WEBVTT - A Deep Dive Into Markets, Tesla Earnings Preview 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.599 at Bloomberg dot com slash podcast. Now. UM, I'm looking 0:00:22.640 --> 0:00:25.599 at gt V go right now. If you pull that 0:00:25.680 --> 0:00:27.960 up on your Bloomberg terminal, you can see a number 0:00:28.000 --> 0:00:31.240 of charts that we use on television. UM and if 0:00:31.240 --> 0:00:35.800 you click on four go you'll see something I noticed earlier. 0:00:35.880 --> 0:00:39.000 Danny Burger pointed it out to me. The VIX has 0:00:39.080 --> 0:00:41.960 come back down to kind of the lows of the year, 0:00:42.880 --> 0:00:46.800 whereas the move index has shot up. Volatility and fixed 0:00:46.840 --> 0:00:53.760 income is um movies okay, exactly, And we've seen, you know, 0:00:53.840 --> 0:00:55.680 the sell off which has been pretty amazing to me. 0:00:55.680 --> 0:00:57.080 In the course of a month. We've gone from one 0:00:57.640 --> 0:01:00.920 one sixty handle. Right now, the ten year yield is 0:01:00.960 --> 0:01:04.160 trading at one sixty four. But we've seen the short 0:01:04.240 --> 0:01:07.000 end of the curve um sell off even more sharply. 0:01:07.400 --> 0:01:10.440 Hans Olsen is with us right now chief investment officer 0:01:10.440 --> 0:01:12.880 at Fiduciary Trust Company, Hans. Great to have you on 0:01:12.920 --> 0:01:16.840 the program, Thanks so much for joining us. You you 0:01:16.959 --> 0:01:20.840 also have noticed this divergence. Um, you know, equities are 0:01:20.880 --> 0:01:25.240 sailing right along back up above on the SMP five hundred, 0:01:25.280 --> 0:01:28.760 whereas we've got this weird sell off and volatility in 0:01:28.880 --> 0:01:32.640 fixed income. What's happening. Yeah, it seems as if there 0:01:32.680 --> 0:01:35.399 are you know, different parts of the market are are 0:01:35.440 --> 0:01:39.200 making bets that are hundred and eighty degrees uh, you know, 0:01:39.319 --> 0:01:41.880 toward one another. You know, the equity market seems to 0:01:41.880 --> 0:01:44.119 be telling us that everything is going to be fine. 0:01:44.160 --> 0:01:47.199 Don't worry about inflation. It's going to be transitory. It's 0:01:47.240 --> 0:01:50.160 all going to work out, don't worry about h you know, 0:01:50.200 --> 0:01:53.760 the taper bond market not so much. If you look 0:01:53.800 --> 0:01:57.040 across matt If you look across the entire landscape of 0:01:57.200 --> 0:02:00.800 fixed income over the course of this month, it's down 0:02:00.960 --> 0:02:03.320 if it's struggled, in fact, over the course of the 0:02:03.440 --> 0:02:07.800 entire year. But it's especially noteworthy in October when the 0:02:07.840 --> 0:02:11.840 equity market has caught another wind and the bond market 0:02:11.919 --> 0:02:14.720 says hold on. This is worrisome and at the same 0:02:14.760 --> 0:02:19.079 time the dollar is struggling as well. Well, Hans, I 0:02:19.160 --> 0:02:21.720 kind of you know, I'm an equity person, equity analyst 0:02:21.800 --> 0:02:24.320 by training, but I've always been told is follow the 0:02:24.360 --> 0:02:28.040 bond market. Um, what is this divirgence telling you here? 0:02:28.040 --> 0:02:31.400 Should we as equity investors be a little bit more 0:02:31.840 --> 0:02:35.919 nervous than maybe we are? Yeah? I do. I mean 0:02:36.080 --> 0:02:38.880 I think that what we're seeing as a reprieve in 0:02:39.040 --> 0:02:43.040 the in the concerns that the equity market had last month, 0:02:43.720 --> 0:02:45.760 given the earnings. I mean, as you said earlier, you know, 0:02:45.760 --> 0:02:48.000 the earnings, the earnings flow over the last couple of 0:02:48.040 --> 0:02:52.399 days have been fantastic. You know Netflix this morning, last night, Uh, 0:02:52.720 --> 0:02:55.840 um by a gen Verizon? All good? Right, So it 0:02:56.120 --> 0:02:58.880 sort of steals the nerves of investors. But um, you 0:02:58.919 --> 0:03:00.919 know we're going to get We're going to get over 0:03:00.960 --> 0:03:03.240 the next month. Right. More and more central bankers five 0:03:03.240 --> 0:03:05.400 and them are going to talk about it today, Um, 0:03:05.440 --> 0:03:07.880 their views on what a taper might look like. So 0:03:08.520 --> 0:03:11.239 when the when, the the the the concept at the 0:03:11.280 --> 0:03:14.760 taper starts to become a reality and we continue to 0:03:14.800 --> 0:03:18.400 get more pushed through on prices. Um, you know, I 0:03:18.400 --> 0:03:21.359 think there will be a reconsideration of where we stand. 0:03:21.360 --> 0:03:23.560 On the part of equities, there's a lot of I 0:03:23.600 --> 0:03:26.600 think price risk and equities right now. If if we 0:03:26.639 --> 0:03:31.000 start to have a reset in interest rates. Um, we've 0:03:31.040 --> 0:03:34.800 been concerned about. As you said, inflation is a transitory. 0:03:34.960 --> 0:03:38.320 Everybody was talking about stag inflation last week at the 0:03:38.320 --> 0:03:41.280 beginning this week, although it seemed many people had very 0:03:41.280 --> 0:03:45.760 different definitions of stagflation. But all the concern has been 0:03:45.840 --> 0:03:48.320 about chips and chips really at the heart of it. 0:03:49.200 --> 0:03:52.200 I've heard less and less about COVID until you know 0:03:52.360 --> 0:03:54.680 this resurgence that we're seeing in the UK and now 0:03:54.720 --> 0:03:57.480 the US as well. Are are you worried about that 0:03:57.560 --> 0:03:59.400 as an investor that we're we don't really have our 0:03:59.400 --> 0:04:03.320 eye on the ball. He No, I think you know 0:04:03.400 --> 0:04:07.040 from from the infections. I do think what we're seeing 0:04:07.160 --> 0:04:12.200 is that it's it's becoming this um increasingly a pandemic 0:04:12.240 --> 0:04:15.120 now of the unvaccinated right and and more and more 0:04:15.160 --> 0:04:18.039 people are getting vaccinated, unfortunately not at a rate that 0:04:18.160 --> 0:04:20.479 perhaps a lot of us would like. But I do 0:04:20.560 --> 0:04:22.600 think on the inflation front, I think we have to 0:04:22.680 --> 0:04:25.680 Matt look at sort of the sticky inflation versus non 0:04:25.720 --> 0:04:30.320 sticky inflation. If we look at sort of sticky inflation. Um, 0:04:30.440 --> 0:04:33.280 what we're finding is that we're back to levels that 0:04:33.360 --> 0:04:37.640 we were prior to the pandemic. So you know, the 0:04:37.680 --> 0:04:40.479 amount of FED cuts it into two buckets, sticky and 0:04:40.480 --> 0:04:43.760 non sticky sticky stuff. It tends to be prices that 0:04:43.880 --> 0:04:47.080 don't um um. They don't move around a lot, right, 0:04:47.120 --> 0:04:51.000 so you know, rents um, auto registrations and the like. 0:04:51.120 --> 0:04:53.880 If they go up, they don't tend to come back down. Um. 0:04:53.960 --> 0:04:56.320 And if you look at it from that angle, and 0:04:56.440 --> 0:04:58.280 we're running close to three pc on a year of 0:04:58.320 --> 0:05:01.719 a year basis on that on the sticky inflation a 0:05:01.760 --> 0:05:05.359 little less so on on core sticky UM, the names 0:05:05.360 --> 0:05:08.760 get a bit a bit comical. But what the reality 0:05:09.000 --> 0:05:12.000 is is that I think we are resetting and I'm 0:05:12.040 --> 0:05:15.080 not sure that we're pricing that even as we work 0:05:15.200 --> 0:05:19.640 through this next phase of the pandemic. And eventually, you know, 0:05:19.880 --> 0:05:23.479 this becomes more like a seasonal flu becaus it becomes 0:05:23.600 --> 0:05:27.440 endemic rather than what it has been. Hans, we're getting 0:05:27.440 --> 0:05:30.720 into the teeth of earnings, UH this week, what do 0:05:30.800 --> 0:05:33.839 you really need to hear from Corporate America as you 0:05:34.000 --> 0:05:38.279 read these comments and listen to these conference calls what 0:05:38.400 --> 0:05:40.040 I need to hear for the to make me feel 0:05:40.080 --> 0:05:43.720 better about things. Well, I don't think that UM any 0:05:43.800 --> 0:05:47.480 sense that they can They can deal uh with the 0:05:47.480 --> 0:05:51.880 input costs rising the way they are, either either by 0:05:52.880 --> 0:05:57.039 being able to maintain their margins, UH maybe perhaps even 0:05:57.080 --> 0:05:59.840 price rises in order to maintain those margins. Those would 0:05:59.839 --> 0:06:01.440 be the very good things, and that's what I would 0:06:01.440 --> 0:06:03.160 be looking for. I mean, without a doubt. I mean, 0:06:03.200 --> 0:06:07.240 the the the earnings expectations for this quarter, for this year, 0:06:07.920 --> 0:06:12.960 UM remain you know, very good on very solid revenue growth, 0:06:12.960 --> 0:06:15.360 and even though it's going to slow next year, it's 0:06:15.360 --> 0:06:19.760 still pretty solid. So I think there's reason to to 0:06:19.839 --> 0:06:21.800 stick with equities at this point. But we're going to 0:06:21.920 --> 0:06:24.360 have to buckle up at some point here when when 0:06:24.360 --> 0:06:27.080 we start to get this policy pivot, which which eventually 0:06:27.160 --> 0:06:29.640 is going to happen. All right, Hans, great to get 0:06:29.680 --> 0:06:32.559 some time with you. Really appreciate your insight today. Hans 0:06:32.600 --> 0:06:37.000 Olsen is chief investment officer at Fiduciary Trust Company out 0:06:37.000 --> 0:06:44.920 of Boston. This is Bloomberg JT with our Bloomberg Business Flash, 0:06:44.960 --> 0:06:47.280 and he mentioned the VIX. We were just talking about 0:06:47.279 --> 0:06:49.400 this point. But I can't believe how low it is, 0:06:49.480 --> 0:06:53.040 how sanguine investors are, or at least appear to be 0:06:53.200 --> 0:06:56.560 by that measure. Let's bringing Kara Murphy, she's chief investment 0:06:56.600 --> 0:07:01.680 officer at Castra Investment Management. And what does it mean 0:07:01.720 --> 0:07:05.000 to you, Kara that we see you know, bond selling 0:07:05.040 --> 0:07:10.240 off UM and the VIX at least signaling that there's 0:07:10.440 --> 0:07:14.760 very little concern in the equity markets. Yeah, and quite 0:07:14.760 --> 0:07:16.800 a difference from just a couple of weeks ago, right 0:07:16.840 --> 0:07:19.920 where there was a lot of handwringing and consternation. And 0:07:19.960 --> 0:07:23.480 I think what you're seeing is this push pull um 0:07:23.520 --> 0:07:26.960 as we shift from a COVID economy to a post 0:07:27.000 --> 0:07:30.000 COVID economy. So I think we're still you know, the 0:07:30.040 --> 0:07:33.400 market is very much testing how equips, companies and the 0:07:33.400 --> 0:07:35.800 rest of the economy are to be able to manage 0:07:35.800 --> 0:07:38.600 this type of transition where we have a less aggressive FED, 0:07:39.120 --> 0:07:43.080 less supportive fiscal policy, and more normal levels of economic growth. 0:07:43.720 --> 0:07:46.320 And you know that there are there is still handwringing 0:07:46.360 --> 0:07:50.320 about things like stagflation. Right we're seeing Google searches for 0:07:50.360 --> 0:07:54.200 the term skyrocket, so there are definitely concerns out there, 0:07:54.200 --> 0:07:57.120 but for now, risk assets seemed to be brushing off 0:07:57.160 --> 0:08:01.120 those concerns alright, Cat in the context of ricks risk 0:08:01.160 --> 0:08:04.480 assets in the equity markets, what are the sectors that 0:08:04.600 --> 0:08:07.200 you are looking at right now? Again, looks like the 0:08:07.200 --> 0:08:11.680 markets getting another tailwind here. Where are you spending your time? So, 0:08:11.840 --> 0:08:16.080 one one of the big concerns in equity markets is valuations. 0:08:16.160 --> 0:08:19.760 You have a lot of great things going for risk 0:08:19.840 --> 0:08:22.720 assets UM in terms of, you know, even though you 0:08:22.720 --> 0:08:26.200 have a descellering, decelerating FED support, you still do have 0:08:26.240 --> 0:08:29.600 a very committed, a combinative monetary and fiscal policy. You 0:08:29.680 --> 0:08:32.439 have some of the best free cash flow generation ever, 0:08:33.160 --> 0:08:36.199 really strong balance sheets. But then when you get to valuation, 0:08:36.760 --> 0:08:38.640 that's the one kind of chink in the armor of 0:08:38.720 --> 0:08:41.480 equities right here. So I think what that's telling us 0:08:41.559 --> 0:08:44.120 is that forward returns are going to be more muted 0:08:44.360 --> 0:08:47.280 than what we've seen in the recent past. And because 0:08:47.320 --> 0:08:49.920 of that, we really favor areas that have that you know, 0:08:50.000 --> 0:08:53.440 profile of the really strong cash flow generation UM. Areas 0:08:53.440 --> 0:08:57.080 where you can find more quality as opposed to UM 0:08:57.160 --> 0:09:00.319 either you know, UH, deep value plays where you're looking 0:09:00.360 --> 0:09:04.840 for um A rebound, or areas where you might be 0:09:04.920 --> 0:09:08.080 relying on extraordinary levels of continued growth we would favor 0:09:08.080 --> 0:09:13.880 those companies that have high quality. What about UM I 0:09:13.920 --> 0:09:16.400 think about the financials a lot, and how important it 0:09:16.480 --> 0:09:18.680 is that they get the curve, that they had the 0:09:18.720 --> 0:09:22.000 curve in the right place their rates higher. Are you 0:09:22.720 --> 0:09:24.560 betting that rates are going to rise or is it 0:09:24.600 --> 0:09:27.360 not worth it to place that bet right now? So 0:09:27.760 --> 0:09:31.120 financials definitely need a certain level of interest rate in 0:09:31.200 --> 0:09:33.280 order to be able to earn money, but then they 0:09:33.320 --> 0:09:35.800 also need a spread, and so we've had a bit 0:09:35.800 --> 0:09:38.480 of a flattening of the curve which makes it sometimes 0:09:38.480 --> 0:09:41.120 more more difficult for a lot of financials to be 0:09:41.120 --> 0:09:44.679 able to earn money. So I think there there is 0:09:44.760 --> 0:09:47.560 some continuing to pick up in economic activity and demand 0:09:47.600 --> 0:09:50.840 for loans, which is certainly supportive, but they're probably not 0:09:50.920 --> 0:09:53.840 going to have that really steep curve to be able 0:09:53.880 --> 0:09:57.600 to ride. Karen, I'm gonna beat my colleague Matt to 0:09:57.679 --> 0:10:01.640 the question here crypto. We've got bitcoin all time higher 0:10:01.760 --> 0:10:05.640 over six per coin. How do you guys think about 0:10:05.880 --> 0:10:10.480 the crypto space? So, you know, as a practitioner who's 0:10:10.480 --> 0:10:14.400 focused on building portfolios for clients, it's very hard to 0:10:14.440 --> 0:10:18.920 look at crypto and find a strong investment case, only 0:10:18.960 --> 0:10:22.080 because you know, we don't have near the history, we 0:10:22.160 --> 0:10:25.600 don't have the statistics, we don't have the sort of 0:10:25.679 --> 0:10:30.360 infrastructure around crypto that we do with more traditional asset classes. Now, 0:10:30.400 --> 0:10:32.520 that doesn't mean that it won't go up and that 0:10:32.640 --> 0:10:35.320 it won't you be very a meaningful change and how 0:10:35.360 --> 0:10:39.280 the monetary system works. Um. So you know, I'm just 0:10:39.400 --> 0:10:42.080 viewing it very much as a speculative bet, and I 0:10:42.240 --> 0:10:45.000 caution clients all the time to make sure that if 0:10:45.000 --> 0:10:47.200 you want to be part of that story, make sure 0:10:47.200 --> 0:10:49.840 it's a very small part of your overall allocation and 0:10:49.840 --> 0:10:52.640 you're not bet in the farm on it. I mean 0:10:52.679 --> 0:10:56.280 I've been I've been attracted to bitcoin in the community 0:10:56.840 --> 0:10:59.120 for over a decade now, but even to me, it's 0:10:59.200 --> 0:11:04.199 nuts to see this this process. It is heartburn inducing. Yes, 0:11:04.679 --> 0:11:07.360 it definitely keeps me awake at night. Um not owning 0:11:07.360 --> 0:11:10.160 more of it. I want to just quickly ask about infrastructure. 0:11:10.160 --> 0:11:12.680 We're getting closer and closer to a bill. How close 0:11:13.960 --> 0:11:16.000 our markets paying really close attention to what's going on 0:11:16.040 --> 0:11:20.319 in Washington or do they not expect much progress? I 0:11:20.960 --> 0:11:23.920 think the infrastructure bill is going to be a bit 0:11:23.960 --> 0:11:25.959 of a whiff, at least when it comes to the market. 0:11:25.960 --> 0:11:28.160 It's not that it's not important for you know, those 0:11:28.200 --> 0:11:30.720 areas where they're making the investment. But what we've seen 0:11:30.760 --> 0:11:32.800 in the past when this has kind of come to 0:11:32.880 --> 0:11:35.199 a head, the market has really looked through it. And 0:11:35.480 --> 0:11:37.840 it's really because even though the numbers associated with the 0:11:38.160 --> 0:11:42.400 infrastructure bill seem enormous and nominal terms, when you look 0:11:42.440 --> 0:11:44.800 at it overall in terms of its relationship to like 0:11:44.920 --> 0:11:47.760 g d P or anything like that, it's still fairly small. 0:11:48.080 --> 0:11:50.920 Now it can have an impact on some individual companies 0:11:50.960 --> 0:11:53.880 who might be able to, you know, have plays associate 0:11:53.920 --> 0:11:56.280 with that type of spending for the market overall, though, 0:11:56.280 --> 0:11:59.280 I don't think it's going to be a big driver. Karen, 0:11:59.320 --> 0:12:01.160 thank you so much for joining us. We really appreciate 0:12:01.200 --> 0:12:03.800 you taking the time and sharing your thoughts today. Kara Murphy, 0:12:04.000 --> 0:12:10.440 chief investment officer for or Kestra Investment Management. Now I 0:12:10.440 --> 0:12:12.760 want to get over to r J. Gallois. Paul said 0:12:12.840 --> 0:12:15.680 he's joining US senior portfolio manager, head of the Municipal 0:12:15.720 --> 0:12:20.880 Bond Group at Federated Hermes. They have um about six 0:12:20.960 --> 0:12:26.600 hundred and forty six billion dollars of assets under management, 0:12:26.640 --> 0:12:30.760 so no big deal. R J UM I was. I 0:12:30.880 --> 0:12:34.520 had lunch today with a big infrastructure guy normally in 0:12:34.559 --> 0:12:36.960 the US, and you told me it's going to be 0:12:37.040 --> 0:12:39.800 decided this week. What we get from Congress. What are 0:12:39.840 --> 0:12:45.640 your expectations. Well, we're hopeful that despite the razor thin 0:12:45.840 --> 0:12:49.160 margins that the Democrats possess and in the House and 0:12:49.200 --> 0:12:52.520 certainly in the Senate, that that they can come up 0:12:52.520 --> 0:12:55.880 with something to have about bipartisan agreement that's waiting to 0:12:55.960 --> 0:12:59.080 be signed. Uh. And and now sort of a bargaining 0:12:59.120 --> 0:13:01.680 chip for the Old Back Better Agenda, you know, which 0:13:01.720 --> 0:13:05.840 is overwhelmingly social spending oriented. Uh. It was discouraging to 0:13:05.840 --> 0:13:08.800 see how complicated it got within the Democratic Party. But 0:13:08.920 --> 0:13:12.079 all the coverage that you're seeing now is is signed 0:13:12.080 --> 0:13:15.480 promptimism that we'll get infrastructure spending and we'll get some 0:13:15.760 --> 0:13:19.120 fiscal spending as well. It won't be anything like the 0:13:19.160 --> 0:13:22.720 Cares actor or the American Rescue Plan. It's not COVID oriented. 0:13:22.720 --> 0:13:25.680 It's longer term, so they boon to the economy from 0:13:25.679 --> 0:13:29.079 that will be spread out over ten years. But nevertheless 0:13:29.120 --> 0:13:32.920 supportive of growth, obviously concerned about taxes, are going to 0:13:33.040 --> 0:13:36.560 raise taxes, um. The question is how much on corporate 0:13:36.800 --> 0:13:40.120 corporations and individuals. So we'll see. Certainly meetings have reflected 0:13:40.160 --> 0:13:42.599 some expectation of tax increases for a while, and I 0:13:42.640 --> 0:13:44.480 think we're going to get some. The question is the degree, 0:13:45.160 --> 0:13:48.840 So you know our j Should I be surprised at 0:13:48.840 --> 0:13:50.560 all when I look at the tenure? Yes, it's up 0:13:50.559 --> 0:13:52.240 a little bit from where we had been worked at 0:13:52.240 --> 0:13:54.880 one point six. But boy, with all the talk of 0:13:54.920 --> 0:13:58.880 tapering and you know, starting presumably next month, and then 0:13:59.360 --> 0:14:02.440 interest rates rising beginning mid next year, should I be 0:14:02.440 --> 0:14:09.600 surprised that rates aren't even higher? Well, we've been cautiously 0:14:09.679 --> 0:14:13.040 short duration in our taxable and tax exempt fixed income 0:14:13.800 --> 0:14:16.800 UM all year. And if you step back and look 0:14:16.920 --> 0:14:19.360 on the calendar year the ten your treasury is up 0:14:19.360 --> 0:14:22.920 about seventy two basis points. We have that period you 0:14:23.120 --> 0:14:27.840 call it the summer months generally where the delta variants 0:14:28.040 --> 0:14:32.040 uh really took the narrative away from the idea of 0:14:32.040 --> 0:14:35.040 economic recovery. Um, it seems like we're turning the page 0:14:35.040 --> 0:14:37.880 on the delta variant cautiously, certainly in some of them 0:14:37.880 --> 0:14:41.200 more heavily afflicted regions of the country, UM, in the South, 0:14:41.280 --> 0:14:46.240 for example. Uh. So the hope is that that that's 0:14:46.440 --> 0:14:51.520 narrative of economic recovery. COVID has evolved, but it's nowhere 0:14:51.520 --> 0:14:53.800 near the affliction that it once was from an economic 0:14:53.880 --> 0:14:57.080 standpoint or a public health standpoint. UM. And that the 0:14:57.160 --> 0:15:01.560 FED can began a very slow says towards normalizing, starting 0:15:01.600 --> 0:15:05.520 first with tapering. That's still there, UM. And I think 0:15:05.520 --> 0:15:10.239 the bond market UM took a bit of a divergence 0:15:10.280 --> 0:15:12.000 there for a while, and now we're back on that 0:15:12.120 --> 0:15:14.720 same agenda. In my mind, if you see the tenure 0:15:14.800 --> 0:15:19.040 Treasury finished this calendar year around one seventy, that's where 0:15:19.040 --> 0:15:21.400 we've been for many months. UM. If you talk to 0:15:21.400 --> 0:15:23.240 me back in March, I think we said we'll probably 0:15:23.280 --> 0:15:26.680 end up around two. Along the way, we took another 0:15:26.800 --> 0:15:29.640 route when sharply lower at one twelve at one point 0:15:29.640 --> 0:15:32.080 intra day back in August, I think it was. But 0:15:32.680 --> 0:15:36.920 the challenges of them are not the challenges now in 0:15:37.040 --> 0:15:42.640 terms of uh, you know, the longer term fed UM 0:15:42.840 --> 0:15:46.040 moves and things like the terminal rate, what are your 0:15:46.600 --> 0:15:49.920 what are your forecasts? You took the words out of 0:15:49.920 --> 0:15:51.640 my mouth. I was gonna say, we probably should be 0:15:51.640 --> 0:15:55.840 talking about what level of nominal interest rates can the 0:15:56.440 --> 0:16:00.960 the Fed actually reach. UM. That's a huge it across 0:16:01.000 --> 0:16:05.360 that you occurve obviously, UM, if you imagine term premiums 0:16:05.400 --> 0:16:08.600 over time might eventually revert back to fairly low levels, 0:16:08.640 --> 0:16:11.560 low positive levels, which is more normal when central banks 0:16:11.560 --> 0:16:14.680 aren't expanding their balance sheets. That terminal FED funds rate 0:16:14.760 --> 0:16:19.080 then holds huge sway over setting bond prices as we 0:16:19.120 --> 0:16:21.840 look out in the medium term, certainly in the long term, 0:16:22.160 --> 0:16:24.040 and the FED still has it a two and a half. 0:16:25.320 --> 0:16:28.840 I think that the inflation dynamic UM has been has 0:16:28.840 --> 0:16:32.560 been troublesome, certainly according to the Fed's view. UM, we 0:16:32.680 --> 0:16:36.120 felt that the FED was too optimistic on the transitory approach, 0:16:36.640 --> 0:16:40.240 that in fact inflation was was boiling and was going 0:16:40.280 --> 0:16:43.400 to be more challenging. So at this point I wouldn't 0:16:43.440 --> 0:16:46.240 be surprised if the Fed gets forced into tightening a 0:16:46.280 --> 0:16:48.480 little bit more than is in the market right now. 0:16:48.800 --> 0:16:51.880 The question is does that just short of shift forward 0:16:52.240 --> 0:16:57.240 monetary restraint in to say three or two UM, and 0:16:57.280 --> 0:17:00.960 in doing so, your terminal rate doesn't change. Really that 0:17:01.040 --> 0:17:03.960 the FED probably has it roughly right. You know, they 0:17:03.960 --> 0:17:06.040 have a lot of economists working on this, But I 0:17:06.040 --> 0:17:07.719 would think that the terminal rate is going to be 0:17:07.760 --> 0:17:10.240 somewhere in the low two handles, probably a little south 0:17:10.280 --> 0:17:12.760 of where the FED really is. UM. I don't believe 0:17:12.760 --> 0:17:15.600 the world fundamentally is going to grow stronger because of 0:17:15.640 --> 0:17:18.240 everything that's gone on in the last two years. UM. 0:17:18.359 --> 0:17:21.400 We still have an aging workforce, especially in the developed countries. 0:17:22.000 --> 0:17:24.800 Technologies a boon and productivity could be helpful. That could 0:17:24.800 --> 0:17:27.120 push terminal rates up a little bit, But I don't 0:17:27.160 --> 0:17:29.359 think it's migrated sharply one way or the other because 0:17:29.359 --> 0:17:31.480 of COVID or any of the changes that this challenge 0:17:31.760 --> 0:17:33.960 has presented to us. Hey, r J, thank you so 0:17:34.040 --> 0:17:36.640 much for joining us. We always appreciate getting your perspective. 0:17:36.720 --> 0:17:39.000 R J. Gallo, Senior Portfolio Managery is also ahead of 0:17:39.000 --> 0:17:44.560 the indmissible bond group that federated Hermes based in steel Town, US, 0:17:44.680 --> 0:17:47.320 A Pittsburgh, Pennsylvania boy. When you go out there as 0:17:47.320 --> 0:17:50.240 a sell side, animals that is the number one meaning 0:17:50.280 --> 0:17:54.480 to get They've got sixty billion dollars in assets under management. 0:17:57.960 --> 0:18:01.520 Looking at the shares of Tesla, that's how you pronounce it, Matt, Tesla. 0:18:01.600 --> 0:18:04.320 That's how Ela Musk pronounces it. UM. Looking at the stock, 0:18:04.359 --> 0:18:08.000 it's kind of flat today, up about twenty two year 0:18:08.040 --> 0:18:10.360 today it's a little bit better than the SMP got 0:18:10.359 --> 0:18:14.080 a market cap of eight hundred and sixties six billion dollars. 0:18:14.080 --> 0:18:16.359 The report numbers air for the clothes Today, let's get 0:18:16.359 --> 0:18:19.680 a preview with Day Equity Markets reporter for Bloomberg News 0:18:19.720 --> 0:18:23.040 joining us on the phone. Esha, you know what are 0:18:23.080 --> 0:18:26.640 you looking at here? Is it's still units and unit profitability? 0:18:26.640 --> 0:18:29.720 What are you gonna be looking for? Him? Thanks for 0:18:29.760 --> 0:18:33.199 having me? Yeah, some. I think the top things to 0:18:33.280 --> 0:18:39.240 look out for Tesla ownings today is margins, how profitable 0:18:39.280 --> 0:18:43.560 they were selling cars? Any update and how can what 0:18:43.680 --> 0:18:46.679 kind of capacity they are expecting to have on their 0:18:46.760 --> 0:18:50.359 um Austin and Berlin plants that are still being um 0:18:50.400 --> 0:18:54.479 you know, being developed, anything any kind of detail they 0:18:54.480 --> 0:18:57.399 can tell us about the supply chain troubles that the 0:18:57.560 --> 0:19:02.720 entire automotive industry facing and essentially how Tesla is being 0:19:02.760 --> 0:19:06.080 able to navigate those troubles so much better than the 0:19:06.160 --> 0:19:08.520 traditional car makers of the world, like the g MS 0:19:08.560 --> 0:19:12.840 and at the four Is that um you only I 0:19:12.840 --> 0:19:14.879 mean there must be something else that plays into the 0:19:14.920 --> 0:19:17.680 stock price. I'm looking at my comp screen right now. 0:19:17.720 --> 0:19:20.800 I love to run the comp function um, just because 0:19:20.800 --> 0:19:23.000 it gives me a steady five year period to look 0:19:23.000 --> 0:19:28.960 at everything. Put Tesla up against Apple, Netflix, Microsoft, Google, Facebook. 0:19:29.000 --> 0:19:33.560 I mean, Tesla destroys all of those other companies in 0:19:33.680 --> 0:19:37.080 terms of its five year price growth. Why what what 0:19:37.240 --> 0:19:41.240 is it? That's a great question. It's a really dollar question, 0:19:41.280 --> 0:19:45.960 isn't it. Um. So what investors are really betting on 0:19:46.119 --> 0:19:49.800 Testra here is that this you know, this automotive industry 0:19:49.840 --> 0:19:52.359 that is going undergoing a transformation at this point, and 0:19:52.480 --> 0:19:55.520 which is like a really at the nacent stage of 0:19:55.680 --> 0:19:59.639 you know, all gus driven cars will eventually be being replaced, right, 0:20:00.000 --> 0:20:04.680 electric cards, and people betting on those crazy valuations are 0:20:04.760 --> 0:20:07.679 really hoping that Tesla will be at the forefront of 0:20:07.840 --> 0:20:12.560 that huge market, right, and that they think actually justifies 0:20:12.640 --> 0:20:16.359 these valuations more than you know, you know, we have 0:20:16.520 --> 0:20:20.840 seen a really bullish different vestor Kathy would of course 0:20:21.000 --> 0:20:24.320 see that, you know, three thousand dollars for share for Tesla. 0:20:24.400 --> 0:20:27.040 It's just for basics, it can actually become more than that. 0:20:27.200 --> 0:20:29.720 So you know, that is essentially what we're looking at here. 0:20:30.000 --> 0:20:34.000 Tesla kind of really leading and trillblazing of course this 0:20:34.720 --> 0:20:37.959 transformation and also becoming the market leader in the future 0:20:38.320 --> 0:20:41.640 in electric cards. What is the company saying these days 0:20:41.640 --> 0:20:44.080 and what are you're hearing from the marketplace about the 0:20:44.119 --> 0:20:48.000 competitive landscape Because obviously they were essentially a monopoly in 0:20:48.040 --> 0:20:50.840 this EV business, but now we've seen both the big 0:20:50.920 --> 0:20:55.240 automakers VW, GM, Ford and all the others really make 0:20:55.320 --> 0:20:58.359 some big, big commitments to their EV future. How do 0:20:58.400 --> 0:21:02.000 people think about the competitive landscape? Uh, yeah, that's a 0:21:02.000 --> 0:21:05.560 great question. So, um, you know, we will really see 0:21:05.880 --> 0:21:09.119 the competitive cars kind of rollout and hit the market 0:21:09.440 --> 0:21:12.280 starting next year. That's when they're the big daves will 0:21:12.320 --> 0:21:17.080 actually start, um you know, as as anything, as with 0:21:17.160 --> 0:21:19.760 anything in Tessler, this this is also a like a 0:21:19.840 --> 0:21:23.040 battleground for bulls and there they're to kind of du 0:21:23.119 --> 0:21:26.080 get out. Some say that Tesla is going to lose 0:21:26.080 --> 0:21:30.240 its edge as you know, especially as like more um 0:21:30.520 --> 0:21:34.520 affordably priced evies hit the market, because Tusla has promised 0:21:34.600 --> 0:21:37.359 us a twenty five dollar evy, but we haven't seen 0:21:37.440 --> 0:21:40.679 that yet. We haven't heard a lot about those plants 0:21:40.720 --> 0:21:44.040 and where that is at this point. So as more 0:21:44.200 --> 0:21:47.800 affordable evies come out and more, um you know, we 0:21:47.960 --> 0:21:52.960 see the charging station networks becoming more eubiquatives almost as 0:21:53.000 --> 0:21:55.359 like gas stations. That's when the adoption will pick up, 0:21:55.640 --> 0:21:58.720 and Tesla will definitely see some of its market share 0:21:58.840 --> 0:22:02.680 eroding there itself. Of course, hasn't spoken a lot about 0:22:02.720 --> 0:22:07.359 the competitive landscape. We haven't set much much headed to 0:22:07.440 --> 0:22:11.960 being made by any of the startups yet in that 0:22:12.960 --> 0:22:16.720 in that sense that's list has a headway. But you know, 0:22:16.760 --> 0:22:19.480 we will really see what the tradition as the legacy 0:22:19.640 --> 0:22:23.879 that the auto giants actually can't do with this satting 0:22:23.880 --> 0:22:28.360 next year. Alright, thanks so much for joining us. It's 0:22:28.400 --> 0:22:33.520 something that obviously we're all going to be following very closely. 0:22:33.800 --> 0:22:36.880 Is gonna be on this call, mat because the Adam 0:22:36.960 --> 0:22:39.520 Jonas note that he could be the next or the 0:22:39.560 --> 0:22:44.000 first trillionaire, I thought, I laughed at first, thinking it 0:22:44.040 --> 0:22:48.960 was ridiculous, but um, he's actually not that far off already, right, 0:22:48.960 --> 0:22:51.960 he's already got a quarter of a trillion dollars. And 0:22:52.160 --> 0:22:57.600