1: back then, which would have been equally as as catastrophic
Speaker 1: to the economy. UM. And politically that's still an option
Speaker 1: on the table, UM, but as my political colleagues and
Speaker 1: White House colleagues have reported, it's not necessarily something that
Speaker 1: they want to do. UM. The ideal situation here is
Speaker 1: that they come to an agreement the two sides and uh,
Speaker 1: you know, hopefully hammer something out. But as far as
Speaker 1: right now, as far as we know, UM, you know,
Speaker 1: the likelihood of that happening right this minute is not high.
Speaker 1: I mean, we had another union, a smaller union UM involved,
Speaker 1: find out a press statement earlier today saying that they
Speaker 1: don't agree to the current deal and UM are kind
Speaker 1: of holding out UM and could strike later. So uh, yeah,
Speaker 1: a big goal, Kata. How big is the delta between
Speaker 1: what the rail workers want and what the companies are
Speaker 1: willing to give? In thirties in the last thirty seconds
Speaker 1: we have, Yes, Well there's a lot of thirty seconds.
Speaker 1: I mean there's that, there's wages, there's the ongoing wages
Speaker 1: and benefits issues, but I think scheduling is the is
Speaker 1: the top thing. So you're hearing a lot from both
Speaker 1: sides with the companies saying, you know, we're giving a
Speaker 1: lot as we can on scheduling, and then you hear
Speaker 1: the unions and the workers saying, well, actually, we need
Speaker 1: more flexibility and we need more, um, we need you
Speaker 1: to give more, essentially, and that's that's really the main
Speaker 1: sticking point here and probably exactly what they're discussing right now.
Speaker 1: And we do want to mention we have a headline
Speaker 1: crossing Amtrack is canceling all long distance trains starting September
Speaker 1: fift so, UH talk about some additional pressure, certainly on
Speaker 1: our individuals in the United States as well as our economy.
Speaker 1: Katia dmitriev uh US Economy Report at Bloomberg News Outside
Speaker 1: the US Labor Department. You're listening to Bloomberg Business Week
Speaker 1: with Carol Messer and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. This is one of those stories that we
Speaker 1: have come to love Business Week for It's one that
Speaker 1: taps into some of the big themes of our time
Speaker 1: but may not be on your radar but should. And Tim,
Speaker 1: it's about a prime spot between Mexico's industrial capital and
Speaker 1: the US board that's become a haven for Chinese manufacturer.
Speaker 1: It's in Monterey, Mexico. It's if you look at a map,
Speaker 1: it's just south of the border with Texas. Uh. It's
Speaker 1: an area of the country that has really changed a
Speaker 1: lot in just a few years. Writing about it in
Speaker 1: Bloomberg business Week Magazine, as this issue is actually this
Speaker 1: is story is gonna be featured in the upcoming issue
Speaker 1: of Business Week Magazine. Read it now though on the
Speaker 1: Bloomberg and at Bloomberg dot com slash business Week. The
Speaker 1: editor of this piece is Christina Lindblad. She's Global Economics editor.
Speaker 1: She's with us in the Bloomberg Interactive Broker Studio. Also
Speaker 1: here is Joel Webber, the editor of Bloomberg Business Week.
Speaker 1: You can follow him on Twitter at Joel Webber. Show
Speaker 1: this area of Mexico, northern Mexico, just south of the
Speaker 1: border with Texas. What did it look like a few
Speaker 1: years ago? Joel? Well, it was a little quieter than
Speaker 1: it is now, with fewer factories. And uh lo and behold. Uh,
Speaker 1: China became very interested in sort of a side door
Speaker 1: to the US there, and so we have seen an
Speaker 1: explosion of factories there and uh it is effectively a
Speaker 1: workaround of Trump's tariff policy, which the Biden administration is
Speaker 1: basically kept in place. Um. And so it's interesting about
Speaker 1: that is that you know, you basically have gained the system. Uh.
Speaker 1: And so things going forward may not be manufactured in
Speaker 1: China as before you find some cheap real estate uh
Speaker 1: in other countries. Mexico is not the only version of this,
Speaker 1: but certainly the closest to the U. S UM. So,
Speaker 1: how's this, how's this working out? As uh as a
Speaker 1: little bit of arbitrage Christina, Well, that's the globalization as
Speaker 1: always rash, right. So I think when we interviewed companies
Speaker 1: that are based in one particular industrial park that we
Speaker 1: focused on, they most of the Chinese firms preferred to
Speaker 1: emphasize the you know, proximity to the US market and
Speaker 1: this and this savings on shipping. But when pressed they
Speaker 1: admitted that, you know, for example, one furniture maker was
Speaker 1: facing taffs of twenty when they were shipping from China
Speaker 1: and now uh qualified for duty free shipments into the US.
Speaker 1: What blew me away is how quickly they were able
Speaker 1: to do that, right, Like I always feel like when
Speaker 1: we're talking to CEOs and like, well, the shift you know,
Speaker 1: if we have to shift our production elsewhere, it's going
Speaker 1: to take a long time. I mean, they moved pretty quickly,
Speaker 1: and it reminds us that they are still the manufacturer
Speaker 1: to the world. Yes, and I think some of these
Speaker 1: companies are pretty I mean, they're not all big. I
Speaker 1: mean one of the manufacturers is a really big manufactor
Speaker 1: in China, but like so they are nimble and they
Speaker 1: you know, um, as a policy, China has been basically
Speaker 1: willing to shed kind of low mar in manufacturing businesses
Speaker 1: as it you know, as it focuses on high end
Speaker 1: stuff like you know, new new fuel vehicles and biotechnology
Speaker 1: and semiconductors. So I think that the first wave went
Speaker 1: to places like Vietnam. But now you know, you can see,
Speaker 1: like you know, businesses are moving further away, you know,
Speaker 1: from those comfort kind of locales where they first landed.
Speaker 1: And um, yeah, I mean I think what I thought
Speaker 1: it was kind of funny was that do you remember
Speaker 1: when Trump tweeted basically ordering American companies home, and I said,
Speaker 1: what came floating across like the Pacific or Chinese Chinese
Speaker 1: plants didn't exactly work that way. I don't know, it
Speaker 1: seems like there could be like a way for the
Speaker 1: US to close this loophole. I mean, they know what
Speaker 1: these Chinese companies produce, and isn't there a way that
Speaker 1: they can say, Okay, well we know that it comes
Speaker 1: from a subsidiary of a Chinese company, and you're not
Speaker 1: sticking to the spirit of the role. Um, we're going
Speaker 1: to attack on that tariff. Do they want to? Oh?
Speaker 1: I don't know. I mean that might cause issues with
Speaker 1: the U s m c A right like the successor
Speaker 1: to NAFTA. I mean, I think Mexico would have legitimate
Speaker 1: reason to say, well, what are you doing? You know,
Speaker 1: as long as they meet the content requirements, which they
Speaker 1: are and to do that. I mean, we should be
Speaker 1: clear that this applies a certain amount of effort on
Speaker 1: the part of these Chinese companies because they're having to
Speaker 1: source products from Mexico, could be even North America. There.
Speaker 1: They can't just import assemble everything from Chinese parts and
Speaker 1: shipping across. Yeah. The other thing to keep in mind here,
Speaker 1: you know, Belt and Road is a very top down
Speaker 1: initiative in China. This is not that this is just grassroots,
Speaker 1: grassroots effort by Chinese exporters to be like, how do
Speaker 1: we it's kind of simple, but it makes so much sense. Also,
Speaker 1: I mean, we talked to some companies that off the
Speaker 1: record explicitly said, part of the reason we're doing this
Speaker 1: isn't just cost savings, is that there's political risk, I
Speaker 1: mean policy risk rather in China in recent years, we've
Speaker 1: seen like crackdowns in tech and other sectors. And so,
Speaker 1: you know, so we talk about the Mexico saidators to
Speaker 1: AMLO being obviously UM, the president of Mexico has been
Speaker 1: you know, very eager to try and get employment whatever
Speaker 1: there can be employment. How is this shaping out domestically
Speaker 1: for him? Well, the interesting thing is at the federal level,
Speaker 1: Mexico has never really actively courted Chinese investment because they
Speaker 1: see Chinese exporters as rivals in third markets, right. So,
Speaker 1: but the state, at the state level, they like states
Speaker 1: have so Nueo Leone, which is where you know this
Speaker 1: particular industrial park, uh, and these are a lot of
Speaker 1: these companies are setting up shop. UM has has done
Speaker 1: and they're building a special road for example, from like
Speaker 1: you know, the UH from the industrial park to the border. Uh.
Speaker 1: And so yeah, but I think that some people have
Speaker 1: said that Mexico might have actually seen even a bigger
Speaker 1: in the fall of this kind of investment if am
Speaker 1: Low was being less nationalistic on topics like energy and
Speaker 1: you know and things like that. But I mean, this
Speaker 1: is great for Mexico, right, Like the number that really
Speaker 1: jumped out at me here is UH near shoring. UH
Speaker 1: could boost Mexico's exports by thirty five billion year, a
Speaker 1: bit over seven percent. I mean that's like real asformative. Yeah. Also,
Speaker 1: I mean while the Chinese investment, like like the most
Speaker 1: recent figures five million dollars a year is not huge,
Speaker 1: there is there are a couple of deals that could
Speaker 1: happen this year that would be transformative that that we're
Speaker 1: talking about billion dollar factories. One of them is there
Speaker 1: an e V engine maker that's looking at two different
Speaker 1: sites in Mexico. And those kinds of investments pulls supply
Speaker 1: chains you know around them. You know, so that kind
Speaker 1: of that kind of thing I think would take it
Speaker 1: to the next level suppliers that play into it. Hey, um,
Speaker 1: you guys point out in the story, though Chinese companies
Speaker 1: aren't the first to seek shelter from US, Terra Japan did.
Speaker 1: It went back in the similar playbook when Reagan started
Speaker 1: layering all these different restrictions on Japanese cars, and then
Speaker 1: when NAFTA took effect, they saw, well this is a
Speaker 1: great export platform now. But I think it's interesting right
Speaker 1: in terms of the globalization conversations that we're having about
Speaker 1: what's going on. What I forgot about that? We haven't
Speaker 1: talked about that forever. An the way I think about it, Well,
Speaker 1: we didn't use the word friend shoring. Friend shory. Yes,
Speaker 1: that's when you go to friendly countries like you know,
Speaker 1: I haven't heard that refriend shoring where you can have
Speaker 1: a special edition on Won't Talk, Stay tune to come
Speaker 1: all right, we gotta go, guys. Jill Webber, editor of
Speaker 1: Bloomberg Business Week here in our Interactive worker studio, and
Speaker 1: Christina Limblad, she's Global Economics editor. This story, it is
Speaker 1: a Bloomberg Big Take, and it is in the upcoming
Speaker 1: new issue of Bloomberg Business Week magazine. It's un newstands tomorrow.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes. Tim Stinovic on Bloomberg Radio, Well shares of Walmart.
Speaker 1: I think little change down the day at list. When
Speaker 1: I checked at last this is the world's largest retailer,
Speaker 1: gets ready to offer up checking accounts. Yeah, this is
Speaker 1: a really interesting story. Jenny Seraine is with us. She's
Speaker 1: finance reporter for Bloomberg in here. She's with us in
Speaker 1: the Bloomberg in her active brokers. I mean, it kind
Speaker 1: of makes sense. When you know a company like Walmart
Speaker 1: wants to continue to grow, it has to get into
Speaker 1: other parts of business. The question that I have is
Speaker 1: who are these checking accounts meant for? These bank accounts
Speaker 1: been for? Walmart has more than one million employees. Have
Speaker 1: they been kind of like trialing this with the employees?
Speaker 1: What's going on here? Yeah, so that's what we're actually
Speaker 1: expecting to see in the coming weeks. UM. So Walmart
Speaker 1: last year actually set up this outside fintech startup UM,
Speaker 1: and they've been super secretive up till now, and we're
Speaker 1: basically expecting them to roll out these new bank accounts
Speaker 1: UM in the coming weeks too. For now, a small
Speaker 1: set of Walmart's employees here in the US, and even
Speaker 1: UM a small percentage of their online shoppers. So it's
Speaker 1: kind of in test and learn mode right now, but
Speaker 1: pretty soon, UM, they are expecting to roll this out
Speaker 1: to one point six million Walmart u S employees and
Speaker 1: all Walmart shoppers as well. First of all, kudos to you.
Speaker 1: It's an exclusive. It's among the most read on the
Speaker 1: Bloomberg so really really well done. What's interesting to me,
Speaker 1: and it also speaks to me that it's they're going
Speaker 1: after what many would say are an underserved part of
Speaker 1: our population when it comes to the financial infrastructure here.
Speaker 1: It's it's kind of super smart. Yeah, I think that's
Speaker 1: exactly right. Walmart is very keenly aware of what all
Speaker 1: of its customers really need and kind of the gaps
Speaker 1: that can be filled, and so they've talked a lot
Speaker 1: about how they want this to be something that's affordable.
Speaker 1: UM So you can, you know, imagine that there probably
Speaker 1: won't be lots of fees attached to this new account. Um.
Speaker 1: So yeah, I think it's a very interesting move for them.
Speaker 1: I will say they've tried this in the past, so
Speaker 1: this is not Walmart's first foray into finance um and
Speaker 1: they haven't always been successful. So I think they're taking
Speaker 1: another back at it. They're trying to go a little
Speaker 1: bit more digital, a little bit more flashy. So we'll
Speaker 1: see if this time makes a difference. How long ago
Speaker 1: was their last attempt do you know it's it's been
Speaker 1: a while. So they currently have a bevy of financial
Speaker 1: services products, so you can get a relttable debit card,
Speaker 1: you can change money. The reason the reason I ask
Speaker 1: is because we're in a mobile first world right now,
Speaker 1: and that's a big part of the you know, quote
Speaker 1: unquote disruptors who are coming into fintech and Jenny, you've
Speaker 1: written a lot about these companies, like, you know, companies
Speaker 1: like Dave and Chime and other one word you know,
Speaker 1: so called neo banks. Right, So, even though you know
Speaker 1: it could be a smart move from Walmart, this is
Speaker 1: a really crowded field already because a lot of companies
Speaker 1: are going after that underbanked consumer. Yeah, no, that's exactly right.
Speaker 1: I do think the fact that they so one of
Speaker 1: the big problems facing those other companies right now is
Speaker 1: they have to spend so much money acquiring customers. And
Speaker 1: these guys have kind of the built an advantage. You know,
Speaker 1: they've got the world's largest retailer with five thousand plus
Speaker 1: stores ready to advertise this, put this in front of
Speaker 1: their shoppers, put this in front of their employees. So
Speaker 1: that helps a lot. It means their expenses will be
Speaker 1: a lot lower um and maybe they can spend that
Speaker 1: money on something else. All right, can I can I
Speaker 1: just share with the audience that before we got going,
Speaker 1: you and I were talking, we're talking about Shark Tank
Speaker 1: that while I was home, I kind of did a
Speaker 1: little bit of a deep dive and did a little
Speaker 1: bit of binge watching. I like Shark Tank, but Shark Well,
Speaker 1: it's fascinating because this is so much the backbone of
Speaker 1: our our our country and our economy. These all these
Speaker 1: small companies, but so much they talk about customer acquisition,
Speaker 1: and I think if I am an individual and I
Speaker 1: shop at Walmart, I know the brand, It's a company
Speaker 1: that's been around for a long time, and I would
Speaker 1: be first of all comfortable with it. And then I
Speaker 1: think about for Walmart, right, they're right there. It's not
Speaker 1: going to cost them a lot to get to these
Speaker 1: additional customers for financial services. Yeah, no, that's exactly right.
Speaker 1: I mean, I think the one of the most interesting
Speaker 1: stats was Walmart has more locations than most of the
Speaker 1: major all four of the major biggest banks in the
Speaker 1: closing them exactly. So you know, if you're really thinking
Speaker 1: about a subset of customers who will mobile first, do
Speaker 1: like that kind of in store experience, this kind of
Speaker 1: chuck saw the boxes for them. Okay, so well, I
Speaker 1: don't know it just dumbfounded that I like did a
Speaker 1: deep deve on shark Tech. Ye, JENNI are bonding on
Speaker 1: this anyway. Jenny like Shark Tank too. I know it's fast.
Speaker 1: Everyone like Shark Tank. So so what does this end
Speaker 1: up looking like for Walmart's bottom line? Here, because this
Speaker 1: is something that investors certainly want to know about it.
Speaker 1: In the past, large companies getting into financial services didn't
Speaker 1: always end well, I'm talking about you know ge. Yeah, no,
Speaker 1: that's actually a great point. I think the way they
Speaker 1: structured this is super interesting. So they set up this
Speaker 1: outside fintech. It's completely independent, um, but they are the
Speaker 1: majority owned shareholder or majority shareholder, and they're also a
Speaker 1: lot of their executives around the board of this outside fintech,
Speaker 1: so they have a vested interest. But it is a
Speaker 1: separate effort. So I think we'll see I can't imagine
Speaker 1: that like right now, the financials are what's most compelling.
Speaker 1: I think it's the idea that when you're a consumer,
Speaker 1: you can go to Walmart now and basically get anything
Speaker 1: not just you know, your groceries or your gas, but
Speaker 1: also your bank accounts. So it's Amazon model, right, Like,
Speaker 1: you've already got how many users embedded in your system?
Speaker 1: What else can I offer them? I actually think a
Speaker 1: bit more of like the Ali Baba model, because that
Speaker 1: those guys really started out in retail and then slowly
Speaker 1: branch their way into every other thing. And um, so
Speaker 1: you're starting to see those models kind of make their
Speaker 1: way here in the US. But it makes so much sense, right,
Speaker 1: You've already got this installed base, and like, how do
Speaker 1: you how do you monetize it even further? Um, As
Speaker 1: we said, it's an exclusive thanks to our Jenny Surrene,
Speaker 1: finance reporter at Bloomberg Music is among our most read
Speaker 1: on the Bloomberg. So if you want to read it
Speaker 1: and it's entire to be sure to check it out
Speaker 1: and check out Jenny also on Twitter, She's at Jenny Surrene.
Speaker 1: I'm bro journal. Yeah, but you let me drive, no novels.
Speaker 1: I want to drive. It's a good question. Good drive
Speaker 1: ride to the clothe bloom Bird radio all. I just
Speaker 1: got about ten minutes left in today's trading session. Yep,
Speaker 1: chopping and sloppy is how Charlie Pellett called today's trade.
Speaker 1: And it's really accurate. We're bouncing off our lows, but
Speaker 1: well off our highs. Call it little change tim overall
Speaker 1: for today's equity trade, you're gonna hear what Megan Horneman
Speaker 1: has to say, Chief investment officer at Verden's Capital Advisors.
Speaker 1: Megan this afternoon, joins us on the phone from Hunt Valley, Maryland.
Speaker 1: All Right, Megan, you've had twenty four hours to breathe
Speaker 1: that after yesterday's route, certainly a different story in today's
Speaker 1: equity markets. Um, I mean, how are you looking at this?
Speaker 1: Are you looking at today's trade? Well? I think today
Speaker 1: you're going to see and and even up to the
Speaker 1: FED meeting, you're going to see a lot of this chopping.
Speaker 1: Is it's just going to be an ugly market over
Speaker 1: the next week, the markets just waiting for that FED report,
Speaker 1: and then even between now and then, we have quite
Speaker 1: a bit of economic data to digest. So I think
Speaker 1: you're just going to see a very sideways choppy market
Speaker 1: until we get a little bit more clarity on exactly
Speaker 1: what the Fed's gonna do. Hey, Megan, what do you
Speaker 1: make of You know, we were talking earlier with some
Speaker 1: of our TV colleagues about the significance of you know,
Speaker 1: we had quite a route yesterday, very impressive, uh, the
Speaker 1: SMP basically giving back all of the games that had
Speaker 1: made in the previous four sessions. But we didn't see
Speaker 1: a huge surge in the VIX right the fear gage,
Speaker 1: which some meant to mean that maybe the sell off
Speaker 1: was a recalibration of those expectations rather than panic selling.
Speaker 1: How do you see the VIX again down almost three
Speaker 1: quarters of a point today? Yeah, I think you're exactly right.
Speaker 1: The fact of the matter is that the market continues
Speaker 1: to be in this whipsal mode where you know, something
Speaker 1: like that CPI report comes out and then they readjust
Speaker 1: the expectations for the federal Reserve. The risk I see
Speaker 1: right now is yes, that the VIX still hasn't really
Speaker 1: spiked up. You need to see that VIX much higher
Speaker 1: to say that we've really reached that full capitulation mode.
Speaker 1: But forty, we need to hit fourty or what I
Speaker 1: think you need to hit forty consistently and stay above that.
Speaker 1: I mean, we haven't been above hit forty since the pandemic,
Speaker 1: and we've seen quite a bit of daily moves, some
Speaker 1: daily volatility, but we haven't really seen it translate into
Speaker 1: that vix. That's what we want to see to say, hey,
Speaker 1: we might be getting in this capitulation phase. Yeah, Carol,
Speaker 1: were you the one who said a few weeks ago
Speaker 1: that with all the economic data we get and then
Speaker 1: the FED, it's like we're jumping from stone to stone
Speaker 1: in the pond. It's like a little kid, you know,
Speaker 1: skipping stones across a block. That's what it feels like here,
Speaker 1: because it's like, and I hear time and time again, Megan,
Speaker 1: it's like, Okay, we just wait for the next data
Speaker 1: point and then we're gonna get some clarity. We wait
Speaker 1: to hear from the FED, and then we're gonna get
Speaker 1: some clarity. But it seems like every time we get
Speaker 1: to one of these other stones, as Carol's sort of
Speaker 1: metaphor points out, we're still waiting to jump to that
Speaker 1: next stone. I mean, what are we going to start
Speaker 1: to see like a good understanding of what's coming in
Speaker 1: the U. S. Economy? I think we have to get
Speaker 1: a little realistic and there's certain areas of the market
Speaker 1: that I don't think are realistic right now. For example,
Speaker 1: earnings haven't been translated. The weakness we've seen in the
Speaker 1: economic environment as well as what we expect over the
Speaker 1: next year isn't really fully reflected in the earnings expectations
Speaker 1: for this year and next year. And then when you
Speaker 1: look at the FED funds futures market, they're looking for
Speaker 1: prem FED rate cuts as early as the first half
Speaker 1: of next year. The FED flat outside they're not going
Speaker 1: to do that. You said, they're gonna keep hiking and
Speaker 1: then they're going to stay there. So I don't understand it.
Speaker 1: It really doesn't make a lot of sense to me
Speaker 1: on how the fixed income market can be translating this
Speaker 1: into FED cuts as soon as early next year. As
Speaker 1: long as that continues that there's not realistic up expectations
Speaker 1: in fixed income or earnings, you're going to get see
Speaker 1: this whip songing along with economic data and FED rhetoric. Yeah,
Speaker 1: and think speaking of going from you know, the point
Speaker 1: to point stone to stone, I think about going from
Speaker 1: earnings to earnings, and I am curious again when we
Speaker 1: get to the next earnings round, Megan, what ceo s
Speaker 1: and their teams have to say about the outlook and
Speaker 1: what it means for a reset in terms of earning
Speaker 1: the growth, revenue, growth margins, what kind of pressures we
Speaker 1: continue to see in whether or not that leads to
Speaker 1: evaluation resets. And I think we've got to look at
Speaker 1: what they're doing for the future. So I think you
Speaker 1: want to hear not just about you know, what interest
Speaker 1: rates mean, but are they going to slow down hiring?
Speaker 1: Are they cutting jobs? We're starting to see that now already,
Speaker 1: especially from some of these mortgage related jobs. You're already,
Speaker 1: you know. I feel like every day we have a
Speaker 1: company that comes out and says and maybe some of
Speaker 1: them are very company specific stories, but nonetheless we talked
Speaker 1: about it with a lot of the big tech names. Right.
Speaker 1: It feels like we went through a period to him
Speaker 1: where it was every big tech name talking about slowing hiring, right,
Speaker 1: And maybe we'll see this reflected intomorrow's you know, weekly
Speaker 1: jobless claims. But you know, you know, Megan, we're still
Speaker 1: not seeing the weakness anecdotally that we're hearing from these
Speaker 1: companies reflected in the monthly jobs reports, right, And again,
Speaker 1: I think that's going to take time because we still
Speaker 1: are dealing with a pretty tight labor market. I mean,
Speaker 1: you have almost two jobs out there still for every
Speaker 1: one person unemployed. So there's still is a very job
Speaker 1: plentiful environment. I don't think you're gonna see that really
Speaker 1: translated into that job. There's jobs and numbers, and we
Speaker 1: hope it that we don't. That's why some people are
Speaker 1: still holding onto the soft landing environment over the next year,
Speaker 1: because we do have such a good labor market. All right.
Speaker 1: So as I look with about five minutes to go
Speaker 1: in today's trading session, we're seeing some buying into the
Speaker 1: clothes um kind of a straight lineup. We're still just
Speaker 1: up about eight on the S and P still down
Speaker 1: about twelve on the Dow, twelve points that is an
Speaker 1: up seventy two. So but again we are seeing some
Speaker 1: buying into the clothes. Megan, what should investors be buying
Speaker 1: at this point in your view? So, what we've been
Speaker 1: looking at is those areas that have really reflected at
Speaker 1: a lot of the downside risk. So and I would
Speaker 1: avoid some of those you know what they call your
Speaker 1: growth at any price, those very expensive tech growth memes.
Speaker 1: I think there's still is some more discovery for them
Speaker 1: from evaluation and intence like, what are some names in
Speaker 1: that category? I mean, I wouldn't. I would just look
Speaker 1: at the sector as a whole. I'd be I'd be
Speaker 1: cautious there at the sector as a whole. We have
Speaker 1: not seen that really decline as much as I would like.
Speaker 1: I would also focus on those areas, like you're small
Speaker 1: and mid cap stocks that they've been very underloved. We've
Speaker 1: started to see aside from yesterday, some bottoming there in
Speaker 1: the in the Russell two thousands, so I think that
Speaker 1: you're starting to get some people coming in buying there
Speaker 1: because again they were pricing in worst case scenario down.
Speaker 1: So I would focus on that right now, wait for
Speaker 1: the large cap space to wash itself out a little
Speaker 1: bit more, and then maybe look at some area's there. Yeah,
Speaker 1: like the SMP that down the nestack. We are seeing
Speaker 1: investors moving into the Russell too. It's up about one
Speaker 1: quarter one percent right now. To look at that, well,
Speaker 1: you know, up and down. Um, you got me thinking,
Speaker 1: Carol and pulling up the comp function on the Bluebird
Speaker 1: terminal looking at the the Russell two thousand because it's
Speaker 1: kind of unloved. Yeah, absolutely, can we often talk about it? Um? Hey, Megan, Um,
Speaker 1: what what keeps you up at night? Here? When it
Speaker 1: comes to the investment out looking just got about five seconds, Um,
Speaker 1: fiscal policy leave it right there. Okay, Yeah, that's a lot.
Speaker 1: That says a lot, um, Megan, think so much. Always
Speaker 1: fun to check in with you. Megan Hornaman. She's Chief
Speaker 1: investment Officer at Verden's Capital Advisors. They are a wealth
Speaker 1: advisory and multi office, multi family office firm. Joining us
Speaker 1: on the phone from Hunt Valley, Maryland. Funny to hear
Speaker 1: say fiscal policy when you know monetary policy is also
Speaker 1: keeping a lot of people up right, A lot of
Speaker 1: policy keeping people up at this point, doesn't matter if
Speaker 1: it's taxes or interest rates, it's keeping people up. Thanks
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