WEBVTT - Consumer Discretionary Stocks Will Benefit from New Tax Package 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg p m L Podcast. I'm pim 0:00:08.400 --> 0:00:11.440 Fox along with my co host Lisa Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:32.120 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:32.120 --> 0:00:35.080 We're gonna take a look at the bond market today, 0:00:35.120 --> 0:00:38.040 focus on fixed income, brought to you by Pimco for 0:00:38.080 --> 0:00:41.560 investors who demand more than the markets deliver. All investments 0:00:41.560 --> 0:00:45.000 contain risk and may lose value. Consult your investment professional 0:00:45.280 --> 0:00:48.840 before investing. Today is a great day to have Ira 0:00:49.040 --> 0:00:51.559 Jersey on the show. He is chief US interest rate 0:00:51.600 --> 0:00:55.600 Strategist for Bloomberg Intelligence and Ira, Before we get to 0:00:55.880 --> 0:00:58.840 what you're expecting for the year ahead, what we can 0:00:58.880 --> 0:01:02.200 expect lead tomorrow with the f O m C meeting minutes, 0:01:02.520 --> 0:01:04.280 I want to talk about the action that we're seeing 0:01:04.400 --> 0:01:07.360 in the bond market today. We're seeing a pretty broad 0:01:07.520 --> 0:01:10.760 based sell off that seems to be stemming really from 0:01:10.959 --> 0:01:14.399 the European bond market. What do you make of this? 0:01:14.560 --> 0:01:18.800 How much should people read into this action? It's hard 0:01:18.800 --> 0:01:21.440 to always around holiday periods to read a lot into 0:01:21.600 --> 0:01:24.920 into things because UM, there's people either putting on positions 0:01:24.959 --> 0:01:29.640 or taking off positions that UM to be either risked 0:01:29.720 --> 0:01:32.840 properly for the year ahead. UM. I think it's real. 0:01:33.000 --> 0:01:35.720 I mean it's real in terms of the idea that UM, 0:01:35.760 --> 0:01:38.400 you know, people do think that the UM that yields 0:01:38.400 --> 0:01:41.679 are going to be somewhat higher, that the tax UH 0:01:41.800 --> 0:01:44.319 plan is going to help inflation and growth a little bit, 0:01:44.440 --> 0:01:46.400 and and you know, at the same time, I think 0:01:46.400 --> 0:01:48.400 a lot of people were really worried that, you know, 0:01:48.440 --> 0:01:51.520 the stock market was going to tank, and and people 0:01:51.720 --> 0:01:54.120 going into year end wanted to be a little bit 0:01:54.160 --> 0:01:56.400 long rate risk just as a hedge to some other 0:01:56.800 --> 0:01:59.880 risk your assets. So UM supported, this isn't big surprise. 0:02:00.000 --> 0:02:02.160 I think, you know, we do have some pretty important 0:02:02.160 --> 0:02:04.720 technical levels we're sitting right at for ten year yield, 0:02:04.840 --> 0:02:07.360 So so you know, a move up to past two fifty, 0:02:07.440 --> 0:02:09.880 for example, to two and a half percent would be 0:02:10.080 --> 0:02:13.440 uh potentially mean that we could see last year's highs up, 0:02:13.440 --> 0:02:16.840 but around two six I would you agree that this 0:02:16.919 --> 0:02:20.200 is being driven that today's sell off in US treasuries 0:02:20.280 --> 0:02:23.600 is being driven at least to some degree by what's 0:02:23.600 --> 0:02:27.480 going on in Europe. We had an ECB member, Benoit 0:02:27.680 --> 0:02:33.480 cu Uh say overnight that he thinks that the ECB 0:02:33.639 --> 0:02:37.440 is going to stop buying. They're not gonna extend the 0:02:37.560 --> 0:02:41.160 bond purchase program yet again as they did in October. Yeah. 0:02:41.160 --> 0:02:42.639 I think that's a big part of it. I mean 0:02:42.680 --> 0:02:45.080 that that's been a risk hanging out there. The ECB 0:02:45.160 --> 0:02:47.680 has been a risk hanging out there for a while. UM. Now, 0:02:47.840 --> 0:02:50.240 even after if you go back to last June, about 0:02:50.240 --> 0:02:53.680 six months ago, when Mario Draggy suggested that the bond 0:02:53.680 --> 0:02:55.519 bank program could come to an end, you saw a 0:02:55.560 --> 0:02:59.440 pretty substantial selloff in UH in treasuries. Now, I think 0:02:59.440 --> 0:03:02.959 one of the question is how sustainable will that sell 0:03:03.000 --> 0:03:04.440 off B You know, is this going to be a 0:03:04.440 --> 0:03:09.640 taper tantrum. When DCB recently cut their purchases of of 0:03:09.680 --> 0:03:13.680 bond buying UM from UM down to about thirty billion 0:03:13.680 --> 0:03:17.720 euros a month UM, then you didn't see a huge 0:03:17.760 --> 0:03:21.000 reaction in the in the US bond market. I'd also 0:03:21.040 --> 0:03:24.400 note that that the move today is is in real terms. 0:03:24.440 --> 0:03:27.160 So what's happened is you look at real yield, so 0:03:27.600 --> 0:03:29.359 you look at the tips market, and you see how 0:03:29.480 --> 0:03:32.560 how yields and tips are selling off. It's not inflation 0:03:32.600 --> 0:03:35.240 expectations that have gone up a lot um. It's really 0:03:35.640 --> 0:03:38.240 in real space. So that leads you to believe that 0:03:38.280 --> 0:03:40.960 it's either some form of de risking, whether it's because 0:03:40.960 --> 0:03:44.480 of the ECB or just um UH or or just 0:03:44.600 --> 0:03:47.280 portfolio positioning for the rest of the year. It's something 0:03:47.320 --> 0:03:49.960 other than the expectation that inflation is going to run 0:03:49.960 --> 0:03:53.200 out of control. AIRA help me understand this. If we're 0:03:53.240 --> 0:03:55.480 having a big sell off at the long end, we're 0:03:55.520 --> 0:03:58.320 down now one and seven thirty seconds for a yield 0:03:58.320 --> 0:04:01.480 of two point eight percent. And then I also told 0:04:01.520 --> 0:04:04.800 you that there were demonstrations in the streets of Iran 0:04:05.320 --> 0:04:08.880 and that North Korea is looking as if it at 0:04:08.920 --> 0:04:15.160 least wants a dialogue with South Korea. Why aren't people buying? Yeah, well, 0:04:15.240 --> 0:04:17.760 I think having a dialogue in on the Korean peninsula 0:04:17.839 --> 0:04:21.200 is probably a positive development in terms of reducing geopolitical risk. 0:04:21.320 --> 0:04:22.880 Well but wait, wait, wait, wait wait the same But 0:04:22.920 --> 0:04:25.120 the reason I mentioned that is because that's also being 0:04:25.360 --> 0:04:27.800 voiced in the context of the North Koreans trying to 0:04:27.920 --> 0:04:31.719 drive a wedge between South Korea and the United States. Yeah, 0:04:31.760 --> 0:04:35.200 that's that's fair. Um. You know, I think the treasury 0:04:35.240 --> 0:04:38.240 market in a lot of ways has been very technical recently, 0:04:38.279 --> 0:04:41.240 where um, you know, the reason why yields continued to 0:04:41.240 --> 0:04:44.119 be so low is because of large central bank balance sheets. 0:04:44.120 --> 0:04:47.960 It's because the of the economic situation in the US. 0:04:48.040 --> 0:04:50.360 So I think what you need to change to see 0:04:50.560 --> 0:04:53.960 a large rally in in treasuries would be something like 0:04:54.000 --> 0:04:56.880 a risk off event. And um, so I think in 0:04:57.240 --> 0:05:01.120 many respects, UM, today's move is going to be more 0:05:01.120 --> 0:05:03.160 in line with the idea that the equity market is 0:05:03.279 --> 0:05:07.960 up you have, UM, even though there's there's uh, you know, 0:05:08.080 --> 0:05:11.719 local and regional tensions in some places. To make that 0:05:11.880 --> 0:05:15.960 a globally systemic event and therefore big risk off event 0:05:16.000 --> 0:05:19.080 would take something much larger than what's going on, um 0:05:19.160 --> 0:05:20.920 in the world today. And I think that stuff in 0:05:20.920 --> 0:05:23.640 the Korean Peninsula. You know, there was some volatility when 0:05:23.640 --> 0:05:25.960 some of those headlines first came out, but quite frankly, 0:05:26.000 --> 0:05:27.920 I think a lot of investors are a little bit 0:05:28.000 --> 0:05:30.239 numb to the headlines coming out of the Korean Peninsula 0:05:30.279 --> 0:05:32.799 at this point. Well, I wrote, would you count yourself 0:05:33.000 --> 0:05:36.599 among those who are simply also because you're recommending the 0:05:36.640 --> 0:05:40.719 people in the US go by Japanese bonds, which arguably 0:05:40.839 --> 0:05:45.200 could could be impacted. Well, not so so. I think 0:05:45.200 --> 0:05:48.080 it's more of an interesting uh, it's it's a very 0:05:48.120 --> 0:05:52.040 interesting phenomenon that has has been occurring in the post 0:05:52.080 --> 0:05:54.600 crisis period where you know, a lot of people show 0:05:54.680 --> 0:05:58.560 the difference in yields between the US and either Germany 0:05:58.720 --> 0:06:01.359 or Japan and just say, how could US yields be 0:06:01.400 --> 0:06:05.000 so high? How could corporate bond yields for you know, 0:06:05.480 --> 0:06:08.240 for mid rated corporate bonds be lower than that of 0:06:08.279 --> 0:06:10.840 treasuries and other jurisdictions. But I think you have to 0:06:10.880 --> 0:06:13.359 put that into context of two things. Is one, what's 0:06:13.440 --> 0:06:16.640 the risk free rate within those individual jurisdictions and in 0:06:16.680 --> 0:06:19.680 those currencies. And secondly, if you do all of the 0:06:19.720 --> 0:06:21.919 currency hedging that you need to do, and you and 0:06:22.040 --> 0:06:27.400 you assets swap back Japanese debt into US dollars, what 0:06:27.520 --> 0:06:30.039 you end up what you end up finding is that 0:06:30.360 --> 0:06:32.919 Japanese yields are actually higher after you do all the 0:06:32.920 --> 0:06:36.159 currency hedging that you need to do. So, um, you know, 0:06:36.200 --> 0:06:38.480 it's not something that an individual investor can really take 0:06:38.480 --> 0:06:41.680 advantage of, but large institutional investors do these kinds of 0:06:41.720 --> 0:06:46.359 trades all the time, where they'll buy a Japanese government 0:06:46.360 --> 0:06:49.599 bond or Japanese TA bill and then hedge that back 0:06:49.600 --> 0:06:53.120 into dollars and actually make thirty fifty basis points more 0:06:53.160 --> 0:06:56.720 than the comparable US instrument. And I think that that's 0:06:56.760 --> 0:06:58.960 something that gets missed a lot of times just looking 0:06:59.000 --> 0:07:01.280 at you know, the new Fields being at zero and 0:07:01.440 --> 0:07:03.000 U S Fields being a two and a half percent. 0:07:03.440 --> 0:07:07.039 Thanks very much, Ira Jersey, much appreciated chief US interest 0:07:07.160 --> 0:07:27.280 rates strategist for Bloomberg in intelligence. Right now, let us 0:07:27.440 --> 0:07:31.120 take a look at what we should be focusing on 0:07:31.240 --> 0:07:35.560 in Bruce Biddles joins US now his chief investment strategist 0:07:35.800 --> 0:07:39.120 at BAARED based in Sarasota, Florida, where it is a 0:07:39.200 --> 0:07:42.160 lot warmer than it is here in New York City. Bruce, 0:07:42.200 --> 0:07:46.640 congratulations for picking the right place to be right now. Um, 0:07:46.680 --> 0:07:48.240 so I want to get your sense on what we 0:07:48.280 --> 0:07:51.520 can expect this year, and I want to start with 0:07:52.200 --> 0:07:57.920 your perception of what did you get most wrong? And 0:07:57.960 --> 0:08:02.520 then what are you most confident about coming into Yeah, 0:08:02.560 --> 0:08:06.240 well that's I think what we got most wrong was 0:08:06.280 --> 0:08:10.920 the uh was the strength of the rally. I mean, 0:08:10.960 --> 0:08:14.559 we came into the year believing that UM. The change 0:08:14.560 --> 0:08:19.520 of administration's UM in November of two thousand and sixteen 0:08:19.560 --> 0:08:22.360 was bullish for the market because we had a business 0:08:22.400 --> 0:08:25.360 friendly administration coming into power, and we felt that that 0:08:25.440 --> 0:08:27.920 was going to be Bullishit influence on the markets all year, 0:08:28.680 --> 0:08:31.920 but we didn't expect the SMP five on it or 0:08:31.960 --> 0:08:34.680 the data rally as much as they did. But certainly 0:08:34.679 --> 0:08:37.319 we had the direction correct, A right, if you had 0:08:37.320 --> 0:08:39.360 the direction correct, I wonder if you could just ask 0:08:39.800 --> 0:08:43.000 answer this question about the direction of the tax overhaul 0:08:43.040 --> 0:08:45.640 bill and what that'll do to stocks? Well, will we 0:08:45.679 --> 0:08:49.000 see increased buybacks, increased dividends, Will we see stocks move 0:08:49.080 --> 0:08:53.080 higher because of this repatriation of money? I think the 0:08:53.160 --> 0:08:57.800 tax legislation that passed UM in late December is certainly 0:08:57.800 --> 0:08:59.599 going to help the economy and if that helps the 0:08:59.640 --> 0:09:02.880 account me as expected, UM is certainly going to produce 0:09:02.880 --> 0:09:05.559 stronger top line growth and that should lead to stronger 0:09:06.280 --> 0:09:10.240 profit growth. Now we expect profits to grow about twelve 0:09:10.320 --> 0:09:14.479 or thirteen percent in two thousand and eighteen. Now, historically, 0:09:14.480 --> 0:09:18.480 if profits rise eleven percent every year, the stock market 0:09:18.520 --> 0:09:23.280 typically responds with a very strong upward bias. Now, the 0:09:23.440 --> 0:09:27.680 risk to that environment, or that the strategy would be 0:09:27.720 --> 0:09:31.360 if the economy didn't respond, is expected. But I believe 0:09:31.400 --> 0:09:33.680 you'll see a mixture when the money comes back to 0:09:33.840 --> 0:09:37.600 the US. You'll see some stock buy back, some increases 0:09:37.600 --> 0:09:41.640 in dividends, but you'll also see an increase in capital spending. 0:09:42.440 --> 0:09:45.560 And UM that that I believe is going to be 0:09:45.600 --> 0:09:48.000 a very bullish element for the market in two thousand 0:09:48.040 --> 0:09:51.960 and eighteen. So you think that the US stock markets 0:09:51.960 --> 0:09:54.000 are going to do pretty well. Does that mean that 0:09:54.080 --> 0:09:59.840 you're pretty bearish on bonds. No, we're not really bearish 0:10:00.080 --> 0:10:02.200 bonds that we think interest rates are likely to go 0:10:02.360 --> 0:10:06.360 somewhat higher now. UM short race, of course are going up. 0:10:06.400 --> 0:10:08.960 But the yield on the bench bar tenure Treasury note 0:10:09.360 --> 0:10:12.439 finished the year about where it started. You'll think about 0:10:12.480 --> 0:10:15.320 two point four percent. I think it can give up 0:10:15.320 --> 0:10:18.400 to about two point seven seven five percent, perhaps before 0:10:18.400 --> 0:10:22.280 the markets would be negatively impacted, maybe even three percent 0:10:22.360 --> 0:10:26.240 on the tenure. But I don't see the inflationary pressures 0:10:26.280 --> 0:10:29.959 building the way some folks do. Now. Yes, Um, the 0:10:30.480 --> 0:10:34.280 economy now has filled the output gap. That's something to 0:10:34.320 --> 0:10:38.199 watch closely and of course, we're very close to full employment, 0:10:38.240 --> 0:10:41.480 which should we should certainly start to see some wage games. 0:10:42.040 --> 0:10:45.160 But I think this is the very early cycle in inflation, 0:10:45.840 --> 0:10:47.600 and I don't think it's going to rise to the 0:10:47.679 --> 0:10:50.880 levels that that could upset the bondom market or the 0:10:50.920 --> 0:10:53.880 stock market. We think inflation will probably be in the 0:10:53.960 --> 0:10:56.560 area of two point four percent in terms of CPI 0:10:56.760 --> 0:11:00.360 for two thousand and eighteen. Bruce bittals they are a 0:11:00.440 --> 0:11:03.920 way you can describe for us the wall of worry? 0:11:04.000 --> 0:11:06.640 What what is it and why? Maybe you don't believe it, 0:11:06.679 --> 0:11:09.120 but maybe you could describe why do people believe that 0:11:09.160 --> 0:11:15.439 it is an effective analogy? Well, I think the wall 0:11:15.480 --> 0:11:18.680 of worry is certainly um something that helped the stock 0:11:18.760 --> 0:11:23.360 market not only last year but throughout the bullor cycle 0:11:23.440 --> 0:11:26.040 that began in two thousand and nine. I think the 0:11:26.080 --> 0:11:29.640 fact that the Feller Reserve Board was responsible for so 0:11:29.720 --> 0:11:33.280 much of the liquidity that was that was forced into 0:11:33.280 --> 0:11:37.400 the markets made people a little unsettled, and that and 0:11:37.440 --> 0:11:41.199 the markets rallying every time a new quee program was 0:11:41.240 --> 0:11:44.400 announced back in two thousand nine. Back in the eleven 0:11:44.440 --> 0:11:48.880 peg and twelve, I think folks were worried that wants 0:11:48.920 --> 0:11:51.800 to fit. Um pulled back from that policy that the 0:11:51.840 --> 0:11:56.079 markets would will lose that support and collapse. But certainly 0:11:56.120 --> 0:11:58.600 that has not been the case now. I think the 0:11:58.640 --> 0:12:01.880 fact that Trump in the election in two thousand and 0:12:02.200 --> 0:12:06.080 sixth Team was another element. UM. A lot of folks 0:12:06.400 --> 0:12:09.000 felt that he would be disruptive and the markets would 0:12:09.000 --> 0:12:12.160 do poorly, and he asked the rhetoric out of Washington 0:12:12.240 --> 0:12:15.880 all year in two thousand and sevent Team was argumentative, 0:12:16.320 --> 0:12:19.199 but I think that really helped the market. It kept 0:12:19.240 --> 0:12:24.960 people UH from becoming um excessively optimistic. We don't see 0:12:24.960 --> 0:12:27.120 any sign of you four you really, except if you 0:12:27.160 --> 0:12:30.440 look at bitcoins for instance. But in the stock market, 0:12:30.480 --> 0:12:33.079 we don't see it. Now. There's optimism, there's no question, 0:12:33.880 --> 0:12:36.360 but we don't see the type of optimism we saw 0:12:36.480 --> 0:12:40.640 back in two thousand for instance. One everyone was bullish, 0:12:40.679 --> 0:12:43.880 including the FED, on the fact that the business cycle 0:12:43.920 --> 0:12:47.200 would probably be repealed because of the new technology. That's 0:12:47.240 --> 0:12:50.679 that's not the case here. Um. Yes, there's some excitement, 0:12:50.760 --> 0:12:53.600 but if you if you go through the financial journals 0:12:53.640 --> 0:12:56.440 or the weekend, like I did, very very hard to 0:12:56.480 --> 0:13:00.520 find a real bullish case expressed by anyone. Bruce I 0:13:00.559 --> 0:13:03.200 want to go through some of the sector calls that 0:13:03.320 --> 0:13:06.200 you had in your latest note. I thought it was interesting. 0:13:06.760 --> 0:13:10.640 One of the biggest upgrades was consumer discretionary companies that 0:13:10.720 --> 0:13:14.000 you had within the US stock universe, and that's you know, 0:13:14.080 --> 0:13:17.319 including home building and footwear, Caristinos in gaming, and this 0:13:17.400 --> 0:13:20.400 is up from where you had placed this sector as 0:13:20.400 --> 0:13:24.960 far as performance heading into ten. Why do you think 0:13:24.960 --> 0:13:27.760 the consumers discretionary stocks are going to do better this year? 0:13:28.520 --> 0:13:32.760 I think there's two reasons. First of all, Um, the 0:13:33.320 --> 0:13:38.120 retail companies benefit great deal from the tax legislation. They 0:13:38.240 --> 0:13:42.200 typically have paid full boat when it came time for 0:13:42.559 --> 0:13:45.640 to pay their taxes, and I think they'll get a big, 0:13:45.679 --> 0:13:48.960 big break because of the new legislation. The second part 0:13:48.960 --> 0:13:51.400 of that equation is that the consumers also going to 0:13:51.400 --> 0:13:54.520 get a break and they're going to be UM, They're 0:13:54.520 --> 0:13:58.480 gonna find more discretionary income in their pockets in two 0:13:58.559 --> 0:14:01.160 thousand and eighteen. So you have that dual effect for 0:14:01.240 --> 0:14:05.800 consumer discretionary stocks. They'll benefit from the tax legislation themselves, 0:14:05.880 --> 0:14:09.920 that will benefit from the consumer um having more disposable 0:14:10.000 --> 0:14:13.679 income as a result of the new tax package. Bruce Bittles, 0:14:13.679 --> 0:14:16.200 you mentioned bitcoin, and I'd be remiss if I didn't 0:14:16.240 --> 0:14:21.040 get your thoughts on it. Well. Actually, um, I'm an 0:14:21.080 --> 0:14:23.760 agnostic on bitcoin. I'm not sure what it really means. 0:14:23.840 --> 0:14:26.520 A lot of folks believe it's just a bubble that's 0:14:26.560 --> 0:14:28.440 going to burst and going to hurt everything, and I 0:14:28.840 --> 0:14:33.160 don't think that's particularly true. Certainly, this speculation there is 0:14:34.200 --> 0:14:39.760 is exorbitant, something we've never seen before. But nevertheless, it's 0:14:39.840 --> 0:14:42.680 not in any way or shape or fashion the size 0:14:42.720 --> 0:14:47.400 of these speculations we saw back in Internet stocks. So 0:14:47.880 --> 0:14:53.000 even the bitcoin exploded and imploded, I mean, I don't 0:14:53.040 --> 0:14:56.200 think it would affect anything at all. So whether there's 0:14:56.200 --> 0:14:58.200 a future there or not, I have no idea. But 0:14:58.400 --> 0:15:01.320 my guess is that will start. We'll probably see lower 0:15:01.360 --> 0:15:03.720 prices are a bit corn before we see higher. Well, 0:15:03.760 --> 0:15:05.640 I want to thank you very much. Bruce Biddles is 0:15:05.680 --> 0:15:10.040 the chief investment strategist for Baired and Company, joining us 0:15:10.320 --> 0:15:14.120 from Sara Sota, Florida, talking about his outlook for what's 0:15:14.160 --> 0:15:17.160 going on in UH stocks and also in the bond market. 0:15:31.800 --> 0:15:34.840 We wish Jamie butter is our US auto reporter, a 0:15:34.880 --> 0:15:38.520 happy eighteen. Good to have you with us. Jamie, your 0:15:38.560 --> 0:15:42.320 story today has to do with car loans, and I'm 0:15:42.320 --> 0:15:44.040 wondering if you could just put this whole idea of 0:15:44.080 --> 0:15:48.360 car loans in the context of the rebates and the 0:15:48.480 --> 0:15:51.160 offers that are being made. You can't help but see 0:15:51.160 --> 0:15:55.000 a television commercial for an automobile maker. I was looking 0:15:55.000 --> 0:15:59.320 at one Chevrolet, I believe, extending their employee discount to 0:15:59.760 --> 0:16:06.000 any one that comes in. If you're offering like you know, off, 0:16:06.040 --> 0:16:10.640 this can't be a great market, or am I missing something? Well, um, 0:16:10.680 --> 0:16:13.640 it's it's not a it's not a perfect market, but 0:16:13.680 --> 0:16:16.240 it's still a pretty pretty darn good market. Uh. And 0:16:16.480 --> 0:16:19.160 you're not, You're not missing anything. But it's that time 0:16:19.200 --> 0:16:23.440 of year where you get some sales. Right. People are 0:16:23.480 --> 0:16:26.000 trying to clear out their old inventory. If you have, 0:16:26.320 --> 0:16:30.920 you know, seen models still out on dealer lots. Uh, 0:16:31.000 --> 0:16:33.560 you know maybe you missed times something or somebody else 0:16:34.000 --> 0:16:36.520 ransom discounts and and left you with too much inventory. 0:16:36.760 --> 0:16:38.560 You just got to get rid of those, right, because 0:16:38.600 --> 0:16:40.920 if you're selling, even if it's never been driven, if 0:16:40.920 --> 0:16:46.200 you're selling in calendar year eighteen, uh, you're going to 0:16:46.280 --> 0:16:49.040 have to give that car away. Well, so they're just 0:16:49.120 --> 0:16:52.280 counting heavily in December and that that helps out. Okay, 0:16:52.280 --> 0:16:54.760 so so they're just counting heavily, but it isn't that bad. 0:16:54.800 --> 0:16:59.200 It's still pretty good. That said, definitely, sales are slowing. 0:16:59.480 --> 0:17:03.120 There was first annual sales decline in the US of 0:17:03.160 --> 0:17:06.560 automobile since two thousand and nine. And you spoke to 0:17:06.600 --> 0:17:09.439 some analysts who widely think that this year will be 0:17:09.480 --> 0:17:12.920 more of the same. Why, yeah, we're so it's reverting, 0:17:12.960 --> 0:17:16.840 We're reverting to the mean. Basically, the view is that 0:17:17.000 --> 0:17:20.600 probably normal you know, normal demand in the US might 0:17:20.600 --> 0:17:23.440 be sixteen and a half million new cars and light 0:17:23.440 --> 0:17:26.919 trucks each year. We were well below that in the 0:17:26.960 --> 0:17:29.359 two thousand nine, two thousand ten, so we had some 0:17:29.400 --> 0:17:32.080 pent up demand. So we kind of overswung and we 0:17:32.160 --> 0:17:34.439 got to you know, seventeen and a half seventeen six, 0:17:34.800 --> 0:17:38.120 and now we're coming back, you know, probably seventeen two seventeen, 0:17:38.800 --> 0:17:41.320 maybe another half million down next year, maybe not quite 0:17:41.320 --> 0:17:43.879 that much. We'll see um. And so it's sort of 0:17:43.920 --> 0:17:46.120 getting its way back and and and there's a lot 0:17:46.160 --> 0:17:48.119 of optimism, you know for those of us who have 0:17:48.200 --> 0:17:51.800 been watching these guys for so long, I mean, uh, 0:17:51.920 --> 0:17:56.639 in the that they're allowing sales to actually decline a 0:17:56.680 --> 0:18:00.280 little bit. Um is a is surprised. It's kind of 0:18:00.280 --> 0:18:03.000 thing that they weren't doing before. For so many years, 0:18:03.000 --> 0:18:06.600 it was so much about scale, and there was, you know, 0:18:06.640 --> 0:18:09.400 the ethos, the mindset of the industry was you had 0:18:09.400 --> 0:18:12.119 to be bigger, bigger, bigger, And you know, GM, with 0:18:12.160 --> 0:18:15.600 its bankruptcy really taught us, you know, you can't always 0:18:15.640 --> 0:18:18.479 do that, but that isn't always the way. And so 0:18:18.520 --> 0:18:20.440 now they're leaner and they can they can afford to 0:18:20.480 --> 0:18:23.080 be a little smarter. Okay, So Jamie, you're painting a 0:18:23.080 --> 0:18:26.959 pretty rosy picture that the decline in sales is at 0:18:27.040 --> 0:18:30.639 least in part by design, and that the automakers are 0:18:30.680 --> 0:18:33.280 allowing this to happen. But on the flip side, you 0:18:33.320 --> 0:18:37.439 are seeing the expectation of rising rates this year. We 0:18:37.480 --> 0:18:42.720 already have seen overnight rates rise this year's last year. Rather, Um, 0:18:42.840 --> 0:18:46.000 I'm just struggling with pairing that and the idea that 0:18:45.920 --> 0:18:49.040 the credit is less available in some ways or will 0:18:49.080 --> 0:18:51.919 become less available, And is this something that they're going 0:18:51.960 --> 0:18:55.520 to be kind of they're forced to make it sound rosy. Yeah, well, 0:18:55.520 --> 0:18:57.800 we do have to keep an eye on incentives next 0:18:57.880 --> 0:19:00.480 year because you know, so you know, with volume above 0:19:00.520 --> 0:19:02.960 sixteen and a half, everybody should be making lots of money, 0:19:03.240 --> 0:19:06.040 even if they're discounting their vehicles a bit. But in 0:19:06.119 --> 0:19:09.679 a in a tightening market, you get executives whose you know, 0:19:09.760 --> 0:19:13.040 compensation is geared around market share, maintaining market share, even 0:19:13.080 --> 0:19:15.439 gaining market share, and trying to do that in a 0:19:15.520 --> 0:19:18.640 tide market, things could get messy and you we could 0:19:18.680 --> 0:19:20.159 start to see I mean, we got to keep our 0:19:20.200 --> 0:19:23.520 eye on all the companies that that that Lee have 0:19:23.640 --> 0:19:26.600 leaned on incentives in the past and gotten themselves in trouble, 0:19:26.600 --> 0:19:30.800 whether that's you know, GM, you know has their employee pricing. Now, 0:19:31.200 --> 0:19:33.159 you know, if they can't turn that off at the 0:19:33.240 --> 0:19:34.800 end of if they didn't turn that off at the 0:19:34.880 --> 0:19:37.240 end of December like usual, that could be a problem. 0:19:37.320 --> 0:19:40.280 Chrysler's one in the past has been a problem. Uh, 0:19:40.320 --> 0:19:42.800 they've really overrelied. Obviously, we want to keep an eye 0:19:42.840 --> 0:19:47.040 on Nissan and Hunt and some others because uh, things 0:19:47.080 --> 0:19:50.080 could get could get messy. But in theory, they all 0:19:50.080 --> 0:19:51.879 see it coming and they're and they're going to manage 0:19:51.920 --> 0:19:55.359 for it and and not uh, you know, shoot themselves 0:19:55.359 --> 0:19:59.720 in the foot. Yeah, thank you so much for joining us, 0:19:59.720 --> 0:20:02.520 and happy New Year to you. Jamie Butter's is US 0:20:02.640 --> 0:20:06.600 autos reporter for Bloomberg News, coming to us from our 0:20:06.640 --> 0:20:09.280 Detroit bureau. And this is sort of a big question, 0:20:09.640 --> 0:20:12.280 uh him that I have frankly, which is, as you 0:20:12.359 --> 0:20:16.200 get rising rates, a lot of the loans that are 0:20:16.280 --> 0:20:19.080 extended to people for cars are floating rate. They're going 0:20:19.160 --> 0:20:20.679 to be some of the most affected. So it'll be 0:20:20.680 --> 0:20:41.200 interesting to see what happens here. Yesterday, Californians were lining 0:20:41.359 --> 0:20:45.879 up to buy recreational marijuana legally for the first time 0:20:45.920 --> 0:20:49.680 as a new law went into effect. What the implications 0:20:49.760 --> 0:20:52.760 of this law are, Perhaps Chris Levy is the best 0:20:52.800 --> 0:20:55.760 position to tell us. He is co chairman and partner 0:20:55.840 --> 0:20:59.159 of Men, which is based in Los Angeles and is 0:20:59.160 --> 0:21:05.560 devoted to helping with the infrastructure behind growing marijuana legally. Uh, 0:21:05.600 --> 0:21:09.440 and he joins us. Now, Chris, first, did I describe 0:21:09.480 --> 0:21:12.840 med men correctly? And second of all, how significant are 0:21:12.880 --> 0:21:17.480 the implications of this new law that goes into affecting California. Well, 0:21:17.640 --> 0:21:23.160 the implications for the new laws are very significant. Um. 0:21:23.280 --> 0:21:26.560 If you look at the market size in California for 0:21:26.800 --> 0:21:30.639 legal marijuana, was a little over two billion, two billion, 0:21:31.400 --> 0:21:34.760 and we think the market potential with about US legalization 0:21:35.720 --> 0:21:40.520 UH is up to seven billion Chris, a threefold increase, 0:21:41.160 --> 0:21:45.040 Chris abt what fort as much as of the cost 0:21:45.240 --> 0:21:53.360 of legal cannabis are taxes? Correct? Significant portion um? Yeah, 0:21:53.400 --> 0:21:59.720 significant portion um. Not necessarily number, but yeah, significan portional taxes. 0:21:59.720 --> 0:22:02.359 There's it out about it. UM. That's obviously part of 0:22:02.359 --> 0:22:07.040 what makes this a win win UM, you know, for 0:22:07.119 --> 0:22:10.359 both consumers and governments. Okay, So that's where I was 0:22:10.400 --> 0:22:12.920 going with this, is that the local governments they are 0:22:13.200 --> 0:22:17.600 satisfied with this because why they can, of course make 0:22:17.640 --> 0:22:20.840 a lot of money. We've noted that Massachusetts is going 0:22:20.880 --> 0:22:24.439 to be selling retail marijuana that starts July one. Maine 0:22:24.440 --> 0:22:29.320 has approved that, Colorado, Washington, Oregon, Alaska, Nevada. Will this 0:22:29.520 --> 0:22:34.800 tip the federal government into allowing marijuana businesses to access 0:22:34.960 --> 0:22:41.800 the legal financial industry? Well, the marijuana business UM can 0:22:41.840 --> 0:22:46.560 already access the financial industry. The Department of Treasury UM 0:22:46.560 --> 0:22:52.880 approved guidelines in around banking in legal cannabis, and there's 0:22:52.920 --> 0:22:57.600 now over three hundred financial institutions that engage UM in 0:22:57.800 --> 0:23:02.800 some foreign banking in the marijuana industry. But your bigger question, Um, 0:23:02.840 --> 0:23:05.119 I do think that this um, that there was a 0:23:05.160 --> 0:23:11.560 real watershed with the election in November. And when you 0:23:11.600 --> 0:23:14.760 look at the trend towards legalization at the state level, 0:23:15.400 --> 0:23:18.120 I do think it's inevitable that at the federal level 0:23:18.880 --> 0:23:23.720 we will see policy continue to to loosen up, and 0:23:23.800 --> 0:23:27.760 eventually we believe we will see full legalization at the 0:23:27.760 --> 0:23:32.680 federal level. Chris, you previously oversaw a hundred and fifteen 0:23:32.880 --> 0:23:37.840 billion dollars of fundamental equities at Black Rock. Investing in 0:23:38.119 --> 0:23:43.120 the marijuana industry seems pretty far removed from that world. 0:23:43.480 --> 0:23:46.400 And I'm wondering do your former colleagues still kind of 0:23:46.880 --> 0:23:48.840 look at what you do as sort of, you know, 0:23:48.880 --> 0:23:52.440 eyebrows raised and saying, oh, yeah, you're investing in marijuana, 0:23:52.480 --> 0:23:54.600 did you try some or whatever else joke you can 0:23:54.640 --> 0:23:59.640 insert there. Um, has it hard to be treated differently now? Yeah? 0:23:59.680 --> 0:24:04.919